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's derivative instruments with certain counterparties contain legally enforceable netting that allow multiple transactions to be settled into a single amount. The fair value hedge and interest rate swaps (swaps) assets and liabilities are presented at gross fair value before the application of bilateral collateral and master netting agreements, but after the initial margin posting and daily variation margin payments made with central clearinghouse organizations. Total fair value hedge and swaps assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of December 31, 2023 and 2022. The resulting net fair value hedge and swaps asset and liability fair values are included in other assets and other liabilities, respectively, on the consolidated balance sheets. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.

For derivatives not designated as hedges, the gain or loss is recognized in current period earnings. Pinnacle Financial enters into 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 customer transactions as of December 31, 2023 and 2022 is included in the following table (in thousands):


	December 31, 2023				December 31, 2022
	Notional Amount		Estimated Fair Value (1)		Notional Amount		Estimated Fair Value (1)
Interest rate swap agreements:
Assets	$	2,037,740	$	66,462	$	1,620,520	$	39,763
Liabilities	2,037,740		(67,206)		1,620,520		(96,483)
Total non-hedging derivatives	$	4,075,480	$	(744)	$	3,241,040	$	(56,720)

(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At December 31, 2023, no notional amounts of interest rate swap agreements designated as non-hedge derivatives cleared through clearing houses. At December 31, 2022, the notional amount of interest rate swap agreements designated as non-hedge derivatives cleared through clearing houses was $827.3 million with a fair value that approximates zero due to $56.3 million in variation margin payments.

The effects of Pinnacle Financial's interest rate swaps to facilitate customers' transactions on the income statement during the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

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 SOFR-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. During 2022, Pinnacle Financial paid $95.7 million to

purchase interest rate floors and interest rate collars with notional amounts totaling $1.8 billion to mitigate the impact of changing interest rates on SOFR-based variable rate loans. A summary of Pinnacle Financial's cash flow hedge relationships as of December 31, 2023 and 2022 is as follows (in thousands):


					December 31, 2023				December 31, 2022
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Receive Rate	Pay Rate	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value


Asset derivatives
Interest rate floor - loans	Other assets	3.84	4.00%-4.50% minus USD-Term SOFR 1M	N/A	$	875,000	$	36,483	$	875,000	$	48,622
Interest rate collar - loans	Other assets	3.84	4.25%-4.75% minus USD-Term SOFR 1M	USD-Term SOFR 1M minus 6.75%-7.00%	$	875,000	$	38,314	$	875,000	$	45,553
					$	1,750,000	$	74,797	$	1,750,000	$	94,175

The cash flow hedges were determined to be highly effective during the periods presented and as a result qualified for hedge accounting treatment. If a hedge were deemed to be ineffective, the amount included in accumulated other comprehensive income (loss) would be reclassified into a line item within the statement of income that impacts operating results. A hedging relationship is no longer considered to be effective if a portion of the hedge becomes ineffective, the item hedged is no longer in existence or Pinnacle Financial discontinues hedge accounting. Gains on cash flow hedges totaling $9.7 million, $10.0 million and $9.6 million, net of tax, were reclassified from accumulated other comprehensive income (loss) into net income during the years ended December 31, 2023, 2022 and 2021, respectively. Approximately $9.0 million in unrealized gains, net of tax, are expected to be reclassified from accumulated other comprehensive income (loss) into net income over the twelve months ended December 31, 2024.

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. The hedging strategy on securities converts the fixed interest rates to variable interest rates based on SOFR or federal funds 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. During 2023, Pinnacle Financial entered into

fair value hedges with aggregate notional amounts of $1.2 billion to mitigate the effect of changing interest rates on FHLB advances with payments beginning on various dates throughout 2024 and the first quarter of 2025.

A summary of Pinnacle Financial's fair value hedge relationships as of December 31, 2023 and 2022 is as follows (in thousands):


					December 31, 2023				December 31, 2022
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate	Receive Rate	Notional Amount		Estimated Fair Value (1)		Notional Amount		Estimated Fair Value (1)
Asset derivatives
Interest rate swaps - securities	Other assets	10.16	1.97%	Federal funds/SOFR	$	543,061	$	42,983	$	1,420,724	$	56,056
Interest rate swaps - borrowings	Other assets	3.53	N/A	—%	$	750,000	$	3,654	$	—	$	—
Liability derivatives
Interest rate swaps - securities	Other liabilities	11.22	3.10%	Federal funds/SOFR	1,569,078		(1,275)		—		—
Interest rate swaps - borrowings	Other liabilities	4.09	N/A	—%	425,000		(1,656)		—		—
Total fair value derivatives					$	3,287,139	$	43,706	$	1,420,724	$	56,056

(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At December 31, 2023 and 2022, the notional amount of fair value derivatives hedges cleared through clearing houses is $2.0 billion and $877.7 million with a fair value that approximates zero due to $4.0 million and $47.9 million in variation margin payments.

Notional amounts totaling $392.2 million as of December 31, 2023 receive a variable rate of interest based on the daily compounded federal funds rate and notional amounts totaling $2.9 billion as of December 31, 2023 receive a variable rate of interest based on the daily compounded secured overnight financing rate.

The effects of Pinnacle Financial's fair value hedge relationships on the income statement during the years end December 31, 2023, 2022 and 2021 were as follows (in thousands):


	Location of Gain (Loss)	Amount of Gain (Loss) Recognized in Income
		Year ended December 31,
Securities		2023		2022		2021
Interest rate swaps	Interest income on securities	$	(14,348)	$	80,728	$	42,642
Securities available-for-sale	Interest income on securities	$	14,348	$	(80,728)	$	(42,642)


	Location of Gain (Loss)	Amount of Loss Recognized in Income
		Years ended December 31,
FHLB advances		2023		2022		2021
Interest rate swaps - FHLB advances	Interest expense on FHLB advances and other borrowings	$	1,998	$	—	$	—
FHLB advances	Interest expense on FHLB advances and other borrowings	$	(1,998)	$	—	$	—

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at December 31, 2023 and 2022 (in thousands):


	Carrying Amount of the Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
	December 31, 2023		December 31, 2022		December 31, 2023		December 31, 2022
Line item on the balance sheet
Securities available-for-sale	$	2,074,621	$	1,445,511	$	(41,708)	$	(56,056)
FHLB advances	$	1,173,002	$	—	$	(1,998)	$	—

During the years ended December 31, 2023, 2022 and 2021 amortization expense totaling $645,000, $1.9 million and $3.5 million, respectively, related to previously terminated fair value hedges was recognized as a reduction to interest income on loans.