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Derivative Instruments
 12 Months Ended
Dec. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Note 16.  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.

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 qualify as 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, Pinnacle Financial has no credit risk.

A summary of Pinnacle Financial's interest rate swaps to facilitate customer transactions as of December 31, 2017 and December 31, 2016 is included in the following table (in thousands):
 
December 31, 2017
 
December 31, 2016
 
Notional
Amount
 
Estimated Fair Value
 
Notional Amount
 
Estimated Fair Value
Interest rate swap agreements:
 
 
 
 
 
 
 
Pay fixed / receive variable swaps
$
748,625

 
$
13,771

 
$
666,572

 
$
16,004

Pay variable / receive fixed swaps
748,625

 
(13,866
)
 
666,572

 
(16,138
)
Total
$
1,497,250

 
$
(95
)
 
$
1,333,144

 
$
(134
)


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. A summary of Pinnacle Financial's cash flow hedge relationships as of December 31, 2017 and 2016 are as follows (in thousands):
 
 
 
 
         
December 31, 2017
December 31, 2016
 
Forecasted
Notional
Amount
Receive Rate
Pay
Rate
Term(1)
Asset/
(Liabilities)
Unrealized Loss in Accumulated Other Comprehensive Income
Asset/ (Liabilities)
Unrealized Loss in Accumulated Other Comprehensive Income
Interest Rate Swap
$
33,000

3 month LIBOR
2.265
%
April 2016 - April 2020
(146
)
(89
)
(727
)
(442
)
Interest Rate Swap
33,000

3 month LIBOR
2.646
%
April 2016 - April 2022
(647
)
(393
)
(1,304
)
(792
)
Interest Rate Swap
33,000

3 month LIBOR
2.523
%
Oct. 2016 - Oct. 2020
(382
)
(232
)
(1,081
)
(657
)
Interest Rate Swap
33,000

3 month LIBOR
2.992
%
Oct. 2017 - Oct. 2021
(998
)
(606
)
(1,200
)
(729
)
Interest Rate Swap
34,000

3 month LIBOR
3.118
%
April 2018 - July 2022
(1,205
)
(732
)
(1,222
)
(743
)
Interest Rate Swap
34,000

3 month LIBOR
3.158
%
July 2018 - Oct. 2022
(1,205
)
(733
)
(1,198
)
(728
)
 
$
200,000

 
 

 
(4,583
)
(2,785
)
(6,732
)
(4,091
)
 
(1) No cash will be exchanged prior to the beginning of the term.
 
Pinnacle Financial has 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 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. The following outlines the interest rate swap agreements in place at December 31, 2017 and December 31, 2016 (in thousands):
 
 
 
 
         
December 31, 2017
December 31, 2016
 
Forecasted
Notional
Amount
Receive
Rate
Pay
Rate
Term
Asset/
(Liabilities)
Unrealized Gain (Loss) in Accumulated Other Comprehensive Income
Asset/ (Liabilities)
Unrealized Gain (Loss) in Accumulated Other Comprehensive Income
Interest Rate Swap (1)
$
—

2.090
%
1 month LIBOR
July 2014 - July 2021
—

—

395

240

Interest Rate Swap (1)
—

2.270
%
1 month LIBOR
July 2014 - July 2022
—

—

610

371

Interest Rate Swap (1)
—

2.420
%
1 month LIBOR
July 2014 - July 2023
—

—

874

531

Interest Rate Swap (1)
—

2.500
%
1 month LIBOR
July 2014 - July 2024
—

—

900

547

Interest Rate Swap (1)
—

1.470
%
1 month LIBOR
August 2015 - August 2020
—

—

(75
)
(46
)
 
$
—

 

 
 
—

—

2,704

1,643



(1) Each of these swaps were terminated via cash settlement in the second quarter of 2017. As a result of terminating these contracts in the second quarter of 2017, Pinnacle Financial began recognizing a gain of $3.1 million over the original terms of these agreements.

The cash flow hedges were determined to be fully effective during the periods presented. 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. Other than the interest rate swaps agreements terminated in the second quarter of 2017, 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.