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 June 30, 2015 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	$	182,465	$	587	$	(1,338	)	$	181,714
State and political subdivisions		133,031		2,913		(783	)		135,161
U.S. government sponsored agency mortgage-backed securities		239,017		2,529		(1,982	)		239,564
Total debt securities		554,513		6,029		(4,103	)		556,439
CRA investment funds		25,000		0		(203	)		24,797
Total available-for-sale securities	$	579,513	$	6,029	$	(4,306	)	$	581,236

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(22	)	$	458
State and political subdivisions		1,181		2		0			1,183
Total held-to-maturity securities	$	1,661	$	2	$	(22	)	$	1,641

The amortized cost and fair value of securities at December 31, 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	$	190,563	$	509	$	(2,140	)	$	188,932
State and political subdivisions		133,951		3,973		(466	)		137,458
U.S. government sponsored agency mortgage-backed securities		288,881		2,876		(2,850	)		288,907
Total debt securities		613,395		7,358		(5,456	)		615,297
CRA investment funds		25,000		0		(111	)		24,889
Total available-for-sale securities	$	638,395	$	7,358	$	(5,567	)	$	640,186

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(19	)	$	461
State and political subdivisions		1,182		1		0			1,183
Total held-to-maturity securities	$	1,662	$	1	$	(19	)	$	1,644

The amortized cost and fair value of securities at June 30, 2015 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	$	22,117	$	22,209	$	0	$	0
Due after one through five years		114,754		115,899		1,181		1,183
Due after five through ten years		127,998		127,897		480		458
Due after ten years		50,627		50,870		0		0
U.S. government sponsored agency mortgage-backed securities		239,017		239,564		0		0
Total debt securities		554,513		556,439		1,661		1,641
CRA investment funds		25,000		24,797		0		0
Total securities	$	579,513	$	581,236	$	1,661	$	1,641

As of June 30, 2015, there was a net gain of $130 thousand realized on sales and calls of AFS securities, consisting of a pre-tax gain of $828 thousand and a pre-tax loss of $698 thousand. As of June 30, 2014, there was a net loss of $111 thousand.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $227.3 million at June 30, 2015 and $267.1 million at December 31, 2014.

The amortized cost of securities sold under agreements to repurchase amounted to $272.6 million at June 30, 2015 and $280.9 million at December 31, 2014.

CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of June 30, 2015 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 June 30, 2015 was 43.6% compared to 44.1% as of December 31, 2014. 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 June 30, 2015 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	$	27,878	$	(81	)	$	27,797
State and political subdivisions		31,676		(501	)		31,175
U.S. government sponsored agency mortgage-backed securities		54,031		(642	)		53,389
Total debt securities		113,585		(1,224	)		112,361
CRA investment funds		25,000		(203	)		24,797
Total <12 months temporarily impaired AFS securities		138,585		(1,427	)		137,158

12 Months or More
U.S. Treasury and government agencies		54,772		(1,257	)		53,515
State and political subdivisions		7,316		(282	)		7,034
U.S. government sponsored agency mortgage-backed securities		57,395		(1,340	)		56,055
Total debt securities		119,483		(2,879	)		116,604
CRA investment funds		0		0			0
Total ≥12 months temporarily impaired AFS securities		119,483		(2,879	)		116,604

Total
U.S. Treasury and government agencies		82,650		(1,338	)		81,312
State and political subdivisions		38,992		(783	)		38,209
U.S. government sponsored agency mortgage-backed securities		111,426		(1,982	)		109,444
Total debt securities		233,068		(4,103	)		228,965
CRA investment funds		25,000		(203	)		24,797
Total temporarily impaired AFS securities	$	258,068	$	(4,306	)	$	253,762

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
12 Months or More
U.S. Treasury and government agencies	$	480	$	(22	)	$	458
Total temporarily impaired HTM securities	$	480	$	(22	)	$	458

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 June 30, 2015, 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 June 30, 2015, 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 June 30, 2015, 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.

CRA Investment Funds

CTBI's CRA investment funds consist of investments in fixed income mutual funds ($24.8 million of the total fair value and $203 thousand of the total unrealized losses in common stock investments). The severity of the impairment (fair value is approximately 0.8% less than cost) and the duration of the impairment correlates with the decline in long-term interest rates in 2015. 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 June 30, 2015.

The analysis performed as of December 31, 2014 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, 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	$	31,185	$	(87	)	$	31,098
State and political subdivisions		8,800		(23	)		8,777
U.S. government sponsored agency mortgage-backed securities		50,115		(442	)		49,673
Total debt securities		90,100		(552	)		89,548
CRA investment funds		25,000		(111	)		24,889
Total <12 months temporarily impaired AFS securities		115,100		(663	)		114,437

12 Months or More
U.S. Treasury and government agencies		65,209		(2,053	)		63,156
State and political subdivisions		21,308		(443	)		20,865
U.S. government sponsored agency mortgage-backed securities		86,389		(2,408	)		83,981
Total debt securities		172,906		(4,904	)		168,002
CRA investment funds		0		0			0
Total ≥12 months temporarily impaired AFS securities		172,906		(4,904	)		168,002

Total
U.S. Treasury and government agencies		96,394		(2,140	)		94,254
State and political subdivisions		30,108		(466	)		29,642
U.S. government sponsored agency mortgage-backed securities		136,504		(2,850	)		133,654
Total debt securities		263,006		(5,456	)		257,550
CRA investment funds		25,000		(111	)		24,889
Total temporarily impaired AFS securities	$	288,006	$	(5,567	)	$	282,439

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
12 Months or More
U.S. Treasury and government agencies	$	480	$	(19	)	$	461
Total temporarily impaired HTM securities	$	480	$	(19	)	$	461