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 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 December 31, 2012 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	$	60,625	$	463	$	(173	)	$	60,915
State and political subdivisions		107,987		5,369		(135	)		113,221
U.S. government sponsored agency mortgage-backed securities		370,246		13,347		(12	)		383,581
Total debt securities		538,858		19,179		(320	)		557,717
Marketable equity securities		45,000		791		(165	)		45,626
Total available-for-sale securities	$	583,858	$	19,970	$	(485	)	$	603,343

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(4	)	$	476
State and political subdivisions		1,182		1		0			1,183
Total held-to-maturity securities	$	1,662	$	1	$	(4	)	$	1,659

The amortized cost and fair value of securities at December 31, 2013 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	$	3,844	$	3,863	$	0	$	0
Due after one through five years		29,673		30,137		0		0
Due after five through ten years		117,690		112,175		1,182		1,183
Due after ten years		32,372		31,138		480		418
U.S. government sponsored agency mortgage-backed securities		383,174		379,310		0		0
Total debt securities		566,753		556,623		1,662		1,601
Marketable equity securities		55,000		52,782		0		0
Total securities	$	621,753	$	609,405	$	1,662	$	1,601

There was a combined loss of $45 thousand due to sales of seven mortgage-backed securities and an agency security and partial calls of two municipal securities. A pre-tax gain of $612 thousand and a pre-tax loss of $657 thousand were realized during the year. There was a combined gain of $1.2 million realized in 2012 due to sales of four agency securities, one mortgage-backed security, and five auction rate securities and a call of a municipal security. A pre-tax gain of $2.4 million and a pre-tax loss of $1.2 million were realized in 2012. There was a pre-tax gain of $218 thousand realized in 2011 due to the sale of an agency security.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $257.5 million at December 31, 2013 and $262.4 million at December 31, 2012.

The amortized cost of securities sold under agreements to repurchase amounted to $255.4 million at December 31, 2013 and $237.3 million at December 31, 2012.

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 December 31, 2013 indicates that all impairment is considered temporary, market driven, and not credit-related. The percentage of total investments with unrealized losses as of December 31, 2013 was 67.8% compared to 14.8% as of December 31, 2012 as a result of changes in the market rates during 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 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

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. 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 maturity, CTBI does not consider those investments to be other-than-temporarily impaired at December 31, 2013.

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. Because CTBI does not intend to sell the investments before recovery of their amortized cost, which may be maturity, CTBI does not consider those investments to be other-than-temporarily impaired at December 31, 2013.

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. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because CTBI does not intend to sell the investments and it is not more likely than not we will be required to sell the investments before recovery of their amortized cost, which may be maturity, CTBI does not consider those investments to be other-than-temporarily impaired at December 31, 2013.

Marketable Equity Securities

CTBI’s investments in marketable equity securities consist primarily of investments in fixed income mutual funds ($52.8 million of the total fair value and $2.2 million of the total unrealized losses in common stock investments). Within CTBI’s fixed income mutual funds is a fund that invests in mortgages which is approximately 54% of the total fair value and 68% of CTBI’s total unrealized losses and a fund that invests in CRA eligible investments which is approximately 46% of the total fair value and 32% of CTBI’s total unrealized losses. The severity of the impairment (fair value is approximately 2.8% to 5.0% less than cost) and the duration of the impairment (less than twelve months) 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 December 31, 2013.

The analysis performed as of December 31, 2012 indicated that all impairment was considered temporary, market 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, 2012 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	$	47,576	$	(173	)	$	47,403
State and political subdivisions		11,126		(135	)		10,991
U.S. government sponsored agency mortgage-backed securities		10,563		(12	)		10,551
Total debt securities		69,265		(320	)		68,945
Marketable equity securities		20,000		(165	)		19,835
Total < 12 months temporarily impaired AFS securities		89,265		(485	)		88,780

Total
U.S. Treasury and government agencies		47,576		(173	)		47,403
State and political subdivisions		11,126		(135	)		10,991
U.S. government sponsored agency mortgage-backed securities		10,563		(12	)		10,551
Total debt securities		69,265		(320	)		68,945
Marketable equity securities		20,000		(165	)		19,835
Total temporarily impaired AFS securities	$	89,265	$	(485	)		88,780

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	480	$	(4	)	$	476
Total temporarily impaired HTM securities	$	480	$	(4	)	$	476