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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
Note 11.  Income Taxes

Income tax expense attributable to continuing operations for each of the years in the three-year period ended December 31, 2024 is as follows (in thousands):
 202420232022
Current tax expense :   
Federal$110,464 $67,711 $104,141 
State15,040 11,775 12,870 
Total current tax expense125,504 79,486 117,011 
Deferred tax expense (benefit):  
Federal(19,550)67,446 15,082 
State199 4,922 4,658 
Total deferred tax (benefit) expense(19,351)72,368 19,740 
Total income tax expense$106,153 $151,854 $136,751 

Pinnacle Financial's income tax expense differs from the amounts computed by applying the Federal income tax statutory rate of 21% to income before income taxes. A reconciliation of the differences for each of the years in the three-year period ended December 31, 2024 is as follows (in thousands):
 202420232022
Income tax expense at statutory rate$122,054 $149,941 $146,474 
State excise tax expense, net of federal tax effect12,039 13,191 13,847 
Non-deductible executive compensation5,635 5,186 5,481 
Tax-exempt securities(22,169)(21,663)(18,730)
Federal tax credits(8,170)(5,238)(5,019)
Bank owned life insurance income(8,780)(4,324)(4,599)
Bank owned life insurance surrender— 8,572 — 
Non-deductible FDIC assessment7,103 5,361 2,331 
Insurance premiums— — (36)
Excess tax benefits associated with equity compensation(2,806)(208)(3,027)
Other items1,247 1,036 29 
Income tax expense$106,153 $151,854 $136,751 

Pinnacle Financial's effective tax rate differs from the Federal income tax rate primarily due to state excise tax expense, investments in bank-qualified tax-exempt municipal securities, tax benefits from Pinnacle Bank's real estate investment trust and municipal investment subsidiaries, and tax benefits associated with share-based compensation and bank owned life insurance offset in part by the limitation on deductibility of meals and entertainment expense, non-deductible FDIC insurance premiums and non-deductible executive compensation. The decrease in the effective income tax rate in 2024 as compared to 2023, and increase in 2023 compared to 2022, is primarily due to the restructuring of BOLI contracts in 2023 resulting in restructuring charges and surrender penalties totaling $7.2 million and income tax and penalties totaling $9.1 million.
The components of deferred income taxes included in other assets in the accompanying consolidated balance sheets at December 31, 2024 and 2023 are as follows (in thousands):
 20242023
Deferred tax assets:  
Allowance for credit losses$99,002 $86,911 
Loans4,463 4,659 
Insurance878 784 
Accrued liability for supplemental retirement agreements6,611 7,005 
Restricted stock and stock options8,255 6,251 
Securities44,504 49,331 
Cash flow hedge8,772 — 
FHLB related assets64 — 
Lease liability76,426 76,918 
Other real estate owned— 750 
Net federal operating loss carryforward and credits9,621 1,064 
Annual incentive compensation20,473 11,842 
Partnership interests33,747 13,541 
Allowance for off balance sheet credit exposures3,117 4,367 
Tax credit investments2,601 — 
FDIC special assessment6,254 7,250 
Accrued expenses1,465 844 
Other deferred tax assets2,426 1,688 
Total deferred tax assets328,679 273,205 
Deferred tax liabilities:  
Depreciation and amortization20,438 23,140 
Core deposit and other intangible assets5,193 6,087 
Cash flow hedge— 836 
REIT dividends2,247 2,604 
Mortgage servicing rights2,963 — 
FHLB related liabilities— 125 
Equity method investment18 42 
Right-of-use assets and other leasing transactions72,886 74,068 
Leases83,810 67,711 
Subordinated debt1,293 1,412 
Tax credit investments— 7,614 
Prepaids1,611 273 
Other deferred tax liabilities2,748 2,083 
Total deferred tax liabilities193,207 185,995 
Net deferred tax assets$135,472 $87,210 
 
At December 31, 2024, the Company had federal and state loss carryforwards resulting from acquisitions of approximately $4.3 million that expire at various dates from 2028 to 2034.

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.
A reconciliation of the beginning and ending unrecognized tax benefit related to state uncertain tax positions for each of the years in the three-year period ended December 31, 2024 is as follows (in thousands):
 202420232022
Balance at January 1,$8,806 $15,752 $12,737 
Increases due to tax positions taken during the current year140 642 3,721 
Increases due to tax positions taken during a prior year3,831 — — 
Decreases due to the lapse of the statute of limitations during the current year(1,750)(1,340)(706)
Decreases due to settlements with the taxing authorities during the current year(900)(6,248)— 
Balance at December 31,$10,127 $8,806 $15,752 
Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. Pinnacle Financial recognized $41,000, $80,000, and $264,000 in interest and penalties related to income tax matters for the years ended December 31, 2024, 2023, and 2022, respectively.