Note 3. Securities

The amortized cost and fair value of securities available-for-sale and held-to-maturity at June 30, 2011 and December 31, 2010 are summarized as follows:

	June 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available-for-sale:
U.S. government agency securities	$	52,895,419	$	225,945	$	52,325	$	53,069,039
Mortgage-backed securities		639,792,789		19,801,102		201,730		659,392,161
State and municipal securities		190,932,779		8,992,920		207,924		199,717,775
Corporate notes and other		9,750,731		850,528		-		10,601,259
	$	893,371,718	$	29,870,495	$	461,979	$	922,780,234
Securities held-to-maturity:
State and municipal securities		2,727,272		70,186		6,243		2,791,215
	$	2,727,272	$	70,186	$	6,243	$	2,791,215

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available-for-sale:
U.S. Government agency securities	$	90,214,825	$	487,320	$	286,707	$	90,415,438
Mortgage-backed securities		686,938,731		16,742,783		2,419,943		701,261,571
State and municipal securities		208,562,713		4,580,704		1,662,378		211,481,039
Corporate notes and other		10,474,074		761,487		76,778		11,158,783
	$	996,190,343	$	22,572,294	$	4,445,806	$	1,014,316,831
Securities held-to-maturity:
State and municipal securities		4,320,486		104,643		13,273		4,411,856
	$	4,320,486	$	104,643	$	13,273	$	4,411,856

During the quarter ended June 30, 2011, Pinnacle Financial realized approximately $650,000 in gains and no losses from the sale of $31.8 million of available-for-sale securities. The bonds sold included the sale of a security which was deemed to be other-than-temporarily impaired during the first quarter of 2011, and mortgage backed and municipal securities that had fallen outside of the parameters of our Asset/Liability policy as more fully described below. During the second quarter of 2011, three securities were deemed to be other-than-temporarily impaired. Pinnacle Financial recorded impairment totaling $40,000 that partially offset the gain on the sale of the securities. During the quarter ended March 31, 2011, Pinnacle Financial realized approximately $612,000 in gains and $365,000 in losses from the sale of $19.0 million of available-for-sale securities. Also, during the first quarter of 2011, Pinnacle Financial determined that an available-for-sale security was other-than-temporarily impaired as the credit worthiness of the security had deteriorated. This resulted in a $406,000 impairment charge which offset the net gain on the sale of investment securities.

At June 30, 2011, approximately $717.8 million of 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 June 30, 2011 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages 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.

	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	3,236,616	$	3,322,308	$	1,816,317	$	1,846,509
Due in one year to five years		52,490,447		53,747,804		910,955		944,706
Due in five years to ten years		92,620,753		97,530,848		-		-
Due after ten years		105,231,153		108,787,153		-		-
Mortgage-backed securities		639,792,749		659,392,121		-		-
	$	893,371,718	$	922,780,234	$	2,727,272	$	2,791,215

At June 30, 2011 and December 31, 2010, included in securities were the following investments with unrealized losses. The information below classifies these investments according to the term of the unrealized losses of less than twelve months or twelve months or longer:

	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 June 30, 2011:

U.S. government agency securities	$	15,301,247	$	52,325	$	-	$	-	$	15,301,247	$	52,325
Mortgage-backed securities		105,844,982		201,235		195,655		495		106,040,637		201,730
State and municipal securities		4,282,612		66,842		4,364,859		147,325		8,647,471		214,167
Corporate notes		-		-		-		-		-		-
Total temporarily-impaired securities	$	125,428,841	$	320,402	$	4,560,514	$	147,820	$	129,989,355	$	468,222

At December 31, 2010:

U.S. government agency securities	$	22,011,159	$	286,707	$	-	$	-	$	22,011,159	$	286,707
Mortgage-backed securities		275,389,573		2,418,995		225,984		948		275,615,557		2,419,943
State and municipal securities		53,420,235		880,615		6,979,207		795,036		60,399,442		1,675,651
Corporate notes		258,282		823		424,046		75,955		682,328		76,778
Total temporarily-impaired securities	$	351,079,249	$	3,587,140	$	7,629,237	$	871,939	$	358,708,486	$	4,459,079

The applicable date for determining when securities are in an unrealized loss position is June 30, 2011. 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 period which would result in the security being classified in the “Investments with an unrealized loss of less than 12 months” category above.

The unrealized losses associated with these investment securities are primarily driven by changes in interest rates and are not due to the credit quality of the securities. 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.

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, raising funds for liquidity purposes and in the event of a bank merger where certain investment holdings acquired via the merger are outside of the firm's investment policy. Additionally, if an available-for-sale security loses its investment grade, 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 noted in the table above, at June 30, 2011, Pinnacle Financial had unrealized losses of $468,000 on $130.0 million of available-for-sale securities. Because Pinnacle Financial currently does not intend to sell these securities 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 June 30, 2011.

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.