Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of Interest Rate Swaps

A summary of Pinnacle Financial's interest rate swaps to facilitate customers' transactions as of March 31, 2023 and December 31, 2022 is included in the following table (in thousands):

	March 31, 2023				December 31, 2022
	Notional Amount		Estimated Fair Value (1)		Notional Amount		Estimated Fair Value (1)
Interest rate swap agreements:
Assets	$	1,791,761	$	45,773	$	1,620,520	$	39,763
Liabilities	1,791,761		(75,114)		1,620,520		(96,483)
Total	$	3,583,522	$	(29,341)	$	3,241,040	$	(56,720)

(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At March 31, 2023 and December 31, 2022, the notional amount of interest rate swap agreements designated as non-hedge derivatives cleared through clearing houses was $526.3 million and $827.3 million with a fair value that approximates zero due to $28.9 million and $56.3 million in received variation margin payments.

The effects of Pinnacle Financial's interest rate swaps to facilitate customers' transactions on the income statement during the three months ended March 31, 2023 and 2022 were as follows (in thousands):

		Amount of Gain (Loss) Recognized in Income
	Location of Gain (Loss) Recognized in Income	Three Months Ended March 31,
		2023		2022
Interest rate swap agreements	Other noninterest income	$	(63)	$	281

Schedule of Derivative Instruments

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 (loss), 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 forward cash flow hedge relationships in an effort to manage future interest rate exposure. A summary of the cash flow hedge relationships as of March 31, 2023 and December 31, 2022 are as follows (in thousands):

					March 31, 2023				December 31, 2022
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Receive Rate	Pay Rate	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Asset derivatives
Interest rate floor - loans	Other assets	4.59	4.00%-4.50% minus USD-Term SOFR 1M	N/A	$	875,000	$	54,091	$	875,000	$	48,622
Interest rate collars - loans	Other assets	4.59	4.25%-4.75% minus USD-Term SOFR 1M	USD-Term SOFR 1M minus 6.75%-7.00%	875,000		53,644		875,000		45,553
					$	1,750,000	$	107,735	$	1,750,000	$	94,175

The effects of Pinnacle Financial's cash flow hedge relationships on the statement of comprehensive income (loss) during the three months ended March 31, 2023 and 2022 were as follows, net of tax (in thousands):

	Amount of Loss Recognized in Other Comprehensive Income (Loss)
	Three Months Ended March 31,
Asset derivatives	2023		2022
Interest rate floors and collars - loans	$	11,978	$	—

The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. If a hedge was deemed to be ineffective, the amount included in accumulated other comprehensive income

(loss) 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. Gains on cash flow hedges totaling $2.5 million, net of tax, were reclassified from accumulated other comprehensive income (loss) into net income during both the three months ended March 31, 2023 and March 31, 2022, respectively. Approximately $9.8 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 available-for-sale securities. The hedging strategy converts the fixed interest rates to variable interest rates based on LIBOR, federal funds rates, or SOFR. 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. In March 2023, Pinnacle Financial entered into fair value hedges with aggregate notional amounts of $425.0 million to mitigate the effect of changing interest rates on FHLB advances with payments beginning in the first quarter of 2024.

A summary of Pinnacle Financial's fair value hedge relationships as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

					March 31, 2023				December 31, 2022
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate	Receive Rate	Notional Amount		Estimated Fair Value (1)		Notional Amount		Estimated Fair Value (1)
Asset derivatives
Interest rate swaps - securities	Other assets	7.18	2.25%	3 month LIBOR/ Federal Funds/ SOFR	$	1,420,724	$	32,464	$	1,420,724	$	56,056
Liability derivatives
Interest rate swaps - borrowings	Other liabilities	4.84	N/A	—%	$	425,000	$	1,883	$	—	$	—
					$	1,845,724	$	34,347	$	1,420,724	$	56,056

(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At March 31, 2023 and December 31, 2022, the notional amount of fair value derivatives cleared through central clearing houses was $1.3 billion and $877.7 million with a fair value that approximates zero due to $39.8 million and $47.9 million in received variation margin.

Notional amounts of $464.7 million included in the table above as of March 31, 2023 receive a variable rate of interest based on three month LIBOR, notional amounts totaling $392.2 million as of March 31, 2023 receive a variable rate of interest based on the daily compounded federal funds rate, and notional amounts totaling $563.8 million as of March 31, 2023 receive a variable rate of interest based on the daily compounded SOFR.

The effects of Pinnacle Financial's securities fair value hedge relationships on the income statement during the three months ended March 31, 2023 and 2022 were as follows (in thousands):

	Location of Gain (Loss)	Amount of Gain (Loss) Recognized in Income
		Three Months Ended March 31,
Securities		2023		2022
Interest rate swaps - securities	Interest income on securities	$	(31,685)	$	48,839
Securities available-for-sale	Interest income on securities	$	31,685	$	(48,839)
FHLB advances
Interest rate swaps - FHLB advances	Interest expense on FHLB advances and other borrowings	$	1,883	$	—
FHLB advances	Interest expense on FHLB advances and other borrowings	$	(1,883)	$	—

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at March 31, 2023 and December 31, 2022 (in thousands):

	Carrying Amount of the Hedged Assets/Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/Liabilities
	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Line item on the balance sheet
Securities available-for-sale	$	1,465,424	$	1,445,511	$	(32,464)	$	(56,056)
Federal Home Loan Bank advances	$	426,883	$	—	$	1,883	$	—

During the three months ended March 31, 2023 and 2022 amortization expense totaling $210,000 and $639,000, respectively, related to previously terminated fair value hedges was recognized as a reduction to interest income on loans.