Note 3 – Securities

Securities are classified into held-to-maturity and available-for-sale categories. Held-to-maturity (HTM) securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale (AFS) securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.

The amortized cost and fair value of securities at September 30, 2014 are summarized as follows:

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	140,853	$	261	$	(2,706	)	$	138,408
State and political subdivisions		133,640		3,768		(718	)		136,690
U.S. government sponsored agency mortgage-backed securities		335,640		2,934		(4,781	)		333,793
Total debt securities		610,133		6,963		(8,205	)		608,891
Marketable equity securities		25,000		0		(319	)		24,681
Total available-for-sale securities	$	635,133	$	6,963	$	(8,524	)	$	633,572

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(32	)	$	448
State and political subdivisions		1,182		1		0			1,183
Total held-to-maturity securities	$	1,662	$	1	$	(32	)	$	1,631

The amortized cost and fair value of securities as of December 31, 2013 are summarized as follows:

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	65,524	$	225	$	(5,139	)	$	60,610
State and political subdivisions		118,055		1,907		(3,259	)		116,703
U.S. government sponsored agency mortgage-backed securities		383,174		4,325		(8,189	)		379,310
Total debt securities		566,753		6,457		(16,587	)		556,623
Marketable equity securities		55,000		0		(2,218	)		52,782
Total available-for-sale securities	$	621,753	$	6,457	$	(18,805	)	$	609,405

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(62	)	$	418
State and political subdivisions		1,182		1		0			1,183
Total held-to-maturity securities	$	1,662	$	1	$	(62	)	$	1,601

The amortized cost and fair value of securities at September 30, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale				Held-to-Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	3,371	$	3,400	$	0	$	0
Due after one through five years		108,097		108,713		0		0
Due after five through ten years		129,882		129,250		1,182		1,183
Due after ten years		33,143		33,735		480		448
U.S. government sponsored agency mortgage-backed securities		335,640		333,793		0		0
Total debt securities		610,133		608,891		1,662		1,631
Marketable equity securities		25,000		24,681		0		0
Total securities	$	635,133	$	633,572	$	1,662	$	1,631

During the nine months ended September 30, 2014, there was a combined loss of $145 thousand. A pre-tax gain of $1.8 million and a pre-tax loss of $2.0 million were realized during the year. During the nine months ended September 30, 2013, there was a combined loss of $31 thousand.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $237.7 million at September 30, 2014 and $257.5 million at December 31, 2013.

The amortized cost of securities sold under agreements to repurchase amounted to $264.5 million at September 30, 2014 and $255.4 million at December 31, 2013.

Certain investments in debt and marketable equity securities are reported in the financial statements at amounts less than their historical costs. CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of September 30, 2014 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related. The percentage of total investments with unrealized losses as of September 30, 2014 was 57.8% compared to 67.8% as of December 31, 2013. The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of September 30, 2014 that are not deemed to be other-than-temporarily impaired.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	56,052	$	(103	)	$	55,949
State and political subdivisions		6,305		(30	)		6,275
U.S. government sponsored agency mortgage-backed securities		97,714		(809	)		96,905
Total debt securities		160,071		(942	)		159,129
Marketable equity securities		0		0			0
Total <12 months temporarily impaired AFS securities		160,071		(942	)		159,129

12 Months or More
U.S. Treasury and government agencies		55,519		(2,603	)		52,916
State and political subdivisions		25,528		(688	)		24,840
U.S. government sponsored agency mortgage-backed securities		109,373		(3,972	)		105,401
Total debt securities		190,420		(7,263	)		183,157
Marketable equity securities		25,000		(319	)		24,681
Total ≥12 months temporarily impaired AFS securities		215,420		(7,582	)		207,838

Total
U.S. Treasury and government agencies		111,571		(2,706	)		108,865
State and political subdivisions		31,833		(718	)		31,115
U.S. government sponsored agency mortgage-backed securities		207,087		(4,781	)		202,306
Total debt securities		350,491		(8,205	)		342,286
Marketable equity securities		25,000		(319	)		24,681
Total temporarily impaired AFS securities	$	375,491	$	(8,524	)	$	366,967

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
12 Months or More
U.S. Treasury and government agencies	$	480	$	(32	)	$	448
Total temporarily impaired HTM securities	$	480	$	(32	)	$	448

U.S. Treasury and Government Agencies

The unrealized losses in U.S. Treasury and government agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than amortized cost. CTBI does not consider those investments to be other-than-temporarily impaired at September 30, 2014, because CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost, which may be at maturity.

State and Political Subdivisions

The unrealized losses in securities of state and political subdivisions were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than amortized cost. CTBI does not consider those investments to be other-than-temporarily impaired at September 30, 2014, because CTBI does not intend to sell the investments before recovery of their amortized cost, which may be at maturity.

U.S. Government Sponsored Agency Mortgage-Backed Securities

The unrealized losses in U.S. government sponsored agency mortgage-backed securities were caused by interest rate increases. CTBI expects to recover the amortized cost basis over the term of the securities. CTBI does not consider those investments to be other-than-temporarily impaired at September 30, 2014, because (i) the decline in market value is attributable to changes in interest rates and not credit quality, (ii) CTBI does not intend to sell the investments, and (iii) it is not more likely than not we will be required to sell the investments before recovery of their amortized cost, which may be at maturity.

Marketable Equity Securities

CTBI’s investments in marketable equity securities consist of investments in fixed income mutual funds ($24.7 million of the total fair value and $319 thousand of the total unrealized losses in common stock investments). The severity of the impairment (fair value is approximately 1.3% less than cost) and the duration of the impairment correlates with the rise in interest rates during the latter half of 2013. CTBI evaluated the near-term prospects of these funds in relation to the severity and duration of the impairment. Based on that evaluation, CTBI does not consider those investments to be other-than-temporarily impaired at September 30, 2014.

The analysis performed as of December 31, 2013 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related. The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2013 that are not deemed to be other-than-temporarily impaired.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	21,750	$	(1,617	)	$	20,133
State and political subdivisions		57,165		(2,789	)		54,376
U.S. government sponsored agency mortgage-backed securities		248,705		(8,182	)		240,523
Total debt securities		327,620		(12,588	)		315,032
Marketable equity securities		55,000		(2,218	)		52,782
Total <12 months temporarily impaired AFS securities		382,620		(14,806	)		367,814

12 Months or More
U.S. Treasury and government agencies		35,750		(3,522	)		32,228
State and political subdivisions		7,639		(470	)		7,169
U.S. government sponsored agency mortgage-backed securities		6,579		(7	)		6,572
Total debt securities		49,968		(3,999	)		45,969
Marketable equity securities		0		0			0
Total ≥12 months temporarily impaired AFS securities		49,968		(3,999	)		45,969

Total
U.S. Treasury and government agencies		57,500		(5,139	)		52,361
State and political subdivisions		64,804		(3,259	)		61,545
U.S. government sponsored agency mortgage-backed securities		255,284		(8,189	)		247,095
Total debt securities		377,588		(16,587	)		361,001
Marketable equity securities		55,000		(2,218	)		52,782
Total temporarily impaired AFS securities	$	432,588	$	(18,805	)	$	413,783

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
12 Months or More
U.S. Treasury and government agencies	$	480	$	(62	)	$	418
Total temporarily impaired HTM securities	$	480	$	(62	)	$	418