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, 2018 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	$	246,153	$	0	$	(3,354	)	$	242,799
State and political subdivisions		127,423		480		(3,911	)		123,992
U.S. government sponsored agency mortgage-backed securities		208,900		146		(7,135	)		201,911
Other debt securities		507		0		(1	)		506
Total debt securities		582,983		626		(14,401	)		569,208
CRA investment funds		0		0		0			0
Total available-for-sale securities	$	582,983	$	626	$	(14,401	)	$	569,208

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	659	$	1	$	0	$	660
Total held-to-maturity securities	$	659	$	1	$	0	$	660

The amortized cost and fair value of securities at December 31, 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	$	211,574	$	170	$	(1,172	)	$	210,572
State and political subdivisions		144,159		2,017		(1,161	)		145,015
U.S. government sponsored agency mortgage-backed securities		208,959		357		(4,007	)		205,309
Other debt securities		507		0		0			507
Total debt securities		565,199		2,544		(6,340	)		561,403
CRA investment funds		25,000		76		(718	)		24,358
Total available-for-sale securities	$	590,199	$	2,620	$	(7,058	)	$	585,761

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	659	$	1	$	0	$	660
Total held-to-maturity securities	$	659	$	1	$	0	$	660

The amortized cost and fair value of securities at September 30, 2018 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	$	46,660	$	46,471	$	0	$	0
Due after one through five years		133,244		131,223		659		660
Due after five through ten years		76,825		75,192		0		0
Due after ten years		116,847		113,905		0		0
U.S. government sponsored agency mortgage-backed securities		208,900		201,911		0		0
Other debt securities		507		506		0		0
Total securities	$	582,983	$	569,208	$	659	$	660

During the three months ended September 30, 2018, there was a pre-tax loss of $2 thousand realized on sales and calls of AFS securities. During the three months ended September 30, 2017, there was a net gain of $48 thousand realized on sales of AFS securities, consisting of a pre-tax gain of $150 thousand and a pre-tax loss of $102 thousand.

During the nine months ended September 30, 2018, there was a combined loss of $288 thousand realized on sales and calls of AFS securities, consisting of a pre-tax gain of $284 thousand and a pre-tax loss of $572 thousand. This combined loss included a loss of $436 thousand from the sale of CTBI’s CRA investment funds in the first quarter of 2018. During the nine months ended September 30, 2017, there was a combined gain of $58 thousand realized on sales and calls of AFS securities, consisting of a pre-tax gain of $179 thousand and a pre-tax loss of $121 thousand.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $235.9 million at September 30, 2018 and $225.7 million at December 31, 2017.

The amortized cost of securities sold under agreements to repurchase amounted to $297.0 million at September 30, 2018 and $296.4 million at December 31, 2017.

CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of September 30, 2018 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, 2018 was 90.5% compared to 69.5% as of December 31, 2017. 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, 2018 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, 2018.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	132,224	$	(1,300	)	$	130,924
State and political subdivisions		59,535		(1,511	)		58,024
U.S. government sponsored agency mortgage-backed securities		32,681		(674	)		32,007
Other debt securities		507		(1	)		506
Total <12 months temporarily impaired AFS securities		224,947		(3,486	)		221,461

12 Months or More
U.S. Treasury and government agencies		113,929		(2,054	)		111,875
State and political subdivisions		29,021		(2,400	)		26,621
U.S. government sponsored agency mortgage-backed securities		162,034		(6,461	)		155,573
Other debt securities		0		0			0
Total ≥12 months temporarily impaired AFS securities		304,984		(10,915	)		294,069

Total
U.S. Treasury and government agencies		246,153		(3,354	)		242,799
State and political subdivisions		88,556		(3,911	)		84,645
U.S. government sponsored agency mortgage-backed securities		194,715		(7,135	)		187,580
Other debt securities		507		(1	)		506
Total temporarily impaired AFS securities	$	529,931	$	(14,401	)	$	515,530

The analysis performed as of December 31, 2017 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, 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 December 31, 2017.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	136,688	$	(840	)	$	135,848
State and political subdivisions		34,283		(416	)		33,867
U.S. government sponsored agency mortgage-backed securities		62,768		(643	)		62,125
Total debt securities		233,739		(1,899	)		231,840
CRA investment funds		7,500		(105	)		7,395
Total <12 months temporarily impaired AFS securities		241,239		(2,004	)		239,235

12 Months or More
U.S. Treasury and government agencies		23,885		(332	)		23,553
State and political subdivisions		16,930		(745	)		16,185
U.S. government sponsored agency mortgage-backed securities		117,827		(3,364	)		114,463
Total debt securities		158,642		(4,441	)		154,201
CRA investment funds		15,000		(613	)		14,387
Total ≥12 months temporarily impaired AFS securities		173,642		(5,054	)		168,588

Total
U.S. Treasury and government agencies		160,573		(1,172	)		159,401
State and political subdivisions		51,213		(1,161	)		50,052
U.S. government sponsored agency mortgage-backed securities		180,595		(4,007	)		176,588
Total debt securities		392,381		(6,340	)		386,041
CRA investment funds		22,500		(718	)		21,782
Total temporarily impaired AFS securities	$	414,881	$	(7,058	)	$	407,823

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, 2018, 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, 2018, 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, 2018, 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 maturity.

Other Debt Securities

The unrealized losses in other debt securities 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, 2018, 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.