Note 2. Securities

The amortized cost and fair value of securities available-for-sale and held-to-maturity at September 30, 2014 and December 31, 2013 are summarized as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2014:
Securities available-for-sale:
U.S. Treasury securities	$	-	$	-	$	-	$	-
U.S. government agency securities		117,053		14		5,969		111,098
Mortgage-backed agency securities		429,834		10,086		4,266		435,654
State and municipal securities		135,043		8,407		255		143,195
Asset-backed securities		13,891		-		125		13,766
Corporate notes and other		10,202		1,007		1		11,208
	$	706,023	$	19,514	$	10,616	$	714,921
Securities held-to-maturity:
State and municipal securities	$	38,107	$	186	$	181	$	38,112
	$	38,107	$	186	$	181	$	38,112

December 31, 2013:
Securities available-for-sale:
U.S. Treasury securities	$	-	$	-	$	-	$	-
U.S. government agency securities		117,282		13		13,422		103,873
Mortgage-backed agency securities		411,967		9,771		8,802		412,936
State and municipal securities		143,763		5,504		856		148,411
Asset-backed securities		17,262		-		255		17,007
Corporate notes and other		10,218		1,018		7		11,229
	$	700,492	$	16,306		23,342	$	693,456
Securities held-to-maturity:
State and municipal securities	$	39,796	$	72	$	1,051	$	38,817
	$	39,796	$	72	$	1,051	$	38,817

At September 30, 2014, approximately $598.9 million of securities within Pinnacle Financial's investment portfolio were either pledged to secure public funds and other deposits or securities sold under agreements to repurchase.

The amortized cost and fair value of debt securities as of September 30, 2014 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage- and asset-backed securities since the mortgages and assets underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories in the following summary (in thousands):

	Available-for-sale				Held-to-maturity
September 30, 2014:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	7,676	$	7,725	$	1,770	$	1,776
Due in one year to five years		38,854		40,900		16,485		16,562
Due in five years to ten years		152,474		154,797		13,323		13,263
Due after ten years		63,294		62,079		6,529		6,511
Mortgage-backed agency securities		429,834		435,654		-		-
Asset-backed securities		13,891		13,766		-		-
	$	706,023	$	714,921	$	38,107	$	38,112

At September 30, 2014 and December 31, 2013, the following investments had unrealized losses. The table below classifies these investments according to the time period of the unrealized losses of less than twelve months or twelve months or longer (in thousands):

	Investments with an Unrealized Loss of less than 12 months				Investments with an Unrealized Loss of 12 months or longer				Total Investments with an Unrealized Loss
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At September 30, 2014:

U.S. Treasury securities	$	-	$	-	$	-	$	-	$	-	$	-
U.S. government agency securities		3,097		5		101,336		5,964		104,433		5,969
Mortgage-backed agency securities		89,115		457		104,285		3,809		193,400		4,266
State and municipal securities		1,175		14		22,918		422		24,093		436
Asset-backed securities		-		-		13,766		125		13,766		125
Corporate notes		250		-		155		1		405		1
Total temporarily-impaired securities	$	93,637	$	476	$	242,460	$	10,321	$	336,097	$	10,797

At December 31, 2013:

U.S. Treasury securities	$	-	$	-	$	-	$	-	$	-	$	-
U.S. government agency securities		8,742		22		92,869		13,400		101,611		13,422
Mortgage-backed agency securities		157,262		3,913		42,903		4,889		200,165		8,802
State and municipal securities		46,282		1,351		3,798		555		50,080		1,906
Asset-backed securities		-		-		17,006		255		17,006		255
Corporate notes		946		6		159		2		1,105		8
Total temporarily-impaired securities	$	213,232	$	5,292	$	156,735	$	19,101	$	369,967	$	24,393

The applicable dates for determining when securities are in an unrealized loss position are September 30, 2014 and December 31, 2013. As such, it is possible that a security had a market value that exceeded its amortized cost on other days during the past twelve-month periods ended September 30, 2014 and December 31, 2013, but is in the "Investments with an Unrealized Loss of less than 12 months" category above.

As shown in the tables above, at September 30, 2014, Pinnacle Financial had approximately $10.8 million in unrealized losses on $336.1 million of securities. The unrealized losses associated with these investment securities are driven by changes in interest rates and the unrealized loss is recorded as a component of equity, net of taxes. These securities will continue to be monitored as a part of our ongoing impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond issuers. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments. If a shortfall in future cash flows is identified, a credit loss will be deemed to have occurred and will be recognized as a charge to earnings and a new cost basis for the security will be established.

Because Pinnacle Financial currently does not intend to sell those securities that have an unrealized loss at September 30, 2014, and it is not more-likely-than-not that Pinnacle Financial will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, Pinnacle Financial does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality or marketability, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements and raising funds for liquidity purposes. Additionally, if an available-for-sale security loses its investment grade or tax-exempt status, the underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to management, Pinnacle Financial will consider selling the security, but will review each security on a case-by-case basis as these factors become known.

The carrying values of Pinnacle Financial's investment securities could decline in the future if the financial condition of issuers deteriorates and management determines it is probable that Pinnacle Financial will not recover the entire amortized cost bases of the securities. As a result, there is a risk that other-than-temporary impairment charges may occur in the future. There is also a risk that other-than-temporary impairment charges may occur in the future if management's intention to hold these securities to maturity and or recovery changes.