UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(mark one)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020



☐			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

Pinnacle Financial Partners Inc.

, 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,

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☒ Accelerated Filer ☐

Non-accelerated Filer ☐ Smaller reporting company ☐

(do not check if you are a smaller reporting company) Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Exchange Act:



Title of Each Class	Trading Symbol	Name of Exchange on which Registered
Common Stock, par value $1.00	PNFP	The Nasdaq ~~Global Select~~Stock Market LLC
Depositary Shares (each representing 1/40th interest in a share of 6.75% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series B)	PNFPP	The Nasdaq Stock Market LLC

As of ~~October 31, 2019~~November 3, 2020 there were ~~76,565,438~~75,848,853 shares of common stock, $1.00 par value per share, issued and outstanding.

Table of Contents

Pinnacle Financial Partners, Inc.

Report on Form 10-Q

September 30, ~~2019~~2020

Table of Contents

FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this report, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "expect," "anticipate," "intend," "may," "aims," "should," "plan," "believe," "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 statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to: (i) further deterioration in the financial condition of borrowers of Pinnacle Bank and its subsidiaries or ~~BHG~~Bankers Healthcare Group, LLC (BHG) resulting in significant increases in loan losses and provisions for those losses ~~or,~~and, in the case of BHG, substitutions; (ii) the ~~ability to grow~~further effects of the emergence of widespread health emergencies or pandemics, including the magnitude and ~~retain low-cost core deposits~~duration of the COVID-19 pandemic and ~~retain large, uninsured deposits, including during times when~~its impact on general economic and financial market conditions and on Pinnacle ~~Bank is seeking to lower rates it pays on deposits;~~Financial's and its customers' business, results of operations, asset quality and financial condition; (iii) the inability of Pinnacle Financial, or entities in which it has significant investments, like BHG, to maintain the historical growth rate of its, or such entities', 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) the impact of competition with other financial institutions, including pricing pressures and the resulting impact on Pinnacle Financial’s results, including as a result of compression to net interest margin; (vii) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina, Georgia and Virginia, particularly in commercial and residential real estate markets; (viii) fluctuations or differences in interest rates on loans or deposits from those that Pinnacle Financial is modeling or anticipating, including as a result of Pinnacle Bank's inability to ~~lower~~better match deposit rates with the ~~speed and at~~changes in the ~~levels desired in connection with the declining~~ short-term rate environment, ~~currently contemplated,~~ or that affect the yield curve; (ix) the results of regulatory examinations; (x) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, including during times when Pinnacle Bank is seeking to lower rates it pays on deposits; (xi) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; ~~(xi)~~(xii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; ~~(xii)~~(xiii) BHG's ability to profitably grow its business and successfully execute on its business plans; ~~(xiii)~~(xiv) risks of expansion into new geographic or product ~~markets; (xiv)~~markets including the recent expansion into the Atlanta, Georgia metro market; (xv) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or ~~the~~other intangible assets; ~~(xv)~~(xvi) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Pinnacle Bank), to retain financial advisors (including as a result of the competitive environment for associates) or otherwise to attract customers from other financial institutions; ~~(xvi) the ability of Pinnacle Financial to implement its branch consolidation strategy on the timelines, and at the costs, presently contemplated;~~ (xvii) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xviii) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels or regulatory requests or directives, particularly if Pinnacle ~~Financial's~~Bank's level of applicable commercial real estate loans were to exceed percentage levels of total capital in guidelines recommended by its regulators; (xix) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xx) the vulnerability of Pinnacle Bank's network and online banking portals, and the systems of parties with whom Pinnacle ~~Financial~~Bank contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xxi) the possibility of increased compliance and operational costs as a result of increased regulatory oversight (including by the Consumer Financial Protection Bureau), including oversight of companies in which Pinnacle Financial or Pinnacle Bank have significant investments, like BHG, and the development of additional banking products for Pinnacle Bank's corporate and consumer clients; (xxii) the risks associated with Pinnacle Financial and Pinnacle Bank being a minority investor in BHG, including the risk that the owners of a majority of the equity interests in BHG decide to sell the company if not prohibited from doing so by Pinnacle Financial or Pinnacle Bank; (xxiii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxiv) risks associated with the possible shutdown of the United States federal government, including adverse effects on the national or local economies and adverse effects resulting from a shutdown of the U.S. Small Business Administration's SBA loan program; (xxv) the availability of and access to capital; ~~(xxvi)~~(xxv) adverse results (including costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory ~~actions;~~actions, including as a result of Pinnacle Bank's participation in and ~~(xxvii)~~execution of government programs related to the COVID-19 pandemic; and (xxvi) general competitive, economic, political and market conditions. Additional factors which could affect the forward looking statements can be found in Pinnacle Financial's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q (including this report), and Current Reports on Form 8-K filed with the SEC and available on the SEC's website at http://www.sec.gov. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this report, which speak only as of the date hereof, whether as a result of new information, future events or otherwise.

Table of Contents



Item 1.			Part I. Financial Information

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

~~(in thousands)~~


	September 30, 2019			December 31, 2018
(dollars in thousands, except per share data)							(dollars in thousands, except per share data)	September 30, 2020		December 31, 2019
ASSETS							ASSETS
Cash and noninterest-bearing due from banks	$	197,660		$	137,433		Cash and noninterest-bearing due from banks	$	179,231	$	157,901
Restricted cash	157,544			65,491			Restricted cash	247,761		137,045
Interest-bearing due from banks	553,124			516,920			Interest-bearing due from banks	2,604,646		210,784
Federal funds sold and other	11,975			1,848			Federal funds sold and other	11,687		20,977
Cash and cash equivalents	920,303			721,692			Cash and cash equivalents	3,043,325		526,707

Securities available-for-sale, at fair value	3,393,435			3,083,686			Securities available-for-sale, at fair value	3,463,422		3,539,995
Securities held-to-maturity (fair value of $202.8 million and $193.1 million at Sept. 30, 2019 and Dec. 31, 2018, respectively)	189,684			194,282
Securities held-to-maturity (fair value of $1.1 billion, net of allowance for credit losses of $191,000 at Sept. 30, 2020 and fair value of $201.2 million at Dec. 31, 2019, respectively)							Securities held-to-maturity (fair value of $1.1 billion, net of allowance for credit losses of $191,000 at Sept. 30, 2020 and fair value of $201.2 million at Dec. 31, 2019, respectively)	1,039,650		188,996
Consumer loans held-for-sale	73,042			34,196			Consumer loans held-for-sale	82,748		81,820
Commercial loans held-for-sale	21,312			15,954			Commercial loans held-for-sale	12,290		17,585

Loans	19,345,642			17,707,549			Loans	22,477,409		19,787,876
Less allowance for loan losses	(93,647		)	(83,575		)
Less allowance for credit losses							Less allowance for credit losses	(288,645)		(94,777)
Loans, net	19,251,995			17,623,974			Loans, net	22,188,764		19,693,099

Premises and equipment, net	274,983			265,560			Premises and equipment, net	287,711		273,932
Equity method investment	267,097			239,237			Equity method investment	289,301		278,037
Accrued interest receivable	81,124			79,657			Accrued interest receivable	101,762		84,462
Goodwill	1,830,652			1,807,121			Goodwill	1,819,811		1,819,811
Core deposits and other intangible assets	39,349			46,161			Core deposits and other intangible assets	44,713		51,130
Other real estate owned	30,049			15,165			Other real estate owned	19,445		29,487
Other assets	1,174,809			904,359			Other assets	1,431,989		1,220,435
Total assets	$	27,547,834		$	25,031,044		Total assets	$	33,824,931	$	27,805,496

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY							LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:							Deposits:
Noninterest-bearing	$	4,702,155		$	4,309,067		Noninterest-bearing	$	7,050,670	$	4,795,476
Interest-bearing	3,372,028			3,464,001			Interest-bearing	4,995,769		3,630,168
Savings and money market accounts	7,625,872			7,607,796			Savings and money market accounts	10,513,645		7,813,939
Time	4,300,622			3,468,243			Time	3,983,872		3,941,445
Total deposits	20,000,677			18,849,107			Total deposits	26,543,956		20,181,028
Securities sold under agreements to repurchase	95,402			104,741			Securities sold under agreements to repurchase	127,059		126,354
Federal Home Loan Bank advances	2,052,548			1,443,589			Federal Home Loan Bank advances	1,287,738		2,062,534
Subordinated debt and other borrowings	750,488			485,130			Subordinated debt and other borrowings	670,273		749,080
Accrued interest payable	36,836			23,586			Accrued interest payable	26,101		42,183
Other liabilities	317,253			158,951			Other liabilities	382,496		288,569
Total liabilities	23,253,204			21,065,104			Total liabilities	29,037,623		23,449,748
Stockholders' equity:
Preferred stock, no par value; 10.0 million shares authorized; no shares issued and outstanding	—			—
Common stock, par value $1.00; 180.0 million shares authorized at Sept. 30, 2019 and Dec. 31, 2018; 76.7 million and 77.5 million shares issued and outstanding at Sept. 30, 2019 and Dec. 31, 2018, respectively	76,736			77,484
Shareholders' equity:							Shareholders' equity:
Preferred stock, no par value, 10.0 million shares authorized; 225,000 shares non-cumulative perpetual preferred stock, Series B, liquidation preference $225.0 million, issued and outstanding at Sept. 30, 2020 and no shares issued and outstanding at Dec. 31, 2019, respectively.							Preferred stock, no par value, 10.0 million shares authorized; 225,000 shares non-cumulative perpetual preferred stock, Series B, liquidation preference $225.0 million, issued and outstanding at Sept. 30, 2020 and no shares issued and outstanding at Dec. 31, 2019, respectively.	217,126		0
Common stock, par value $1.00; 180.0 million shares authorized; 75.8 million and 76.6 million shares issued and outstanding at Sept. 30, 2020 and Dec. 31, 2019, respectively							Common stock, par value $1.00; 180.0 million shares authorized; 75.8 million and 76.6 million shares issued and outstanding at Sept. 30, 2020 and Dec. 31, 2019, respectively	75,835		76,564
Additional paid-in capital	3,070,235			3,107,431			Additional paid-in capital	3,023,430		3,064,467
Retained earnings	1,100,517			833,130			Retained earnings	1,312,929		1,184,183
Accumulated other comprehensive income (loss), net of taxes	47,142			(52,105		)
Total stockholders' equity	4,294,630			3,965,940
Total liabilities and stockholders' equity	$	27,547,834		$	25,031,044
Accumulated other comprehensive income, net of taxes							Accumulated other comprehensive income, net of taxes	157,988		30,534
Total shareholders' equity							Total shareholders' equity	4,787,308		4,355,748
Total liabilities and shareholders' equity							Total liabilities and shareholders' equity	$	33,824,931	$	27,805,496

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

~~(dollars in thousands, except per share data)~~


(dollars in thousands, except per share data)	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Interest income:
Loans, including fees	$	224,482	$	247,147	$	687,183	$	714,179
Securities:
Taxable	8,276		10,655		28,133		36,438
Tax-exempt	15,001		13,313		43,421		37,541
Federal funds sold and other	1,429		4,634		5,258		11,325
Total interest income	249,188		275,749		763,995		799,483

Interest expense:
Deposits	28,401		62,531		112,826		175,736
Securities sold under agreements to repurchase	77		152		286		439
Federal Home Loan Bank advances and other borrowings	14,116		17,260		50,080		51,338
Total interest expense	42,594		79,943		163,192		227,513
Net interest income	206,594		195,806		600,803		571,970
Provision for credit losses	16,333		8,260		184,554		22,639
Net interest income after provision for credit losses	190,261		187,546		416,249		549,331

Noninterest income:
Service charges on deposit accounts	9,854		10,193		25,796		27,675
Investment services	6,734		6,270		21,944		17,607
Insurance sales commissions	2,284		2,252		7,755		7,327
Gain on mortgage loans sold, net	19,453		7,402		47,655		18,291
Investment gains (losses) on sales, net	651		417		986		(6,009)
Trust fees	3,986		3,593		12,114		10,349
Income from equity method investment	26,445		32,248		59,245		77,799
Other noninterest income	21,658		20,244		58,901		51,325
Total noninterest income	91,065		82,619		234,396		204,364

Noninterest expense:
Salaries and employee benefits	90,103		85,919		244,470		231,915
Equipment and occupancy	21,622		20,348		64,626		63,523
Other real estate expense, net	1,795		655		7,098		3,424
Marketing and other business development	2,321		2,723		7,714		8,953
Postage and supplies	1,761		1,766		5,821		5,737
Amortization of intangibles	2,417		2,430		7,416		7,012

Other noninterest expense	24,258		19,100		76,086		54,114
Total noninterest expense	144,277		132,941		413,231		374,678
Income before income taxes	137,049		137,224		237,414		379,017
Income tax expense	26,404		26,703		35,969		74,215
Net income	110,645		$	110,521	$	201,445	$	304,802
Preferred stock dividends	(3,798)		0		(3,798)		0
Net income available to common shareholders	$	106,847	$	110,521	$	197,647	$	304,802

Per share information:
Basic net income per common share	$	1.42	$	1.45	$	2.62	$	3.99
Diluted net income per common share	$	1.42	$	1.44	$	2.62	$	3.97
Weighted average common shares outstanding:
Basic	75,240,664		76,301,010		75,417,663		76,480,757
Diluted	75,360,033		76,556,309		75,544,677		76,761,167

Three months ended
September 30, Nine months ended
September 30,
2019 2018 2019 2018
Interest income:
Loans, including fees $ 247,147
$ 221,901
$ 714,179
$ 621,873
Securities:

Taxable 10,655
12,209
36,438
35,179
Tax-exempt 13,313
10,074
37,541
25,709
Federal funds sold and other 4,634
3,926
11,325
7,861
Total interest income 275,749
248,110
799,483
690,622

Interest expense:

Deposits 62,531
44,172
175,736
100,920
Securities sold under agreements to repurchase 152
165
439
438
Federal Home Loan Bank advances and other borrowings 17,260
14,353
51,338
43,137
Total interest expense 79,943
58,690
227,513
144,495
Net interest income 195,806
189,420
571,970
546,127
Provision for loan losses 8,260
8,725
22,639
25,058
Net interest income after provision for loan losses 187,546
180,695
549,331
521,069

Noninterest income:

Service charges on deposit accounts 10,193
9,972
27,675
26,333
Investment services 6,270
5,450
17,607
15,817
Insurance sales commissions 2,252
2,126
7,327
7,293
Gain on mortgage loans sold, net 7,402
3,902
18,291
11,423
Investment gains and losses on sales, net 417
11
(6,009 ) 41
Trust fees 3,593
3,087
10,349
9,768
Income from equity method investment 32,248
14,236
77,799
33,286
Other noninterest income 20,244
12,694
51,325
39,639
Total noninterest income 82,619
51,478
204,364
143,600

Noninterest expense:

Salaries and employee benefits 85,919
69,117
231,915
196,948
Equipment and occupancy 20,348
19,252
63,523
55,203
Other real estate expense, net 655
67
3,424
92
Marketing and other business development 2,723
3,293
8,953
8,084
Postage and supplies 1,766
1,654
5,737
5,984
Amortization of intangibles 2,430
2,616
7,012
7,973
Merger-related expense —
—
—
8,259
Other noninterest expense 19,100
17,991
54,114
50,935
Total noninterest expense 132,941
113,990
374,678
333,478
Income before income taxes 137,224
118,183
379,017
331,191
Income tax expense 26,703
24,436
74,215
67,069
Net income $ 110,521
$ 93,747
$ 304,802
$ 264,122
Per share information:

Basic net income per common share $ 1.45
$ 1.22
$ 3.99
$ 3.42
Diluted net income per common share $ 1.44
$ 1.21
$ 3.97
$ 3.41
Weighted average shares outstanding:

Basic 76,301,010
77,145,023
76,480,757
77,116,377
Diluted 76,556,309
77,490,977
76,761,167
77,442,554

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Net income	$	110,645	$	110,521	$	201,445	$	304,802
Other comprehensive income (loss), net of tax:
Change in fair value on available-for-sale securities, net of tax	523		25,259		69,402		87,153
Change in fair value of cash flow hedges, net of tax	(5,213)		494		60,426		6,584
Amortization (accretion) of net unrealized losses (gains) on securities transferred from available-for-sale to held-to-maturity, net of tax	(1,523)		56		(3,504)		126
Net loss on cash flow hedges reclassified from other comprehensive income into net income, net of tax	156		1,129		1,858		946
Net loss (gain) on sale of investment securities reclassified from other comprehensive income into net income, net of tax	(481)		(308)		(728)		4,438
Total other comprehensive income (loss), net of tax	(6,538)		26,630		127,454		99,247
Total comprehensive income	$	104,107	$	137,151	$	328,899	$	404,049

Three months ended
September 30, Nine months ended
September 30,
2019 2018 2019 2018
Net income $ 110,521
$ 93,747
$ 304,802
$ 264,122
Other comprehensive income (loss), net of tax:

Change in fair value on available-for-sale securities, net of tax 25,259
(16,899 ) 87,153
(53,167 )
Change in fair value of cash flow hedges, net of tax 494
783
6,584
3,453
Amortization of net unrealized losses (gains) on securities transferred from available-for-sale to held-to-maturity, net of tax 56
(10 ) 126
(103 )
Net loss (gain) on cash flow hedges reclassified from other comprehensive income into net income, net of tax 1,129
(145 ) 946
(429 )
Net loss (gain) on sale of investment securities reclassified from other comprehensive income into net income, net of tax (308 ) (8 ) 4,438
(30 )
Total other comprehensive income (loss), net of tax 26,630
(16,279 ) 99,247
(50,276 )
Total comprehensive income $ 137,151
$ 77,468
$ 404,049
$ 213,846

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS'~~SHAREHOLDERS' EQUITY

(Unaudited)

~~(dollars and shares in thousands)~~


(dollars and shares in thousands)			Common Stock
	Preferred Stock Amount		Shares	Amounts		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comp. Income (Loss), net		Total Shareholders' Equity
Balance at December 31, 2018	$	—	77,484	$	77,484	$	3,107,431	$	833,130	$	(52,105)	$	3,965,940
Exercise of employee common stock options & related tax benefits	—		5	5		125		—		—		130
Common stock dividends paid ($0.16 per share)	—		—	—		—		(12,545)		—		(12,545)
Repurchase of common stock	—		(543)	(543)		(29,506)		—		—		(30,049)
Issuance of restricted common shares, net of forfeitures	—		180	180		(180)		—		—		0
Restricted shares withheld for taxes & related tax benefit	—		(62)	(62)		(3,425)		—		—		(3,487)
Compensation expense for restricted shares & performance stock units	—		—	—		4,913		—		—		4,913
Net income	—		—	—		—		93,960		—		93,960
Other comprehensive income	—		—	—		—		—		37,077		37,077
Balance at March 31, 2019	$	—	77,064	$	77,064	$	3,079,358	$	914,545	$	(15,028)	$	4,055,939
Exercise of employee common stock options & related tax benefits	—		1	$	1	$	8	—		$	—	$	9
Common stock dividends paid ($0.16 per share)	—		—	—		—		(12,432)		—		(12,432)
Repurchase of common stock	—		(132)	(132)		(7,243)		—		—		(7,375)
Issuance of restricted common shares, net of forfeitures	—		10	10		(10)		—		—		0
Restricted shares withheld for taxes & related tax benefit	—		(14)	(14)		(787)		—		—		(801)
Compensation expense for restricted shares & performance stock units	—		—	—		5,160		—		—		5,160
Net income	—		—	—		—		100,321		—		100,321
Other comprehensive income	—		—	—		—		—		35,540		35,540
Balance at June 30, 2019	$	—	76,929	$	76,929	$	3,076,486	$	1,002,434	$	20,512	$	4,176,361
Exercise of employee common stock options & related tax benefits	—		4	4		104		—		—		108
Common stock dividends paid ($0.16 per share)	—		—	—		—		(12,438)		—		(12,438)
Repurchase of common stock	—		(198)	(198)		(10,867)		—		—		(11,065)
Issuance of restricted common shares, net of forfeitures	—		10	10		(10)		—		—		0
Restricted shares withheld for taxes & related tax benefit	—		(9)	(9)		(496)		—		—		(505)
Compensation expense for restricted shares & performance stock units	—		—	—		5,018		—		—		5,018
Net income	—		—	—		—		110,521		—		110,521
Other comprehensive income	—		—	—		—		—		26,630		26,630
Balance at September 30, 2019	$	—	76,736	$	76,736	$	3,070,235	$	1,100,517	$	47,142	$	4,294,630

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Common Stock
Shares Amounts Additional Paid-in Capital Retained Earnings Accumulated Other Comp. Income (Loss), net Total Stockholder's Equity
Balance at June 30, 2018 77,855
$ 77,855
$ 3,119,461
$ 667,594
$ (38,233 ) $ 3,826,677
Exercise of employee common stock options and related tax benefits —
—
—
—
—
—
Common stock dividends paid ($0.14 per share) —
—
—
(10,978 ) —
(10,978 )
Issuance of restricted common shares, net of forfeitures 22
22
(22 ) —
—
—
Restricted shares withheld for taxes & related tax benefit (10 ) (10 ) (619 ) —
—
(629 )
Compensation expense for restricted shares —
—
4,503
—
—
4,503
Net income —
—
—
93,747
—
93,747
Other comprehensive loss —
—
—
—
(16,279 ) (16,279 )
Balance at September 30, 2018 77,867
$ 77,867
$ 3,123,323
$ 750,363
$ (54,512 ) $ 3,897,041

Balance at December 31, 2017 77,740
$ 77,740
$ 3,115,304
$ 519,144
$ (4,236 ) $ 3,707,952
Exercise of employee common stock options and related tax benefits 90
$ 90
$ 1,610
—
$ —
$ 1,700
Common stock dividends paid ($0.14 per share) —
—
—
(32,903 ) —
(32,903 )
Issuance of restricted common shares, net of forfeitures 141
141
(141 ) —
—
—
Restricted shares withheld for taxes & related tax benefit (104 ) (104 ) (6,704 ) —
—
(6,808 )
Compensation expense for restricted shares —
—
13,254
—
—
13,254
Net income —
—
—
264,122
—
264,122
Other comprehensive loss —
—
—
—
(50,276 ) (50,276 )
Balance at September 30, 2018 77,867
$ 77,867
$ 3,123,323
$ 750,363
$ (54,512 ) $ 3,897,041

Balance at June 30, 2019 76,929
$ 76,929
$ 3,076,486
$ 1,002,434
$ 20,512
$ 4,176,361
Exercise of employee common stock options and related tax benefits 4
4
104
—
—
108
Common stock dividends paid ($0.16 per share) —
—
—
(12,438 ) —
(12,438 )
Repurchase of common stock (198 ) (198 ) (10,867 ) —
—
(11,065 )
Issuance of restricted common shares, net of forfeitures 10
10
(10 ) —
—
—
Restricted shares withheld for taxes & related tax benefit (9 ) (9 ) (496 ) —
—
(505 )
Compensation expense for restricted shares —
—
5,018
—
—
5,018
Net income —
—
—
110,521
—
110,521
Other comprehensive income —
—
—
—
26,630
26,630
Balance at September 30, 2019 76,736
$ 76,736
$ 3,070,235
$ 1,100,517
$ 47,142
$ 4,294,630

Balance at December 31, 2018 77,484
$ 77,484
$ 3,107,431
$ 833,130
$ (52,105 ) $ 3,965,940
Exercise of employee common stock options and related tax benefits 10
10
237
—
—
247
Common stock dividends paid ($0.16 per share) —
—
—
(37,415 ) —
(37,415 )
Repurchase of common stock (873 ) (873 ) (47,616 ) —
—
(48,489 )
Issuance of restricted common shares, net of forfeitures 200
200
(200 ) —
—
—
Restricted shares withheld for taxes & related tax benefit (85 ) (85 ) (4,708 ) —
—
(4,793 )
Compensation expense for restricted shares —
—
15,091
—
—
15,091
Net income —
—
—
304,802
—
304,802
Other comprehensive income —
—
—
—
99,247
99,247
Balance at September 30, 2019 76,736
$ 76,736
$ 3,070,235
$ 1,100,517
$ 47,142
$ 4,294,630


	Preferred Stock Amount		Common Stock							Accumulated Other Comp. Income (Loss), net		Total Shareholders' Equity
			Shares	Amounts		Additional Paid-in Capital		Retained Earnings
Balance at December 31, 2019	$	—	76,564	$	76,564	$	3,064,467	$	1,184,183	$	30,534	$	4,355,748
Exercise of employee common stock options & related tax benefits	—		1	1		4		—		—		5
Common dividends paid ($0.16 per share)	—		—	—		—		(12,442)		—		(12,442)
Repurchase of common stock	—		(1,015)	(1,015)		(49,775)		—		—		(50,790)
Issuance of restricted common shares, net of forfeitures	—		198	198		(198)		—		—		0
Restricted shares withheld for taxes & related tax benefits	—		(32)	(32)		(1,925)		—		—		(1,957)
Issuance of common stock pursuant to restricted stock unit agreement, net of shares withheld for taxes & related tax benefits	—		84	84		(2,553)		—		—		(2,469)
Compensation expense for restricted shares & performance stock units	—		—	—		5,501		—		—		5,501
Net income	—		—	—		—		28,356		—		28,356
Cumulative effect of change in accounting principle	—		—	—		—		(31,796)		—		(31,796)
Other comprehensive income	—		—	—		—		—		94,972		94,972
Balance at March 31, 2020	$	—	75,800	$	75,800	$	3,015,521	$	1,168,301	$	125,506	$	4,385,128
Issuance of preferred stock, net of issuance costs	$	217,632	—	$	—	$	—	$	—	$	—	$	217,632
Exercise of employee common stock options & related tax benefits	—		9	9		216		—		—		225
Common dividends paid ($0.16 per share)	—		—	—		—		(12,378)				(12,378)

Issuance of restricted common shares, net of forfeitures	—		38	38		(38)		—		—		0
Restricted shares withheld for taxes & related tax benefits	—		(13)	(13)		(540)		—		—		(553)
Issuance of common stock pursuant to restricted stock unit agreement, net of shares withheld for taxes & related tax benefits	—		2	2		(21)		—		—		(19)
Compensation expense for restricted shares & performance stock units	—		—	—		4,148		—		—		4,148
Net income	—		—	—		—		62,444		—		62,444
Other comprehensive income	—		—	—		—		—		39,020		39,020
Balance at June 30, 2020	$	217,632	75,836	$	75,836	$	3,019,286	$	1,218,367	$	164,526	$	4,695,647
Issuance of preferred stock, net of issuance costs	$	(506)	—	$	—	$	—	$	—	$	—	$	(506)
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.16 per share)	—		—	—		—		(12,285)		—		(12,285)
Issuance of restricted common shares, net of forfeitures	—		6	6		(6)		—		—		0
Restricted shares withheld for taxes & related tax benefits	—		(7)	(7)		(293)		—		—		(300)
Compensation expense for restricted shares & performance stock units	—		—	—		4,443		—		—		4,443
Net income	—		—	—		—		110,645		—		110,645
Other comprehensive income (loss)	—		—	—		—		—		(6,538)		(6,538)
Balance at September 30, 2020	$	217,126	75,835	$	75,835	$	3,023,430	$	1,312,929	$	157,988	$	4,787,308

See accompanying notes to consolidated financial statements (unaudited).

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PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

~~(dollars in thousands)~~

Nine months ended
September 30,
2019 2018
Operating activities:
Net income $ 304,802
$ 264,122
Adjustments to reconcile net income to net cash provided by operating activities:

Net amortization/accretion of premium/discount on securities 14,365
14,366
Depreciation, amortization and accretion expense (income) 4,365
(20,959 )
Provision for loan losses 22,639
25,058
Gain on mortgage loans sold, net (18,291 ) (11,423 )
Investment losses (gains) on sales, net 6,009
(41 )
Stock-based compensation expense 15,091
13,254
Deferred tax expense 5,355
17,339
Losses (gains) on dispositions of other real estate and other investments 2,612
(259 )
Income from equity method investment (77,799 ) (33,286 )
Dividends received from equity method investment 49,940
33,651
Excess tax benefit from stock compensation (832 ) (2,953 )
Gain on commercial loans sold, net (2,841 ) (1,985 )
Commercial loans held for sale:

Loans originated (315,454 ) (226,551 )
Loans sold 312,936
242,590
Consumer loans held for sale:

Loans originated (1,001,377 ) (941,991 )
Loans sold 980,822
964,747
Increase in other assets (79,462 ) (31,805 )
Increase in other liabilities 91,624
14,626
Net cash provided by operating activities 314,504
318,500
Investing activities:

Activities in securities available-for-sale:

Purchases (1,039,225 ) (1,023,876 )
Sales 626,097
22,702
Maturities, prepayments and calls 253,350
243,678
Activities in securities held-to-maturity:

Purchases (3,822 ) —
Maturities, prepayments and calls 7,800
5,280
Increase in loans, net (1,488,436 ) (1,757,157 )
Purchases of software, premises and equipment (34,190 ) (18,478 )
Proceeds from sales of software, premises and equipment 66
458
Proceeds from sale of other real estate 4,947
13,204
Acquisitions, net of cash acquired (44,594 ) —
Purchase of bank owned life insurance policies (110,000 ) (100,000 )
Proceeds from bank owned life insurance settlements 308
—
Payments related to derivative instruments (37,982 ) —
Increase in other investments (43,260 ) (47,687 )
Net cash used in investing activities (1,908,941 ) (2,661,876 )
Financing activities:

Net increase in deposits 1,152,021
1,957,566
Net decrease in securities sold under agreements to repurchase (9,339 ) (5,045 )
Advances from Federal Home Loan Bank: Issuances 2,572,500
1,439,906
Advances from Federal Home Loan Bank: Payments/maturities (1,963,541 ) (1,239,198 )
Increase in other borrowings, net of issuance costs 316,200
—
Decrease in other borrowings (184,175 ) (240 )
Principal payments of finance lease obligation (168 ) (118 )
Exercise of common stock options, net of repurchase of restricted shares (4,546 ) (5,108 )
Repurchase of common stock (48,489 ) —
Common stock dividends paid (37,415 ) (32,903 )
Net cash provided by financing activities 1,793,048
2,114,860
Net increase (decrease) in cash, cash equivalents, and restricted cash 198,611
(228,516 )
Cash, cash equivalents, and restricted cash, beginning of period 721,692
779,596
Cash, cash equivalents, and restricted cash, end of period $ 920,303
$ 551,080


(dollars in thousands)	Nine months ended September 30,
	2020		2019
Operating activities:
Net income	$	201,445	$	304,802
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization/accretion of premium/discount on securities	26,771		14,365
Depreciation, amortization and accretion	32,127		4,365
Provision for credit losses	184,554		22,639
Gain on mortgage loans sold, net	(47,655)		(18,291)
Investment losses (gains) on sales, net	(986)		6,009
Stock-based compensation expense	14,092		15,091
Deferred tax expense (benefit)	(31,288)		5,355
Losses on dispositions of other real estate and other investments	6,600		2,612
Income from equity method investment	(59,245)		(77,799)
Dividends received from equity method investment	47,981		49,940
Excess tax benefit from stock compensation	(505)		(832)
Gain on commercial loans sold, net	(1,856)		(2,841)

Commercial loans held for sale originated	(271,996)		(315,454)
Commercial loans held for sale sold	279,147		312,936

Consumer loans held for sale originated	(1,550,290)		(1,001,377)
Consumer loans held for sale sold	1,597,016		980,822
Increase in other assets	(188,675)		(79,462)
Increase in other liabilities	64,488		91,624
Net cash provided by operating activities	301,725		314,504
Investing activities:
Activities in securities available-for-sale:
Purchases	(1,189,922)		(1,039,225)
Sales	145,631		626,097
Maturities, prepayments and calls	356,690		253,350
Activities in securities held-to-maturity:
Purchases	0		(3,822)
Maturities, prepayments and calls	13,345		7,800
Increase in loans, net	(2,705,594)		(1,488,436)
Purchases of software, premises and equipment	(30,309)		(34,190)

Proceeds from sales of software, premises and equipment	0		66
Proceeds from sale of other real estate	7,191		4,947

Purchase of bank owned life insurance policies	0		(110,000)
Proceeds from bank owned life insurance settlements	4,580		308
Proceeds from (payments for) derivative instruments	35,680		(37,982)

Purchase of trade name	(1,000)		0
Increase in other investments	(50,335)		(43,260)
Net cash used in investing activities	(3,414,043)		(1,908,941)
Financing activities:
Net increase in deposits	6,363,187		1,152,021
Net increase (decrease) in securities sold under agreements to repurchase	705		(9,339)

Federal Home Loan Bank: Advances, net of restructuring charges	762,472		2,572,500
Federal Home Loan Bank: Repayments/maturities	(1,537,520)		(1,963,541)
Advances of other borrowings, net of issuance costs	56,568		316,200
Repayments of other borrowings	(136,661)		(184,175)
Principal payments of finance lease obligation	(180)		(168)
Issuance of preferred stock, net of issuance costs	217,126		0
Issuance of common stock pursuant to restricted stock unit agreement, net of shares withheld for taxes	(2,488)		0
Exercise of common stock options, net of repurchase of restricted shares	(2,580)		(4,546)
Repurchase of common stock	(50,790)		(48,489)

Common stock dividends paid	(37,105)		(37,415)
Preferred stock dividends paid	(3,798)		0
Net cash provided by financing activities	5,628,936		1,793,048
Net increase in cash, cash equivalents, and restricted cash	2,516,618		198,611
Cash, cash equivalents, and restricted cash, beginning of period	526,707		721,692
Cash, cash equivalents, and restricted cash, end of period	$	3,043,325	$	920,303

See accompanying notes to consolidated financial statements (unaudited).

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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 financial 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 Financial completed its acquisitions of CapitalMark Bank & Trust (CapitalMark), Magna Bank (Magna), Avenue Financial Holdings, Inc. (Avenue) and BNC Bancorp (BNC) on July 31, 2015, September 1, 2015, July 1, 2016 and June 16, 2017, respectively. Pinnacle Financial and Pinnacle Bank also collectively hold a 49% interest in Bankers Healthcare Group, LLC (BHG), a company that primarily serves as a full-service commercial loan provider ~~primarily engaged in the business of making loans~~ to healthcare and other professional practices. Pinnacle Bank provides a full range of banking services, including investment, mortgage, insurance, and comprehensive wealth management services, in its 1112 primarily urban markets within Tennessee, the Carolinas, Virginia and ~~Virginia.~~beginning in December 2019, Atlanta, Georgia.

On July 2, 2019, Pinnacle Bank acquired all of the outstanding stock of Advocate Capital, Inc. (Advocate Capital) for a cash price of ~~$59~~$59.0 million. Advocate Capital is a finance firm headquartered in Nashville, TN which supports the financial needs of legal firms through both case expense financing and working capital lines of credit. Pinnacle Financial accounted for the acquisition of Advocate Capital under the acquisition method in accordance with ASC Topic 805. Accordingly, the purchase price is allocated to the fair value of the assets acquired and liabilities acquired as of the date of acquisition. Determining the fair value of assets and liabilities, particularly illiquid assets and liabilities, is a complicated process involving significant judgment regarding estimates and assumptions used to calculate estimated fair value. ~~Fair value adjustments based on updated estimates could materially affect the goodwill recorded on the Advocate Capital acquisition.~~ At the acquisition date, Advocate Capital's net assets were ~~initially~~ recorded at a fair value of approximately ~~$34.6~~$45.6 million, consisting mainly of loans receivable. Advocate Capital's $134.3 million of indebtedness was also paid off in connection with consummation of the acquisition. The purchase price allocations for the acquisition of Advocate Capital ~~are preliminary and will be~~were finalized ~~upon~~during the ~~receipt~~second quarter of ~~final valuations on certain assets and liabilities.~~2020.

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 consolidated financial statements and related notes appearing in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, ~~2018 (2018~~2019 (2019 10-K).

These consolidated financial statements include the accounts of Pinnacle Financial and its wholly-owned subsidiaries. Certain statutory trust affiliates of Pinnacle Financial, as noted in Note 11. ~~Subordinated Debt and~~ Other Borrowings 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~~credit losses and determination of any impairment of goodwill or intangible assets. It is reasonably possible Pinnacle Financial's estimate of the allowance for credit losses and determination of impairment of goodwill or intangible assets could change as a result of the continued impact of the COVID-19 pandemic on the economy. The resulting change in these estimates could be material to Pinnacle Financial's consolidated financial statements. There have been no significant changes to Pinnacle Financial's significant accounting policies as disclosed in the ~~2018 10-K.~~2019 10-K other than those that relate to the allowance for credit losses upon adoption of ASU 2016-13 as described later within Note 1.

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Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for the nine months ended September 30, ~~2019~~2020 and ~~September 30, 2018~~2019 was as follows (in thousands):

For the nine months ended
September 30,
2019 2018
Cash Transactions:
Interest paid $ 216,261
$ 136,154
Income taxes paid, net 61,238
55,525
Noncash Transactions:

Loans charged-off to the allowance for loan losses 21,328
22,316
Loans foreclosed upon and transferred to other real estate owned 16,870
2,066
Loans foreclosed upon and transferred to other assets 93
1,580
Other real estate sales financed —
276
Fixed assets transferred to other real estate owned 5,126
—
Available-for-sale securities transferred to held-to-maturity portfolio —
179,763
Held-for-sale loans transferred to held-for-investment loan portfolio —
44,980
Right-of-use asset recognized during the period in exchange for lease obligations ⁽¹⁾
82,856
—


	For the nine months ended September 30,
	2020		2019
Cash Transactions:
Interest paid	$	179,163	$	216,261
Income taxes paid, net	89,858		61,238
Operating lease payments	10,077		10,193
Noncash Transactions:
Loans charged-off to the allowance for credit losses	35,724		21,328
Loans foreclosed upon and transferred to other real estate owned	3,435		16,870
Loans foreclosed upon and transferred to other assets	25		93

Fixed assets transferred to other real estate owned	0		5,126
Available-for-sale securities transferred to held-to-maturity portfolio	873,613		0



Right-of-use asset recognized during the period in exchange for lease obligations (1)	5,269		82,856

⁽¹⁾ Includes $79.9 million recognized upon initial adoption of ASU 2016-02 on January 1, 2019.

Income Per Common Share — Basic net income per common share (EPS) is computed by dividing net income available to common shareholders 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 common shares outstanding is attributable to common stock options, restricted share awards, and restricted share unit awards. The dilutive effect of outstanding options, 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 common share calculations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands, except per share data):


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Basic net income per common share calculation:
Numerator - Net income available to common shareholders	$	106,847	$	110,521	$	197,647	$	304,802

Denominator - Weighted average common shares outstanding	75,241		76,301		75,418		76,481
Basic net income per common share	$	1.42	$	1.45	$	2.62	$	3.99
Diluted net income per common share calculation:
Numerator – Net income available to common shareholders	$	106,847	$	110,521	$	197,647	$	304,802

Denominator - Weighted average common shares outstanding	75,241		76,301		75,418		76,481
Dilutive common shares contingently issuable	119		255		127		280
Weighted average diluted common shares outstanding	75,360		76,556		75,545		76,761
Diluted net income per common share	$	1.42	$	1.44	$	2.62	$	3.97

Three months ended
September 30, Nine months ended
September 30,
2019 2018 2019 2018
Basic net income per share calculation:
Numerator - Net income
$ 110,521
$ 93,747
$ 304,802
$ 264,122

Denominator - Weighted average common shares outstanding
76,301
77,145
76,481
77,116
Basic net income per common share $ 1.45
$ 1.22
$ 3.99
$ 3.42

Diluted net income per share calculation:

Numerator – Net income
$ 110,521
$ 93,747
$ 304,802
$ 264,122

Denominator - Weighted average common shares outstanding
76,301
77,145
76,481
77,116
Dilutive shares contingently issuable 255
346
280
326
Weighted average diluted common shares outstanding 76,556
77,491
76,761
77,443
Diluted net income per common share $ 1.44
$ 1.21
$ 3.97
$ 3.41

Allowance for Credit Losses - Loans - As described below under Recently Adopted Accounting Pronouncements, Pinnacle Financial adopted FASB ASC 326 effective January 1, 2020, which requires the estimation of an allowance for credit losses in accordance with the current expected credit loss (CECL) methodology. Pinnacle Financial's management assesses the adequacy of the allowance on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed adequate to

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absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.

The allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics. Pinnacle Financial has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

•Owner occupied commercial real estate mortgage loans - Owner occupied commercial real estate mortgage loans are secured by commercial office buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. For such loans, repayment is largely dependent upon the operation of the borrower's business.

•Non-owner occupied commercial real estate loans - These loans represent investment real estate loans secured by office buildings, industrial buildings, warehouses, retail buildings, and multifamily residential housing. Repayment is primarily dependent on lease income generated from the underlying collateral.

•Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by 1-4 family residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.

•Construction and land development loans - Construction and land development loans include loans where the repayment is dependent on the successful completion and eventual sale, refinance or operation of the related real estate project. Construction and land development loans include 1-4 family construction projects and commercial construction endeavors such as warehouses, apartments, office and retail space and land acquisition and development.

•Commercial and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

•Consumer and other loans - Consumer and other loans include all loans issued to individuals not included in the consumer real estate mortgage classification. Examples of consumer and other loans are automobile loans, consumer credit cards and loans to finance education, among others. Many consumer loans are unsecured. Repayment is primarily dependent on the personal cash flow of the borrower.

For commercial real estate, consumer real estate, construction and land development, and commercial and industrial loans, Pinnacle Financial primarily utilizes a probability of default (PD) and loss given default (LGD) modeling approach. These models utilize historical correlations between default experience and certain macroeconomic factors as determined through a statistical regression analysis. All loan segments modeled using this approach consider changes in the national unemployment rate. In addition to the national unemployment rate, gross domestic product and the three month treasury rate are considered for owner occupied commercial real estate, the commercial real estate price index and the five year treasury rate are considered for construction loans, and the three month treasury rate is considered for commercial and industrial loans. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to predict quarterly rates of default based on the statistical PD models. The predicted quarterly default rates are then applied to the estimated future exposure at default (EAD), as determined based on contractual amortization terms and estimated prepayments. An estimated LGD, determined based on historical loss experience, is applied to the quarterly defaulted balances for each loan segment to estimate future losses of the loan's amortized cost.

Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by Pinnacle Financial and are dependent on the current economic environment among other factors. Upon implementation of CECL on January 1, 2020 and at September 30, 2020, a reasonable and supportable period of eighteen months was utilized for all loan segments, followed by a twelve month straight line reversion to long term averages.

For the consumer and other loan segment, a loss rate approach is utilized. For these loans, historical charge off rates are applied to projected future balances, as determined in the same manner as EAD for the statistically modeled loan segments. For credit cards, which have no amortization terms or contractual maturities and are unconditionally cancellable, future balances are estimated based on expected payment volume applied to the current balance.

The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management, but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon quarterly trend assessments in portfolio concentrations, policy exceptions, associate retention, independent loan review results, collateral considerations, risk ratings,

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competition and peer group credit quality trends. The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $1.0 million which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, less selling costs. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral, Pinnacle Financial has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, with selling costs considered in the event sale of the collateral is expected. Loans for which terms have been modified in a troubled debt restructuring (TDR) are evaluated using these same individual evaluation methods. In the event the discounted cash flow method is used for a TDR, the original interest rate is used to discount expected cash flows.

In assessing the adequacy of the allowance for credit losses, Pinnacle Financial considers the results of Pinnacle Financial's ongoing independent loan review process. Pinnacle Financial undertakes this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes the judgment of management, independent internal loan reviewers and reviews that may have been conducted by third-party reviewers including regulatory examiners. Pinnacle Financial incorporates relevant loan review results in the allowance.

In accordance with CECL, losses are estimated over the remaining contractual terms of loans, adjusted for prepayments. The contractual term excludes expected extensions, renewals and modifications unless management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed or such renewals, extensions or modifications are included in the original loan agreement and are not unconditionally cancellable by Pinnacle Financial.

Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding, purchase discounts and premiums, deferred loan fees and costs and accrued interest receivable. Accrued interest receivable is presented separately on the balance sheets and as allowed under ASU 2016-13 is excluded from the tabular loan disclosures in Note 4.

While policies and procedures used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond Pinnacle Financial's control, such as changes in projected economic conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit losses and thus the resulting provision for credit losses.

Allowance for Credit Losses on Off Balance Sheet Credit Exposures - Pinnacle Financial estimates expected credit losses over the contractual term of obligations to extend credit, unless the obligation is unconditionally cancellable. The allowance for off balance sheet exposures is adjusted through other noninterest expense. The estimates are determined based on the likelihood of funding during the contractual term and an estimate of credit losses subsequent to funding. Estimated credit losses on subsequently funded balances are based on the same assumptions as used to estimated credit losses on existing funded loans.

Allowance for Credit Losses - Securities Held-to-Maturity - Expected credit losses on debt securities classified as held-to-maturity are measured on a collective basis by major security type. The estimates of expected credit losses are based on historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The models rely on regression analyses to predict PD based on projected macroeconomic factors, including unemployment rates and GDP, among others. At September 30, 2020, Pinnacle Financial's held-to-maturity securities consisted entirely of municipal securities rated A or higher by the ratings agencies. A reasonable and supportable period of 18 months and reversion period of 12 months is utilized to estimate credit losses on held-to-maturity municipal securities. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.

Allowance for Credit Losses - Securities Available-for-Sale - For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, Pinnacle Financial assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is written down to fair value through net income. If neither criteria is met, Pinnacle Financial evaluates whether any portion of the decline in fair value is the result of credit deterioration. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. If the evaluation indicates that a credit loss exists, an allowance for credit losses is recorded through provisions for credit

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losses for the amount by which the amortized cost basis of the security exceeds the present value of cash flows expected to be collected, limited by the amount by which the amortized cost exceeds fair value. Any impairment not recognized in the allowance for credit losses is recognized in other comprehensive income.

Recently Adopted Accounting Pronouncements —

~~In February 2016, the FASB issued~~ ~~Accounting Standards Update 2016-02, Leases~~ which requires recognition in the statement of financial position of lease right of use assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP guidance. The guidance requires that a lessee should recognize lease assets and lease liabilities as compared to previous GAAP guidance that did not require lease assets and lease liabilities to be recognized for operating leases. In July 2016, the FASB issued ~~Accounting Standards Update 2018-10, Codification Improvements to Topic 842, Leases~~ ~~which provided technical corrections and improvements to ASU 2016-02. In July 2016, the FASB issued~~ ~~Accounting Standards Update 2018-11, Leases (Topic 842): Targeted Improvements~~ which provided an optional transition method to adopt the new requirements of ASU 2016-02 as of the adoption date with no adjustment to the presentation or disclosure of comparative prior periods included in the financial statements in the period of adoption. Pinnacle Financial has elected this optional transition method and has presented periods prior to adoption under the prior lease guidance of ASC Topic 840. In December 2018, the FASB issued ~~Accounting Standards Update 2018-20, Leases (Topic~~

~~842): Narrow-Scope Improvements for Lessors~~. ASU 2018-20 permits lessors to account for certain taxes as lessee costs, permits lessors to exclude from revenue certain lessor costs paid by lessees directly to third parties, and requires lessors to allocate certain variable payments to lease and non-lease components. In March 2019, the FASB issued ~~Accounting Standards Update No. 2019-01, Leases (Topic 842): Codification Improvements.~~ The amendments in this ASU (i) reinstate the exception in Topic 842 for lessors that are not manufacturers or dealers to use cost as the fair value of the underlying asset, (ii) state that lessors that are depository and lending institutions should present principal payments received under sales type and direct financing leases within investing activities, and (iii) exempt Topic 842 from certain transition related interim disclosure requirements. ASU 2016-02 and the subsequently issued ASUs related to Topic 842 became effective for Pinnacle Financial on January 1, 2019. As part of the adoption of these updates, Pinnacle Financial has elected the following practical expedients: 1) to not reassess whether existing contracts are or contain a lease, 2) to not reassess lease classification for existing leases, 3) to not reassess initial direct costs, 4) to not separate lease components from nonlease components for real estate leases, and 5) to not recognize short term leases (12 months or less) on the balance sheet. See Note 12 for additional detail related to lease amounts recognized as of September 30, 2019 under Topic 842.

~~In February 2018, the FASB issued~~ ~~Accounting Standards Update 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~. The amendments in this ASU addressed the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the lower federal corporate tax rate included in the Tax Cuts and Jobs Act issued December 22, 2017 (Tax Act). These amendments allow an entity to make a reclassification from other comprehensive income to retained earnings for the difference between the historical corporate income tax rate and the lower corporate income tax rate included in the Tax Act. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Pinnacle Financial has elected not to adopt this standard due to its insignificant impact on Pinnacle Financial's consolidated financial position.

~~Newly Issued not yet Effective Accounting Standards~~ — In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment to simplify how entities other than private companies, such as public business entities and not-for-profit entities, are required to test goodwill for impairment by eliminating the comparison of the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The amendments ~~are~~became effective for ~~fiscal years beginning after December 15, 2019, including interim periods within those periods. If this standard had been effective~~Pinnacle Financial on January 1, 2020. Pinnacle Financial performed its annual assessment of goodwill as of ~~the date~~September 30, 2020. No impairment charge was identified as a result of the ~~financial statements included in this report, there would have been no impact on Pinnacle Financial's consolidated financial statements.~~assessment.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ~~(CECL)~~(Topic 326), ,and has issued subsequent amendments thereto, which introduces the current expected credit losses (CECL) methodology. Among other things, ~~CECL~~ASC 326 requires the measurement of all expected credit losses for financial assets, including loans and held-to-maturity debt securities, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The new model ~~will require~~requires institutions to calculate all probable and estimable losses that are expected to be incurred through the financial asset's ~~entire~~contractual life through a provision for credit losses, including loans obtained as a result of any acquisition not deemed to be purchased credit deteriorated (PCD). ~~CECL~~ASC 326 also requires the allowance for credit losses for PCD loans to be determined in a manner similar to that of other financial assets measured at amortized cost; however, the initial allowance ~~will be~~determined at acquisition is added to the purchase price rather than recorded as provision expense. ~~The~~In accordance with ASC 326, the disclosure of credit quality indicators related to the amortized cost of financing receivables ~~will be~~is further disaggregated by year of origination (or vintage). ~~Institutions~~Pinnacle Financial adopted ASU 2016-13 and all subsequent amendments thereto effective January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures. Amounts for periods beginning on or after January 1, 2020 are ~~to apply the changes through~~presented under ASC 326 and all prior period information is presented in accordance with previously applicable GAAP. At January 1, 2020, Pinnacle Financial recognized a ~~cumulative-effect~~cumulative adjustment to ~~their~~ retained earnings of $31.8 million, net of tax, attributable to an increase in the allowance for credit losses of $34.3 million, an increase in the allowance for off balance sheet credit exposures of $8.8 million, and an increase in deferred tax assets of $11.3 million. In addition, an allowance of $3.8 million was recognized on loans purchased with credit deterioration (PCD) previously classified as purchased credit impaired (PCI) with a corresponding adjustment to the gross carrying amount of the loans. Pinnacle Financial adopted ASC 326 using the prospective transition approach for PCD loans, which did not require re-evaluation of whether loans previously classified as PCI loans met the criteria of PCD assets at the date of adoption. The remaining noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2020.

Newly Issued Not Yet Effective Accounting Standards — In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Pinnacle Financial is implementing a transition plan to identify and modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. Pinnacle Financial is assessing ASU 2020-04 and its impact on the transition away from LIBOR for its loans and other financial instruments.

In January 2020, the FASB issued Accounting Standards Update 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. These amendments, among other things, clarify that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is permitted, including early adoption in an interim period. An entity should apply ASU 2020-01 prospectively at the beginning of the ~~first reporting~~interim period ~~in which~~that includes the adoption date. Pinnacle Financial is assessing ASU 2020-01 and its impact on its accounting and disclosures.

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In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes to simplify various aspects of the current guidance to promote consistent application of the standard ~~is effective.~~among reporting entities by moving certain exceptions to the general principles. The amendments are effective for fiscal years beginning after December 15, ~~2019. Early application is permitted for fiscal years beginning after December 15, 2018. Management continues~~2020, with early adoption permitted. Pinnacle Financial does not plan to ~~evaluate~~adopt this standard early. If this standard had been effective as of the ~~impact~~date of the financial statements included in this ~~ASU will~~report, there would have been no impact on Pinnacle ~~Financial’s~~Financial's consolidated financial ~~position, results of operations and financial statement disclosures and determine the most appropriate method to implement the guidance.~~statements.

Pinnacle Financial has established a cross-functional Current Expected Credit Loss (CECL) Steering Committee, which includes members from the accounting, treasury, credit and lending functions, with involvement from members of model risk management, independent loan review and internal audit. Pinnacle Financial is leveraging both internal and external expertise in the development of the models that will be utilized in the determination of the allowance for credit losses determined pursuant to CECL. At this time, Pinnacle Financial is focused on the finalization of the model validations as well as development of process and related controls and the financial statement disclosures. Pinnacle Financial has concluded that an increase in the overall allowance for loan losses is likely upon adoption of CECL in order to provide for expected credit losses over the life of the loan portfolio.

Other than those pronouncements discussed above and those which have been recently adopted, we do not believe there were any other recently issued accounting pronouncements that are expected to materially impact Pinnacle Financial.

Reclassifications — Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or stockholders' equity.

Subsequent Events — ASC Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Pinnacle Financial evaluated all events or transactions that occurred after September 30, ~~2019~~2020 through the date of the issued financial statements.

Note 2. Equity method investment

A summary of BHG's financial position as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 and results of operations as of and for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, were as follows (in thousands):


	As of
	September 30, 2020		December 31, 2019
Assets	$	1,249,530	$	840,398

Liabilities	1,006,462		641,037
Equity interests	243,068		199,361
Total liabilities and equity	$	1,249,530	$	840,398

As of
September 30, 2019 December 31, 2018
Assets $ 695,300
$ 459,816

Liabilities 499,460
324,211
Equity interests 195,840
135,605
Total liabilities and equity $ 695,300
$ 459,816

For the three months ended
September 30, For the nine months ended
September 30,
2019 2018 2019 2018
Revenues $ 108,770
$ 59,133
$ 279,569
$ 151,937
Net income $ 61,364
$ 30,933
$ 156,064
$ 69,039


	For the three months ended September 30,				For the nine months ended September 30,
	2020		2019		2020		2019
Revenues	$	128,510	$	108,770	$	319,244	$	279,569
Net income	$	51,459	$	61,364	$	121,604	$	156,064

At September 30, ~~2019,~~2020, technology, trade name and customer relationship intangibles, net of related amortization, totaled ~~$9.2~~$7.9 million compared to ~~$10.7~~$8.8 million as of December 31, ~~2018.~~2019. Amortization expense of ~~$475,000~~$293,000 and ~~$1.4 million,~~$880,000, respectively, was included for the three and nine months ended September 30, ~~2019~~2020 compared to ~~$693,000~~$475,000 and ~~$2.1~~$1.4 million, respectively, for the same periods in the prior year. Accretion income of ~~$630,000~~$535,000 and ~~$2.0~~$1.6 million, respectively, was included in the three and nine months ended September 30, ~~2019~~2020 compared to ~~$719,000~~$630,000 and ~~$2.2~~$2.0 million, respectively, for the same periods in the prior year.

During the three months and nine months ended September 30, 2020, Pinnacle Financial and Pinnacle Bank received dividends of $40.0 million and $48.0 million, respectively, from BHG in the aggregate. During the three and nine months ended September 30, 2019, Pinnacle Financial and Pinnacle Bank received dividends ~~from BHG~~ of $9.0 million and $49.9 million, respectively, in the ~~aggregate compared to $10.2 million and $33.7 million, respectively, for the same periods in the prior year.~~aggregate. Earnings from BHG are included in Pinnacle Financial's consolidated tax return. Profits from intercompany transactions are eliminated. On September 21, 2020, Pinnacle Bank purchased $50.2 million of loans from BHG at par pursuant to BHG's joint venture loan program whereby BHG and Pinnacle share proportionately in the credit risk of the acquired loans based on the rate on the loan and the rate of the purchase. The yield on this portfolio to Pinnacle Bank is anticipated to be 5.0% per annum. NaN loans were purchased from BHG by Pinnacle Bank for the three and nine ~~month periods~~ ended September 30, ~~2019 or 2018, respectively.~~2019.

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Note 3. Securities

The amortized cost and fair value of securities available-for-sale and held-to-maturity at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 are summarized as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2020:
Securities available-for-sale:
U.S. Treasury securities	$	84,438	$	28	$	2	$	84,464
U.S. government agency securities	75,345		1,543		29		76,859
Mortgage-backed securities	1,634,329		69,311		2,428		1,701,212
State and municipal securities	1,324,383		31,081		27,743		1,327,721
Asset-backed securities	169,540		470		1,171		168,839
Corporate notes and other	106,638		1,063		3,374		104,327
	$	3,394,673	$	103,496	$	34,747	$	3,463,422
Securities held-to-maturity:
State and municipal securities	$	1,039,841	$	23,814	$	2,808	$	1,060,847
	$	1,039,841	$	23,814	$	2,808	$	1,060,847
Allowance for credit losses - securities held-to-maturity	(191)
Securities held-to-maturity, net of allowance for credit losses	$	1,039,650

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
September 30, 2019:
Securities available-for-sale:
U.S. Treasury securities $ 48,635
$ 31
$ 4
$ 48,662
U.S. government agency securities 92,668
412
834
92,246
Mortgage-backed securities 1,318,953
19,229
3,665
1,334,517
State and municipal securities 1,658,734
54,839
13,687
1,699,886
Asset-backed securities 163,334
601
1,202
162,733
Corporate notes and other 55,667
565
841
55,391
$ 3,337,991
$ 75,677
$ 20,233
$ 3,393,435
Securities held-to-maturity:

State and municipal securities $ 189,684
$ 13,137
$ —
$ 202,821
$ 189,684
$ 13,137
$ —
$ 202,821

December 31, 2018:
Securities available-for-sale:
U.S. Treasury securities $ 30,325
$ —
$ 25
$ 30,300
U.S. government agency securities 71,456
49
1,346
70,159
Mortgage-backed securities 1,336,469
3,110
28,634
1,310,945
State and municipal securities 1,259,267
1,126
30,739
1,229,654
Asset-backed securities 379,107
820
4,345
375,582
Corporate notes and other 69,399
170
2,523
67,046
$ 3,146,023
$ 5,275
67,612
$ 3,083,686
Securities held-to-maturity:

State and municipal securities $ 194,282
$ 152
$ 1,303
$ 193,131
$ 194,282
$ 152
$ 1,303
$ 193,131


December 31, 2019:
Securities available-for-sale:
U.S. Treasury securities	$	72,862	$	19	$	14	$	72,867
U.S. government agency securities	80,096		306		710		79,692
Mortgage-backed securities	1,458,894		12,789		7,776		1,463,907
State and municipal securities	1,669,606		52,096		7,249		1,714,453
Asset-backed securities	153,963		302		1,293		152,972
Corporate notes and other	56,212		635		743		56,104
	$	3,491,633	$	66,147	17,785		$	3,539,995
Securities held-to-maturity:
State and municipal securities	$	188,996	$	12,221	$	0	$	201,217
	$	188,996	$	12,221	$	0	$	201,217

During the first quarter of 2020, Pinnacle Financial transferred, at fair value, $873.6 million of municipal securities from the available-for-sale portfolio to the held-to-maturity portfolio. The related unrealized after tax gains of $69.0 million remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities. No gains or losses were recognized at the time of transfer. At September 30, ~~2019,~~2020, approximately $1.2 billion of securities within Pinnacle Financial's investment portfolio were pledged to secure either public funds and other deposits or securities sold under agreements to repurchase. At September 30, ~~2019,~~2020, repurchase agreements comprised of secured borrowings totaled ~~$95.4~~$127.1 million and were secured by ~~$95.4~~$127.1 million of pledged U.S. government agency securities, municipal securities, asset-backed securities, and corporate debentures. As the fair value of securities pledged to secure repurchase agreements may decline, Pinnacle Financial regularly evaluates its need to pledge additional securities to remain adequately secured.

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The amortized cost and fair value of debt securities as of September 30, ~~2019~~2020 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
September 30, 2020:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	85,090	$	85,120	$	0	$	0
Due in one year to five years	12,059		12,446		1,409		1,482
Due in five years to ten years	175,812		181,102		7,209		7,293
Due after ten years	1,317,843		1,314,703		1,031,223		1,052,072
Mortgage-backed securities	1,634,329		1,701,212		0		0
Asset-backed securities	169,540		168,839		0		0
	$	3,394,673	$	3,463,422	$	1,039,841	$	1,060,847

Available-for-sale Held-to-maturity
September 30, 2019:
Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
Due in one year or less $ 63,488
$ 63,507
$ 1,394
$ 1,394
Due in one year to five years 16,772
16,986
—
—
Due in five years to ten years 106,774
107,322
5,775
5,877
Due after ten years 1,668,670
1,708,370
182,515
195,550
Mortgage-backed securities 1,318,953
1,334,517
—
—
Asset-backed securities 163,334
162,733
—
—
$ 3,337,991
$ 3,393,435
$ 189,684
$ 202,821

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 September 30, 2020
U.S. Treasury securities	$	25,973	$	2	$	0	$	0	$	25,973	$	2
U.S. government agency securities	10,576		4		6,360		25		16,936		29
Mortgage-backed securities	138,532		1,746		39,350		682		177,882		2,428
State and municipal securities	199,365		3,608		539,131		24,676		738,496		28,284
Asset-backed securities	74,977		355		67,973		816		142,950		1,171
Corporate notes	26,309		174		22,880		3,200		49,189		3,374
Total temporarily-impaired securities	$	475,732	$	5,889	$	675,694	$	29,399	$	1,151,426	$	35,288

At December 31, 2019
U.S. Treasury securities	$	40,505	$	14	$	0	$	0	$	40,505	$	14
U.S. government agency securities	1,222		1		30,892		709		32,114		710
Mortgage-backed securities	458,881		5,102		163,767		2,674		622,648		7,776
State and municipal securities	204,958		1,938		244,884		5,311		449,842		7,249
Asset-backed securities	75,488		796		59,816		497		135,304		1,293
Corporate notes	0		0		16,908		743		16,908		743
Total temporarily-impaired securities	$	781,054	$	7,851	$	516,267	$	9,934	$	1,297,321	$	17,785

Investments with an Unrealized Loss of
less than 12 months

Investments with an Unrealized Loss of
12 months or longer

Total Investments with an
Unrealized Loss
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value
Unrealized
Losses
At September 30, 2019
U.S. Treasury securities $ 9,622
$ 4
$ —
$ —
$ 9,622
$ 4
U.S. government agency securities 2,942
5
33,247
829
36,189
834
Mortgage-backed securities 116,784
515
210,395
3,150
327,179
3,665
State and municipal securities 214,033
1,874
383,023
11,813
597,056
13,687
Asset-backed securities 69,921
699
57,709
503
127,630
1,202
Corporate notes 14,959
120
12,053
721
27,012
841
Total temporarily-impaired securities $ 428,261
$ 3,217
$ 696,427
$ 17,016
$ 1,124,688
$ 20,233

At December 31, 2018

U.S. Treasury securities $ 30,054
$ 22
$ 246
$ 3
$ 30,300
$ 25
U.S. government agency securities 13,697
328
42,539
1,018
56,236
1,346
Mortgage-backed securities 203,299
2,134
882,231
26,500
1,085,530
28,634

The applicable dates for determining when securities were in an unrealized loss position were September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. As such, it is possible that a security had a market value less than its amortized cost on other days during the past twelve-month periods ended September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, but is not in the "Investments with an Unrealized Loss of lessthan 12 months" category above.

As shown in the tables above, including both available-for-sale and held-to-maturity investment securities, at September 30, ~~2019,~~2020, Pinnacle Financial had approximately ~~$20.2~~$35.3 million in unrealized losses on ~~$1.1~~$1.2 billion of securities. The unrealized losses associated with $873.6 million and $179.8 million of municipal securities transferred from the available-for-sale portfolio to the held-to-maturity portfolio induring the quarters ended March 31, 2020 and September 30, 2018, ~~described below~~respectively, represent unrealized losses since the date of purchase, independent of the impact associated with changes in the cost basis upon transfer between portfolios. As described in Note 1. Summary of Significant Accounting Policies, for any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, Pinnacle Financial assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because Pinnacle Financial currently does not intend to sell those securities that have an unrealized loss at September 30, 2020, and it is not more-likely-than-not that Pinnacle Financial will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, Pinnacle Financial has determined that no write-down is necessary. In addition, Pinnacle Financial evaluates whether any portion of the decline in fair value is the result of credit deterioration, which would require the recognition of an

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allowance for credit losses. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. The unrealized losses associated with ~~these investment~~ securities at September 30, 2020 are driven by changes in interest rates and are not due to the credit quality of the ~~securities.~~securities, and accordingly, no allowance for credit losses is considered necessary related to available-for-sale securities at September 30, 2020. These securities will continue to be monitored as a part of Pinnacle Financial's ongoing ~~impairment analysis.~~evaluation of credit quality. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments. ~~Because~~

The allowance for credit losses on held-to-maturity securities is measured on a collective basis by major security type as described in Note 1. Summary of Significant Accounting Policies. At September 30, 2020, Pinnacle ~~Financial currently does not intend~~Financial's held-to-maturity securities consist entirely of municipal securities. A reasonable and supportable period of 18 months and reversion period of 12 months was utilized to ~~sell those~~estimate credit losses on held-to-maturity municipal securities ~~that have an unrealized loss~~ at September 30, ~~2019, and it is not more-likely-than-not that~~ 2020. With the implementation of CECL effective January 1, 2020, estimated credit losses on held-to-maturity municipal securities totaled approximately $10,000. At September 30, 2020, the estimated allowance for credit losses on these securities increased to $191,000, with the increase driven largely by changes in macroeconomic projections.

Pinnacle Financial ~~will be required~~utilizes bond credit ratings assigned by third party ratings agencies to ~~sell~~monitor the credit quality of debt 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~~held-to-maturity. At September 30, ~~2019.~~

In2020, all debt securities classified as held-to-maturity were rated A or higher by the ~~third quarter of 2018, Pinnacle Financial transferred, at fair value, $179.8 million of municipal securities~~ratings agencies. Updated credit ratings are obtained as they become available from the available-for-sale portfolio to the held-to-maturity portfolio. The related net unrealized after tax losses of $2.2 million remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities. No gains or losses were recognized at the time of the transfer.ratings agencies.

Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality or marketability, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements and raising funds for liquidity purposes or preparing for anticipated changes in market interest rates. Additionally, if an available-for-sale security loses its investment grade or tax-exempt status, the underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to management, Pinnacle Financial will consider selling the security, but will review each security on a case-by-case basis as these factors become known. Consistent with the investment policy, during the ~~three and~~ nine months ended September 30, ~~2019~~2020, available-for-sale securities of approximately ~~$149.4~~$145.6 million ~~and $626.1 million, respectively,~~ were sold and net unrealized gains, net of tax, of ~~$308,000 and net unrealized losses, net of tax, of $4.4 million, respectively,~~$728,000 were reclassified from accumulated other comprehensive income into net income.

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. Additionally, there is 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. Pinnacle Financial has entered into various fair value hedging transactions to mitigate the impact of changing interest rates on the fair values of available for sale securities. See Note 8. Derivative Instruments for disclosure of the gains and losses recognized on derivative instruments and the cumulative fair value hedging adjustments to the carrying amount of the hedged securities.

Note 4. Loans and Allowance for ~~Loan~~Credit 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 by Pinnacle Bank with the Federal Deposit Insurance Corporation (FDIC).

Pinnacle Financial uses ~~five~~the following loan ~~categories:~~categories for presentation of loan balances and the related allowance for credit losses on loans:

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Construction and land development loans include 1-4 family construction projects and commercial construction endeavors such as warehouses, apartments, office and retail space and land acquisition and development.

•Consumer and other loans - Consumer and other loans include all loans issued to individuals not included in the consumer real estate mortgage ~~construction and land development, commercial and industrial, and~~classification. Examples of consumer and ~~other.~~other loans are automobile loans, consumer credit cards and loans to finance education, among others. Many consumer loans are unsecured. Repayment is primarily dependent on the personal cash flow of the borrower.

•

~~Commercial real estate mortgage loans~~

Loans at September 30, 2020 and December 31, 2019 were as follows:


	September 30, 2020		December 31, 2019
Commercial real estate:
Owner occupied	$	2,748,075	$	2,669,766
Non-owner occupied	5,220,452		5,039,452
Consumer real estate – mortgage	3,041,019		3,068,625
Construction and land development	2,728,439		2,430,483
Commercial and industrial	8,395,963		6,290,296
Consumer and other	343,461		289,254
Subtotal	$	22,477,409	$	19,787,876
Allowance for credit losses	(288,645)		(94,777)
Loans, net	$	22,188,764	$	19,693,099

. Commercial real estate mortgage loans are categorized as such based on investor exposures where repayment is largely dependent upon the operation, refinance, or sale of the underlying real estate. Commercial real estate mortgage loans also includes owner-occupied commercial real estate which Pinnacle Financial believes shares a similar risk profile to Pinnacle Financial's commercial and industrial products.


•	~~Consumer real estate mortgage loans. Consumer real estate mortgage consists primarily of loans secured by 1-4 family residential properties, including home equity lines of credit.~~

•

~~Construction and land development loans~~. Construction and land development loans include loans where the repayment is dependent on the successful operation of the related real estate project. Construction and land development loans include 1-4 family construction projects and commercial construction endeavors such as warehouses, apartments, office and retail space and land acquisition and development.


•	~~Commercial and industrial loans. Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.~~


•	~~Consumer and other loans~~. Consumer and other loans include all loans issued to individuals not included in the consumer real estate mortgage classification. Examples of consumer and other loans are automobile loans, credit cards and loans to finance education, among others.

Commercial loans receive risk ratings assigned by a 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 ~~six distinct~~multiple ratings categories ~~for loans that represent specific attributes.~~representing varying degrees of risk attributes lesser than those of the other defined risk categories further described below. Pinnacle Financial believes ~~that~~ its categories follow those used by Pinnacle Bank's primary regulators. At September 30, ~~2019,~~2020, approximately ~~79.5%~~82% of Pinnacle Financial's loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating. 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. Consumer loans that have been placed on nonaccrual but have not otherwise been assigned a risk rating are believed by management to share risk characteristics with loans rated substandard-nonaccrual and have been presented as such in Pinnacle Financial's risk rating disclosures.

Risk ratings are subject to continual review by a financial advisor and a senior credit officer. At least annually, Pinnacle Financial's credit procedures require ~~that~~ every risk rated loan of $1.0 million or more be subject to a formal credit risk review process. Each loan's risk rating is also subject to review by Pinnacle Financial's independent loan review department, which reviews a substantial portion of Pinnacle Financial's 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~~ Substantial credit risk review procedures have been performed during the nine months ended September 30, 2020 to assess the impacts of the COVID-19 pandemic on the loan portfolio, and the results of these procedures are reflected in Pinnacle Financial's ~~loan balances by primary loan classification and the amount within each~~ risk rating ~~category.~~disclosures as of September 30, 2020.

Following are the definitions of the risk rating categories used by Pinnacle Financial. Pass rated loans include all credits other than those included ~~in special mention, substandard, substandard-nonaccrual and doubtful-nonaccrual which are defined as follows:~~within these categories:

•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 net worth and financial 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.

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Substandard loans are characterized by the distinct possibility that Pinnacle Financial could 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 table below presents loan balances classified within each risk rating category by primary loan type and based on year of origination as of September 30, 2020 (in thousands):


September 30, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Commercial real estate- owner occupied
Pass	$	514,127	$	473,410	$	497,269	$	347,792	$	368,441	$	304,692	$	79,208	$	2,584,939
Special Mention	3,349		11,949		23,805		12,775		3,901		5,698		0		61,477
Substandard (1)	21,725		6,251		7,828		15,991		8,986		2,119		28,134		91,034
Substandard-nonaccrual	901		155		989		1,463		1,720		3,592		1,805		10,625
Doubtful-nonaccrual	0		0		0		0		0		0		0		0
Total Commercial real estate - owner occupied	$	540,102	$	491,765	$	529,891	$	378,021	$	383,048	$	316,101	$	109,147	$	2,748,075
Commercial real estate- Non-owner occupied
Pass	$	1,011,392	$	1,035,694	$	765,605	$	560,797	$	509,620	$	403,696	$	54,308	$	4,341,112
Special Mention	165,690		120,702		121,523		157,652		144,731		128,007		11,028		849,333
Substandard (1)	6,696		1,495		5,699		6,120		1,015		2,972		0		23,997
Substandard-nonaccrual	0		437		745		139		840		3,849		0		6,010
Doubtful-nonaccrual	0		0		0		0		0		0		0		0
Total Commercial real estate - Non-owner occupied	$	1,183,778	$	1,158,328	$	893,572	$	724,708	$	656,206	$	538,524	$	65,336	$	5,220,452
Consumer real estate – mortgage
Pass	$	462,452	$	539,068	$	372,363	$	183,725	$	142,646	$	341,108	$	955,781	$	2,997,143
Special Mention	102		2,695		2,929		644		0		1,040		8,739		16,149
Substandard (1)	0		546		0		895		9		2,274		2,108		5,832
Substandard-nonaccrual	169		1,677		1,003		1,426		2,627		11,027		3,966		21,895
Doubtful-nonaccrual	0		0		0		0		0		0		0		0
Total Consumer real estate – mortgage	$	462,723	$	543,986	$	376,295	$	186,690	$	145,282	$	355,449	$	970,594	$	3,041,019
Construction and land development
Pass	$	849,025	$	1,209,363	$	471,069	$	77,146	$	20,229	$	10,394	$	15,858	$	2,653,084
Special Mention	6,924		33,253		26,062		0		4,244		0		0		70,483
Substandard (1)	619		681		29		0		240		150		0		1,719
Substandard-nonaccrual	391		554		77		83		0		2,048		0		3,153
Doubtful-nonaccrual	0		0		0		0		0		0		0		0
Total Construction and land development	$	856,959	$	1,243,851	$	497,237	$	77,229	$	24,713	$	12,592	$	15,858	$	2,728,439
Commercial and industrial
Pass	$	3,566,925	$	1,227,003	$	779,760	$	349,805	$	149,094	$	98,086	$	1,946,224	$	8,116,897
Special Mention	20,986		50,577		8,568		8,385		8,216		2,081		58,186		156,999
Substandard (1)	27,070		19,268		17,377		3,016		579		2,074		23,735		93,119
Substandard-nonaccrual	14,039		5,459		382		4,676		197		258		3,937		28,948
Doubtful-nonaccrual	0		0		0		0		0		0		0		0
Total Commercial and industrial	$	3,629,020	$	1,302,307	$	806,087	$	365,882	$	158,086	$	102,499	$	2,032,082	$	8,395,963
Consumer and other
Pass	$	113,807	$	23,974	$	8,182	$	8,379	$	4,635	$	2,142	$	181,583	$	342,702
Special Mention	0		0		0		0		0		0		0		0
Substandard (1)	0		0		0		0		0		0		0		0
Substandard-nonaccrual	0		0		2		7		12		2		736		759
Doubtful-nonaccrual	0		0		0		0		0		0		0		0
Total Consumer and other	$	113,807	$	23,974	$	8,184	$	8,386	$	4,647	$	2,144	$	182,319	$	343,461

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September 30, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Total loans
Pass	$	6,517,728	$	4,508,512	$	2,894,248	$	1,527,644	$	1,194,665	$	1,160,118	$	3,232,962	$	21,035,877
Special Mention	197,051		219,176		182,887		179,456		161,092		136,826		77,953		1,154,441
Substandard (1)	56,110		28,241		30,933		26,022		10,829		9,589		53,977		215,701
Substandard-nonaccrual	15,500		8,282		3,198		7,794		5,396		20,776		10,444		71,390
Doubtful-nonaccrual	0		0		0		0		0		0		0		0
Total loans	$	6,786,389	$	4,764,211	$	3,111,266	$	1,740,916	$	1,371,982	$	1,327,309	$	3,375,336	$	22,477,409

The following table outlines the ~~amount~~risk category of ~~each loan classification categorized into each risk rating category~~loans as of ~~September 30, 2019 and~~ December 31, ~~2018~~2019 (in thousands):


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
December 31, 2019
Pass	$	7,499,725	$	3,019,203	$	2,422,347	$	6,069,757	$	288,361	$	19,299,393
Special Mention	51,147		13,787		2,816		79,819		698		148,267
Substandard (1)	139,518		10,969		3,042		125,035		47		278,611
Substandard-nonaccrual	18,828		24,666		2,278		15,685		148		61,605
Doubtful-nonaccrual	0		0		0		0		0		0
Total loans	$	7,709,218	$	3,068,625	$	2,430,483	$	6,290,296	$	289,254	$	19,787,876

Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial Consumer
and other Total
September 30, 2019
Pass $ 7,478,442
$ 2,983,694
$ 2,244,217
$ 5,648,775
$ 465,607
$ 18,820,735
Special Mention 89,057
5,771
2,846
95,743
710
194,127
Substandard ⁽¹⁾
119,155
12,948
4,193
121,160
61
257,517
Substandard-nonaccrual 22,591
23,089
2,047
25,360
176
73,263
Doubtful-nonaccrual —
—
—
—
—
—
Total loans $ 7,709,245
$ 3,025,502
$ 2,253,303
$ 5,891,038
$ 466,554
$ 19,345,642

Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial Consumer
and other Total
December 31, 2018
Pass $ 6,998,485
$ 2,787,570
$ 2,059,376
$ 5,148,726
$ 352,516
$ 17,346,673
Special Mention 55,932
7,902
4,334
24,284
711
93,163
Substandard ⁽¹⁾
78,202
20,906
5,358
75,351
62
179,879
Substandard-nonaccrual 32,335
28,069
3,387
23,060
983
87,834
Doubtful-nonaccrual —
—
—
—
—
—
Total loans $ 7,164,954
$ 2,844,447
$ 2,072,455
$ 5,271,421
$ 354,272
$ 17,707,549

(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 troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately ~~$254.0~~$215.7 million at September 30, ~~2019,~~2020, compared to ~~$176.3~~$276.0 million at December 31, ~~2018.~~2019.

~~Loans acquired with deteriorated credit quality are recorded pursuant to~~The table below presents the ~~provisions~~aging of ~~ASC 310-30,~~past due balances by loan segment at September 30, 2020 and ~~are referred to as purchased credit impaired loans. The following table provides a rollforward of purchased credit impaired loans from~~ December 31, ~~2018 through September 30,~~ 2019 (in thousands):


September 30, 2020	30-59 days past due		60-89 days past due		90 days or more past due				Total past due		Current		Total loans
Commercial real estate:
Owner-occupied	$	3,365	$	415	$	4,226			$	8,006	$	2,740,069	$	2,748,075
Non-owner occupied	1,612		1,928		5,353				8,893		5,211,559		5,220,452
Consumer real estate – mortgage	7,852		1,338		5,971				15,161		3,025,858		3,041,019
Construction and land development	2,417		0		2,031				4,448		2,723,991		2,728,439
Commercial and industrial	6,615		4,743		4,986				16,344		8,379,619		8,395,963
Consumer and other	846		82		1,220				2,148		341,313		343,461
Total	$	22,707	$	8,506	$	23,787			$	55,000	$	22,422,409	$	22,477,409

December 31, 2019
Commercial real estate:
Owner-occupied	$	2,307	$	2,932	$	1,719			$	6,958	$	2,662,808	$	2,669,766
Non-owner occupied	3,156		3,641		3,816				10,613		5,028,839		5,039,452
Consumer real estate – mortgage	11,646		2,157		7,304				21,107		3,047,518		3,068,625
Construction and land development	1,392		711		1,487				3,590		2,426,893		2,430,483
Commercial and industrial	8,474		2,478		6,364				17,316		6,272,980		6,290,296
Consumer and other	1,770		414		570				2,754		286,500		289,254
Total	$	28,745	$	12,333	$	21,260	$	21,260	$	62,338	$	19,725,538	$	19,787,876

Gross Carrying Value
Accretable
Yield
Nonaccretable
Yield
Net Carrying
Value
December 31, 2018 $ 42,837
$ (114 ) $ (17,394 ) $ 25,329
Acquisition 1,883
—
—
1,883
Reclassification of yield from nonaccretable to accretable —
(7,505 ) 7,505
—
Year-to-date settlements (12,020 ) 1,451
4,229
(6,340 )
September 30, 2019 $ 32,700
$ (6,168 ) $ (5,660 ) $ 20,872

~~Certain~~

Table of these loans have been deemed to be collateral dependent and, as such, no accretable yield has been recorded for these loans. Amounts are reclassified between accretable and nonaccretable yield as cash flow analyses performed onContents

The following table details the ~~individual loans indicate an increase or decrease~~changes in the ~~amount of cash flows expected to be collected. The carrying value is adjusted~~allowance 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.

Impaired loans include nonaccrual loans, troubled debt restructurings, and other loans deemed to be impaired but that continue to accrue interest. The following tables detail the recorded investment, unpaid principal balance and related allowance of Pinnacle Financial's impaired loans at September 30, 2019 and December 31, 2018 by loan classification (in thousands):

At September 30, 2019 At December 31, 2018
Recorded investment Unpaid principal balances Related allowance Recorded investment Unpaid principal balances Related allowance
Impaired loans with an allowance:
Commercial real estate – mortgage $ 13,462
$ 13,472
$ 1,021
$ 14,114
$ 14,124
$ 724
Consumer real estate – mortgage 19,245
19,368
1,065
19,864
19,991
1,443
Construction and land development 275
271
15
581
579
28
Commercial and industrial 11,591
11,566
1,497
9,252
9,215
1,441

At September 30, 2019 At December 31, 2018
Recorded investment Unpaid principal balances Related allowance Recorded investment Unpaid principal balances Related allowance
Consumer and other 176
174
10
983
1,005
328
Total $ 44,749
$ 44,851
$ 3,608
$ 44,794
$ 44,914
$ 3,964

Impaired loans without an allowance:

Commercial real estate – mortgage $ 8,356
$ 8,366
$ —
$ 14,724
$ 14,739
$ —
Consumer real estate – mortgage 4,960
4,958
—
7,247
7,271
—
Construction and land development 20
19
—
1,786
1,786
—
Commercial and industrial 12,897
12,890
—
14,595
14,627
—
Consumer and other —
—
—
—
—
—
Total $ 26,233
$ 26,233
$ —
$ 38,352
$ 38,423
$ —

Total impaired loans $ 70,982
$ 71,084
$ 3,608
$ 83,146
$ 83,337
$ 3,964

~~For~~credit losses for the three and nine months ended September 30, 2020 and 2019, respectively, by loan classification (in thousands):


	Commercial real estate - Owner occupied		Commercial real estate - Non-owner occupied		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
Three months ended September 30, 2020:
Balance at June 30, 2020	$	38,803	$	68,426	$	29,358	$	41,897	$	100,610	$	6,278	$	0	$	285,372
Charged-off loans	(186)		(222)		(907)		0		(12,984)		(730)		0		(15,029)
Recovery of previously charged-off loans	47		432		297		7		799		391		0		1,973
Provision for credit losses on loans	(2,238)		1,223		3,201		(682)		13,783		1,042		0		16,329
Balance at September 30, 2020	$	36,426	$	69,859	$	31,949	$	41,222	$	102,208	$	6,981	$	0	$	288,645
Three months ended September 30, 2019:
Balance at June 30, 2019	$	12,174	$	18,652	$	8,489	$	11,206	$	37,436	$	2,114	$	182	$	90,253
Charged-off loans	(40)		(62)		(194)		(14)		(5,082)		(1,388)		0		(6,780)
Recovery of previously charged-off loans	135		74		901		97		407		300		0		1,914
Provision for credit losses on loans	(112)		1,796		(1,426)		585		1,814		3,278		2,325		8,260
Balance at September 30, 2019	$	12,157	$	20,460	$	7,770	$	11,874	$	34,575	$	4,304	$	2,507	$	93,647
Nine months ended September 30, 2020:
Balance at December 31, 2019	$	13,406	$	19,963	$	8,054	$	12,662	$	36,112	$	3,595	$	985	$	94,777
Impact of adopting ASC 326	264		(4,740)		21,029		(3,144)		23,040		2,638		(985)		38,102
Charged-off loans	(1,247)		(485)		(3,033)		0		(27,982)		(2,977)		0		(35,724)
Recovery of previously charged-off loans	272		631		971		100		3,798		1,356		0		7,128
Provision for credit losses on loans	23,731		54,490		4,928		31,604		67,240		2,369		0		184,362
Balance at September 30, 2020	$	36,426	$	69,859	$	31,949	$	41,222	$	102,208	$	6,981	$	0	$	288,645
Nine months ended September 30, 2019:
Balance at December 31, 2018	$	11,297	$	15,649	$	7,670	$	11,128	$	31,731	$	5,423	$	677	$	83,575
Charged-off loans	(1,626)		(75)		(1,124)		(18)		(13,842)		(4,643)		0		(21,328)
Recovery of previously charged-off loans	211		962		1,642		238		4,749		959		0		8,761
Provision for credit losses on loans	2,275		3,924		(418)		526		11,937		2,565		1,830		22,639
Balance at September 30, 2019	$	12,157	$	20,460	$	7,770	$	11,874	$	34,575	$	4,304	$	2,507	$	93,647

The following table details the ~~average~~allowance for credit losses on loans and recorded investment in loans by loan classification and by impairment evaluation method as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
December 31, 2019
Allowance for Loan Losses:
Collectively evaluated for impairment	$	32,134	$	6,762	$	12,629	$	35,401	$	3,586			$	90,512
Individually evaluated for impairment	1,235		1,292		33		711		9				3,280
Loans acquired with deteriorated credit quality(1)	0		0		0		0		0				0
Total allowance for loan losses	$	33,369	$	8,054	$	12,662	$	36,112	$	3,595	$	985	$	94,777

Loans:
Collectively evaluated for impairment	$	7,681,608	$	3,036,922	$	2,426,901	$	6,274,280	$	289,106			$	19,708,817
Individually evaluated for impairment	18,122		25,018		561		14,295		148				58,144
Loans acquired with deteriorated credit quality	9,488		6,685		3,021		1,721		0				20,915
Total loans	$	7,709,218	$	3,068,625	$	2,430,483	$	6,290,296	$	289,254			$	19,787,876

(1) Prior to the adoption of ASC 326 on January 1, 2020, an allowance for loan losses was recorded on loans acquired with deteriorated credit quality only in the event of additional credit deterioration subsequent to acquisition.

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The adequacy of the allowance for credit losses is reviewed by Pinnacle Financial's management on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

As described in Note 1. Summary of Significant Accounting Policies, Pinnacle Financial adopted ASU 2016-13 on January 1, 2020, which introduced the CECL methodology for estimating all expected losses over the life of a financial asset. Under the CECL methodology the allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. At September 30, 2020, Pinnacle Financial utilized a reasonable and supportable period of eighteen months for all loan segments, followed by a twelve month straight line reversion to long term averages. Upon adoption of ASU 2016-13, the opening balance of ~~impaired~~the allowance for credit losses was increased by $38.1 million through retained earnings. The additional increase during the nine months ended September 30, 2020 is primarily attributable to the change in projected economic conditions resulting from the COVID-19 pandemic, with elevated levels of the unemployment rate being the most significant driver.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine

expected credit losses:


September 30, 2020	Real Estate		Business Assets		Other		Total
Commercial real estate:
Owner-occupied	14,955		0		0		14,955
Non-owner occupied	11,294		0		0		11,294
Consumer real estate – mortgage	27,122		0		0		27,122
Construction and land development	4,362		0		0		4,362
Commercial and industrial	2,052		28,692		45		30,789
Consumer and other	0		0		21		21
Total	$	59,785	$	28,692	$	66	$	88,543

The table below presents the amortized cost basis of loans on nonaccrual status and loans past due 90 or more days and still accruing interest at September 30, 2020 and December 31, 2019. Also presented is the balance of loans on nonaccrual status at September 30, 2020 for which there was ~~$73.6 million and $81.6 million, respectively, compared to $82.3 million and $73.3 million, respectively,~~no related allowance for ~~the same periods in 2018.~~ credit losses recorded (in thousands):


	September 30, 2020						December 31, 2019
	Total nonaccrual loans		Nonaccrual loans with no allowance for credit losses		Loans past due 90 or more days and still accruing		Total nonaccrual loans		Loans past due 90 or more days and still accruing
Commercial real estate:
Owner-occupied	$	10,625	$	5,704	$	0	$	11,654	$	0
Non-owner occupied	6,010		0		0		7,173		0
Consumer real estate – mortgage	21,895		0		281		24,667		168
Construction and land development	3,152		1,152		0		2,278		0
Commercial and industrial	28,948		7,960		563		15,685		946
Consumer and other	760		0		469		148		501
Total	$	71,390	$	14,816	$	1,313	$	61,605	$	1,615

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Pinnacle Financial's policy is ~~that~~ the accrual of interest income will be discontinued 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 loans are placed on nonaccrual status, Pinnacle Financial reverses all previously accrued interest income against current year earnings. 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. ~~As detailed in the following table,~~ Pinnacle Financial recognized 0 interest income from cash payments received on nonaccrual loans during the three and nine months ended September 30, 2020 and the three months ended September 30, 2019 ~~and~~compared to $176,000 ~~in interest income from cash payments received on nonaccrual loans~~ during the nine months ended September 30, 2019, ~~compared to $84,000 and $337,000, respectively, during the three and nine months ended September 30, 2018.~~respectively. Had these nonaccruing loans been on accruing status, interest income would have been higher by $910,000 and $2.1 million for the three and nine months ended September 30, 2020, respectively, compared to $1.3 million and $3.5 million ~~respectively,~~higher for the three and nine months ended September 30, 2019, ~~compared to $1.1~~respectively. Approximately $40.7 million and ~~$2.8~~$35.8 million ~~higher, respectively, for the three and nine months ended~~of nonaccrual loans as of September 30, ~~2018.~~2020 and December 31, 2019, respectively, were performing pursuant to their contractual terms at those dates.

The following table presents impaired loans at December 31, 2019 as determined under ASC 310 prior to the adoption of ASU 2016-13. Impaired loans generally include nonaccrual loans, troubled debt restructurings, and other loans deemed to be impaired but that continue to accrue interest. Presented are the recorded investment, unpaid principal balance and related allowance of impaired loans at December 31, 2019 by loan classification (in thousands):


	At December 31, 2019
	Recorded investment		Unpaid principal balances		Related allowance
Impaired loans with an allowance:
Commercial real estate – mortgage	$	9,998	$	10,983	$	1,235
Consumer real estate – mortgage	20,996		23,105		1,292
Construction and land development	542		654		33
Commercial and industrial	4,074		5,381		711
Consumer and other	148		182		9
Total	$	35,758	$	40,305	$	3,280

Impaired loans without an allowance:
Commercial real estate – mortgage	$	8,124	$	8,891	$	0
Consumer real estate – mortgage	4,022		4,021		0
Construction and land development	19		17		0
Commercial and industrial	10,221		11,322		0
Consumer and other	0		0		0
Total	$	22,386	$	24,251	$	0

Total impaired loans	$	58,144	$	64,556	$	3,280

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The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the three and nine months ended September 30, 2019, ~~and 2018,~~ respectively, of impaired loans by loan classification as determined under ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


	Three months ended				Nine months ended
	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage	$	13,050	$	0	$	14,689	$	0
Consumer real estate – mortgage	19,508		0		20,887		0
Construction and land development	451		0		587		0
Commercial and industrial	11,113		0		10,070		0
Consumer and other	143		0		400		0
Total	$	44,265	$	0	$	46,633	$	0

Impaired loans without an allowance:
Commercial real estate – mortgage	$	9,344	$	0	$	12,521	$	176
Consumer real estate – mortgage	7,922		0		8,381		0
Construction and land development	10		0		452		0
Commercial and industrial	12,108		0		13,625		0
Consumer and other	0		0		0		0
Total	$	29,384	$	0	$	34,979	$	176

Total impaired loans	$	73,649	$	0	$	81,612	$	176

For the three months ended
September 30, For the nine months ended
September 30,
2019 2018 2019 2018
Average recorded investment Interest income recognized Average recorded investment Interest income recognized Average recorded investment Interest income recognized Average recorded investment Interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage $ 13,050
$ —
$ 13,474
$ —
$ 14,689
$ —
$ 9,297
$ —
Consumer real estate – mortgage 19,508
—
14,162
—
20,887
—
11,476
—
Construction and land development 451
—
1,150
—
587
—
1,301
—
Commercial and industrial 11,113
—
7,470
—
10,070
—
9,345
—
Consumer and other 143
—
912
—
400
—
651
—
Total $ 44,265
$ —
$ 37,168
$ —
$ 46,633
$ —
$ 32,070
$ —

Impaired loans without an allowance:

Commercial real estate – mortgage $ 9,344
$ —
$ 22,029
$ 84
$ 12,521
$ 176
$ 18,702
$ 337
Consumer real estate – mortgage 7,922
—
5,699
—
8,381
—
5,034
—
Construction and land development 10
—
1,442
—
452
—
1,382
—
Commercial and industrial 12,108
—
16,008
—
13,625
—
16,096
—
Consumer and other —
—
—
—
—
—
—
—
Total $ 29,384
$ —
$ 45,178
$ 84
$ 34,979
$ 176
$ 41,214
$ 337

Total impaired loans $ 73,649
$ —
$ 82,346
$ 84
$ 81,612
$ 176
$ 73,284
$ 337

Prior to the adoption of ASU 2016-13, loans acquired with deteriorated credit quality, referred to under ASC 310-30 as purchased credit impaired loans and under ASU 2016-13 as purchased credit deteriorated loans, were assigned a credit related purchase discount and non-credit related purchase discount at acquisition. Upon adoption of ASU 2016-13 on January 1, 2020, the remaining credit related discount was re-classified to a component of the allowance for credit losses. The remaining non-credit discount will continue to be accreted into income over the remaining lives of the related loans. The following table provides a rollforward of purchased credit deteriorated loans from December 31, 2019 through September 30, 2020 (in thousands):


	Gross Carrying Value		Accretable Yield		Nonaccretable Yield		Net Carrying Value
December 31, 2019	$	29,544	$	(4,801)	$	(3,828)	$	20,915

Reclassification of discount to allowance for credit losses	0		0		3,828		3,828
Year-to-date settlements	(5,600)		2,240		0		(3,360)
September 30, 2020	$	23,944	$	(2,561)	$	0	$	21,383

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.

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were ~~$5.8~~$2.6 million and ~~$5.9~~$4.9 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which were accruing interest. Troubled commercial loans are restructured by specialists within Pinnacle Bank's Special Assets Group, and all restructurings are approved by committees and/or 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.

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The following table outlines the amount of each loan category where troubled debt restructurings were made during the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (dollars in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
	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
2020
Commercial real estate:
Owner-occupied	0	$	0	$	0	0	$	0	$	0
Non-owner occupied	0	0		0		0	0		0
Consumer real estate – mortgage	0	0		0		1	807		807
Construction and land development	0	0		0		0	0		0
Commercial and industrial	0	0		0		0	0		0
Consumer and other	0	0		0		0	0		0
	0	$	0	$	0	1	$	807	$	807

2019
Commercial real estate:
Owner-occupied	1	$	314	$	297	1	$	314	$	297
Non-owner occupied	0	0		0		0	0		0
Consumer real estate – mortgage	0	0		0		1	712		626
Construction and land development	0	0		0		1	21		19
Commercial and industrial	0	0		0		1	1,397		796
Consumer and other	0	0		0		0	0		0
	1	$	314	$	297	4	$	2,444	$	1,738

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 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 1
$ 314
$ 297
1
$ 314
$ 297
Consumer real estate – mortgage —
—
—
1
712
626
Construction and land development —
—
—
1
21
19
Commercial and industrial —
—
—
1
1,397
796
Consumer and other —
—
—
—
—
—
1
$ 314
$ 297
4
$ 2,444
$ 1,738

2018
Commercial real estate – mortgage —
$ —
$ —
—
$ —
$ —
Consumer real estate – mortgage 1
169
169
2
206
206
Construction and land development 1
348
348
1
348
348
Commercial and industrial —
—
—
—
—
—
Consumer and other —
—
—
—
—
—
2
$ 517
$ 517
3
$ 554
$ 554

There were no troubled debt restructurings made during the three months ended September 30, 2020. During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, there were 0 troubled debt restructurings that subsequently defaulted within twelve months of the restructuring.

~~At September~~In response to the COVID-19 pandemic and its economic impact to its customers, Pinnacle Bank implemented a short-term modification program in accordance with interagency regulatory guidance to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 ~~2019~~days past due at the time of the modification. This program allows for a deferral of payments for 90 days, which Pinnacle Bank may extend for an additional 90 days, for a maximum of 180 days on a cumulative and ~~December 31, 2018,~~successive basis. Pursuant to interagency guidance, such short-term deferrals are not deemed to meet the ~~allowance~~criteria for ~~loan losses included 0 allowance specifically related to accruing~~reporting as troubled debt ~~restructurings, which are classified as impaired loans pursuant to U.S. GAAP, but which continued to accrue interest at contractual rates at that date.~~restructurings.

~~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 September 30, ~~2019~~2020 with the comparative exposures for December 31, ~~2018~~2019 (in thousands):


	September 30, 2020
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2019
Lessors of nonresidential buildings	$	3,655,366	$	916,186	$	4,571,552	$	4,578,116
Lessors of residential buildings	1,158,042		795,259		1,953,301		1,599,837
New Housing For-Sale Builders	479,532		613,518		1,093,050		1,090,603
Hotels (except Casino Hotels) and Motels	910,857		127,623		1,038,480		967,771

September 30, 2019
Outstanding Principal Balances Unfunded Commitments Total exposure
Total Exposure at
December 31, 2018
Lessors of nonresidential buildings $ 3,502,181
$ 826,157
$ 4,328,338
$ 3,932,059
Lessors of residential buildings 1,003,401
549,949
1,553,350
1,484,697
New Housing For-Sale Builders 516,646
580,917
1,097,563
1,100,989
Hotels (except Casino Hotels) and Motels 806,089
167,696
973,785
920,001

~~Additionally,~~ Pinnacle Financial monitors two ratios regarding construction and commercial real estate lending as part of its concentration management processes. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by Pinnacle Bank’s total risk-based capital. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital were ~~79.9%~~86.7% and ~~85.2%~~83.6%, respectively. Non-owner occupied commercial

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real estate and multifamily loans (including construction and land development loans) as a percentage of total risk-based

capital were ~~272.8%~~268.8% and ~~277.7%~~268.3% as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Banking regulations have established guidelines for the construction ratio of less than 100% of total risk-based capital and for the non-owner occupied ratio of less than 300% of total risk-based capital. When a bank’s ratios are in excess of one or both of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management. At September 30, ~~2019,~~2020, Pinnacle Bank was within the 100% and 300% guidelines and has established what it believes to be appropriate controls to monitor its lending in these areas as it aims to keep the level of these loans below the 100% and 300% thresholds.

~~The table below presents past due balances by loan classification and segment at September 30, 2019 and December 31, 2018, allocated between accruing and nonaccrual status (in thousands):~~

Accruing Nonaccruing
September 30, 2019 30-89 days past due and accruing 90 days or more past due and accruing Total past due and accruing Current and accruing Purchased credit impaired
Nonaccrual ⁽¹⁾
Nonaccruing purchased credit impaired ⁽¹⁾
Total loans
Commercial real estate:
Owner-occupied $ 6,398
$ —
$ 6,398
$ 2,574,628
$ 2,903
$ 11,011
$ 897
$ 2,595,837
All other 5,896
—
5,896
5,091,660
5,169
10,640
43
5,113,408
Consumer real estate – mortgage 9,051
773
9,824
2,989,373
3,216
19,245
3,844
3,025,502
Construction and land development 2,005
—
2,005
2,247,977
1,274
275
1,772
2,253,303
Commercial and industrial 16,524
1,077
17,601
5,847,752
325
23,931
1,429
5,891,038
Consumer and other 3,266
600
3,866
462,512
—
176
—
466,554
Total $ 43,140
$ 2,450
$ 45,590
$ 19,213,902
$ 12,887
$ 65,278
$ 7,985
$ 19,345,642

Accruing Nonaccruing
December 31, 2018 30-89 days past due and accruing 90 days or more past due and accruing Total past due and accruing Current and accruing Purchased credit impaired
Nonaccrual ⁽¹⁾
Nonaccruing purchased credit impaired ⁽¹⁾
Total loans
Commercial real estate:
Owner-occupied $ 10,170
$ —
$ 10,170
$ 2,623,700
$ 2,664
$ 16,025
$ 874
$ 2,653,433
All other 1,586
—
1,586
4,488,840
5,659
12,634
2,802
4,511,521
Consumer real estate – mortgage 18,059
—
18,059
2,794,630
3,689
22,564
5,505
2,844,447
Construction and land development 3,759
—
3,759
2,063,201
2,108
2,020
1,367
2,072,455
Commercial and industrial 21,451
1,082
22,533
5,225,205
623
23,022
38
5,271,421
Consumer and other 3,276
476
3,752
349,537
—
983
—
354,272
Total $ 58,301
$ 1,558
$ 59,859
$ 17,545,113
$ 14,743
$ 77,248
$ 10,586
$ 17,707,549


~~(1)~~	~~Approximately $33.5 million and $52.5 million of nonaccrual loans as of September 30, 2019 and December 31, 2018, respectively, were performing pursuant to their contractual terms at those dates~~.

~~The following table details the changes in the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018, respectively, by loan classification (in thousands):~~

Commercial real estate - mortgage
Consumer
real estate - mortgage
Construction and land development Commercial and industrial
Consumer
and other
Unallocated Total
Three months ended September 30, 2019:
Balance at June 30, 2019 $ 30,826
$ 8,489
$ 11,206
$ 37,436
$ 2,114
$ 182
$ 90,253
Charged-off loans (102 ) (194 ) (14 ) (5,082 ) (1,388 ) —
(6,780 )
Recovery of previously charged-off loans 209
901
97
407
300
—
1,914
Provision for loan losses 1,684
(1,426 ) 585
1,814
3,278
2,325
8,260
Balance at September 30, 2019 $ 32,617
$ 7,770
$ 11,874
$ 34,575
$ 4,304
$ 2,507
$ 93,647

Three months ended September 30, 2018:

Balance at June 30, 2018 $ 24,848
$ 5,853
$ 10,984
$ 28,338
$ 5,172
$ 475
$ 75,670
Charged-off loans (1,968 ) (262 ) (24 ) (3,336 ) (1,359 ) —
(6,949 )
Recovery of previously charged-off loans 63
987
70
1,037
382
—
2,539
Provision for loan losses 3,574
149
(48 ) 4,085
618
347
8,725

Commercial real estate - mortgage
Consumer
real estate - mortgage
Construction and land development Commercial and industrial
Consumer
and other
Unallocated Total
Balance at September 30, 2018 $ 26,517
$ 6,727
$ 10,982
$ 30,124
$ 4,813
$ 822
$ 79,985

Nine months ended September 30, 2019:
Balance at December 31, 2018 $ 26,946
$ 7,670
$ 11,128
$ 31,731
$ 5,423
$ 677
$ 83,575
Charged-off loans (1,701 ) (1,124 ) (18 ) (13,842 ) (4,643 ) —
(21,328 )
Recovery of previously charged-off loans 1,173
1,642
238
4,749
959
—
8,761
Provision for loan losses 6,199
(418 ) 526
11,937
2,565
1,830
22,639
Balance at September 30, 2019 $ 32,617
$ 7,770
$ 11,874
$ 34,575
$ 4,304
$ 2,507
$ 93,647

Nine months ended September 30, 2018:

Balance at December 31, 2017 $ 21,188
$ 5,031
$ 8,962
$ 24,863
$ 5,874
$ 1,322
$ 67,240
Charged-off loans (2,930 ) (1,533 ) (36 ) (7,600 ) (10,217 ) —
(22,316 )
Recovery of previously charged-off loans 1,517
2,190
1,645
2,492
2,159
—
10,003
Provision for loan losses 6,742
1,039
411
10,369
6,997
(500 ) 25,058
Balance at September 30, 2018 $ 26,517
$ 6,727
$ 10,982
$ 30,124
$ 4,813
$ 822
$ 79,985

The following table details the allowance for loan losses and recorded investment in loans by loan classification and by impairment evaluation method as of September 30, 2019 and December 31, 2018, respectively (in thousands):

Commercial real estate - mortgage
Consumer
real estate - mortgage
Construction and land development Commercial and industrial
Consumer
and other
Unallocated Total
September 30, 2019

Allowance for Loan Losses:

Collectively evaluated for impairment $ 31,596
$ 6,705
$ 11,859
$ 33,078
$ 4,294

$ 87,532
Individually evaluated for impairment 1,021
1,065
15
1,497
10

3,608
Loans acquired with deteriorated credit quality⁽¹⁾
—
—
—
—
—

—
Total allowance for loan losses $ 32,617
$ 7,770
$ 11,874
$ 34,575
$ 4,304
$ 2,507
$ 93,647

Loans:

Collectively evaluated for impairment $ 7,678,415
$ 2,994,237
$ 2,249,962
$ 5,864,796
$ 466,378

$ 19,253,788
Individually evaluated for impairment 21,818
24,205
295
24,488
176

70,982
Loans acquired with deteriorated credit quality 9,012
7,060
3,046
1,754
—

20,872
Total loans $ 7,709,245
$ 3,025,502
$ 2,253,303
$ 5,891,038
$ 466,554

$ 19,345,642

December 31, 2018

Allowance for Loan Losses:

Collectively evaluated for impairment $ 26,222
$ 6,227
$ 11,100
$ 30,290
$ 5,095

$ 78,934
Individually evaluated for impairment 724
1,443
28
1,441
328

3,964
Loans acquired with deteriorated credit quality⁽¹⁾
—
—
—
—
—

—
Total allowance for loan losses $ 26,946
$ 7,670
$ 11,128
$ 31,731
$ 5,423
$ 677
$ 83,575

Loans:

Collectively evaluated for impairment $ 7,124,117
$ 2,808,142
$ 2,066,613
$ 5,246,913
$ 353,289

$ 17,599,074
Individually evaluated for impairment 28,838
27,111
2,367
23,847
983

83,146
Loans acquired with deteriorated credit quality 11,999
9,194
3,475
661
—

25,329
Total loans $ 7,164,954
$ 2,844,447
$ 2,072,455
$ 5,271,421
$ 354,272

$ 17,707,549

⁽¹⁾~~Loans acquired with deteriorated credit quality are recorded at fair value at the time of acquisition. An allowance for loan losses is recorded only in the event of subsequent credit deterioration.~~

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, 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. The allowance for loan losses for purchased loans is calculated similarly to the method utilized for legacy Pinnacle Bank loans. Pinnacle Financial's accounting policy is to compare the computed allowance for loan losses for purchased loans on a loan-by-loan basis to any remaining fair value adjustment. If the computed

~~allowance is greater than the remaining fair value adjustment, the excess is added to the allowance for loan losses by a charge to the provision for loan losses.~~

At September 30, 2020, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $9.7 million to current directors, executive officers, and their related entities, of which $7.1 million had been drawn upon. At December 31, 2019, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $10.7 million to current directors, executive officers, and their related entities, of which $6.6 million had been drawn upon. At December 31, 2018, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $37.9$10.6 million to directors, executive officers, and their related entities, of which approximately ~~$18.3~~$6.8 million had been drawn upon. ~~None of these~~All loans to directors, executive officers, and their related entities were ~~impaired~~performing in accordance with contractual terms at September 30, ~~2019 or~~2020 and December 31, ~~2018.~~2019.

At September 30, ~~2019,~~2020, Pinnacle Financial had approximately ~~$21.3~~$12.3 million in commercial loans held for sale compared to ~~$16.0~~$17.6 million at December 31, ~~2018,~~2019, which primarily included commercial real estate and apartment loans originated for sale to a third-party as part of a multi-family loan program. Such loans are closed under a pass-through commitment structure wherein Pinnacle Bank's loan commitment to the borrower is the same as the third party's take-out commitment to Pinnacle Bank and the third party purchase typically occurs within thirty days of Pinnacle Bank closing with the borrowers.

Residential Lending

At September 30, ~~2019,~~2020, Pinnacle Financial had approximately ~~$54.3~~$62.6 million of mortgage loans held-for-sale compared to approximately ~~$31.8~~$61.6 million at December 31, ~~2018.~~2019. Total loan volumes sold during the nine months ended September 30, ~~2019~~2020 were approximately ~~$788.1 million~~$1.3 billion compared to approximately ~~$917.9~~$788.1 million for the nine months ended September 30, ~~2018.~~2019. During the three and nine months ended September 30, ~~2019,~~2020, Pinnacle Financial recognized ~~$7.4~~$19.5 million and ~~$18.3~~$47.7 million, respectively, in gains on the sale of these loans, net of commissions paid, compared to ~~$3.9~~$7.4 million and ~~$11.4~~$18.3 million, respectively, net of commissions paid, during the three and nine months ended September 30, ~~2018.~~2019.

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 of a mortgage loan held-for-sale 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, Pinnacle Bank's liability pursuant to the terms of these representations and warranties has been insignificant to Pinnacle Bank.

Note 5. Income Taxes

ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods.

The unrecognized tax benefit related to uncertain tax positions related to state income tax filings was ~~$5.1~~$6.9 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. NoNaN change was recorded to the unrecognized tax benefit related to uncertain tax positions in each of the three and nine month periods ended September 30, ~~2019~~2020 and ~~2018.~~2019.

Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. For both the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, there were 0 interest and penalties recorded in the income statement.

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Pinnacle Financial's effective tax rate for the three and nine months ended September 30, ~~2019~~2020 was 19.3% and 15.2%, respectively, compared to 19.5% and 19.6% ~~compared to 20.7% and 20.3%~~, respectively, for the three and nine months ended September 30, ~~2018, respectively.~~2019. The difference between the effective tax rate and the federal and state income tax statutory rate of 26.14% at September 30, ~~2019~~2020 and ~~2018~~2019 is primarily due to investments in bank qualified municipal securities, tax benefits of Pinnacle Bank's real estate investment trust subsidiary, participation in the Tennessee Community Investment Tax Credit (CITC) program, and tax benefits associated with share-based compensation, bank-owned life insurance and our captive insurance subsidiary, offset in part by the limitation on deductibility of meals and entertainment

expense, non-deductible ~~executive compensation~~FDIC premiums and non-deductible ~~FDIC premiums.~~ executive compensation.

Income tax expense is also impacted by the vesting of ~~restricted share~~equity-based awards and the exercise of employee stock options, which expense or benefit is recorded as a discrete item as a component of total income tax, the amount of which is dependent upon the change in the grant date fair value and the vest date fair value of the underlying award. Accordingly, for the three and nine months ended September 30, ~~2019~~2020 we recognized excess tax expense of $85,000 and tax benefits of $505,000, respectively, compared to tax benefits of $131,000 and $832,000, ~~respectively, compared to tax benefits of $199,000 and $3.0 million,~~ respectively, for the three and nine months ended September 30, ~~2018.~~2019. For the nine months ended September 30, 2020, income tax expense was also impacted by provision for credit losses, including provision for credit losses resulting from the COVID-19 pandemic, which was recorded as a discrete item as a component of total income tax. Accordingly, we recognized a tax benefit of $22.4 million for the nine months ended September 30, 2020.

Note 6. Commitments and Contingent Liabilities

In the normal course of business, Pinnacle Bank has entered into off-balance sheet financial instruments which include commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns that use lines of credit to supplement their treasury management functions, and thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. At September 30, ~~2019,~~2020, these commitments amounted to ~~$7.8~~$9.2 billion, of which approximately ~~$1.0~~$1.1 billion related to home equity lines of credit.

Standby letters of credit are generally issued on behalf of an applicant (Pinnacle Bank's customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated beforehand due to criteria specified in the standby letter of credit. A typical arrangement involves the applicant routinely being indebted to the beneficiary for such items as inventory purchases, insurance, utilities, lease guarantees or other third party commercial transactions. The standby letter of credit would permit the beneficiary to obtain payment from Pinnacle Bank under certain prescribed circumstances. Subsequently, Pinnacle Bank would then seek reimbursement from the applicant pursuant to the terms of the standby letter of credit. At September 30, ~~2019,~~2020, these commitments amounted to ~~$198.4~~$191.6 million.

Pinnacle Bank typically follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer's creditworthiness is typically evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management's credit evaluation of the customer. Collateral held varies but may include cash, real estate and improvements, marketable securities, accounts receivable, inventory, equipment and personal property.

The contractual amounts of these commitments are not reflected in the consolidated financial statements and only amounts drawn upon would be reflected in the future. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should Pinnacle Bank's customers default on their resulting obligation to Pinnacle Bank, the maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those commitments. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, Pinnacle Financial had accrued ~~$2.4~~$21.2 million and ~~$2.9~~$2.4 million, respectively, for the inherent risks associated with these off-balance sheet commitments. The adoption of ASU 2016-13 effective January 1, 2020, which introduced the CECL methodology for measuring credit losses, as discussed more fully in Note. 1 Summary of Significant Accounting Policies, increased the opening balance of our accrual for off-balance sheet commitments at adoption by $8.8 million. The remainder of the increase is largely attributable to the anticipated economic impact of the COVID-19 pandemic and its effect on Pinnacle Financial's CECL credit loss modeling for the three and nine months ended September 30, 2020.

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In June 2020, a purported class action lawsuit was filed against Pinnacle Bank alleging, among other claims, that Pinnacle Bank failed to pay fees to purported agents of PPP borrowers that the plaintiff alleged were owed under the PPP in violation of SBA regulations. During the third quarter of 2020, this suit was voluntarily dismissed by the plaintiff, though the plaintiff could file the suit again. Pinnacle Bank disputed the plaintiff’s initial claims and would vigorously defend itself in connection with any future proceeding relating to the alleged claims.

Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the ~~resolution~~resolutions of these claims outstanding at September 30, ~~2019~~2020 are not expected to have a material adverse impact on Pinnacle Financial's consolidated financial condition, operating results or cash flows.

Note 7. Stock Options and Restricted Shares

The 2018 Omnibus Equity Incentive Plan (the "2018 Plan") permits Pinnacle Financial to reissue outstanding awards that are subsequently forfeited, settled in cash, withheld by Pinnacle Financial to cover withholding taxes or expire unexercised and returned to the 2018 Plan. At September 30, ~~2019,~~2020, there were approximately ~~1.2 million~~808,000 shares available for issuance under the 2018 Plan.

The BNC Bancorp 2013 Amended and Restated Omnibus Stock Incentive Plan (the "BNC Plan") was assumed by Pinnacle Financial in connection with its merger with BNC. As of September 30, ~~2019, the BNC Plan had approximately 8,000~~2020, there were 0 shares remaining available for issuance ~~to existing associates that were previously~~from the BNC ~~associates.~~Plan. NaN new awards may be granted under equity incentive plans of Pinnacle Financial other than the 2018 ~~Plan except for shares remaining available for issuance to the former BNC associates pursuant to the BNC~~ Plan.

Upon the acquisition of CapitalMark, Pinnacle Financial assumed approximately 858,000 stock options under the CapitalMark Option Plan. NaN further ~~shares~~awards remain available for issuance under the CapitalMark Option Plan. At September 30, ~~2019,~~2020, all of the remaining options outstanding were granted under the CapitalMark Option Plan.

Common Stock Options

A summary of the stock option activity within the equity incentive plans during the nine months ended September 30, ~~2019~~2020 and information regarding expected vesting, contractual terms remaining, intrinsic values and other matters is as follows:


	Number	Weighted-Average Exercise Price		Weighted-Average Contractual Remaining Term (in years)	Aggregate Intrinsic Value (000's)
Outstanding at December 31, 2019	119,274	$	23.45	2.85	$	4,837	(1)
Granted	0
Exercised	(9,787)
Forfeited	0
Outstanding at September 30, 2020	109,487	$	23.44	2.10	$	1,331	(2)
Options exercisable at September 30, 2020	109,487	$	23.44	2.10	$	1,331	(2)

Number
Weighted-Average
Exercise
Price
Weighted-Average
Contractual
Remaining Term
(in years)
Aggregate
Intrinsic
Value
(000's)

Outstanding at December 31, 2018 176,709
$ 22.77
2.23 $ 4,123
⁽¹⁾
Granted —

Exercised (10,285 )

Forfeited —

Outstanding at September 30, 2019 166,424
$ 22.69
2.54 $ 5,732
⁽²⁾
Options exercisable at September 30, 2019 166,424
$ 22.69
2.54 $ 5,732
⁽²⁾

(1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $64.00 per common share at December 31, 2019 for the 119,274 options that were in-the-money at December 31, 2019.

(2)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $35.59 per common share at September 30, 2020 for the 109,487 options that were in-the-money at September 30, 2020.


~~(1)~~	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $46.10 per common share at December 31, 2018 for the 176,709 options that were in-the-money at December 31, 2018.


~~(2)~~	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $56.75 per common share at September 30, 2019 for the 166,424 options that were in-the-money at September 30, 2019.

Compensation costs related to stock options granted under Pinnacle Financial's equity incentive plans have been fully recognized and all outstanding option awards are fully vested.

Restricted Share Awards

A summary of activity for unvested restricted share awards for the nine months ended September 30, ~~2019~~2020 is as follows:

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						Number	Grant Date Weighted-Average Cost
	Number		Grant Date Weighted-Average Cost
Unvested at December 31, 2018	692,806		$	55.19
Unvested at December 31, 2019					Unvested at December 31, 2019	555,296	$	57.04
Shares awarded	228,760				Shares awarded	265,049
Restrictions lapsed and shares released to associates/directors	(296,878	)			Restrictions lapsed and shares released to associates/directors	(198,599)
Shares forfeited ⁽¹⁾	(28,875	)			Shares forfeited (1)	(22,293)
Unvested at September 30, 2019	595,813		$	53.21
Unvested at September 30, 2020					Unvested at September 30, 2020	599,453	$	57.60


~~(1)~~	~~Represents shares forfeited due to employee termination and/or retirement. NaN shares were forfeited due to failure to meet performance targets.~~

(1)Represents shares forfeited due to employee termination and/or retirement. NaN shares were forfeited due to failure to meet performance targets.

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Pinnacle Financial has granted restricted share awards to associates and outside directors with a time-based vesting criteria. Compensation expense associated with time-based vesting restricted share awards is recognized over the time period that the restrictions associated with the awards lapse on a straight-line basis based on the total cost of the award. The following table outlines restricted stock grants that were made, grouped by similar vesting criteria, during the nine months ended September 30, ~~2019.~~2020. The table reflects the life-to-date activity for these awards:


Grant Year	Group (1)	Vesting Period in years			Shares awarded	Restrictions Lapsed and shares released to participants	Shares Forfeited by participants (4)	Shares Unvested
Time Based Awards
2020	Associates (2)	3	-	5	246,524	116	5,076	241,332
Outside Director Awards (3)
2020	Outside directors			1	18,525	0	0	18,525

Grant
Year

Group ⁽¹⁾

Vesting
Period in years

Shares
awarded
Restrictions Lapsed and shares released to participants
Shares Forfeited by participants ⁽⁴⁾
Shares Unvested
Time Based Awards
2019
Associates ⁽²⁾
3 - 5 212,211
276
9,815
202,120
Outside Director Awards ⁽³⁾

2019 Outside directors 1 16,549
—
—
16,549


~~(1)~~	Groups include employees (referred to as associates above) and outside directors. When the restricted shares are awarded, a participant receives voting rights and forfeitable dividend rights with respect to the shares, but is not able to transfer the shares until the restrictions have lapsed. Once the restrictions lapse,

(1)Groups include employees (referred to as associates above) and outside directors. When the restricted shares are awarded, a participant receives voting rights and forfeitable dividend rights with respect to the shares, but is not able to transfer the shares until the restrictions have lapsed. Once the restrictions lapse, the participant is taxed on the value of the award and may elect to sell some shares (or have Pinnacle Financial withhold some shares) to pay the applicable income taxes associated with the award. Alternatively, the recipient can pay the withholding taxes in cash. For time-based vesting restricted share awards, dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination. For performance-based vesting awards to Pinnacle Financial's directors, dividends are placed into escrow until the forfeiture restrictions on such shares lapse.


~~(2)~~	~~The forfeiture restrictions on these restricted share awards lapse in equal annual installments on the anniversary date of the grant.~~


~~(3)~~	Restricted share awards are issued to the outside members of the board of directors in accordance with their board compensation plan. Restrictions lapse on February 29, 2020 based on each individual board member meeting their attendance goals for the various board and board committee meetings to which each member was scheduled to attend.


~~(4)~~	These shares represent forfeitures resulting from recipients whose employment or board membership was terminated during the year-to-date period ended September 30, 2019. Any dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination or will not be distributed from escrow, as applicable.

(2)The forfeiture restrictions on these restricted share awards lapse in equal annual installments on the anniversary date of the grant.

(3)Restricted ~~Share~~share awards are issued to the outside members of the board of directors in accordance with their board compensation plan. Restrictions lapse on February 28, 2021 based on each individual board member meeting their attendance goals for the various board and board committee meetings to which each member was scheduled to attend.

(4)These shares represent forfeitures resulting from recipients whose employment or board membership was terminated during the year-to-date period ended September 30, 2020. Any dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination or will not be distributed from escrow, as applicable.

Performance-based Vesting Restricted Stock Units

The following table details the performance-based vesting restricted ~~share~~stock unit awards ~~(all of which are performance units)~~ outstanding at September 30, ~~2019:~~2020:


	Units Awarded
Grant year	Named Executive Officers (NEOs) (1)			Leadership Team other than NEOs	Applicable Performance Periods associated with each tranche (fiscal year)	Service period per tranche (in years)	Subsequent holding period per tranche (in years)	Period in which units to be settled into shares of common stock(2)
2020	136,137	—	204,220	59,648	2020	2	3	2025
					2021	2	2	2025
					2022	2	1	2025
2019	166,211	—	249,343	52,244	2019	2	3	2024
					2020	2	2	2024
					2021	2	1	2024
2018	96,878	—	145,339	25,990	2018	2	3	2023
					2019	2	2	2023
					2020	2	1	2023
2017	72,537	—	109,339	24,916	2017	2	3	2022
					2018	2	2	2022
					2019	2	1	2022
2016	73,474	—	110,223	26,683	2016	2	3	2021
					2017	2	2	2021
					2018	2	1	2021

(1)The named executive officers are awarded a range of awards that may be earned based on attainment of goals between a target level of performance and a maximum level of performance.

(2)Restricted share unit awards, if earned, will be settled in shares of Pinnacle Financial Common Stock in the periods noted in the table, if Pinnacle Bank's ratio of non-performing assets to its loans plus ORE is less than amounts established in the applicable award agreement.

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Units Awarded
Grant year
Named Executive Officers
(NEOs) ⁽¹⁾
Leadership Team other than NEOs
Applicable Performance Periods associated with each tranche
(fiscal year)
Service period per tranche
(in years)
Subsequent holding period per tranche
(in years)
Period in which units to be settled into shares of common stock⁽²⁾
2019 166,211 - 249,343
52,244
2019 2 3 2024
2020 2 2 2024
2021 2 1 2024
2018 96,878 - 145,339
25,990
2018 2 3 2023
2019 2 2 2023
2020 2 1 2023
2017 72,537 - 109,339
24,916
2017 2 3 2022

2018 2 2 2022

2019 2 1 2022
2016 73,474 - 110,223
26,683
2016 2 3 2021

2017 2 2 2021

2018 2 1 2021
2015 58,200 - 101,850
28,378
2015 2 3 2020

2016 2 2 2020

2017 2 1 2020


~~(1)~~	~~The named executive officers are awarded a range of awards that may be earned based on attainment of goals between a target level of performance and a maximum level of performance.~~


~~(2)~~	Restricted share unit awards granted in 2019, 2018, 2017, 2016 and 2015, if earned, will be settled in shares of Pinnacle Financial Common Stock in the periods noted in the table, if Pinnacle Bank's ratio of non-performing assets to its loans plus ORE is less than amounts established in the applicable award agreement.

During the nine months ended September 30, 2020, the restrictions associated with 129,723 performance-based vesting restricted stock unit awards granted in prior years lapsed, based on the terms of the agreement and approval by Pinnacle Financial's Human Resources and Compensation Committee, and were settled into shares of Pinnacle Financial common stock with 43,996 shares being withheld to pay the taxes associated with the settlement of those shares.

Stock compensation expense related to both restricted share awards and restricted share units for the three and nine months ended September 30, ~~2019~~2020 was $4.4 million and $14.1 million, respectively, compared to $5.0 million and $15.1 ~~million, respectively, compared to $4.5 million and $13.3~~ million, respectively, for the three and nine months ended September 30, ~~2018.~~2019. As of the September 30, ~~2019,~~2020, the total compensation cost related to unvested restricted share awards and performance-based vesting restricted ~~share~~stock units not yet recognized was $~~40.4~~$40.7 million. This expense, if the underlying units are earned, is expected to be recognized over a weighted-average period of 1.86 years.

~~1.69~~ ~~years.~~

Note 8. Derivative Instruments

Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship.

Non-hedge derivatives

For derivatives not designated as hedges, the gain or loss is recognized in current period earnings. Pinnacle Financial enters into interest rate swaps (swaps) to facilitate customer transactions and meet their financing needs. Upon entering into these instruments to

meet customer needs, Pinnacle Financial enters into offsetting positions in order to minimize the risk to Pinnacle Financial. These swaps qualify as derivatives, but are not designated as hedging instruments. The income statement impact of the offsetting positions is limited to changes in the reserve for counterparty credit risk. A summary of Pinnacle Financial's interest rate swaps to facilitate customers' transactions as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 is included in the following table (in thousands):


		September 30, 2020				December 31, 2019
	Balance Sheet Location	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Interest rate swap agreements:
Assets	Other assets	$	1,535,297	$	115,078	$	1,296,389	$	43,507
Liabilities	Other liabilities	1,535,297		(116,558)		1,296,389		(43,715)
Total		$	3,070,594	$	(1,480)	$	2,592,778	$	(208)

September 30, 2019 December 31, 2018
Balance Sheet Location
Notional
Amount

Estimated
Fair Value

Notional
Amount

Estimated
Fair Value
Interest rate swap agreements:
Assets Other assets $ 1,269,880
$ 56,846
$ 1,059,724
$ 22,273
Liabilities Other liabilities 1,269,880
(57,120 ) 1,059,724
(22,401 )
Total $ 2,539,760
$ (274 ) $ 2,119,448
$ (128 )

The effects of Pinnacle Financial's interest rate swaps to facilitate customers' transactions on the income statement during the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 were as follows (in thousands):


		Amount of Loss Recognized in Income
	Location of Loss Recognized in Income	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019
Interest rate swap agreements	Other noninterest income	$	(135)	$	(44)	$	(1,272)	$	(146)

Amount of Loss Recognized in Income
Location of Loss Recognized in Income Three Months Ended September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Interest rate swap agreements Other noninterest income $ (44 ) $ (8 ) $ (146 ) $ (42 )

Derivatives designated as cash flow hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. Pinnacle Financial uses interest rate floors in an effort to mitigate the impact of declining interest rates on LIBOR-based variable rate loans. Pinnacle Financial uses forward cash flow hedges in an effort to manage future interest rate exposure on borrowings. The hedging strategy converts the LIBOR-based variable interest rate on forecasted borrowings to a fixed interest rate and is used in an effort to protect Pinnacle Financial from floating interest rate variability. ~~During the second quarter of 2019, Pinnacle Financial purchased an interest rate floor to mitigate the impact of declining interest rates on LIBOR-based variable rate loans.~~ A summary of Pinnacle Financial's cash flow hedge relationships as of September 30, ~~2019~~2020 and December 31, ~~2018 are~~2019 is as follows (in thousands):

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					September 30, 2019					December 31, 2018										September 30, 2020				December 31, 2019
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate	Receive Rate	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value				Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate	Receive Rate	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Asset derivatives															Asset derivatives
Interest rate floor	Other assets	2.09	—%	2.75% minus 1 month LIBOR	$	1,300,000	$	35,681		$	—	$	—		Interest rate floor	Other assets	4.19	0%	2.25% minus 1 month LIBOR	$	1,500,000	$	134,853	$	2,800,000	$	87,422
Liability derivatives															Liability derivatives
Interest rate swaps	Other liabilities	2.60	3.09%	3 month LIBOR	$	99,000	$	(3,886	)	$	99,000	$	(1,757	)	Interest rate swaps	Other liabilities	1.59	3.09%	3 month LIBOR	$	99,000	$	(4,610)	$	99,000	$	(3,312)

The effects of Pinnacle Financial's cash flow hedge relationships on the statement of comprehensive income (loss) during the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 were as follows, net of tax (in thousands):

Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Three Months Ended September 30, Nine Months Ended September 30,
Asset derivatives 2019 2018 2019 2018
Interest rate floor - loans $ 1,951
$ —
$ 9,875
$ —
Liability derivatives
Interest rate swaps - borrowings $ (69 ) $ 783
$ (1,572 ) $ 3,453
$ 1,882
$ 783
$ 8,303
$ 3,453


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
	Three Months Ended September 30,				Nine Months Ended September 30,
Asset derivatives	2020		2019		2020		2019
Interest rate floor - loans	$	(3,506)	$	1,951	$	68,161	$	9,875
Liability derivatives
Interest rate swaps - borrowings	$	480	$	(69)	$	(959)	$	(1,572)
	$	(3,026)	$	1,882	$	67,202	$	8,303

The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. The hedge would no longer be considered effective if a portion of the hedge becomes ineffective, the item

hedged is no longer in existence or Pinnacle Financial discontinues hedge accounting. Pinnacle Financial expects the hedges at September 30, 2020 to continue to be highly effective and qualify for hedge accounting during the remaining terms of the ~~swaps.~~original hedging transactions. Losses totaling ~~$1.1 million and $946,000~~$156,000 net of tax ~~respectively,~~and $1.9 million net of tax were reclassified from accumulated other comprehensive income (loss) into net income during the three and nine months ended September 30, ~~2019~~2020, respectively, compared to ~~gains of $145,000 and $429,000~~losses totaling 1.1 million net of tax ~~respectively, for~~and $946,000 net of tax during the three and nine months ended September 30, ~~2018.~~2019, respectively. During the first quarter of 2020, loan interest rate floors entered into in the second quarter of 2019 with a notional amount totaling $1.3 billion and unrealized gains totaling $16.5 million were terminated. These unrealized gains are being amortized into income on a straight line basis through October 2021. Approximately ~~$908,000~~$8.0 million in unrealized gains, net of tax, are expected to be reclassified from accumulated other comprehensive income (loss) into net income over the next twelve months related to ~~previously~~ terminated cash flow hedges.

Derivatives designated as fair value hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. Pinnacle Financial utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable ~~securities~~ available-for-sale ~~and fixed rate prepayable loans.~~securities. The hedging strategy ~~on securities~~ converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities.

A summary of Pinnacle Financial's fair value hedge relationships as of September 30, ~~2019~~2020 and December 31, ~~2018 are~~2019 is as follows (in thousands):


					September 30, 2020				December 31, 2019
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate	Receive Rate	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Liability derivatives
Interest rate swap agreements - securities	Other liabilities	7.12	2.26%	3 month LIBOR/Fed Funds	$	708,931	$	(77,214)	$	477,905	$	(40,778)

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September 30, 2019 December 31, 2018
Balance Sheet Location Weighted Average Remaining Maturity (In Years) Weighted Average Pay Rate Receive Rate Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value
Liability derivatives
Interest rate swap agreements - securities Other liabilities 7.29 3.08% 3 month LIBOR $ 477,905
$ (51,927 ) $ 477,905
$ (14,796 )
Interest rate swap agreements - loans Other liabilities — — — —
—
900,000
(7,037 )
7.29 3.08% $ 477,905
$ (51,927 ) $ 1,377,905
$ (21,833 )

Notional amounts of $477.5 million included in the table receive a variable rate of interest based on three month LIBOR and notional amounts totaling $231.4 million receive a variable rate of interest based on the daily compounded federal funds rate.

The effects of Pinnacle Financial's fair value hedge relationships on the income statement during the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 were as follows (in thousands):


	Location of Loss on Derivative	Amount of Loss Recognized in Income
		Three Months Ended September 30,				Nine Months Ended September 30,
Liability derivatives		2020		2019		2020		2019
Interest rate swaps - securities	Interest income on securities	$	4,996	$	(10,888)	$	(36,436)	$	(37,131)
Interest rate swaps - loans	Interest income on loans	$	0	$	0	$	0	$	(6,915)

Location of Gain (Loss)
on Derivative
Amount of Gain (Loss) Recognized in Income
Three Months Ended September 30, Nine Months Ended September 30,
Liability derivatives 2019 2018 2019 2018
Interest rate swaps - securities Interest income on securities $ (10,888 ) $ 1,755
$ (37,131 ) $ 1,991
Interest rate swaps - loans Interest income on loans $ —
$ 2,236
$ (6,915 ) $ 3,358

Location of Gain (Loss)
on Hedged Item

Three Months Ended September 30, Nine Months Ended September 30,
Liability derivatives - hedged items 2019 2018 2019 2018
Interest rate swaps - securities Interest income on securities $ 10,888
$ (1,755 ) $ 37,131
$ (1,991 )
Interest rate swaps - loans Interest income on loans $ —
$ (2,236 ) $ 6,915
$ (3,358 )


	Location of Gain on Hedged Item	Amount of Gain Recognized in Income
		Three Months Ended September 30,				Nine Months Ended September 30,
Liability derivatives - hedged items		2020		2019		2020		2019
Interest rate swaps - securities	Interest income on securities	$	(4,996)	$	10,888	$	36,436	$	37,131
Interest rate swaps - loans	Interest income on loans	$	0	$	0	$	0	$	6,915

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	Carrying Amount of the Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Line item on the balance sheet
Securities available-for-sale	$	853,350	$	551,789	$	77,214	$	40,778

Carrying Amount of the Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Line item on the balance sheet
Securities available-for-sale $ 512,035
$ 515,063
$ 51,927
$ 14,796
Loans ⁽¹⁾
$ —
$ 907,037
$ —
$ 7,037


~~(1)~~	The carrying amount as shown represents the designated last-of-layer. At December 31, 2018, the total amortized cost basis of the closed portfolio of loans designated in these hedging relationships was $2.7 billion.

During the second quarter of 2019, a fair value hedging relationship on loans was unwound resulting in a swap termination payment to the counterparty of approximately $14.0 million. The corresponding loan fair value hedging adjustment of $14.0 million as of the date of termination is being amortized over the remaining lives of the designated loans. During the three and nine months ended September 30, ~~2019,~~2020, amortization expense totaling ~~$931,000~~$1.2 million and ~~$1.4~~$3.3 million, respectively, related to previously terminated fair value hedges was recognized as a reduction to interest income on loans.

Note 9. Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures, 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.

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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 ongoing reviews by senior investment managers. 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.

Other assets – Included in other assets are certain assets carried at fair value, including interest rate swap agreements to facilitate customer transactions, interest rate floors designated as cash flow hedges, and interest rate locks associated with the mortgage loan pipeline. The carrying amount 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.

~~Impaired~~Collateral dependent loans – A loan is classified as impaired when it is probable Pinnacle Financial will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. ImpairedCollateral dependent loans are measured ~~based on the present value of expected payments using the loan's original effective rate as the discount rate, the loan's observable market price, or~~at the fair value of the collateral ~~less selling costs if~~securing the loan ~~is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of~~less estimated selling costs. The fair value ~~a valuation allowance may be established as a component~~ of ~~the allowance~~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 ~~loan losses or the difference may be recognized as a charge-off. Impaired~~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. A significant portion of these amounts relate to lots, homes and development projects that are either completed or are in various stages of construction for which Pinnacle Financial believes it has adequate collateral. Upon foreclosure, 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 loan 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 and cash flow hedges, and interest rate locks associated

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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, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 sheet		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, 2020
Investment securities available-for-sale:
U.S. Treasury securities	$	84,464	$	0	$	84,464	$	0
U.S. government agency securities	76,859		0		76,859		0
Mortgage-backed securities	1,701,212		0		1,701,212		0
State and municipal securities	1,327,721		0		1,312,248		15,473
Agency-backed securities	168,839		0		168,839		0
Corporate notes and other	104,327		0		104,327		0
Total investment securities available-for-sale	$	3,463,422	$	0	$	3,447,949	$	15,473
Other investments	66,872		0		25,666		41,206
Other assets	265,835		0		265,835		0
Total assets at fair value	$	3,796,129	$	0	$	3,739,450	$	56,679

Other liabilities	$	198,724	$	0	$	198,724	$	0
Total liabilities at fair value	$	198,724	$	0	$	198,724	$	0

December 31, 2019
Investment securities available-for-sale:
U.S. Treasury securities	$	72,867	$	0	$	72,867	$	0
U.S. government agency securities	79,692		0		79,692		0
Mortgage-backed securities	1,463,907		0		1,463,907		0
State and municipal securities	1,714,453		0		1,698,550		15,903
Agency-backed securities	152,972		0		152,972		0
Corporate notes and other	56,104		0		56,104		0
Total investment securities available-for-sale	3,539,995		0		3,524,092		15,903
Other investments	63,291		0		25,135		38,156
Other assets	134,040		0		134,040		0
Total assets at fair value	$	3,737,326	$	0	$	3,683,267	$	54,059

Other liabilities	$	87,613	$	0	$	87,613	$	0
Total liabilities at fair value	$	87,613	$	0	$	87,613	$	0

Total carrying value in the consolidated balance sheet
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, 2019
Investment securities available-for-sale:
U.S. Treasury securities $ 48,662
$ —
$ 48,662
$ —
U.S. government agency securities 92,246
—
92,246
—
Mortgage-backed securities 1,334,517
—
1,334,517
—
State and municipal securities 1,699,886
—
1,684,020
15,866
Agency-backed securities 162,733
—
162,733
—
Corporate notes and other 55,391
—
55,391
—
Total investment securities available-for-sale $ 3,393,435
$ —
$ 3,377,569
$ 15,866
Other investments 59,195
—
25,247
33,948
Other assets 96,814
—
96,814
—
Total assets at fair value $ 3,549,444
$ —
$ 3,499,630
$ 49,814

Other liabilities $ 113,070
$ —
$ 113,070
$ —
Total liabilities at fair value $ 113,070
$ —
$ 113,070
$ —

December 31, 2018
Investment securities available-for-sale:

U.S. Treasury securities $ 30,300
$ —
$ 30,300
$ —
U.S. government agency securities 70,159
—
70,159
—
Mortgage-backed securities 1,310,945
—
1,310,945
—
State and municipal securities 1,229,654
—
1,215,059
14,595
Agency-backed securities 375,582
—
375,582
—
Corporate notes and other 67,046
—
67,046
—
Total investment securities available-for-sale 3,083,686
—
3,069,091
14,595
Other investments 50,791
—
24,369
26,422
Other assets 24,524
—
24,524
—
Total assets at fair value $ 3,159,001
$ —
$ 3,117,984
$ 41,017

Other liabilities $ 46,550
$ —
$ 46,550
$ —
Total liabilities at fair value $ 46,550
$ —
$ 46,550
$ —

The following table presents assets measured at fair value on a nonrecurring basis as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

September 30, 2019 Total carrying value in the consolidated balance sheet
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)
Other real estate owned $ 30,049
$ —
$ —
$ 30,049
Impaired loans, net ⁽¹⁾
41,141
—
—
41,141
Total $ 71,190
$ —
$ —
$ 71,190

December 31, 2018

Other real estate owned $ 15,165
$ —
$ —
$ 15,165
Impaired loans, net ⁽¹⁾
40,830
—
—
40,830
Total $ 55,995
$ —
$ —
$ 55,995


September 30, 2020	Total carrying value in the consolidated balance sheet		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)
Other real estate owned	$	19,445	$	0	$	0	$	19,445

Collateral dependent loans (1)	77,798		0		0		77,798
Total	$	97,243	$	0	$	0	$	97,243

December 31, 2019
Other real estate owned	$	29,487	$	0	$	0	$	29,487
Impaired loans, net (1)	32,478		0		0		32,478
Total	$	61,965	$	0	$	0	$	61,965

(1) ~~Amount~~The carrying value of collateral dependent loans at September 30, 2020 is net of a valuation allowance of ~~$3.6~~$10.7 million, and ~~$4.0 million~~the carrying value of impaired loans at ~~September 30, 2019 and~~ December 31, ~~2018, respectively, as required by ASC 310-10, "Receivables."~~2019 is net of a valuation allowance of $3.3 million.

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In the case of the investment securities portfolio, Pinnacle Financial monitors the portfolio to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the nine months ended September 30, ~~2019,~~2020, there were 0 transfers between Levels 1, 2 or 3.

The table below includes a rollforward of the balance sheet amounts for the three and nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 (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,
	2020				2019					2020	2019
	Available-for-sale Securities		Other investments			Available-for-sale Securities		Other investments			Available-for-sale Securities		Other investments		Available-for-sale Securities		Other investments
Fair value, beginning of period	$	15,295	$	40,612		$	15,263	$	31,522		$	15,903	$	38,156	$	14,595	$	26,422
Total realized gains included in income	27		456			29		1,264			82		4		87		2,193
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end	151		0			574		0			631		0		1,583		0
Purchases	0		1,095			0		1,777			0		4,822		0		6,965
Issuances	0		0			0		0			0		0		0		0
Settlements	0		(957)			0		(615)			(1,143)		(1,776)		(399)		(1,632)
Transfers out of Level 3	0		0			0		0			0		0		0		0
Fair value, end of period	$	15,473	$	41,206		$	15,866	$	33,948		$	15,473	$	41,206	$	15,866	$	33,948
Total realized gains (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at period-end	$	27	$	456		$	29	$	1,264		$	82	$	4	$	87	$	2,193

For the Three months ended September 30, For the Nine months ended September 30,
2019 2018 2019 2018
Available-for-sale Securities Other
assets Available-for-sale Securities Other
assets Available-for-sale Securities
Other
assets
Available-for-sale Securities
Other
assets
Fair value, beginning of period $ 15,263
$ 31,522
$ 15,290
$ 23,578
$ 14,595
$ 26,422
$ 17,029
$ 28,874
Total realized gains included in income 29
1,264
30
81
87
2,193
90
2,858
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end 574
—
34
—
1,583
—
(597 ) —
Purchases —
1,777
—
2,455
—
6,965
—
7,273
Issuances —
—
—
—
—
—
—
—
Settlements —
(615 ) —
(932 ) (399 ) (1,632 ) (1,168 ) (1,657 )
Transfers out of Level 3 —
—
—
—
—
—
—
(12,166 )
Fair value, end of period $ 15,866
$ 33,948
$ 15,354
$ 25,182
$ 15,866
$ 33,948
$ 15,354
$ 25,182
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at period-end $ 29
$ 1,264
$ 30
$ 81
$ 87
$ 2,193
$ 90
$ 2,858

The following methods and assumptions were used by Pinnacle Financial in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2019 and December 31, 2018. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

~~Securities held-to-maturity~~ - Estimated fair values for investment securities are based on quoted market prices where available. 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.

~~Loans~~ - The fair value of Pinnacle Financial's loan portfolio includes a credit risk factor in the determination of the fair value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Pinnacle Financial's loan portfolio is initially fair valued using a segmented approach. Pinnacle Financial divides its loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk.

The values derived from the discounted cash flow approach for our performing loan portfolio incorporate credit risk to determine the exit price. Fair values for impaired loans are estimated using discounted cash flow models or are based on the fair value of the underlying collateral.

Purchased loans, including loans acquired through a merger, are initially recorded at fair value on the date of purchase. Purchased loans that contain evidence of post-origination credit deterioration as of the purchase date are carried at the nettables present value of expected future cash flows. All other purchased loans are recorded at their initial fair value, and adjusted for subsequent advances, pay downs, amortization or accretion of any fair value premium or discount on purchase, charge-offs and any other adjustment to carrying value.

~~Loans held-for-sale -~~ ~~Loans held-for-sale are carried at the lower of cost or fair value. The estimate of fair value is based on pricing models and other information.~~

~~Deposits, securities sold under agreements to repurchase, Federal Home Loan Bank (FHLB) advances, subordinated debt and other borrowings~~ - The fair value of demand deposits, savings deposits and securities sold under agreements to repurchase are derived from a selection of market transactions reflecting our peer group. Fair values for certificates of deposit, FHLB advances and subordinated debt are estimated using discounted cash flow models, using current market interest rates offered on certificates, advances and other borrowings with similar remaining maturities.

~~Off-balance sheet instruments~~ - The fair values of Pinnacle Financial's off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to Pinnacle Financial until such commitments are funded.

~~The following table presents~~ the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. 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/ Notional 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, 2020
Financial assets:
Securities held-to-maturity	$	1,039,650	$	1,060,847	$	0	$	1,060,847	$	0
Loans, net	22,188,764		22,483,708		0		0		22,483,708
Consumer loans held-for-sale	82,748		84,877		0		84,877		0
Commercial loans held-for-sale	12,290		12,606		0		12,606		0

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	26,671,015		25,804,207		0		0		25,804,207
Federal Home Loan Bank advances	1,287,738		1,428,059		0		0		1,428,059
Subordinated debt and other borrowings	670,273		681,964		0		0		681,964

Off-balance sheet instruments:
Commitments to extend credit (2)	9,374,780		22,784		0		0		22,784

Table of Contents

September 30, 2019
Carrying/
Notional
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)
Financial assets:
Securities held-to-maturity $ 189,684
$ 202,821
$ —
$ 202,821
$ —
Loans, net 19,251,995
19,216,128
—
—
19,216,128
Consumer loans held-for-sale 73,042
74,161
—
74,161
—
Commercial loans held-for-sale 21,312
21,638
—
21,638
—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase 20,096,079
19,442,956
—
—
19,442,956
Federal Home Loan Bank advances 2,052,548
2,070,645
—
—
2,070,645
Subordinated debt and other borrowings 750,488
713,051
—
—
713,051

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾
7,797,246
1,067
—
—
1,067
Standby letters of credit ⁽³⁾
198,361
1,297
—
—
1,297

December 31, 2018
Financial assets:
Securities held-to-maturity $ 194,282
$ 193,131
$ —
$ 193,131
$ —
Loans, net 17,623,974
17,288,795
—
—
17,288,795
Consumer loans held-for-sale 34,196
34,929
—
34,929
—
Commercial loans held-for-sale 15,954
16,296
—
16,296
—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase 18,953,848
18,337,848
—
—
18,337,848
Federal Home Loan Bank advances 1,443,589
1,432,003
—
—
1,432,003
Subordinated debt and other borrowings 485,130
464,616
—
—
464,616

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾
6,921,689
1,733
—
—
1,733
Standby letters of credit ⁽³⁾
177,475
1,131
—
—
1,131


~~(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.

~~(2)~~

At the end of each quarter, Pinnacle Financial evaluates the inherent risks of the outstanding off-balance sheet commitments. In making this evaluation, Pinnacle Financial evaluates the credit worthiness of the borrower, the collateral supporting the commitments and any other factors similar to those used to evaluate the inherent risks of our loan portfolio. Additionally, Pinnacle Financial evaluates the probability that the outstanding commitment will eventually become a funded loan. As a result, at September 30, 2019 and December 31, 2018, Pinnacle Financial included in other liabilities $2.4 million and $2.9 million, respectively, representing the inherent risks associated with these off-balance sheet commitments.

~~(3)~~

At September 30, 2019 and December 31, 2018, the aggregate fair value of Pinnacle Financial's standby letters of credit was $1.3 million and $1.1 million, respectively. These amounts represent the unamortized fee associated with these standby letters of credit and are included in the consolidated balance sheets of Pinnacle Financial and are believed to approximate fair value. These fair values will decrease over time as the existing standby letters of credit approach their expiration dates.


	Carrying/ Notional 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)

December 31, 2019
Financial assets:
Securities held-to-maturity	$	188,996	$	201,217	$	0	$	201,217	$	0
Loans, net	19,693,099		19,717,845		0		0		19,717,845
Consumer loans held-for-sale	81,820		82,986		0		82,986		0
Commercial loans held-for-sale	17,585		17,836		0		17,836		0

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	20,307,382		19,647,392		0		0		19,647,392
Federal Home Loan Bank advances	2,062,534		2,078,514		0		0		2,078,514
Subordinated debt and other borrowings	749,080		712,220		0		0		712,220

Off-balance sheet instruments:
Commitments to extend credit (2)	8,141,920		3,786		0		0		3,786

(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.

(2)At the end of each quarter, Pinnacle Financial evaluates the inherent risks of the outstanding off-balance sheet commitments, including both commitments for unfunded loans and standby letters of credit. In making this evaluation, Pinnacle Financial utilizes credit loss expectations on funded loans from our allowance for credit losses methodology and evaluates the probability that the outstanding commitment will eventually become a funded loan. As a result, at September 30, 2020 and December 31, 2019, Pinnacle Financial included in other liabilities $21.2 million and $2.4 million, respectively, representing expected credit losses on off-balance sheet commitments, which are reflected in the estimated fair values of the related commitments. Also included in the fair values at September 30, 2020 and December 31, 2019 are unamortized fees related to these commitments of $1.6 million and $1.4 million, respectively.

Note 10. Regulatory Matters

Pursuant to Tennessee banking law, Pinnacle Bank may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions (TDFI), pay any dividends to Pinnacle Financial in a calendar year in excess of the total of Pinnacle Bank's retained net income for that year plus the retained net income for the preceding two years. Under Tennessee corporate law, Pinnacle Financial is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of business or its total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if it were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, Pinnacle Financial's board of directors must consider its and Pinnacle Bank's current and prospective capital, liquidity, and other needs. In addition to state law limitations on Pinnacle Financial's ability to pay dividends, the Federal Reserve imposes limitations on Pinnacle Financial's ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if Pinnacle Financial's regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.

In addition, the Federal Reserve has issued supervisory guidance advising bank holding companies to eliminate, defer or reduce dividends paid on common stock and other forms of Tier 1 capital where the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, the company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition or the company will not meet, or is in danger of not meeting, minimum regulatory capital adequacy ratios. Recent supplements to this guidance reiterate the need for bank holding companies to inform their applicable reserve bank sufficiently in advance of the proposed payment of a dividend in certain circumstances.

During the nine months ended September 30, ~~2019,~~2020, Pinnacle Bank paid ~~$96.3~~$119.1 million in dividends to Pinnacle Financial. As of September 30, ~~2019,~~2020, Pinnacle Bank could pay approximately ~~$617.5~~$675.7 million of additional dividends to Pinnacle Financial without prior approval of the Commissioner of the TDFI. Since the fourth quarter of 2018, Pinnacle Financial has paid a quarterly common stock dividend of $0.16 per share. The amount and timing of all future dividend payments by Pinnacle Financial, if any, is subject to discretion of Pinnacle Financial's board of directors and will depend on Pinnacle Financial's receipt of dividends, including dividends on Pinnacle Financial's 6.75% fixed rate non-cumulative perpetual preferred stock, Series B (the Series B Preferred Stock) from Pinnacle Bank, earnings, capital position, financial condition and other factors, including ~~new~~ regulatory capital requirements, as they

Table of Contents

become known to Pinnacle ~~Financial.~~Financial and receipt of any regulatory approvals that may become required as a result of each of Pinnacle Financial's or Pinnacle Bank's financial results.

Pinnacle Financial and Pinnacle Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Pinnacle Financial and Pinnacle Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Pinnacle Financial's and Pinnacle Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Pinnacle Financial and its banking subsidiary to maintain minimum amounts and ratios of common equity Tier 1 capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, total risk-based capital to risk-weighted assets and Tier 1 capital to average assets.

~~The~~As permitted by the interim final ~~rules implementing~~rule issued on March 27, 2020 by the ~~Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for~~federal banking regulatory agencies, each of Pinnacle Bank and Pinnacle Financial has elected the option to delay the estimated impact on regulatory capital of Pinnacle Financial's and Pinnacle Bank's adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which was effective January 1, ~~2015 with full compliance with all~~2020. The initial impact of adoption of ASU 2016-13, as well as 25% of the ~~requirements being~~quarterly increases in the allowance for credit losses subsequent to adoption of ASU 2016-13 (collectively the “transition adjustments”), will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased inout of the regulatory capital calculations evenly over a ~~multi-year schedule,~~three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully phased in on January 1, 2019. The minimum capital level requirements applicable to bank holding companies and banks subject to the rules are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6%; (iii) a total risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4% for all institutions. The Basel III rules also established a capital conservation buffer of 2.5% (which was phased in over three years) above the regulatory minimum risk-based capital ratios. The capital conservation buffer was phased in beginning in January 2016 at 0.625% and increased each year by a like percentage until fully implemented in January 2019. Upon full implementation in January 2019, minimum risk-based capital ratios including the capital conservation buffer are: i) a common equity Tier 1 capital ratio of 7%, ii) a Tier 1 risk-based capital ratio of 8.5%, and iii) a total risk-based capital ratio of 10.5%. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. reversed.

Management believes, as of September 30, ~~2019,~~2020, that Pinnacle Financial and Pinnacle Bank met all capital adequacy requirements to which they are subject. To be categorized as well-capitalized under applicable banking regulations, Pinnacle Bank must maintain certain total risk-based, Tier 1 risk-based, common equity Tier 1 and Tier 1 leverage ratios as set forth in the following table and not be subject to a written agreement, order or directive to maintain a higher capital level. The capital conservation buffer is not included in the required ratios of the table presented below. Pinnacle Financial's and Pinnacle Bank's actual capital amounts and resulting ratios, not including the capital conservation buffer, are presented in the following table (in thousands):


	Actual				Minimum Capital Requirement				Minimum To Be Well-Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At September 30, 2020
Total capital to risk weighted assets:
Pinnacle Financial	$	3,578,436	14.2	%	$	2,015,196	8.0	%	$	2,518,994	10.0	%
Pinnacle Bank	$	3,146,468	12.6	%	$	2,005,334	8.0	%	$	2,506,667	10.0	%
Tier 1 capital to risk weighted assets:
Pinnacle Financial	$	2,702,540	10.7	%	$	1,511,397	6.0	%	$	2,015,196	8.0	%
Pinnacle Bank	$	2,819,572	11.3	%	$	1,504,000	6.0	%	$	2,005,334	8.0	%
Common equity Tier 1 capital to risk weighted assets
Pinnacle Financial	$	2,485,291	9.9	%	$	1,133,547	4.5	%	NA		NA
Pinnacle Bank	$	2,819,450	11.3	%	$	1,128,000	4.5	%	$	1,629,333	6.5	%
Tier 1 capital to average assets (*):
Pinnacle Financial	$	2,702,540	8.5	%	$	1,273,124	4.0	%	NA		NA
Pinnacle Bank	$	2,819,572	8.9	%	$	1,269,171	4.0	%	$	1,586,464	5.0	%

At December 31, 2019
Total capital to risk weighted assets:
Pinnacle Financial	$	3,159,375	13.2	%	$	1,912,885	8.0	%	$	2,391,106	10.0	%
Pinnacle Bank	$	2,906,853	12.2	%	$	1,906,839	8.0	%	$	2,383,549	10.0	%
Tier 1 capital to risk weighted assets:
Pinnacle Financial	$	2,319,234	9.7	%	$	1,434,664	6.0	%	$	1,912,885	8.0	%
Pinnacle Bank	$	2,679,713	11.2	%	$	1,430,129	6.0	%	$	1,906,839	8.0	%

Table of Contents

Actual
Minimum Capital
Requirement

Minimum
To Be Well-Capitalized Under Prompt Corrective Action Regulations
Amount Ratio Amount Ratio Amount Ratio
At September 30, 2019
Total capital to risk weighted assets:
Pinnacle Financial $ 3,093,547
13.2 % $ 1,874,904
8.0 % NA
NA
Pinnacle Bank $ 2,818,988
12.1 % $ 1,869,627
8.0 % $ 2,337,034
10.0 %
Tier 1 capital to risk weighted assets:

Pinnacle Financial $ 2,238,535
9.6 % $ 1,406,178
6.0 % NA
NA
Pinnacle Bank $ 2,592,976
11.1 % $ 1,402,221
6.0 % $ 1,869,627
8.0 %
Common equity Tier 1 capital to risk weighted assets

Pinnacle Financial $ 2,238,413
9.6 % $ 1,054,634
4.5 % NA
NA
Pinnacle Bank $ 2,592,854
11.1 % $ 1,051,665
4.5 % $ 1,519,072
6.5 %
Tier 1 capital to average assets (*):

Pinnacle Financial $ 2,238,535
8.9 % $ 1,003,329
4.0 % NA
NA
Pinnacle Bank $ 2,592,976
10.4 % $ 998,695
4.0 % $ 1,248,369
5.0 %


														Actual				Minimum Capital Requirement				Minimum To Be Well-Capitalized Under Prompt Corrective Action Regulations
	Actual				Minimum Capital Requirement				Minimum To Be Well-Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At December 31, 2018
Total capital to risk weighted assets:
Pinnacle Financial	$	2,580,143	12.2	%	$	1,691,017	8.0	%	NA		NA
Pinnacle Bank	$	2,432,419	11.5	%	$	1,686,046	8.0	%	$	2,107,558	10.0	%
Tier 1 capital to risk weighted assets:
Pinnacle Financial	$	2,024,193	9.6	%	$	1,268,263	6.0	%	NA		NA
Pinnacle Bank	$	2,218,003	10.5	%	$	1,264,535	6.0	%	$	1,686,046	8.0	%
Common equity Tier 1 capital to risk weighted assets													Common equity Tier 1 capital to risk weighted assets
Pinnacle Financial	$	2,024,070	9.6	%	$	951,197	4.5	%	NA		NA		Pinnacle Financial	$	2,319,112	9.7	%	$	1,075,998	4.5	%	NA
Pinnacle Bank	$	2,217,880	10.5	%	$	948,401	4.5	%	$	1,369,912	6.5	%	Pinnacle Bank	$	2,679,590	11.2	%	$	1,072,597	4.5	%	$	1,549,307	6.5	%
Tier 1 capital to average assets (*):													Tier 1 capital to average assets (*):
Pinnacle Financial	$	2,024,193	8.9	%	$	909,102	4.0	%	NA		NA		Pinnacle Financial	$	2,319,234	9.1	%	$	1,021,836	4.0	%	NA
Pinnacle Bank	$	2,218,003	9.8	%	$	906,185	4.0	%	$	1,132,731	5.0	%	Pinnacle Bank	$	2,679,713	10.5	%	$	1,019,210	4.0	%	$	1,274,012	5.0	%

(*) Average assets for the above calculations were based on the most recent quarter.

During the second quarter of 2020, Pinnacle Financial issued 9.0 million depositary shares, each representing a 1/40th interest in a share of Series B preferred stock in a registered public offering to both retail and institutional investors. Net proceeds from the transaction were approximately $217.1 million after deducting the underwriting discounts and offering expenses payable by Pinnacle Financial. The net proceeds were retained by Pinnacle Financial and are available to support the capital needs of Pinnacle Financial and Pinnacle Bank, to support Pinnacle Financial's obligations, including interest payments on its outstanding indebtedness, and for other general corporate purposes.

Note 11. ~~Subordinated Debt and~~ Other Borrowings

Pinnacle Financial has 12 wholly-owned subsidiaries that are statutory business trusts created for the exclusive purpose of issuing 30-year capital trust preferred ~~securities. Pinnacle Financial also has a $75.0 million revolving credit facility, of which it had no outstanding borrowings as of September 30, 2019. Additionally,~~securities, and Pinnacle Financial and Pinnacle Bank have entered into ~~or assumed in connection with acquisitions,~~ certain other subordinated debt ~~agreements as~~agreements. On April 22, 2020, Pinnacle Financial established a credit facility with the Federal Reserve Bank in conjunction with the SBA Paycheck Protection Program, with available borrowing capacity equal to the outstanding balance of Paycheck Protection Program loans, which totaled approximately $2.3 billion at September 30, 2020. There are no amounts outstanding on this facility at September 30, 2020. These instruments are outlined below as of September 30, ~~2019~~2020 (in thousands):


Name	Date Established	Maturity	Total Debt Outstanding		Interest Rate at September 30, 2020		Coupon Structure
Trust preferred securities
Pinnacle Statutory Trust I	December 29, 2003	December 30, 2033	$	10,310	3.05	%	30-day LIBOR + 2.80%
Pinnacle Statutory Trust II	September 15, 2005	September 30, 2035	20,619		1.62	%	30-day LIBOR + 1.40%
Pinnacle Statutory Trust III	September 7, 2006	September 30, 2036	20,619		1.87	%	30-day LIBOR + 1.65%
Pinnacle Statutory Trust IV	October 31, 2007	September 30, 2037	30,928		3.10	%	30-day LIBOR + 2.85%
BNC Capital Trust I	April 3, 2003	April 15, 2033	5,155		3.53	%	30-day LIBOR + 3.25%
BNC Capital Trust II	March 11, 2004	April 7, 2034	6,186		3.13	%	30-day LIBOR + 2.85%
BNC Capital Trust III	September 23, 2004	September 23, 2034	5,155		2.68	%	30-day LIBOR + 2.40%
BNC Capital Trust IV	September 27, 2006	December 31, 2036	7,217		1.92	%	30-day LIBOR + 1.70%
Valley Financial Trust I	June 26, 2003	June 26, 2033	4,124		3.33	%	30-day LIBOR + 3.10%
Valley Financial Trust II	September 26, 2005	December 15, 2035	7,217		1.74	%	30-day LIBOR + 1.49%
Valley Financial Trust III	December 15, 2006	January 30, 2037	5,155		2.00	%	30-day LIBOR + 1.73%
Southcoast Capital Trust III	August 5, 2005	September 30, 2035	10,310		1.72	%	30-day LIBOR + 1.50%

Subordinated Debt
Pinnacle Bank Subordinated Notes	July 30, 2015	July 30, 2025	60,000		3.38	%	3-month LIBOR + 3.128%
Pinnacle Bank Subordinated Notes	March 10, 2016	July 30, 2025	70,000		3.38	%	3-month LIBOR + 3.128%
Pinnacle Financial Subordinated Notes	November 16, 2016	November 16, 2026	120,000		5.25	%	Fixed (1)
Pinnacle Financial Subordinated Notes	September 11, 2019	September 15, 2029	300,000		4.13	%	Fixed (2)





Debt issuance costs and fair value adjustments			(12,722)
Total subordinated debt and other borrowings			$	670,273

Name Date
Established Maturity Total Debt Outstanding Interest Rate at
September 30, 2019 Coupon Structure
BNC Capital Trust IV
September 27, 2006
December 31, 2036
7,217
3.80 % 30-day LIBOR + 1.70%
Valley Financial Trust I
June 26, 2003
June 26, 2033
4,124
5.21 % 30-day LIBOR + 3.10%
Valley Financial Trust II
September 26, 2005
December 15, 2035
7,217
3.61 % 30-day LIBOR + 1.49%
Valley Financial Trust III
December 15, 2006
January 30, 2037
5,155
4.00 % 30-day LIBOR + 1.73%
Southcoast Capital Trust III
August 5, 2005
September 30, 2035
10,310
3.60 % 30-day LIBOR + 1.50%

Subordinated Debt

Pinnacle Bank Subordinated Notes
July 30, 2015
July 30, 2025
60,000
4.88 %
Fixed ⁽¹⁾
Pinnacle Bank Subordinated Notes
March 10, 2016
July 30, 2025
70,000
4.88 %
Fixed ⁽¹⁾
Avenue Subordinated Notes
December 29, 2014
December 29, 2024
20,000
6.75 %
Fixed ⁽²⁾
Pinnacle Financial Subordinated Notes
November 16, 2016
November 16, 2026
120,000
5.25 %
Fixed ⁽³⁾
Pinnacle Financial Subordinated Notes
September 11, 2019
September 15, 2029
300,000
4.13 %
Fixed ⁽⁴⁾
BNC Subordinated Notes
September 25, 2014
October 1, 2024
60,000
5.50 %
Fixed ⁽⁵⁾

Other Borrowings

Revolving credit facility ⁽⁶⁾
April 25, 2019
April 24, 2020
—
3.94 % 30-day LIBOR + 1.50%

Debt issuance costs and fair value adjustments (12,507 )

Total subordinated debt and other borrowings $ 750,488

(1) Migrates to ~~three month LIBOR + 3.128%~~ ~~beginning July 30, 2020 through the end of the term.~~

~~(2) Migrates to~~ ~~three month LIBOR + 4.95%~~ ~~beginning January 1, 2020 through the end of the term.~~

~~(3) Migrates to~~ three month LIBOR + 3.884% beginning November 16, 2021 through the end of the term.

~~(4)~~(2) Migrates to three month LIBOR + 2.775% beginning September 15, 2024 through the end of the term.

~~(5) Migrates to~~

~~three month LIBOR + 3.59%~~ ~~beginning October 1, 2019 through the end~~Table of ~~the term if not redeemed on that date.~~Contents

(6) Borrowing capacity on the revolving credit facility is $75.0 million. At September 30, 2019, there were 0 amounts outstanding under this facility. An unused fee of 0.30% is assessed on the average daily unused amount of the loan.

On September 11, 2019, Pinnacle Financial issued $300.0 million aggregate principal amount of ~~4.13%~~4.125% Fixed-to-Floating Rate Subordinated Notes due 2029 (the 2029 Notes) in a public offering. From, and including, the date of issuance to, but excluding, September 15, 2024, the 2029 Notes will bear interest at an initial fixed rate of 4.13% per annum, payable semi-annually in arrears on March 15 and September 15, commencing on March 15, 2020. Thereafter, from September 15, 2024 through the maturity date, ~~September 15, 2029~~, or earlier redemption date, the 2029 Notes will bear interest at a floating rate equal to the then-current three month LIBOR, plus 277.5 basis points for each quarterly interest period (subject to certain provisions regarding use of an alternative base rate upon certain LIBOR transition events), payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2024.

The offering and sale of the 2029 Notes yielded net proceeds of approximately $296.5 million after deducting the underwriting discount and offering expenses payable by Pinnacle Financial. Pinnacle Financial used approximately $8.8 million of such proceeds to redeem the previously outstanding Subordinated Note due October 15, 2023, which Pinnacle Financial assumed in the BNC merger and which carried an interest rate of 7.23% at the time of such ~~redemption.~~redemption, which occurred on September 30, 2019. Pinnacle Financial ~~intends to use approximately $210.0 million~~also used a portion of the net proceeds of this offering to redeem, ~~certain other~~effective January 1, 2020, the outstanding balance and accrued interest of ~~its and Pinnacle Bank’s subordinated notes, including~~ the $20.0 million aggregate principal amount of Avenue subordinated notes and $60.0 million aggregate principal amount of BNC subordinated notes, each listed in the table above. Pinnacle Financial also presently intends to redeem the $130.0 million aggregate principal amount of subordinated notes issued by Pinnacle Bank listed in the table above after such notes become eligible for redemption on July 30, 2020. The redemption of the $130.0 million aggregate principal amount of subordinated notes issued by Pinnacle Bank is subject to receipt of all regulatory permissions for such redemption, which Pinnacle Financial has not yet sought, and Pinnacle Financial’s ultimate determination to redeem such notes after they become eligible for redemption. Pinnacle Bank is under no obligation to redeem its subordinated notes. Pinnacle Financial intends to use the remainder of the net proceeds from the offering of the 2029 Notes for general corporate purposes, including providing capital to support the growth of Pinnacle ~~Bank and Pinnacle Financial’s~~Bank's business.

~~Note 12. Leases~~

Pinnacle Financial has entered into, or assumed through acquisition, various operating leases, primarily for office space and branch facilities, and through acquisition assumed a single finance lease for a branch facility. Upon adoption of FASB ASU 2016-02

~~Leases~~ on January 1, 2019, Pinnacle Financial began recognizing right-of-use assets and lease liabilities related to its operating leases. Prior to ASU 2016-02, such assets and liabilities were recognized only for capital leases (referred to as finance leases under the amendments of ASU 2016-02). In accordance with the optional transition method allowed by ASU 2016-11, comparative prior period information included within this note is presented in accordance with guidance in effect during those periods. Right-of-use assets and lease liabilities related to Pinnacle Financial's operating and finance leases are as follows at ~~September 30, 2019 (in thousands):~~

Balance Sheet Location September 30, 2019
Right-of-use assets
Operating leases ⁽¹⁾
Other assets $ 74,151
Finance leases Premises and equipment, net
2,044
Total right-of-use assets $ 76,195
Lease liabilities
Operating leases Other liabilities $ 82,150
Finance leases Other liabilities 3,302
Total lease liabilities $ 85,452

⁽¹⁾ ~~Presented net~~Table of ~~tenant improvement allowances of $1.7 million and purchase accounting fair value adjustments of $2.8 million.~~Contents

~~Lease costs during the three and nine months ended September 30, 2019 related to these leases were as follows (in thousands):~~

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
Operating lease cost $ 3,516
$ 10,488
Short-term lease cost 43
137
Finance lease cost:
Interest on lease liabilities 60
183
Amortization of right-of-use asset 56
169
Sublease income (562 ) (1,123 )
Net lease cost $ 3,113
$ 9,854

~~Rent expense related to leases during the three and nine months ended September 30, 2018 was $3.1 million and $9.4 million, respectively.~~

~~Cash flows related to leases during the three and nine months ended September 30, 2019 were as follows (in thousands):~~

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
Operating cash flows related to operating leases $ 3,432
$ 10,193
Operating cash flows related to finance leases 60
183
Financing cash flows related to finance leases 57
168

Lease liabilities are determined based on lease term discounted at an effective rate of interest. Certain lease agreements contain renewal options which are considered in the determination of the lease term if they are deemed reasonably certain to be exercised. Discount rates used to determine the present value of lease payments are based on secured borrowing rates as of the commencement date of the lease. The following table presents the weighted average remaining lease term and weighted average discount rate used to determine lease liabilities at September 30, 2019 (in thousands):



	~~September 30, 2019~~
~~Weighted average remaining lease term:~~
~~Operating leases~~	~~10.41 years~~
~~Finance leases~~	~~9.09 years~~
~~Weighted average discount rate:~~
~~Operating leases~~	~~3.28~~	%
~~Finance leases~~	~~7.22~~	%

The following table presents a maturity analysis of undiscounted cash flows due under operating leases and finance leases and a reconciliation to total operating lease liabilities and finance lease liabilities at September 30, 2019 (in thousands):

Operating Leases Finance Leases
2019 ⁽¹⁾
$ 3,403
$ 118
2020 12,992
470
2021 12,383
470
2022 10,619
470
2023 9,768
479
Thereafter 50,329
2,548
99,494
4,555
Less: Imputed interest (17,344 ) (1,253 )
Total lease liabilities $ 82,150
$ 3,302

⁽¹⁾~~Includes the period from October 1, 2019 through December 31, 2019.~~

~~At December 31, 2018, the future minimum lease payments due under operating leases and capital leases, and a reconciliation to total capital lease liabilities were as follows (in thousands):~~

Operating Leases Capital Leases
2019 $ 12,889
$ 470
2020 11,805
470
2021 11,527
470
2022 9,410
470
2023 8,820
479
Thereafter 43,730
2,548
Future minimum lease payments $ 98,181
4,907
Less: Imputed interest (1,437 )
Total capital lease liabilities $ 3,470

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our financial condition at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 and our results of operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from our consolidated financial statements. The following discussion and analysis should be read along with our consolidated financial statements and the related notes included elsewhere herein and the risk factors discussed in Part II, Item 1A - Risk Factors, herein as well as our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30,~~December 31, 2019 (Form 10-K) and the other reports we have filed with the Securities and Exchange Commission since we filed ~~such 10-Q.~~that Form 10-K.

Impact of COVID-19 Pandemic

On January 30, 2020, the World Health Organization declared a global health emergency related to a novel strain of the coronavirus, COVID-19. With that declaration, we activated our pandemic response team and began work to prepare both our associates and clients for the impact of COVID-19. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. These actions included the decision by the Federal Reserve Open Markets Committee to lower the target for the federal funds rate to a range of between zero to 0.25% on March 15, 2020. This action followed a prior reduction of the targeted federal funds rate to a range of 1.0% to 1.25% on March 3, 2020.

We have been intentional in our response to the COVID-19 pandemic to ensure strength in our balance sheet, including increases in liquidity and reserves. As a part of this intentional response, during the second quarter of 2020, we performed an in-depth review of all risk-graded loans greater than $1.0 million for which we had granted the borrower the ability to defer the payment of principal and/or interest for a period of up to 90 days following the COVID-19 outbreak. We also performed an in-depth review of all of our hotel and retail commercial real estate loans greater than $1.0 million regardless of their receipt of deferral. During the third quarter, our focus broadened to include the other segments of the portfolio that are risk rated that we did not re-risk grade during the second quarter. This extensive re-underwriting effort included our pass grade loans with exposures greater than $2.0 million and watch list, criticized or classified loans with exposures greater than $500,000. Overall during the third quarter we reviewed approximately 2,500 loans totaling approximately $10 billion in exposure.

Additionally during the third quarter, we have continued to adjust our business practices, including restricting employee travel, encouraging employees to work from home where possible, continuing drive-thru only service with specific needs facilitated by appointment, implementing social distancing guidelines within our offices and by the launch of our pandemic response team, which continues to meet on a regular basis.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act includes the Paycheck Protection Program ("PPP"), a program designed to aid small- and medium-sized businesses, sole proprietors and other self-employed persons through federally guaranteed loans distributed through banks. These loans are intended to guarantee eight to 24 weeks of payroll and other costs to provide support to participating businesses and increase the ability of these businesses to retain workers. As of September 30, 2020, we had obtained approvals for approximately 15,000 clients totaling approximately $2.3 billion in approved loans. These loans are fully guaranteed by the SBA, carry a term of two or five years, dependent on the date originated, and a 1.0% annualized interest rate. Inclusive of fees from the SBA, our yield on PPP loans in the third quarter was 2.77%. Forgiveness of these loans by the SBA began late in the third quarter. As of October 16, 2020, approximately 524 applications from Pinnacle borrowers had been submitted to the SBA for forgiveness and 51 of those applications had been approved for forgiveness with the remainder pending a response from the SBA.

We also implemented a short-term loan modification program to provide temporary payment relief to certain of our borrowers. This program allows for a deferral of principal and/or interest payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. As of June 30, 2020, we had granted deferrals on approximately $4.2 billion in aggregate principal amount of loans. As of September 30, 2020, approximately $724.3 million in aggregate principal amount of loans remained on deferral. This balance further decreased to $414.0 million as of October 16, 2020.

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We believe our response has allowed and continues to allow us to appropriately support our associates, clients and their communities. The COVID-19 pandemic along with the implementation of CECL have contributed to an increased provision for credit losses for the first nine months of 2020 and an extended duration of economic disruption resulting from the virus could lead to increased net charge-offs and continued elevated levels of provisioning expense. We continue to monitor both the impact of COVID-19 and the effects of the CARES Act and the prospects for additional fiscal stimulus programs closely; however, the extent to which each will impact our operations and financial results during the remainder of 2020 and into 2021 remains uncertain.

Overview

Our diluted net income per common share for the three and nine months ended September 30, ~~2019~~2020 was $1.42 and $2.62, respectively, compared to $1.44 and $3.97, ~~respectively, compared to $1.21 and $3.41,~~ respectively, for the same periods in ~~2018.~~2019. At September 30, ~~2019,~~2020, reflecting the significant number of loans we had originated under the PPP, loans had increased to ~~$19.3~~$22.5 billion, as compared to ~~$17.7~~$19.8 billion at December 31, ~~2018,~~2019, and total deposits increased to ~~$20.0~~$26.5 billion at September 30, ~~2019~~2020 from ~~$18.8~~$20.2 billion at December 31, ~~2018.~~2019.

Results of Operations. Our net interest income increased to ~~$195.8~~$206.6 million and ~~$572.0~~$600.8 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~$189.4~~$195.8 million and ~~$546.1~~$572.0 million, respectively, for the same periods in the prior year, representing increases of ~~$6.4~~$10.8 million and ~~$25.8~~$28.8 million, respectively. For the three and nine months ended September 30, ~~2019~~2020 when compared to the comparable periods in ~~2018, these increases were~~2019, this increase was largely the result of lower cost of funds, the impact of both interest and fees related to the PPP and our acquisition of additional liquidity in response to the economic uncertainty resulting from the COVID-19 pandemic as well as organic loan growth during the comparable periods. The net interest margin (the ratio of net interest income to average earning assets) for the three and nine months ended September 30, ~~2019~~2020 was ~~3.43%~~2.82% and ~~3.51%~~2.97%, respectively, compared to ~~3.65%~~3.43% and ~~3.70%~~3.51%, respectively, for the same periods in ~~2018~~2019 and reflects the impact of loans made pursuant to the PPP and our acquisition of additional on-balance sheet liquidity as noted above, the decline in short-term interest rates, declining levels of positive impact from purchase accounting and the competitive rate environments for loans and deposits in our ~~markets, the decline in short-term interest rates and for the nine months ended September 30, 2019 declining levels of positive impact from purchase accounting.~~markets.

Our provision for ~~loan~~credit losses was ~~$8.3~~$16.3 million and ~~$22.6~~$184.6 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~$8.7~~$8.3 million and ~~$25.1~~$22.6 million, respectively, for the same periods in ~~2018. Net~~2019. The primary drivers of the increase in provision were the anticipated economic impact of the COVID-19 pandemic and our adoption of FASB ASU 2016-13 on January 1, 2020. ASU 2016-13, which introduces the current expected credit losses (CECL) methodology, requires us to estimate all expected credit losses over the remaining life of our loan portfolio. Also contributing to the provision expense was an increase in net charge-offs, ~~were $4.9~~which totaled $13.1 million and ~~$12.6~~$28.6 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~$4.4~~$4.9 million and ~~$12.3~~$12.6 million, respectively, for the same periods in ~~2018.~~2019. The increase in net charge-offs in the first nine months of 2020 was in large part the result of charge-offs related to three credits in the commercial and industrial loan category all of which are loans to borrowers whose businesses related to sectors which have been highly impacted by the COVID-19 pandemic.

At September 30, ~~2019,~~2020, our allowance for ~~loan~~credit losses as a percentage of total loans, inclusive of PPP loans, was ~~0.48%~~1.28% compared to ~~0.47%~~0.48% at December 31, ~~2018.~~2019. The ~~slight~~ increase in the allowance ~~as a percentage~~for credit losses is largely the result of ~~total loans is primarily attributable~~the implementation of CECL on January 1, 2020, which resulted in an adjustment to ~~provision expense related to organic loan growth~~the opening balance of the allowance for credit losses of $38.1 million, and increased provisioning during the first nine months of ~~2019.~~2020 due to the economic impact of the COVID-19 pandemic. The increase in the opening balance upon the implementation of CECL is partially attributable to a change in the treatment of acquired loans. Prior to the adoption of CECL, acquired loans required an allowance only if estimated credit losses exceeded the remaining purchase accounting fair value discounts. Under CECL, an allowance for credit losses is recognized for all loans without regard to fair value discounts. Also contributing to the increase in the opening balance upon adoption was an overall increase in reserve rates under CECL due to the estimation of all expected credit losses over the remaining contractual life of the portfolio rather than only probable incurred losses as was required under the prior accounting standard.

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Noninterest income increased by ~~$31.1~~$8.4 million, or ~~60.5%~~10.2%, and ~~$60.8~~$30.0 million, or ~~42.3%~~14.7%, respectively, during the three and nine months ended September 30, ~~2019~~2020 compared to the same periods in ~~2018.~~2019. The ~~significant portion of the~~ growth in noninterest income was in large part attributable to ~~an increase in income from our equity method investment in BHG~~gains on mortgage loans sold, net, which ~~was $32.2~~increased by $12.1 million and ~~$77.8~~$29.4 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 as compared to ~~$14.2~~the same periods in the prior year primarily due to the favorable interest rate environment and housing markets in our markets as well as our increased number of mortgage originators in the respective periods. These gains on mortgage loans sold, net, were offset in part by a decrease in income from our equity method investment in BHG of $5.8 million, or 18.0%, and ~~$33.3~~$18.6 million, or 23.8%, respectively, ~~for~~during the three and nine months ended September 30, 2020 compared to the same periods in the prior year. ~~Gains on mortgage loans sold, net, increased by $3.5~~Additionally positively impacting noninterest income were wealth management revenues of $13.0 million and ~~$6.9~~$41.8 million, respectively, for the three and nine months ended September 30, ~~2019 as~~2020 compared to $12.1 million and $35.3 million, respectively, in the same periods in the prior year ~~largely due to the interest rate environment~~as well as $651,000 and ~~customer demand~~$986,000 in ~~the markets in which we operate. Also impacting noninterest income in~~net gains on sales of securities, respectively, during the three and nine months ended September 30, ~~2019, were $417,000 in net gains and $6.0 million in net losses, respectively, on sales of securities~~2020 compared to ~~$11,000 in net gains on the sales of securities during the three months ended September 30, 2018 and $41,000~~$417,000 in net gains on sales of securities and $6.0 million in net losses on sales of securities, respectively, during the ~~nine months ended September 30, 2018.~~same periods in the prior year. Other noninterest income, which is the result of fee revenue lines of business other than those noted above, increased during the three and nine months ended September 30, ~~2019~~2020 by ~~$7.5~~$1.4 million and ~~$11.7 million, of which $1.2 million and $3.8~~$7.6 million, respectively, ~~was attributed~~when compared to ~~increased earnings related to bank owned life insurance, $1.5 million and $1.8 million, respectively, was attributable to revenues associated with customer back-to-back swap transactions, while~~ the ~~remaining increase was realized throughout our other fee revenue lines of business~~same periods in ~~both periods. Additionally, during~~ the ~~nine months ended September 30, 2019, we incurred a $1.5 million loss from the sale of our remaining non-prime automobile portfolio to finalize our exit from that business.~~prior year.

Noninterest expense increased by ~~$19.0~~$11.3 million, or ~~16.6%~~8.5%, and ~~$41.2~~$38.6 million, or ~~12.4%~~10.3%, ~~respectively,~~ during the three and nine months ended September 30, ~~2019~~2020 compared to the three and nine months ended September 30, ~~2018.~~2019. Impacting noninterest ~~expenses during~~expense for the three and nine months ended September 30, ~~2019,~~2020 as compared to the same prior year periods was the $4.2 million and $12.6 million increase, respectively, in salaries and employee benefits. The change in salaries and employee benefits was the result of an increase in our associate base in the first nine months of ~~2019~~2020 versus the first nine months of ~~2018 and~~2019 offset in part, by the ~~resulting increase~~reduction of our annual cash incentive plan accrual due to the adverse impact on diluted EPS, one of the performance metrics in ~~salaries and employment benefits~~our annual cash incentive plan, during the first nine months of 2020. We have also incurred reduced incentive expense associated with our performance-based equity awards we have previously awarded, as the negative impact of ~~$16.8 million and $35.0 million for~~COVID-19 on our results has negatively impacted our return on average tangible assets, the performance metric applicable to these equity awards. For the three ~~and nine~~ months ended September 30, ~~2019~~2020 we recorded higher levels of incentive accrual expenses under the annual cash incentive plan as ~~compared~~a result of our decision to add a pre-tax, pre-provision net revenue performance target under the ~~same periods~~plan in the ~~prior year. A portion~~third quarter. Also impacting noninterest expense in the first nine months of 2020 was $10.1 million in lending related costs related to an increase in our off balance sheet reserves. The increase in the ~~increase for~~expense related to off balance sheet reserves during the nine months ended September 30, ~~2019 is attributable in part~~2020 was largely due to ~~a $3.2 million non-cash impairment charge related to~~ the

~~proposed consolidation~~ impact of ~~five offices across~~ the firm's footprint as well as a $2.4 million write-down of facilities and land acquired in the BNC acquisition that previously had been held for potential expansion, both of which were recorded in the second quarter of 2019.COVID-19 pandemic on expected credit losses under CECL.

Our efficiency ratio (the ratio of noninterest expense to the sum of net interest income and noninterest income) was ~~47.7%~~48.5% and ~~48.3%~~49.5%, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~47.3%~~47.7% and 48.3%, respectively, for the same periods in ~~2018.~~2019. The efficiency ratio measures the amount of expense that is incurred to generate a dollar of revenue.

During the three and nine months ended September 30, ~~2019,~~2020, we recorded income tax expense of $26.4 million and $36.0 million, respectively, compared to income tax expense of $26.7 million and $74.2 ~~million, respectively, compared to $24.4 million and $67.1~~ million, respectively, for the three and nine months ended September 30, ~~2018.~~2019. Our effective tax rate for the three and nine months ended September 30, ~~2019~~2020 was 19.3% and 15.2%, respectively, compared to 19.5% and 19.6% ~~compared to 20.7% and 20.3%~~, respectively, for the three and nine months ended September 30, ~~2018.~~2019. Our tax expense in the first nine months of 2020 was impacted by the provision for credit losses recorded in response to the COVID-19 pandemic, a portion of which was recorded as a discrete item of total income tax in the first quarter of 2020 and contributed a tax benefit of $22.4 million. Our tax rate in each period was also impacted by the vesting and exercise of equity-based awards previously granted under our equity-based compensation program, resulting in the recognition of tax expense of $85,000 and a tax benefit of $505,000, respectively, for the three and nine months ended September 30, 2020 compared to tax benefits of $131,000 and $832,000, respectively, for the three and nine months ended September 30, ~~2019 compared to tax benefits of $199,000 and $3.0 million, respectively, for the three and nine months ended September 30, 2018.~~2019.

Financial Condition. Net loans increased ~~$1.6~~$2.7 billion, or ~~9.3%~~13.6%, during the nine months ended September 30, ~~2019,~~2020, when compared to December 31, ~~2018, due~~2019. Contributing to ~~continued economic growth~~increased loan volumes during the nine months ended September 30, 2020, were $2.3 billion of loans, as of September 30, 2020, issued through the SBA's PPP. The remainder of the increase is primarily the result of loans made to borrowers that principally operate or are located in our core markets that were made prior to the COVID-19 pandemic, increases in the number of relationship advisors we employ ~~loans acquired in our acquisition of Advocate Capital~~ and continued focus on attracting new customers to our company. Total deposits were ~~$20.0~~$26.5 billion at September 30, ~~2019,~~2020, compared to ~~$18.8~~$20.2 billion at December 31, ~~2018,~~2019, an increase of ~~$1.2~~$6.3 billion, or ~~6.1%~~31.5%. Deposit growth during the period was likely aided by our clients' need to build liquidity going into the COVID-19 pandemic and current stock market conditions, but was also due in part to our intentional emphasis on gathering low-cost core deposits during 2020. Although it is difficult to measure precisely the level of increased deposits that came to us from the PPP, we estimate that our PPP borrowers increased their deposit balances with us by approximately $1.5 billion between March 31, 2020 and September 30, 2020.

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Capital and Liquidity. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, our capital ratios, including our bank's capital ratios, exceeded regulatory minimum capital requirements and those necessary to be considered well-capitalized under applicable federal regulations. See Note 10. Regulatory Matters in the Notes to our Consolidated Financial Statements elsewhere in this Form ~~10-Q.~~10-Q for additional information regarding our capital ratios. From time to time we may be required to support the capital needs of our bank (Pinnacle Bank). At September 30, ~~2019,~~2020, we had approximately ~~$199.0~~$284.4 million of cash at the parent company of which $80.0 million is expected to be utilized to redeem subordinated debt instruments on or around January 1, 2020 that were issued by companies we have acquired. The increase in our cash balances at September 30, 2019 from December 31, 2018 is mainly due to receipt of the net proceeds from the $300 million subordinated notes offering effected in September. The remainder of the cash is available to be used to support our bank. We

During the second quarter of 2020, we issued 9.0 million depositary shares, each representing a 1/40th interest in a share of our 6.75% fixed rate non-cumulative, perpetual preferred stock, Series B (Series B Preferred Stock) in a registered public offering to both retail and institutional investors. Net proceeds from the transaction after underwriting discounts and offering expenses payable by us were approximately $217.1 million. The net proceeds were retained at Pinnacle Financial and are available to support our capital needs and other obligations, including payments related to our outstanding indebtedness, to support the capital needs and other obligations of our bank and for other general corporate purposes. Additionally, we believe we have various capital raising techniques available to us to provide for the capital needs of our company and bank, such as the $300 million subordinated debt offering issued during the third quarter of 2019 ~~as well as an established line of~~or entering into a new revolving credit facility with another ~~bank that can be utilized, subject to the terms and conditions thereof, to provide up to $75 million of additional capital support to Pinnacle Bank and for other matters, if needed.~~financial institution. We also ~~have the ability to issue equity or debt securities from time to time as we have done in the past to support the capital needs of Pinnacle Bank and~~ periodically evaluate capital markets conditions to identify ~~opportunistic times~~opportunities to access those ~~markets.~~markets if necessary or prudent to support our capital levels.

On November 13, 2018, wePinnacle Financial announced that ~~our~~its board of directors ~~had~~ authorized a share repurchase program for up to $100.0 million of ~~our~~Pinnacle Financial’s outstanding common ~~stock.~~stock and on October 15, 2019, the board approved an additional $100.0 million of repurchase authorization. The initial repurchase program ~~is scheduled to expire upon~~expired on March 31, 2020, with the ~~earlier~~additional $100.0 million authorization expiring on December 31, 2020. Between November 13, 2018 and December 31, 2019, we repurchased approximately 1.5 million shares of our ~~repurchase~~common stock at an aggregate cost of $82.1 million pursuant to these authorizations. During the quarter ended March 31, 2020, we repurchased approximately 1.0 million shares of our common stock at an aggregate cost of $50.8 million. Our last purchase of shares of our common stock ~~having an aggregate purchase price of $100.0 million and December 31, 2019. During the nine months ended September 30, 2019, we repurchased 873,505 shares of~~occurred on March 19, 2020. We suspended our common stock at a weighted average price of $55.48 and an aggregate cost of $48.5 million. In aggregate, we have repurchased approximately 1.3 million shares, for approximately $69.2 million at a weighted average share price of $54.08 under this share repurchase program ~~through September 30, 2019.~~

~~On October 15, 2019, we announced that our board of directors had authorized an additional share repurchase program for up to $100.0 million of our outstanding common stock after completion~~at the end of the ~~previously announced program. The repurchase program announced~~first quarter of 2020 and it remains suspended until we gain more clarity on ~~October 15, 2019 is scheduled to expire upon~~ the ~~earlier~~length and depth of ~~our repurchase of shares of our outstanding common stock having an aggregate purchase price of $100.0 million and December 31, 2020.~~the COVID-19 pandemic.

Critical Accounting Estimates

The accounting principles we follow and our methods of applying these principles conform with U.S. GAAP and with general practices within the banking industry. On January 1, 2020, we adopted FASB ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) which significantly changes our methodology for determining our allowance for credit losses, and ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment which simplifies our process for performing goodwill impairment testing.See Note 1. Summary of Significant Accounting Policies in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q for further information related to these changes. There have been no other significant changes to our Critical Accounting Estimates as described in our ~~Annual Report on~~ Form ~~10-K for the fiscal year ended December 31, 2018 (2018 10-K).~~10-K.

~~Results~~Selected Financial Information

Table of ~~Operations~~Contents

The following is a summary of ~~our results~~certain financial information as of ~~operations~~or for the three and nine month periods ended September 30, 2020 and as of December 31, 2019 and for the three and nine month periods ended September 30, 2019 (dollars in thousands, except per share data):


	Three Months Ended September 30,						2020 - 2019 Percent		Nine Months Ended September 30,						2020 - 2019 Percent
	2020			2019			Increase (Decrease)		2020			2019			Increase (Decrease)
Income Statement:
Interest income	$	249,188		$	275,749		(9.6)	%	$	763,995		$	799,483		(4.4)	%
Interest expense	42,594			79,943			(46.7)	%	163,192			227,513			(28.3)	%
Net interest income	206,594			195,806			5.5	%	600,803			571,970			5.0	%
Provision for credit losses	16,333			8,260			97.7	%	184,554			22,639			715.2	%
Net interest income after provision for credit losses	190,261			187,546			1.4	%	416,249			549,331			(24.2)	%
Noninterest income	91,065			82,619			10.2	%	234,396			204,364			14.7	%
Noninterest expense	144,277			132,941			8.5	%	413,231			374,678			10.3	%
Net income before income taxes	137,049			137,224			(0.1)	%	237,414			379,017			(37.4)	%
Income tax expense	26,404			26,703			(1.1)	%	35,969			74,215			(51.5)	%
Net income	110,645			110,521			0.1	%	201,445			304,802			(33.9)	%
Preferred stock dividends	(3,798)			—			100.0	%	(3,798)			—			100.0	%
Net income available to common shareholders	$	106,847		$	110,521		(3.3)	%	$	197,647		$	304,802		(35.2)	%

Per Share Data:
Basic net income per common share	$	1.42		$	1.45		(2.1)	%	$	2.62		$	3.99		(34.3)	%
Diluted net income per common share	$	1.42		$	1.44		(1.4)	%	$	2.62		$	3.97		(34.0)	%

Performance Ratios:
Return on average assets (1)	1.26		%	1.62		%	(22.2)	%	0.83		%	1.56		%	(46.8)	%
Return on average shareholders' equity (2)	8.92		%	10.28		%	(13.2)	%	5.79		%	9.86		%	(41.3)	%
Return on average common shareholders' equity (3)	9.35		%	10.28		%	(9.0)	%	5.91		%	9.86		%	(40.1)	%

	September 30, 2020			December 31, 2019
Balance Sheet:
Loans, net of allowance for credit losses	$	22,188,764		$	19,693,099		12.7%
Deposits	$	26,543,956		$	20,181,028		31.5%

(1) Return on average assets is the result of net income available to common shareholders for the reported period on an annualized basis, divided by average assets for the period.

Three months ended
September 30, 2019 - 2018 Percent Nine Months Ended
September 30, 2019 - 2018 Percent
2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
Interest income $ 275,749
$ 248,110
11.1 % $ 799,483
$ 690,622
15.8 %
Interest expense 79,943
58,690
36.2 % 227,513
144,495
57.5 %
Net interest income 195,806

189,420
3.4 % 571,970

546,127
4.7 %
Provision for loan losses 8,260
8,725
(5.3 )% 22,639
25,058
(9.7 )%
Net interest income after provision for loan losses 187,546

180,695
3.8 % 549,331

521,069
5.4 %
Noninterest income 82,619
51,478
60.5 % 204,364
143,600
42.3 %
Noninterest expense 132,941
113,990
16.6 % 374,678
333,478
12.4 %
Net income before income taxes 137,224

118,183
16.1 % 379,017

331,191
14.4 %
Income tax expense 26,703
24,436
9.3 % 74,215
67,069
10.7 %
Net income $ 110,521

$ 93,747
17.9 % $ 304,802

$ 264,122
15.4 %

Basic net income per common share $ 1.45
$ 1.22
18.9 % $ 3.99
$ 3.42
16.7 %

Diluted net income per common share $ 1.44
$ 1.21
19.0 % $ 3.97
$ 3.41
16.4 %
(2) Return on average shareholders' equity is the result of net income available to common shareholders for the reported period on an annualized basis, divided by average stockholders' equity for the period.

(3) Return on average common shareholders' equity is the result of net income available to common shareholders for the reported period on an annualized basis, divided by average common shareholders' equity for the period.

Results of Operations

Net Interest Income. Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of our revenues. Net interest income totaled ~~$195.8~~$206.6 million and ~~$572.0~~$600.8 million, respectively, for the three and nine months ended September 30, ~~2019, an increase of $6.4~~2020 compared to $195.8 million and ~~$25.8~~$572.0 million, respectively, ~~from the levels recorded in~~for the same periods in the prior year, representing increases of ~~2018. This~~$10.8 million and $28.8 million, respectively. For the three and nine months ended September 30, 2020 when compared to the comparable periods in 2019, this increase was ~~attributable to organic growth in our loan portfolio,~~largely the result of lower funding costs, the impact of both interest and fees from the ~~loans we acquired in connection with~~PPP and our acquisition of ~~Advocate Capital and an increase~~additional on-balance sheet liquidity in response to the ~~interest rates we receive on interest earning assets (including~~economic uncertainty resulting from the ~~Advocate Capital loans), offset in part by increases in~~COVID-19 pandemic as well as organic loan growth during the ~~volume and the rates we pay on deposits and our other funding sources.~~comparable periods.

Table of Contents

The following tables set forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities, net interest spread and net interest margin for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (dollars in thousands):


	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018							Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields			Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields
Interest-earning assets:													Interest-earning assets:
Loans ⁽¹⁾⁽²⁾	$	19,216,835	$	247,147	5.21	%	$	17,259,139	$	221,901	5.15	%	Loans (1)(2)	$	22,493,192	$	224,482	4.04	%	$	19,216,835	$	247,147	5.21	%
Securities:													Securities:
Taxable	1,712,265		10,655		2.47	%	1,803,104		12,209		2.69	%	Taxable	2,226,008		8,276		1.48	%	1,712,265		10,655		2.47	%
Tax-exempt⁽²⁾	1,795,098		13,313		3.51	%	1,272,529		10,074		3.72	%	Tax-exempt (2)	2,194,272		15,001		3.29	%	1,795,098		13,313		3.51	%
Federal funds sold and other	802,326		4,634		2.29	%	647,728		3,926		2.40	%	Federal funds sold and other	3,279,248		1,429		0.17	%	802,326		4,634		2.29	%
Total interest-earning assets	23,526,524		$	275,749	4.78	%	20,982,500		$	248,110	4.76	%	Total interest-earning assets	30,192,720		$	249,188	3.38	%	23,526,524		$	275,749	4.78	%
Nonearning assets													Nonearning assets
Intangible assets	1,866,223						1,857,413						Intangible assets	1,866,082						1,866,223
Other nonearning assets	1,741,416						1,285,138						Other nonearning assets	1,779,914						1,741,416
Total assets	$	27,134,163					$	24,125,051					Total assets	$	33,838,716					$	27,134,163

Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing deposits:													Interest-bearing deposits:
Interest checking	3,237,155		9,517		1.17	%	3,076,025		7,843		1.01	%	Interest checking	4,784,627		3,733		0.31	%	3,237,155		9,517		1.17	%
Savings and money market	7,614,558		27,303		1.42	%	7,284,373		21,125		1.15	%	Savings and money market	10,312,876		8,374		0.32	%	7,614,558		27,303		1.42	%
Time	4,351,473		25,711		2.34	%	3,421,451		15,204		1.76	%	Time	4,265,881		16,294		1.52	%	4,351,473		25,711		2.34	%
Total interest-bearing deposits	15,203,186		62,531		1.63	%	13,781,849		44,172		1.27	%	Total interest-bearing deposits	19,363,384		28,401		0.58	%	15,203,186		62,531		1.63	%
Securities sold under agreements to repurchase	134,197		152		0.45	%	146,864		165		0.44	%	Securities sold under agreements to repurchase	147,211		77		0.21	%	134,197		152		0.45	%
Federal Home Loan Bank advances	2,136,928		11,591		2.15	%	1,497,511		8,171		2.16	%	Federal Home Loan Bank advances	1,515,879		6,945		1.82	%	2,136,928		11,591		2.15	%
Subordinated debt and other borrowings	533,194		5,669		4.22	%	468,990		6,182		5.29	%	Subordinated debt and other borrowings	715,138		7,171		3.99	%	533,194		5,669		4.22	%
Total interest-bearing liabilities	18,007,505		79,943		1.76	%	15,895,214		58,690		1.46	%	Total interest-bearing liabilities	21,741,612		42,594		0.78	%	18,007,505		79,943		1.76	%
Noninterest-bearing deposits	4,574,821		—		0.00	%	4,330,917		—		0.00	%	Noninterest-bearing deposits	6,989,439		—		0.00	%	4,574,821		—		0.00	%
Total deposits and interest-bearing liabilities	22,582,326		$	79,943	1.40	%	20,226,131		$	58,690	1.15	%	Total deposits and interest-bearing liabilities	28,731,051		$	42,594	0.59	%	22,582,326		$	79,943	1.40	%
Other liabilities	286,831						24,490						Other liabilities	341,801						286,831
Stockholders' equity	4,265,006						3,874,430						Stockholders' equity	4,765,864						4,265,006
Total liabilities and stockholders' equity	$	27,134,163					$	24,125,051					Total liabilities and stockholders' equity	$	33,838,716					$	27,134,163
Net interest income			$	195,806					$	189,420			Net interest income			$	206,594					$	195,806
Net interest spread ⁽³⁾					3.02	%					3.30	%	Net interest spread (3)					2.60	%					3.02	%
Net interest margin ⁽⁴⁾					3.43	%					3.65	%	Net interest margin (4)					2.82	%					3.43	%

(1) Average balances of nonaccrual loans are included in the above amounts.

(2) Yields computed on tax-exempt instruments on a tax equivalent basis and include ~~$7.5~~$7.3 million of taxable equivalent income for the three months ended September 30, ~~2019~~2020 compared to ~~$3.8~~$7.5 million for the three months ended September 30, ~~2018.~~2019. The tax-exempt benefit has been reduced by the projected impact of tax-exempt income that will be disallowed pursuant to IRS Regulations as of and for the ~~then current~~ period presented.

(3) Yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. The net interest spread calculation excludes the impact of demand deposits. Had the impact of demand deposits been included, the net interest spread for the three months ended September 30, ~~2019~~2020 would have been ~~3.37%~~2.79% compared to a net interest spread of ~~3.61%~~3.37% for the three months ended September 30, ~~2018.~~2019.

(4) Net interest margin is the result of annualized net interest income calculated on a tax-equivalent basis divided by average interest-earning assets for the period.

Table of Contents


(dollars in thousands)													(dollars in thousands)	Nine months ended						Nine months ended
														September 30, 2020						September 30, 2019
														Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields
	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields
Interest-earning assets:
Loans ⁽¹⁾⁽²⁾	$	18,593,509	$	714,179	5.23	%	$	16,653,548	$	621,873	5.04	%
Securities:
Interest-earning assets													Interest-earning assets
Loans (1) (2)													Loans (1) (2)	$	21,589,858	$	687,183	4.33	%	$	18,593,509	$	714,179	5.23	%
Securities													Securities
Taxable	1,779,512		36,438		2.74	%	1,796,816		35,179		2.62	%	Taxable	2,103,023		28,133		1.79	%	1,779,512		36,438		2.74	%
Tax-exempt⁽²⁾	1,628,742		37,541		3.67	%	1,162,587		25,709		3.51	%	Tax-exempt (2)	2,041,199		43,421		3.41	%	1,628,742		37,541		3.67	%
Federal funds sold and other	602,148		11,325		2.51	%	476,219		7,861		2.21	%	Federal funds sold and other	2,239,102		5,258		0.31	%	602,148		11,325		2.51	%
Total interest-earning assets	22,603,911		$	799,483	4.85	%	20,089,170		$	690,622	4.66	%	Total interest-earning assets	27,973,182		$	763,995	3.75	%	22,603,911		$	799,483	4.85	%
Nonearning assets													Nonearning assets
Intangible assets	1,856,324						1,860,649						Intangible assets	1,868,118						1,856,324
Other nonearning assets	1,580,762						1,246,081						Other nonearning assets	1,787,377						1,580,762
Total assets	$	26,040,997					$	23,195,900					Total assets	$	31,628,677					$	26,040,997

Interest-bearing liabilities:
Interest-bearing liabilities													Interest-bearing liabilities
Interest-bearing deposits:													Interest-bearing deposits:
Interest checking	3,173,228		28,145		1.19	%	3,008,696		19,336		0.86	%	Interest checking	4,391,319		16,456		0.50	%	3,173,228		28,145		1.19	%
Savings and money market	7,503,407		80,587		1.44	%	6,850,249		49,294		0.96	%	Savings and money market	9,201,302		37,713		0.55	%	7,503,407		80,587		1.44	%
Time	3,937,486		67,004		2.28	%	2,960,055		32,290		1.46	%	Time	4,298,814		58,657		1.82	%	3,937,486		67,004		2.28	%
Total interest-bearing deposits	14,614,121		175,736		1.61	%	12,819,000		100,920		1.05	%	Total interest-bearing deposits	17,891,435		112,826		0.84	%	14,614,121		175,736		1.61	%
Securities sold under agreements to repurchase	120,346		439		0.49	%	133,489		438		0.44	%	Securities sold under agreements to repurchase	159,783		286		0.24	%	120,346		439		0.49	%
Federal Home Loan Bank advances	2,076,647		33,107		2.13	%	1,655,222		24,867		2.01	%	Federal Home Loan Bank advances	1,918,371		26,854		1.87	%	2,076,647		33,107		2.13	%
Subordinated debt and other borrowings	491,384		18,231		4.96	%	470,564		18,270		5.19	%	Subordinated debt and other borrowings	698,464		23,226		4.44	%	491,384		18,231		4.96	%
Total interest-bearing liabilities	17,302,498		227,513		1.76	%	15,078,275		144,495		1.28	%	Total interest-bearing liabilities	20,668,053		163,192		1.05	%	17,302,498		227,513		1.76	%
Noninterest-bearing deposits	4,391,400		—		—		4,301,952		—		0.00	%	Noninterest-bearing deposits	6,063,783		—		—		4,391,400		—		—
Total deposits and interest-bearing liabilities	21,693,898		$	227,513	1.40	%	19,380,227		$	144,495	1.00	%	Total deposits and interest-bearing liabilities	26,731,836		$	163,192	0.82	%	21,693,898		$	227,513	1.40	%
Other liabilities	212,813						14,145						Other liabilities	335,274						212,813
Stockholders' equity	4,134,286						3,801,528						Stockholders' equity	4,561,567						4,134,286
Total liabilities and stockholders' equity	$	26,040,997					$	23,195,900					Total liabilities and stockholders' equity	$	31,628,677					$	26,040,997
Net interest income			$	571,970					$	546,127			Net interest income			$	600,803					$	571,970
Net interest spread ⁽³⁾					3.09	%					3.38	%	Net interest spread (3)					2.70	%					3.09	%
Net interest margin ⁽⁴⁾					3.51	%					3.70	%	Net interest margin (4)					2.97	%					3.51	%

(1) Average balances of nonaccrual loans are included in the above amounts.

(2) Yields computed on tax-exempt instruments on a tax equivalent basis and include ~~$20.9~~$21.3 million of taxable equivalent income for the nine months ended September 30, ~~2019~~2020 compared to ~~$10.4~~$20.9 million for the nine months ended September 30, ~~2018.~~2019. The tax-exempt benefit has been reduced by the projected impact of tax-exempt income that will be disallowed pursuant to IRS Regulations as of and for the ~~then current~~ period presented.

(3) Yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. The net interest spread calculation excludes the impact of demand deposits. Had the impact of demand deposits been included, the net interest spread for the nine months ended September 30, ~~2019~~2020 would have been ~~3.45%~~2.93% compared to a net interest spread of ~~3.67%~~3.45% for the nine months ended September 30, ~~2018.~~2019.

(4) Net interest margin is the result of annualized net interest income calculated on a tax-equivalent basis divided by average interest-earning assets for the period.

For the three and nine months ended September 30, ~~2019,~~2020, our net interest margin was 2.82% and 2.97%, respectively, compared to 3.43% and 3.51%, respectively, ~~compared to 3.65% and 3.70%, respectively,~~for the same periods in 2019. Our net interest margin for the three and nine months ended September 30, ~~2018. Although our net interest margin for~~2020 reflects the ~~three~~impact of PPP loans and ~~nine-month periods ended September 30, 2019 was positively impacted by yield expansion in our earning asset portfolio (including as a result of our~~the firm's acquisition of ~~Advocate Capital) and growth~~additional on-balance sheet liquidity as noted above, the decline in ~~interest-earning assets, these increases were offset by increases in our total funding costs and~~short-term interest rates, declining levels of positive impact from purchase ~~accounting.~~accounting and the competitive rate environments for loans and deposits in our markets. More specifically, our net interest margin was negatively impacted by yield compression in our earning asset portfolio due to a declining macroeconomic interest rate environment, which included a 150 basis points reduction in the federal funds rate in March 2020. This decrease was offset somewhat by a decrease in funding costs. During the three and nine months ended September 30, ~~2019,~~2020, our earning asset yield ~~increased~~decreased by 2140 basis points and 19110 basis points, respectively, from the same periods in the prior year. ~~However, our~~Our total funding rates ~~increased~~decreased by 2581 basis points and 4058 basis points, respectively, compared to the ~~three and nine months ended September 30, 2018, outpacing~~same periods in the ~~growth in our yields on earning assets. The increase in our funding costs was primarily caused by increased competition and increased use~~prior year.

Table of ~~and associated borrowing costs for noncore funding.~~Contents

We continue to deploy various asset liability management strategies to manage our risk to interest rate fluctuations. Pricing for creditworthy borrowers and meaningful depositors is very competitive in our markets and this competition has adversely impacted, and may continue to adversely impact, our margins. ~~We anticipate that this~~This challenging competitive environment ~~will~~may continue during ~~the remainder~~2020 and 2021 even during a time of ~~2019 and into 2020.~~economic uncertainty due to COVID-19. We also expect the positive impact of purchase accounting on our net interest income will lessen in future periods, which will negatively affect our net interest margin in ~~the remainder of 2019~~2020 and ~~into 2020. Though we~~2021. We have sought to mitigate much of the negative impact that reductions in short-term interest rates would have on our net interest margin through restructuring a portion of our investment securities portfolio, purchasing a loan interest rate ~~floor,~~floors, and unwinding fixed-to-floating loan interest rate ~~swaps,~~swaps. Those tactics have benefited us during this recent period of falling short-term interest ~~rate cuts like those recently announced by the Federal Reserve, will likely continue to negatively impact~~rates. However, our net interest margin ~~particularly~~could be additionally impacted if we are not able to ~~fully~~continue to lower ~~our funding costs on our~~ deposit ~~products as quickly and meaningfully as yields decline on~~rates at a pace necessary to offset declines in our earning ~~assets. Our~~asset yields. We determined that holding elevated levels of on-balance sheet liquidity is a prudent response to the COVID-19 pandemic. This strategy will negatively impact the net interest margin could additionally be impacted by future interest rate cuts. Though we believe our net interest margin may decrease slightly for the remainder of 2019, we believe our net interest income should continueuntil on-balance sheet liquidity returns to ~~increase in the fourth quarter of 2019 as compared to the comparable period in 2018 primarily due to increased average earning asset volumes, primarily loans.~~more normalized levels. We seek to fund ~~these~~ increased loan volumes by growing our core deposits, but will utilize ~~noncore~~non-core funding to fund shortfalls, if any. To the extent that our dependence on ~~noncore~~non-core funding sources increases during ~~the remainder of 2019~~2020 and 2021, our net interest margin would likely be negatively impacted as we may not be able to reduce the rates we pay on these deposits as quickly as we can on core deposits.

Provision for ~~Loan~~Credit Losses. ~~The~~On January 1, 2020, we adopted FASB ASU 2016-13, which introduces the current expected credit losses (CECL) methodology and requires us to estimate all expected credit losses over the remaining life of our loan and held-to-maturity securities portfolios. Accordingly, the provision for ~~loan~~credit losses represents a charge to earnings necessary to establish an allowance for ~~loan~~credit losses that, in management's evaluation, ~~should be~~is adequate to provide coverage for ~~the inherent losses on outstanding loans.~~all expected credit losses. The provision for ~~loan~~credit losses amounted to $16.3 million and $184.6 million, respectively, for the three and nine months ended September 30, 2020 compared to $8.3 million and $22.6 million, respectively, for the three and nine months ended September 30, ~~2019~~2019. Provision expense is impacted by organic loan growth in our loan portfolio, our internal assessment of the credit quality of the loan portfolio, our expectations about future economic conditions and net charge-offs. The primary driver of the increase in provision for credit losses for the three and nine months ended September 30, 2020 was the economic impact of the COVID-19 pandemic. Our CECL model relies on recent historical and projected future macroeconomic conditions, including unemployment and GDP, as key inputs to estimate future credit losses. As a result, the deterioration in economic conditions resulting from COVID-19 has resulted in a significant increase in expected credit losses. Also contributing to the increase in provision expense in the current year when compared to ~~$8.7~~2019 comparable periods was an increase in net charge-offs, which totaled $13.1 million and ~~$25.1~~$28.6 million, respectively, for the three and nine months ended September 30, ~~2018. Provision expense is impacted primarily by organic loan growth~~2020 compared to $4.9 million and $12.6 million, respectively, for the same periods in ~~our loan portfolio and by our internal assessment of the credit quality of the loan portfolio and~~2019. The increase in net ~~charge-offs. Provision expense~~charge-offs in the first nine months of ~~2019 reflected~~2020 was in large part the result of charge-offs ~~primarily~~ related to ~~non-prime automobile loans~~three credits in the commercial and ~~commercial losses on~~industrial loan category all of which are loans to borrowers ~~in a variety of industries.~~whose businesses related to sectors which have been highly impacted by the COVID-19 pandemic.

Our allowance for ~~loan~~credit losses reflects an amount deemed appropriate to adequately cover ~~probable~~all expected future losses ~~inherent in~~as of the ~~loan portfolio~~date the allowance is determined based on our allowance for ~~loan~~credit losses assessment methodology. At September 30, ~~2019,~~2020, our allowance for ~~loan~~credit losses as a percentage of total loans, inclusive of PPP loans, was ~~0.48%~~1.28%, up ~~slightly~~ from ~~0.47%~~0.48% at December 31, ~~2018.~~2019. The ~~slight~~ increase in the allowance as a percentage of total loans is primarily attributable to provision expense associated with organic loan growth as our acquired loans, with remaining purchase accounting discounts associated with them, become less impactful to our portfolio mix. The absolute level of our allowance for ~~loan~~credit losses is largely ~~driven by continued favorable~~the result of the implementation of CECL on January 1, 2020, which resulted in an adjustment to the opening balance of the allowance for credit ~~experience in our larger portfolios~~losses of $38.1 million, and ~~we believe it is supported by~~increased provisioning during the ~~strong economies presently in place in~~three and nine months ended September 30, 2020 due to the ~~markets in which we operate.~~estimated economic impact of the COVID-19 pandemic.

Noninterest Income. Our noninterest income is composed of several components, some of which vary significantly between quarterly and annual periods. Service charges on deposit accounts and other noninterest income generally reflect customer growth trends, while fees from our wealth management departments, gains on mortgage loans sold, gains and losses on the sale of securities and gains or losses related to our efforts to mitigate risks associated with interest rate volatility will often reflect financial market conditions and fluctuate from period to period.

Table of Contents

The following is a summary of our noninterest income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended September 30,					2019 - 2018 Percent	Nine Months Ended September 30,					2019 - 2018 Percent		Three Months Ended September 30,				2020 - 2019 Percent	Nine Months Ended September 30,				2020 - 2019 Percent
	2019		2018			Increase (Decrease)	2019			2018		Increase (Decrease)		2020		2019		Increase (Decrease)	2020		2019		Increase (Decrease)
Noninterest income:													Noninterest income:
Service charges on deposit accounts	$	10,193	$	9,972		2.2%	$	27,675		$	26,333	5.1%	Service charges on deposit accounts	$	9,854	$	10,193	(3.3)%	$	25,796	$	27,675	(6.8)%
Investment services	6,270		5,450			15.0%	17,607			15,817		11.3%	Investment services	6,734		6,270		7.4%	21,944		17,607		24.6%
Insurance sales commissions	2,252		2,126			5.9%	7,327			7,293		0.5%	Insurance sales commissions	2,284		2,252		1.4%	7,755		7,327		5.8%
Gains on mortgage loans sold, net	7,402		3,902			89.7%	18,291			11,423		60.1%	Gains on mortgage loans sold, net	19,453		7,402		162.8%	47,655		18,291		160.5%
Investment gains and losses on sales, net	417		11			NM	(6,009		)	41		NM
Investment gains (losses) on sales of securities, net													Investment gains (losses) on sales of securities, net	651		417		56.1%	986		(6,009)		116.4%
Trust fees	3,593		3,087			16.4%	10,349			9,768		5.9%	Trust fees	3,986		3,593		10.9%	12,114		10,349		17.1%
Income from equity method investment	32,248		14,236			126.5%	77,799			33,286		133.7%	Income from equity method investment	26,445		32,248		(18.0)%	59,245		77,799		(23.8)%
Other noninterest income:													Other noninterest income:
Interchange and other consumer fees	9,597		7,112			34.9%	26,199			20,603		27.2%	Interchange and other consumer fees	10,932		9,597		13.9%	29,224		26,199		11.5%
Bank-owned life insurance	4,558		3,397			34.2%	12,853			9,043		42.1%	Bank-owned life insurance	4,557		4,558		—%	13,935		12,853		8.4%
Loan swap fees	2,250		733			207.0%	3,811			1,989		91.6%	Loan swap fees	365		2,250		(83.8)%	3,166		3,811		(16.9)%
SBA loan sales	1,168		565			106.7%	2,913			3,410		(14.6)%	SBA loan sales	1,469		1,168		25.8%	3,752		2,913		28.8%
Gain (loss) on other equity investments	584		(85		)	NM	2,198			2,216		(0.8)%
Gain on other equity investments													Gain on other equity investments	460		584		(21.2)%	8		2,198		(99.6)%
Other noninterest income	2,087		972			114.7%	3,351			2,378		40.9%	Other noninterest income	3,875		2,087		85.7%	8,816		3,351		163.1%
Total other noninterest income	20,244		12,694			59.5%	51,325			39,639		29.5%	Total other noninterest income	21,658		20,244		7.0%	58,901		51,325		14.8%
Total noninterest income	$	82,619	$	51,478		60.5%	$	204,364		$	143,600	42.3%	Total noninterest income	$	91,065	$	82,619	10.2%	$	234,396	$	204,364	14.7%

The ~~increase~~decrease in service charges on deposit accounts in the three and nine months ended September 30, ~~2019~~2020 compared to the three and nine months ended September 30, ~~2018~~2019 is primarily related to ~~increased~~a reduction in analysis fees due to ~~an increase~~a decrease in the transaction volume ~~and number~~ of commercial checking accounts ~~resulting from organic growth.~~which we believe is the result of the COVID-19 pandemic.

Income from our wealth management groups (investments, insurance and trust) is also included in noninterest income. For the three and nine months ended September 30, ~~2019,~~2020, commissions and fees from investment services at our financial advisory unit, Pinnacle Asset Management, a division of Pinnacle Bank, increased by ~~$820,000~~$464,000 and ~~$1.8~~$4.3 million ~~respectively,~~when compared to the three and nine months ended September 30, ~~2018.~~2019. At September 30, ~~2019~~2020 and ~~2018,~~2019, Pinnacle Asset Management was receiving commissions and fees in connection with approximately ~~$4.4~~$4.9 billion and ~~$4.0~~$4.4 billion, respectively, in brokerage assets. Revenues from the sale of insurance products by our insurance subsidiaries for the three and nine months ended September 30, ~~2019~~2020 increased by ~~$126,000~~$32,000 and ~~$34,000,~~$428,000, respectively, compared to the same periods in the prior year. Included in insurance revenues for the nine months ended September 30, ~~2019~~2020 was ~~$884,000~~$1.1 million of contingent income received in the first ~~nine months~~quarter of ~~2019~~2020 that was based on ~~2018~~2019 sales production and claims experience compared to ~~$1.0 million~~$884,000 recorded in the same period in the prior year. Additionally, at September 30, ~~2019,~~2020, our trust department was receiving fees on approximately ~~$2.5~~$3.0 billion of managed assets compared to ~~$2.1~~$2.5 billion at September 30, ~~2018,~~2019, reflecting organic growth and increased market valuations. The growth in our wealth management businesses is attributable to ~~our expanded distribution platform in our Carolina and Virginia markets as well as~~ the addition of associates in ~~our legacy Tennessee markets.~~these areas, market volatility and the attractive markets in which we operate.

Gains on mortgage loans sold, net, consists of fees from the origination and sale of mortgage loans. These mortgage fees are for loans primarily originated in our current markets that are subsequently sold to third-party investors. Substantially all of these loan sales transfer servicing rights to the buyer. Generally, mortgage origination fees increase in lower interest rate environments and more robust housing markets and decrease in rising interest rate environments and more challenging housing markets. Mortgage origination fees will fluctuate from quarter to quarter as the rate environment changes. Gains on mortgage loans sold, net, were ~~$7.4~~$19.5 million and ~~$18.3~~$47.7 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~$3.9~~$7.4 million and ~~$11.4~~$18.3 million, respectively, for the same periods in the prior year. This sizeable increase is the direct result of the current interest rate environment and the strong markets in which we operate. We hedge a portion of our mortgage pipeline as part of a mandatory delivery program. The hedge is not designated as a hedge for GAAP purposes and, as such, changes in its fair value are recorded directly through the income statement. There is a positive correlation between the dollar amount of the mortgage pipeline and the value of this hedge. Therefore, the change in the outstanding mortgage pipeline at the end of any reporting period will directly impact the amount of gain recorded for mortgage loans held for sale during that reporting period. At September 30, ~~2019,~~2020, the mortgage pipeline included ~~$168.9~~$316.5 million in loans expected to close in ~~2019~~2020 compared to ~~$118.6~~$168.9 million in loans at September 30, ~~2018~~2019 expected to close in ~~2018.~~2019.

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Investment gains and losses on sales, net represent the net gains and losses on sales of investment securities in our available-for-sale securities portfolio during the periods noted. During the nine months ended September 30, 2020, we sold approximately $145.6 million of securities for a net gain of $986,000 compared to the nine months ended September 30, 2019, when we sold approximately $626.1 million of securities for a net loss of $6.0 million as we sought to reposition a portion of our securities portfolio for a declining rate environment compared to the nine months ended September 30, 2018 where we sold approximately $22.7 million of securities for a net gain of $41,000.million.

Included in other noninterest income are interchange and other consumer fees, gains from bank-owned life insurance, swap fees earned for the facilitation of derivative transactions for our clients, SBA loan sales, gains or losses on other equity investments and other noninterest income items. Interchange revenues increased in the three and nine months ended September 30, 2019 as a result of increased debit and credit card transactions as compared to the comparable periods in 2018 resulting from organic growth. Other noninterest income included changes in the cash surrender value of bank-owned life insurance which was $4.6 million and $12.9 million, respectively, for the three and nine months ended September 30, 2019 compared to $3.4 million and $9.0 million, respectively, for the three and nine months ended September 30, 2018. The increase in earnings on these bank-owned life insurance policies resulted primarily from the purchase of $100.0 million of new policies during 2018 and $110.0 million of new policies purchased in the first nine months of 2019. The assets that support these policies are administered by the life insurance carriers and the income we recognize (i.e., increases or decreases in the cash surrender value of the policies) on these policies is dependent upon the crediting rates applied by the insurance carriers, which are subject to change at the discretion of the carriers, subject to any applicable floors. Earnings on these policies generally are not taxable. Loan swap fees increased by $1.5 million and $1.8 million during the three and nine months ended September 30, 2019 as compared to the same periods in 2018 due primarily to reduced third party fees and an increase in the volume of activity resulting from the current interest rate environment. SBA loan sales are also included in other noninterest income and fluctuate based on the current market environment. Additionally, the carrying values of other equity 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 ongoing reviews by senior investment managers.

Income from equity-method investment. Income from equity-method investment is comprised solely of income from our 49% equity-method investment in BHG. BHG is engaged in the origination of commercial and consumer loans primarily to healthcare providers and other professionals throughout the United States. The loans originated by BHG are either financed by secured borrowings or sold without recourse to independent financial institutions and investors. BHG has expanded its operations to include commercial lending to other professional service firms such as attorneys, accountants and others.

Income from this equity-method investment was ~~$32.2~~$26.4 million and ~~$77.8~~$59.2 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~$14.2~~$32.2 million and ~~$33.3~~$77.8 million, respectively, for the same periods last year. The increased level of contribution we have experienced from BHG in the three and nine months ended September 30, 2019 when compared to the comparable periods in 2018 reflects the positive results BHG has experienced as a result of enhancements to its business model, including its marketing efforts. Historically, BHG has sold the majority of the loans its originates to a network of bank purchasers ~~though~~through a combination of online auctions, direct sales and its direct purchase option. ~~Throughout~~In the second half of 2019, BHG ~~has been~~began retaining more loans on its balance sheet than historically had been the case in recent years. ~~This change~~As a result of the economic disruption resulting from the COVID-19 pandemic, BHG, in the first nine months of 2020, sold more loans through its auction platform than we had anticipated would be the case earlier in the year and will likely slow its transition to holding more loans on its balance sheet as the effects of COVID-19 are monitored. As is the case for our business, the impact of the COVID-19 pandemic on BHG's business is not fully known at this point though we believe its business, ~~model is likely to reduce BHG's revenue in 2019 and 2020 compared to what it would have recognized had it continued to sell a larger percentage of~~including demand for its loans and losses it may incur as a result of borrowers experiencing financial difficulty, will continue to be negatively impacted. In the third quarter of 2020, BHG completed its ~~bank network~~first securitization of ~~purchasers. We believe, however, over time this practice should produce a less volatile revenue stream than~~approximately $160 million in notes backed by commercial and consumer loans on its ~~gain on sale model going forward so long as credit losses remain in line with historical experience.~~balance sheet to provide additional funding.

Income from equity-method investment is recorded net of amortization expense associated with customer lists and other intangible assets of $293,000 and $880,000, respectively, for the three and nine months ended September 30, 2020 compared to $475,000 and $1.4 million, respectively, for the three and nine months ended September 30, ~~2019 compared to $693,000 and $2.1 million, respectively, for the three and nine months ended September 30, 2018.~~2019. At September 30, ~~2019,~~2020, there were ~~$9.2~~$7.9 million of these intangible assets ~~which will~~that are expected to be amortized in lesser amounts over the next 1615 years. Also included in income from equity-method investment, is accretion income associated with the fair valuation of certain of BHG's liabilities of $535,000 and $1.6 million, respectively, for the three and nine months ended September 30, 2020, compared to $630,000 and $2.0 million, respectively, for the three and nine months ended September 30, ~~2019, compared to $719,000 and $2.2 million, respectively, for the three and nine months ended September 30, 2018.~~2019. At September 30, ~~2019,~~2020, there were ~~$5.4~~$3.2 million of these liabilities ~~which will~~that are expected to accrete into income in lesser amounts over the next 7six years.

During the three and nine months ended September 30, 2020, Pinnacle Financial and Pinnacle Bank received $40.0 million and $48.0 million, respectively, in dividends from BHG in the aggregate. During the three and nine months ended September 30, 2019, Pinnacle Financial and Pinnacle Bank received dividends ~~from BHG~~ of $9.0 million and $49.9 million, respectively, in the ~~aggregate compared to $10.2 million and $33.7 million, respectively, for the same~~aggregate. Dividends from BHG during such periods ~~in the prior year, which~~ reduced the carrying amount of our investment in BHG, while earnings from BHG during such periods increased the carrying amount of our investment in BHG. Profits from intercompany transactions are eliminated. Our proportionate share of earnings from BHG is included in our consolidated tax return. On September 21, 2020, Pinnacle Bank purchased $50.2 million in loans from BHG at par pursuant to BHG's joint venture loan program whereby BHG and Pinnacle share proportionately in the credit risk of the acquired loans based on the rate on the loan and the rate of the purchase. The yield on this portfolio to Pinnacle Bank is anticipated to be 5.0% per annum. No loans were purchased from BHG by Pinnacle Bank for the three and nine ~~month periods~~months ended September 30, ~~2019 or 2018, respectively.~~2019. Earnings from BHG ~~may~~are likely to fluctuate from period-to-period.

As our ownership interest in BHG is 49%, and our representatives do not occupy a majority of the seats on BHG's board of managers, we do not consolidate BHG's results of operations or financial position into our financial statements but record the net result of BHG's activities at our percentage ownership in income from equity method investment in noninterest income. For the three and nine months ended September 30, ~~2019,~~2020, BHG reported ~~$108.8~~$128.5 million and ~~$279.6~~$319.2 million, respectively, in revenues, net of substitution losses of ~~$13.6~~$19.3 million and ~~$38.7~~$63.7 million, respectively, compared to revenues of ~~$59.1~~

$108.8 million and ~~$151.9~~$279.6 million, respectively, for the three and nine months ended September 30, ~~2018,~~2019, net of substitution losses of ~~$12.1~~$13.6 million and ~~$33.9~~$38.7 million, respectively.

Approximately ~~$89.4~~$105.4 million and ~~$228.7~~$242.4 million, respectively, of BHG's revenues for the three and nine months ended September 30, ~~2019~~2020 related to gains on the sale of commercial loans BHG had previously issued primarily to doctor, dentist and other medical practices compared to ~~$46.7~~$89.4 million and ~~$120.8~~$228.7 million, respectively, for the three and nine months ended September 30, ~~2018.~~2019. BHG refers to this activity as its core product. BHG typically funds these loans from cash reserves on its balance sheet. Subsequent to origination, these core product loans have typically been sold by BHG with no recourse to a network of community banks and other financial institutions at a premium to the par value of the loan. The purchaser may access a BHG cash reserve account of up to 3% of the loan balance to support loan payments. BHG retains no servicing or other responsibilities related to the core product loan once sold. As a result, this gain on sale premium represents BHG's compensation for absorbing the costs to originate the loan as well as marketing expenses associated with maintaining its business model.

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At September 30, ~~2019~~2020 and ~~September 30, 2018,~~2019, there were ~~$2.4~~$3.4 billion and ~~$1.8~~$2.4 billion, respectively, in core product loans previously sold by BHG that were being actively serviced by BHG's ~~bank~~ network of bank purchasers. ~~Traditionally,~~ BHG, at its sole option, may also provide purchasers of these core product loans the ability to substitute the acquired loan with another more recently-issued BHG loan should the previously-acquired loan become at least 90-days past due as to its monthly payments. This substitution is subject to the purchaser having adhered to the standards of its purchase agreement with BHG. Additionally, all substitutions are subject to ~~the~~ approval by BHG's board of managers. As a result, the reacquired loans are deemed purchased credit impaired and recorded on BHG's balance sheet at the net present value of the loan's anticipated cash flows. BHG will then initiate collection efforts and attempt to restore the reacquired loan to performing status. As a result, BHG maintained a liability as of September 30, 2020 and 2019 ~~and 2018~~ of ~~$117.9~~$256.3 million and ~~$85.0~~$117.9 million, respectively, that represents an estimate of the future inherent losses for the outstanding core portfolio that may be subject to future substitution. This liability represents ~~4.9%~~7.5% and ~~4.7%~~4.9%, respectively, of core product loans previously sold by BHG that remain outstanding as of September 30, 2020 and 2019, respectively. The increase in this liability in the nine months ended September 30, 2020 was principally the result of the economic disruption associated with the COVID-19 pandemic which adversely impacted physician and ~~2018, respectively.~~dental practices in a material manner.

BHG will maintain loans on its balance sheet for a period of time prior to sale or transfer to a purchaser. Alternatively, BHG may elect to keep certain loans on its balance sheet through maturity. From time to time, BHG may hold a higher volume of these loans depending upon the timing of loan originations, ~~their~~its loan pipeline and market ~~demand.~~demand as well as the deployment of its business strategy. As previously discussed, BHG realigned its business model to retain more of its originated loans on the balance sheet beginning in the second half of 2019. At September 30, 2020, BHG reported loans totaling $915.5 million compared to $467.2 million as of September 30, 2019. A portion of these loans do not qualify for sale accounting and accordingly an offsetting secured borrowing liability has been recorded. At September 30, 2020 and 2019, BHG had $624.0 million and $255.3 million, respectively, of secured borrowings associated with loans held for investment which did not qualify for sale accounting. At September 30, 2020 and 2019, BHG reported allowance for loan losses totaling $19.4 million and $3.6 million, respectively. Interest income and fees amounted to $18.0 million and $64.2 million, respectively, for the three and nine months ended September 30, 2020 compared to $16.0 million and $40.2 million, respectively, for the three and nine months ended September 30, ~~2019 compared to $9.3 million and $23.1 million, respectively, for the three and nine months ended September 30, 2018.~~2019.

BHG also sometimes refers loans to other ~~lenders~~financial institutions and, based on an agreement with the ~~lender,~~institution, earns a fee for doing so. Typically, these are loans that BHG believes would either be classified as consumer-type loans rather than commercial loans, ~~the loans~~ fail to meet the credit underwriting standards of BHG but another ~~lender~~institution will accept the loans or are loans issued to borrowers in certain geographic locations where BHG has elected not to do business. For the three and nine months ended September 30, ~~2019,~~2020, BHG recognized fee income of ~~$579,000~~$309,000 and ~~$1.7~~$1.1 million, respectively, compared to ~~$378,000~~$579,000 and ~~$962,000,~~$1.7 million, respectively, for the same periods in the prior year related to these activities.

~~Recently, BHG has expanded its operations~~Included in other noninterest income are interchange and other consumer fees, gains from bank-owned life insurance, swap fees earned for the facilitation of derivative transactions for our clients, SBA loan sales, gains or losses on other equity investments and other noninterest income items. Interchange revenues increased during the three and nine months ended September 30, 2020 as compared to ~~include commercial lending~~the same periods in 2019 due to increased debit and credit card transactions period-over-period and loan fees primarily as a result of loan prepayments during the first nine months of 2020. Other noninterest income included changes in the cash surrender value of bank-owned life insurance which was $4.6 million and $13.9 million, respectively, for the three and nine months ended September 30, 2020 compared to $4.6 million and $12.9 million, respectively, for the three and nine months ended September 30, 2019. During the first nine months of 2019, we purchased $110.0 million of new bank-owned life insurance policies. The assets that support these policies are administered by the life insurance carriers and the income we recognize (i.e., increases or decreases in the cash surrender value of the policies) on these policies is dependent upon the crediting rates applied by the insurance carriers, which are subject to change at the discretion of the carriers, subject to any applicable floors. Earnings on these policies generally are not taxable. Loan swap fees decreased by $645,000 during the nine months ended September 30, 2020 as compared to the same period in 2019 due primarily to a decrease in the volume of activity resulting from the current interest rate environment. SBA loan sales are also included in other ~~professional service firms such~~noninterest income and fluctuate based on the current market environment. Additionally, the carrying values of other equity investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as ~~attorneys, accountants~~evidenced by financing and ~~others. Through subsidiaries that it owns, it also has expanded into patient financing, which involves loans~~sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing reviews by senior investment managers. Other other noninterest income fluctuated during the three and nine months ended September 30, 2020 as compared to ~~individuals~~the same periods in 2019 due primarily to ~~finance medical expenses, particularly those~~a $2.9 million policy benefit received during the nine months ended September 30, 2020 from our bank-owned life insurance policies as well as to ~~patients with high deductible health plans.~~the $1.5 million loss on the sale of the high-yield automobile portfolio in the second quarter of 2019.

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Noninterest Expense. Noninterest expense consists of salaries and employee benefits, equipment and occupancy expenses, other real estate expenses, and other operating expenses. The following is a summary of our noninterest expense for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended September 30,				2020 - 2019 Percent	Nine Months Ended September 30,				2020 - 2019 Percent
	2020		2019		Increase (Decrease)	2020		2019		Increase (Decrease)
Noninterest expense:
Salaries and employee benefits:
Salaries	$	54,331	$	47,369	14.7%	$	161,152	$	137,050	17.6%
Commissions	3,892		3,637		7.0%	11,485		10,001		14.8%
Cash and equity incentives	19,677		23,631		(16.7%)	34,782		50,954		(31.7%)
Employee benefits and other	12,203		11,282		8.2%	37,051		33,910		9.3%
Total salaries and employee benefits	90,103		85,919		4.9%	244,470		231,915		5.4%
Equipment and occupancy	21,622		20,348		6.3%	64,626		63,523		1.7%
Other real estate expense, net	1,795		655		174.0%	7,098		3,424		107.3%
Marketing and other business development	2,321		2,723		(14.8%)	7,714		8,953		(13.8%)
Postage and supplies	1,761		1,766		(0.3%)	5,821		5,737		1.5%
Amortization of intangibles	2,417		2,430		(0.5%)	7,416		7,012		5.8%

Other noninterest expense:
Deposit related expense	6,035		4,773		26.4%	16,949		14,189		19.5%
Lending related expense	7,514		7,075		6.2%	30,058		17,770		69.2%
Wealth management related expense	513		426		20.4%	1,571		1,566		0.3%
Other noninterest expense	10,196		6,826		49.4%	27,508		20,589		33.6%
Total other noninterest expense	24,258		19,100		27.0%	76,086		54,114		40.6%
Total noninterest expense	$	144,277	$	132,941	8.5%	$	413,231	$	374,678	10.3%

Three Months Ended
September 30, 2019 - 2018
Percent Nine Months Ended
September 30, 2019 - 2018
Percent
2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
Noninterest expense:
Salaries and employee benefits:
Salaries $ 47,369
$ 41,024
15.5% $ 137,050
$ 119,264
14.9%
Commissions 3,637
3,011
20.8% 10,001
9,188
8.8%
Cash and equity incentives 23,631
14,505
62.9% 50,954
35,908
41.9%
Employee benefits and other 11,282
10,577
6.7% 33,910
32,588
4.1%
Total salaries and employee benefits 85,919
69,117
24.3% 231,915
196,948
17.8%
Equipment and occupancy 20,348
19,252
5.7% 63,523
55,203
15.1%
Other real estate expense, net 655
67
NM 3,424
92
NM
Marketing and other business development 2,723
3,293
(17.3%) 8,953
8,084
10.7%
Postage and supplies 1,766
1,654
6.8% 5,737
5,984
(4.1%)
Amortization of intangibles 2,430
2,616
(7.1%) 7,012
7,973
(12.1%)
Merger-related expense —
—
—% —
8,259
(100.0%)
Other noninterest expense:
Deposit related expense 4,773
5,982
(20.2%) 14,189
17,735
(20.0%)
Lending related expense 7,075
5,664
24.9% 17,770
14,267
24.6%
Wealth management related expense 426
433
(1.6%) 1,566
1,420
10.3%
Other noninterest expense 6,826
5,912
15.5% 20,589
17,513
17.6%
Total other noninterest expense $ 19,100
$ 17,991
6.2% $ 54,114
$ 50,935
6.2%
Total noninterest expense $ 132,941
$ 113,990
16.6% $ 374,678
$ 333,478
12.4%

Total salaries and employee benefits expenses increased ~~approximately $16.8~~$4.2 million and ~~$35.0~~$12.6 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to the same periods in ~~2018, primarily as a~~2019. The change in salaries and employee benefits was the result of ~~increases~~an increase in our associate base ~~and~~in 2020 versus 2019 offset in part by the reduction of our cash incentive plan accrual as well as the ~~result~~reduction in stock-based compensation expense due to our performance through the first nine months of 2020 compared to 2019, each due to the effects of COVID-19 on our ~~annual merit increases that are effective on January 1 of each year.~~anticipated earnings and performance for the year ended December 31, 2020. At September 30, ~~2019,~~2020, our associate base was ~~2,456.0~~2,596.5 full-time equivalent associates as compared to ~~2,249.5~~2,456.0 at September 30, ~~2018.~~2019. We expect salary and benefit expenses will ~~continue~~rise in 2021 compared to ~~rise~~2020 as ~~a result of~~we aim to return our ~~intention~~focus to ~~continue our practice of~~ hiring experienced bankers ~~and other associates across~~in many of our ~~franchise.~~markets, including the Atlanta market.

We believe that cash and equity incentives are a valuable tool in motivating an associate base that is focused on providing our clients effective financial advice and increasing shareholder value. As a result, and unlike many other financial institutions, all of our bank's non-commissioned associates participate in our annual cash incentive plan with a minimum targeted bonus equal to 10% of each associate's annual salary, and all of our bank's associates participate in our equity compensation plans. Under the annual cash incentive plan as originally designed, the targeted level of incentive payments requires achievement of a certain soundness threshold and a targeted level of, ~~revenues~~and average rate paid on, core deposits and earnings per share (subject to certain adjustments). To the extent that the soundness threshold is met and ~~revenues~~core deposit volumes and rates and earnings per share are above or below the targeted amount, the aggregate incentive payments are increased or decreased. Historically, we have paid between 0% and 125% of our targeted incentives. Through the third quarter of ~~2019,~~2020, we have accrued incentive costs for the cash incentive plan in ~~2019~~2020 at approximately ~~115%~~50% of our targeted awards.

In the second quarter of 2020, as a result of the impact of the COVID-19 pandemic on our anticipated earnings for the year ended 2020, we reduced our accrual for payouts to approximately 25 percent of associate annual target awards under our broad-based cash incentive plan for 2020. Early in the third quarter, we modified our annual cash incentive plan to take into account new pre-tax, pre-provision net revenue goals and initiatives for 2020 and, as a result, increased our incentive costs from approximately 25 percent of associate annual target awards to approximately 50 percent of associate annual target awards in order to account for the modification to the plan.

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Also included in employee benefits and other expense for the three and nine months ended September 30, ~~2019~~2020 were approximately ~~$5.0~~$4.4 million and ~~$15.1~~$14.1 million, respectively, of compensation expenses related to equity-based awards for restricted shares or restricted share units, including those with performance-based vesting criteria, compared to ~~$4.5~~$5.0 million and ~~$13.3~~$15.1 million, respectively, for the three and nine months ended September 30, ~~2018.~~2019. Under our equity incentive plans, we provide a broad-based equity incentive program for all of our bank's associates. We believe that equity incentives provide a vehicle for all associates to become meaningful shareholders of Pinnacle Financial over an extended period of time and create a shareholder-centric culture throughout our organization. Our compensation expense associated with equity awards for the three and nine months ended September 30, ~~2019 increased~~2020 decreased when compared to the three and nine months ended September 30, ~~2018. Key drivers~~2019 primarily as a result of ~~this increase were~~ the ~~first-time inclusion~~fact that our performance through the first nine months of 2020 made it unlikely that the portion of our ~~associates hired through our acquisition of BNC in our annual associate grant in January of 2019 as well as additional associates we have hired throughout our footprint as well as increased~~ performance-based awards with performance periods linked to ~~senior management. We expect our~~2020 return on average tangible asset levels would be earned as a result of the pandemic. Our compensation expense associated with equity awards with time-based vesting criteria is likely to continue to increase during the remainder of ~~2019~~2020 when compared to ~~2018~~2019 as a result of the increased number of associates and our intention to hire additional experienced financial ~~advisors~~advisors. Compensation expense associated with our performance-based vesting awards will continue to be impacted by our performance in 2020 and will likely continue to be less than prior year comparable periods during the remainder of ~~2019~~.2020.

Employee benefits and other expenses were $12.2 million and $37.1 million, respectively, for the three and nine months ended September 30, 2020 compared to $11.3 million and $33.9 million, respectively, for the three and nine months ended September 30, 2019 ~~compared to $10.6 million and $32.6 million, respectively, for the three and nine months ended September 30, 2018~~ and include costs associated with our 401k plan, health insurance and payroll taxes.

Equipment and occupancy expenses for the three and nine months ended September 30, ~~2019 increased $1.1~~2020 were $21.6 million and ~~$8.3~~$64.6 million, respectively, compared to $20.3 million and $63.5 million, respectively, ~~as compared to~~for the ~~same periods in the prior year. Included in the~~three and nine months ended September 30, ~~2019 increase was a $3.2 million non-cash impairment charge incurred during the second quarter of 2019 related to the proposed consolidation of five offices across our footprint. Additionally,~~2019. These costs were generally consistent between periods though we ~~experienced increased expenses associated with technology improvements to enhance the infrastructure of our firm during the comparable periods and~~ expect to incur additional costs in future periods as we continue to enhance our technology infrastructure.

Other real estate income and expenses for the three and nine months ended September 30, ~~2019 increased $588,000~~2020 were $1.8 million and ~~$3.3~~$7.1 million, respectively, as compared to $655,000 and $3.4 million, respectively, ~~as compared to~~for the same periods in the prior year. Included in the nine months ended ~~was a $2.4 million write-down~~September 30, 2020 were writedowns of previously foreclosed upon properties to market value based on updated appraisals obtained in the ~~second quarter of 2019 of facilities and land acquired in the BNC acquisition that previously had been held for potential expansion.~~current year.

Marketing and business development expense for the three and nine months ended September 30, ~~2019~~2020 was $2.3 million and $7.7 million, respectively, compared to $2.7 million and $9.0 ~~million, respectively, compared to $3.3 million and $8.1~~ million, respectively, for the three and nine months ended September 30, ~~2018.~~2019. The primary source of the ~~increase~~decrease for the three and nine months ended September 30, ~~2019~~2020 as compared to ~~2018~~the same periods 2019 is the ~~associated marketing~~result of limited in-person client meetings and business development expenses ~~necessary to support~~as a result of the ~~growth of our firm across our entire footprint in Tennessee,~~restrictions resulting from the ~~Carolinas and Virginia.~~COVID-19 pandemic.

Intangible amortization expense was $2.4 million and ~~$7.0~~$7.4 million, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~$2.6~~$2.4 million and ~~$8.0~~$7.0 million, respectively, for the same periods in ~~2018.~~2019. The following table outlines our amortizing intangible assets, their initial valuation and amortizable lives at September 30, ~~2019:~~2020:


	Year acquired	Initial Valuation (in millions)		Amortizable Life (in years)	Remaining Value (in millions)
Core Deposit Intangible:

CapitalMark	2015	$	6.2	7	$	0.4
Magna Bank	2015	3.2		6	0.1
Avenue	2016	8.8		9	2.5
BNC	2017	48.1		10	26.6
Book of Business Intangible:
Miller Loughry Beach Insurance	2008	$	1.3	20	$	0.2
CapitalMark	2015	0.3		16	0.1
BNC Insurance	2017	0.4		20	0.3
BNC Trust	2017	1.9		10	1.3
Advocate Capital	2019	13.6		13	11.0

Year
acquired

Initial
Valuation
(in millions)

Amortizable
Life
(in years)

Remaining Value
(in millions)
Core Deposit Intangible:
CapitalMark 2015 $ 6.2
7
$ 1.0
Magna Bank 2015 3.2
6
0.3
Avenue 2016 8.8
9
3.6
BNC 2017 48.1
10
32.2
Book of Business Intangible:

Miller Loughry Beach Insurance 2008 $ 1.3
20
$ 0.3
CapitalMark 2015 0.3
16
0.1
BNC Insurance 2017 0.4
20
0.3
BNC Trust 2017 1.9
10
1.5

These assets are being amortized on an accelerated basis which reflects the anticipated life of the underlying assets. Amortization expense of these intangibles is estimated to decrease from ~~$7.9~~$8.8 million to ~~$4.4~~$5.0 million per year over the next 5five years with lesser amounts for the remaining amortization period.

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No merger-related expenses were recorded during the three and nine months ended September 30, 2019. Merger-related expenses were $8.3 million for the nine months ended September 30, 2018. There were no merger-related expenses for the three months ended September 30, 2018. Merger-related expenses incurred for the nine months ended September 30, 2018 were associated with our merger with BNC and were inclusive of costs associated with associate retention packages and cultural and technology integrations.

Other noninterest expenses, which consists primarily of deposit, lending, wealth management and administrative expenses increased by ~~$1.1~~$5.2 million and ~~$3.2~~$22.0 million, respectively, ~~between~~for the three and nine months ended September 30, ~~2019~~2020 when compared to the three and nine months ended September 30, ~~2018.~~2019. Deposit related expense ~~decreased~~increased by ~~$1.2~~$1.3 million and ~~$3.5~~$2.8 million, respectively, during the three and nine months ended September 30, ~~2019~~2020 when compared to the same periods in 2018. This decrease is primarily attributable to decreases in FDIC insurance premiums of $2.0 million and $4.4 million, respectively, in the three and nine months ended September 30, 2019 compared to the same periods in 2018 as a result of the elimination of the large bank surcharge during these periods.2019. Lending ~~and wealth management~~ related expenses ~~each~~ increased ~~during the nine months ended September 30, 2019 when compared to the same period in 2018. These increases are directly correlated with increased lending~~$439,000 and ~~wealth management~~

~~activities during the nine months ended September 30, 2019. Total other noninterest expenses increased by $914,000 and $3.1~~$12.3 million, respectively, during the three and nine months ended September 30, ~~2019~~2020 when compared to the same periods in ~~2018. These increases are due~~2019. This increase is primarily the result of building our off-balance sheet reserves following the implementation of CECL effective January 1, 2020 and the effect that macroeconomic factors impacted by the COVID-19 pandemic had on our CECL models. Wealth management related expenses remained relatively flat for the three and nine months ended September 30, 2020 when compared to the same periods in 2019. Total other noninterest expenses increased by $3.4 million and $6.9 million, respectively, during the three and nine months ended September 30, 2020 when compared to the same periods in 2019. This increase is primarily the result of $4.9 million in FHLB prepayment penalties as a ~~variety~~result of ~~factors and include increases~~our prepayment of $892.5 million in ~~audit, legal and consulting fees and increased regulatory exam fees.~~FHLB borrowings during the first nine months of 2020.

Our efficiency ratio ~~(ratio~~(the ratio of noninterest expense to the sum of net interest income and noninterest income) was ~~47.7%~~48.5% and ~~48.3%~~49.5%, respectively, for the three and nine months ended September 30, ~~2019~~2020 compared to ~~47.3%~~47.7% and 48.3%, respectively, for the ~~three and nine months ended September 30, 2018.~~same periods in 2019. The efficiency ratio measures the amount of expense that is incurred to generate a dollar of revenue. The efficiency ratio for the three and nine months ended September 30, ~~2019~~2020 compared to the same periods in 2019 was impacted in part by increased noninterest expense during the period ~~in 2018 was negatively impacted by~~as a ~~$1.5 million loss on the sale~~result of our ~~non-prime automobile portfolio, a $2.4 million write-down~~building of ~~facilities and land acquired in~~off-balance sheet reserves upon the ~~BNC acquisition that previously had been held for potential expansion, a $3.2 million non-cash impairment charge related to~~adoption of CECL during the ~~proposed consolidation of five offices across our footprint. Net~~quarter as well as net gains and losses on sales of securities, ~~impacted~~gains on mortgage loans sold and income from our ~~efficiency ratios~~equity method investment in BHG in both the 2018 and 2019 periods. Increased revenue from increased interest earning assets in the 2019 periods over the 2018 periods and the absence of merger-related expenses in 2019 positively impacted our efficiency ratio in the 2019 periods when compared to 2018 periods.

Income Taxes. During the three and nine months ended September 30, ~~2019,~~2020, we recorded income tax expense of $26.4 million and $36.0 million, respectively, compared to income tax expense of $26.7 million and $74.2 ~~million, respectively, compared to $24.4 million and $67.1~~ million, respectively, for the three and nine months ended September 30, ~~2018.~~2019. Our effective tax rate for the three and nine months ended September 30, ~~2019~~2020 was ~~19.5%~~19.3% and ~~19.6%~~15.2%, respectively, compared to ~~20.7%~~19.5% and ~~20.3%~~19.6%, respectively, for the three and nine months ended September 30, ~~2018.~~2019. Our effective tax rate differs from the combined federal and state income tax statutory rate in effect of 26.14% primarily due to our investments in bank-qualified municipal securities, tax benefits from our real estate investment trust subsidiary, participation in Tennessee's Community Investment Tax Credit (CITC) program, tax benefits associated with share-based compensation, bank-owned life insurance and our captive insurance subsidiary, offset in part by the limitation on deductibility of meals and entertainment expense, non-deductible FDIC insurance premiums and non-deductible executive compensation. ~~Income~~Our tax expense isin the nine months ended September 30, 2020 was impacted by the provision expense recorded in response to the COVID-19 pandemic, which was recorded in the first quarter of 2020 as a discrete item of total income tax and contributed a tax benefit of $22.4 million. Our tax rate in each period was also impacted by the vesting ~~of restricted share awards~~ and ~~the~~ exercise of ~~employee stock options, which expense or benefit is recorded as a discrete item as a component of total income tax, the amount of which is dependent upon the change~~equity-based awards previously granted under our equity-based compensation program, resulting in the ~~grant date fair value~~recognition of tax expense of $85,000 and a tax benefit of $505,000, respectively, for the ~~vest date fair value of the underlying award. Accordingly, we recognized~~three and nine months ended September 30, 2020 compared to tax benefits of $131,000 and $832,000, respectively, for the three and nine months ended September 30, 2019 compared to tax benefits of $199,000 and $3.0 million, respectively, for the three and nine months ended September 30, 2018 related to the vesting and exercise of equity-based awards during those periods.2019.

Financial Condition

Our consolidated balance sheet at September 30, ~~2019~~2020 reflects an increase in total loans outstanding to ~~$19.3~~$22.5 billion compared to ~~$17.7~~$19.8 billion at December 31, ~~2018.~~2019. Total deposits increased by ~~$1.2~~$6.4 billion between December 31, ~~2018~~2019 and September 30, ~~2019.~~2020. Total assets were ~~$27.5~~$33.8 billion at September 30, ~~2019~~2020 compared to ~~$25.0~~$27.8 billion at December 31, ~~2018.~~2019.

Loans. The composition of loans at September 30, ~~2019~~2020 and at December 31, ~~2018~~2019 and the percentage (%) of each classification to total loans are summarized as follows (in thousands):


	September 30, 2020				December 31, 2019
	Amount		Percent		Amount		Percent
Commercial real estate:
Owner-occupied	$	2,748,075	12.2	%	$	2,669,766	13.5	%
Non-owner occupied	5,220,452		23.2	%	5,039,452		25.5	%
Consumer real estate – mortgage	3,041,019		13.5	%	3,068,625		15.5	%
Construction and land development	2,728,439		12.2	%	2,430,483		12.3	%
Commercial and industrial	8,395,963		37.4%		6,290,296		31.8	%
Consumer and other	343,461		1.5	%	289,254		1.4	%
Total loans	$	22,477,409	100.0	%	$	19,787,876	100.0	%

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September 30, 2019 December 31, 2018
Amount Percent Amount Percent
Commercial real estate – mortgage $ 7,709,245
39.9 % $ 7,164,954
40.4 %
Consumer real estate – mortgage 3,025,502
15.6 % 2,844,447
16.1 %
Construction and land development 2,253,303
11.6 % 2,072,455
11.7 %
Commercial and industrial 5,891,038
30.5 % 5,271,421
29.8 %
Consumer and other 466,554
2.4 % 354,272
2.0 %
Total loans $ 19,345,642
100.0 % $ 17,707,549
100.0 %

~~The composition of~~At September 30, 2020, our loan portfolio composition had changed ~~with our acquisition~~modestly from the composition at December 31, 2019 principally as a result of ~~BNC in 2017,~~the PPP loans, which ~~focused more on~~are classified as commercial and industrial loans, though commercial real estate ~~lending, including construction, than we did in our legacy Tennessee markets, where our focus was on~~and commercial and industrial ~~lending. As we intend to focus on growth of the commercial and industrial segment in our expanded footprint, we~~lending generally continue to ~~believe our commercial and industrial portfolio will again become a more substantial portion~~make up the largest segments of our ~~total loan~~ portfolio.

~~The commercial real estate – mortgage category includes owner-occupied commercial real estate loans.~~ At September 30, ~~2019,~~2020, approximately ~~33.7%~~34.5% of the outstanding principal balance of our commercial real estate ~~- mortgage~~ loans was secured by owner-occupied commercial real estate properties, compared to ~~37.0%~~34.6% at December 31, ~~2018.~~2019. Owner-occupied commercial real estate is similar in many ways to our commercial and industrial lending in that these loans are generally made to businesses on the basis of the

cash flows of the business rather than on the valuation of the real estate. Additionally, the construction and land development loan segment continues to be a meaningful portion of our portfolio and reflects the development and growth of the local ~~economies~~communities in which we operate and is diversified between commercial, residential and land.

Banking regulations have established guidelines for the construction ratio of less than 100% of total risk-based capital and for the non-owner occupied ratio of less than 300% of total risk-based capital. Should a bank’s ratios be in excess of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by Pinnacle Bank’s total risk-based capital. At September 30, ~~2019 and December 31, 2018,~~2020, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital ~~were 79.9% and 85.2%, respectively.~~was 86.7% compared to 83.6% at December 31, 2019. Construction and land development, non-owner occupied commercial real estate and multifamily loans as a percentage of total risk-based capital were ~~272.8%~~268.8% and ~~277.7%~~268.3% as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The contribution to Pinnacle Bank of approximately $180 million of the net proceeds from the offering of the 2029 notes in the third quarter of 2019 resulted in increased capital at Pinnacle Bank, which contributed to the reduction in these ratios. Utilizing a portion of this capital contribution to redeem subordinated notes issued by Pinnacle Bank in the third quarter of 2020 could negatively impact these ratios and bring our ratios closer to the 100% and 300% guidelines. At September 30, ~~2019,~~2020, Pinnacle Bank was within the 100% and 300% guidelines and has established what it believes to be appropriate controls to monitor its lending in these areas as it aims to keep the level of these loans to below the 100% and 300% thresholds.

The following table classifies our fixed and variable rate loans at September 30, ~~2019~~2020 according to contractual maturities of (1) one year or less, (2) after one year through five years, and (3) after five years. The table also classifies our variable rate loans pursuant to the contractual repricing dates of the underlying loans (in thousands):


	Amounts at September 30, 2019						Percentage			Amounts at September 30, 2020						Percentage
	Fixed Rates		Variable Rates		Totals		At September 30, 2019	At December 31, 2018		Fixed Rates		Variable Rates		Totals		At September 30, 2020	At December 31, 2019
Based on contractual maturity:									Based on contractual maturity:
Due within one year	$	1,426,313	$	2,568,460	$	3,994,773	20.6%	18.9%	Due within one year	$	2,582,068	$	1,569,958	$	4,152,026	18.5%	20.6%
Due in one year to five years	5,143,553		4,582,389		9,725,942		50.3%	49.7%	Due in one year to five years	8,115,527		4,267,447		12,382,974		55.1%	50.2%
Due after five years	2,762,453		2,862,474		5,624,927		29.1%	31.4%	Due after five years	4,008,882		1,933,527		5,942,409		26.4%	29.2%
Totals	$	9,332,319	$	10,013,323	$	19,345,642	100.0%		Totals	$	14,706,477	$	7,770,932	$	22,477,409	100.0%

Based on contractual repricing dates:									Based on contractual repricing dates:
Daily floating rate	$	—	$	2,584,042	$	2,584,042	13.4%	15.6%	Daily floating rate	$	—	$	1,066,911	$	1,066,911	4.8%	13.4%
Due within one year	1,426,313		6,781,428		8,207,741		42.4%	39.0%	Due within one year	2,582,068		6,123,852		8,705,920		38.7%	42.7%
Due in one year to five years	5,143,553		357,573		5,501,126		28.4%	28.8%	Due in one year to five years	8,115,527		292,761		8,408,288		37.4%	27.7%
Due after five years	2,762,453		290,280		3,052,733		15.8%	16.6%	Due after five years	4,008,882		287,408		4,296,290		19.1%	16.2%
Totals	$	9,332,319	$	10,013,323	$	19,345,642	100.0%		Totals	$	14,706,477	$	7,770,932	$	22,477,409	100.0%

The above information does not consider the impact of scheduled principal payments.

~~Accruing~~

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Loans in Past Due Status. The following table is a summary of our ~~accruing~~ loans that were past due at least 30 days but less than 89 days and 90 days or more past due as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	September 30,			December 31,
Loans past due 30 to 89 days:	2020			2019
Commercial real estate:
Owner occupied	$	3,780		$	5,239
Non-owner occupied	3,540			6,797
Consumer real estate – mortgage	9,190			13,803
Construction and land development	2,417			2,103
Commercial and industrial	11,358			10,952
Consumer and other	928			2,184
Total loans past due 30 to 89 days	$	31,213		$	41,078

Loans past due 90 days or more:
Commercial real estate:
Owner occupied	$	4,226		$	1,719
Non-owner occupied	5,353			3,816
Consumer real estate – mortgage	5,971			7,304
Construction and land development	2,031			1,487
Commercial and industrial	4,986			6,364
Consumer and other	1,220			570
Total loans past due 90 days or more	$	23,787		$	21,260

Ratios:
Loans past due 30 to 89 days as a percentage of total loans	0.14		%	0.21		%
Loans past due 90 days or more as a percentage of total loans	0.11		%	0.11		%
Total loans in past due status as a percentage of total loans	0.24		%	0.32		%

September 30, December 31,
Accruing loans past due 30 to 89 days: 2019 2018
Commercial real estate – mortgage $ 12,294
$ 11,756
Consumer real estate – mortgage 9,051
18,059
Construction and land development 2,005
3,759
Commercial and industrial 16,524
21,451
Consumer and other 3,266
3,276
Total accruing loans past due 30 to 89 days $ 43,140
$ 58,301

Accruing loans past due 90 days or more:
Commercial real estate – mortgage $ —
$ —
Consumer real estate – mortgage 773
—
Construction and land development —
—
Commercial and industrial 1,077
1,082
Consumer and other 600
476
Total accruing loans past due 90 days or more $ 2,450
$ 1,558

Ratios:
Accruing loans past due 30 to 89 days as a percentage of total loans 0.23 % 0.33 %
Accruing loans past due 90 days or more as a percentage of total loans 0.01 % 0.01 %
Total accruing loans in past due status as a percentage of total loans 0.24 % 0.34 %

Potential Problem Loans. Potential problem loans, which are not included in nonperforming assets, amounted to approximately ~~$254.0 million, or 1.3% of total loans at September 30, 2019, compared to $176.3~~$215.7 million, or 1.0% of total loans at September 30, 2020, compared to $276.0 million, or 1.4% of total loans at December 31, ~~2018.~~2019. 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 nonaccrual loans and substandard troubled debt restructurings. Troubled debt restructurings are not included in potential problem loans. The increase in potential problem loans at September 30, 2019 compared to December 31, 2018 is related to certain credits in our commercial and industrial portfolio representing various industries such as fiber optics, education and publishing. Approximately ~~$9.0~~$4.9 million of potential problem loans were past due at least 30 days but less than 90 days as of September 30, ~~2019.~~2020.

Nonperforming Assets and Troubled Debt Restructurings. At September 30, ~~2019,~~2020, we had ~~$103.3~~$90.8 million in nonperforming assets compared to ~~$103.2~~$91.1 million at December 31, ~~2018.~~2019. Included in nonperforming assets were ~~$73.3~~$71.4 million in nonaccrual loans and ~~$30.0~~$19.4 million in OREO and other nonperforming assets at September 30, ~~2019~~2020 and ~~$87.8~~$61.6 million in nonaccrual loans and ~~$15.4~~$29.5 million in OREO and other nonperforming assets at December 31, ~~2018.~~2019. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were ~~$5.8~~$2.6 million and ~~$5.9~~$4.9 million, respectively, of troubled debt restructurings, all of which were accruing as of the restructured date and remain on accrual ~~status but are considered impaired loans pursuant~~status.

In response to ~~U.S. GAAP.~~

~~Allowance~~the COVID-19 pandemic and its economic impact to its customers, Pinnacle Bank implemented a short-term modification program in accordance with interagency regulatory guidance to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due at the time of modification. This program allows for ~~Loan Losses (allowance).~~ ~~We maintain the allowance at~~ a ~~level that our management deems appropriate to adequately cover the probable losses inherent~~deferral of payments of principal and/or interest for 90 days, which Pinnacle Bank may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. As of June 30, 2020, we had granted deferrals on approximately $4.2 billion in ~~the loan portfolio.~~aggregate principal amount of loans. As of September 30, ~~2019~~2020, approximately $724.3 million in aggregate principal loan balances remained on deferral. As of October 16, 2020, this balance had decreased to approximately $414.0 million.

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In addition to the short-term modification program implemented by Pinnacle Bank, as discussed above, Section 4013 of the CARES Act and bank regulatory interagency guidance gave entities temporary relief from the accounting and disclosure requirements for TDRs indicating that a lender could conclude that the modifications are not a troubled debt restructuring if the borrower was less than 30 days past due as of December 31, 2019. We have followed the guidance under the CARES Act and the interagency guidance related to these loan modifications. At September 30, 2020, outside of the short-term deferral program noted above, we had modified approximately $52.2 million in loans under Section 4013 of the CARES Act.

Allowance for Credit Losses on Loans (allowance). On January 1, 2020, we adopted FASB ASU 2016-13, which introduces the current expected credit losses (CECL) methodology and requires us to estimate all expected credit losses over the remaining life of our loan portfolio. Accordingly, beginning in 2020, the allowance for credit losses represents an amount that, in management's evaluation, is adequate to provide coverage for all expected future credit losses on outstanding loans. As of September 30, 2020 and December 31, ~~2018,~~2019, our allowance for ~~loan~~credit losses was approximately ~~$93.6~~$288.6 million and ~~$83.6~~$94.8 million, respectively, which our management ~~deemed~~believes to be adequate at each of the respective dates. Our allowance for loan losses is adjusted to an amount that our management deems appropriate to adequately cover the probable losses in the loan portfolio based on our allowance for loan loss methodology. Our allowance for loancredit losses as a percentage of total loans, inclusive of PPP loans, was ~~0.48%~~1.28% at September 30, ~~2019,~~2020, up ~~slightly~~ from ~~0.47%~~0.48% at December 31, ~~2018.~~ 2019. No allowance for credit losses has been recorded for PPP loans as they are fully guaranteed by the SBA.

The ~~absolute level~~increase in the allowance for credit losses is largely the result of the implementation of ASU 2016-13 on January 1, 2020, which resulted in an adjustment to the opening balance of the allowance for credit losses of $38.1 million, and increased provisioning during the nine months ended September 30, 2020 due primarily to the economic impact of the COVID-19 pandemic. Our CECL models rely largely on recent historical and projected future macroeconomic conditions to estimate future credit losses. Macroeconomic factors used in the model include the national unemployment rate, gross domestic product, the commercial real estate price index and certain U.S. Treasury interest rates. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to predict quarterly rates of default. These macroeconomic factors experienced significant deterioration during the first six months of 2020, resulting in a significant increase in our allowance for ~~loan~~credit losses during the same period, and began to stabilize during the third quarter of 2020. Should these conditions deteriorate further in future periods, including as a result of increased COVID-19 case volume, and governmental or community reactions thereto, our modeling may require increased levels of provision expense over those recorded in the third quarter.

Under the CECL methodology the allowance for credit losses is ~~largely driven~~measured on a collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. At September 30, 2020, reasonable and supportable periods of 18 months were utilized for all loan segments followed by ~~continued favorable credit experience and we believe it is supported by the strong economies presently in place in the markets in which we operate.~~a 12 month straight line reversion period to long term averages.

~~Also impacting the~~The overall balance of our allowance ~~for loan losses is~~at December 31, 2019 was impacted by fair value accounting on our acquired loan portfolios, ~~as no allowance~~ for ~~loan losses is assigned to acquired loans as of the date of acquisition; however,~~which an allowance for ~~loan~~credit losses was only necessary if it exceeded the remaining fair value discount. Subsequent to the adoption of ASU 2016-13 on January 1, 2020, an allowance for credit losses is ~~recorded~~recognized for ~~purchased~~all acquired loans, ~~that have experienced~~regardless of the amount of remaining fair value discounts. In addition, the remaining nonaccretable discount at December 31, 2019 was reclassified into the allowance for credit ~~deterioration subsequent to acquisition or increases in balances outstanding.~~losses upon adoption of ASU 2016-13 on January 1, 2020. At September 30, ~~2019,~~2020, the remaining fair value discount for all acquired portfolios was ~~$65.2~~$32.3 million, ~~consisting~~all of $5.7 million of nonaccretable discount attributable to purchased credit impaired loans and $59.5 million of accretable discount. For loans acquired in connection with our acquisitions, the calculation of the allowance for loan losses subsequent to the acquisition datewhich is consistent with that utilized for our legacy loans. Our accounting policy is to compare the computed allowance for loan losses on purchased loans to the remaining fair value adjustment at the individual loan level. Generally the fair value adjustments are expected to ~~accrete to interest~~be accreted into income over the remaining contractual ~~life~~lives of the ~~underlying loans and decrease proportionately with the~~ related ~~loan balance.~~loans.

However, if the computed allowance is greater than the remaining fair value adjustment, the excess is added to the allowance for loan losses by a provision for loan losses. Additional provisioning for purchased portfolios results from credit deterioration on the individual loan following consummation of the acquisition or from increased borrowings on loans and lines that existed as of the acquisition date. Should a loan with a remaining fair value discount be paid off prior to maturity, the remaining fair value discount is recognized as interest income in the period when the loan is paid off.

~~As of September 30, 2019, net loans included a remaining net fair value discount of $65.2 million.~~ For the nine months ended September 30, ~~2019,~~2020, the net fair value discount changed as follows (in thousands):


	Accretable Yield		Nonaccretable Yield		Total
December 31, 2019	$	(51,322)	$	(3,828)	$	(55,150)

Reclassification of discount to allowance for credit losses	—		3,828		3,828
Year-to-date accretion and settlements	19,021		—		19,021
September 30, 2020	$	(32,301)	$	—	$	(32,301)

Accretable
Yield

Nonaccretable
Yield
Total
December 31, 2018 $ (78,282 ) $ (17,394 ) $ (95,676 )
Reclassification from nonaccretable to accretable (7,505 ) 7,505
—
Year-to-date accretion and settlements 26,246
4,229
30,475
September 30, 2019 $ (59,541 ) $ (5,660 ) $ (65,201 )

~~The reclassification from nonaccretable to accretable discount on purchase credit impaired loans was attributable to the result~~Table of ~~cash flow analyses performed on the individual loans to which the fair value discounts related.~~Contents

The following table sets forth, based on management's estimate, the allocation of the allowance for ~~loan~~credit losses to categories of loans as well as the unallocated portion as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 and the percentage of loans in each category to total loans (in thousands):


	September 30, 2020				December 31, 2019
	Amount		Percent		Amount		Percent
Commercial real estate:
Owner occupied	$	36,426	12.2	%	$	13,406	13.5	%
Non-owner occupied	69,859		23.2	%	19,963		25.5	%
Consumer real estate - mortgage	31,949		13.5	%	8,054		15.5	%
Construction and land development	41,222		12.2	%	12,662		12.3	%
Commercial and industrial	102,208		37.4	%	36,112		31.8	%
Consumer and other	6,981		1.5	%	3,595		1.4	%
Unallocated	—		NA		985		NA
Total allowance for credit losses on loans	$	288,645	100.0	%	$	94,777	100.0	%

September 30, 2019 December 31, 2018
Amount Percent Amount Percent
Commercial real estate - mortgage $ 32,617
39.9 % $ 26,946
40.4 %
Consumer real estate - mortgage 7,770
15.6 % 7,670
16.1 %
Construction and land development 11,874
11.6 % 11,128
11.7 %
Commercial and industrial 34,575
30.5 % 31,731
29.8 %
Consumer and other 4,304
2.4 % 5,423
2.0 %
Unallocated 2,507
NA
677
NA
Total allowance for loan losses $ 93,647
100.0 % $ 83,575
100.0 %

The following is a summary of changes in the allowance for ~~loan~~credit losses on loans for the nine months ended September 30, ~~2019~~2020 and for the year ended December 31, ~~2018~~2019 and the ratio of the allowance for ~~loan~~credit losses on loans to total loans as of the end of each period (in thousands):

Nine Months Ended
September 30, 2019 Year ended
December 31, 2018
Balance at beginning of period $ 83,575
$ 67,240
Provision for loan losses 22,639
34,377
Charged-off loans:
Commercial real estate – mortgage (1,701 ) (3,030 )
Consumer real estate – mortgage (1,124 ) (1,593 )
Construction and land development (18 ) (74 )
Commercial and industrial (13,842 ) (13,175 )
Consumer and other loans (4,643 ) (12,528 )
Total charged-off loans (21,328 ) (30,400 )
Recoveries of previously charged-off loans:
Commercial real estate – mortgage 1,173
2,096
Consumer real estate – mortgage 1,642
2,653
Construction and land development 238
1,863
Commercial and industrial 4,749
3,035
Consumer and other loans 959
2,711
Total recoveries of previously charged-off loans 8,761
12,358
Net charge-offs (12,567 ) (18,042 )
Balance at end of period $ 93,647
$ 83,575
Ratio of allowance for loan losses to total loans outstanding at end of period 0.48 % 0.47 %
Ratio of net charge-offs to average total loans outstanding for the period ⁽¹⁾
0.09 % 0.11 %


	Nine Months Ended September 30, 2020			Year ended December 31, 2019
Balance at beginning of period	$	94,777		$	83,575
Impact of adopting ASC 326	38,102			—
Provision for credit losses on loans	184,362			27,283
Charged-off loans:
Commercial real estate:
Owner occupied	(1,247)			(1,625)
Non-owner occupied	(485)			(75)
Consumer real estate – mortgage	(3,033)			(1,335)
Construction and land development	—			(18)
Commercial and industrial	(27,982)			(19,208)
Consumer and other loans	(2,977)			(6,206)
Total charged-off loans	(35,724)			(28,467)
Recoveries of previously charged-off loans:
Commercial real estate:
Owner occupied	272			1,252
Non-owner occupied	631			980
Consumer real estate – mortgage	971			1,827
Construction and land development	100			682
Commercial and industrial	3,798			6,473
Consumer and other loans	1,356			1,172
Total recoveries of previously charged-off loans	7,128			12,386
Net charge-offs	(28,596)			(16,081)
Balance at end of period	$	288,645		$	94,777
Ratio of allowance for credit losses on loans to total loans outstanding at end of period	1.28		%	0.48		%
Ratio of net charge-offs to average total loans outstanding for the period (1)	0.18		%	0.08		%

(1)Net charge-offs for the year-to-date period ended September 30, ~~2019~~2020 have been annualized.

~~Management~~

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Pinnacle Financial's management assesses the adequacy of the allowance ~~prior to the end of each calendar quarter.~~on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of ~~the loan portfolios, past loan~~historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, ~~the views of Pinnacle Bank's regulators,~~ adverse situations that may affect the ~~borrower's~~borrowers' ability to repay the loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, ~~economic conditions,~~ industry and peer bank loan quality indications and other pertinent ~~factors. This evaluation~~factors, including regulatory recommendations. The allowance is ~~inherently subjective as it requires material estimates including the~~increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts ~~and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.~~previously charged-off. For further discussion regarding our allowance for ~~loan~~credit losses, refer to Critical Accounting Estimates ~~included~~ in Part I Item 2 - Critical Accounting Estimates herein. We expect that the ~~2018 10-K.~~economic disruption caused by the COVID-19 pandemic will cause our net charge-offs to increase during the remainder of 2020 when compared to 2019.

Based upon our evaluation of the loan portfolio, we believe the allowance for ~~loan~~credit losses to be adequate to absorb our estimate of ~~inherent~~expected future credit losses ~~existing in the loan portfolio~~on loans outstanding at September 30, ~~2019.~~2020. While our policies and procedures used to estimate the allowance for ~~loan~~credit losses as well as the resultant provision for ~~loan~~credit losses charged to operations are considered adequate by management, they are necessarily approximate and imprecise. There are factors beyond our control, such as conditions in the local and national economy, local real estate market or a particular industry or borrower which may negatively impact, materially, our asset quality and the adequacy of our allowance for ~~loan~~credit losses and, thus, the resulting provision for ~~loan~~credit losses. In particular, the length and severity of the economic disruption of the COVID-19 pandemic is difficult to predict and each may be worse than we have estimated, which could cause our provision for credit losses to be negatively impacted for the duration of the pandemic and its aftermath. We believe borrowers that operate in the restaurant, entertainment, hospitality and retail sectors, including owners of commercial real estate properties and hotels, continue to be the most likely to be negatively impacted by the economic disruptions related to the COVID-19 pandemic, though other borrowers have been, and are likely to continue to be, negatively impacted as well. If the strict social distancing practices or safer-at-home directives that were initially implemented in response to the spread of COVID-19 were to return, these impacts could be more severe than currently anticipated.

Investments. Our investment portfolio, consisting primarily of Federal agency bonds, mortgage-backed securities, and state and municipal securities amounted to ~~$3.6~~$4.5 billion and ~~$3.3~~$3.7 billion at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Our investment portfolio serves many purposes including serving as a stable source of income, as collateral for public funds deposits and as a potential liquidity source. A summary of our investment portfolio at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 follows:

September 30, 2019 December 31, 2018
Weighted average life 6.20 years 7.23 years
Effective duration* 4.44% 3.62%
Tax equivalent yield 3.20% 3.22%


	September 30, 2020	December 31, 2019
Weighted average life	6.79 years	6.55 years
Effective duration*	4.62%	4.75%
Tax equivalent yield	2.39%	2.85%

(*) The metric is presented net of fair value hedges tied to certain investment portfolio holdings. The effective duration of the investment portfolio without the fair value hedges as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~5.53%~~5.57% and ~~4.82%~~5.89%, respectively.

Restricted Cash. Our restricted cash balances totaled approximately ~~$157.5~~$247.8 million at September 30, ~~2019,~~2020, compared to ~~$65.5~~$137.0 million at December 31, ~~2018.~~2019. This restricted cash is maintained at other financial institutions as collateral primarily for our derivative portfolio. The increase in restricted cash is attributable primarily to an increase in collateral requirements on certain derivative instruments for which the fair value has declined. See Note 8. Derivative Instruments in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q.

Deposits and Other Borrowings. We had approximately ~~$20.0~~$26.5 billion of deposits at September 30, ~~2019~~2020 compared to ~~$18.8~~$20.2 billion at December 31, ~~2018.~~2019. Our deposits consist of noninterest and interest-bearing demand accounts, savings accounts, money market accounts and time deposits. Additionally, we routinely enter into agreements with certain customers to sell certain securities under agreements to repurchase the security the following day. These agreements (which are typically associated with comprehensive treasury management programs for our clients and provide them with short-term returns for their excess funds) amounted to ~~$95.4~~$127.1 million at September 30, ~~2019~~2020 and ~~$104.7~~$126.4 million at December 31, ~~2018.~~2019. Additionally, at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, Pinnacle Bank had borrowed ~~$2.1~~$1.3 billion and ~~$1.4~~$2.1 billion, respectively, in advances from the Federal Home Loan Bank of Cincinnati (FHLB). During the three and nine months ended September 30, 2020, $500.0 million and $892.5 million, respectively, in FHLB advances were restructured and related prepayment penalties of $2.0 million and $4.9 million, respectively, were recognized in expense for the three and nine months ended September 30, 2020. At September 30, ~~2019,~~2020, Pinnacle Bank ~~also~~ had approximately ~~$2.4~~$3.2 billion in additional availability with the FHLB; however, incremental borrowings are subject to applicable collateral requirements and are made in a formal request by Pinnacle Bank and the subsequent approval by the FHLB. Our efforts to increase our on-balance sheet liquidity in the second half of the first quarter resulted in increased borrowings from the FHLB Cincinnati.

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Generally, we have classified our funding base as either core funding or noncore funding as shown in the table below. The following table represents the balances of our deposits and other funding and the percentage of each type to the total at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	September 30, 2020		Percent	December 31, 2019		Percent
Core funding:
Noninterest-bearing deposit accounts	$	7,050,670	24.6%	$	4,795,476	20.7%
Interest-bearing demand accounts	3,630,835		12.7%	3,135,581		13.6%
Savings and money market accounts	7,857,367		27.5%	6,807,825		29.5%
Time deposit accounts less than $250,000	1,382,978		4.8%	1,674,970		7.2%
Reciprocating demand deposit accounts (1)	615,205		2.2%	302,610		1.3%
Reciprocating savings accounts (1)	1,236,283		4.3%	717,149		3.1%
Reciprocating CD accounts (1)	230,651		0.8%	183,868		0.8%
Total core funding	22,003,989		76.9%	17,617,479		76.2%
Noncore funding:
Relationship based noncore funding:
Other time deposits	785,309		2.7%	850,189		3.7%
Securities sold under agreements to repurchase	127,059		0.5%	126,354		0.5%
Total relationship based noncore funding	912,368		3.2%	976,543		4.2%
Wholesale funding:
Brokered deposits	2,169,724		7.6%	480,942		2.1%
Brokered time deposits	1,584,934		5.5%	1,232,418		5.3%
Federal Home Loan Bank advances	1,287,738		4.5%	2,062,534		8.9%
Paycheck Protection Program liquidity facility	—		—%	—		—%
Subordinated debt and other funding	670,273		2.3%	749,080		3.3%
Total wholesale funding	5,712,669		19.9%	4,524,974		19.6%
Total noncore funding	6,625,037		23.1%	5,501,517		23.8%
Totals	$	28,629,026	100.0%	$	23,118,996	100.0%

September 30, 2019 Percent December 31, 2018 Percent
Core funding:
Noninterest-bearing deposit accounts $ 4,702,155
20.5% $ 4,309,067
20.6%
Interest-bearing demand accounts 2,897,305
12.7% 3,097,110
14.8%
Money Market accounts 6,679,463
29.2% 6,805,186
32.6%
Time deposit accounts less than $250,000 1,698,981
7.4% 1,605,983
7.7%
Reciprocating demand deposit accounts ⁽¹⁾
284,197
1.2% 162,410
0.8%
Reciprocating savings accounts ⁽¹⁾
669,775
2.9% 418,230
2.0%
Reciprocating CD accounts ⁽¹⁾
171,594
0.7% 91,187
0.4%
Total core funding 17,103,470
74.6% 16,489,173
78.9%
Noncore funding:
Relationship based noncore funding:
Other time deposits 844,026
3.7% 687,427
3.3%
Securities sold under agreements to repurchase 95,402
0.4% 104,741
0.5%
Total relationship based noncore funding 939,428
4.1% 792,168
3.8%
Wholesale funding:

Brokered deposits 467,160
2.0% 588,861
2.8%
Brokered time deposits 1,586,021
6.9% 1,083,646
5.2%
Federal Home Loan Bank advances 2,052,548
9.0% 1,443,589
6.9%
Subordinated debt and other funding 750,488
3.4% 485,130
2.4%
Total wholesale funding 4,856,217
21.3% 3,601,226
17.3%
Total noncore funding 5,795,645
25.4% 4,393,394
21.1%
Totals $ 22,899,115
100.0% $ 20,882,567
100.0%

(1)The reciprocating categories consists of deposits we receive from a bank network (the Promontory network) in connection with deposits of our customers in excess of our FDIC coverage limit that we place with the Promontory network.


⁽¹⁾	The reciprocating categories consists of deposits we receive from a bank network (the Promontory network) in connection with deposits of our customers in excess of our FDIC coverage limit that we place with the Promontory network.

As noted in the table above, our core funding as a percentage of total funding ~~decreased~~increased from ~~78.9%~~76.2% at December 31, ~~2018~~2019 to ~~74.6%~~76.9% at September 30, ~~2019,~~2020, primarily as a result of ~~increased competition~~the significant increase in deposits estimated to have been funded, in part, by PPP loans, offset in part by our intentional increase in wholesale funding to build on-balance sheet liquidity as we prepared for the initial impact of the COVID-19 pandemic. Competition for core deposits in our markets remains very competitive and we anticipate that our ~~need~~percentage of non-core funding is likely to ~~fund the continued growth in our earning assets.~~increase as PPP loan funds are utilized.

When wholesale funding is necessary to complement the company's core deposit base, management determines which source is best suited to address both liquidity risk management and interest rate risk management objectives. Our Asset Liability Management Policy imposes limitations on overall ~~noncore~~wholesale funding reliance and on brokered deposit exposure specifically. Both our overall reliance on ~~noncore~~wholesale funding and exposure to brokered deposits and brokered time deposits were within those policy limitations as of September 30, ~~2019.~~2020.

Our funding policies impose limits on the amount of ~~noncore~~non-core funding we can utilize based on the ~~noncore~~non-core funding dependency ratio which is calculated pursuant to regulatory guidelines. Periodically, we may exceed our policy limitations, at which time management will develop plans to bring our funding sources back into compliance with our core funding ratios. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we were in compliance with our core funding policies. Though growing our core deposit base is a key strategic objective of our firm ~~our current~~and we experienced meaningful growth ~~plans contemplate that~~in core deposits in the first nine months of 2020, we may increase our ~~noncore~~non-core funding amounts from current levels if we need to do so to fund growth or increase levels of on-balance sheet liquidity, but we do not currently anticipate that such increases will exceed the limits we have established in our internal ~~policies.~~policies for total levels of non-core funding.

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The amount of time deposits as of September 30, ~~2019~~2020 amounted to ~~$4.3~~$4.0 billion. The following table shows our time deposits in denominations of ~~$100,000~~$250,000 and less and in denominations greater than ~~$100,000~~$250,000 by category based on time remaining until maturity and the weighted average rate for each category as of September 30, ~~2019~~2020 (in thousands):


	Balances		Weighted Avg. Rate
Denominations less than $250,000
Three months or less	$	757,157	1.62	%
Over three but less than six months	800,048		1.27	%
Over six but less than twelve months	830,898		1.24	%
Over twelve months	811,679		1.02	%
	$	3,199,782	1.28	%
Denominations $250,000 and greater
Three months or less	$	212,619	1.70	%
Over three but less than six months	185,351		1.58	%
Over six but less than twelve months	257,630		1.31	%
Over twelve months	128,490		1.49	%
	$	784,090	1.51	%
Totals	$	3,983,872	1.33	%

Balances Weighted Avg. Rate
Denominations less than $100,000
Three months or less $ 652,934
2.31 %
Over three but less than six months 518,726
2.23 %
Over six but less than twelve months 718,948
2.15 %
Over twelve months 326,082
2.43 %
$ 2,216,690
2.26 %
Denominations $100,000 and greater
Three months or less $ 358,434
2.02 %
Over three but less than six months 341,632
2.12 %
Over six but less than twelve months 837,781
2.38 %
Over twelve months 546,085
2.53 %
$ 2,083,932
2.31 %
Totals $ 4,300,622
2.29 %

Subordinated debt and other borrowings. We have established, or through acquisition acquired, ~~a number of~~twelve statutory business trusts which were established to issue 30-year trust preferred securities ~~and related junior subordinated debt instruments~~ and certain other subordinated debt agreements. These securities qualify as Tier 2 capital subject to annual phase outs beginning five years from maturity. ~~We also have~~On April 22, 2020, we established a ~~$75.0 million revolving~~ credit facility with the Federal Reserve Bank in conjunction with the PPP, with available borrowing capacity equal to the outstanding balance of PPP loans, which ~~had~~totaled approximately $2.3 billion at September 30, 2020. There are no amounts outstanding ~~as of~~on this facility at September 30, ~~2019.~~2020. These instruments are outlined below (in thousands):

Name Date
Established Maturity Total Debt Outstanding Interest Rate at
September 30, 2019 Coupon Structure
Trust preferred securities
Pinnacle Statutory Trust I December 29, 2003 December 30, 2033 $ 10,310
4.94 % 30-day LIBOR + 2.80%
Pinnacle Statutory Trust II September 15, 2005 September 30, 2035 20,619
3.50 % 30-day LIBOR + 1.40%
Pinnacle Statutory Trust III September 7, 2006 September 30, 2036 20,619
3.75 % 30-day LIBOR + 1.65%
Pinnacle Statutory Trust IV October 31, 2007 September 30, 2037 30,928
4.97 % 30-day LIBOR + 2.85%
BNC Capital Trust I April 3, 2003 April 15, 2033 5,155
5.55 % 30-day LIBOR + 3.25%
BNC Capital Trust II March 11, 2004 April 7, 2034 6,186
5.15 % 30-day LIBOR + 2.85%
BNC Capital Trust III September 23, 2004 September 23, 2034 5,155
4.70 % 30-day LIBOR + 2.40%
BNC Capital Trust IV September 27, 2006 December 31, 2036 7,217
3.80 % 30-day LIBOR + 1.70%
Valley Financial Trust I June 26, 2003 June 26, 2033 4,124
5.21 % 30-day LIBOR + 3.10%
Valley Financial Trust II September 26, 2005 December 15, 2035 7,217
3.61 % 30-day LIBOR + 1.49%
Valley Financial Trust III December 15, 2006 January 30, 2037 5,155
4.00 % 30-day LIBOR + 1.73%
Southcoast Capital Trust III August 5, 2005 September 30, 2035 10,310
3.60 % 30-day LIBOR + 1.50%

Subordinated Debt

Pinnacle Bank Subordinated Notes July 30, 2015 July 30, 2025 60,000
4.88 %
Fixed ⁽¹⁾
Pinnacle Bank Subordinated Notes March 10, 2016 July 30, 2025 70,000
4.88 %
Fixed ⁽¹⁾
Avenue Subordinated Notes December 29, 2014 December 29, 2024 20,000
6.75 %
Fixed ⁽²⁾
Pinnacle Financial Subordinated Notes November 16, 2016 November 16, 2026 120,000
5.25 %
Fixed ⁽³⁾
Pinnacle Financial Subordinated Notes September 11, 2019 September 15, 2029 300,000
4.13 %
Fixed ⁽⁴⁾

Name Date
Established Maturity Total Debt Outstanding Interest Rate at
September 30, 2019 Coupon Structure
BNC Subordinated Notes September 25, 2014 October 1, 2024 60,000
5.50 %
Fixed ⁽⁵⁾

Other Borrowings

Revolving credit facility ⁽⁶⁾
April 25, 2019 April 24, 2020 —
3.94 % 30-day LIBOR + 1.50%

Debt issuance costs and fair value adjustments (12,507 )

Total subordinated debt and other borrowings $ 750,488


Name	Date Established	Maturity	Total Debt Outstanding		Interest Rate at September 30, 2020		Coupon Structure
Trust preferred securities
Pinnacle Statutory Trust I	December 29, 2003	December 30, 2033	$	10,310	3.05	%	30-day LIBOR + 2.80%
Pinnacle Statutory Trust II	September 15, 2005	September 30, 2035	20,619		1.62	%	30-day LIBOR + 1.40%
Pinnacle Statutory Trust III	September 7, 2006	September 30, 2036	20,619		1.87	%	30-day LIBOR + 1.65%
Pinnacle Statutory Trust IV	October 31, 2007	September 30, 2037	30,928		3.10	%	30-day LIBOR + 2.85%
BNC Capital Trust I	April 3, 2003	April 15, 2033	5,155		3.53	%	30-day LIBOR + 3.25%
BNC Capital Trust II	March 11, 2004	April 7, 2034	6,186		3.13	%	30-day LIBOR + 2.85%
BNC Capital Trust III	September 23, 2004	September 23, 2034	5,155		2.68	%	30-day LIBOR + 2.40%
BNC Capital Trust IV	September 27, 2006	December 31, 2036	7,217		1.92	%	30-day LIBOR + 1.70%
Valley Financial Trust I	June 26, 2003	June 26, 2033	4,124		3.33	%	30-day LIBOR + 3.10%
Valley Financial Trust II	September 26, 2005	December 15, 2035	7,217		1.74	%	30-day LIBOR + 1.49%
Valley Financial Trust III	December 15, 2006	January 30, 2037	5,155		2.00	%	30-day LIBOR + 1.73%
Southcoast Capital Trust III	August 5, 2005	September 30, 2035	10,310		1.72	%	30-day LIBOR + 1.50%

Subordinated Debt
Pinnacle Bank Subordinated Notes	July 30, 2015	July 30, 2025	60,000		3.38	%	3-month LIBOR + 3.128%
Pinnacle Bank Subordinated Notes	March 10, 2016	July 30, 2025	70,000		3.38	%	3-month LIBOR + 3.128%
Pinnacle Financial Subordinated Notes	November 16, 2016	November 16, 2026	120,000		5.25	%	Fixed (1)
Pinnacle Financial Subordinated Notes	September 11, 2019	September 15, 2029	300,000		4.13	%	Fixed (2)





Debt issuance costs and fair value adjustments			(12,722)
Total subordinated debt and other borrowings			$	670,273

⁽¹⁾ ~~Migrates to three month LIBOR + 3.128% beginning July 30, 2020 through the end of the term.~~

⁽²⁾ ~~Migrates to three month LIBOR + 4.95% beginning January 1, 2020 through the end of the term.~~

⁽³⁾(1) Migrates to three month LIBOR + 3.884% beginning November 16, 2021 through the end of the term.

⁽⁴⁾(2) Migrates to three month LIBOR + 2.775% beginning September 15, 2024 through the end of the term.

⁽⁵⁾

~~Migrates to three month LIBOR + 3.59% beginning October~~Table of Contents

Effective January 1, ~~2019 through the end of the term.~~

⁽⁶⁾ Borrowing capacity on the revolving credit facility is $75.0 million. At September 30, 2019, there were no amounts outstanding under this facility. An unused fee of 0.30% is assessed on the average daily unused amount of the loan.

~~On September 11, 2019,~~2020, we issued $300.0 aggregate principal amount of 4.125% Fixed-to-Floating Rate Subordinated Notes due 2029 in a public offering. From, and including, the date of issuance to, but excluding, September 15, 2024, the 2029 Notes will bear interest at an initial fixed rate of 4.125% per annum, payable semi-annually in arrears on March 15 and September 15, commencing on March 15, 2020. Thereafter, from September 15, 2024 through the maturity date, September 15, 2029, or earlier redemption date, the 2029 Notes will bear interest at a floating rate equal to the then-current three-month LIBOR, plus 277.5 basis points for each quarterly interest period (subject to certain provisions regarding use of an alternative base rate upon certain LIBOR transition events), payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2024.

~~The offering and sale of the 2029 Notes yielded net proceeds of approximately $296.5 million after deducting the underwriting discount and offering expenses payable by us. We~~ used approximately $8.84 million of such proceeds to redeem the previously outstanding Subordinated Note due October 15, 2023, which we assumed in the BNC merger and which carried an interest rate of 7.23% at the time of such redemption. We intend to use approximately $210.0$80.0 million of the net proceeds ~~of this~~from our 2019 subordinated debt offering to redeem certain other of our ~~and Pinnacle Bank’s~~ subordinated notes, including the ~~$20~~$20.0 million aggregate principal amount of Avenue subordinated notes and ~~$60~~$60.0 million aggregate principal amount of BNC subordinated ~~notes, each listed in~~notes. We had previously anticipated using $130 million of the ~~table above. We also presently intend~~net proceeds from our 2019 subordinated debt offering to redeem ~~the $130.0 million aggregate principal amount~~two tranches of subordinated notes issued by Pinnacle Bank ~~listed in the table above after such notes become eligible for redemption on~~with a maturity date of July 30, ~~2020. The redemption~~2025 but elected not to redeem those notes at this time in light of the ~~$130.0 million aggregate principal amount of~~uncertainty resulting from the ongoing COVID-19 pandemic. Pursuant to regulatory guidelines, once the maturity date on these subordinated notes ~~issued by Pinnacle Bank~~ is subject to receipt of all regulatory permissions for such redemption, which we have not yet sought, and our ultimate determination to redeem such notes after they become eligible for redemption. Pinnacle Bank is under no obligation to redeem its subordinated notes. We intend to use the remainderwithin five years, a portion of the ~~net proceeds from~~notes will no longer be eligible to be included in regulatory capital, with an additional portion being excluded each year over the ~~offering of the 2029 Notes for general corporate purposes, including providing capital to support the growth of Pinnacle Bank and our business.~~five year period approaching maturity.

Capital Resources. At September 30, ~~2019 and December 31, 2018,~~2020, our shareholders' equity amounted to ~~$4.3~~$4.8 billion compared to $4.4 billion at December 31, 2019. During the second quarter of 2020, we issued 9.0 million depositary shares, each representing a 1/40th interest in a share of Series B Preferred Stock with a liquidation preference of $1,000 per share of Series B Preferred Stock in a registered public offering to both retail and ~~$4.0 billion, respectively, an increase of~~institutional investors. Net proceeds from the transaction after underwriting discounts and offering costs were approximately ~~$300~~$217.1 million. The ~~increase is primarily attributable~~net proceeds were retained by Pinnacle Financial and are available to support our obligations including payments related to our outstanding indebtedness, to support the capital needs of our company and our bank, and for other general corporate purposes. Additionally, shareholders' equity during the nine months ended September 30, 2020 was impacted by increases in our net income and ~~our~~ other comprehensive income ~~and has been reduced~~offset in part by ~~$48.5~~$50.8 million ~~in 2019~~ related to shares repurchased pursuant to the share repurchase ~~program~~programs authorized by our board of directors in November ~~2018. In~~2018 and October 2019 and dividends of $37.1 million paid on shares of our ~~board approved a new~~common stock and $3.8 million paid on shares of our Series B preferred stock. We currently have approximately $67.2 million remaining of our authorized repurchase program which is set to expire December 31, 2020. In March 2020, we suspended our share repurchase program ~~which authorizes~~in light of uncertainty regarding the ~~repurchase of an additional $100 million of common stock beginning with the expiration~~length and severity of the ~~current~~COVID-19 pandemic. Our share repurchase program remains suspended as of the date of this filing. For additional information regarding our capital and ~~running through December 31, 2020.~~shareholders’ equity, see Note 10. Regulatory Matters in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q.

Dividends. Pursuant to Tennessee banking law, our bank may not, without the prior consent of the TDFI, pay any dividends to us in a calendar year in excess of the total of our bank's retained net profits for that year plus the retained net profits for the preceding two years, which was ~~$617.5~~$675.7 million at September 30, ~~2019.~~2020. During the ~~three and~~ nine months ended September 30, ~~2019,~~2020, our bank paid dividends of ~~$17.6~~$119.1 million ~~and $96.3 million, respectively,~~ to us which is within the limits allowed by the TDFI. ~~On September 25, 2019, we contributed $180 million of the net proceeds from the offering of the 2029 Notes to our bank, all of which initially qualifies as Tier 1 capital for Pinnacle Bank.~~

During the three and nine months ended September 30, ~~2019,~~2020, we paid ~~$12.4~~$12.3 million and ~~$37.4~~$37.1 million, respectively, in dividends to our common ~~shareholders.~~shareholders and $3.8 million in dividends on our Series B preferred stock. On October ~~15, 2019,~~20, 2020, our board of directors declared a $0.16 per share quarterly cash dividend to common shareholders which should approximate ~~$12.3~~$12.4 million in aggregate dividend payments that are expected to be paid on ~~Nov. 29, 2019~~November 27, 2020 to common shareholders of record as of the close of business on ~~Nov.~~November 6, 2020. Additionally, on that same day, our board of directors approved a quarterly dividend of approximately $3.8 million, or $16.88 per share (or $0.422 per depositary share), on the Series B preferred stock payable on December 1, ~~2019.~~2020 to shareholders of record at the close of business on November 16, 2020. The amount and timing of all future dividend payments, if

any, is subject to board discretion and will depend on our earnings, capital position, financial condition and other factors, including, if necessary, our receipt of dividends from Pinnacle Bank, regulatory capital requirements, as they become known to ~~us.~~us and receipt of any regulatory approvals that may become required as a result of our and our bank subsidiary's financial results.

Market and Liquidity Risk Management

Our objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies. Our Asset Liability Management Committee (ALCO) is charged with the responsibility of monitoring these policies, which are designed to ensure acceptable composition of asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management.

Interest Rate Sensitivity. In the normal course of business, we are exposed to market risk arising from fluctuations in interest rates. ALCO measures and evaluates the interest rate risk so that we can meet customer demands for various types of loans and deposits. ALCO determines the most appropriate amounts of on-balance sheet and off-balance sheet items. Measurements which we use to help us manage interest rate sensitivity include an earnings simulation model and an economic value of equity (EVE) model.

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Our interest rate sensitivity modeling incorporates a number of assumptions for both earnings simulation and EVE, including loan and deposit re-pricing characteristics, the rate of loan prepayments, etc. ALCO periodically reviews these assumptions for accuracy based on historical data and future expectations. Our ALCO policy requires that the base scenario assumes rates remain flat and is the scenario to which all others are compared in order to measure the change in net interest income and EVE. Policy limits are applied to the results of certain modeling scenarios. While the primary policy scenarios focus is on a twelve month time frame for the earnings simulations model, longer time horizons are also modeled. All policy scenarios assume a static volume forecast where the balance sheet is held constant, although other scenarios are modeled.

During the first nine months of 2020, several unique events occurred that are noteworthy when comparing the results of both the earnings simulation and the economic value of equity modeling results as of September 30, 2020 to the modeling results at December 31, 2019:

•In response to the COVID-19 pandemic, the Federal Reserve reduced the target federal funds rate by 150 basis points.

•We built over $2.5 billion in additional on-balance-sheet liquidity.

•We unwound a $1.3 billion in-the-money interest rate floor.

Earnings simulation model. We believe interest rate risk is best measured by our earnings simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with forecasts of interest rates for the next 12 months and are combined with other factors in order to produce various earnings simulations over that same 12-month period. To limit interest rate risk, we have policy guidelines for our earnings at risk which seek to limit the variance of net interest income in both gradual and instantaneous changes to interest rates. For instantaneous upward and downward changes in rates from management's flat interest rate forecast over the next twelve months, assuming a static balance sheet, the following estimated changes are calculated:



	Estimated % Change in Net Interest Income Over 12 Months
	September 30, ~~2019~~2020*
Instantaneous Rate Change
100 bps increase	~~1.0~~(0.4	%)
200 bps increase	~~2.2~~0.9	%
100 bps decrease	~~(1.7~~0.4	%)

*: Negative interest rates are not contemplated in these scenarios. The Treasury curve and all short-term rate indices, such as Fed Funds, LIBOR, etc., are assumed to be zero bound.

While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, hedging activities we might take and changing product spreads that could mitigate any potential adverse impact of changes in interest rates.

The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios set out in the table above is a key assumption in our projected estimates of net interest income. The projected impact on net interest income in the table above assumes no change in deposit portfolio size or mix from the baseline forecast in alternative rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce ~~our~~the assumed benefit of those deposits. The projected impact on net interest income in ~~those scenarios.~~the table above also assumes a "through-the-cycle" non-maturity deposit beta which may not be an accurate predictor of actual deposit rate changes realized in scenarios of smaller and/or non-parallel interest rate movements.

At September 30, ~~2019,~~2020, our earnings simulation model indicated we were in compliance with our policies for interest rate scenarios for which we model as required by our board approved Asset Liability Policy. ~~The board has suspended the requirement to model the down 200, 300 and 400 bps scenarios while 10 year maturity Treasury rates are below 2.0%, which was the case as of September 30, 2019.~~

Economic value of equity model. While earnings simulation modeling attempts to determine the impact of a changing rate environment to our net interest income, our EVE model measures estimated changes to the economic values of our assets, liabilities and off-balance sheet items as a result of interest rate changes. Economic values are determined by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case EVE. We then shock rates as prescribed by our Asset Liability Policy and measure the sensitivity in EVE values for each of those shocked rate scenarios versus the base case. The Asset

Liability Policy sets limits for those sensitivities. At September 30, ~~2019,~~2020, our EVE modeling calculated the following estimated changes in EVE due to instantaneous upward and downward changes in rates:

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	September 30, ~~2019~~2020*
Instantaneous Rate Change
100 bps increase	~~(1.5~~0.1	%)
200 bps increase	(~~7.0~~5.2	%)
100 bps decrease	(~~1.3~~1.4	%)

*: Negative interest rates are not contemplated in these scenarios. The Treasury curve and all short-term rate indices, such as Fed Funds, LIBOR, etc., are assumed to be zero bound.

While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, hedging activities we might take and changing product spreads that could mitigate the adverse impact of changes in interest rates.

At September 30, ~~2019,~~2020, our EVE model indicated we were in compliance with our policies for all interest rate scenarios for which we model as required by our board approved Asset Liability Policy. ~~The board has suspended the requirement to model the down 200, 300 and 400 bps scenarios while 10 year maturity Treasury rates are below 2.0%, which was the case as of September 30, 2019.~~

Most likely earnings simulation models. We also analyze a most-likely earnings simulation scenario that projects the expected change in rates based on a forward yield curve adopted by management using expected balance sheet volumes forecasted by management. Separate growth assumptions are developed for loans, investments, deposits, etc. Other interest rate scenarios analyzed by management may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements to further analyze or stress our balance sheet under various interest rate scenarios. Each scenario is evaluated by ~~management and weighted to determine the most likely result.~~management. These processes assist management to better anticipate our financial results and, as a result, management may determine the need to invest in other operating strategies and tactics which might enhance results or better position the firm's balance sheet to reduce interest rate risk going forward.

Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies.

Management's model governance, model implementation and model validation processes and controls are subject to review in our regulatory examinations to ensure they are in compliance with the most recent regulatory guidelines and industry and regulatory practices. Management utilizes a respected, sophisticated third party asset liability modeling software to help ensure implementation of management's assumptions into the model are processed as intended in a robust manner. That said, there are numerous assumptions regarding financial instrument behavior that are integrated into the model. The assumptions are formulated by combining observations gleaned from our historical studies of financial instruments and our best estimations of how, if at all, these instruments may behave in the future given changes in economic conditions, technology, etc. These assumptions may prove to be inaccurate. Additionally, given the large number of assumptions built into ~~firms'~~our asset liability modeling software, it is difficult, at best, to compare our results to other firms.

ALCO may determine that Pinnacle Financial should over time become more or less asset or liability sensitive depending on the underlying balance sheet circumstances and our conclusions as to anticipated interest rate fluctuations in future periods. At present, ALCO has determined that its "most likely" rate scenario considers ~~two decreases (including the rate cut announced by the Federal Reserve on October 30, 2019)~~no change in short-term interest rates throughout the remainder of ~~2019.~~2020. Our "most likely" rate forecast is based primarily on information we acquire from a service which includes a consensus forecast of numerous interest rate benchmarks. We may implement additional actions designed to achieve our desired sensitivity position which could change from time to time.

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We have in the past used, and may in the future continue to use, derivative financial instruments as one tool to manage our interest rate sensitivity, including in our mortgage lending program, while continuing to meet the credit and deposit needs of our customers. For further details on the derivatives we currently use, see Note 8. Derivative Instruments in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q.

We may also enter into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps qualify as derivatives, even though they are not designated as hedging instruments.

Liquidity Risk Management. The purpose of liquidity risk management is to ensure that there are sufficient cash flows to satisfy loan demand, deposit withdrawals, and our other needs. Traditional sources of liquidity for a bank include asset maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability base provides sources of liquidity through attraction of increased deposits and borrowing funds from various other institutions.

To assist in determining the adequacy of our liquidity, we perform a variety of liquidity stress tests including idiosyncratic, systemic and combined scenarios for both moderate and severe events. Liquidity is defined as the ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining our ability to meet the daily cash flow requirements of our customers, both depositors and borrowers. We seek to maintain a sufficiently liquid asset balance to ensure our ability to meet our obligations. The amount of the appropriate minimum liquid asset balance is determined through severe liquidity stress testing as measured by our liquidity coverage ratio calculation. At September 30, ~~2019,~~2020, we were in compliance with our internal policies related to liquidity coverage ratio.

Changes in interest rates also affect our liquidity position. We currently price deposits in response to market rates. If deposits are not priced in response to market rates, a loss of deposits, particularly noncore deposit, could occur which would negatively affect our liquidity position.

Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit flows fluctuate significantly, being influenced by interest rates, general economic conditions and competition. Additionally, debt security investments are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We attempt to price our deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for monitoring our ongoing liquidity needs. Our regulators also monitor our liquidity and capital resources on a periodic basis.

In addition, our bank is a member of the FHLB Cincinnati. As a result, our bank receives advances from the FHLB Cincinnati, pursuant to the terms of various borrowing agreements, which support our funding needs. Under the borrowing agreements with the FHLB Cincinnati, our bank has pledged certain qualifying residential mortgage loans and, pursuant to a blanket lien, all qualifying commercial mortgage loans as collateral. As such, Pinnacle Bank may use the FHLB Cincinnati as a source of liquidity depending on its ALCO strategies. Additionally, we may pledge additional qualifying assets, or reduce the amount of pledged assets or experience changes in the value of pledged assets with the FHLB Cincinnati to increase or decrease our borrowing capacity with the FHLB Cincinnati. At September 30, ~~2019,~~2020, we estimate we had ~~$2.4~~$3.2 billion in additional borrowing capacity with the FHLB Cincinnati. However, incremental borrowings are made via a formal request by Pinnacle Bank and the subsequent approval by the FHLB Cincinnati. During the three and nine months ended September 30, 2020, $500.0 million and $892.5 million, respectively, in FHLB advances were restructured and related prepayment penalties of $2.0 million and $4.9 million, respectively, were recognized in expense for the three and nine months ended September 30, 2020. At September 30, ~~2019,~~2020, our bank had received advances from the FHLB Cincinnati totaling ~~$2.1~~$1.3 billion. At September 30, ~~2019,~~2020, the scheduled maturities of Pinnacle Bank's FHLB Cincinnati advances and interest rates are as follows (in thousands):


Scheduled Maturities	Amount		Interest Rates (1)
2020	$	—	—%
2021	200,000		0.32%
2022	—		—%
2023	—		—%
2024	200,000		2.09%
Thereafter	891,264		1.95%
Total	$	1,291,264
Weighted average interest rate			1.72%

Scheduled Maturities Amount
Interest Rates ⁽¹⁾
2019 $ 90,000
1.72%
2020 522,532
1.98%
2021 423,750
2.30%
2022 41,250
2.85%
2023 —
0.00%
Thereafter 975,016
2.08%
Total $ 2,052,548

Weighted average interest rate 2.10%

(1)Some FHLB Cincinnati advances include variable interest rates and could increase in the future. The table reflects rates in effect as of September 30, ~~2019.~~2020.

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Pinnacle Bank also has accommodations with upstream correspondent banks available for unsecured short-term advances which aggregate ~~$195.0~~$195 million. These accommodations have various covenants related to their term and availability, and in most cases must be repaid within a month of borrowing. We had no outstanding borrowings at September 30, ~~2019~~2020 under these agreements. Our bank also had approximately ~~$3.5~~$3.1 billion in available Federal Reserve discount window lines of credit at September 30, ~~2019.~~2020.

At September 30, ~~2019,~~2020, excluding reciprocating time and money market deposits issued through the Promontory Network, we had ~~$2.1~~$3.8 billion of brokered deposits. Historically, we have issued brokered certificates of deposit through several different brokerage houses based on competitive bid. During the first nine months of 2020, and in response to the uncertainty resulting from the COVID-19 pandemic, we intentionally increased our levels of on-balance sheet liquidity. During the first quarter of 2020, this increase was funded by a combination of increased core deposits, increased borrowings from the FHLB Cincinnati and increases in brokered time deposits. Core deposit growth during the second and third quarters of 2020 increased such that we were able to prepay certain wholesale maturities while maintaining an elevated level of on-balance sheet liquidity. We intend to prepay and/or let mature wholesale funding as core deposit growth allows over the next several quarters.

Banking regulators have defined additional liquidity guidelines, through the issuance of the Basel III Liquidity Coverage Ratio (LCR) and the Modified LCR. These regulatory guidelines became effective January 2015 with phase in over subsequent years and require these large institutions to follow prescriptive guidance in determining an absolute level of a high quality liquid asset (HQLA) buffer that must be maintained on their balance sheets in order to withstand a potential liquidity crisis event. Although Pinnacle Financial follows the principles outlined in the Interagency Policy Statement on Liquidity Risk Management, issued March 2010, to determine its HQLA buffer, Pinnacle Financial is not currently subject to these regulations. However, these formulas could eventually be imposed on smaller banks, such as Pinnacle Bank, and require an increase in the absolute level of liquidity on our balance sheet, which could result in lower net interest margins for us in future periods.

At September 30, ~~2019,~~2020, we had no individually significant commitments for capital expenditures. But, we believe the number of our locations, including non-branch locations, will increase over an extended period of time across our ~~footprint.~~footprint and that certain of our locations will be in need of required renovations. In future periods, these expansions and renovation projects may lead to additional equipment and occupancy expenses as well as related increases in salaries and benefits expense. Additionally, we expect we will continue to incur costs associated with technology improvements to enhance the infrastructure of our firm.

Equipment and occupancy expenses for the three and nine months ended September 30, 2019 increased $1.1 million and $8.3 million, respectively, to $20.3 million and $63.5 million, respectively, as compared to the same periods in the prior year. Included in the nine months ended September 30, 2019 increase was a $3.2 million non-cash impairment charge incurred during the second quarter of 2019 related to the proposed consolidation of five offices across our footprint.

Off-Balance Sheet Arrangements. At September 30, ~~2019,~~2020, we had outstanding standby letters of credit of ~~$198.4~~$191.6 million and unfunded loan commitments outstanding of ~~$7.8~~$9.2 billion. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, Pinnacle Bank has the ability to liquidate Federal funds sold or, on a short-term basis, to borrow and purchase Federal funds from other financial institutions.

Impact of Inflation

The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with U.S. GAAP and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation.

Recently Adopted Accounting Pronouncements

See "Part I - Item 1. Consolidated Financial Statements - Note. 1 Summary of Significant Accounting Policies" of this Report for further information.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item 3 is included on pages 3742 through 5967 of Part I - Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Pinnacle Financial maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to Pinnacle Financial's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Pinnacle Financial carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that Pinnacle Financial's disclosure controls and procedures were effective as of the end of the period covered by this report in ensuring that the information required to be disclosed by Pinnacle Financial in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to Pinnacle Financial's management (including the Principal Executive Officer and Principal Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Changes in Internal Controls

No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) or 15d-(f)) occurred during fiscal quarter ended September 30, ~~2019~~2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Various legal proceedings to which Pinnacle Financial or a subsidiary of Pinnacle Financial is a party arise from time to time in the normal course of business. There are no material pending legal proceedings to which Pinnacle Financial or a subsidiary of Pinnacle Financial is a party or of which any of their property is the subject.

ITEM 1A. RISK FACTORS

Investing in Pinnacle Financial involves various risks which are particular to our company, our industry and our market area. We believe all significant risks to investors in Pinnacle Financial have been outlined in Part II, Item 1A of our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30,~~December 31, 2019. However, other risks may prove to be important in the future, and new risks may emerge at any time. We cannot predict with certainty all potential developments which could materially affect our financial performance or condition. There has been no material change to our risk factors as previously disclosed in the above described ~~Quarterly~~Annual Report on Form ~~10-Q.~~10-K except as set forth below:

The COVID-19 pandemic is adversely affecting our business and the businesses of a significant percentage of our customers as well as certain of our third-party vendors and service providers, and the adverse impacts on our business, financial position, capital, liquidity, results of operations and prospects could be significant.

The spread of COVID-19 has created a global public health crisis that has resulted in uncertainty, volatility and deterioration in financial markets and in governmental, commercial and consumer activity including in the United States, where we conduct substantially all of our activity.

To combat the spread of COVID-19, federal, state and local governments have taken a variety of actions that have materially and adversely affected the businesses and lives of our customers. These actions have included orders closing non-essential businesses and restricting movement of individuals through the issuance of safer-at-home orders and other guidance encouraging individuals to observe strict social distancing measures. At times, the actions being taken by governmental authorities are not always coordinated or consistent across states or even within states and the impact of those actions across our markets may be uneven. These actions, together with the independent actions of individuals and businesses aimed at slowing the spread of the virus, have resulted in extensive economic disruption and rapid declines in consumer and commercial activity. Many businesses are experiencing significant declines in revenue and there has been a rapid rise in unemployment rates throughout our markets with corresponding negative effects on consumer spending and behavior. Global supply chains have also been negatively impacted as have equity and debt markets. Whether the efforts to stop the spread of COVID-19 will be successful is unknown at this time as in recent weeks the number of cases, hospitalizations and deaths in some of our markets has trended upward, and continued spread of the disease or continuation of higher levels of cases, hospitalizations and deaths over the remainder of 2020 or into 2021 will further negatively impact the businesses and lives of our customers and our results of operations.

In March 2020, the Federal Open Market Committee reduced the target Federal funds rate by 150 basis points and for a portion of March 2020 the 10-year treasury bond rate fell to below 1.00% for the first time in history. These actions, and other actions being taken by governmental and regulatory agencies affecting monetary policy in response to the unprecedented challenges resulting from the spread of COVID-19, have negatively impacted our net interest margin and our results and are likely to continue to negatively impact our net interest margin and our results throughout the remainder of 2020 and into 2021. The fair values of certain of our investments are also likely to remain depressed or further decline as a result of COVID-19.

As a result of COVID-19, many of our borrowers, particularly those that operate in the restaurant, entertainment, hospitality and retail sectors, but also other businesses as well, including owners of commercial real estate properties and hotels, are experiencing varying degrees of financial distress, which is expected to continue, and may possibly increase, over the coming months. As a result, these borrowers may have difficulty paying, on a timely basis, interest and principal payments on their loans and the value of collateral securing these obligations may be adversely impacted as well. Though we have offered these borrowers, and others, the ability to defer interest and/or principal payments for 90 days which we may extend for an additional 90 days, these borrowers may still be experiencing distress. As a result, these borrowers may have difficulty satisfying their obligations to us. Disruptions to our customers’ businesses, together with volatility in the stock market, could also result in declines to our wealth management revenues.

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The economic pressures and uncertainties arising from the COVID-19 pandemic may result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. These economic pressures may be more severe, and changes in behavior more pronounced, if additional government stimulus programs are not timely approved, or approved at all, or if they do not provide sufficient relief when approved. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis and, certain industries may take longer to recover (particularly those that rely on travel or large gatherings) as consumers may be hesitant to return to full social interaction. We lend to customers operating in such industries including restaurants, hotels/lodging, entertainment, retail and commercial real estate, among others, that have been significantly impacted by COVID-19 and we are continuing to monitor these customers closely. The potential changes in behaviors driven by COVID-19 also present heightened liquidity risks, for example, arising from increased demand for our products and services (such as elevated levels of draws on credit facilities) or decreased demand for our products and services (such as idiosyncratic, or broad-based, market or other developments that lead to deposit outflows).

Like our borrowers, BHG’s borrowers have been similarly affected by COVID-19. Many of BHG’s borrowers are medical or dental practices that were particularly impacted by safer-at-home orders that effectively caused those practices’ revenues to decline materially as a result of elective procedures being prohibited, cancelled or delayed or individuals’ decisions to postpone non-emergency procedures, even as restrictions on elective procedures are relaxed. Though these borrowers' businesses have improved over the last three months, increased levels of cases and renewed government mandated closures and restrictions could again negatively impact these borrowers' businesses. For those loans that BHG has sold through its auction platform, BHG may at its sole discretion, in response to a request from a purchaser of a loan, agree to substitute a performing loan for one that has become past due. If requests for substitutions increase, and BHG opts to provide the substitution. BHG’s credit losses may likewise increase and its results of operations would be adversely impacted.

COVID-19’s economic disruption has also impacted many states and municipalities. As a result, many states and municipalities are facing a strain on resources and a reduction in tax collections and some of these have sought assistance from the Federal government to cover the cost of resource depletion and tax shortfalls. The ability of states and municipalities to fund shortfalls could have an adverse effect on their ability to sustain debt maintenance obligations which would negatively impact the value of our municipal bond portfolio if we hold bonds issued by those states or municipalities.

Banks and bank holding companies have been particularly impacted by the COVID-19 pandemic as a result of disruption and volatility in the global capital markets. This disruption has impacted our cost of capital and may adversely affect our ability to access the capital markets if we need or desire to do so and, although the ultimate impact cannot be reliably estimated at this time in light of the uncertainties and ongoing developments noted herein, such impacts could be material. Furthermore, bank regulatory agencies have been (and are expected to continue to be) very proactive in responding to both market and supervisory concerns arising from the COVID-19 pandemic as well as the potential impact on customers, especially borrowers. As shown during and following the financial crisis, periods of economic and financial disruption and stress have, in the past, resulted in increased scrutiny of banking organizations. We are closely monitoring the potential for new laws and regulations impacting lending and funding practices as well as capital and liquidity standards. Such changes could require us to maintain significantly more capital, with common equity as a more predominant component, or manage the composition of our assets and liabilities to comply with formulaic liquidity requirements. Furthermore, provisions of the CARES Act allow, but do not require, the FDIC to guarantee deposit obligations of banks in non-interest-bearing transaction accounts through December 31, 2020. Participation in any such guarantee program may result in fees and other assessments as the FDIC determines and may include special assessments. Other provisions of the CARES Act as well as actions taken by bank regulators, such as potential relief for working with borrowers who are distressed as a result of the effects of COVID-19, could similarly impact aggregate deposit insurance expense.

As we have sought to protect the health and safety of our employees and customers during the pandemic, we have taken numerous actions to modify our business operations, including restricting employee travel, directing a significant percentage of our employees that were able to do so to work from home, closing the lobbies of many of our branches, and in some cases the branch itself, and implementing our business continuity plans and protocols. We may take further actions in the future either of our own volition or as a result of government orders or directives. Though we believe we have been able to adequately service our clients under these restrictions, we cannot provide any assurances that our ability to do so wouldn’t be negatively impacted if additional restrictions are necessary or imposed on us in the future, including if key employees of ours or a significant number of our associates become ill as a result of contracting the virus. Given our preference for hiring experienced lenders the average age of an associate of ours may be higher than many of our peers and those of our associates who are of an age that puts them in a higher risk category may be more susceptible to contracting the virus. We rely on the services of various key vendors and business partners to service our clients and if those companies’ businesses or workforces are impacted in ways similar to those that may impact our business, our ability to service our customers could be impacted.

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The economic uncertainty caused by COVID-19’s spread and the efforts of government and non-governmental authorities and the behavior of individuals seeking to slow its spread, have caused our provision expense for credit losses to increase materially in the

first nine months of 2020 and may contribute to further elevated levels of provision expense through the duration of the pandemic and any recovery period following its end. Increased provision levels would negatively impact our capital levels which may impact our ability to pay dividends or cause us to need to access the capital markets to support our capital needs. We have also taken efforts to increase our on-balance sheet liquidity and those efforts have caused, and may continue to cause, our net interest margin to be adversely impacted.

COVID-19 has not yet been contained, and given the ongoing and fluid nature of the country’s response to the pandemic, it is difficult for us to accurately estimate the length and severity of the economic disruption being caused by COVID-19. As a result, the extent to which our results of operations, provision expense, capital levels, liquidity ratios and published credit ratings will be impacted is difficult to predict.

Our participation in the PPP may expose us to financial liability, credit losses, compliance costs or reputational damage.

Under the CARES Act, Congress created the PPP and authorized the Treasury to implement rules regarding the program. Banks, like us, and non-bank lenders, including BHG, facilitated funding under the program on behalf of the SBA for borrowers that were eligible participants. Since the roll out of the PPP, Treasury has issued rules and other interpretive guidance seeking to address uncertainty surrounding the program and its eligibility and other criteria. This constantly changing guidance caused challenges for us and other lenders under the program, like BHG, in finalizing and submitting applications. We are beginning to receive and process requests from our customers for forgiveness of their obligations under their PPP loans and again comprehensive guidance is lacking from the Treasury and SBA on how to process these requests. As a result, we, and other lenders under the PPP, may face criticism from customers or others that are seeking forgiveness. This criticism could cause reputational damage to us and there is a possibility that customers or others may threaten and pursue legal action against banks and other lenders like us and BHG under the program.

Among other regulatory requirements, PPP loans are subject to forbearance of loan payments for a ten-month period to the extent that loans are not eligible for forgiveness. If PPP borrowers fail to qualify for loan forgiveness, including by failing to use the funds appropriately in order to qualify for forgiveness under the program, we and BHG have a greater risk of holding these loans at unfavorable interest rates. In addition, because of the short time period between the passing of the CARES Act and the implementation of the PPP, there is ambiguity in the laws, rules, and guidance regarding the operation of the PPP, which exposes us and BHG to risks relating to noncompliance with the PPP. There is risk that the SBA or another governmental entity could conclude there is a deficiency in the manner in which we or BHG originated, funded, or serviced PPP loans, which may or may not be related to the ambiguity in the CARES Act or the rules and guidance promulgated by the SBA and the Treasury regarding the operation of the PPP. In the event of such deficiency, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from us or BHG.

Since the commencement of the PPP, several banks have been subject to litigation regarding the process and procedures that such banks followed in accepting and processing applications for the PPP. We and BHG may be exposed to the risk of similar litigation, from both customers and non-customers that contacted us or BHG regarding obtaining PPP loans with respect to the processes and procedures we or BHG used in processing applications for the PPP. Legal proceedings related to our or BHG’s participation in the PPP, like the purported class action lawsuit filed against our bank subsidiary in June 2020 that has subsequently been voluntarily dismissed, though the plaintiff could file the suit again, alleges, among other claims, that our bank subsidiary failed to pay fees to purported agents of PPP borrowers that the plaintiff alleges were owed under the PPP in violation of SBA regulations, if not resolved in a manner that is favorable to us, or BHG, may result in significant financial liability to us or BHG, or adversely affect our, or BHG’s results of operations, financial condition or reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs, or reputational damage caused by PPP-related litigation could have a material adverse impact on our or BHG's reputation, business, financial condition, and results of operations.

In addition, we may be subject to regulatory scrutiny regarding our processing of PPP applications or forgiveness requests or our origination or servicing of PPP loans. While the SBA has said that in many instances, banks may rely on the certifications of borrowers regarding their eligibility for PPP loans, we do have several obligations under the PPP, and if the SBA found that we did not meet those obligations, the remedies the SBA may seek against us are unknown but may include not guarantying the PPP loans resulting in credit exposure to borrowers who may be unable to repay their loans. The PPP may also attract significant interest from federal and state enforcement authorities, oversight agencies, regulators, and Congressional committees. State Attorneys General and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling us to rely on borrower certifications, and take more aggressive action against us for alleged violations of the provisions governing our participation in the PPP.

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Additional issuances of preferred stock or securities convertible into preferred stock may further dilute existing holders of the depositary shares.

We may determine that it is advisable, or we may encounter circumstances where we determine it is necessary, to issue additional shares of preferred stock, securities convertible into, exchangeable for, or that represent an interest in preferred stock, or preferred stock-equivalent securities to fund strategic initiatives or other business needs or to build additional capital. Our board of directors is authorized to cause us to issue one or more classes or series of preferred stock from time to time without any action on the part of our shareholders, including issuing additional shares of our 6.75% fixed rate non-cumulative perpetual preferred stock, Series B (Series B preferred stock) or additional depositary shares. Our board of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over the Series B preferred stock with respect to dividends or upon our dissolution, liquidation or winding-up and other terms.

Although the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of the Series B preferred stock, voting together as a single class with any parity stock having similar voting rights, is required to authorize or issue any shares of capital stock senior in rights and preferences to the Series B preferred stock, if we issue preferred stock or depositary shares in the future with voting rights that dilute the voting power of the Series B preferred stock or depositary shares, the rights of holders of the depositary shares or the market price of the depositary shares could be adversely affected. The market price of the depositary shares could decline as a result of these other offerings, as well as other sales of a large block of depositary shares, Series B preferred stock, or similar securities in the market thereafter, or the perception that such sales could occur. Holders of the Series B preferred stock are not entitled to preemptive rights or other protections against dilution.

Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of the depositary shares bear the risk of our future offerings reducing the market price of the depositary shares and diluting their holdings in the depositary shares.

Our ability to declare and pay dividends is limited.

While our board of directors has approved the payment of a quarterly cash dividend on our common stock since the fourth quarter of 2013 and approved the payment of the quarterly dividends on the Series B Preferred Stock (and underlying depositary shares) since issuance, there can be no assurance of whether or when we may pay dividends on our capital stock in the future. Future dividends, if any, will be declared and paid at the discretion of our board of directors and will depend on a number of factors, including our and Pinnacle Bank’s capital levels. Moreover, our ability to pay dividends on our common stock is limited by the terms of our Series B preferred stock which provides that if we have not paid dividends on the Series B preferred stock for the most recently completed dividend period, then no dividend or distribution shall be declared, paid, or set aside for payment on shares of our common stock.

Our principal source of funds used to pay cash dividends on our common stock will be cash we may hold from time to time as well as dividends that we receive from Pinnacle Bank. Although Pinnacle Bank’s asset quality, earnings performance, liquidity and capital requirements will be taken into account before we declare or pay any future dividends on our common stock, our board of directors will also consider our liquidity and capital requirements and our board of directors could determine to declare and pay dividends without relying on dividend payments from Pinnacle Bank.

Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends we may declare and pay and that Pinnacle Bank may declare and pay to us. For example, Federal Reserve regulations implementing the capital rules required under Basel III do not permit dividends unless capital levels exceed certain higher levels applying capital conservation buffers. In addition, the Federal Reserve has issued supervisory guidance advising bank holding companies to eliminate, defer or reduce dividends paid on common stock and other forms of Tier 1 capital, like the Series B preferred stock, where the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, the company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition or the company will not meet, or is in danger of not meeting, minimum regulatory capital adequacy ratios.Recent supplements to this guidance reiterate the need for bank holding companies to inform their applicable reserve bank sufficiently in advance of the proposed payment of a dividend in certain circumstances.

In addition, subject to certain exceptions, the terms of our subordinated debentures, including the subordinated debentures we assumed upon the consummation of the BNC merger, prohibit us from paying dividends on shares of our capital stock at times when we are deferring the payment of interest on such subordinated debentures.

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The Series B preferred stock constitutes an equity security and ranks junior to all of our and our subsidiaries’ existing indebtedness and will rank junior to our and our subsidiaries’ future indebtedness.

Shares of the Series B preferred stock are equity interests in Pinnacle Financial and do not constitute indebtedness. Accordingly, shares of the Series B preferred stock and the related depositary shares are and will be junior in right of payment to any existing and all future indebtedness and other non-equity claims of Pinnacle Financial with respect to assets available to satisfy claims on us, including in a liquidation of Pinnacle Financial. In the event of our bankruptcy, liquidation, dissolution or winding-up, our assets will be available to pay obligations on the Series B preferred stock and any parity stock only after all of our liabilities have been paid and any obligations we owe on any securities that rank senior to the Series B preferred stock then outstanding, if any, have been satisfied. In case of such bankruptcy, liquidation, dissolution or winding-up, the Series B preferred stock will rank equally with any parity stock in the distribution of our assets. Holders of the depositary shares may be fully subordinated to interests held by the U.S. government in the event of a receivership, insolvency, liquidation or similar proceeding. In addition, our existing and future indebtedness may restrict payment of dividends on the Series B preferred stock.

The Series B preferred stock and the depositary shares representing the Series B preferred stock effectively rank junior to any existing and all future liabilities of our subsidiaries.

We are a financial holding company and conduct substantially all of our operations through our subsidiaries. Our right to participate in any distribution of the assets of our subsidiaries upon any liquidation, reorganization, receivership or conservatorship of any subsidiary (and thus the ability of the holder of the Series B preferred stock and the holders of the depositary shares to benefit indirectly from such distribution) will rank junior to the prior claims of that subsidiary’s creditors. In the event of bankruptcy, liquidation or winding-up, there may not be sufficient assets remaining, after paying our and our subsidiaries’ liabilities, to pay amounts due on any or all of the Series B preferred stock and the depositary shares representing the Series B preferred stock then outstanding.

We, together with Pinnacle Bank, own 49% of the outstanding equity interests of BHG. Our right to participate in any distribution of the assets of BHG upon its liquidation, reorganization, receivership or conservatorship (and thus the ability of the holders of the Series B preferred stock and the holders of the depositary shares to benefit indirectly from such distribution) will rank junior to the prior claims of BHG’s creditors. Moreover, our 49% ownership interest in BHG and minority board representation on BHG’s board means that we, and Pinnacle Bank, cannot on our own cause BHG to make distributions to us and Pinnacle Bank that could be used to pay dividends on the Series B preferred stock. In addition, BHG is a party to various loan agreements pursuant to which BHG’s ability to make distributions to us may be limited.

The Series B preferred stock and the depositary shares representing the Series B preferred stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the limited voting rights of the shares of Series B preferred stock. The holders of the Series B preferred stock, and therefore the holders of the depositary shares representing the Series B preferred stock, have limited voting rights.

Dividends on the Series B preferred stock are non-cumulative and discretionary. If we do not declare dividends on the Series B preferred stock, holders of the depositary shares will not be entitled to receive related distributions on their depositary shares.

Dividends on the Series B preferred stock are non-cumulative and discretionary, not mandatory. Consequently, if our board of directors does not authorize and declare a dividend for any dividend period, the holder of the Series B preferred stock, and therefore the holders of the depositary shares, will not be entitled to receive a dividend for such period, and such undeclared dividend will not accrue and be payable. We will have no obligation to pay dividends for such dividend period, whether or not dividends are authorized and declared for any subsequent dividend period with respect to the Series B preferred stock. Our board of directors may determine that it would be in our best interests to pay less than the full amount of the stated dividends on the Series B preferred stock or no dividend for any dividend period even if funds are available. Factors that would be considered by our board of directors in making this determination include our financial condition, liquidity and capital needs, the impact of current and pending legislation and regulations, economic conditions, including worsening economic conditions resulting from the COVID-19 pandemic, our ability to service any equity or debt obligations senior to the Series B preferred stock, any credit agreements to which we are a party, tax considerations and such other factors as our board of directors may deem relevant.

Unlike indebtedness, where principal and interest would customarily be payable on specified due dates, in the case of preferred stock like the Series B preferred stock dividends are payable only when, as and if authorized and declared by our board of directors or a duly authorized committee of the board and as a Tennessee corporation, we are subject to restrictions on payments of dividends out of lawfully available funds as described elsewhere in this report and in our Annual Report on Form 10-K.

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The holders of the Series B preferred stock, and therefore the holders of the depositary shares representing the Series B preferred stock, have limited voting rights.

Until and unless we are in arrears on our dividend payments on the Series B preferred stock for six quarterly dividend periods, whether consecutive or not, the holders of the Series B preferred stock, and therefore the holders of the depositary shares, have no voting rights with respect to matters that generally require the approval of voting shareholders, except with respect to certain fundamental changes in the terms of the Series B preferred stock, and except as may be required by the rules of any securities exchange or quotation system on which the Series B preferred stock is listed, traded or quoted or by Tennessee law. If dividends on the Series B preferred stock are not paid in full for six dividend periods, whether consecutive or not, the holders of Series B preferred stock, voting together as a class with any other equally ranked series of preferred stock that have similar voting rights then outstanding, if any, will have the right, at the first annual meeting or special meeting held thereafter and at subsequent annual meetings, to elect two directors to our board. The terms of the additional directors so elected will end upon the payment or setting aside for payment by us of continuous noncumulative dividends for at least four dividend periods on the Series B preferred stock and any other equally ranked series of preferred stock then outstanding, if any.

Holders of the depositary shares must act through the depositary to exercise any voting rights of the Series B preferred stock. Although each depositary share is entitled to 1/40th of a vote, the depositary can only vote whole shares of Series B preferred stock. While the depositary will vote the maximum number of whole shares of Preferred Stock in accordance with the instructions it receives, any remaining fractional votes of holders of the depositary shares will not be voted.

The price of our capital stock may be volatile or may decline.

The trading price of our capital stock may fluctuate as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our capital stock. Among the factors that could affect the trading prices of our capital stock are:

•actual or anticipated quarterly fluctuations in our results of operations and financial condition;

•changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;

•failure to meet analysts’ revenue or earnings estimates;

•speculation in the press or investment community;

•strategic actions by us or our competitors;

•actions by institutional shareholders;

•fluctuations in the stock price and operating results of our competitors;

•general market conditions and, in particular, developments related to market conditions for the financial services industry;

•market perceptions about the innovation economy, including levels of funding or "exit" activities of companies in the industries we serve;

•proposed or adopted regulatory changes or developments;

•changes in the political climate;

•market reactions to social media messages or posts;

•anticipated or pending investigations, proceedings or litigation that involve or affect us; and

•domestic and international economic and social factors unrelated to our performance.

The trading price of the shares of our common stock and depositary shares representing fractional interests in our Series B preferred stock and the value of our other securities will further depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, our ability to pay dividends and future sales of our equity or equity-related securities. In some cases, the markets have produced downward pressure on trading prices of capital stock and credit availability for certain issuers without regard to those issuers’ underlying financial strength. A significant decline in the trading price of our capital stock could result in substantial losses for individual shareholders and could lead to costly and disruptive securities litigation, as well as the loss of key employees.

An investment in our capital stock is not an insured deposit and is not guaranteed by the FDIC.

An investment in our capital stock is not a bank deposit and, therefore, is not insured against loss or guaranteed by the FDIC, any other deposit insurance fund or by any other public or private entity. An investment in our capital stock is inherently risky for the reasons described herein and our shareholders will bear the risk of loss if the value or market price of our capital stock is adversely affected.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table discloses shares of our common stock repurchased during the three months ended September 30, ~~2019.~~2020.

Period
Total Number of Shares Repurchased ⁽¹⁾⁽²⁾
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2019 to July 31, 2019 3,337
$ 57.48
—
41,910,000
August 1, 2019 to August 31, 2019 55,809
53.69
52,410
39,105,000
September 1, 2019 to September 30, 2019 148,956
56.24
146,622
30,850,000
Total 208,102
$ 55.58
199,032
30,850,000


Period	Total Number of Shares Repurchased (1)(2)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2020 to July 31, 2020	4,116	$	40.30	—	67,170,000
August 1, 2020 to August 31, 2020	1,193	39.63		—	67,170,000
September 1, 2020 to September 30, 2020	1,034	39.88		—	67,170,000
Total	6,343	$	40.09	—	67,170,000

______________________


~~(1)~~	During the quarter ended September 30, 2019, 35,817 shares of restricted stock previously awarded to certain of the participants in our equity incentive plans vested. We withheld 9,070 shares to satisfy tax withholding requirements associated with the vesting of these restricted shares.

(1)During the quarter ended September 30, 2020, 28,329 shares of restricted stock or performance-based vesting restricted stock units previously awarded to certain of the participants in our equity incentive plans vested. We withheld 6,343 shares to satisfy tax withholding requirements associated with the vesting of these awards.

~~(2)~~

On November 13, 2018, Pinnacle Financial announced that its board of directors authorized a share repurchase program for up to $100.0 million of Pinnacle Financial’s outstanding common stock. The repurchase program is scheduled to expire upon the earlier of Pinnacle Financial’s repurchase of shares of its common stock having an aggregate purchase price of $100.0 million and December 31, 2019. Pinnacle Financial repurchased 199,032 shares and 873,505 shares, respectively, of its common stock at an aggregate cost of $11.1 million and $48.5 million, respectively, in the three and nine months ended September 30, 2019. Share repurchases may be made from time to time, on the open market or in privately negotiated transactions, at the discretion of the management of Pinnacle Financial, after the board of directors of Pinnacle Financial authorizes a repurchase program. The approved share repurchase program does not obligate Pinnacle Financial to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended, or discontinued at any time. Stock repurchases generally are affected through open market purchases, and may be made through unsolicited negotiated transactions. The timing of these repurchases will depend on market conditions and other requirements.

(2)On November 13, 2018, Pinnacle Financial announced that its board of directors authorized a share repurchase program for up to $100.0 million of Pinnacle Financial’s outstanding common stock that expired on March 31, 2020. On October 15, 2019, Pinnacle Financial's board of directors approved an additional $100.0 million share repurchase program that commenced upon the exhaustion of the original $100.0 million repurchase program. The additional share repurchase program will expire on December 31, 2020. Pinnacle Financial repurchased 1,015,039 shares of its common stock at an aggregate cost of $50.8 million in the quarter ended March 31, 2020. Share repurchases may be made from time to time, on the open market or in privately negotiated transactions, at the discretion of the management of Pinnacle Financial, after the board of directors of Pinnacle Financial authorizes a repurchase program. The approved share repurchase programs do not obligate Pinnacle Financial to repurchase any dollar amount or number of shares, and the programs may be extended, modified, suspended, or discontinued at any time. Stock repurchases generally are affected through open market purchases, and may be made through unsolicited negotiated transactions. The timing of these repurchases will depend on market conditions and other requirements. Pinnacle Financial has chosen to suspend its repurchase program in light of uncertainty regarding the length and severity of the COVID-19 pandemic. No shares were purchased in the quarters ended June 30, 2020 and September 30, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS



~~4.1~~31.1*		Subordinated Indenture, dated as of September 11, 2019, between Pinnacle Financial Partners, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on September 11, 2019.
~~4.2~~	First Supplemental Indenture, dated as of September 11, 2019, between Pinnacle Financial Partners, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on September 11, 2019.
~~4.3~~	~~Form of 4.125% Fixed-to-Floating Rate Subordinated Note due 2029 (included as Exhibit A in Exhibit 4.2 hereto).~~
~~10.1~~	Sixth Amendment to Loan Agreement dated as of July 1, 2019 by and between U.S. Bank National Association and Pinnacle Financial Partners, Inc., incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June, 30, 2019, filed on August 2, 2019.
31.1*	Certification pursuant to Rule 13a-14(a)/15d-14(a)
31.2*		Certification pursuant to Rule 13a-14(a)/15d-14(a)
32.1**		Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002
32.2**		Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Schema Documents
101.CAL*		Inline XBRL Calculation Linkbase Document
101.LAB*		Inline XBRL Label Linkbase Document
101.PRE*		Inline XBRL Presentation Linkbase Document
101.DEF*		Inline XBRL Definition Linkbase Document
104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL (included in Exhibit 101)

*		Filed herewith.
**		Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		PINNACLE FINANCIAL PARTNERS, INC.

November 6, 2020		/s/ M. Terry Turner
		M. Terry Turner
		President and Chief Executive Officer

November 6, 2020		~~PINNACLE FINANCIAL PARTNERS, INC.~~

~~November 1, 2019~~	~~/s/ M. Terry Turner~~
	~~M. Terry Turner~~
	~~President and Chief Executive Officer~~

~~November 1, 2019~~	/s/ Harold R. Carpenter
		Harold R. Carpenter
		Chief Financial Officer



TABLE OF CONTENTS			Page No.

PART I – Financial Information:			4
Item 1. Consolidated Financial Statements (Unaudited)			4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			3742
Item 3. Quantitative and Qualitative Disclosures about Market Risk			6068
Item 4. Controls and Procedures			6068

PART II – Other Information:			6168
Item 1. Legal Proceedings			6169
Item 1A. Risk Factors			6169
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6175
Item 3. Defaults Upon Senior Securities			6175
Item 4. Mine Safety Disclosures			6175
Item 5. Other Information			6175
Item 6. Exhibits			6175
Signatures			6377



	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
State and municipal securities	1,044,757		30,780		198,610		4,078		1,243,367		34,858
Asset-backed securities	268,677		4,118		11,828		227		280,505		4,345
Corporate notes	26,272		1,538		25,915		985		52,187		2,523
Total temporarily-impaired securities	$	1,586,756	$	38,920	$	1,161,369	$	32,811	$	2,748,125	$	71,731



December 31, 2018:
Securities available-for-sale:
U.S. Treasury securities	$	30,325	$	—	$	25	$	30,300
U.S. government agency securities	71,456		49		1,346		70,159
Mortgage-backed securities	1,336,469		3,110		28,634		1,310,945
State and municipal securities	1,259,267		1,126		30,739		1,229,654
Asset-backed securities	379,107		820		4,345		375,582
Corporate notes and other	69,399		170		2,523		67,046
	$	3,146,023	$	5,275	67,612		$	3,083,686
Securities held-to-maturity:
State and municipal securities	$	194,282	$	152	$	1,303	$	193,131
	$	194,282	$	152	$	1,303	$	193,131



	Available-for-sale				Held-to-maturity
September 30, 2019:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	63,488	$	63,507	$	1,394	$	1,394
Due in one year to five years	16,772		16,986		—		—
Due in five years to ten years	106,774		107,322		5,775		5,877
Due after ten years	1,668,670		1,708,370		182,515		195,550
Mortgage-backed securities	1,318,953		1,334,517		—		—
Asset-backed securities	163,334		162,733		—		—
	$	3,337,991	$	3,393,435	$	189,684	$	202,821



	At September 30, 2019						At December 31, 2018
	Recorded investment		Unpaid principal balances		Related allowance		Recorded investment		Unpaid principal balances		Related allowance
Impaired loans with an allowance:
Commercial real estate – mortgage	$	13,462	$	13,472	$	1,021	$	14,114	$	14,124	$	724
Consumer real estate – mortgage	19,245		19,368		1,065		19,864		19,991		1,443
Construction and land development	275		271		15		581		579		28
Commercial and industrial	11,591		11,566		1,497		9,252		9,215		1,441



	Accruing										Nonaccruing
September 30, 2019	30-89 days past due and accruing		90 days or more past due and accruing		Total past due and accruing		Current and accruing		Purchased credit impaired		Nonaccrual ⁽¹⁾		Nonaccruing purchased credit impaired ⁽¹⁾		Total loans
Commercial real estate:
Owner-occupied	$	6,398	$	—	$	6,398	$	2,574,628	$	2,903	$	11,011	$	897	$	2,595,837
All other	5,896		—		5,896		5,091,660		5,169		10,640		43		5,113,408
Consumer real estate – mortgage	9,051		773		9,824		2,989,373		3,216		19,245		3,844		3,025,502
Construction and land development	2,005		—		2,005		2,247,977		1,274		275		1,772		2,253,303
Commercial and industrial	16,524		1,077		17,601		5,847,752		325		23,931		1,429		5,891,038
Consumer and other	3,266		600		3,866		462,512		—		176		—		466,554
Total	$	43,140	$	2,450	$	45,590	$	19,213,902	$	12,887	$	65,278	$	7,985	$	19,345,642



Grant Year	Group ⁽¹⁾	Vesting Period in years			Shares awarded	Restrictions Lapsed and shares released to participants	Shares Forfeited by participants ⁽⁴⁾	Shares Unvested
Time Based Awards
2019	Associates ⁽²⁾	3	-	5	212,211	276	9,815	202,120
Outside Director Awards ⁽³⁾
2019	Outside directors			1	16,549	—	—	16,549



	Units Awarded
Grant year	Named Executive Officers (NEOs) ⁽¹⁾			Leadership Team other than NEOs	Applicable Performance Periods associated with each tranche (fiscal year)	Service period per tranche (in years)	Subsequent holding period per tranche (in years)	Period in which units to be settled into shares of common stock⁽²⁾
2019	166,211	-	249,343	52,244	2019	2	3	2024
					2020	2	2	2024
					2021	2	1	2024
2018	96,878	-	145,339	25,990	2018	2	3	2023
					2019	2	2	2023
					2020	2	1	2023
2017	72,537	-	109,339	24,916	2017	2	3	2022
					2018	2	2	2022
					2019	2	1	2022
2016	73,474	-	110,223	26,683	2016	2	3	2021
					2017	2	2	2021
					2018	2	1	2021
2015	58,200	-	101,850	28,378	2015	2	3	2020
					2016	2	2	2020
					2017	2	1	2020



	Location of Gain (Loss) on Derivative	Amount of Gain (Loss) Recognized in Income
		Three Months Ended September 30,					Nine Months Ended September 30,
Liability derivatives		2019			2018		2019			2018
Interest rate swaps - securities	Interest income on securities	$	(10,888	)	$	1,755	$	(37,131	)	$	1,991
Interest rate swaps - loans	Interest income on loans	$	—		$	2,236	$	(6,915	)	$	3,358



	Location of Gain (Loss) on Hedged Item
		Three Months Ended September 30,					Nine Months Ended September 30,
Liability derivatives - hedged items		2019		2018			2019		2018
Interest rate swaps - securities	Interest income on securities	$	10,888	$	(1,755	)	$	37,131	$	(1,991	)
Interest rate swaps - loans	Interest income on loans	$	—	$	(2,236	)	$	6,915	$	(3,358	)



September 30, 2019	Carrying/ Notional 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)
Financial assets:
Securities held-to-maturity	$	189,684	$	202,821	$	—	$	202,821	$	—
Loans, net	19,251,995		19,216,128		—		—		19,216,128
Consumer loans held-for-sale	73,042		74,161		—		74,161		—
Commercial loans held-for-sale	21,312		21,638		—		21,638		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	20,096,079		19,442,956		—		—		19,442,956
Federal Home Loan Bank advances	2,052,548		2,070,645		—		—		2,070,645
Subordinated debt and other borrowings	750,488		713,051		—		—		713,051

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	7,797,246		1,067		—		—		1,067
Standby letters of credit ⁽³⁾	198,361		1,297		—		—		1,297

December 31, 2018
Financial assets:
Securities held-to-maturity	$	194,282	$	193,131	$	—	$	193,131	$	—
Loans, net	17,623,974		17,288,795		—		—		17,288,795
Consumer loans held-for-sale	34,196		34,929		—		34,929		—
Commercial loans held-for-sale	15,954		16,296		—		16,296		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	18,953,848		18,337,848		—		—		18,337,848
Federal Home Loan Bank advances	1,443,589		1,432,003		—		—		1,432,003
Subordinated debt and other borrowings	485,130		464,616		—		—		464,616

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	6,921,689		1,733		—		—		1,733
Standby letters of credit ⁽³⁾	177,475		1,131		—		—		1,131



	Balance Sheet Location	September 30, 2019
Right-of-use assets
Operating leases ⁽¹⁾	Other assets	$	74,151
Finance leases	Premises and equipment, net	2,044
Total right-of-use assets		$	76,195
Lease liabilities
Operating leases	Other liabilities	$	82,150
Finance leases	Other liabilities	3,302
Total lease liabilities		$	85,452



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	3,516		$	10,488
Short-term lease cost	43			137
Finance lease cost:
Interest on lease liabilities	60			183
Amortization of right-of-use asset	56			169
Sublease income	(562		)	(1,123		)
Net lease cost	$	3,113		$	9,854



	Operating Leases			Finance Leases
2019 ⁽¹⁾	$	3,403		$	118
2020	12,992			470
2021	12,383			470
2022	10,619			470
2023	9,768			479
Thereafter	50,329			2,548
	99,494			4,555
Less: Imputed interest	(17,344		)	(1,253		)
Total lease liabilities	$	82,150		$	3,302



	Operating Leases		Capital Leases
2019	$	12,889	$	470
2020	11,805		470
2021	11,527		470
2022	9,410		470
2023	8,820		479
Thereafter	43,730		2,548
Future minimum lease payments	$	98,181	4,907
Less: Imputed interest			(1,437		)
Total capital lease liabilities			$	3,470



	Three months ended September 30,				2019 - 2018 Percent		Nine Months Ended September 30,				2019 - 2018 Percent
	2019		2018		Increase (Decrease)		2019		2018		Increase (Decrease)
Interest income	$	275,749	$	248,110	11.1	%	$	799,483	$	690,622	15.8	%
Interest expense	79,943		58,690		36.2	%	227,513		144,495		57.5	%
Net interest income	195,806		189,420		3.4	%	571,970		546,127		4.7	%
Provision for loan losses	8,260		8,725		(5.3	)%	22,639		25,058		(9.7	)%
Net interest income after provision for loan losses	187,546		180,695		3.8	%	549,331		521,069		5.4	%
Noninterest income	82,619		51,478		60.5	%	204,364		143,600		42.3	%
Noninterest expense	132,941		113,990		16.6	%	374,678		333,478		12.4	%
Net income before income taxes	137,224		118,183		16.1	%	379,017		331,191		14.4	%
Income tax expense	26,703		24,436		9.3	%	74,215		67,069		10.7	%
Net income	$	110,521	$	93,747	17.9	%	$	304,802	$	264,122	15.4	%

Basic net income per common share	$	1.45	$	1.22	18.9	%	$	3.99	$	3.42	16.7	%

Diluted net income per common share	$	1.44	$	1.21	19.0	%	$	3.97	$	3.41	16.4	%



	September 30,			December 31,
Accruing loans past due 30 to 89 days:	2019			2018
Commercial real estate – mortgage	$	12,294		$	11,756
Consumer real estate – mortgage	9,051			18,059
Construction and land development	2,005			3,759
Commercial and industrial	16,524			21,451
Consumer and other	3,266			3,276
Total accruing loans past due 30 to 89 days	$	43,140		$	58,301

Accruing loans past due 90 days or more:
Commercial real estate – mortgage	$	—		$	—
Consumer real estate – mortgage	773			—
Construction and land development	—			—
Commercial and industrial	1,077			1,082
Consumer and other	600			476
Total accruing loans past due 90 days or more	$	2,450		$	1,558

Ratios:
Accruing loans past due 30 to 89 days as a percentage of total loans	0.23		%	0.33		%
Accruing loans past due 90 days or more as a percentage of total loans	0.01		%	0.01		%
Total accruing loans in past due status as a percentage of total loans	0.24		%	0.34		%



	Nine Months Ended September 30, 2019			Year ended December 31, 2018
Balance at beginning of period	$	83,575		$	67,240
Provision for loan losses	22,639			34,377
Charged-off loans:
Commercial real estate – mortgage	(1,701		)	(3,030		)
Consumer real estate – mortgage	(1,124		)	(1,593		)
Construction and land development	(18		)	(74		)
Commercial and industrial	(13,842		)	(13,175		)
Consumer and other loans	(4,643		)	(12,528		)
Total charged-off loans	(21,328		)	(30,400		)
Recoveries of previously charged-off loans:
Commercial real estate – mortgage	1,173			2,096
Consumer real estate – mortgage	1,642			2,653
Construction and land development	238			1,863
Commercial and industrial	4,749			3,035
Consumer and other loans	959			2,711
Total recoveries of previously charged-off loans	8,761			12,358
Net charge-offs	(12,567		)	(18,042		)
Balance at end of period	$	93,647		$	83,575
Ratio of allowance for loan losses to total loans outstanding at end of period	0.48		%	0.47		%
Ratio of net charge-offs to average total loans outstanding for the period ⁽¹⁾	0.09		%	0.11		%



	Balances		Weighted Avg. Rate
Denominations less than $100,000
Three months or less	$	652,934	2.31	%
Over three but less than six months	518,726		2.23	%
Over six but less than twelve months	718,948		2.15	%
Over twelve months	326,082		2.43	%
	$	2,216,690	2.26	%
Denominations $100,000 and greater
Three months or less	$	358,434	2.02	%
Over three but less than six months	341,632		2.12	%
Over six but less than twelve months	837,781		2.38	%
Over twelve months	546,085		2.53	%
	$	2,083,932	2.31	%
Totals	$	4,300,622	2.29	%



Scheduled Maturities	Amount		Interest Rates ⁽¹⁾
2019	$	90,000	1.72%
2020	522,532		1.98%
2021	423,750		2.30%
2022	41,250		2.85%
2023	—		0.00%
Thereafter	975,016		2.08%
Total	$	2,052,548
Weighted average interest rate			2.10%



Period	Total Number of Shares Repurchased ⁽¹⁾⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2019 to July 31, 2019	3,337	$	57.48	—	41,910,000
August 1, 2019 to August 31, 2019	55,809	53.69		52,410	39,105,000
September 1, 2019 to September 30, 2019	148,956	56.24		146,622	30,850,000
Total	208,102	$	55.58	199,032	30,850,000

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

Operating cash flows related to operating leases

Operating cash flows related to finance leases

Financing cash flows related to finance leases