10-Q 1 form10q.htm  
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

              (mark one)
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
or
o  TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 000-31225

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x
No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).
Yes  x
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer x
Accelerated Filer o
 
Non-accelerated Filer  o
(do not check if you are a smaller reporting company)
Smaller reporting companyo 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o
No x
As of  May 1, 2014 there were 35,567,991shares of common stock, $1.00 par value per share, issued and outstanding.


Pinnacle Financial Partners, Inc.
Report on Form 10-Q
March 31, 2014

TABLE OF CONTENTS
Page No.
 
 
 
4
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65

2

FORWARD-LOOKING STATEMENTS

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

3

Item 1. Part I.  Financial Information

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
  
March 31, 2014
    
December 31, 2013
  
ASSETS
  
   
 
Cash and noninterest-bearing due from banks
  
$
94,172,230
    
$
79,785,004
  
Interest-bearing due from banks
    
75,826,385
      
124,509,486
  
Federal funds sold and other
    
938,792
      
4,644,247
  
Cash and cash equivalents
    
170,937,407
      
208,938,737
  
 
                
Securities available-for-sale, at fair value
    
735,400,911
      
693,456,314
  
Securities held-to-maturity (fair value of $38,194,567 and $38,817,467 at
                
March 31, 2014 and December 31, 2013, respectively)
    
38,733,099
      
39,795,649
  
Mortgage loans held-for-sale
    
13,970,926
      
12,850,339
  
 
                
Loans
    
4,181,686,799
      
4,144,493,486
  
Less allowance for loan losses
    
(67,523,575
)
    
(67,969,693
)
Loans, net
    
4,114,163,224
      
4,076,523,793
  
 
                
Premises and equipment, net
    
71,627,370
      
72,649,574
  
Other investments
    
33,358,506
      
33,226,195
  
Accrued interest receivable
    
17,219,090
      
15,406,389
  
Goodwill
    
243,568,203
      
243,651,006
  
Core deposits and other intangible assets
    
3,603,074
      
3,840,750
  
Other real estate owned
    
15,037,823
      
15,226,136
  
Other assets
    
143,312,957
      
148,210,975
  
Total assets
  
$
5,600,932,590
    
$
5,563,775,857
  
 
                
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Deposits:
                
Noninterest-bearing
  
$
1,180,202,107
    
$
1,167,414,487
  
Interest-bearing
    
912,387,013
      
884,294,802
  
Savings and money market accounts
    
1,902,452,916
      
1,962,714,398
  
Time
    
505,534,750
      
519,049,037
  
Total deposits
    
4,500,576,786
      
4,533,472,724
  
Securities sold under agreements to repurchase
    
68,092,650
      
70,465,326
  
Federal Home Loan Bank advances
    
150,604,286
      
90,637,328
  
Subordinated debt and other borrowings
    
98,033,292
      
98,658,292
  
Accrued interest payable
    
745,180
      
792,703
  
Other liabilities
    
40,383,743
      
46,041,823
  
Total liabilities
    
4,858,435,937
      
4,840,068,196
  
Stockholders' equity:
                
Preferred stock, no par value, 10,000,000 shares authorized;
                
no shares issued and outstanding
    
-
      
-
  
Common stock, par value $1.00; 90,000,000 shares authorized;
                
35,567,268 and 35,221,941 shares issued and outstanding
                
at March 31, 2014 and December 31, 2013, respectively
    
35,567,268
      
35,221,941
  
Additional paid-in capital
    
551,461,564
      
550,212,135
  
Retained earnings
    
155,840,829
      
142,298,199
  
Accumulated other comprehensive loss, net of taxes
    
(373,008
)
    
(4,024,614
)
Total stockholders' equity
    
742,496,653
      
723,707,661
  
Total liabilities and stockholders' equity
  
$
5,600,932,590
    
$
5,563,775,857
  
 
See accompanying notes to consolidated financial statements (unaudited).
4
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
 
  
Three Months Ended
March 31,
  
 
  
2014
    
2013
  
Interest income:
  
   
 
Loans, including fees
  
$
43,695,658
    
$
41,514,213
  
Securities:
                
Taxable
    
3,720,279
      
3,670,934
  
Tax-exempt
    
1,597,797
      
1,656,408
  
Federal funds sold and other
    
277,058
      
314,772
  
Total interest income
    
49,290,792
      
47,156,327
  
 
                
Interest expense:
                
Deposits
    
2,595,240
      
3,412,396
  
Securities sold under agreements to repurchase
    
30,515
      
77,816
  
Federal Home Loan Bank advances and other borrowings
    
757,222
      
907,641
  
Total interest expense
    
3,382,977
      
4,397,853
  
Net interest income
    
45,907,815
      
42,758,474
  
Provision for loan losses
    
487,638
      
2,172,404
  
Net interest income after provision for loan losses
    
45,420,177
      
40,586,070
  
 
                
Noninterest income:
                
Service charges on deposit accounts
    
2,790,968
      
2,480,244
  
Investment services
    
2,127,834
      
1,792,640
  
Insurance sales commissions
    
1,384,921
      
1,393,304
  
Gain on mortgage loans sold, net
    
952,222
      
1,813,488
  
Trust fees
    
1,145,751
      
944,332
  
Other noninterest income
    
4,334,360
      
3,478,348
  
Total noninterest income
    
12,736,056
      
11,902,356
  
 
                
Noninterest expense:
                
Salaries and employee benefits
    
21,749,960
      
19,572,356
  
Equipment and occupancy
    
5,709,030
      
5,113,050
  
Other real estate expense
    
651,152
      
720,962
  
Marketing and other business development
    
908,901
      
790,671
  
Postage and supplies
    
560,614
      
591,488
  
Amortization of intangibles
    
237,675
      
520,987
  
Other noninterest expense
    
3,832,221
      
5,130,495
  
Total noninterest expense
    
33,649,553
      
32,440,009
  
Income before income taxes
    
24,506,680
      
20,048,417
  
Income tax expense
    
8,139,557
      
6,600,292
  
Net income
  
$
16,367,123
    
$
13,448,125
  
Per share information:
                
Basic net income per common share
  
$
0.47
    
$
0.40
  
Diluted net income per common share
  
$
0.47
    
$
0.39
  
Weighted average shares outstanding:
                
Basic
    
34,602,337
      
33,987,265
  
Diluted
    
34,966,600
      
34,206,202
  

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

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

 
  
Three Months Ended
March 31,
  
 
  
2014
    
2013
  
Net income
  
$
16,367,123
    
$
13,448,125
  
Other comprehensive income (loss), net of tax:
                
Change in fair value on available-for-sale securities, net of tax
    
4,945,912
      
(2,270,910
)
Change in fair value of cash flow hedges, net of tax
    
(1,294,306
)
    
-
  
Total comprehensive income
  
$
20,018,729
    
$
11,177,215
  

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

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

 
Common Stock
  
Additional Paid-in
Capital
  
Retained Earnings
  
Accumulated Other Comp.
Income (Loss), net
  
Total Stockholders' Equity
  
 
Shares
  
Amount
  
 
 
 
 
 
 
 
 
 
 
 
Balances, December 31, 2012
34,696,597
  
$
34,696,597
  
$
543,760,439
  
$
87,386,689
  
$
13,227,634
  
$
679,071,359
  
Exercise of employee common stock
                                  
options and related tax benefits
88,845
    
88,845
    
902,533
    
-
    
-
    
991,378
  
Issuance of restricted common shares,
                                  
net of forfeitures
274,545
    
274,545
    
(274,545
)
  
-
    
-
    
-
  
Restricted shares withheld for taxes
(37,500
)
  
(37,500
)
  
(731,679
)
  
-
    
-
    
(769,179
)
Compensation expense for restricted shares
-
    
-
    
950,498
    
-
    
-
    
950,498
  
Compensation expense for stock options
-
    
-
    
12,471
    
-
    
-
    
12,471
  
Net income
-
    
-
    
-
    
13,448,125
    
-
    
13,448,125
  
Other comprehensive loss
-
    
-
    
-
    
-
    
(2,270,910
)
  
(2,270,910
)
Balances, March 31, 2013
35,022,487
  
$
35,022,487
  
$
544,619,717
  
$
100,834,814
  
$
10,956,724
  
$
691,433,742
  
 
                                  
Balances, December 31, 2013
35,221,941
  
$
35,221,941
  
$
550,212,135
  
$
142,298,199
  
$
(4,024,614
)
$
723,707,661
  
Exercise of employee common stock
                                  
options and related tax benefits
136,482
    
136,482
    
1,981,567
    
-
    
-
    
2,118,049
  
Common dividends paid
-
    
-
    
-
    
(2,824,493
)
        
(2,824,493
)
Issuance of restricted common shares,
                                  
net of forfeitures
260,937
    
260,937
    
(260,937
)
  
-
    
-
    
-
  
Restricted shares withheld for taxes
(52,092
)
  
(52,092
)
  
(1,672,312
)
  
-
    
-
    
(1,724,404
)
Compensation expense for restricted shares
-
    
-
    
1,201,111
    
-
    
-
    
1,201,111
  
Net income
-
    
-
    
-
    
16,367,123
    
-
    
16,367,123
  
Other comprehensive income
-
    
-
    
-
    
-
    
3,651,606
    
3,651,606
  
Balances, March 31, 2014
35,567,268
  
$
35,567,268
  
$
551,461,564
  
$
155,840,829
  
$
(373,008
)
$
742,496,653
  

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

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
  
Three Months Ended
March 31,
  
 
  
2014
    
2013
  
Operating activities:
  
   
 
Net income
  
$
16,367,123
    
$
13,448,125
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Net amortization/accretion of premium/discount on securities
    
957,133
      
988,811
  
Depreciation and amortization
    
2,258,990
      
2,432,535
  
Provision for loan losses
    
487,638
      
2,172,404
  
Gain on mortgage loans sold, net
    
(952,222
)
    
(1,813,488
)
Stock-based compensation expense
    
1,201,111
      
962,969
  
Deferred tax expense
    
(16,406
)
    
(698,661
)
Losses on dispositions of other real estate and other investments
    
13,112
      
(866,306
)
Excess tax benefit from stock compensation
    
(1,099,570
)
    
(28,628
)
Mortgage loans held for sale:
                
Loans originated
    
(61,458,365
)
    
(107,845,659
)
Loans sold
    
61,290,000
      
120,569,000
  
Decrease in other assets
    
527,594
      
3,050,703
  
Decrease in other liabilities
    
(6,576,105
)
    
(8,339,670
)
Net cash provided by operating activities
    
13,000,033
      
24,032,135
  
 
                
Investing activities:
                
Activities in securities available-for-sale:
                
Purchases
    
(57,753,116
)
    
(65,204,465
)
Sales
    
-
      
-
  
Maturities, prepayments and calls
    
23,192,675
      
43,551,916
  
Activities in securities held-to-maturity:
                
Purchases
    
-
      
-
  
Maturities, prepayments and calls
    
860,000
      
75,868
  
Increase in loans, net
    
(40,306,647
)
    
(63,167,119
)
Purchases of software, premises and equipment
    
(604,626
)
    
(1,442,076
)
Purchase of bank owned life insurance
    
-
      
(30,000,000
)
Decrease in other investments
    
(2,216
)
    
(303,750
)
Net cash used in investing activities
    
(74,613,930
)
    
(116,489,626
)
 
                
Financing activities:
                
Net decrease in deposits
    
(32,895,938
)
    
(112,293,132
)
Net (decrease) increase in securities sold under agreements to repurchase
    
(2,372,676
)
    
14,432,033
  
Advances from Federal Home Loan Bank:
                
Issuances
    
175,000,000
      
240,000,000
  
Payments/maturities
    
(115,016,116
)
    
(115,036,641
)
Decrease in other borrowings
    
(625,000
)
    
(625,000
)
Exercise of common stock options and stock appreciation rights,
                
net of repurchase of restricted shares
    
1,247,220
      
222,200
  
Excess tax benefit from stock compensation
    
1,099,570
      
28,628
  
Common stock dividends paid
    
(2,824,493
)
    
-
  
Net cash provided by financing activities
    
23,612,567
      
26,728,088
  
Net decrease in cash and cash equivalents
    
(38,001,330
)
    
(65,729,403
)
Cash and cash equivalents, beginning of period
    
208,938,737
      
165,288,669
  
Cash and cash equivalents, end of period
  
$
170,937,407
    
$
99,559,266
  
See accompanying notes to consolidated financial statements (unaudited).
8

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

Note 1.  Summary of Significant Accounting Policies

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

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

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

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

Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for each of the three months ended March 31, 2014 and 2013 was as follows:

 
  
For the three months ended March 31,
  
 
  
2014
    
2013
  
Cash Transactions:
  
   
 
Interest paid
  
$
3,447,425
    
$
4,540,692
  
Income taxes paid, net
    
6,100,000
      
7,100,000
  
Noncash Transactions:
                
Loans charged-off to the allowance for loan losses
    
1,503,511
      
3,557,313
  
Loans foreclosed upon and transferred to other real estate owned
    
1,645,100
      
550,000
  
Available-for-sale securities transferred to held-to-maturity portfolio
    
-
      
39,959,647
  

9

Income Per Common Share — Basic net income per common share available to common stockholders (EPS) is computed by dividing net income available to common stockholders by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted.  The difference between basic and diluted weighted average shares outstanding is attributable to common stock options, common stock appreciation rights, restricted share awards, and restricted share unit awards. The dilutive effect of outstanding options, common stock appreciation rights, restricted share awards, and restricted share unit awards is reflected in diluted EPS by application of the treasury stock method.

The following is a summary of the basic and diluted net income per share calculations for the three months ended March 31, 2014 and 2013:

 
  
For the three months ended
March 31,
  
 
  
2014
    
2013
  
Basic net income per share calculation:
  
   
 
Numerator - Net income available to common stockholders
  
$
16,367,123
    
$
13,448,125
  
 
                
Denominator - Average common shares outstanding
    
34,602,337
      
33,987,265
  
Basic net income per share available to common stockholders
  
$
0.47
    
$
0.40
  
 
                
Diluted net income per share calculation:
                
Numerator – Net income available to common stockholders
  
$
16,367,123
    
$
13,448,125
  
 
                
Denominator - Average common shares outstanding
    
34,602,337
      
33,987,265
  
Dilutive shares contingently issuable
    
364,263
      
218,937
  
Average diluted common shares outstanding
    
34,966,600
      
34,206,202
  
Diluted net income per share available to common stockholders
  
$
0.47
    
$
0.39
  

Note 2.  Securities

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

 
  
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Fair
Value
  
March 31, 2014:
  
   
   
   
 
Securities available-for-sale:
  
   
   
   
 
U.S. Treasury securities
  
$
-
    
$
-
    
$
-
    
$
-
  
U.S. government agency securities
    
116,830
      
19
      
9,481
      
107,368
  
Mortgage-backed securities
    
448,646
      
9,835
      
6,286
      
452,195
  
State and municipal securities
    
142,338
      
6,931
      
496
      
148,773
  
Asset-backed securities
    
16,048
      
-
      
226
      
15,822
  
Corporate notes and other
    
10,214
      
1,031
      
2
      
11,243
  
 
  
$
734,076
    
$
17,816
    
$
16,491
    
$
735,401
  
Securities held-to-maturity:
                                
State and municipal securities
  
$
38,733
    
$
103
    
$
641
    
$
38,195
  
 
  
$
38,733
    
$
103
    
$
641
    
$
38,195
  
 
10
    Amortized Cost    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Fair
Value
  
December 31, 2013:
                
Securities available-for-sale:
                
U.S. Treasury securities
  
$
-
    
$
-
    
$
-
    
$
-
  
U.S. government agency securities
    
117,282
      
13
      
13,422
      
103,873
  
Mortgage-backed securities
    
411,967
      
9,771
      
8,802
      
412,936
  
State and municipal securities
    
143,763
      
5,504
      
856
      
148,411
  
Asset-backed securities
    
17,262
      
-
      
255
      
17,007
  
Corporate notes and other
    
10,218
      
1,018
      
7
      
11,229
  
 
  
$
700,492
    
$
16,306
      
23,342
    
$
693,456
  
Securities held-to-maturity:
                                
State and municipal securities
  
$
39,796
    
$
72
    
$
1,051
    
$
38,817
  
 
  
$
39,796
    
$
72
    
$
1,051
    
$
38,817
  

At March 31, 2014, approximately $621,400.0 million of securities within Pinnacle Financial's investment portfolio were either pledged to secure public funds and other deposits or securities sold under agreements to repurchase.

During 2013, approximately $40.0 million of available-for-sale securities were transferred to the held-to-maturity portfolio. The transfers of debt securities into the held-to-maturity category from the available-for-sale category were made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer was retained in other comprehensive income and in the carrying value of the held-to-maturity securities. Such amounts will be amortized to interest income over the remaining life of the securities.

The amortized cost and fair value of debt securities as of March 31, 2014 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage- and asset-backed securities since the mortgages and assets underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories in the following summary (in thousands):

 
  
Available-for-sale
    
Held-to-maturity
  
March 31, 2014:
  
Amortized
Cost
    
Fair
Value
    
Amortized Cost
    
Fair
Value
  
Due in one year or less
  
$
5,218
    
$
5,276
    
$
239
    
$
241
  
Due in one year to five years
    
28,662
      
29,690
      
11,556
      
11,581
  
Due in five years to ten years
    
130,249
      
131,868
      
14,699
      
14,398
  
Due after ten years
    
105,253
      
100,550
      
12,239
      
11,975
  
Mortgage-backed securities
    
448,646
      
452,195
      
-
      
-
  
Asset-backed securities
    
16,048
      
15,822
      
-
      
-
  
 
  
$
734,076
    
$
735,401
    
$
38,733
    
$
38,195
  


11
At March 31, 2014 and December 31, 2013, the following investments had unrealized losses. The table below classifies these investments according to the term of the unrealized losses of less than twelve months or twelve months or longer (in thousands):

 
  
Investments with an Unrealized Loss of
less than 12 months
    
Investments with an
Unrealized Loss of
12 months or longer
    
Total Investments
with an
Unrealized Loss
  
 
  
Fair Value
    
Unrealized Losses
    
Fair Value
    
Unrealized Losses
    
Fair Value
    
Unrealized Losses
  
At March 31, 2014:
  
   
   
   
   
   
 
U.S. Treasury securities
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
U.S. government agency securities
    
4,910
      
14
      
96,804
      
9,467
      
101,714
      
9,481
  
Mortgage-backed securities
    
133,216
      
1,172
      
92,296
      
5,114
      
225,512
      
6,286
  
State and municipal securities
    
26,778
      
670
      
9,630
      
467
      
36,408
      
1,137
  
Asset-backed securities
    
-
      
-
      
15,823
      
226
      
15,823
      
226
  
Corporate notes
    
749
      
1
      
158
      
1
      
907
      
2
  
Total temporarily-impaired securities
  
$
165,653
    
$
1,857
    
$
214,711
    
$
15,275
    
$
380,364
    
$
17,132
  
 
                                                
At December 31, 2013:
                                                
U.S. Treasury securities
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
U.S. government agency securities
    
8,742
      
22
      
92,869
      
13,400
      
101,611
      
13,422
  
Mortgage-backed securities
    
157,262
      
3,913
      
42,903
      
4,889
      
200,165
      
8,802
  
State and municipal securities
    
46,282
      
1,351
      
3,798
      
555
      
50,080
      
1,906
  
Asset-backed securities
    
-
      
-
      
17,006
      
255
      
17,006
      
255
  
Corporate notes
    
946
      
6
      
159
      
2
      
1,105
      
8
  
Total temporarily-impaired securities
  
$
213,232
    
$
5,292
    
$
156,735
    
$
19,101
    
$
369,967
    
$
24,393
  

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

As shown in the tables above, at March 31, 2014, Pinnacle Financial had approximately $17.1 million in unrealized losses on $380.4 million of securities. The unrealized losses associated with these investment securities are driven by changes in interest rates and the unrealized loss is recorded as a component of equity.  These securities will continue to be monitored as a part of our ongoing impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond issuers. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments. If a shortfall in future cash flows is identified, a credit loss will be deemed to have occurred and will be recognized as a charge to earnings and a new cost basis for the security will be established.

Because Pinnacle Financial currently does not intend to sell those securities that have an unrealized loss at March 31, 2014, and it is not more-likely-than-not that Pinnacle Financial will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, Pinnacle Financial does not consider these securities to be other-than-temporarily impaired at March 31, 2014.

Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality or marketability, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements and raising funds for liquidity purposes. Additionally, if an available-for-sale security loses its investment grade or tax-exempt status, the underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to management, Pinnacle Financial will consider selling the security, but will review each security on a case-by-case basis as these factors become known.
 
12
The carrying values of Pinnacle Financial's investment securities could decline in the future if the financial condition of issuers deteriorates and management determines it is probable that Pinnacle Financial will not recover the entire amortized cost bases of the securities.  As a result, there is a risk that other-than-temporary impairment charges may occur in the future. There is also a risk that other-than-temporary impairment charges may occur in the future if management's intention to hold these securities to maturity and or recovery changes. 

Note 3.  Loans and Allowance for Loan Losses

For financial reporting purposes, Pinnacle Financial classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed with the Federal Deposit Insurance Corporation (FDIC).

Commercial loans receive risk ratings by the assigned financial advisor subject to validation by Pinnacle Financial's independent loan review department.  Risk ratings are categorized as pass, special mention, substandard, substandard-nonaccrual or doubtful-nonaccrual.  Pinnacle Financial believes that its categories follow those used by Pinnacle Bank's primary regulators.  At March 31, 2014, approximately 74% of our loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating in the allowance for loan loss assessment.  Consumer loans and small business loans are generally not assigned an individual risk rating but are evaluated as either accrual or nonaccrual based on the performance of the individual loans.  However, certain consumer real estate-mortgage loans and certain consumer and other loans receive a specific risk rating due to the loan proceeds being used for commercial purposes even though the collateral may be of a consumer loan nature.

Risk ratings are subject to continual review by the loan officer. At least annually, our credit procedures require that every risk rated loan of $250,000 or more be subject to a formal credit risk review process. Each loan's risk rating is also subject to review by our independent loan review department, which reviews a substantial portion of our risk rated portfolio annually.  Included in the coverage are independent loan reviews of loans in targeted higher-risk portfolio segments.

The following table presents our loan balances by primary loan classification and the amount within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard, substandard-nonaccrual and doubtful-nonaccrual which are defined as follows:
Special mention loans have potential weaknesses that deserve management's close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Pinnacle Financial's credit position at some future date.
Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize collection of the debt.  Substandard loans are characterized by the distinct possibility that Pinnacle Financial will sustain some loss if the deficiencies are not corrected.
Substandard-nonaccrual loans are substandard loans that have been placed on nonaccrual status.
Doubtful-nonaccrual loans have all the characteristics of substandard-nonaccrual loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

13
The following table outlines the amount of each loan classification categorized into each risk rating category as of March 31, 2014 and December 31, 2013 (in thousands):

 
  
Commercial real estate - mortgage
    
Consumer real estate - mortgage
    
Construction and land development
    
Commercial and industrial
    
Consumer
and other
    
Total
  
March 31, 2014
  
   
   
   
   
   
 
Accruing loans
  
   
   
   
   
   
 
        Pass
  
$
1,410,425
    
$
676,486
    
$
252,406
    
$
1,515,110
    
$
158,088
    
$
4,012,515
  
        Special Mention
    
7,997
      
3,557
      
30,083
      
12,814
      
149
      
54,600
  
        Substandard (1)
    
22,726
      
13,900
      
10,465
      
36,614
      
154
      
83,859
  
        Total
    
1,441,148
      
693,943
      
292,954
      
1,564,538
      
158,391
      
4,150,974
  
Impaired loans
                                                
        Nonaccrual loans
                                                
                Substandard-nonaccrual
    
7,145
      
5,679
      
990
      
1,538
      
254
      
15,606
  
                Doubtful-nonaccrual
    
-
      
-
      
-
      
-
      
-
      
-
  
        Total nonaccrual loans
    
7,145
      
5,679
      
990
      
1,538
      
254
      
15,606
  
        Troubled debt restructurings(2)
                                                
                Pass
    
143
      
1,657
      
111
      
277
      
286
      
2,474
  
                Special Mention
    
7,736
      
2,313
      
-
      
2,584
      
-
      
12,633
  
                Substandard
    
-
      
-
      
-
      
-
      
-
      
-
  
         Total troubled debt restructurings
    
7,879
      
3,970
      
111
      
2,861
      
286
      
15,107
  
Total impaired loans
    
15,024
      
9,649
      
1,101
      
4,399
      
540
      
30,713
  
Total loans
  
$
1,456,172
    
$
703,592
    
$
294,055
    
$
1,568,937
    
$
158,931
    
$
4,181,687
  
(1)
Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by Pinnacle Bank's primary regulators for loans classified as substandard, excluding the impact of substandard nonaccrual loans and substandard troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $83.9 million at March 31, 2014, compared to $65.0 million at December 31, 2013.
(2)
Troubled debt restructurings are presented as an impaired loan; however, they continue to accrue interest at contractual rates.
14
 
  
Commercial real estate - mortgage
    
Consumer real estate - mortgage
    
Construction and land development
    
Commercial and industrial
    
Consumer
and other
    
Total
  
December 31, 2013
  
   
   
   
   
   
 
Accruing loans
  
   
   
   
   
   
 
        Pass
  
$
1,332,387
    
$
670,412
    
$
275,876
    
$
1,557,923
    
$
143,032
    
$
3,979,630
  
        Special Mention
    
8,282
      
1,824
      
31,835
      
20,065
      
-
      
62,006
  
        Substandard (1)
    
20,296
      
14,107
      
7,297
      
23,174
      
154
      
65,028
  
        Total
    
1,360,965
      
686,343
      
315,008
      
1,601,162
      
143,186
      
4,106,664
  
Impaired loans
                                                
        Nonaccrual loans
                                                
                Substandard-nonaccrual
    
9,017
      
5,289
      
1,070
      
2,565
      
242
      
18,183
  
                Doubtful-nonaccrual
    
-
      
-
      
-
      
-
      
-
      
-
  
        Total nonaccrual loans
    
9,017
      
5,289
      
1,070
      
2,565
      
242
      
18,183
  
        Troubled debt restructurings(2)
                                                
                Pass
    
2,564
      
1,666
      
113
      
320
      
276
      
4,939
  
                Special Mention
    
-
      
-
      
-
      
-
      
-
      
-
  
                Substandard
    
10,889
      
2,318
      
-
      
1,500
      
-
      
14,707
  
         Total troubled debt restructurings
    
13,453
      
3,984
      
113
      
1,820
      
276
      
19,646
  
Total impaired loans
    
22,470
      
9,273
      
1,183
      
4,385
      
518
      
37,829
  
Total loans
  
$
1,383,435
    
$
695,616
    
$
316,191
    
$
1,605,547
    
$
143,704
    
$
4,144,493
  
(1)
Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by Pinnacle Bank's primary regulators for loans classified as substandard, excluding the impact of substandard nonaccrual loans and substandard troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $83.9 million at March 31, 2014, compared to $65.0 million at December 31, 2013.
(2)
Troubled debt restructurings are presented as an impaired loan; however, they continue to accrue interest at contractual rates.

15
At March 31, 2014 and December 31, 2013, all loans classified as nonaccrual were deemed to be impaired. The principal balances of these nonaccrual loans amounted to $15.6 million and $18.2 million at March 31, 2014 and December 31, 2013, respectively, and are included in the tables above.  For the three months ended March 31, 2014, the average balance of nonaccrual loans was $16.1 million as compared to $21.5 million for the twelve months ended December 31, 2013.  At the date such loans were placed on nonaccrual status, Pinnacle Financial reversed all previously accrued interest income against current year earnings.  Had these nonaccrual loans been on accruing status, interest income would have been higher by $283,000 for the three months ended March 31, 2014 and by $292,000 for the three months ended March 31, 2013.

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

 
  
At March 31, 2014
    
Three Months Ended
March 31, 2014
  
 
  
Recorded investment
    
Unpaid principal balance
    
Related allowance(1)
    
Average recorded investment
    
Interest income recognized
  
Collateral dependent nonaccrual loans:
  
   
   
   
   
 
    Commercial real estate – mortgage
  
$
5,192
    
$
5,712
    
$
-
    
$
5,225
    
$
-
  
    Consumer real estate – mortgage
    
2,413
      
2,476
      
-
      
2,427
      
-
  
    Construction and land development
    
545
      
545
      
-
      
545
      
-
  
    Commercial and industrial
    
1,060
      
1,168
      
-
      
1,074
      
-
  
    Consumer and other
    
-
      
-
      
-
      
-
      
-
  
Total
  
$
9,210
    
$
9,901
    
$
-
    
$
9,271
    
$
-
  
 
                                        
Cash flow dependent nonaccrual loans:
                                        
    Commercial real estate – mortgage
  
$
1,953
    
$
2,152
    
$
161
    
$
1,964
    
$
-
  
    Consumer real estate – mortgage
    
3,266
      
3,514
      
875
      
3,289
      
-
  
    Construction and land development
    
445
      
516
      
14
      
450
      
-
  
    Commercial and industrial
    
478
      
658
      
162
      
879
      
-
  
    Consumer and other
    
254
      
270
      
86
      
260
      
-
  
Total
  
$
6,396
    
$
7,110
    
$
1,298
    
$
6,842
    
$
-
  
Total nonaccrual loans
  
$
15,606
    
$
17,011
    
$
1,298
    
$
16,113
    
$
-
  
 
16
 
  
At December 31, 2013:
    
For the year ended
December 31, 2013
  
 
  
Recorded investment
    
Unpaid principal balance
    
Related allowance(1)
    
Average recorded investment
    
Interest income recognized
  
Collateral dependent nonaccrual loans:
  
   
   
   
   
 
    Commercial real estate – mortgage
  
$
7,035
    
$
7,481
    
$
-
    
$
6,522
    
$
-
  
    Consumer real estate – mortgage
    
2,162
      
2,209
      
-
      
2,234
      
-
  
    Construction and land development
    
545
      
545
      
-
      
938
      
-
  
    Commercial and industrial
    
1,828
      
1,901
      
-
      
3,911
      
-
  
    Consumer and other
    
-
      
-
      
-
      
-
      
-
  
Total
  
$
11,570
    
$
12,136
    
$
-
    
$
13,605
    
$
-
  
 
                                        
Cash flow dependent nonaccrual loans:
                                        
    Commercial real estate – mortgage
  
$
1,982
    
$
2,166
    
$
142
    
$
2,448
    
$
-
  
    Consumer real estate – mortgage
    
3,127
      
3,334
      
722
      
3,405
      
-
  
    Construction and land development
    
525
      
609
      
33
      
568
      
-
  
    Commercial and industrial
    
737
      
1,029
      
218
      
1,216
      
-
  
    Consumer and other
    
242
      
252
      
72
      
242
      
-
  
Total
  
$
6,613
    
$
7,390
    
$
1,187
    
$
7,879
    
$
-
  
Total nonaccrual loans
  
$
18,183
    
$
19,526
    
$
1,187
    
$
21,484
    
$
-
  
(1)    
Collateral dependent loans are typically charged-off to their net realizable value pursuant to requirements of our primary regulators and no specific allowance is carried related to those loans.
17
Pinnacle Financial's policy is that once a loan is placed on nonaccrual status each subsequent payment is reviewed on a case-by-case basis to determine if the payment should be applied to interest or principal pursuant to regulatory guidelines. Pinnacle Financial recognized no interest income from cash payments received on nonaccrual loans during the three months ended March 31, 2014 or during the year ended December 31, 2013.

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

At March 31, 2014 and December 31, 2013, there were $15.1 million and $19.6 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which were accruing interest. These troubled debt restructurings are considered impaired loans pursuant to U.S. GAAP. Troubled commercial loans are restructured by specialists within our Special Assets Group, and all restructurings are approved by committees and credit officers separate and apart from the normal loan approval process.  These specialists are charged with reducing Pinnacle Financial's overall risk and exposure to loss in the event of a restructuring by obtaining some or all of the following:  improved documentation, additional guaranties, increase in curtailments, reduction in collateral release terms, additional collateral or other similar strategies.
 
The following table outlines the amount of each troubled debt restructuring categorized by loan classification made during the three months ended March 31, 2014 and 2013 (dollars in thousands):
 
 
  
Three months ended March 31, 2014
    
Three months ended March 31, 2013
  
 
  
Number
of contracts
    
Pre
Modification Outstanding Recorded Investment
    
Post Modification Outstanding Recorded Investment, net of related allowance
    
Number of contracts
    
Pre
Modification Outstanding Recorded Investment
    
Post
Modification Outstanding Recorded Investment, net of related allowance
  
Commercial real estate – mortgage
    
-
    
$
-
    
$
-
      
-
    
$
-
    
$
-
  
Consumer real estate – mortgage
    
-
      
-
      
-
      
1
      
432
      
359
  
Construction and land development
    
-
      
-
      
-
      
-
      
-
      
-
  
Commercial and industrial
    
6
      
2,584
      
565
      
-
      
-
      
-
  
Consumer and other
    
-
      
-
      
-
      
1
      
200
      
170
  
 
    
6
    
$
2,584
    
$
565
      
2
    
$
632
    
$
529
  

During the three months ended March 31, 2014, Pinnacle Financial did not have any troubled debt restructurings that subsequently defaulted within twelve months of the restructuring. During the three months ended March 31, 2013, two consumer real estate loans totaling $1.0 million which were previously classified as a troubled debt restructuring subsequently defaulted, within twelve months of the restructuring. A default of a troubled debt restructuring is defined as an occurrence which violates the terms of the receivable's contract.

18
Pinnacle Financial analyzes its commercial loan portfolio to determine if a concentration of credit risk exists to any industry.  Pinnacle Financial utilizes broadly accepted industry classification systems in order to classify borrowers into various industry classifications.  Pinnacle Financial has a credit exposure (loans outstanding plus unfunded lines of credit) exceeding 25 % of Pinnacle Bank's total risk-based capital to borrowers in the following industries at March 31, 2014 with the comparative exposures for December 31, 2013 (in thousands):

 
At March 31, 2014:
  
 
 
Outstanding Principal Balances
  
Unfunded Commitments
  
Total exposure
  
Total Exposure at December 31, 2013
  
 
  
   
   
   
 
Lessors of nonresidential buildings
  
$
501,891
    
$
53,584
    
$
555,475
    
$
515,240
  
Lessors of residential buildings
    
240,296
      
27,544
      
267,840
      
270,773
  

The table below presents past due balances at March 31, 2014 and December 31, 2013, by loan classification and segment allocated between accruing and nonaccrual status (in thousands):

March 31, 2014
  
30-89 days past due and accruing
    
90 days or more past due and accruing
    
Total past due and accruing
    
Nonaccrual(1)
    
Current
and accruing
    
Total
Loans
  
Commercial real estate:
  
   
   
   
   
   
 
    Owner-occupied
  
$
125
    
$
-
    
$
125
    
$
6,906
    
$
694,296
    
$
701,327
  
    All other
    
844
      
7,736
(2) 
    
8,580
      
239
      
746,026
      
754,845
  
Consumer real estate – mortgage
    
5,239
      
-
      
5,239
      
5,679
      
692,674
      
703,592
  
Construction and land development
    
849
      
147
      
996
      
990
      
292,069
      
294,055
  
Commercial and industrial
    
1,191
      
52
      
1,243
      
1,538
      
1,566,156
      
1,568,937
  
Consumer and other
    
2,096
      
8
      
2,104
      
254
      
156,573
      
158,931
  
 
  
$
10,344
    
$
7,943
    
$
18,287
    
$
15,606
    
$
4,147,794
    
$
4,181,687
  
19

December 31, 2013
  
30-89 days past due and accruing
    
90 days or more past due and accruing
    
Total past due and accruing
    
Nonaccrual(1)
    
Current
and accruing
    
Total
Loans
  
Commercial real estate:
  
   
   
   
   
   
 
    Owner-occupied
  
$
2,534
    
$
-
    
$
2,534
    
$
7,750
    
$
669,014
    
$
679,298
  
    All other
    
27
      
2,232
      
2,259
      
1,267
      
700,611
      
704,137
  
Consumer real estate – mortgage
    
2,215
      
-
      
2,215
      
5,289
      
688,112
      
695,616
  
Construction and land development
    
4,839
      
-
      
4,839
      
1,070
      
310,282
      
316,191
  
Commercial and industrial
    
1,847
      
825
      
2,672
      
2,565
      
1,600,310
      
1,605,547
  
Consumer and other
    
1,488
      
289
      
1,777
      
242
      
141,685
      
143,704
  
 
  
$
12,950
    
$
3,346
    
$
16,296
    
$
18,183
    
$
4,110,014
    
$
4,144,493
  

(1) Approximately $10.9  million of nonaccrual loans as of March 31, 2014 and December 31, 2013, respectively, were currently performing pursuant to their contractual terms.
(2) Represents one commercial real estate loan which, subsequent to March 31, 2014, was brought current with a principal curtailment of $7.6 million.

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

 
  
   
Impaired Loans
    
 
 
  
Accruing Loans
    
Nonaccrual Loans
    
Troubled Debt Restructurings(1)
    
Total Allowance
for Loan Losses
  
 
  
March 31, 2014
    
December 31, 2013
    
March 31, 2014
    
December 31, 2013
    
March 31, 2014
    
December 31, 2013
    
March 31, 2014
    
December 31, 2013
  
Commercial real estate –mortgage
  
$
19,636
    
$
19,298
    
$
161
    
$
142
    
$
753
    
$
1,932
    
$
20,550
    
$
21,372
  
Consumer real estate – mortgage
    
6,426
      
7,090
      
875
      
722
      
521
      
543
      
7,822
      
8,355
  
Construction and land development
    
6,737
      
7,186
      
14
      
33
      
14
      
16
      
6,765
      
7,235
  
Commercial and industrial
    
25,951
      
24,660
      
162
      
218
      
597
      
256
      
26,710
      
25,134
  
Consumer and other
    
1,764
      
1,521
      
86
      
72
      
36
      
39
      
1,886
      
1,632
  
Unallocated
    
-
      
-
      
-
      
-
      
-
      
-
      
3,791
      
4,242
  
 
  
$
60,514
    
$
59,755
    
$
1,298
    
$
1,187
    
$
1,921
    
$
2,786
    
$
67,524
    
$
67,970
  

(1)    
Troubled debt restructurings of $15.1 million and $19.6 million as of March 31, 2014 and December 31, 2013, respectively, are classified as impaired loans pursuant to U.S. GAAP; however, these loans continue to accrue interest at contractual rates.

20
The following table details the changes in the allowance for loan losses from December 31, 2012 to December 31, 2013 to March 31, 2014 by loan classification and the allocation of the allowance for loan losses (in thousands):

 
Commercial
real estate –
mortgage
  
Consumer
 real estate – mortgage
  
Construction and
land development
  
Commercial and industrial
  
Consumer and other
  
Unallocated
  
Total
  
Allowance for Loan Losses:
 
 
 
 
 
 
 
Balance at December 31, 2012
$
19,634
  
$
8,762
  
$
9,164
  
$
24,738
  
$
1,094
  
$
6,025
  
$
69,417
  
    Charged-off loans
  
(4,123
)
  
(2,250
)
  
(1,351
)
  
(8,159
)
  
(1,369
)
  
-
    
(17,252
)
    Recovery of previously charged-off loans
  
500
    
1,209
    
1,464
    
4,531
    
244
    
-
    
7,948
  
    Provision for loan losses
  
5,361
    
634
    
(2,042
)
  
4,024
    
1,663
    
(1,783
)
  
7,857
  
Balance at December 31, 2013
$
21,372
  
$
8,355
  
$
7,235
  
$
25,134
  
$
1,632
  
$
4,242
  
$
67,970
  
 
                                          
Collectively evaluated for impairment
$
19,298
  
$
7,090
  
$
7,186
  
$
24,660
  
$
1,521
        
$
59,755
  
Individually evaluated for impairment
  
2,074
    
1,265
    
49
    
474
    
111
          
3,973
  
Loans acquired with deteriorated credit quality
  
-
    
-
    
-
    
-
    
-
          
-
  
Balance at December 31, 2013
$
21,372
  
$
8,355
  
$
7,235
  
$
25,134
  
$
1,632
        
$
67,970
  
 
                                          
Loans:
                                          
Collectively evaluated for impairment
$
1,360,965
  
$
686,343
  
$
315,008
  
$
1,601,162
  
$
143,186
        
$
4,106,664
  
Individually evaluated for impairment
  
22,470
    
9,273
    
1,183
    
4,385
    
518
          
37,829
  
Loans acquired with deteriorated credit quality
  
-
    
-
    
-
    
-
    
-
          
-
  
Balance at December 31, 2013
$
1,383,435
  
$
695,616
  
$
316,191
  
$
1,605,547
  
$
143,704
        
$
4,144
  
 
                                          

21

 
Commercial
real estate -
mortgage
  
Consumer
real estate -
mortgage
  
Construction and
land development
  
Commercial and industrial
  
Consumer and other
  
Unallocated
  
Total
  
Allowance for Loan Losses:
 
 
 
 
 
 
 
 Balance at December 31, 2013
$
21,372
  
$
8,355
  
$
7,235
  
$
25,134
  
$
1,632
  
$
4,242
  
$
67,970
  
    Charged-off loans
  
(123
)
  
(334
)
  
(7
)
  
(824
)
  
(214
)
  
-
    
(1,502
)
    Recovery of previously charged-off loans
  
1
    
72
    
31
    
398
    
66
    
-
    
568
  
    Provision for loan losses
  
(700
)
  
(271
)
  
(494
)
  
2,002
    
402
    
(451
)
  
488
  
Balance at March 31, 2014
$
20,550
  
$
7,822
  
$
6,765
  
$
26,710
  
$
1,886
  
$
3,791
  
$
67,524
  
 
                                          
Collectively evaluated for impairment
$
19,636
  
$
6,426
  
$
6,737
  
$
25,951
  
$
1,764
        
$
60,514
  
Individually evaluated for impairment
  
914
  
$
1,396
    
28
    
759
    
122
          
7,010
  
Loans acquired with deteriorated credit quality
  
-
  
$
-
    
-