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Derivative Instruments
 3 Months Ended
Mar. 31, 2016
Derivative Instruments [Abstract]  
Derivative Instruments
Note 10.  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 period earnings.

Non-hedge derivatives

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 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, 2016 and December 31, 2015 is included in the following table (in thousands):

  
March 31, 2016
  
December 31, 2015
 
  
Notional
Amount
  
Estimated
Fair Value
  
Notional
Amount
  
Estimated Fair Value
 
Interest rate swap agreements:
            
Pay fixed / receive variable swaps
 
$
470,055
  
$
28,356
  
$
396,112
  
$
16,130
 
Pay variable / receive fixed swaps
  
470,055
   
(28,716
)
  
396,112
   
(16,329
)
Total
 
$
940,110
  
$
(360
)
 
$
792,224
  
$
(199
)

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

Pinnacle Financial has forward cash flow hedge relationships 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 initial hedge relationships were entered into during the second quarter of 2013. During the third quarter of 2014, Pinnacle Financial terminated three individual contracts of the initial hedge relationships based on changes in internal forecasts for future interest rates. As a result of terminating these contracts, Pinnacle Financial will incur a gain of $64,000 over the original terms of these agreements which were scheduled to begin in April 2015. Pinnacle Financial entered into additional forward cash flow hedge relationships for interest rate risk management purposes given the aforementioned changes in forecasted interest rates. The terms of the individual contracts within the relationship are as follows (in thousands):

              
March 31, 2016
 
December 31, 2015
 
 
Forecasted
Notional
Amount
Receive Rate
Pay
Rate
 
Term(1)
Asset/
(Liabilities)
 
Unrealized Loss in Accumulated Other Comprehensive Income
 
Asset/ (Liabilities)
 
Unrealized Gain in Accumulated Other Comprehensive Income
 
Interest Rate Swap
$
33,000
3 month LIBOR
2.265
%
April 2016- April 2020
 $
(1,595
)
 $
(969
)
 $
(784
)
 $
(476
)
Interest Rate Swap
 
33,000
3 month LIBOR
2.646
%
April 2016- April 2022
 
(2,766
)
 
(1,681
)
 
(1,478
)
 
(898
)
Interest Rate Swap
 
33,000
3 month LIBOR
2.523
%
Oct. 2016- Oct. 2020
 
(1,837
)
 
(1,116
)
 
(908
)
 
(552
)
Interest Rate Swap
 
33,000
3 month LIBOR
2.992
%
Oct. 2017- Oct. 2021
 
(2,067
)
 
(1,256
)
 
(1,112
)
 
(676
)
Interest Rate Swap
 
34,000
3 month LIBOR
3.118
%
April 2018- July 2022
 
(2,159
)
 
(1,312
)
 
(1,170
)
 
(711
)
Interest Rate Swap
 
34,000
3 month LIBOR
3.158
%
July 2018- Oct. 2022
 
(2,134
)
 
(1,297
)
 
(1,158
)
 
(704
)
 
$
200,000
     $
(12,558
)
 $
(7,631
)
 $
(6,610
)
 $
(4,017
)
                   
 
(1)
No cash will be exchanged prior to the beginning of the term.
 
Pinnacle Financial has seven interest rate swap agreements designated as cash flow hedges intended to protect against the variability of cash flows on selected LIBOR based loans. The swaps hedge the interest rate risk, wherein Pinnacle Financial receives a fixed rate of interest from a counterparty and pays a variable rate, based on one month LIBOR. The terms of the respective swaps range from seven to ten years and started on July 1, 2014. The swaps were entered into with a counterparty that met Pinnacle Financial's credit standards and the agreements contain collateral provisions protecting the at-risk party. Pinnacle Financial believes that the credit risk inherent in the contract is not significant.

      
March 31, 2016
 
December 31, 2015
 
 
Forecasted
Notional
Amount
Receive
Rate
 
Pay
Rate
Term(2)
Asset/
(Liabilities)
 
Unrealized Gain in Accumulated Other Comprehensive Income
 
Asset/ (Liabilities)
 
Unrealized Gain in Accumulated Other Comprehensive Income
 
Interest Rate Swap
$
27,500
2.090
%
1 month LIBOR
July 2014 - July 2021
$
1,321
 
$
803
  $
663
  $
403
 
Interest Rate Swap
 
25,000
2.270
%
1 month LIBOR
July 2014 - July 2022
 
1,826
  
1,110
  
968
  
588
 
Interest Rate Swap
 
27,500
2.420
%
1 month LIBOR
July 2014 - July 2023
 
2,393
  
1,454
  
1,320
  
802
 
Interest Rate Swap
 
30,000
2.500
%
1 month LIBOR
July 2014 - July 2024
 
2,421
  
1,471
  
1,333
  
810
 
Interest Rate Swap
 
15,000
1.048
%
1 month LIBOR
August 2015 - August 2018
 
114
  
69
  
(46
)
 
(28
)
Interest Rate Swap
 
15,000
1.281
%
1 month LIBOR
August 2015 - August 2019
 
222
  
135
  
(34
)
 
(21
)
Interest Rate Swap
 
15,000
1.470
%
1 month LIBOR
August 2015 - August 2020
 
329
  
200
  
(14
)
 
(9
)
 
$
155,000
      
$
8,626
 
$
5,242
  $
4,190
  $
2,545
 
  
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  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 or other liabilities 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 into a line item within the statement of income that impacts operating results. 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.