Edgar Filing: COMMUNITY TRUST BANCORP INC /KY/

ctb10q0610.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2010

	Or

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____________ to _____________

Commission file number 0-11129

COMMUNITY TRUST BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky	61-0979818
(State or other jurisdiction of incorporation or organization)	IRS Employer Identification No.

346 North Mayo Trail Pikeville, Kentucky (address of principal executive offices)	41501 (Zip Code)

(606) 432-1414

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ü

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	Accelerated filer ü	Non-accelerated filer	Smaller reporting company
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

No ü

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common stock – 15,239,459 shares outstanding at July 31, 2010

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

The accompanying information has not been audited by independent registered public accountants; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature.

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K. Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 2009 for further information in this regard.

Community Trust Bancorp, Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)	(unaudited) June 30 2010			December 31 2009
Assets:
Cash and due from banks	$	71,196		$	62,720
Interest bearing deposits		38,363			31,814
Federal funds sold		67,006			47,595
Cash and cash equivalents		176,565			142,129

Certificates of deposits in other banks		15,508			100
Securities available-for-sale at fair value
(amortized cost of $344,163 and $263,756, respectively)		352,616			270,237
Securities held-to-maturity at amortized cost
(fair value of $1,662 and $14,435, respectively)		1,662			14,336
Loans held for sale		1,466			1,818

Loans		2,441,222			2,435,760
Allowance for loan losses		(36,156	)		(32,643	)
Net loans		2,405,066			2,403,117

Premises and equipment, net		48,403			49,242
Federal Reserve Bank and Federal Home Loan Bank stock		29,054			29,048
Goodwill		65,059			65,059
Core deposit intangible (net of accumulated amortization of $7,174 and
$6,857, respectively)		331			648
Bank owned life insurance		38,812			38,117
Mortgage servicing rights		2,692			3,406
Other real estate owned		40,105			37,333
Other assets		31,953			32,069
Total assets	$	3,209,292		$	3,086,659

Liabilities and shareholders’ equity:
Deposits
Noninterest bearing	$	494,901		$	490,809
Interest bearing		2,076,226			1,971,400
Total deposits		2,571,127			2,462,209

Repurchase agreements		183,287			180,471
Federal funds purchased and other short-term borrowings		8,465			12,205
Advances from Federal Home Loan Bank		20,059			20,671
Long-term debt		61,341			61,341
Other liabilities		34,682			28,305
Total liabilities		2,878,961			2,765,202

Shareholders’ equity:
Preferred stock, 300,000 shares authorized and unissued		-			-
Common stock, $5 par value, shares authorized 25,000,000;
shares outstanding 2010 – 15,227,945; 2009 – 15,183,987		76,140			75,920
Capital surplus		153,640			152,484
Retained earnings		95,057			88,840
Accumulated other comprehensive income, net of tax		5,494			4,213
Total shareholders’ equity		330,331			321,457

Total liabilities and shareholders’ equity	$	3,209,292		$	3,086,659

See notes to condensed consolidated financial statements.

Community Trust Bancorp, Inc.

Condensed Consolidated Statements of Income and Other Comprehensive Income

(unaudited)

	Three Months Ended					Six Months Ended
	June 30					June 30
(in thousands except per share data)	2010		2009			2010		2009

Interest income:
Interest and fees on loans, including loans held for sale	$	35,165	$	34,434		$	70,316	$	68,622
Interest and dividends on securities
Taxable		2,394		2,499			4,608		5,098
Tax exempt		394		498			818		928
Interest and dividends on Federal Reserve and Federal
Home Loan Bank stock		343		340			962		684
Other, including interest on federal funds sold		148		154			237		269
Total interest income		38,444		37,925			76,941		75,601

Interest expense:
Interest on deposits		7,637		10,435			15,233		21,489
Interest on repurchase agreements and other short-term
borrowings		512		599			1,047		1,271
Interest on advances from Federal Home Loan Bank		17		482			38		958
Interest on long-term debt		1,000		1,000			2,000		2,000
Total interest expense		9,166		12,516			18,318		25,718

Net interest income		29,278		25,409			58,623		49,883
Provision for loan losses		3,106		4,522			8,828		6,503
Net interest income after provision for loan losses		26,172		20,887			49,795		43,380

Noninterest income:
Service charges on deposit accounts		5,949		5,517			11,246		10,466
Gains on sales of loans, net		337		1,309			779		3,240
Trust income		1,458		1,249			2,882		2,411
Loan related fees		46		1,494			886		2,242
Bank owned life insurance		407		287			812		543
Securities gains (losses)		0		(4	)		0		515
Other		1,345		1,103			2,678		2,291
Total noninterest income		9,542		10,955			19,283		21,708

Noninterest expense:
Salaries and employee benefits		11,632		10,650			23,077		21,918
Occupancy, net		1,742		1,714			3,483		3,518
Equipment		959		1,269			1,942		2,388
Data processing		1,697		1,514			3,283		3,001
Bank franchise tax		977		918			1,955		1,828
Legal and professional fees		1,014		924			1,838		1,994
FDIC insurance		1,140		2,250			2,139		3,746
Other real estate owned provision and expense		606		386			1,478		899
Other		3,888		3,953			7,901		8,083
Total noninterest expense		23,655		23,578			47,096		47,375

Income before income taxes		12,059		8,264			21,982		17,713
Income taxes		3,506		2,327			6,638		5,196
Net income		8,553		5,937			15,344		12,517

Other comprehensive income, net of tax:
Unrealized holding gains on securities available-for-sale		964		56			1,281		1,142
Comprehensive income	$	9,517	$	5,993		$	16,625	$	13,659

Basic earnings per share	$	0.56	$	0.39	$	1.01	$	0.83
Diluted earnings per share	$	0.56	$	0.39	$	1.01	$	0.82

Weighted average shares outstanding-basic		15,228		15,127		15,215		15,101
Weighted average shares outstanding-diluted		15,305		15,219		15,252		15,194

Dividends declared per share	$	0.30	$	0.30	$	0.60	$	0.60

See notes to condensed consolidated financial statements.

Community Trust Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
	June 30
(in thousands)	2010			2009

Cash flows from operating activities:
Net income	$	15,344		$	12,517
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,326			2,712
Deferred taxes		0			581
Stock based compensation		380			283
Excess tax benefits of stock-based compensation		21			313
Provision for loan and other real estate losses		9,223			7,030
Securities gains		0			(515	)
Gains on sale of mortgage loans held for sale		(779	)		(3,240	)
(Gains) losses on sale of assets, net		16			(11	)
Proceeds from sale of mortgage loans held for sale		36,794			162,972
Funding of mortgage loans held for sale		(35,663	)		(159,708	)
Amortization of securities premiums, net		954			929
Change in cash surrender value of bank owned life insurance		(695	)		(444	)
Mortgage servicing rights
Fair value adjustments		981			(237	)
New servicing assets created		(267	)		(1,002	)
Changes in:
Other liabilities		5,695			8,785
Other assets		265			467
Net cash provided by operating activities		34,595			31,432

Cash flows from investing activities:
Certificates of deposit in other banks
Purchase of certificates of deposit		(16,363	)		(29,400	)
Maturity of certificates of deposit		955			0
Securities available-for-sale:
Proceeds from sales		43,358			37,451
Proceeds from prepayments and maturities		5,005			51,744
Purchase of securities		(129,723	)		(118,454	)
Securities held-to-maturity:
Proceeds from prepayments and maturities		13,153			6,179
Purchase of securities		(480	)		(480	)
Change in loans, net		(17,230	)		(49,582	)
Purchase of premises and equipment		(1,170	)		(1,900	)
Proceeds from sale of premises and equipment		2			24
Additional investment in equity securities		(6	)		(8	)
Proceeds from sale of other real estate and other repossessed assets		3,304			2,155
Additional investment in other real estate owned		(185	)		(508	)
Additional investment in bank owned life insurance		0			(945	)
Net cash used in investing activities	$	(99,380	)	$	(103,724	)

Cash flows from financing activities:
Change in deposits, net	$	108,918		$	62,119
Change in repurchase agreements and other short-term borrowings, net		(924	)		3,088
Payments on advances from Federal Home Loan Bank		(612	)		(31	)
Issuance of common stock		975			1,375
Excess tax benefits of stock-based compensation		(21	)		(313	)
Dividends paid		(9,115	)		(9,045	)
Net cash provided by financing activities		99,221			57,193
Net increase (decrease) in cash and cash equivalents		34,436			(15,099	)
Cash and cash equivalents at beginning of period		142,129			140,878
Cash and cash equivalents at end of period	$	176,565		$	125,779

Supplemental disclosures:
Income taxes paid	$	4,200		$	3,468
Interest paid		15,288			23,353
Non-cash activities
Loans to facilitate the sale of other real estate and other repossessed assets		146			281
Common stock dividends accrued, paid in subsequent quarter		4,568			4,540
Real estate acquired in settlement of loans		6,599			12,357

See notes to condensed consolidated financial statements.

Community Trust Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 - Summary of Significant Accounting Policies

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring accruals) necessary, to present fairly the condensed consolidated financial position as of June 30, 2010, the results of operations for the three and six months ended June 30, 2010 and 2009, and the cash flows for the six months ended June 30, 2010 and 2009. In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements. The results of operations for the three and six months ended June 30, 2010 and 2009, and the cash flows for the six months ended June 30, 2010 and 2009, are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2009 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (“CTBI”) for that period. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2009, included in CTBI’s Annual Report on Form 10-K.

Principles of Consolidation – The unaudited condensed consolidated financial statements include the accounts of CTBI and its separate and distinct, wholly owned subsidiaries Community Trust Bank, Inc. (the “Bank”) and Community Trust and Investment Company. All significant intercompany transactions have been eliminated in consolidation.

Reclassifications – Certain reclassifications considered to be immaterial have been made in the prior year condensed consolidated financial statements to conform to current year classifications. These reclassifications had no effect on net income.

New Accounting Standards –

Ø Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities – ASC 260, formerly FASB Staff Position (FSP) EITF 03-6-1, addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method described in ASC 260-10-45, formerly paragraphs 60 and 61 of FASB Statement No. 128, Earnings Per Share. This standard was effective January 1, 2009, and did not have a significant impact on our consolidated financial statements.

Ø Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly – ASC 820, formerly FSP FAS 157-4, affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. CTBI did not elect to early adopt. This standard did not have a significant impact on our consolidated financial statements.

Ø Recognition and Presentation of Other Than Temporary Impairments – ASC 320, formerly FSP FAS 115-2 and FSP FAS 124-2, (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. CTBI did not elect to early adopt. This standard did not have a significant impact on our consolidated financial statements.

Ø Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies – ASC 805, formerly FSP FAS 141(R)-1, requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC 450, formerly FAS 5, Accounting for Contingencies and FASB Interpretation No. (FIN) 14, Reasonable Estimation of the Amount of a Loss. ASC 805 removes subsequent accounting guidance for assets and liabilities arising from contingencies and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. This standard also eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures required by ASC 450, formerly FAS 5. The standard also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with the standard. This standard is effective for assets or liabilities arising from contingencies CTBI acquires in business combinations occurring after January 1, 2009.

Ø Accounting for Transfers of Financial Assets – In June 2009, the FASB issued ASC 860, formerly FAS 166, Accounting for Transfers of Financial Assets — An Amendment of FAS 140. ASC 860 removes the concept of a qualifying special-purpose entity and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The new standard became effective for CTBI on January 1, 2010. The adoption of this standard did not have a material impact on CTBI’s consolidated financial position or results of operations.

Ø Determining When to Consolidate Variable Purpose Entities – In June 2009, the FASB issued ASC 810, formerly FAS 167 — Amendments to FASB Interpretation No. 46(R). ASC 810 requires an entity to perform an analysis to determine whether an entity’s variable interest or interests give it a controlling financial interest in a variable interest entity. This standard requires ongoing reassessments of whether an entity is the primary beneficiary of a variable interest entity and enhanced disclosures that provide more transparent information about an entity’s involvement with a variable interest entity. The new standard became effective for CTBI on January 1, 2010. The adoption of this standard did not have a material impact on CTBI’s consolidated financial position or results of operations.

Ø Codification of Authoritative Accounting Principles – In June 2009, the FASB issued ASC 105, formerly FAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. ASC 105 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”). Rules and interpretative releases of the Securities and Exchange Commission under federal securities laws are also sources of authoritative GAAP for SEC registrants. The new standard became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have a material impact on CTBI’s consolidated financial position or results of operations.

Ø Disclosures Regarding Postretirement Benefit Plan Assets – In December 2008, the FASB issued ASC 715, formerly FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets. This standard requires disclosure of the fair value of each major category of plan assets for pension plans and other postretirement benefit plans. The new standard became effective for CTBI on January 1, 2010. The adoption of this standard did not have a material impact on CTBI’s consolidated financial position or results of operations.

Ø Improving Disclosures about Fair Value Measurements – In January 2010, the FASB released Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Subtopic 820, Fair Value Measurements and Disclosures, and Subtopic 715-20, Compensation—Retirement Benefits—Defined Benefit Plans. The new standard expands the existing fair value disclosures required by these two subtopics. Additional disclosures required by the new standard must be made for each period beginning after the effective date. Expansion of disclosures for prior periods to include those required by the ASU is optional.

Disclosure changes made by ASU 2010-06 include:

·	The amounts of and reasons for significant transfers in and out of Level 1, Level 2 and Level 3 fair value measurements and the accounting policy for the date used to recognize such transfers, e.g., actual transaction date, beginning of reporting period date or end of reporting period date

·	Presentation of purchases, sales, issuances and settlements as separate lines, rather than one net number, in the table reconciling activity for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs

Provision of fair value measurement disclosures for each class of assets and liabilities with a class often being a subset of assets or liabilities within a balance sheet line item. Class should be determined on the basis of the nature and risks of investments in debt and equity securities and generally will not require change from the classifications already employed in disclosures for those investments

·	Provision of explanations about the valuation techniques and inputs used to determine fair value for both recurring and nonrecurring fair value measurements falling in either Level 2 or Level 3

·	Revision of the existing disclosures made by a plan sponsor about fair value for assets of defined benefit pension and other postretirement benefit plans to require those disclosures be made by asset class instead of asset category

ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, with early adoption permitted. The one exception involves reporting certain items gross instead of net in the existing activity table for items measured at fair value on a recurring basis using Level 3 inputs, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years and may be adopted earlier if desired. Except for the Level 3 table item, each SEC issuer must apply the ASU starting with its first interim period beginning after December 15, 2009. CTBI did not elect to early adopt the provisions which are effective for years beginning after December 15, 2009 or the December 15, 2010 provisions. ASU 2010-06 has not and is not expected to have a material impact on CTBI’s consolidated financial statements.

Ø Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force – In April 2010, the FASB issued ASU No. 2010-18, Receivables (Topic 310) – Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 provides guidance on account for acquired loans that have evidence of credit deterioration upon acquisition. It allows acquired assets with common risk characteristics to be accounted for in the aggregate as a pool. ASU 2010-18 is effective for modifications of loans accounted for within pools under Subtopic 310-30 in the first interim or annual reporting period ending on or after July 15, 2010. We do not expect ASU 2010-18 to have an impact on our financial condition, results of operations, or disclosures.

Ø Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses – In July 2010, the FASB released ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The standard will help investors assess the credit risk of a company's receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures. Companies will be required to provide more information about the credit quality of their financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.

The standard will require CTBI to expand disclosures about the credit quality of our loans and the related reserves against them. The additional disclosures will include details on our past due loans, credit quality indicators, and modifications of loans. CTBI will adopt the standard beginning with our December 31, 2010 financial statements.

Note 2 – Stock-Based Compensation

CTBI’s compensation expense related to stock option grants was $198 thousand and $238 thousand, respectively, for the six months ended June 30, 2010 and 2009, respectively. Restricted stock expense for the first six months of 2010 and 2009 was $182 thousand and $45 thousand, respectively. As of June 30, 2010, there was a total of $0.4 million of unrecognized compensation expense related to unvested stock option awards that will be recognized as expense as the awards vest over a weighted average period of 1.9 years.

There were options to purchase 4,525 shares of CTBI common stock and 44,996 shares of restricted stock granted during the six months ended June 30, 2010. The options were granted pursuant to the terms of the 2006 Stock Ownership Incentive Plan, with an exercise price per share of $25.09 (equal to fair market value on date of grant), a term of 10 years, and vesting in five years. The restrictions on the restricted stock will lapse at the end of five years. However, in the event of a change in control of CTBI or the death of the participant, the restrictions will lapse. In the event of the disability of the participant, the restrictions will lapse on a pro rata basis (with respect to 20% of the participant’s restricted stock for each year since the date of award). The Compensation Committee of the Board of Directors will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement. There were options to purchase 9,000 shares of CTBI common stock and 5,710 shares of restricted stock granted during the six months ended June 30, 2009.

The fair values of options granted during the six months ended June 30, 2010 and 2009, were established at the date of grant using a Black-Scholes option pricing model with the weighted average assumptions as follows:

	Six Months Ended
	June 30
	2010			2009
Expected dividend yield		4.78	%		4.02	%
Risk-free interest rate		3.14	%		2.23	%
Expected volatility		39.12	%		37.12	%
Expected term (in years)		7.5			7.5
Weighted average fair value of options	$	6.53		$	7.69

Note 3 – Securities

Securities are classified into held-to-maturity and available-for-sale categories. Held-to-maturity securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale 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, 2010 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	$	16,989	$	352	$	0		$	17,341
State and political subdivisions		40,554		1,015		(38	)		41,531
U.S. government sponsored agencies		238,495		7,120		(111	)		245,504
Collateralized mortgage obligations		27,585		47		(106	)		27,526
Total debt securities		323,623		8,534		(255	)		331,902
Marketable equity securities		20,540		357		(183	)		20,714
Total available-for-sale securities	$	344,163	$	8,891	$	(438	)	$	352,616

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	1,182	$	0	$	0	$	1,182
Other debt securities		480		0		0		480
Total held-to-maturity securities	$	1,662	$	0	$	0	$	1,662

The amortized cost and fair value of securities as of December 31, 2009 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	$	16,994	$	20	$	(283	)	$	16,731
State and political subdivisions		44,529		1,222		(94	)		45,657
U.S. government sponsored agencies		181,693		5,787		(83	)		187,397
Total debt securities		243,216		7,029		(460	)		249,785
Marketable equity securities		20,540		97		(185	)		20,452
Total available-for-sale securities	$	263,756	$	7,126	$	(645	)	$	270,237

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	1,576	$	6	$	0	$	1,582
U.S. government sponsored agencies		12,280		93		0		12,373
Other debt securities		480		0		0		480
Total held-to-maturity securities	$	14,336	$	99	$	0	$	14,435

The amortized cost and fair value of securities at June 30, 2010 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers 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	$	5,772	$	5,825	$	0	$	0
Due after one through five years		14,667		15,207		0		0
Due after five through ten years		24,066		24,549		0		0
Due after ten years		13,038		13,291		1,182		1,182
U.S. government sponsored agencies		238,495		245,504		0		0
Collateralized mortgage obligations		27,585		27,526		0		0
Other securities		0		0		480		480
Total debt securities		323,623		331,902		1,662		1,662
Marketable equity securities		20,540		20,714		0		0
Total securities	$	344,163	$	352,616	$	1,662	$	1,662

There were no pre-tax gains or losses as of June 30, 2010. There was a combined gain of $519 thousand realized in the first six months of 2009 due to sales of five securities and a loss of $4 thousand due to a sale of one security in 2009.

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $104.0 million at June 30, 2010 and $89.2 million at December 31, 2009.

The book value of securities sold under agreements to repurchase amounted to $181.1 million at June 30, 2010 and $179.9 million at December 31, 2009.

CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of June 30, 2010 indicates that all impairment is considered temporary, market driven, and not credit-related. The percentage of total investments with unrealized losses as of June 30, 2010 was 7.6% compared to 8.5% as of December 31, 2009. 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, 2010 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
States and political subdivision	$	2,632	$	(19	)	$	2,613
U.S. government sponsored agencies		7,890		(111	)		7,779
Collateralized mortgage obligations		15,116		(106	)		15,010
Total debt securities		25,638		(236	)		25,402
Marketable equity securities		0		0			0
Total securities		25,638		(236	)		25,402

12 Months or More
States and political subdivision		1,385		(20	)		1,365
U.S. government sponsored agencies		0		0			0
Collateralized mortgage obligations		0		0			0
Total debt securities		1,385		(20	)		1,365
Marketable equity securities		329		(183	)		146
Total securities		1,714		(203	)		1,511

Total
States and political subdivision		4,017		(38	)		3,978
U.S. government sponsored agencies		7,890		(111	)		7,779
Collateralized mortgage obligations		15,116		(106	)		15,010
Total debt securities		27,023		(255	)		26,767
Marketable equity securities		329		(183	)		146
Total securities	$	27,352	$	(438	)	$	26,913

As of June 30, 2010, there were no held-to-maturity securities with unrealized losses.

The analysis performed as of December 31, 2009 indicated that all impairment was considered temporary, market 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, 2009 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	$	14,992	$	(283	)	$	14,709
States and political subdivision		2,567		(55	)		2,512
U.S. government sponsored agencies		5,013		(83	)		4,930
Total debt securities		22,572		(421	)		22,151
Marketable equity securities		540		(185	)		355
Total securities		23,112		(606	)		22,506

12 Months or More
U.S. Treasury and government agencies		0		0			0
States and political subdivision		1,601		(39	)		1,562
U.S. government sponsored agencies		0		0			0
Total debt securities		1,601		(39	)		1,562
Marketable equity securities		0		0			0
Total securities		1,601		(39	)		1,562

Total
U.S. Treasury and government agencies		14,992		(283	)		14,709
States and political subdivision		4,168		(94	)		4,074
U.S. government sponsored agencies		5,013		(83	)		4,930
Total debt securities		24,173		(460	)		23,713
Marketable equity securities		540		(185	)		355
Total securities	$	24,713	$	(645	)	$	24,068

As of December 31, 2009, there were no held-to-maturity securities with unrealized losses.

Note 4 – Loans

Major classifications of loans, net of unearned income and deferred loan origination costs, are summarized as follows:

(in thousands)	June 30 2010		December 31 2009
Commercial construction	$	142,847	$	141,440
Commercial secured by real estate		761,646		707,500
Commercial other		347,284		373,829
Real estate construction		47,957		51,311
Real estate mortgage		616,618		610,727
Consumer		507,724		530,905
Equipment lease financing		17,146		20,048
Total loans	$	2,441,222	$	2,435,760

Not included in the loan balances above were loans held for sale in the amount of $1.5 million and $1.8 million at June 30, 2010 and December 31, 2009, respectively. The amount of capitalized fees and costs under ASC 310, formerly SFAS 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, included in the above loan totals were $0.7 million at June 30, 2010 and $0.6 million at December 31, 2009.

Total nonperforming loans were as follows:

(in thousands)	June 30 2010		December 31 2009
Homogeneous pools of nonaccrual loans	$	7,073	$	5,643
Nonaccrual loans individually evaluated for impairment		38,362		26,604
Total nonaccrual loans		45,435		32,247

Loans greater than 90 days past due		16,857		9,067
Total nonperforming loans	$	62,292	$	41,314

Additional interest which would have been recorded for the quarter ended June 30, 2010 was $0.9 million compared to $0.4 million and $0.8 million for quarters ended December 31, 2009 and June 30, 2009, respectively. Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest.

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable CTBI will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The recorded investments in impaired loans are summarized below:

(in thousands)	June 30 2010		December 31 2009
Impaired loans without specific reserves	$	26,143	$	12,775
Impaired loans with specific reserves		28,443		19,231
Restructured loans		5,604		6
Total impaired loans	$	60,190	$	32,012

Specific reserves for impaired loans totaled $9.3 million at June 30, 2010 compared to $6.6 million at December 31, 2009. The average investment in impaired loans was $54.7 million and $30.2 million at June 30, 2010 and December 31, 2009, respectively.

Cash payments on impaired loans were as follows:

(in thousands)	June 30 2010		June 30 2009
Interest payments on impaired loans	$	240	$	252
Principal payments on impaired loans		1,159		1,523
Total payments	$	1,399	$	1,775

Activity in the allowance for loan and lease losses was as follows:

	Six Months Ended
	June 30
(in thousands)	2010			2009
Allowance balance at January 1	$	32,643		$	30,821
Additions to allowance charged against operations		8,828			6,503
Recoveries credited to allowance		1,618			1,668
Losses charged against allowance		(6,933	)		(7,570	)
Allowance balance at June 30	$	36,156		$	31,422

Note 5 – Mortgage Banking and Servicing Rights

Mortgage banking activities primarily include residential mortgage originations and servicing. Mortgage servicing rights (“MSRs”) are carried at fair market value. The fair value is determined quarterly based on an independent third-party valuation using a discounted cash flow analysis and calculated using a computer pricing model. The computer valuation is based on key economic assumptions including the prepayment speeds of the underlying loans, the weighted-average life of the loan, the discount rate, the weighted-average coupon, and the weighted-average default rate, as applicable. Along with the gains received from the sale of loans, fees are received for servicing loans. These fees include late fees, which are recorded in interest income, and ancillary fees and monthly servicing fees, which are recorded in noninterest income. Costs of servicing loans are charged to expense as incurred. Changes in fair market value of the MSRs are reported as an increase or decrease to mortgage banking income.

The following table presents the components of mortgage banking income:

	Three Months Ended					Six Months Ended
	June 30					June 30
(in thousands)	2010			2009		2010			2009
Net gain on sale of loans held for sale	$	337		$	1,309	$	779		$	3,240
Net loan servicing income (loss)
Servicing fees		275			262		548			500
Late fees		18			15		34			33
Ancillary fees		57			161		123			388
Fair value adjustments		(855	)		511		(981	)		237
Net loan servicing income (loss)		(505	)		949		(276	)		1,158
Mortgage banking income (loss)	$	(168	)	$	2,258	$	503		$	4,398

Mortgage loans serviced for others are not included in the accompanying balance sheets. Mortgage loans serviced for the benefit of others (primarily FHLMC) at June 30, 2010, December 31, 2009, and June 30, 2009, were $438 million, $431 million, and $425 million, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and processing foreclosures. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were approximately $1.2 million at June 30, 2010, $0.6 million at December 31, 2009, and $1.2 million at June 30, 2009.

Activity for capitalized mortgage servicing rights using the fair value method was as follows:

	Six Months Ended
	June 30
(in thousands)	2010			2009
Fair value, beginning of period	$	3,406		$	2,168
New servicing assets created		267			1,002
Change in fair value during the period due to:
Time decay (1)		(74	)		(76	)
Payoffs (2)		(58	)		(392	)
Changes in valuation inputs or assumptions (3)		(849	)		705
Fair value, end of period	$	2,692		$	3,407

(1)	Represents decrease in value due to regularly scheduled loan principal payments and partial loan paydowns.

(2)	Represents decrease in value due to loans that paid off during the period.

(3)	Represents change in value resulting from market-driven changes in interest rates and prepayment speeds.

The fair value of capitalized mortgage servicing rights was $2.7 million at June 30, 2010 compared to $3.4 million at December 31, 2009 and $3.4 million at June 30, 2009. Fair values were determined by third-party valuations using a discount rate of 10.0% for the quarters ended June 30, 2010, December 31, 2009 and June 30, 2009, and weighted average default rates of 2.1%, 1.9% and 1.5% respectively. Prepayment speeds generated using the Andrew Davidson Prepayment Model averaged 17.9%, 13.6%, and 13.3% at June 30, 2010, December 31, 2009, and June 30, 2009, respectively. MSR values are very sensitive to movement in interest rates as expected future net servicing income depends on the projected balance of the underlying loans, which can be greatly impacted by the level of prepayments. CTBI does not currently hedge against changes in the fair value of its MSR portfolio.

Note 6 – Other Real Estate Owned

Activity for foreclosed properties during the six months ended June 30, 2010 and 2009 was as follows:

(in thousands)	2010			2009
Beginning balance, January 1	$	37,333		$	10,425
New assets acquired		6,450			12,358
Capitalized costs		185			508
Fair value adjustments		(395	)		(517	)
Sale of assets		(3,468	)		(2,405	)
Ending balance, June 30	$	40,105		$	20,369

Carrying costs and fair value adjustments associated with foreclosed properties at June 30, 2010 and 2009, respectively, were $1.5 million and $0.9 million.

Note 7 – Borrowings

Short-term debt consists of the following:

(in thousands)	June 30 2010		December 31 2009
Subsidiaries:
Repurchase agreements	$	183,287	$	180,471
Federal funds purchased		8,465		12,205
Total short-term debt	$	191,752	$	192,676

On October 28, 2009, Community Trust Bancorp, Inc. entered into a revolving credit promissory note for a line of credit in the amount of $12 million at a floating interest rate of 2.25% in excess of the one-month LIBOR Rate. An unused commitment fee of 0.15% has been established. Currently, all $12 million remain available for general corporate purposes. The agreement, which was effective October 29, 2009, replaced the agreement dated July 29, 2008, and will mature on October 28, 2010.

All federal funds purchased and the majority of repurchase agreements mature and reprice daily. The average rates paid for federal funds purchased and repurchase agreements on June 30, 2010 were 0.15% and 1.09%, respectively.

The maximum balance for repurchase agreements at any month-end during the second quarter 2010 occurred at May 31, 2010, with a month-end balance of $191.5 million. The average balance of repurchase agreements for the quarter was $184.8 million.

Federal Home Loan Bank advances consisted of the following monthly amortizing and term borrowings:

(in thousands)	June 30 2010		December 31 2009
Monthly amortizing	$	59	$	671
Term		20,000		20,000
Total advances	$	20,059	$	20,671

The advances from the Federal Home Loan Bank that require monthly principal payments were due for repayment as follows:

	Principal Payments Due by Period at June 30, 2010
(in thousands)	Total		Within 1 Year		2 Years		3 Years		4 Years		5 Years		After 5 Years
Outstanding advances, weighted average interest rate – 1.40%	$	59	$	9	$	8	$	8	$	8	$	7	$	19

The term advances that require the total payment to be made at maturity follow:

(in thousands)	June 30 2010		December 31 2009
Advance #156, 0.43%, due 1/29/10	$	0	$	20,000
Advance #157, 0.32%, due 7/28/10		20,000		0
Total term advances	$	20,000	$	20,000

Advances totaling $20.1 million at June 30, 2010 were collateralized by FHLB stock of $24.7 million and a blanket lien on qualifying first mortgage loans. As of June 30, 2010, CTBI had a $312.1 million FHLB borrowing capacity with $20.1 million in advances and $98.3 million in letters of credit leaving $193.7 million available for additional advances. The advances had fixed interest rates ranging from 0.32% to 2.00% with a weighted average rate of 0.32%. The advances are subject to restriction or penalties in the event of prepayment.

Long-term debt consists of the following:

(in thousands)		June 30 2010				December 31 2009
Junior subordinated debentures, 6.52%, due 6/1/37		$	61,341			$	61,341

On March 31, 2007, CTBI issued $61.3 million in junior subordinated debentures to a newly formed unconsolidated Delaware statutory trust subsidiary which in turn issued $59.5 million of capital securities in a private placement to institutional investors. The debentures, which mature in 30 years but are redeemable at par at CTBI's option after five years, were issued at a rate of 6.52% until June 1, 2012, and thereafter at a floating rate based on the three-month LIBOR plus 1.59%. The underlying capital securities were issued at the equivalent rates and terms. The proceeds of the debentures were used to fund the redemption on April 2, 2007 of all CTBI's outstanding 9.0% and 8.25% junior subordinated debentures in the total amount of $61.3 million.

Note 8 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended				Six Months Ended
	June 30				June 30
(in thousands except per share data)	2010		2009		2010		2009
Numerator:
Net income	$	8,553	$	5,937	$	15,344	$	12,517

Denominator:
Basic earnings per share:
Weighted average shares		15,228		15,127		15,215		15,101
Diluted earnings per share:
Effect of dilutive stock options		77		92		37		93
Adjusted weighted average shares		15,305		15,219		15,252		15,194

Earnings per share:
Basic earnings per share	$	0.56	$	0.39	$	1.01	$	0.83
Diluted earnings per share	$	0.56	$	0.39	$	1.01	$	0.82

Options to purchase 385,022 and 422,972 common shares, respectively, were excluded from the diluted calculations above for the three and six months ended June 30, 2010 because the exercise prices on the options were greater than the average market price for the period. Options to purchase 388,024 common shares were excluded from the diluted calculations above for the three and six months ended June 30, 2009.

Note 9 – Fair Value of Financial Assets and Liabilities

ASC 820, formerly FAS 157, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

The application of ASC 820 in situations where the market for a financial asset is not active was clarified in October 2008 by the issuance of ASC 820-10-35, formerly FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. This clarification was effective for financial statements issued as of September 30, 2008 and thereafter and did not have a material impact on the methods by which CTBI determines the fair values of its financial assets. ASC 820 was also clarified in April 2009 effective for the second quarter 2009 by ASC 820-10-65, formerly FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This section clarifies factors that determine whether transactions are orderly or not in evaluating the reliability of market transactions for fair value estimates. ASC 820-10-15, formerly FSP FAS 157-2, deferred the application of ASC 820 for nonfinancial assets and nonfinancial liabilities that are measured at fair value on a nonrecurring basis to fiscal years beginning after November 15, 2008. CTBI adopted the provisions of this standard with respect to nonfinancial assets and nonfinancial liabilities beginning on January 1, 2009.

Assets Measured on a Recurring Basis

The following tables present information about CTBI’s assets measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by CTBI to determine such fair value.

(in thousands)			Fair Value Measurements at June 30, 2010 Using
	Fair Value June 30 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Treasury and government agencies	$	17,341	$	0	$	17,341	$	0
State and political subdivisions		41,531		0		41,531		0
U.S. government sponsored agencies and mortgage-backed pass through certificates		273,030		0		273,030		0
Marketable equity securities		20,714		0		20,503		211
Mortgage servicing rights		2,692		0		0		2,692
Total recurring assets measured at fair value	$	355,308	$	0	$	352,405	$	2,903

(in thousands)			Fair Value Measurements at December 31, 2009 Using
	Fair Value December 31 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Treasury and government agencies	$	16,731	$	0	$	16,731	$	0
State and political subdivisions		45,657		0		45,657		0
U.S. government sponsored agencies and mortgage-backed pass through certificates		187,397		0		187,397		0
Marketable equity securities		20,452		0		20,241		211
Mortgage servicing rights		3,406		0		0		3,406
Total recurring assets measured at fair value	$	273,643	$	0	$	270,026	$	3,617

U.S. Treasury and government agencies, State and political subdivision, U.S. government sponsored agencies and mortgage-backed pass through certificates, Marketable equity securities – Level 2 Inputs. For these securities, CTBI obtains fair value measurements from an independent pricing service, which utilizes pricing models to determine fair value measurements. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Marketable equity securities – Level 3 Inputs. The securities owned by CTBI that were measured using Level 3 criteria are auction rate securities issued by FNMA. These securities were valued using an independent third party. For these securities, the valuation methods used were (1) a discounted cash flow model valuation, where the expected cash flows of the securities are discounted to the present using a yield that incorporates compensation for illiquidity and (2) a market comparables method, where the securities are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar securities. Using these methods, the auction rate securities are classified as Level 3.

Mortgage Servicing Rights – Level 3 Inputs. CTBI records MSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value. In determining fair value, CTBI utilizes the expertise of an independent third party. An estimate of the fair value of CTBI’s MSRs is determined by the independent third party utilizing discounted cash flow models and assumptions about mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. All of CTBI’s MSRs are classified as Level 3.

Following is a reconciliation of the beginning and ending balances of recurring fair value measurements using significant unobservable (Level 3) inputs:

	Three Months Ended				Six Months Ended
	June 30				June 30
Marketable Equity Securities (in thousands)	2010		2009		2010		2009
Beginning balance	$	211	$	211	$	211	$	540
Total realized and unrealized gains and losses
Included in net income		0		0		0		0
Transfer of Securities from Level 3 to Level 2		0		0		0		0
Purchases		0		0		0		0
Issuances		0		0		0		0
Settlements		0		0		0		(329	)
Ending balance	$	211	$	211	$	211	$	211

	Three Months Ended						Six Months Ended
	June 30						June 30
Mortgage Servicing Rights (in thousands)	2010			2009			2010			2009
Beginning balance	$	3,442		$	2,475		$	3,406		$	2,168
Total realized and unrealized gains and losses
Included in net income		(834	)		744			(849	)		705
Transfer of Securities from Level 3 to Level 2		0			0			0			0
Purchases		0			0			0			0
Issuances		105			420			267			1,002
Settlements		(21	)		(232	)		(132	)		(468	)
Ending balance	$	2,692		$	3,407		$	2,692		$	3,407

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis as of June 30, 2010 and December 31, 2009 are summarized below:

(in thousands)			Fair Value Measurements at June 30, 2010 Using
	Fair Value June 30 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	15,317	$	0	$	0	$	15,317
Other real estate/assets owned		3,898		0		0		3,898

(in thousands)			Fair Value Measurements at December 31, 2009 Using
	Fair Value December 31 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	8,387	$	0	$	0	$	8,387
Other real estate/assets owned		8,331		0		0		8,331

Impaired Loans – Level 3 Inputs. Loans considered impaired under ASC 310, formerly FAS 114, Accounting, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosure, are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect (1) partial write-downs that are based on the observable market price or current appraised value of the collateral less discounts for costs to sell and other estimated discounts or (2) the full charge-off of the loan carrying value. Quarter-to-date fair value adjustments on impaired loans were $2.1 million at June 30, 2010 compared to $1.1 million and $2.4 million for quarters ended December 31, 2009 and June 30, 2009, respectively. Year-to-date fair value adjustments on impaired loans were $5.6 million for both June 30, 2010 and December 31, 2009.

Other real estate/assets owned – Level 3 Inputs. In accordance with the provisions of FASB Codification Topic 360, formerly FAS 144, long-lived assets held for sale with a carrying amount of $3.9 million were written down to their fair value less costs to sale during the year. Long-lived assets are subject to nonrecurring fair value adjustments to reflect partial write-downs that are based on the observable market price or current appraised value of the collateral. Quarter-to-date fair value adjustments on other real estate/assets owned were $0.1 million, $0.7 million, and $0.2 million for quarters ended June 30, 2010, December 31, 2009, and June 30, 2009, respectively. Year-to-date fair value adjustments on other real estate/assets owned were $0.4 million as of June 30, 2010 compared to $1.4 million as of December 31, 2009.

The following table presents the carrying amounts and estimated fair values of financial instruments at June 30, 2010 and December 31, 2009:

(in thousands)	June 30, 2010				December 31, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Cash and cash equivalents	$	176,565	$	176,565	$	142,129	$	142,129
Certificates of deposits in other banks		15,508		15,489		100		100
Securities available-for-sale		352,616		352,616		270,237		270,237
Securities held-to-maturity		1,662		1,662		14,336		14,435
Loans, net (including impaired loans)		2,405,066		2,397,560		2,403,117		2,407,703
Loans held for sale		1,466		1,494		1,818		1,845
Federal Reserve Bank stock		4,354		4,354		4,348		4,348
Federal Home Loan Bank stock		24,700		24,700		24,700		24,700
Accrued interest receivable		11,769		11,769		11,936		11,936
Capitalized mortgage servicing rights		2,692		2,692		3,406		3,406
Total financial assets	$	2,996,398	$	2,988,901	$	2,876,127	$	2,880,839

Financial liabilities
Deposits	$	2,571,127	$	2,572,347	$	2,462,209	$	2,462,676
Repurchase agreements		183,287		183,385		180,471		180,776
Federal funds purchased		8,465		8,465		12,205		12,205
Advances from Federal Home Loan Bank		20,059		20,059		20,671		20,670
Long-term debt		61,341		30,832		61,341		29,522
Accrued interest payable		6,716		6,716		3,686		3,686