July 28, 2011
Mr. Mike Volley
Accounting Branch Chief
Securities and Exchange Commission
Division of Corporate Finance
Washington, D.C 20549
Accounting Branch Chief
Securities and Exchange Commission
Division of Corporate Finance
Washington, D.C 20549
Re: | Pinnacle Financial Partners, Inc. | |
Form 10-K for the Fiscal Year Ended December 31, 2010 | ||
Filed February 23, 2011 |
Mr. Volley:
We have set forth below our supplemental response to the comment of the Staff contained in your letter dated July 11, 2011. Capitalized terms used herein are consistent with our May 10, 2011, June 17, 2011 and July 22, 2011 response letters. For your convenience, we have repeated the comment in bold face type prior to our response. Additionally, per your request, we have distinguished between new and deleted text from our current disclosures for the applicable comment responses below.
Form 10-K for the Fiscal Year Ended December 31, 2010
Critical Accounting Estimates — Impairment of Intangible Assets, page 23
1. | We note your response to comment two in your June 17, 2011 letter. It is unclear from the disclosure in Note 10 of your September 30, 2010Form 10-Q whether the amounts presented as the fair value of loans incorporated credit risk. To the extent they do not, in your nextForm 10-Q, please revise your fair value measurements disclosed under ASC 825-10-50 (formerly SFAS 107) to properly incorporate an estimate of credit risk and to clarify the nature of this change. |
In future filings, we will update the ASC 825-10-50 (SFAS 107) disclosure and table which will incorporate our estimate of credit risk inherent in our loan portfolio as it relates to the estimated fair value of our loan portfolio. Our proposed revisions to the relevant portion of the disclosure are as follows: |
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 and estimates of future cash flows andborrower creditworthiness. |
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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. |
Loans-Beginning in the second quarter of 2011, Pinnacle incorporated a component of credit risk into our determination of the fair value of our loans. The addition of this credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Our loan portfolio is initially fair valued using a segmented approach. We divide our 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. |
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. |
The carrying amounts and estimated fair values of Pinnacle Financial’s financial instruments at June 30, 2011 and December 31, 2010 were as follows (in thousands): |
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated | Estimated Fair | |||||||||||||||
Carrying Amount | Fair Value(1) | Carrying Amount | Value(1) | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 216,252 | $ | 216,252 | $ | 188,586 | $ | 188,586 | ||||||||
Securities available-for-sale | 922,780 | 922,780 | 1,014,317 | 1,014,317 | ||||||||||||
Securities held-to-maturity | 2,727 | 2,791 | 4,320 | 4,412 | ||||||||||||
Mortgage loans held-for-sale | 14,162 | 14,162 | 16,206 | 16,206 | ||||||||||||
Loans, net(2) | 3,130,134 | 2,815,688 | 3,129,865 | 2,874,894 | ||||||||||||
Derivative assets | 14,201 | 14,201 | 14,441 | 14,441 | ||||||||||||
Bank owned life insurance | 48,303 | 48,303 | 47,724 | 47,724 | ||||||||||||
Other investments | 3,236 | 3,236 | 2,693 | 2,693 |
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June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated | Estimated Fair | |||||||||||||||
Carrying Amount | Fair Value(1) | Carrying Amount | Value(1) | |||||||||||||
Financial liabilities: | ||||||||||||||||
Deposits and securities sold under agreements to repurchase | 3,886,033 | 3,848,733 | $ | 3,979,352 | $ | 3,974,408 | ||||||||||
Federal Home Loan Bank advances and other borrowings | 111,191 | 107,151 | 121,393 | 126,399 | ||||||||||||
Subordinated debt | 97,476 | 56,271 | 97,476 | 75,360 | ||||||||||||
Derivative liabilities | 14,203 | 14,203 | 14,639 | 14,639 | ||||||||||||
Notional | Estimated | Notional | Estimated | |||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Off-balance sheet instruments: | ||||||||||||||||
Commitments to extend credit | $ | 873,981 | $ | — | $ | 848,023 | $ | — | ||||||||
Standby letters of credit | 84,389 | 360 | 75,172 | 275 |
(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) | The estimated fair value of loans included in the table above includes a credit risk adjustment of approximately $310 million at June 30, 2011 and at December 31, 2010, respectively. The December 31, 2010 fair value of loans has been adjusted to incorporate the credit risk adjustment. |
If you should have any questions please do not hesitate to contact me at 615-744-3742 or harold.carpenter@pnfp.com or Dana Moore at 615-743-6105 or dana.moore@pnfp.com.
Very truly yours, | ||||
/s/ Harold R. Carpenter | ||||
Harold R. Carpenter | ||||
Chief Financial Officer | ||||
CC: | Bob Thompson, Bass Berry & Sims | |
M. Terry Turner, Chief Executive Officer, Pinnacle Financial Partners, Inc. | ||
Dana Moore, Pinnacle Financial Partners, Inc. |
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