Edgar Filing: COMMUNITY TRUST BANCORP INC /KY/

ctbi10q0613.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, 2013

	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 ü

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 – 15,697,596 shares outstanding at July 31, 2013

CAUTIONARY STATEMENT

REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. CTBI’s actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could.” These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various investment activities; the effects of competitors’ pricing policies, changes in laws and regulations, competition, and demographic changes on target market populations’ savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements or cost savings at levels or within the time frames originally anticipated or unforeseen integration difficulties; the adoption by CTBI of a Federal Financial Institutions Examination Council (FFIEC) policy that provides guidance on the reporting of delinquent consumer loans and the timing of associated credit charge-offs for financial institution subsidiaries; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and state regulators, whose policies and regulations could affect CTBI’s results. These statements are representative only on the date hereof, and CTBI undertakes no obligation to update any forward-looking statements made.

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

The accompanying information has not been audited by our 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, 2012 for further information in this regard.

Community Trust Bancorp, Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)	(unaudited) June 30 2013			December 31 2012
Assets:
Cash and due from banks	$	56,100		$	73,451
Interest bearing deposits		50,437			127,438
Federal funds sold		1,222			6,671
Cash and cash equivalents		107,759			207,560

Certificates of deposit in other banks		9,568			5,336
Securities available-for-sale at fair value (amortized cost of $691,793 and $583,858, respectively)		687,362			603,343
Securities held-to-maturity at amortized cost (fair value of $1,621 and $1,659, respectively)		1,662			1,662
Loans held for sale		2,991			22,486

Loans		2,584,801			2,550,573
Allowance for loan losses		(33,601	)		(33,245	)
Net loans		2,551,200			2,517,328

Premises and equipment, net		52,703			54,321
Federal Home Loan Bank stock		25,673			25,673
Federal Reserve Bank stock		4,886			4,885
Goodwill		65,490			65,490
Core deposit intangible (net of accumulated amortization of $7,819 and $7,712, respectively)		797			904
Bank owned life insurance		52,903			44,893
Mortgage servicing rights		3,222			2,364
Other real estate owned		43,632			47,537
Other assets		28,403			31,882
Total assets	$	3,638,251		$	3,635,664

Liabilities and shareholders’ equity:
Deposits:
Noninterest bearing	$	624,451		$	606,448
Interest bearing		2,297,722			2,297,400
Total deposits		2,922,173			2,903,848

Repurchase agreements		204,735			210,120
Federal funds purchased and other short-term borrowings		14,075			12,314
Advances from Federal Home Loan Bank		1,347			1,429
Long-term debt		61,341			61,341
Other liabilities		34,236			46,268
Total liabilities		3,237,907			3,235,320

Shareholders’ equity:
Preferred stock, 300,000 shares authorized and unissued		-			-
Common stock, $5 par value, shares authorized 25,000,000; shares outstanding 2013 – 15,665,211; 2012 – 15,612,935		78,326			78,065
Capital surplus		161,996			160,670
Retained earnings		162,902			148,944
Accumulated other comprehensive income (loss), net of tax		(2,880	)		12,665
Total shareholders’ equity		400,344			400,344

Total liabilities and shareholders’ equity	$	3,638,251		$	3,635,664

Community Trust Bancorp, Inc.

Condensed Consolidated Statements of Income and Other Comprehensive Income (Loss)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30						June 30
(in thousands except per share data)	2013			2012			2013			2012
Interest income:
Interest and fees on loans, including loans held for sale	$	32,672		$	34,278		$	65,520		$	69,330
Interest and dividends on securities
Taxable		3,129			3,083			6,024			5,854
Tax exempt		557			513			1,115			990
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock		342			345			690			709
Other, including interest on federal funds sold		83			136			210			298
Total interest income		36,783			38,355			73,559			77,181

Interest expense:
Interest on deposits		2,902			4,930			5,921			9,401
Interest on repurchase agreements and other short-term borrowings		234			321			497			659
Interest on advances from Federal Home Loan Bank		6			8			13			19
Interest on long-term debt		299			777			589			1,777
Total interest expense		3,441			6,036			7,020			11,856

Net interest income		33,342			32,319			66,539			65,325
Provision for loan losses		3,661			2,425			5,220			3,585
Net interest income after provision for loan losses		29,681			29,894			61,319			61,740

Noninterest income:
Service charges on deposit accounts		6,182			5,955			11,949			11,827
Gains on sales of loans, net		755			705			2,152			1,322
Trust income		2,023			1,822			4,023			3,435
Loan related fees		1,496			610			2,444			1,897
Bank owned life insurance		1,327			430			1,748			858
Securities gains (losses)		(8	)		819			(8	)		819
Other noninterest income		1,499			1,648			2,886			3,018
Total noninterest income		13,274			11,989			25,194			23,176

Noninterest expense:
Officer salaries and employee benefits		2,635			2,324			5,186			4,680
Other salaries and employee benefits		10,579			10,078			21,010			20,535
Occupancy, net		1,972			1,859			3,899			3,712
Equipment		988			995			1,966			1,913
Data processing		1,775			1,548			3,588			3,127
Bank franchise tax		1,123			1,127			2,246			2,282
Legal fees		556			496			1,162			1,097
Professional fees		432			385			814			645
FDIC insurance		637			613			1,239			1,270
Other real estate owned provision and expense		1,170			758			3,009			1,548
Other noninterest expense		4,120			3,965			8,167			9,089
Total noninterest expense		25,987			24,148			52,286			49,898

Income before income taxes		16,968			17,735			34,227			35,018
Income taxes		5,026			5,503			10,465			10,917
Net income		11,942			12,232			23,762			24,101
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period		(21,337	)		6,370			(23,923	)		4,168
Less: Reclassification adjustments for realized (gains) losses included in net income		8			(819	)		8			(819	)
Tax (benefit) expense		(7,465	)		1,943			(8,370	)		1,172
Other comprehensive income (loss), net of tax		(13,864	)		3,608			(15,545	)		2,177
Comprehensive income (loss)	$	(1,922	)	$	15,840		$	8,217		$	26,278

Basic earnings per share	$	0.77		$	0.79		$	1.53		$	1.56
Diluted earnings per share	$	0.76		$	0.79		$	1.52		$	1.56

Weighted average shares outstanding-basic		15,565			15,451			15,552			15,429
Weighted average shares outstanding-diluted		15,641			15,501			15,625			15,475

Dividends declared per share	$	0.315		$	0.310		$	0.630		$	0.620

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)	2013			2012
Cash flows from operating activities:
Net income	$	23,762		$	24,101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,301			2,119
Deferred taxes		(8,370	)		(1,172	)
Stock-based compensation		335			294
Excess tax benefits of stock-based compensation		42			448
Provision for loan losses		5,220			3,585
Write-downs of other real estate owned and other repossessed assets		1,776			359
Gains on sale of mortgage loans held for sale		(2,152	)		(1,322	)
(Gains)/losses on sales of securities		8			(819	)
Losses on sale of assets, net		92			55
Proceeds from sale of mortgage loans held for sale		93,445			58,797
Funding of mortgage loans held for sale		(71,798	)		(57,979	)
Amortization of securities premiums and discounts, net		2,217			2,807
Change in cash surrender value of bank owned life insurance		(704	)		(688	)
Mortgage servicing rights:
Fair value adjustments		(296	)		119
New servicing assets created		(562	)		(340	)
Changes in:
Other assets		3,472			(1,338	)
Other liabilities		4,672			2,664
Net cash provided by operating activities		53,460			31,690

Cash flows from investing activities:
Certificates of deposit in other banks:
Maturity of certificates of deposit		240			875
Purchase of certificates of deposit		(4,472	)		0
Securities available-for-sale (AFS):
Purchase of AFS securities		(176,783	)		(181,292	)
Proceeds from prepayments and maturities of AFS securities		66,622			68,785
Proceeds from the sales of AFS securities		0			12,025
Change in loans, net		(42,740	)		631
Purchase of premises and equipment		(603	)		(2,570	)
Proceeds from sale of premises and equipment		38			88
Additional investment in Federal Reserve Bank stock		(1	)		(1	)
Proceeds from sale of other real estate and other repossessed assets		5,730			5,041
Additional investment in other real estate and other repossessed assets		(48	)		(167	)
Additional investment in bank owned life insurance		(7,306	)		0
Net cash used in investing activities		(159,323	)		(96,585	)

Cash flows from financing activities:
Change in deposits, net		18,325			62,356
Change in repurchase agreements, federal funds purchased, and other short-term borrowings, net		(3,624	)		(20,444	)
Payments on advances from Federal Home Loan Bank		(82	)		(20,092	)
Issuance of common stock		1,272			3,027
Excess tax benefits of stock-based compensation		(42	)		(448	)
Dividends paid		(9,787	)		(9,537	)
Net cash provided by financing activities		6,062			14,862
Net decrease in cash and cash equivalents		(99,801	)		(50,033	)
Cash and cash equivalents at beginning of period		207,560			238,481
Cash and cash equivalents at end of period	$	107,759		$	188,448

Supplemental disclosures:
Income taxes paid	$	10,340		$	10,200
Interest paid		6,474			10,189
Non-cash activities:
Loans to facilitate the sale of other real estate and other repossessed assets		1,007			2,635
Common stock dividends accrued, paid in subsequent quarter		4,904			4,796
Real estate acquired in settlement of loans		4,655			7,495

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, 2013, the results of operations for the three and six months ended June 30, 2013 and 2012, and the cash flows for the six months ended June 30, 2013 and 2012. 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, 2013 and 2012, and the cash flows for the six months ended June 30, 2013 and 2012, are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2012 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, 2012, included in our 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 Amounts Reclassified Out of Other Comprehensive Income – In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. The adoption of ASU No. 2013-02 did not have a material impact on CTBI’s consolidated financial statements.

Amounts reclassified from accumulated other comprehensive income (AOCI) and the affected line items in the statements of income during the three and six month periods ended June 30, 2013 and 2012 were:

Unrealized gains (losses) on AFS securities

	Amounts Reclassified from AOCI
(in thousands)	Three Months Ended June 30					Six Months Ended June 30
Affected line item in the statements of income	2013			2012		2013			2012
Securities gains (losses)	$	(8	)	$	819	$	(8	)	$	819
Tax (benefit) expense		(3	)		315		(3	)		315
Net reclassified amount	$	(5	)	$	504	$	(5	)	$	504

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements.

We believe the application of accounting policies and the estimates required therein are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

Our accounting policies are described above. We have identified the following critical accounting policies:

Investments – Management determines the classification of securities at purchase. We classify securities into held-to-maturity, trading, or available-for-sale categories. Held-to-maturity securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, Investment Securities, investments in debt securities that are not classified as held-to-maturity and equity securities that have readily determinable fair values shall be classified in one of the following categories and measured at fair value in the statement of financial position:

a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.

b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturity securities) shall be classified as available-for-sale securities.

We do not have any securities that are classified as trading securities. Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders’ equity, net of tax. If declines in fair value are other than temporary, the carrying value of the securities is written down to fair value as a realized loss with a charge to income for the portion attributable to credit losses and a charge to other comprehensive income for the portion that is not credit related.

Gains or losses on disposition of securities are computed by specific identification for all securities except for shares in mutual funds, which are computed by average cost. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair market value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other than temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the CTBI’s results of operations and financial condition.

Loans – Loans with the ability and the intent to be held until maturity and/or payoff are reported at the carrying value of unpaid principal reduced by unearned interest, an allowance for loan and lease losses, and unamortized deferred fees or costs. Income is recorded on the level yield basis. Interest accrual is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest. Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured. Loans are not reclassified as accruing until principal and interest payments remain current for a period of time, generally six months, and future payments appear reasonably certain. Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired. A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans, leases, or commitments as a yield adjustment.

Allowance for Loan and Lease Losses – We maintain an allowance for loan and lease losses (“ALLL”) at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Since arriving at an appropriate ALLL involves a high degree of management judgment, we use an ongoing quarterly analysis to develop a range of estimated losses. In accordance with accounting principles generally accepted in the United States, we use our best estimate within the range of potential credit loss to determine the appropriate ALLL. Credit losses are charged and recoveries are credited to the ALLL.

We utilize an internal risk grading system for commercial credits. Those larger commercial credits that exhibit probable or observed credit weaknesses are subject to individual review. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. The review of individual loans includes those loans that are impaired as defined by ASC 310-35, Impairment of a Loan. We evaluate the collectability of both principal and interest when assessing the need for loss provision. Historical loss rates are analyzed and applied to other commercial loans not subject to specific allocations. The ALLL allocation for this pool of commercial loans is established based on the historical average, maximum, minimum, and median loss ratios.

A loan is considered impaired when, based on current information and events, it is probable that CTBI will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded. The associated ALLL for these loans is measured under ASC 450, Contingencies.

When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made. If the balance of the loan exceeds the fair value of the collateral, the loan is placed on non-accrual and the loan is charged down to the value of the collateral less estimated cost to sell or a specific reserve equal to the difference between book value of the loan and the fair value assigned to the collateral is created until such time as the loan is foreclosed. When the foreclosed collateral has been legally assigned to CTBI, a charge off is taken, if necessary, in order that the remaining balance reflects the fair value estimated less costs to sell of the collateral then transferred to other real estate owned or other repossessed assets. When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.

All closed-end consumer loans (excluding conventional 1-4 family residential loans and installment and revolving loans secured by real estate) are charged off no later than 120 days (5 monthly payments) delinquent. If a loan is considered uncollectable, it is charged off earlier than 120 days delinquent. For conventional 1-4 family residential loans and installment and revolving loans secured by real estate, when a loan is 90 days past due, a current assessment of the value of the real estate is made. If the balance of the loan exceeds the fair value of the property, the loan is placed on nonaccrual and foreclosure proceedings are initiated. When the foreclosed property has been legally assigned to CTBI, a charge-off is taken with the remaining balance, reflecting the fair value less estimated costs to sell, transferred to other real estate owned.

Historical loss rates for loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. We generally review the historical loss rates over eight quarters and four quarters on a rolling average basis. Factors that we consider include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge-offs, trend in loan losses, industry concentrations and their relative strengths, amount of unsecured loans and underwriting exceptions. Based upon management’s judgment, “best case,” “worst case,” and “most likely” scenarios are determined. The total of each of these weighted factors is then applied against the applicable portion of the portfolio and the ALLL is adjusted accordingly to approximate the most likely scenario. Management continually reevaluates the other subjective factors included in its ALLL analysis.

Other Real Estate Owned – When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current market value less expected sales costs. Additionally, periodic updated appraisals are obtained on unsold foreclosed properties. When an updated appraisal reflects a market value below the current book value, a charge is booked to current earnings to reduce the property to its new market value less expected sales costs. Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months. All revenues and expenses related to the carrying of other real estate owned are recognized by a charge to income.

Note 2 – Stock-Based Compensation

CTBI’s compensation expense related to stock option grants was $2 thousand and $20 thousand for the three months ended June 30, 2013 and 2012, respectively, and $5 thousand and $39 thousand for the six months ended June 30, 2013 and 2012, respectively. Restricted stock expense for the three months ended June 30, 2013 and 2012 was $169 thousand and $158 thousand, respectively, including $31 thousand and $30 thousand, respectively, in dividends paid for each period. Restricted stock expense for the first six months of 2013 and 2012 was $330 thousand and $316 thousand, respectively, including $62 thousand and $60 thousand, respectively, in dividends paid for each period. As of June 30, 2013, there was a total of $15 thousand 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 1.5 years and a total of $1.2 million of unrecognized compensation expense related to restricted stock grants that will be recognized as expense as the awards vest over a weighted average period of 1.4 years.

There were no shares of restricted stock granted during the three months ended June 30, 2013 and 2012, and 10,822 shares and 331 shares of restricted stock granted during the six months ended June 30, 2013 and 2012. The restrictions on the restricted stock granted in 2013 and 2012 will lapse over four 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. 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 no options granted to purchase shares of CTBI common stock during the three months ended June 30, 2013 and 2012. There were 1,500 options granted to purchase shares of CTBI common stock during the six months ended June 30, 2013. There were no options granted to purchase shares of CTBI common stock during the six months ended June 30, 2012.

The fair values of options granted during the six months ended June 30, 2013, 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
	2013
Expected dividend yield		3.74	%
Risk-free interest rate		1.33	%
Expected volatility		39.11	%
Expected term (in years)		7.5
Weighted average fair value of options	$	9.05

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 June 30, 2013 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	$	71,075	$	288	$	(3,755	)	$	67,608
State and political subdivisions		115,719		2,429		(2,206	)		115,942
U.S. government sponsored agency mortgage-backed securities		449,999		6,291		(5,954	)		450,336
Total debt securities		636,793		9,008		(11,915	)		633,886
Marketable equity securities		55,000		0		(1,524	)		53,476
Total available-for-sale securities	$	691,793	$	9,008	$	(13,439	)	$	687,362

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(42	)	$	438
State and political subdivisions		1,182		1		0			1,183
Total held-to-maturity securities	$	1,662	$	1	$	(42	)	$	1,621

The amortized cost and fair value of securities as of December 31, 2012 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	$	60,625	$	463	$	(173	)	$	60,915
State and political subdivisions		107,987		5,369		(135	)		113,221
U.S. government sponsored agency mortgage-backed securities		370,246		13,347		(12	)		383,581
Total debt securities		538,858		19,179		(320	)		557,717
Marketable equity securities		45,000		791		(165	)		45,626
Total available-for-sale securities	$	583,858	$	19,970	$	(485	)	$	603,343

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	480	$	0	$	(4	)	$	476
State and political subdivisions		1,182		1		0			1,183
Total held-to-maturity securities	$	1,662	$	1	$	(4	)	$	1,659

The amortized cost and fair value of securities at June 30, 2013 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	$	5,785	$	5,823	$	0	$	0
Due after one through five years		22,121		22,811		0		0
Due after five through ten years		121,095		117,651		1,182		1,183
Due after ten years		37,793		37,265		480		438
U.S. government sponsored agency mortgage-backed securities		449,999		450,336		0		0
Total debt securities		636,793		633,886		1,662		1,621
Marketable equity securities		55,000		53,476		0		0
Total securities	$	691,793	$	687,362	$	1,662	$	1,621

As of June 30, 2013, there was a combined loss of $8 thousand due to the partial call of two municipal securities. As of June 30, 2012, there was a combined gain of $819 thousand due to the sale of two agency securities. A pre-tax gain of $885 thousand and a pre-tax loss of $66 thousand were realized as of June 30, 2012.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $250.8 million at June 30, 2013 and $262.4 million at December 31, 2012.

The amortized cost of securities sold under agreements to repurchase amounted to $241.5 million at June 30, 2013 and $237.3 million at December 31, 2012.

Certain investments in debt and marketable equity securities are reported in the financial statements at amounts less than their historical costs. CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of June 30, 2013 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, 2013 was 61.4% compared to 14.8% as of December 31, 2012 as a result of changes in the market rates during the second quarter of 2013. 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, 2013 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	$	60,516	$	(3,755	)	$	56,761
State and political subdivisions		57,652		(2,183	)		55,469
U.S. government sponsored agency mortgage-backed securities		261,947		(5,954	)		255,993
Total debt securities		380,115		(11,892	)		368,223
Marketable equity securities		55,000		(1,524	)		53,476
Total <12 months temporarily impaired AFS securities		435,115		(13,416	)		421,699

12 Months or More
State and political subdivisions		1,097		(23	)		1,074
Total ≥12 months temporarily impaired AFS securities		1,097		(23	)		1,074

Total
U.S. Treasury and government agencies		60,516		(3,755	)		56,761
State and political subdivisions		58,749		(2,206	)		56,543
U.S. government sponsored agency mortgage-backed securities		261,947		(5,954	)		255,993
Total debt securities		381,212		(11,915	)		369,297
Marketable equity securities		55,000		(1,524	)		53,476
Total temporarily impaired AFS securities	$	436,215	$	(13,439	)	$	422,773

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	480	$	(42	)	$	438
Total temporarily impaired HTM securities	$	480	$	(42	)	$	438

The analysis performed as of December 31, 2012 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, 2012 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	$	47,576	$	(173	)	$	47,403
State and political subdivisions		11,126		(135	)		10,991
U.S. government sponsored agency mortgage-backed securities		10,563		(12	)		10,551
Total debt securities		69,265		(320	)		68,945
Marketable equity securities		20,000		(165	)		19,835
Total <12 months temporarily impaired AFS securities		89,265		(485	)		88,780

Total
U.S. Treasury and government agencies		47,576		(173	)		47,403
State and political subdivisions		11,126		(135	)		10,991
U.S. government sponsored agency mortgage-backed securities		10,563		(12	)		10,551
Total debt securities		69,265		(320	)		68,945
Marketable equity securities		20,000		(165	)		19,835
Total temporarily impaired AFS securities	$	89,265	$	(485	)	$	88,780

Held-to-Maturity

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	480	$	(4	)	$	476
Total temporarily impaired HTM securities	$	480	$	(4	)	$	476

Note 4 – Loans

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

(in thousands)	June 30 2013		December 31 2012
Commercial construction	$	103,800	$	119,447
Commercial secured by real estate		859,022		807,213
Equipment lease financing		9,383		9,246
Commercial other		376,906		376,348
Real estate construction		51,462		55,041
Real estate mortgage		692,934		696,928
Home equity		80,631		82,292
Consumer direct		123,565		122,581
Consumer indirect		287,098		281,477
Total loans	$	2,584,801	$	2,550,573

CTBI has segregated and evaluates its loan portfolio through nine portfolio segments. CTBI serves customers in small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. Therefore, CTBI’s exposure to credit risk is significantly affected by changes in these communities.

Commercial construction loans are for the purpose of erecting or rehabilitating buildings or other structures for commercial purposes, including any infrastructure necessary for development. Included in this category are improved property, land development, and tract development loans. The terms of these loans are generally short-term with permanent financing upon completion.

Commercial real estate loans include loans secured by nonfarm, nonresidential properties, 1-4 family/ multi-family properties, farmland, and other commercial real estate. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.

Equipment lease financing loans are fixed, variable, and tax exempt leases for commercial purposes.

Commercial other loans consist of commercial check loans, agricultural loans, receivable financing, floorplans, loans to financial institutions, loans for purchasing or carrying securities, and other commercial purpose loans. Commercial loans are underwritten based on the borrower’s ability to service debt from the business’s underlying cash flows. As a general practice, we obtain collateral such as real estate, equipment, or other assets, although such loans may be uncollateralized but guaranteed.

Real estate construction loans are typically for owner-occupied properties. The terms of these loans are generally short-term with permanent financing upon completion.

Residential real estate loans are a mixture of fixed rate and adjustable rate first and second lien residential mortgage loans. As a policy, CTBI holds adjustable rate loans and sells the majority of its fixed rate first lien mortgage loans into the secondary market. Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and interest payments. Residential real estate loans are secured by real property.

Home equity lines are revolving adjustable rate credit lines secured by real property.

Consumer direct loans are fixed rate products comprised of unsecured loans, consumer revolving credit lines, deposit secured loans, and all other consumer purpose loans.

Consumer indirect loans are fixed rate loans secured by automobiles, trucks, vans, and recreational vehicles originated at the selling dealership underwritten and purchased by CTBI’s indirect lending department. Both new and used products are financed. Only dealers who have executed dealer agreements with CTBI participate in the indirect lending program.

Not included in the loan balances above were loans held for sale in the amount of $3.0 million at June 30, 2013 and $22.5 million at December 31, 2012. The amount of capitalized fees and costs under ASC 310-20, included in the above loan totals were $0.04 million and $0.4 million at June 30, 2013 and December 31, 2012, respectively.

Refer to note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy. Nonaccrual loans segregated by class of loans were as follows:

(in thousands)	June 30 2013		December 31 2012
Commercial:
Commercial construction	$	4,655	$	5,955
Commercial secured by real estate		7,371		5,572
Commercial other		2,678		1,655

Residential:
Real estate construction		610		315
Real estate mortgage		3,445		3,153
Home equity		253		141
Total nonaccrual loans	$	19,012	$	16,791

The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of June 30, 2013 and December 31, 2012:

	June 30, 2013
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans		90+ and Accruing*
Commercial:
Commercial construction	$	0	$	30	$	6,772	$	6,802	$	96,998	$	103,800	$	2,243
Commercial secured by real estate		2,256		2,703		16,282		21,241		837,781		859,022		10,924
Equipment lease financing		0		0		0		0		9,383		9,383		0
Commercial other		1,197		570		6,552		8,319		368,587		376,906		4,186
Residential:
Real estate construction		208		160		801		1,169		50,293		51,462		191
Real estate mortgage		1,619		4,233		7,023		12,875		680,059		692,934		4,263
Home equity		820		333		610		1,763		78,868		80,631		370
Consumer:
Consumer direct		948		258		73		1,279		122,286		123,565		73
Consumer indirect		1,867		697		312		2,876		284,222		287,098		312
Total	$	8,915	$	8,984	$	38,425	$	56,324	$	2,528,477	$	2,584,801	$	22,562

	December 31, 2012
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans		90+ and Accruing*
Commercial:
Commercial construction	$	1,413	$	312	$	9,598	$	11,323	$	108,124	$	119,447	$	3,778
Commercial secured by real estate		9,733		1,633		10,456		21,822		785,391		807,213		5,943
Equipment lease financing		0		0		0		0		9,246		9,246		0
Commercial other		259		1,142		5,164		6,565		369,783		376,348		3,867
Residential:
Real estate construction		248		572		511		1,331		53,710		55,041		196
Real estate mortgage		2,765		4,029		7,138		13,932		682,996		696,928		4,511
Home equity		921		102		565		1,588		80,704		82,292		441
Consumer:
Consumer direct		1,360		336		98		1,794		120,787		122,581		98
Consumer indirect		2,772		907		381		4,060		277,417		281,477		381
Total	$	19,471	$	9,033	$	33,911	$	62,415	$	2,488,158	$	2,550,573	$	19,215

*90+ and Accruing are also included in 90+ Days Past Due column.

The risk characteristics of CTBI’s material portfolio segments are as follows:

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria.

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, CTBI generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Credit Quality Indicators:

CTBI categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. CTBI also considers the fair value of the underlying collateral and the strength and willingness of the guarantor(s). CTBI analyzes commercial loans individually by classifying the loans as to credit risk. Loans classified as loss, doubtful, substandard, or special mention are reviewed quarterly by CTBI for further deterioration or improvement to determine if appropriately classified and valued if deemed impaired. All other commercial loan reviews are completed every 12 to 18 months. In addition, during the renewal process of any loan, as well as if a loan becomes past due or if other information becomes available, CTBI will evaluate the loan grade. CTBI uses the following definitions for risk ratings:

Pass grades include investment grade, low risk, moderate risk, and acceptable risk loans. The loans range from loans that have no chance of resulting in a loss to loans that have a limited chance of resulting in a loss. Customers in this grade have excellent to fair credit ratings. The cash flows are adequate to meet required debt repayments.

Watch graded loans are loans that warrant extra management attention but are not currently criticized. Loans on the watch list may be potential troubled credits or may warrant “watch” status for a reason not directly related to the asset quality of the credit. The watch grade is a management tool to identify credits which may be candidates for future classification or may temporarily warrant extra management monitoring.

Other assets especially mentioned (OAEM) reflects loans that are currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of circumstances surrounding a specific asset. Loans in this grade display potential weaknesses which may, if unchecked or uncorrected, inadequately protect CTBI’s credit position at some future date. The loans may be adversely affected by economic or market conditions.

Substandard grading indicates that the loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. These loans have a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt with the distinct possibility that CTBI will sustain some loss if the deficiencies are not corrected.

Doubtful graded loans have the weaknesses inherent in the substandard grading with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The probability of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to CTBI’s advantage or strengthen the asset(s), its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.

The following tables present the credit risk profile of CTBI’s commercial loan portfolio based on rating category and payment activity, segregated by class of loans, as of June 30, 2013 and December 31, 2012:

(in thousands)	Commercial Construction		Commercial Secured by Real Estate		Equipment Leases		Commercial Other		Total
June 30, 2013
Pass	$	77,966	$	725,401	$	9,383	$	315,390	$	1,128,140
Watch		13,938		79,507		0		39,418		132,863
OAEM		28		12,764		0		5,365		18,157
Substandard		7,213		35,179		0		14,402		56,794
Doubtful		4,655		6,171		0		2,331		13,157
Total	$	103,800	$	859,022	$	9,383	$	376,906	$	1,349,111

December 31, 2012
Pass	$	92,140	$	665,764	$	9,246	$	328,646	$	1,095,796
Watch		12,915		79,517		0		28,760		121,192
OAEM		1,054		16,532		0		2,816		20,402
Substandard		7,383		40,021		0		14,878		62,282
Doubtful		5,955		5,379		0		1,248		12,582
Total	$	119,447	$	807,213	$	9,246	$	376,348	$	1,312,254

The following tables present the credit risk profile of the CTBI’s residential real estate and consumer loan portfolios based on performing or nonperforming status, segregated by class, as of June 30, 2013 and December 31, 2012:

(in thousands)	Real Estate Construction		Real Estate Mortgage		Home Equity		Consumer Direct		Consumer Indirect		Total
June 30, 2013
Performing	$	50,661	$	685,226	$	80,008	$	123,492	$	286,786	$	1,226,173
Nonperforming (1)		801		7,708		623		73		312		9,517
Total	$	51,462	$	692,934	$	80,631	$	123,565	$	287,098	$	1,235,690

December 31, 2012
Performing	$	54,530	$	689,264	$	81,710	$	122,483	$	281,096	$	1,229,083
Nonperforming (1)		511		7,664		582		98		381		9,236
Total	$	55,041	$	696,928	$	82,292	$	122,581	$	281,477	$	1,238,319

(1) A loan is considered nonperforming if it is 90 days or more past due and/or on nonaccrual.

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 following table presents impaired loans, the average investment in impaired loans, and interest income recognized on impaired loans for the periods ended June 30, 2013, December 31, 2012, and June 30, 2012:

	June 30, 2013
(in thousands)	Recorded Balance		Unpaid Contractual Principal Balance		Specific Allowance
Loans without a specific valuation allowance:
Commercial construction	$	5,921	$	6,498	$	0
Commercial secured by real estate		29,232		30,155		0
Commercial other		16,036		19,760		0
Real estate mortgage		1,027		1,027		0

Loans with a specific valuation allowance:
Commercial construction		4,655		5,511		1,890
Commercial secured by real estate		6,194		6,448		1,866
Commercial other		353		477		83

Totals:
Commercial construction		10,576		12,009		1,890
Commercial secured by real estate		35,426		36,603		1,866
Commercial other		16,389		20,237		83
Real estate mortgage		1,027		1,027		0
Total	$	63,418	$	69,876	$	3,839

	Three Months Ended				Six Months Ended
	June 30, 2013				June 30, 2013
(in thousands)	Average Investment in Impaired Loans		*Interest Income Recognized		Average Investment in Impaired Loans		*Interest Income Recognized
Loans without a specific valuation allowance:
Commercial construction	$	6,043	$	53	$	5,634	$	127
Commercial secured by real estate		29,422		236		31,665		533
Commercial other		15,825		151		15,630		305
Real estate mortgage		1,025		17		842		24

Loans with a specific valuation allowance:
Commercial construction		4,656		0		5,366		0
Commercial secured by real estate		6,298		0		5,232		0
Commercial other		379		0		624		0

Totals:
Commercial construction		10,699		53		11,000		127
Commercial secured by real estate		35,720		236		36,897		533
Commercial other		16,204		151		16,254		305
Real estate mortgage		1,025		17		842		24
Total	$	63,648	$	457	$	64,993	$	989

	December 31, 2012
(in thousands)	Recorded Balance		Unpaid Contractual Principal Balance		Specific Allowance		Average Investment in Impaired Loans		*Interest Income Recognized
Loans without a specific valuation allowance:
Commercial construction	$	3,692	$	4,146	$	0	$	4,249	$	97
Commercial secured by real estate		35,046		35,818		0		35,542		1,337
Commercial other		13,285		15,484		0		11,083		416
Real estate mortgage		695		695		0		481		30

Loans with a specific valuation allowance:
Commercial construction		5,703		6,933		1,820		6,585		0
Commercial secured by real estate		3,067		3,189		1,090		3,243		0
Commercial other		1,010		2,331		338		1,441		0

Totals: