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Derivative Instruments | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [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 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. The income statement impact of the offsetting positions is limited to changes in the reserve for counterpary risk. A summary of Pinnacle Financial's interest rate swaps related to customers as of September 30, 2018 and December 31, 2017 is included in the following table (in thousands):
|  |  | September 30, 2018 |  | December 31, 2017
| Balance Sheet Location |  | Notional Amount |  | Estimated Fair Value |  | Notional Amount |  | Estimated Fair Value
Interest rate swap agreements: |  |  |  |  |  |  |  |  |
Pay fixed / receive variable swaps | Other assets |  | $ | 972,816 |  |  | $ | 24,592 |  |  | $ | 748,625 |  |  | $ | 13,771 |
Pay variable / receive fixed swaps | Other liabilities |  | 972,816 |  |  | (28,436 | ) |  | 748,625 |  |  | (13,866 | )
Open trade equity | Other assets |  | — |  |  | 3,707 |  |  | — |  |  | — |
Total |  |  | $ | 1,945,632 |  |  | $ | (137 | ) |  | $ | 1,497,250 |  |  | $ | (95 | )
|  |  | Amount of Gain (Loss) Recognized in Income
| Location of Gain (Loss) Recognized in Income |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Interest rate swap agreements | Other noninterest income |  | $ | (8 | ) |  | $ | 7 |  |  | $ | (42 | ) |  | $ | 20 |
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, 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. The hedging strategy converts the LIBOR-based variable interest rate on forecasted borrowings to a fixed interest rate and is used in an effort to protect Pinnacle Financial from floating interest rate variability. A summary of Pinnacle Financial's cash flow hedge relationships as of September 30, 2018 and December 31, 2017 are as follows (in thousands):
|  |  |  |  |  |  |  |  | September 30, 2018 |  | December 31, 2017
| Balance Sheet Location |  | Weighted Average Remaining Maturity (In Years) |  | Weighted Average Pay Rate |  | Receive Rate |  | Notional Amount |  | Estimated Fair Value |  | Notional Amount |  | Estimated Fair Value
Asset derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements | Other assets |  | 2.51 |  | 2.61% |  | 3 month LIBOR |  | $ | 134,000 |  |  | $ | 982 |  |  | $ | — |  |  | $ | — |
Liability derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements | Other assets |  | 3.89 |  | 3.14% |  | 3 month LIBOR |  | $ | 66,000 |  |  | $ | (311 | ) |  | $ | 200,000 |  |  | $ | (4,583 | )
The effects of Pinnacle Financial's cash flow hedge relationships on the statement of comprehensive income (loss) during the three and nine months ended September 30, 2018 and 2017 were as follows:
| Amount of Gain Recognized in Other Comprehensive Income
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Interest rate swap agreements | $ | 783 |  |  | $ | 239 |  |  | $ | 3,453 |  |  | $ | 1,307 |
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 (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 continue to be highly effective and qualify for hedge accounting during the remaining terms of the swaps. No amounts were reclassified from accumulated other comprehensive income into net income related to these derivatives during the nine months ended September 30, 2018 or 2017, and no amounts are expected to be reclassified from accumulated other comprehensive income into net income over the next twelve months. On October 24, 2018, cash flow swaps with a notional amount of $101.0 million were terminated resulting in a cash settlement equal to previously unrealized gains of $1.0 million. These gains are included in accumulated other comprehensive income and will be amortized into net income over the remaining contractual terms of the swaps. 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 securities available-for-sale and fixed rate prepayable loans. The hedging strategy on securities converts the fixed interest rates to LIBOR-based variable interest rates. 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. Pinnacle Financial has elected early adoption of FASB ASU 2017-12, which allows such partial term hedge designations. Pinnacle Financial also utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of the loans. As allowed under FASB ASU 2017-12, a specified portion of the prepayable loans have been designated as the hedged assets under the "last-of-layer" method. Such hedging designations are allowed on the portion of a closed portfolio of prepayable assets that is not expected to be affected by prepayments, defaults, and other factors affecting the timing and amount of cash flows. A summary of Pinnacle Financial's fair value hedge relationships as of September 30, 2018 and December 31, 2017 are as follows (in thousands):
|  |  |  |  |  |  |  |  |  | September 30, 2018 |  | December 31, 2017
|  | Balance Sheet Location |  | Weighted Average Remaining Maturity (In Years) |  | Weighted Average Pay Rate |  | Receive Rate |  | Notional Amount |  | Estimated Fair Value |  | Notional Amount |  | Estimated Fair Value
Asset derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements - securities |  | Other assets |  | 7.14 |  | 2.89% |  | 3 month LIBOR |  | $ | 154,145 |  |  | $ | 1,991 |  |  | $ | — |  |  | $ | — |
Interest rate swap agreements - loans |  | Other assets |  | 2.89 |  | 2.77% |  | 3 month LIBOR |  | 900,000 |  |  | 3,358 |  |  | — |  |  | — |
|  |  |  | 3.51 |  | 2.79% |  |  |  | $ | 1,054,145 |  |  | $ | 5,349 |  |  | $ | — |  |  | $ | — |
The effects of Pinnacle Financial's fair value hedge relationships on the income statement during the three and nine months ended September 30, 2018 and 2017 were as follows:
| Location of Gain on Derivative |  | Amount of Gain Recognized in Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Asset derivatives |  | 2018 |  | 2017 |  | 2018 |  | 2017
Interest rate swap agreements - securities | Interest income on securities |  | $ | 1,755 |  |  | $ | — |  |  | $ | 1,991 |  |  | $ | — |
Interest rate swap agreements - loans | Interest income on loans |  | $ | 2,236 |  |  | $ | — |  |  | $ | 3,358 |  |  | $ | — |
| Location of Loss on Hedged Item |  | Amount of Loss Recognized in Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Asset derivatives |  | 2018 |  | 2017 |  | 2018 |  | 2017
Interest rate swap agreements - securities | Interest income on securities |  | $ | (1,755 | ) |  | $ | — |  |  | $ | (1,991 | ) |  | $ | — |
Interest rate swap agreements - loans | Interest income on loans |  | $ | (2,236 | ) |  | $ | — |  |  | $ | (3,358 | ) |  | $ | — |
The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at September 30, 2018 and December 31, 2017:
| Carrying Amount of the Hedged Assets |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
| September 30, 2018 |  | December 31, 2017 |  | September 30, 2018 |  | December 31, 2017
Line item on the balance sheet |  |  |  |  |  |  |
Securities available-for-sale | $ | 147,155 |  |  | $ | — |  |  | $ | (1,991 | ) |  | $ | — |
Loans (1) | $ | 896,642 |  |  | $ | — |  |  | $ | (3,358 | ) |  | $ | — |
(1) | The carrying amount as shown represents the designated last-of-layer. At September 30, 2018, the total amortized cost basis of the closed portfolio of loans designated in these hedging relationships was $2.8 billion.
On October 23, 2018, Pinnacle Financial entered into an additional swap transaction with a notional amount of $176.8 million designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities. As allowed under FASB ASU 2017-12, these derivatives are designated as partial term hedges covering specified periods of time prior to the call dates of the hedged securities.

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- References No definition available. + Details
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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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