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, 2016 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	$	243,980	$	1,311	$	(180	)	$	245,111
State and political subdivisions		128,644		4,646		(115	)		133,175
U.S. government sponsored agency mortgage-backed securities		226,794		1,820		(843	)		227,771
Total debt securities		599,418		7,777		(1,138	)		606,057
CRA investment funds		25,000		293		(149	)		25,144
Total available-for-sale securities	$	624,418	$	8,070	$	(1,287	)	$	631,201

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	1,181	$	1	$	0	$	1,182
Total held-to-maturity securities	$	1,181	$	1	$	0	$	1,182

The amortized cost and fair value of securities at December 31, 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	$	240,434	$	311	$	(1,351	)	$	239,394
State and political subdivisions		125,665		3,707		(157	)		129,215
U.S. government sponsored agency mortgage-backed securities		202,282		1,564		(2,270	)		201,576
Total debt securities		568,381		5,582		(3,778	)		570,185
CRA investment funds		25,000		132		(381	)		24,751
Total available-for-sale securities	$	593,381	$	5,714	$	(4,159	)	$	594,936

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(12	)	$	468
State and political subdivisions		1,181		2		0			1,183
Total held-to-maturity securities	$	1,661	$	2	$	(12	)	$	1,651

The amortized cost and fair value of securities at September 30, 2016 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	$	68,479	$	68,576	$	0	$	0
Due after one through five years		154,511		156,366		1,181		1,182
Due after five through ten years		63,044		65,336		0		0
Due after ten years		86,590		88,008		0		0
U.S. government sponsored agency mortgage-backed securities		226,794		227,771		0		0
Total debt securities		599,418		606,057		1,181		1,182
CRA investment funds		25,000		25,144		0		0
Total securities	$	624,418	$	631,201	$	1,181	$	1,182

During the three months ended September 30, 2016, there was a net gain of $458 thousand on sales and calls of AFS securities, consisting of a pre-tax gain of $460 thousand and a pre-tax loss of $2 thousand. During the three months ended September 30, 2015, there was a net gain of $12 thousand on sales.

During the nine months ended September 30, 2016, there was a combined gain of $522 thousand on sales and calls of AFS securities, consisting of a pre-tax gain of $529 thousand and a pre-tax loss of $7 thousand. During the nine months ended September 30, 2015, there was a combined gain of $142 thousand on sales and calls of AFS securities, consisting of a pre-tax gain of $840 thousand and a pre-tax loss of $698 thousand.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $203.4 million at September 30, 2016 and $228.2 million at December 31, 2015.

The amortized cost of securities sold under agreements to repurchase amounted to $297.4 million at September 30, 2016 and $285.5 million at December 31, 2015.

CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of September 30, 2016 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, 2016 was 36.0% compared to 61.1% as of December 31, 2015. 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, 2016 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	$	58,160	$	(155	)	$	58,005
State and political subdivisions		10,697		(105	)		10,592
U.S. government sponsored agency mortgage-backed securities		109,623		(308	)		109,315
Total debt securities		178,480		(568	)		177,912
CRA investment funds		10,000		(27	)		9,973
Total <12 months temporarily impaired AFS securities		188,480		(595	)		187,885

12 Months or More
U.S. Treasury and government agencies		1,927		(25	)		1,902
State and political subdivisions		753		(10	)		743
U.S. government sponsored agency mortgage-backed securities		32,712		(535	)		32,177
Total debt securities		35,392		(570	)		34,822
CRA investment funds		5,000		(122	)		4,878
Total ≥12 months temporarily impaired AFS securities		40,392		(692	)		39,700

Total
U.S. Treasury and government agencies		60,087		(180	)		59,907
State and political subdivisions		11,450		(115	)		11,335
U.S. government sponsored agency mortgage-backed securities		142,335		(843	)		141,492
Total debt securities		213,872		(1,138	)		212,734
CRA investment funds		15,000		(149	)		14,851
Total temporarily impaired AFS securities	$	228,872	$	(1,287	)	$	227,585

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, 2015 that are not deemed to be other-than-temporarily impaired. The analysis performed as of December 31, 2015 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	142,147	$	(487	)	$	141,660
State and political subdivisions		11,190		(106	)		11,084
U.S. government sponsored agency mortgage-backed securities		92,009		(899	)		91,110
Total debt securities		245,346		(1,492	)		243,854
CRA investment funds		10,000		(183	)		9,817
Total <12 months temporarily impaired AFS securities		255,346		(1,675	)		253,671

12 Months or More
U.S. Treasury and government agencies		54,773		(864	)		53,909
State and political subdivisions		3,187		(51	)		3,136
U.S. government sponsored agency mortgage-backed securities		49,908		(1,371	)		48,537
Total debt securities		107,868		(2,286	)		105,582
CRA investment funds		5,000		(198	)		4,802
Total ≥12 months temporarily impaired AFS securities		112,868		(2,484	)		110,384

Total
U.S. Treasury and government agencies		196,920		(1,351	)		195,569
State and political subdivisions		14,377		(157	)		14,220
U.S. government sponsored agency mortgage-backed securities		141,917		(2,270	)		139,647
Total debt securities		353,214		(3,778	)		349,436
CRA investment funds		15,000		(381	)		14,619
Total temporarily impaired AFS securities	$	368,214	$	(4,159	)	$	364,055

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
12 Months or More
U.S. Treasury and government agencies	$	480	$	(12	)	$	468
Total temporarily impaired HTM securities	$	480	$	(12	)	$	468

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, 2016, 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, 2016, 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, 2016, 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 ($25.1 million of the total fair value and $0.1 million of the total gross unrealized losses in common stock investments). The severity of the impairment (fair value is approximately 0.6% less than cost) and the duration of the impairment correlates with the decline in long-term interest rates in 2016. 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, 2016.