Derivative Instruments

3 Months Ended

Mar. 31, 2014

Derivative Instruments [Abstract]

Derivative Instruments

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. For derivatives not designated as hedges, the gain or loss is recognized in current 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 with a large U.S. financial institution in order to minimize the risk to Pinnacle Financial.  These swaps are derivatives, but are not designated as hedging instruments.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms.  When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or customer owes Pinnacle Financial, and results in credit risk to Pinnacle Financial.  When the fair value of a derivative instrument contract is negative, Pinnacle Financial owes the customer or counterparty and therefore, has no credit risk.

A summary of Pinnacle Financial's interest rate swaps related to customers as of March 31, 2014 and December 31, 2013 is included in the following table (in thousands):

	March 31, 2014					December 31, 2013
	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
Interest rate swap agreements:
Pay fixed / receive variable swaps	$	280,806	$	13,099		$	294,486	$	13,296
Pay variable / receive fixed swaps		280,806		(13,476	)		294,486		(13,670	)
Total	$	561,612	$	(377	)	$	588,972	$	(374	)

Pinnacle Financial has a forward cash flow hedge relationship to manage future interest rate exposure.The hedging strategy converts the LIBOR based variable interest rate on forecasted borrowings to a fixed interest rate and protects Pinnacle Financial from floating interest rate variability.  The terms of the individual contracts within the relationship are as follows (in thousands):

								March 31, 2014				December 31, 2013
	Forecasted Notional Amount		Variable Interest Rate(1)	Fixed Interest Rate(1)			Term(2)	Asset/ (Liabilities)		Unrealized Gain in Accumulated Other Comprehensive Income		Asset/ (Liabilities)		Unrealized Gain in Accumulated Other Comprehensive Income
Interest Rate Swap	$	33,000	3 month LIBOR		1.428	%	April 2015-April 2018	$	380	$	231	$	463	$	281
Interest Rate Swap		33,000	3 month LIBOR		1.857	%	Oct. 2015-April 2019		627	$	381		837		509
Interest Rate Swap		33,000	3 month LIBOR		1.996	%	Oct. 2015-Oct. 2019		717	$	436		1,007		612
Interest Rate Swap		33,000	3 month LIBOR		2.265	%	April 2016-April 2020		798	$	485		1,172		712
Interest Rate Swap		33,000	3 month LIBOR		2.646	%	April 2016-April 2022		1,114	$	677		1,818		1,105
Interest Rate Swap		33,000	3 month LIBOR		2.523	%	Oct. 2016-Oct. 2020		838	$	509		1,307		795
	$	198,000						$	4,474	$	$ 2,719	$	6,604	$	4,014

(1) Pinnacle Financial will pay the fixed interest rate and the counterparties pay Pinnacle Financial the variable rate.

(2) No cash will be exchanged prior to the term.

      The cash flow hedges were determined to be fully effective during the period presented. And therefore, no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other assets with changes in fair value recorded in accumulated other comprehensive (loss) income, net of tax. If a hedge was deemed to be ineffective, the amount included in accumulated other comprehensive (loss) income would be reclassified to current earnings. 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 to remain fully effective during the remaining terms of the swaps. Pinnacle Financial does not expect any amounts to be reclassified from accumulated other comprehensive (loss) income related to these swaps over the next twelve months.