XML 27 R15.htm IDEA: XBRL DOCUMENT
v3.20.2

Derivative Instruments | 9 Months Ended
--- | ---
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Note 8. 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. Non-hedge derivatives For derivatives not designated as hedges, the gain or loss is recognized in current period 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 in order to minimize the risk to Pinnacle Financial. These swaps qualify as derivatives, but are not designated as hedging instruments. The income statement impact of the offsetting positions is limited to changes in the reserve for counterparty credit risk. A summary of Pinnacle Financial's interest rate swaps to facilitate customers' transactions as of September 30, 2020 and December 31, 2019 is included in the following table (in thousands):
|  |  | September 30, 2020 |  | December 31, 2019
| Balance Sheet Location |  | Notional Amount |  | Estimated Fair Value |  | Notional Amount |  | Estimated Fair Value
Interest rate swap agreements: |  |  |  |  |  |  |  |  |
Assets | Other assets |  | $ | 1,535,297 |  |  | $ | 115,078 |  |  | $ | 1,296,389 |  |  | $ | 43,507 |
Liabilities | Other liabilities |  | 1,535,297 |  |  | (116,558) |  |  | 1,296,389 |  |  | (43,715) |
Total |  |  | $ | 3,070,594 |  |  | $ | (1,480) |  |  | $ | 2,592,778 |  |  | $ | (208) |
The effects of Pinnacle Financial's interest rate swaps to facilitate customers' transactions on the income statement during the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):
|  |  | Amount of Loss Recognized in Income
| Location of Loss Recognized in Income |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Interest rate swap agreements | Other noninterest income |  | $ | (135) |  |  | $ | (44) |  |  | $ | (1,272) |  |  | $ | (146) |
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 interest rate floors in an effort to mitigate the impact of declining interest rates on LIBOR-based variable rate loans. Pinnacle Financial uses forward cash flow hedges in an effort to manage future interest rate exposure on borrowings. 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, 2020 and December 31, 2019 is as follows (in thousands):
|  |  |  |  |  |  |  |  | September 30, 2020 |  | December 31, 2019
| 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 floor | Other assets |  | 4.19 |  | —% |  | 2.25% minus 1 month LIBOR |  | $ | 1,500,000 |  |  | $ | 134,853 |  |  | $ | 2,800,000 |  |  | $ | 87,422 |
Liability derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Other liabilities |  | 1.59 |  | 3.09% |  | 3 month LIBOR |  | $ | 99,000 |  |  | $ | (4,610) |  |  | $ | 99,000 |  |  | $ | (3,312) |
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, 2020 and 2019 were as follows, net of tax (in thousands):
| Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
| Three Months Ended September 30, |  | Nine Months Ended September 30,
Asset derivatives | 2020 |  | 2019 |  | 2020 |  | 2019
Interest rate floor - loans | $ | (3,506) |  |  | $ | 1,951 |  |  | $ | 68,161 |  |  | $ | 9,875 |
Liability derivatives |  |  |  |  |  |  |
Interest rate swaps - borrowings | $ | 480 |  |  | $ | (69) |  |  | $ | (959) |  |  | $ | (1,572) |
| $ | (3,026) |  |  | $ | 1,882 |  |  | $ | 67,202 |  |  | $ | 8,303 |
The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. 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 at September 30, 2020 to continue to be highly effective and qualify for hedge accounting during the remaining terms of the original hedging transactions. Losses totaling $156,000 net of tax and $1.9 million net of tax were reclassified from accumulated other comprehensive income (loss) into net income during the three and nine months ended September 30, 2020, respectively, compared to losses totaling 1.1 million net of tax and $946,000 net of tax during the three and nine months ended September 30, 2019, respectively. During the first quarter of 2020, loan interest rate floors entered into in the second quarter of 2019 with a notional amount totaling $1.3 billion and unrealized gains totaling $16.5 million were terminated. These unrealized gains are being amortized into income on a straight line basis through October 2021. Approximately $8.0 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 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 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. A summary of Pinnacle Financial's fair value hedge relationships as of September 30, 2020 and December 31, 2019 is as follows (in thousands):
|  |  |  |  |  |  |  |  |  | September 30, 2020 |  | December 31, 2019
|  | 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
Liability derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements - securities |  | Other liabilities |  | 7.12 |  | 2.26% |  | 3 month LIBOR/Fed Funds |  | $ | 708,931 |  |  | $ | (77,214) |  |  | $ | 477,905 |  |  | $ | (40,778) |
Notional amounts of $477.5 million included in the table receive a variable rate of interest based on three month LIBOR and notional amounts totaling $231.4 million receive a variable rate of interest based on the daily compounded federal funds rate. The effects of Pinnacle Financial's fair value hedge relationships on the income statement during the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):
| Location of Loss on Derivative |  | Amount of Loss Recognized in Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Liability derivatives |  | 2020 |  | 2019 |  | 2020 |  | 2019
Interest rate swaps - securities | Interest income on securities |  | $ | 4,996 |  |  | $ | (10,888) |  |  | $ | (36,436) |  |  | $ | (37,131) |
Interest rate swaps - loans | Interest income on loans |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (6,915) |
| Location of Gain on Hedged Item |  | Amount of Gain Recognized in Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Liability derivatives - hedged items |  | 2020 |  | 2019 |  | 2020 |  | 2019
Interest rate swaps - securities | Interest income on securities |  | $ | (4,996) |  |  | $ | 10,888 |  |  | $ | 36,436 |  |  | $ | 37,131 |
Interest rate swaps - loans | Interest income on loans |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 6,915 |
The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at September 30, 2020 and December 31, 2019 (in thousands):
| Carrying Amount of the Hedged Assets |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
| September 30, 2020 |  | December 31, 2019 |  | September 30, 2020 |  | December 31, 2019
Line item on the balance sheet |  |  |  |  |  |  |
Securities available-for-sale | $ | 853,350 |  |  | $ | 551,789 |  |  | $ | 77,214 |  |  | $ | 40,778 |
During the three and nine months ended September 30, 2020, amortization expense totaling $1.2 million and $3.3 million, respectively, related to previously terminated fair value hedges was recognized as a reduction to interest income on loans.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration