XML 24 R13.htm IDEA: XBRL DOCUMENT v3.23.3
Income Taxes
 9 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
Note 6. Income Taxes

ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods.

The unrecognized tax benefit related to uncertain tax positions related to state income tax filings was $9.4 million and $15.8 million at September 30, 2023 and December 31, 2022, respectively. During the three months ended September 30, 2023, Pinnacle Financial paid no taxes related to state income tax filings for tax years prior to 2023. During the nine months ended September 30, 2023, Pinnacle Financial paid $6.3 million in taxes related to state income tax filings for tax years prior to 2023. No change was recorded to the unrecognized tax benefit related to uncertain tax positions for the three and nine month periods ended September 30, 2022.

Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. No interest and penalties were recognized during the three and nine months ended September 30, 2023. No interest and penalties were recognized for the three months ended September 30, 2022. Pinnacle Financial recognized $264,000 in interest and penalties for the nine months ended September 30, 2022.

Pinnacle Financial's effective tax rate for the three and nine months ended September 30, 2023 was 21.1% and 20.2%, respectively, compared to 19.1% for both the three and nine months ended September 30, 2022. The difference between the effective tax rate and the federal and state income tax statutory rate of 25.00% and 26.14% at September 30, 2023 and 2022, respectively, is primarily due to investments in bank qualified municipal securities, tax benefits of Pinnacle Bank's real estate investment trust subsidiary, participation in the Tennessee Community Investment Tax Credit (CITC) program, and tax benefits associated with share-based compensation, bank-owned life insurance and Pinnacle Financial's captive insurance subsidiary, offset in part by the limitation on deductibility of meals and entertainment expense, non-deductible FDIC premiums and non-deductible executive compensation.

Income tax expense is also impacted by the vesting of equity-based awards and the exercise of employee stock options, which as expense or benefit is recorded as a discrete item as a component of total income tax, the amount of which is dependent upon the change in the grant date fair value and the vest date fair value of the underlying award. For the three and nine months ended
September 30, 2023, Pinnacle Financial recognized tax expense of $16,000 and excess tax benefits of $241,000, respectively, with respect to the vesting of equity-based awards and the exercise of employee stock options. Pinnacle Financial recognized no excess tax benefits or expenses for the three months ended September 30, 2022. For the nine months ended September 30, 2022, Pinnacle Financial recognized excess tax benefits of $2.9 million.