Note 5. Loans and Allowance for Loan Losses

For financial reporting purposes, Pinnacle Financial classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed with the Federal Deposit Insurance Corporation (FDIC).

Pinnacle Financial uses five loan categories: commercial real estate mortgage, consumer real estate mortgage, construction and land development, commercial and industrial, consumer and other.

Commercial real-estate mortgage loans. Commercial real-estate mortgage loans are categorized as such based on investor exposures where repayment is largely dependent upon the operation, refinance, or sale of the underlying real estate. Commercial real-estate mortgage also includes owner occupied commercial real estate which shares a similar risk profile to our commercial and industrial products.

·	Consumer real-estate mortgage loans. Consumer real-estate mortgage consists primarily of loans secured by 1-4 residential properties including home equity lines of credit.

Construction and land development loans. Construction and land development loans include loans where the repayment is dependent on the successful operation of the related real estate project. Construction and land development loans include 1-4 family construction projects and commercial construction endeavors such as warehouses, apartments, office and retail space and land acquisition and development.

·	Commercial and industrial loans. Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.

·	Consumer and other loans. Consumer and other loans include all loans issued to individuals not included in the consumer real-estate mortgage classification. Examples of consumer and other loans are automobile loans, credit cards and loans to finance education, among others.

Commercial loans receive risk ratings assigned by a financial advisor and approved by a senior credit officer subject to validation by Pinnacle Financial's independent loan review department. Risk ratings are categorized as pass, special mention, substandard, substandard-nonaccrual or doubtful-nonaccrual. Pinnacle Financial believes that its categories follow those used by Pinnacle Bank's primary regulators. At September 30, 2015, approximately 74% of our legacy Pinnacle loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating in the allowance for loan loss assessment. Consumer loans and small business loans are generally not assigned an individual risk rating but are evaluated as either accrual or nonaccrual based on the performance of the individual loans. However, certain consumer real-estate mortgage loans and certain consumer and other loans receive a specific risk rating due to the loan proceeds being used for commercial purposes even though the collateral may be of a consumer loan nature.

Risk ratings are subject to continual review by a financial advisor and a senior credit officer. At least annually, our credit procedures require that every risk rated loan of $500,000 or more be subject to a formal credit risk review process by the assigned financial advisor. Each loan's risk rating is also subject to review by our independent loan review department, which reviews a substantial portion of our risk rated portfolio annually. Included in the coverage are independent loan reviews of loans in targeted higher-risk portfolio segments such as certain commercial and industrial loans, land loans and/or loan types in certain geographies.

The following table presents our loan balances by primary loan classification and the amount within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard, substandard-nonaccrual and doubtful-nonaccrual which are defined as follows:

	Special mention loans have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Pinnacle Financial's credit position at some future date.



Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize collection of the debt. Substandard loans are characterized by the distinct possibility that Pinnacle Financial will sustain some loss if the deficiencies are not corrected.

	Substandard-nonaccrual loans are substandard loans that have been placed on nonaccrual status.

	Doubtful-nonaccrual loans have all the characteristics of substandard-nonaccrual loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following table outlines the amount of each loan classification categorized into each risk rating category as of September 30, 2015 and December 31, 2014 (in thousands):

	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
September 30, 2015
Accruing loans
Pass	$	2,138,361	$	1,015,126	$	659,275	$	2,081,298	$	239,212	$	6,133,272
Special Mention		21,038		3,196		5,348		42,527		952		73,061
Substandard ⁽¹⁾		25,297		12,756		3,805		49,376		-		91,234
Total		2,184,696		1,031,078		668,428		2,173,201		240,164		6,297,567
Impaired loans
Nonaccrual loans⁽³⁾
Substandard-nonaccrual		7,232		9,421		6,498		1,122		5,776		30,049
Doubtful-nonaccrual		-		-		-		-		-		-
Total nonaccrual loans		7,232		9,421		6,498		1,122		5,776		30,049
Troubled debt restructurings⁽²⁾
Pass		223		414		-		612		161		1,410
Special Mention		-		440		-		-		-		440
Substandard		-		2,923		-		3,600		-		6,523
Total troubled debt restructurings		223		3,777		-		4,212		161		8,373
Total impaired loans		7,455		13,198		6,498		5,334		5,937		38,422
Total loans	$	2,192,151	$	1,044,276	$	674,926	$	2,178,535	$	246,101	$	6,335,989


December 31, 2014
Accruing loans
Pass	$	1,510,718	$	697,607	$	295,645	$	1,704,910	$	216,155	$	4,425,035
Special Mention		7,353		2,536		15,215		31,733		-		56,837
Substandard ⁽¹⁾		21,707		12,631		5,997		42,704		-		83,039
Total		1,539,778		712,774		316,857		1,779,347		216,155		4,564,911
Impaired loans
Nonaccrual loans⁽³⁾
Substandard-nonaccrual		4,313		4,458		5,173		1,609		1,152		16,705
Doubtful-nonaccrual		-		-		-		-		-		-
Total nonaccrual loans		4,313		4,458		5,173		1,609		1,152		16,705
Troubled debt restructurings⁽²⁾
Pass		-		62		436		575		75		1,148
Special Mention		-		811		-		-		201		1,012
Substandard		-		3,053		-		3,198		-		6,251
Total troubled debt restructurings		-		3,926		436		3,773		276		8,411
Total impaired loans		4,313		8,384		5,609		5,382		1,428		25,116
Total loans	$	1,544,091	$	721,158	$	322,466	$	1,784,729	$	217,583	$	4,590,027

(1)

Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by Pinnacle Bank's primary regulators for loans classified as substandard, excluding the impact of nonaccrual loans and troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $91.2 million at September 30, 2015, compared to $83.0 million at December 31, 2014.

(2)	Troubled debt restructurings are presented as an impaired loan; however, they continue to accrue interest at contractual rates.

(3)	Included in nonaccrual loans at September 30, 2015 are $11.8 million in loans acquired with deteriorated credit quality.

At September 30, 2015 and December 31, 2014, all loans classified as nonaccrual were deemed to be impaired. The principal balances of these nonaccrual loans amounted to $30.0 million and $16.7 million at September 30, 2015 and December 31, 2014, respectively, and are included in the tables above. For the nine months ended September 30, 2015, the average balance of nonaccrual loans was $34.3 million compared to $17.5 million for the year ended December 31, 2014. At the date such loans were placed on nonaccrual status, Pinnacle Financial reversed all previously accrued interest income against current year earnings. Pinnacle Financial's policy is that once a loan is placed on nonaccrual status each subsequent payment is reviewed on a case-by-case basis to determine if the payment should be applied to interest or principal pursuant to regulatory guidelines. Pinnacle Financial recognized approximately $253,000 in interest income from cash payments received on nonaccrual loans during the three and nine months ended September 30, 2015 and $256,000 in interest income from cash payments received on nonaccrual loans during the year ended December 31, 2014. Had these remaining nonaccrual loans been on accruing status, interest income would have been higher by $480,000 for the nine months ended September 30, 2015 and by $682,000 for the nine months ended September 30, 2014. A nonaccrual loan may be returned to accruing status once the loan has been brought current as to the principal and interest and collection is reasonably assured or the loan has been "well secured" through other techniques.

As discussed in Note 2, during 2015, the Company acquired loans of $816.5 million from CapitalMark and $439.5 million from Magna. Of the $1.255 billion of net loans acquired in the Mergers in 2015, $1.243 billion were determined to have no evidence of deteriorated credit quality and are accounted for under ASC Topics 310-10 and 310-20. Our acquired loans were recorded at fair value upon acquisition. In future periods these portfolios will be subject to additional allowance or provisioning charges in the event there is evidence of credit deterioration. The remaining $11.8 million, net were determined to have deteriorated credit quality under ASC Topic 310-30. The table below details these two subsections of the acquired loans by loan classification into each risk rating category as of September 30, 2015 (dollars in thousands):

	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Fair Value Adjustment			Net total acquired loans
September 30, 2015
Gross contractual acquired accruing loans
Pass	$	462,538	$	288,074	$	196,765	$	274,210	$	16,131		(22,265	)	$	1,215,453
Special Mention		5,017		3,355		3,800		5,196		985		(1,092	)		17,261
Substandard		7,873		1,143		993		1,102		-		(534	)		10,577
Total		475,428		292,572		201,558		280,508		17,116		(23,891	)		1,243,291
Gross contractual acquired impaired loans⁽¹⁾
Nonaccrual loans
Substandard-nonaccrual		5,449		5,012		3,781		1,796		660		(4,939	)		11,759
Doubtful-nonaccrual		-		-		-		-		-		-			-
Total nonaccrual loans		5,449		5,012		3,781		1,796		660		(4,939	)		11,759
Total gross contractual acquired impaired loans		5,449		5,012		3,781		1,796		660		(4,939	)		11,759
Total gross contractual acquired loans	$	480,877	$	297,584	$	205,339	$	282,304	$	17,776		(28,830	)	$	1,255,050

(1)	All of the acquired impaired loans have been deemed to be collateral dependent and as such were placed on nonaccrual. As such, no accretable difference has been recorded on these loans.

The following table details the recorded investment, unpaid principal balance and related allowance and average recorded investment of our nonaccrual loans at September 30, 2015 and December 31, 2014 by loan classification and the amount of interest income recognized on a cash basis throughout the fiscal year-to-date period then ended, respectively, on these loans that remain on the balance sheets (in thousands):

	At September 30, 2015						For the nine months ended September 30, 2015
	Recorded investment		Unpaid principal balance		Related allowance⁽¹⁾		Average recorded investment		Interest income recognized
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage	$	5,698	$	7,249	$	-	$	5,983	$	69
Consumer real estate – mortgage		5,582		6,249		-		5,107		-
Construction and land development		6,414		6,940		-		7,017		184
Commercial and industrial		988		4,114		-		2,260		-
Consumer and other		-		660		-		660		-
Total	$	18,682	$	25,212	$	-	$	21,027	$	253

Cash flow dependent nonaccrual loans:
Commercial real estate – mortgage	$	1,534	$	1,827	$	49	$	2,115	$	-
Consumer real estate – mortgage		3,839		4,343		743		4,081		-
Construction and land development		84		2,685		18		104		-
Commercial and industrial		134		137		27		394		-
Consumer and other		5,776		6,176		1,313		6,626		-
Total	$	11,367	$	15,168	$	2,150	$	13,320	$	-
Total nonaccrual loans	$	30,049	$	40,380	$	2,150	$	34,347	$	253

	At December 31, 2014						For the year ended December 31, 2014
	Recorded investment		Unpaid principal balance		Related allowance⁽¹⁾		Average recorded investment		Interest income recognized
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage	$	2,422	$	2,641	$	-	$	2,624	$	-
Consumer real estate – mortgage		1,472		1,901		-		1,552		-
Construction and land development		4,810		4,810		-		5,016		256
Commercial and industrial		1,325		1,804		-		1,561		-
Consumer and other		-		-		-		-		-
Total	$	10,029	$	11,156	$	-	$	10,753	$	256

Cash flow dependent nonaccrual loans:
Commercial real estate – mortgage	$	1,891	$	2,107	$	108	$	1,958	$	-
Consumer real estate – mortgage		2,986		3,205		654		3,080		-
Construction and land development		363		406		79		384		-
Commercial and industrial		284		294		62		316		-
Consumer and other		1,152		1,184		252		972		-
Total	$	6,676	$	7,196	$	1,155	$	6,710	$	-
Total nonaccrual loans	$	16,705	$	18,352	$	1,155	$	17,463	$	256

(1)	Collateral dependent loans are typically charged-off to their net realizable value and no specific allowance is carried related to those loans.

Impaired loans also include loans that Pinnacle Bank has elected to formally restructure due to the weakening credit status of a borrower. The restructuring may facilitate a repayment plan that seeks to minimize the potential losses that Pinnacle Bank may otherwise incur. If on nonaccrual status as of the date of restructuring, the loans are included in nonaccrual loans. Loans that have been restructured that were performing as of the restructure date and continue to perform in accordance with the restructured terms are reported separately as troubled debt restructurings.

At both September 30, 2015 and December 31, 2014, there were $8.4 million of troubled debt restructurings that were performing as of their restructure date and which were accruing interest. These troubled debt restructurings are considered impaired loans pursuant to U.S. GAAP. Troubled commercial loans are restructured by specialists within our Special Assets Group, and all restructurings are approved by committees and credit officers separate and apart from the normal loan approval process. These specialists are charged with reducing Pinnacle Financial's overall risk and exposure to loss in the event of a restructuring by obtaining some or all of the following: improved documentation, additional guaranties, increase in curtailments, reduction in collateral release terms, additional collateral or other similar strategies.

The following table outlines the amount of each loan category where troubled debt restructurings were made during the three and nine months ended September 30, 2015 and 2014 (dollars in thousands):

	Three months ended September 30,						Nine months ended September 30,
2015	Number of contracts		Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, net of related allowance		Number of contracts		Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, net of related allowance
Commercial real estate – mortgage		1	$	223	$	183		1	$	223	$	183
Consumer real estate – mortgage		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-
Commercial and industrial		-		-		-		1		434		337
Consumer and other		-		-		-		-		-		-
		1	$	223	$	183		2	$	657	$	520

2014
Commercial real estate – mortgage		-	$	-	$	-		-	$	-	$	-
Consumer real estate – mortgage		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-
Commercial and industrial		1		215		171		8		3,162		2,273
Consumer and other		-		-		-		-		-		-
		1	$	215	$	171		8	$	3,162	$	2,273

During the three and nine months ended September 30, 2015 and 2014, Pinnacle Financial did not have any troubled debt restructurings that subsequently defaulted within twelve months of the restructuring.

The table below presents past due balances at September 30, 2015 and December 31, 2014, by loan classification and segment allocated between accruing and nonaccrual status (in thousands):

September 30, 2015	30-89 days past due and accruing		90 days or more past due and accruing⁽¹⁾		Total past due and accruing		Nonaccrual⁽²⁾		Current and accruing		Total Loans
Commercial real estate:
Owner-occupied	$	362	$	223	$	585	$	4,656	$	1,119,652	$	1,124,893
All other		886		389		1,275		2,576		1,063,407		1,067,258
Consumer real estate – mortgage		3,185		2,038		5,223		9,421		1,029,632		1,044,276
Construction and land development		573		2,339		2,912		6,498		665,516		674,926
Commercial and industrial		2,765		114		2,879		1,122		2,174,534		2,178,535
Consumer and other		8,695		261		8,956		5,776		231,369		246,101
	$	16,466	$	5,364	$	21,830	$	30,049	$	6,284,110	$	6,335,989

December 31, 2014	30-89 days past due and accruing		90 days or more past due and accruing⁽¹⁾		Total past due and accruing		Nonaccrual⁽²⁾		Current and accruing		Total Loans
Commercial real estate:
Owner-occupied	$	-	$	-	$	-	$	4,313	$	760,207	$	764,520
All other		2,232		-		2,232		-		777,339		779,571
Consumer real estate – mortgage		2,391		146		2,537		4,458		714,163		721,158
Construction and land development		421		-		421		5,173		316,872		322,466
Commercial and industrial		3,431		5		3,436		1,609		1,779,684		1,784,729
Consumer and other		9,532		172		9,704		1,152		206,727		217,583
	$	18,007	$	323	$	18,330	$	16,705	$	4,554,992	$	4,590,027

(1)	Approximately $1.3 million of the 90 days or more past due and accruing were obtained from our acquisitions with CapitalMark and Magna.

(2)	Approximately $19.6 million and $10.2 million of nonaccrual loans as of September 30, 2015 and December 31, 2014, respectively, were performing pursuant to their contractual terms at those dates.

The following table shows the allowance allocation by loan classification and accrual status at September 30, 2015 and December 31, 2014 (in thousands):

					Impaired Loans
	Accruing Loans				Nonaccrual Loans				Troubled Debt Restructurings⁽¹⁾				Total Allowance for Loan Losses
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Commercial real estate –mortgage	$	17,841	$	22,094	$	49	$	108	$	41	$	-	$	17,931	$	22,202
Consumer real estate – mortgage		7,633		3,963		743		654		465		807		8,841		5,424
Construction and land development		4,201		5,555		18		79		-		90		4,219		5,724
Commercial and industrial		26,022		28,329		27		62		988		776		27,037		29,167
Consumer and other		3,464		1,261		1,312		252		30		57		4,806		1,570
Unallocated		-		-		-		-		-		-		924		3,272
	$	59,161	$	61,202	$	2,149	$	1,155	$	1,524	$	1,730	$	63,758	$	67,359

(1)	Troubled debt restructurings of $8.4 million as of both September 30, 2015 and December 31, 2014 are classified as impaired loans pursuant to U.S. GAAP; however, these loans continue to accrue interest at contractual rates.

The following tables detail the changes in the allowance for loan losses from December 31, 2013 to December 31, 2014 and from December 31, 2014 to September 30, 2015 by loan classification and the allocation of the allowance for loan losses (in thousands):

	Commercial real estate – mortgage			Consumer real estate – mortgage			Construction and land development			Commercial and industrial			Consumer and other			Unallocated			Total
Allowance for Loan Losses:
Balance at December 31, 2013	$	21,372		$	8,355		$	7,235		$	25,134		$	1,632		$	4,242		$	67,970
Charged-off loans		(875	)		(1,621	)		(301	)		(3,095	)		(1,811	)		-			(7,703	)
Recovery of previously charged-off loans		538			671			277			1,484			487			-			3,457
Provision for loan losses		1,167			(1,981	)		(1,487	)		5,644			1,262			(970	)		3,635
Balance at December 31, 2014	$	22,202		$	5,424		$	5,724		$	29,167		$	1,570		$	3,272		$	67,359

Collectively evaluated for impairment	$	22,094		$	3,963		$	5,555		$	28,329		$	1,261					$	61,202
Individually evaluated for impairment		108			1,461			169			838			309						2,885
Loans acquired with deteriorated credit quality		-			-			-			-			-						-
Balance at December 31, 2014	$	22,202		$	5,424		$	5,724		$	29,167		$	1,570					$	67,359

Loans:
Collectively evaluated for impairment	$	1,539,778		$	712,774		$	316,857		$	1,779,347		$	216,155					$	4,564,911
Individually evaluated for impairment		4,313			8,384			5,609			5,382			1,428						25,116
Loans acquired with deteriorated credit quality		-			-			-			-			-						-
Balance at December 31, 2014	$	1,544,091		$	721,158		$	322,466		$	1,784,729		$	217,583					$	4,590,027

	Commercial real estate - mortgage			Consumer real estate - mortgage			Construction and land development			Commercial and industrial			Consumer and other			Unallocated			Total
Allowance for Loan Losses:
Balance at December 31, 2014	$	22,202		$	5,424		$	5,724		$	29,167		$	1,570		$	3,272		$	67,359
Charged-off loans		(349	)		(227	)		(126	)		(1,372	)		(9,658	)		-			(11,732	)
Recovery of previously charged-off loans		19			451			1,301			1,480			1,151			-			4,402
Provision for loan losses		(3,941	)		3,193			(2,680	)		(2,238	)		11,743			(2,348	)		3,729
Balance at September 30, 2015	$	17,931		$	8,841		$	4,219		$	27,037		$	4,806		$	924		$	63,758

Collectively evaluated for impairment	$	17,841		$	7,633		$	4,201		$	26,022		$	3,464					$	59,161
Individually evaluated for impairment		90			1,208			18			1,015			1,342						3,673
Loans acquired with deteriorated credit quality		-			-			-			-			-						-
Balance at September 30, 2015	$	17,931		$	8,841		$	4,219		$	27,037		$	4,806					$	63,758

Loans:
Collectively evaluated for impairment	$	2,184,696		$	1,031,078		$	668,428		$	2,173,201		$	240,164					$	6,297,567
Individually evaluated for impairment		3,477			8,767			3,246			5,236			5,937						26,663
Loans acquired with deteriorated credit quality		3,978			4,431			3,252			98			-						11,759
Balance at September 30, 2015	$	2,192,151		$	1,044,276		$	674,926		$	2,178,535		$	246,101					$	6,335,989

The adequacy of the allowance for loan losses is assessed at the end of each calendar quarter using a migration analysis compiled using loss data over the previous 24 quarters, which began in the first quarter of 2009. The migration analysis utilized in the third quarter of 2015 allowance for loan losses included our historical loss experience from the third quarter of 2009 through the second quarter of 2015. The level of the allowance is based upon evaluation of the loan portfolio, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, historical loss experience, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Acquired loans are recorded at their fair value upon acquisition. Approximately $1.284 billion of gross contractual loans acquired had a fair value of approximately $29,000, resulting in net total acquired loans of approximately $1.255 billion. At September 30, 2015, no further allowance was required for the acquired loan portfolio.

Pinnacle Financial analyzes its commercial loan portfolio to determine if a concentration of credit risk exists to any industry. Pinnacle Financial utilizes broadly accepted industry classification systems in order to classify borrowers into various industry classifications. Pinnacle Financial has a credit exposure (loans outstanding plus unfunded lines of credit) exceeding 25% of Pinnacle Bank's total risk-based capital to borrowers in the following industries at September 30, 2015 with the comparative exposures for December 31, 2014 (in thousands):

	At September 30, 2015:
	Outstanding Principal Balances			Unfunded Commitments			Total exposure			Total Exposure at December 31, 2014

Lessors of nonresidential buildings		$	649,094		$	182,810		$	831,904		$	572,620
Lessors of residential buildings			270,569			64,251			334,820			335,399

At September 30, 2015, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $10.3 million to current directors, executive officers, and their related entities, of which $7.7 million had been drawn upon. At December 31, 2014, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $6.4 million to directors, executive officers, and their related entities, of which approximately $2.9 million had been drawn upon. These loans and extensions of credit were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans to persons not related to Pinnacle Bank and did not involve more than the normal risk of collectability or present other unfavorable features. None of these loans to directors, executive officers, and their related entities were impaired at September 30, 2015 or December 31, 2014.

At September 30, 2015, Pinnacle Financial had approximately $20.2 million in commercial loans held for sale. These loans held for sale consist solely of apartment loans originated for sale to a third-party as part of a multi-family loan program. Such loans are closed under a pass through commitment structure wherein Pinnacle Bank's loan commitment to the borrower is the same as the third party's take out commitment to Pinnacle Bank, which typically occurs within thirty days of the loan's closing.

Residential Lending

At September 30, 2015, Pinnacle Financial had approximately $47.7 million of mortgage loans held-for-sale compared to approximately $14.0 million at December 31, 2014. Total loan volumes sold during the nine months ended September 30, 2015 were approximately $354.1 million compared to approximately $240.8 million for the nine months ended September 30, 2014. During the nine months ended September 30, 2015, Pinnacle Financial recognized $5.5 million in gains on the sale of these loans, net of commissions paid, compared to $4.3 million during the nine months ended September 30, 2014.

These mortgage loans held-for-sale are originated internally and are primarily to borrowers in Pinnacle Bank's geographic markets. These sales are typically on a mandatory basis to investors that follow conventional government sponsored entities (GSE) and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs (HUD/VA) guidelines.

Each purchaser has specific guidelines and criteria for sellers of loans, and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase agreements require Pinnacle Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties, Pinnacle Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan. To date, repurchase activity pursuant to the terms of these representations and warranties has been insignificant to Pinnacle Bank.