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Derivative Instruments
 12 Months Ended
Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Note 15.  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 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, 2024 and 2023. 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.

Non-hedge derivatives

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, 2024 and 2023 is included in the following table (in thousands):
 December 31, 2024December 31, 2023
 Notional
Amount
Estimated Fair Value (1)
Notional Amount
Estimated Fair Value (1)
Interest rate swap agreements:    
Assets$2,633,014 $62,494 $2,037,740 $66,462 
Liabilities2,633,014 (63,225)2,037,740 (67,206)
Total non-hedging derivatives$5,266,028 $(731)$4,075,480 $(744)
(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At December 31, 2024 and 2023, there were no interest rate swap agreements designated as non-hedge derivatives cleared through clearing houses.
The effects of Pinnacle Financial's interest rate swaps to facilitate customers' transactions on the income statement during the years ended December 31, 2024, 2023 and 2022 were as follows (in thousands):
Amount of Gain (Loss) Recognized in Income
Location of Gain (Loss) Recognized in IncomeYear ended December 31,
202420232022
Interest rate swap agreementsOther noninterest income$5 $(308)$53 

On June 28, 2024, Pinnacle Financial executed a credit default swap (CDS) with a counterparty with a notional amount of $86.5 million. The CDS notional amount is equal to 5% of a reference pool of $1.7 billion in first lien consumer real estate - mortgage loans whereby the counterparty will assume the first loss position for these loans up to approximately $86.5 million in aggregate losses. Pinnacle Financial will pay to the counterparty an annual loss protection fee equal to 7.95% of the corresponding notional amount of the CDS for as long as the loans in the reference pool remain outstanding. The notional amount of the CDS will decline over time as the loans in the reference portfolio are paid down, mature or the counterparty absorbs the first loss portion of losses on those loans. The CDS qualifies as a derivative, but is not designated as a hedging instrument. A summary of Pinnacle Financial's CDS as of December 31, 2024 and 2023 is included in the following table (in thousands):

 December 31, 2024December 31, 2023
 Notional
Amount		Estimated Fair ValueNotional
Amount		Estimated Fair Value
Credit default swap$81,993 $185 $— $— 

The effects of Pinnacle Financial's CDS on the income statement during the during the years ended December 31, 2024, 2023 and 2022 were as follows (in thousands):
Amount of Gain Recognized in Income
Location of Loss Recognized in IncomeYear ended December 31,
202420232022
Credit default swapOther noninterest income185 — — 

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 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. A summary of Pinnacle Financial's cash flow hedge relationships as of December 31, 2024 and 2023 is as follows (in thousands):
December 31, 2024December 31, 2023
Balance Sheet LocationWeighted Average Remaining Maturity
 (In Years)		Receive RatePay RateNotional
Amount		Estimated
Fair Value		Notional
Amount		Estimated
Fair Value
Asset derivatives
Interest rate floor - loansOther assets2.844.00%-4.50% minus USD-Term SOFR 1MN/A$875,000 $15,566 $875,000 $36,483 
Interest rate collar - loansOther assets2.844.25%-4.75% minus USD-Term SOFR 1M USD-Term SOFR 1M minus 6.75%-7.00%$875,000 $17,252 $875,000 $38,314 
$1,750,000 $32,818 $1,750,000 $74,797 
The effects of Pinnacle Financial's cash flow hedge relationships on the statement of comprehensive income (loss) during the years ended December 31, 2024, 2023 and 2022 were as follows (in thousands):
Amount of Gain (Loss) Recognized in Other Comprehensive Income
Years ended December 31,
202420232022
Asset derivatives
Interest rate floors and collars - loans$(19,902)$(7,414)$1,002 

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 $9.0 million, $9.7 million and $10.0 million, net of tax, were reclassified from accumulated other comprehensive income (loss) into loan interest income during the years ended December 31, 2024, 2023 and 2022, respectively. There are no unrealized gains, net of tax, remaining to be reclassified from accumulated other comprehensive income (loss) into net income as of December 31, 2024.

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. 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. Pinnacle Financial also utilizes interest rate swaps designated as fair value hedges 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. During 2024, Pinnacle Financial entered into a portfolio layer method fair value hedge with a notional amount of $300 million. Under the portfolio layer method, the hedged item is designated as a hedged layer of a closed portfolio of available-for-sale securities that is anticipated to remain outstanding throughout the hedge period ending September 1, 2026.

A summary of Pinnacle Financial's fair value hedge relationships as of December 31, 2024 and 2023 is as follows (in thousands):
December 31, 2024December 31, 2023
Balance Sheet LocationWeighted Average Remaining Maturity (In Years)Weighted Average Pay RateReceive RateNotional Amount
Estimated Fair Value (1)
Notional Amount
Estimated Fair Value (1)
Asset derivatives
Interest rate swaps - securitiesOther assets10.363.25%Federal Funds/SOFR$3,198,426 $67,064 $543,061 $42,983 
Interest rate swaps - borrowingsOther assetsN/ASOFR—%$— $— $750,000 $3,654 
Liability derivatives
Interest rate swaps - securitiesOther liabilitiesN/AN/AFederal Funds/SOFR— — 1,569,078 (1,275)
Interest rate swaps - borrowingsOther liabilities2.73SOFR3.48%1,175,000 (21,428)425,000 (1,656)
Total fair value derivatives$4,373,426 $45,636 $3,287,139 $43,706 

(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At December 31, 2024 and 2023, the notional amount of fair value derivatives hedges cleared through clearing houses is $3.0 billion and $2.0 billion with a fair value that approximates zero due to $72.7 million and $4.0 million in variation margin payments.

Under Pinnacle Financial's outstanding fair value hedges, notional amounts totaling $317.9 million as of December 31, 2024 receive a variable rate of interest based on the daily compounded federal funds rate and notional amounts totaling $4.1 billion as of December 31, 2024 receive a variable rate of interest based on the daily compounded SOFR.
The effects of Pinnacle Financial's fair value hedge relationships on the income statement during the years end December 31, 2024, 2023 and 2022 were as follows (in thousands):
Location of Gain (Loss)Amount of Gain (Loss) Recognized in Income
Year ended December 31,
Securities202420232022
Interest rate swapsInterest income on securities$25,356 $(14,348)$80,728 
Securities available-for-saleInterest income on securities$(25,356)$14,348 $(80,728)
FHLB advances
Interest rate swaps - FHLB advancesInterest expense on FHLB advances and other borrowings$(23,426)$1,998 $— 
FHLB advancesInterest expense on FHLB advances and other borrowings$23,426 $(1,998)$— 

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at December 31, 2024 and 2023 (in thousands):
Carrying Amount of the Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
December 31, 2024December 31, 2023December 31, 2024December 31, 2023
Line item on the balance sheet
Securities available-for-sale$3,905,016 $2,074,621 $(67,064)$(41,708)
FHLB advances$1,196,428 $1,173,002 $21,428 $(1,998)

During the years ended December 31, 2024, 2023 and 2022 amortization expense totaling $329,000, $645,000 and $1.9 million, respectively, related to previously terminated fair value hedges was recognized as a reduction to interest income on loans.
In April 2022, interest rates swaps designated as fair value hedges with notional amounts totaling $164.3 million and market values totaling $14.3 million were terminated. Approximately $986,000 in gains were recognized at the time of termination and the remaining $5.5 million will be accreted as additional interest income on the previously hedged available-for-sale mortgage backed and municipal securities over the same period as existing purchase discounts or premiums on these securities.