Derivative Instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments [Abstract]

Derivative Instruments

Note 9.  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 as of March 31, 2013 and December 31, 2012 is included in the following table (in thousands):

	March 31, 2013					December 31, 2012
	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
Interest rate swap agreements:
Pay fixed / receive variable swaps	$	238,836	$	15,709		$	236,377	$	16,132
Pay variable / receive fixed swaps		238,836		(16,000	)		236,377		(16,366	)
Total	$	477,672	$	(291	)	$	472,754	$	(234	)

At  March 31, 2013 and December 31, 2012, Pinnacle Financial had not entered into any derivative contracts to assist in managing its own interest rate sensitivity and has no derivatives designated as hedges.  Subsequent to March 31, 2013, Pinnacle Financial entered into a forward cash flow hedge relationship to manage our 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 relationship are as follows:

(dollars in thousands)	Forecasted Notional Amount		Variable Interest Rate	Fixed Interest Rate			Term
Interest Rate Swap	$	33,000	3 month LIBOR		1.428	%	April 2015-April 2017
Interest Rate Swap		33,000	3 month LIBOR		1.857	%	October 2015-March 2019
Interest Rate Swap		33,000	3 month LIBOR		1.996	%	October 2015-October 2019
Interest Rate Swap		33,000	3 month LIBOR		2.265	%	April 2016-April 2020
Interest Rate Swap		34,000	3 month LIBOR		2.646	%	April 2016-April 2022
Interest Rate Swap		34,000	3 month LIBOR		2.523	%	October 2016-October 2020

(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.