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, 2017 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	$	218,107	$	239	$	(488	)	$	217,858
State and political subdivisions		134,840		2,670		(853	)		136,657
U.S. government sponsored agency mortgage-backed securities		226,466		591		(3,059	)		223,998
Total debt securities		579,413		3,500		(4,400	)		578,513
CRA investment funds		25,000		93		(573	)		24,520
Total available-for-sale securities	$	604,413	$	3,593	$	(4,973	)	$	603,033

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	858	$	0	$	0	$	858
Total held-to-maturity securities	$	858	$	0	$	0	$	858

The amortized cost and fair value of securities at December 31, 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	$	223,014	$	193	$	(743	)	$	222,464
State and political subdivisions		133,351		1,957		(1,792	)		133,516
U.S. government sponsored agency mortgage-backed securities		227,574		1,008		(3,526	)		225,056
Total debt securities		583,939		3,158		(6,061	)		581,036
CRA investment funds		25,000		76		(718	)		24,358
Total available-for-sale securities	$	608,939	$	3,234	$	(6,779	)	$	605,394

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	866	$	1	$	0	$	867
Total held-to-maturity securities	$	866	$	1	$	0	$	867

The amortized cost and fair value of securities at September 30, 2017 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	$	58,967	$	58,968	$	0	$	0
Due after one through five years		128,058		128,883		858		858
Due after five through ten years		40,962		41,804		0		0
Due after ten years		124,960		124,860		0		0
U.S. government sponsored agency mortgage-backed securities		226,466		223,998		0		0
Total debt securities		579,413		578,513		858		858
CRA investment funds		25,000		24,520		0		0
Total securities	$	604,413	$	603,033	$	858	$	858

During the three months ended September 30, 2017, there was a net gain of $48 thousand on sales of AFS securities, consisting of a pre-tax gain of $150 thousand and a pre-tax loss of $102 thousand. 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 nine months ended September 30, 2017, there was a combined gain of $58 thousand on sales and calls of AFS securities, consisting of a pre-tax gain of $179 thousand and a pre-tax loss of $121 thousand. 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.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $222.0 million at September 30, 2017 and $221.2 million at December 31, 2016.

The amortized cost of securities sold under agreements to repurchase amounted to $296.4 million at September 30, 2017 and $303.5 million at December 31, 2016.

CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of September 30, 2017 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, 2017 was 66.5% compared to 65.6% as of December 31, 2016. 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, 2017 that are not deemed to be other-than-temporarily impaired. There were no held-to-maturity securities that were deemed to be impaired as of September 30, 2017.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	143,007	$	(471	)	$	142,536
State and political subdivisions		20,141		(236	)		19,905
U.S. government sponsored agency mortgage-backed securities		71,913		(336	)		71,577
Total debt securities		235,061		(1,043	)		234,018
CRA investment funds		7,500		(56	)		7,444
Total <12 months temporarily impaired AFS securities		242,561		(1,099	)		241,462

12 Months or More
U.S. Treasury and government agencies		21,559		(17	)		21,542
State and political subdivisions		13,832		(617	)		13,215
U.S. government sponsored agency mortgage-backed securities		113,712		(2,723	)		110,989
Total debt securities		149,103		(3,357	)		145,746
CRA investment funds		15,000		(517	)		14,483
Total ≥12 months temporarily impaired AFS securities		164,103		(3,874	)		160,229

Total
U.S. Treasury and government agencies		164,566		(488	)		164,078
State and political subdivisions		33,973		(853	)		33,120
U.S. government sponsored agency mortgage-backed securities		185,625		(3,059	)		182,566
Total debt securities		384,164		(4,400	)		379,764
CRA investment funds		22,500		(573	)		21,927
Total temporarily impaired AFS securities	$	406,664	$	(4,973	)	$	401,691

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 par which will equal amortized cost at maturity. CTBI does not consider those investments to be other-than-temporarily impaired at September 30, 2017, 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.

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 par which will equal amortized cost at maturity. CTBI does not consider those investments to be other-than-temporarily impaired at September 30, 2017, because CTBI does not intend to sell the investments before recovery of their amortized cost 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.

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, 2017, because (i) the decline in fair 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 maturity.

CRA Investment Funds

CTBI’s CRA investment funds consist of investments in fixed income mutual funds ($24.5 million of the total fair value and $480 thousand of the total unrealized losses in common stock investments). The severity of the impairment (fair value is approximately 2.3% less than cost) and the duration of the impairment correlates with the decline in long-term interest rates in 2017. 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, 2017.

The analysis performed as of December 31, 2016 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, 2016 that are not deemed to be other-than-temporarily impaired. There were no held-to-maturity securities that were deemed to be impaired as of December 31, 2016.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	158,732	$	(716	)	$	158,016
State and political subdivisions		53,491		(1,780	)		51,711
U.S. government sponsored agency mortgage-backed securities		135,939		(2,646	)		133,293
Total debt securities		348,162		(5,142	)		343,020
CRA investment funds		17,500		(444	)		17,056
Total <12 months temporarily impaired AFS securities		365,662		(5,586	)		360,076

12 Months or More
U.S. Treasury and government agencies		1,880		(27	)		1,853
State and political subdivisions		751		(12	)		739
U.S. government sponsored agency mortgage-backed securities		31,132		(880	)		30,252
Total debt securities		33,763		(919	)		32,844
CRA investment funds		5,000		(274	)		4,726
Total ≥12 months temporarily impaired AFS securities		38,763		(1,193	)		37,570

Total
U.S. Treasury and government agencies		160,612		(743	)		159,869
State and political subdivisions		54,242		(1,792	)		52,450
U.S. government sponsored agency mortgage-backed securities		167,071		(3,526	)		163,545
Total debt securities		381,925		(6,061	)		375,864
CRA investment funds		22,500		(718	)		21,782
Total temporarily impaired AFS securities	$	404,425	$	(6,779	)	$	397,646