Securities

9 Months Ended

Sep. 30, 2019

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, 2019 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	$	193,376	$	610	$	(619	)	$	193,367
State and political subdivisions		101,593		3,146		(37	)		104,702
U.S. government sponsored agency mortgage-backed securities		316,745		4,806		(1,088	)		320,463
Other debt securities		31,450		0		(6	)		31,444
Total available-for-sale securities	$	643,164	$	8,562	$	(1,750	)	$	649,976

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	517	$	0	$	0	$	517
Total held-to-maturity securities	$	517	$	0	$	0	$	517

The amortized cost and fair value of securities at December 31, 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	$	219,358	$	48	$	(1,468	)	$	217,938
State and political subdivisions		126,280		633		(2,425	)		124,488
U.S. government sponsored agency mortgage-backed securities		255,969		397		(5,547	)		250,819
Other debt securities		507		0		(6	)		501
Total available-for-sale securities	$	602,114	$	1,078	$	(9,446	)	$	593,746

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	649	$	0	$	0	$	649
Total held-to-maturity securities	$	649	$	0	$	0	$	649

The amortized cost and fair value of debt securities at September 30, 2019 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	$	34,370	$	34,394	$	517	$	517
Due after one through five years		88,607		89,169		0		0
Due after five through ten years		94,121		94,255		0		0
Due after ten years		77,871		80,251		0		0
U.S. government sponsored agency mortgage-backed securities		316,745		320,463		0		0
Other debt securities		31,450		31,444		0		0
Total debt securities	$	643,164	$	649,976	$	517	$	517

During the three months ended September 30, 2019, there was a net securities gain of $14 thousand. There was a pre-tax loss of $2 thousand realized on calls of AFS securities consisting of a pre-tax gain of $1 thousand and a pre-tax loss of $3 thousand, and an unrealized gain of $16 thousand from the fair market value adjustment of equity securities. During the three months ended September 30, 2018, there was a pre-tax loss of $2 thousand realized on calls of AFS securities.

During the nine months ended September 30, 2019, there was a net securities gain of $574 thousand. There was a pre-tax gain of $4 thousand realized on sales and calls of AFS securities consisting of a pre-tax gain of $81 thousand and a pre-tax loss of $77 thousand, and an unrealized gain of $570 thousand from the fair market value adjustment of equity securities. 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.

Equity Securities at Fair Value

In 2008, Visa distributed 9,918 shares of Visa Class B restricted stock to CTBI which, upon resolution of certain pending legal matters, will become unrestricted and convertible into Visa Class A shares. Following this distribution, significant concern existed about the ultimate realizable value of these shares, and because CTBI did not have a basis in the stock, the shares were previously not recorded as an asset on CTBI’s balance sheet. In recent years, the concern over the realizable value has stabilized, and in late 2017 and 2018, several sales of Visa Class B shares have occurred. While not traded in observable markets, these sales were reported by several financial institutions in various SEC 8-K and 10-K filings. In 2018, FASB issued a technical correction to its guidance regarding equity securities, ASC 321-10-35-2, allowing an entity to subsequently elect to record an equity security without a readily determinable fair value. In 2018, CTBI made the election permitted by ASC 321-10-35-2 to record its Visa Class B shares at fair value. On December 31, 2018, CTBI recorded a $1.2 million gain on the recognition of the fair value of 9,918 Visa Class B shares held in its portfolio. Equity securities at fair value as of September 30, 2019 were $1.7 million, as a result of a fair market value increase in the third quarter 2019.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $237.9 million at September 30, 2019 and $258.8 million at December 31, 2018.

The amortized cost of securities sold under agreements to repurchase amounted to $259.1 million at September 30, 2019 and $289.1 million at December 31, 2018.

CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of September 30, 2019 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related. The percentage of total debt securities with unrealized losses as of September 30, 2019 was 38.9% compared to 75.7% as of December 31, 2018. 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, 2019 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, 2019.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	25,253	$	(153	)	$	25,100
State and political subdivisions		8,358		(37	)		8,321
U.S. government sponsored agency mortgage-backed securities		17,634		(70	)		17,564
Other debt securities		12,303		(6	)		12,297
Total <12 months temporarily impaired AFS securities		63,548		(266	)		63,282

12 Months or More
U.S. Treasury and government agencies		86,397		(466	)		85,931
State and political subdivisions		0		0			0
U.S. government sponsored agency mortgage-backed securities		104,959		(1,018	)		103,941
Other debt securities		0		0			0
Total ≥12 months temporarily impaired AFS securities		191,356		(1,484	)		189,872

Total
U.S. Treasury and government agencies		111,650		(619	)		111,031
State and political subdivisions		8,358		(37	)		8,321
U.S. government sponsored agency mortgage-backed securities		122,593		(1,088	)		121,505
Other debt securities		12,303		(6	)		12,297
Total temporarily impaired AFS securities	$	254,904	$	(1,750	)	$	253,154

The analysis performed as of December 31, 2018 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, 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 December 31, 2018.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	78,905	$	(271	)	$	78,634
State and political subdivisions		21,707		(194	)		21,513
U.S. government sponsored agency mortgage-backed securities		61,940		(377	)		61,563
Other debt securities		507		(6	)		501
Total <12 months temporarily impaired AFS securities		163,059		(848	)		162,211

12 Months or More
U.S. Treasury and government agencies		97,955		(1,197	)		96,758
State and political subdivisions		51,911		(2,231	)		49,680
U.S. government sponsored agency mortgage-backed securities		147,658		(5,170	)		142,488
Other debt securities		0		0			0
Total ≥12 months temporarily impaired AFS securities		297,524		(8,598	)		288,926

Total
U.S. Treasury and government agencies		176,860		(1,468	)		175,392
State and political subdivisions		73,618		(2,425	)		71,193
U.S. government sponsored agency mortgage-backed securities		209,598		(5,547	)		204,051
Other debt securities		507		(6	)		501
Total temporarily impaired AFS securities	$	460,583	$	(9,446	)	$	451,137

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, 2019, 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, 2019, 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, 2019, 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, 2019, 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.