Companies: 10,793     total market cap: $134.237 T
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Community Trust Bancorp
CTBI
#5765
Rank
$1.12 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$61.76
Share price
0.29%
Change (1 day)
33.71%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Community Trust Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q3

Community Trust Bancorp - 10-Q quarterly report FY2023 Q3


Text size:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2023
 
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 001-31220

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
P.O. Box 2947
Pikeville, Kentucky
41502
(Address of principal executive offices)
(Zip code)

(606) 432-1414
(Registrant’s telephone number)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Common Stock
(Title of class)

CTBI
NASDAQ Global Select Market
(Trading symbol)
(Name of exchange on which registered)

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  ☑
No

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted 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 such files).

Yes  ☑
No

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

Large Accelerated Filer ☐
Accelerated Filer  ☑
Non-accelerated Filer  ☐
   
Smaller Reporting Company ☐
Emerging Growth Company ☐
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        ☐

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

Yes  ☐
   No ☑

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

Common stock – 17,999,840 shares outstanding at October 31, 2023

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. Community Trust Bancorp, Inc.’s (“CTBI”) 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; the effects of epidemics, pandemics, or other infectious disease outbreaks; 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; and the resolution of legal  proceedings and related matters. In addition, the banking industry in general is subject to various monetary, operational, and fiscal policies and regulations, which include, but are not limited to, those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and state regulators, whose policies, regulations, and enforcement actions 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, 2022 for further information in this regard.

1
Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands)
 
(unaudited)
September 30
2023
  
December 31
2022
 
Assets:
      
Cash and due from banks
 
$
69,291
  
$
51,306
 
Interest bearing deposits
  149,967   77,380 
Cash and cash equivalents
  
219,258
   
128,686
 
         
Certificates of deposit in other banks
  
245
   
245
 
Debt securities available-for-sale at fair value (amortized cost of $1,324,139 and $1,430,605, respectively)
  
1,135,878
   
1,256,226
 
Equity securities at fair value
  
2,900
   
2,166
 
Loans held for sale
  
0
   
109
 
         
Loans
  
3,985,019
   
3,709,290
 
Allowance for credit losses
  
(48,719
)
  
(45,981
)
Net loans
  
3,936,300
   
3,663,309
 
         
Premises and equipment, net
  
44,962
   
42,633
 
Operating right-of-use assets
  
12,929
   
13,809
 
Finance right-of-use assets  3,171   3,262 
Federal Home Loan Bank stock
  
7,670
   
6,676
 
Federal Reserve Bank stock
  
4,887
   
4,887
 
Goodwill
  
65,490
   
65,490
 
Bank owned life insurance
  
94,019
   
92,746
 
Mortgage servicing rights
  
8,289
   
8,468
 
Other real estate owned
  
2,175
   
3,671
 
Deferred tax asset
  41,268   39,878 
Accrued interest receivable
  
21,467
   
19,592
 
Other assets
  
34,024
   
28,463
 
Total assets
 
$
5,634,932
  
$
5,380,316
 
         
Liabilities and shareholders’ equity:
        
Deposits:
        
Noninterest bearing
 
$
1,314,189
  
$
1,394,915
 
Interest bearing
  
3,313,703
   
3,031,228
 
Total deposits
  
4,627,892
   
4,426,143
 
         
Repurchase agreements
  
232,577
   
215,431
 
Federal funds purchased
  
500
   
500
 
Advances from Federal Home Loan Bank
  
340
   
355
 
Long-term debt
  
64,296
   
57,841
 
Operating lease liability
  
13,323
   
14,160
 
Finance lease liability
  
3,478
   
3,468
 
Accrued interest payable
  
8,210
   
2,237
 
Other liabilities
  
31,282
   
32,134
 
Total liabilities
  
4,981,898
   
4,752,269
 
         
Shareholders’ equity:
        
Preferred stock, 300,000 shares authorized and unissued
  
-
   
-
 
Common stock, $5.00par value, shares authorized 25,000,000; shares issued and outstanding 2023 – 17,991,419; 2022 – 17,918,280
  
89,956
   
89,591
 
Capital surplus
  
230,503
   
229,012
 
Retained earnings
  
473,976
   
438,596
 
Accumulated other comprehensive loss, net of tax
  
(141,401
)
  
(129,152
)
Total shareholders’ equity
  
653,034
   
628,047
 
         
Total liabilities and shareholders’ equity
 
$
5,634,932
  
$
5,380,316
 

See notes to condensed consolidated financial statements.

2
Community Trust Bancorp, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income (Loss)
(unaudited)

  Three Months Ended  Nine Months Ended 
  
September 30
  
September 30
 
(in thousands except per share data)
 
2023
  
2022
  
2023
  
2022
 
Interest income:
            
Interest and fees on loans, including loans held for sale
 
$
60,156
  
$
43,524
  
$
167,925
  
$
120,925
 
Interest and dividends on securities
                
Taxable
  
6,831
   
5,830
   
20,400
   
15,158
 
Tax exempt
  
665
   
740
   
2,016
   
2,264
 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
  
168
   
175
   
514
   
423
 
Interest on Federal Reserve Bank deposits
  
1,616
   
1,105
   
4,255
   
1,460
 
Other, including interest on federal funds sold
  
63
   
31
   
211
   
54
 
Total interest income
  
69,499
   
51,405
   
195,321
   
140,284
 
                 
Interest expense:
                
Interest on deposits
  
21,733
   
6,648
   
54,586
   
13,449
 
Interest on repurchase agreements and federal funds purchased
  
2,524
   
666
   
6,330
   
1,256
 
Interest on advances from Federal Home Loan Bank
  954   0   1,004   1 
Interest on long-term debt
  
1,148
   
555
   
3,266
   
1,220
 
Total interest expense
  
26,359
   
7,869
   
65,186
   
15,926
 
                 
Net interest income
  
43,140
   
43,536
   
130,135
   
124,358
 
Provision for credit losses
  
1,871
   
2,414
   
4,996
   
3,366
 
Net interest income after provision for credit losses
  
41,269
   
41,122
   
125,139
   
120,992
 
                 
Noninterest income:
                
Deposit related fees
  7,823
   7,629
   22,623
   21,638
 
Gains on sales of loans, net
  
105
   
235
   
341
   
1,351
 
Trust and wealth management income
  
3,277
   
2,989
   
9,707
   
9,435
 
Loan related fees
  
1,283
   
1,589
   
3,325
   
5,066
 
Bank owned life insurance
  
1,108
   
743
   
2,701
   
2,136
 
Brokerage revenue
  
452
   
453
   
1,188
   
1,502
 
Securities gains (losses)
  
355
   
(159
)
  
738
   
(285
)
Other noninterest income
  
1,093
   
1,200
   
3,311
   
3,302
 
Total noninterest income
  
15,496
   
14,679
   
43,934
   
44,145
 
                 
Noninterest expense:
                
Officer salaries and employee benefits
  
3,725
   
4,114
   
11,451
   
12,235
 
Other salaries and employee benefits
  
14,328
   
14,432
   
43,815
   
42,383
 
Occupancy, net
  
2,154
   
2,259
   
6,637
   
6,624
 
Equipment
  
721
   
638
   
2,161
   
1,883
 
Data processing
  
2,410
   
2,270
   
7,096
   
6,566
 
Bank franchise tax
  
406
   
413
   
1,244
   
1,244
 
Legal fees
  
234
   
240
   
883
   
889
 
Professional fees
  
488
   
512
   
1,567
   
1,614
 
Advertising and marketing
  
767
   
768
   
2,291
   
2,179
 
FDIC insurance
  
612
   
360
   
1,828
   
1,073
 
Other real estate owned provision and expense
  
165
   
42
   
345
   
438
 
Repossession expense
  
109
   
104
   
438
   
335
 
Amortization of limited partnership investments
  
714
   
687
   
1,909
   
2,167
 
Other noninterest expense
  
4,014
   
4,636
   
12,097
   
11,182
 
Total noninterest expense
  
30,847
   
31,475
   
93,762
   
90,812
 
                 
Income before income taxes
  
25,918
   
24,326
   
75,311
   
74,325
 
Income taxes
  
5,290
   
4,954
   
15,966
   
14,954
 
Net income
  
20,628
   
19,372
   
59,345
   
59,371
 
                 
Other comprehensive loss:
                
Unrealized holding losses on debt securities available-for-sale:
                
Unrealized holding losses arising during the period
  
(26,766
)
  
(56,091
)
  
(13,878
)
  
(181,877
)
Less: Reclassification adjustments for realized gains (losses) included in net income
  
0
   
0
   
4
   
(1
)
Tax benefit
  
(6,679
)
  
(14,584
)
  
(1,633
)
  
(47,288
)
Other comprehensive loss, net of tax
  
(20,087
)
  
(41,507
)
  
(12,249
)
  
(134,588
)
Comprehensive income (loss)
 
$
541
  
$
(22,135
)
 
$
47,096
  
$
(75,217
)
                 
Basic earnings per share
 
$
1.15
  
$
1.09
  
$
3.32
  
$
3.33
 
Diluted earnings per share
 
$
1.15
  
$
1.08
  
$
3.32
  
$
3.33
 
                 
Weighted average shares outstanding-basic
  
17,893
   
17,841
   
17,882
   
17,832
 
Weighted average shares outstanding-diluted
  
17,904
   
17,857
   
17,892
   
17,844
 

See notes to condensed consolidated financial statements.

3
Consolidated Statements of Changes in Shareholders’ Equity
Quarterly
(unaudited)

(in thousands except per share and share amounts)
 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
  
Total
 
Balance, June 30, 2023
  
17,983,700
  
$
89,918
  
$
229,943
  
$
461,578
  
$
(121,314
)
 
$
660,125
 
Net income
              
20,628
       
20,628
 
Other comprehensive loss
                  
(20,087
)
  
(20,087
)
Cash dividends declared ($0.46 per share)
              
(8,230
)
      
(8,230
)
Issuance of common stock
  
7,751
   
38
   
241
           
279
 
Vesting of restricted stock
  (32)  (0)
  0           0 
Stock-based compensation
          
319
           
319
 
Balance,  September 30, 2023
  
17,991,419
  
$
89,956
  
$
230,503
  
$
473,976
  
$
(141,401
)
 
$
653,034
 

(in thousands except per share and share amounts)
 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
  
Total
 
Balance, June 30, 2022
  
17,895,181
  
$
89,475
  
$
228,020
  
$
412,484
  
$
(97,929
)
 
$
632,050
 
Net income
              
19,372
       
19,372
 
Other comprehensive loss
                  
(41,507
)
  
(41,507
)
Cash dividends declared ($0.44 per share)
              
(7,850
)
      
(7,850
)
Issuance of common stock
  
6,192
   
31
   
225
           
256
 
Stock-based compensation
          
239
           
239
 
Balance, September 30, 2022
  
17,901,373
  
$
89,506
  
$
228,484
  
$
424,006
  
$
(139,436
)
 
$
602,560
 

See notes to condensed consolidated financial statements.

4
Consolidated Statements of Changes in Shareholders’ Equity
Year-to-Date
(unaudited)

(in thousands except per share and share amounts)
 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss), Net of Tax
  
Total
 
Balance, December 31, 2022
  
17,918,280
  
$
89,591
  
$
229,012
  
$
438,596
  
$
(129,152
)
 
$
628,047
 
Net income
              
59,345
       
59,345
 
Other comprehensive loss
                  
(12,249
)
  
(12,249
)
Cash dividends declared ($1.34 per share)
              
(23,965
)
      
(23,965
)
Issuance of common stock
  
42,473
   
212
   
625
           
837
 
Issuance of restricted stock
  
52,865
   
264
   
(264
)
          
0
 
Vesting of restricted stock
  
(21,409
)
  
(107
)
  
107
           
0
 
Forfeiture of restricted stock
  (790)  (4)  4           0 
Stock-based compensation
          
1,019
           
1,019
 
Balance, September 30, 2023
  
17,991,419
  
$
89,956
  
$
230,503
  
$
473,976
  
$
(141,401
)
 
$
653,034
 

(in thousands except per share and share amounts)
 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
  
Total
 
Balance, December 31, 2021
  
17,843,081
  
$
89,215
  
$
227,085
  
$
386,750
  
$
(4,848
)
 
$
698,202
 
Net income
              
59,371
       
59,371
 
Other comprehensive loss
                  
(134,588
)
  
(134,588
)
Cash dividends declared ($1.24 per share)
              
(22,115
)
      
(22,115
)
Issuance of common stock
  
44,758
   
224
   
531
           
755
 
Issuance of restricted stock
  
40,438
   
202
   
(202
)
          
0
 
Vesting of restricted stock
  
(26,904
)
  
(135
)
  
135
           
0
 
Stock-based compensation
          
935
           
935
 
Balance, September 30, 2022
  
17,901,373
  
$
89,506
  
$
228,484
  
$
424,006
  
$
(139,436
)
 
$
602,560
 

See notes to condensed consolidated financial statements.

5
Community Trust Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)

 Nine Months Ended
 
  
September 30
 
(in thousands)
 
2023
  
2022
 
Cash flows from operating activities:
      
Net income
 
$
59,345
  
$
59,371
 
Adjustments to reconcile net income to net cash provided by operating activities:
        
Depreciation and amortization
  
4,034
   
3,843
 
Deferred taxes
  
243
   
306
 
Stock-based compensation
  
1,152
   
1,008
 
Provision for credit losses
  
4,996
   
3,366
 
Write-downs of other real estate owned and other repossessed assets
  
230
   
275
 
Gains on sale of mortgage loans held for sale
  
(341
)
  
(1,351
)
Securities (gains)/losses
  
(4
)
  
1
 
Fair value adjustments in equity securities
  
(734
)
  
284
 
Gains on sale of assets, net
  
(378
)
  
(211
)
Proceeds from sale of mortgage loans held for sale
  
13,271
   
59,416
 
Funding of mortgage loans held for sale
  
(12,821
)
  
(56,476
)
Amortization of securities premiums and discounts, net
  
2,094
   
4,521
 
Change in cash surrender value of bank owned life insurance
  
(1,850
)
  
(1,357
)
Changes in lease liabilities
  
(1,201
)
  
(1,325
)
Mortgage servicing rights:
        
Fair value adjustments
  
320
   
(1,247
)
New servicing assets created
  
(141
)
  
(555
)
Changes in:
        
Accrued interest receivable
  
(1,875
)
  
(1,098
)
Other assets
  
(5,561
)
  
911
 
Accrued interest payable
  
5,973
   
1,485
 
Other liabilities
  
(986
)
  
1,247
 
Net cash provided by operating activities
  
65,766
   
72,414
 
         
Cash flows from investing activities:
        
Securities available-for-sale (AFS):
        
Purchase of AFS securities
  
(9,398
)
  
(178,055
)
Proceeds from sales of AFS securities
  
20,670
   
0
 
Proceeds from prepayments, calls, and maturities of AFS securities
  
93,104
   
148,494
 
Change in loans, net
  
(277,466
)
  
(221,985
)
Purchase of premises and equipment
  
(5,027
)
  
(4,309
)
Proceeds from sale and retirement of premises and equipment
  349   512 
Purchase of Federal Home Loan Bank stock  (994)  0 
Proceeds from sale of stock by Federal Home Loan Bank
  
0
  
1,463
 
Proceeds from sale of other real estate owned and repossessed assets
  
819
   
955
 
Additional investment in other real estate owned and repossessed assets
  (47)  (73)
Liquidation of cash surrender value of bank owned life insurance
  241   0 
Proceeds from settlement of bank owned life insurance
  336   1 
Net cash used in investing activities
  
(177,413
)
  
(252,997
)
         
Cash flows from financing activities:
        
Change in deposits, net
  
201,749
   
190,776
 
Change in repurchase agreements and federal funds purchased, net
  
17,146
   
(40,965
)
Proceeds from Federal Home Loan Bank advances
  225,000   20,000 
Payments on advances from Federal Home Loan Bank
  
(225,015
)
  
(20,015
)
Payment of finance lease liabilities
  
0
   
(18
)
Proceeds from long-term debt/other borrowings
  6,563   0 
Repayment of long-term debt/other borrowings
  (108)  0 
Issuance of common stock
  
837
   
755
 
Dividends paid
  
(23,953
)
  
(22,077
)
Net cash provided by financing activities
  
202,219
   
128,456
 
Net increase (decrease) in cash and cash equivalents  
90,572
   
(52,127
)
Cash and cash equivalents at beginning of period
  
128,686
   
311,756
 
Cash and cash equivalents at end of period
 
$
219,258
  
$
259,629
 
         
Supplemental disclosures:
     
 

Income taxes paid
 
$
17,628
  
$
12,260
 
Interest paid
  
59,213
   
14,441
 
Non-cash activities:
        
Loans to facilitate the sale of other real estate owned and repossessed assets
  
1,022
   
985
 
Common stock dividends accrued, paid in subsequent quarter
  
291
   
286
 
Real estate acquired in settlement of loans
  
500
   
478
 
Right-of-use assets obtained in exchange for new operating lease liabilities
  364   405 

See notes to condensed consolidated financial statements.

6
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 adjustments) necessary, to present fairly the condensed consolidated financial position as of September 30, 2023, the results of operations, other comprehensive income (loss), and changes in shareholders’ equity for the three and nine months ended September 30, 2023 and 2022 and the cash flows for the nine months ended September 30, 2023 and 2022.  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, other comprehensive income (loss), and changes in shareholders’ equity for the three and nine months ended September 30, 2023 and 2022 and the cash flows for the nine months ended September 30, 2023 and 2022 are not necessarily indicative of the results to be expected for the full year.  The condensed consolidated balance sheet as of December 31, 2022 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, 2022, 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. (“CTB”) and Community Trust and Investment Company.  All significant intercompany transactions have been eliminated in consolidation.


New Accounting Standards –


➢       Facilitation of the Effects of Reference Rate Reform on Financial Reporting – In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time preparers can utilize the reference rate reform relief guidance.  The amendments in ASU No. 2022-06 are effective for all entities upon issuance.  In 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published.  The amendments in ASU No. 2020-04 provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and provide optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  This ASU applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.  The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.  In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU No. 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.  At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.

7

➢       Troubled Debt Restructurings and Vintage Disclosures – In February 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.  Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan.   Additionally, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, in the vintage disclosures required by paragraph 326-20-50-6.  The amendments in the ASU have been implemented and did not have a  significant impact to our consolidated financial statements.



➢       Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions – In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.  The FASB issued this ASU to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.  The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.  The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.  The amendments in this ASU also require the following disclosures for equity securities subject to contractual sale restrictions: (1) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; (2) the nature and remaining duration of the restriction(s); and (3) the circumstances that could cause a lapse in the restriction(s).  For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.  Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. We do not anticipate a significant impact to our consolidated financial statements.


            ➢         FASB Improves the Accounting for Investments in Tax Credit Structures – The FASB issued, ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which is intended to improve the accounting and disclosures for investments in tax credit structures. This ASU is a consensus of the FASB’s Emerging Issues Task Force (EITF).  This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits.  Reporting entities were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low-income housing tax credit (“LIHTC”) structures. In recent years, stakeholders asked the FASB to extend the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs, which resulted in the EITF addressing this issue.  For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period; however, we do not plan to early adopt. We do not anticipate a significant impact to our consolidated financial statements.



➢        FASB Issues Disclosure Improvements in Response to the SEC’s Disclosure Update and Simplification Initiative – In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements:Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification™.  The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosure requirements with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.  For entities subject to the SEC’s existing disclosure requirements, such as CTBI, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules.This ASU has no impact on our consolidated financial statements as we have already incorporated the disclosure requirements as required by the SEC.

8
Significant Accounting Policies –


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 our 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.


We have identified the following significant accounting policies:


➢        Investments – Management determines the classification of securities at purchase.  We classify debt securities into held-to-maturity, trading, or available-for-sale categories.  Held-to-maturity (“HTM”) securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost.  In accordance with FASB Accounting Standards Codification (“ASC”) 320, Investments – Debt Securities, investments in debt securities that are not classified as held-to-maturity 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 HTM securities) shall be classified as available-for-sale (“AFS”) securities.


We do not have any securities that are classified as trading securities.  AFS 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.



For AFS debt securities in an unrealized loss position, we evaluate the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors.  Any impairment that is not credit-related is recognized in accumulated other comprehensive income, net of tax.  Credit-related impairment is recognized as an allowance for credit losses (“ACL”) for AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings.  Accrued interest receivable on AFS debt securities is excluded from the estimate of credit losses.  Both the ACL for AFS debt securities and the adjustment to net income may be reversed if conditions change.  However, if we intend to sell an impaired AFS debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis.  Because the security’s amortized cost basis is adjusted to fair value, there is no ACL for AFS debt securities in this situation.


9

In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, we consider the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.  There were no credit related factors underlying unrealized losses on AFS debt securities at September 30, 2023 and December 31, 2022, therefore, no ACL for AFS securities was recorded.



Changes in the ACL for AFS debt securities are recorded as expense.  Losses are charged against the ACL for AFS debt securities when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.


Gains or losses on disposition of debt securities are computed by specific identification for those securities.  Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings.


HTM securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts.  The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics.  These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased.  At September 30, 2023 and 2022, CTBI held nosecurities designated as HTM.


CTBI accounts for equity securities in accordance with ASC 321, Investments – Equity Securities. ASC 321 requires equity investments (except those accounted for under the equity method and those that result in the consolidation of the investee) to be measured at fair value, with changes in fair values recognized in net income.


Equity securities with a readily determinable fair value are required to be measured at fair value, with changes in fair value recognized in net income.  Equity securities without a readily determinable fair value are carried at cost, less any impairment, if any, plus or minus changes resulting from observable price changes for identical or similar investments.  As permitted by ASC 321-10-35-2, CTBI can make an irrevocable election to subsequently measure an equity security without a readily determinable fair value, and all identical or similar investments of the same issuer, including future purchases of identical or similar investments of the same issuer, at fair value.  CTBI has made this election for our Visa Class B equity securities.  The fair value of these securities was determined by a third party service provider using Level 3 inputs as defined in ASC 820, Fair Value Measurement, and changes in fair value are recognized in income.


➢        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 credit losses, and unamortized deferred fees or costs and premiums.  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, generallysix months, and future payments appear reasonably certain. With the implementation of ASU 2022-02 described above in the New Accountings Standards, TDRs have been eliminated while enhanced disclosure requirements have been implemented for certain loan modifications when a borrower is experiencing financial difficulty.

10

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, or commitments as a yield adjustment.


➢        Allowance for Credit Losses – CTBI accounts for the allowance for credit losses under ASC 326. CTBI measures expected credit losses of financial assets on a collective (pool) basis using loss-rate methods when the financial assets share similar risk characteristics. Loans that do not share risk characteristics are evaluated on an individual basis. Regardless of an initial measurement method, once it is determined that foreclosure is probable, the allowance for credit losses is measured based on the fair value of the collateral as of the measurement date. As a practical expedient, the fair value of the collateral may be used for a loan when determining the allowance for credit losses for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. The fair value shall be adjusted for selling costs when foreclosure is probable. For collateral-dependent financial assets, the credit loss expected may be zero if the fair value less costs to sell exceed the amortized cost of the loan. Loans shall not be included in both collective assessments and individual assessments.



In the event that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest in a timely manner. Therefore, CTBI elected  ASU 2019-04 which allows that accrued interest would continue to be presented separately and not part of the amortized cost of the loan. The methodology used by CTBI is developed using the current loan balance, which is then compared to amortized cost balances to analyze the impact. The difference in amortized cost basis versus consideration of loan balances impacts the allowance for credit losses calculation by 1basis point and is considered immaterial. The primary difference is for indirect lending premiums.


We maintain an ACL at a level that is appropriate to cover estimated credit losses on individually evaluated loans, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio.  Credit losses are charged and recoveries are credited to the ACL.


We utilize an internal risk grading system for commercial credits. Those credits that meet the following criteria are subject to individual evaluation: the loan has an outstanding bank share balance of $1 million or greater and has a criticized risk rating and meets one of the following criteria: (i) is in nonaccrual status, (ii) the borrower is experiencing financial difficulty with significant payment delay, or (iii) is 90 days or more past due. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. 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 loan segments not subject to individual evaluation.


Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded.  The associated ACL for these loans is measured in pools with similar risk characteristics under ASC 326.


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 nonaccrual and the loan is charged down to the value of the collateral less estimated cost to sell. For commercial loans greater than $1 million that are categorized as individually evaluated based on the criteria listed above, a specific reserve is established if a loss is determined to be possible and then charged-off once it is probable. When the foreclosed collateral has been legally assigned to CTBI, the estimated fair value of the collateral less costs to sell is then transferred to other real estate owned or other repossessed assets, and a charge-off is taken for any remaining balance.  When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.

11

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 (five 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. Foreclosure proceedings are normally initiated after 120 days. When the foreclosed property has been legally assigned to CTBI, the fair value less estimated costs to sell is transferred to other real estate owned and the remaining balance is taken as a charge-off.


Prior to June 30, 2023, loss rate methodologies were used by CTBI.  Weighted average life calculations were completed as a tool to determine the life of CTBI’s various loan segments.  Vintage modeling was used to determine the life of loan losses for consumer and residential real estate loans, and static pool modeling was used to determine the life of loan losses for commercial loan segments.  Historical loss rates for loans were adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition.  Forecasting factors including unemployment rates and industry specific forecasts for industries in which our total exposure is 5% of capital or greater were also included as factors in the ACL model.



During the quarter ended June 30, 2023, CTBI implemented third party software and the determination was made to utilize discounted cash flow loss rate methodologies for all loan segments.  Within the discount cash flow calculation, an effective yield of the instrument is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows, modeled considering probability of default (PD) and segment-specific loss given default (LGD) risk factors, are then discounted at that effective yield to produce an instrument-level net present value (NPV) of expected cash flows.  An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.  Any changes in NPV between periods is recorded as provision for credit losses.  The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions.  Management incorporates qualitative factors to loss estimates used to derive CTBI’s total ACL including delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, and underwriting exceptions.  Forecast factors were expanded to include gross domestic product, retail and food service sales, and S&P/Case-Shiller US National Home Price Index, while industry concentrations was added as a qualitative factor.  Management continually reevaluates the other subjective factors included in our ACL analysis.


➢        Goodwill and Core Deposit Intangible – We evaluate total goodwill and core deposit intangible for impairment, based upon ASC 350, Intangibles-Goodwill and Other, using fair value techniques including multiples of price/equity.  Goodwill and core deposit intangible are evaluated for impairment on an annual basis or as other events may warrant.



The balance of goodwill, at $65.5million, has not changed since January 1, 2015.
 

➢        Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.  Any interest and penalties incurred in connection with income taxes are recorded as a component of income tax expense in our consolidated financial statements. During the nine months ended September 30, 2023 and 2022, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.


➢        Estimated Credit Losses on Off-Balance Sheet Credit Exposures Recognized as Other Liabilities – CTBI estimates expected credit losses over the contractual period in which it has exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by CTBI.  The allowance for credit losses on off-balance sheet credit exposures recognized in other liabilities, is adjusted as an expense in other non-interest expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives.  Estimating credit losses on unfunded commitments requires CTBI to consider the following categories of off-balance sheet credit exposure: unfunded commitments to extend credit, unfunded lines of credit, and standby letters of credit.  Each of these unfunded commitments is then analyzed for a probability of funding to calculate a probable funding amount.  The life of loan loss factor by related portfolio segment from the loan allowance for credit loss calculation is then applied to the probable funding amount to calculate the estimated credit losses on off-balance sheet credit exposures recognized as other liabilities.

12
Note 2 – Stock-Based Compensation


Restricted stock expense for the three and nine months ended September 30, 2023 was $0.4 million and $1.2 million, respectively, including $45 thousand and $133 thousand, respectively, in dividends paid for those periods.  Restricted stock expense for the three and nine months ended September 30, 2022 was $0.3 million and $1.0 million, respectively, including $27 thousand and $73thousand, respectively, in dividends paid for those periods.  As of September 30, 2023, there was a total of $3.3 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 3.2 years. There were no shares of restricted stock granted during the three months ended September 30, 2023 and 2022.  There were 52,865 and 40,438 shares of restricted stock granted during the nine months ended September 30, 2023 and 2022, respectively.  The restricted stock was issued pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan. The restrictions on the restricted stock will lapse ratably over four years, except for the 5,000 management retention restricted stock award granted in April 2022 which will vest at the end of five years, subject to such employee’s continued employment.  However, in the event of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of the participant, the restrictions will lapse, and in the event of the participant’s disability, the restrictions will lapse on a pro rata basis.  The Compensation Committee 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 shares of restricted stock forfeited during the three months ended September 30, 2023, but there were 790 shares of restricted stock forfeited during the nine months ended September 30, 2023.  No shares were forfeited during the three and nine months ended September 30, 2022.


There was no compensation expense related to stock option grants for the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023, there was no unrecognized compensation expense related to unvested stock option awards, as all stock option awards have fully vested.  There were no stock options granted in the first nine months of 2023 or 2022.

Note 3 – Securities


Debt securities are classified into HTM and AFS categories.  HTM securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost.  AFS securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons.  AFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.  As of September 30, 2023 and December 31, 2022, CTBI had no HTM securities.


13

The amortized cost and fair value of debt securities at September 30, 2023 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
 
$
387,012
  
$
135
  
$
(35,808
)
 
$
351,339
 
State and political subdivisions
  
313,867
   
1
   
(69,390
)
  
244,478
 
U.S. government sponsored agency mortgage-backed securities
  
534,442
   
0
   
(82,144
)
  
452,298
 
Asset-backed securities
  
88,818
   
0
   
(1,055
)
  
87,763
 
Total available-for-sale securities
 
$
1,324,139
  
$
136
  
$
(188,397
)
 
$
1,135,878
 


The amortized cost and fair value of debt securities at December 31, 2022 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
 
$
418,579
  
$
212
  
$
(36,859
)
 
$
381,932
 
State and political subdivisions
  
326,746
   
32
   
(61,676
)
  
265,102
 
U.S. government sponsored agency mortgage-backed securities
  
593,917
   
1
   
(73,833
)
  
520,085
 
Asset-backed securities
  
91,363
   
0
   
(2,256
)
  
89,107
 
Total available-for-sale securities
 
$
1,430,605
  
$
245
  
$
(174,624
)
 
$
1,256,226
 



The amortized cost and fair value of debt securities at September 30, 2023 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
 
(in thousands)
 
Amortized Cost
  
Fair Value
 
Due in one year or less
 
$
23,805
  
$
23,585
 
Due after one through five years
  
372,557
   
335,324
 
Due after five through ten years
  
129,061
   
106,680
 
Due after ten years
  
175,456
   
130,228
 
U.S. government sponsored agency mortgage-backed securities
  
534,442
   
452,298
 
Asset-backed securities
  
88,818
   
87,763
 
Total debt securities
 
$
1,324,139
  
$
1,135,878
 


During the three months ended September 30, 2023, we had an unrealized gain of $355 thousand from the fair value adjustment of equity securities.  During the three months ended September 30, 2022, we had an unrealized loss of $159 thousand from the fair value adjustment of equity securities.



During the nine months ended September 30, 2023, we had a net securities gain of $738 thousand, consisting of a pre-tax gain of $4 thousand realized on sales and calls of AFS securities and an unrealized gain of $734 thousand from the fair value adjustment of equity securities.  During the nine months ended September 30, 2022, we had a net securities loss of $285 thousand, consisting of a pre-tax loss of $1thousand realized on calls of AFS securities and an unrealized loss of $284 thousand from the fair value adjustment of equity securities.

14
Equity Securities at Fair Value


CTBI made the election permitted by ASC 321-10-35-2 to record its Visa Class B shares at fair value.  Equity securities at fair value as of September 30, 2023 were $2.9 million, as a result of a $355 thousand increase in the fair value in the third quarter 2023.  The fair value of equity securities decreased $159 thousand in the third quarter2022.  No equity securities were sold during the nine months ended September 30, 2023 and 2022.


The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $752.2 million at September 30, 2023 and $725.0million at December 31, 2022.


The amortized cost of securities sold under agreements to repurchase amounted to $350.2 million at September 30, 2023 and $316.9million at December 31, 2022.


CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of September 30, 2023indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related.  The percentage of total debt securities with unrealized losses as of September 30, 2023 was 98.9% compared to 97.4% as of December 31, 2022.  The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of September 30, 2023 that are not deemed to have credit losses.  As stated above, CTBI had no HTM securities as of September 30, 2023.

Available-for-Sale

(in thousands)
 
Amortized
Cost
  
Gross
Unrealized
Losses
  
Fair Value
 
Less Than 12 Months
         
U.S. Treasury and government agencies
 
$
4,781
  
$
(6
)
 
$
4,775
 
State and political subdivisions
  
25,808
   
(2,565
)
  
23,243
 
U.S. government sponsored agency mortgage-backed securities
  
15,879
   
(507
)
  
15,372
 
Asset-backed securities
  
0
   
0
  
0
 
Total <12 months temporarily impaired AFS securities
  
46,468
   
(3,078
)
  
43,390
 
             
12 Months or More
            
U.S. Treasury and government agencies
  
370,697
   
(35,802
)
  
334,895
 
State and political subdivisions
  
287,629
   
(66,825
)
  
220,804
 
U.S. government sponsored agency mortgage-backed securities
  
518,517
   
(81,637
)
  
436,880
 
Asset-backed securities
  
88,818
   
(1,055
)
  
87,763
 
Total ≥12 months temporarily impaired AFS securities
  
1,265,661
   
(185,319
)
  
1,080,342
 
             
Total
            
U.S. Treasury and government agencies
  
375,478
   
(35,808
)
  
339,670
 
State and political subdivisions
  
313,437
   
(69,390
)
  
244,047
 
U.S. government sponsored agency mortgage-backed securities
  
534,396
   
(82,144
)
  
452,252
 
Asset-backed securities
  
88,818
   
(1,055
)
  
87,763
 
Total temporarily impaired AFS securities
 
$
1,312,129
  
$
(188,397
)
 
$
1,123,732
 

15

The analysis performed as of December 31, 2022 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related.  The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2022 that are not deemed to be other-than-temporarily impaired.  As stated above, CTBI had no HTM securities as of December 31, 2022.

Available-for-Sale

(in thousands)
 
Amortized
Cost
  
Gross
Unrealized
Losses
  
Fair Value
 
Less Than 12 Months
         
U.S. Treasury and government agencies
 
$
144,305
  
$
(6,953
)
 
$
137,352
 
State and political subdivisions
  
94,277
   
(6,257
)
  
88,020
 
U.S. government sponsored agency mortgage-backed securities
  
139,314
   
(6,883
)
  
132,431
 
Asset-backed securities
  
38,882
   
(1,231
)
  
37,651
 
Total <12 months temporarily impaired AFS securities
  
416,778
   
(21,324
)
  
395,454
 
             
12 Months or More
            
U.S. Treasury and government agencies
  
249,424
   
(29,906
)
  
219,518
 
State and political subdivisions
  
225,019
   
(55,419
)
  
169,600
 
U.S. government sponsored agency mortgage-backed securities
  
454,357
   
(66,950
)
  
387,407
 
Asset-backed securities
  
52,480
   
(1,025
)
  
51,455
 
Total ≥12 months temporarily impaired AFS securities
  
981,280
   
(153,300
)
  
827,980
 
             
Total
            
U.S. Treasury and government agencies
  
393,729
   
(36,859
)
  
356,870
 
State and political subdivisions
  
319,296
   
(61,676
)
  
257,620
 
U.S. government sponsored agency mortgage-backed securities
  
593,671
   
(73,833
)
  
519,838
 
Asset-backed securities
  
91,362
   
(2,256
)
  
89,106
 
Total temporarily impaired AFS securities
 
$
1,398,058
  
$
(174,624
)
 
$
1,223,434
 

U.S. Treasury and Government Agencies


The unrealized losses in U.S. Treasury and government agencies were caused by interest rate changes.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than par which will equal amortized cost at maturity.  CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost.

State and Political Subdivisions


The unrealized losses in securities of state and political subdivisions were caused by interest rate changes.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than par which will equal amortized cost at maturity.  CTBI does not intend to sell the investments before recovery of their amortized cost and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost.

U.S. Government Sponsored Agency Mortgage-Backed Securities


The unrealized losses in U.S. government sponsored agency mortgage-backed securities were caused by interest rate changes.  CTBI expects to recover the amortized cost basis over the term of the securities.  CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost.

16
Asset-Backed Securities


The unrealized losses in asset-backed securities were caused by interest rate changes.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than par which will equal amortized cost at maturity.  CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost.

Note 4 – Loans


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

(in thousands)
 
September 30
2023
  
December 31
2022
 
Hotel/motel
 
$
386,067
  
$
343,640
 
Commercial real estate residential
  
404,779
   
372,914
 
Commercial real estate nonresidential
  
788,287
   
762,349
 
Dealer floorplans
  
61,920
   
77,533
 
Commercial other
  
315,529
   
312,422
 
Commercial loans
  
1,956,582
   
1,868,858
 
         
Real estate mortgage
  
916,580
   
824,996
 
Home equity lines
  
139,085
   
120,540
 
Residential loans
  
1,055,665
   
945,536
 
         
Consumer direct
  
160,712
   
157,504
 
Consumer indirect
  
812,060
   
737,392
 
Consumer loans
  
972,772
   
894,896
 
         
Loans and lease financing
 
$
3,985,019
  
$
3,709,290
 


The loan portfolios presented above are net of unearned fees and unamortized premiums.  Unearned fees included above totaled $1.0 million as of September 30, 2023 and as of December 31, 2022, while the unamortized premiums on the indirect lending portfolio totaled $31.1 million as of September 30, 2023 and $28.5 million as of December 31, 2022.


CTBI has segregated and evaluates our loan portfolio through nine portfolio segments with similar risk characteristics. 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.


Hotel/motel loans are a significant concentration for CTBI, representing approximately9.7% of total loans. This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility. Additionally, any hotel/motel construction loans would be included in this segment as CTBI’s construction loans are primarily completed as one loan going from construction to permanent financing. 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.


Commercial real estate residential loans are commercial purpose construction and permanent financed loans for commercial purpose 1-4 family/multi-family properties. 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.

17

Commercial real estate nonresidential loans are secured by nonfarm, nonresidential 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. Construction for commercial real estate nonresidential loans are also included in this segment as these loans are generally one loan for construction to permanent financing.


Dealer floorplans consist of loans to dealerships to finance inventory and are collateralized under a blanket security agreement and without specific liens on individual units.  This risk is mitigated by the use of periodic inventory audits.  These audits are performed monthly and follow up is required on any out of compliance items identified.  These audits are subject to increasing frequency when fact patterns suggest more scrutiny is required.


 Commercial other loans consist of agricultural loans, receivable financing, 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 equipment, or other assets, although such loans may be uncollateralized but guaranteed.



Residential real estate loans are a mixture of fixed rate and adjustable rate first and second lien residential mortgage loans and also include real estate construction loans which are typically for owner-occupied properties.  The terms of the real estate construction loans are generally short-term with permanent financing upon completion.  As a policy, CTBI holds adjustable rate loans and sells the majority of our 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 primarily revolving adjustable rate credit lines secured by real property.


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



Consumer indirect loans are primarily fixed rate consumer 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 $0.1 million at December 31, 2022.  There were no loans held for sale at September 30, 2023.



For periods ended September 30, 2022 and December 31, 2022, CTBI derived our ACL balance by using vintage modeling for the consumer and residential portfolios.  Static pool models incorporating losses by credit risk rating were developed to determine credit loss balances for the commercial loan segments.  Qualitative loss factors were based on CTBI’s judgment of delinquency trends, level of nonperforming loans, trend in loan losses, supervision and administration, quality control exceptions, and reasonable and supportable forecasts based on unemployment rates and industry concentrations.  CTBI determined that twelve months represented a reasonable and supportable forecast period and reverted back to a historical loss rate immediately.  CTBI leveraged economic projections from a reputable and independent third party to form its loss driver forecasts over the twelve-month forecast period.  Other internal and external indicators of economic forecasts were also considered by CTBI when developing the forecast metrics.  CTBI also had an inherent model risk allocation included in our ACL calculation to allow for certain known model limitations as well as other potential risks not quantified elsewhere.  One limitation was the inability to completely identify revolving line of credit within the commercial other segment.


18

During the quarter ended June 30, 2023, CTBI implemented third party software for its ACL calculations.  During the implementation process, discounted cash flow modeling was chosen for all loan segments.  The primary reasons that contributed to this decision were:  Discounted cash flow (“DCF”) models allow for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner; the analysis aligns well with other calculations outside of the ACL estimation which will mitigate model risk in other areas; and peer data is available for certain inputs if first -party data is not available or meaningful.  This change in modeling resulted in a shift in our reserve estimates as of June 30, 2023 as presented below:

(in thousands)
 
ACL Software
June 30, 2023
  
CTBI Internal
ACL Model
June 30, 2023
  
Change in Allocation
 
          
Hotel/motel
 
$
5,192
  
$
6,038
  
$
(846
)
Commercial real estate residential
  
3,749
   
4,669
   
(920
)
Commercial real estate nonresidential
  
7,797
   
8,794
   
(997
)
Dealer floorplans
  
1,157
   
1,719
   
(562
)
Commercial other
  
6,176
   
4,547
   
1,629
 
Commercial loans reserve allocation
  
24,071
   
25,767
   
(1,696
)
             
Real estate mortgage
  
7,884
   
8,443
   
(559
)
Home equity lines
  
1,108
   
1,065
   
43
 
Residential loans reserve allocation
  
8,992
   
9,508
   
(516
)
             
Consumer direct
  
2,563
   
1,673
   
890
 
Consumer indirect
  
12,392
   
10,959
   
1,433
 
Consumer loans reserve allocation
  
14,955
   
12,632
   
2,323
 
             
Loans and lease financing allowance for credit loss
 
$
48,018
   
47,907
  
$
111
 


This change in reserve estimates is related to life of loan and how it functions in a cash flow methodology versus the loss rate methodology previously used as consumer loans generally have longer lives than commercial loans.  Although commercial loans may estimate more probability of default/loss given default compared to consumer loans, their shorter exposures will yield lower reserves.  Additionally, there was a change in how some of the qualitative factors were applied using the new software with a switch from a geographical approach to a loan segment approach.

19

The following tables present the balance in the ACL for the periods ended September 30, 2023, December 31, 2022, and September 30, 2022:


 
 
Three Months Ended
September 30, 2023
 
(in thousands)
 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  
Recoveries
  
Ending
Balance
 
ACL
               
Hotel/motel
 
$
5,192
  
$
611
  
$
0
  
$
0
  
$
5,803
 
Commercial real estate residential
  
3,749
   
66
   
0
   
9
   
3,824
 
Commercial real estate
nonresidential
  
7,797
   
181
   
0
   
39
   
8,017
 
Dealer floorplans
  
1,157
   
(314
)
  
0
   
0
   
843
 
Commercial other
  
6,176
   
(595
)
  
(195
)
  
159
   
5,545
 
Real estate mortgage
  
7,884
   
439
   
(4
)
  
17
   
8,336
 
Home equity
  
1,108
   
59
   
(10
)
  
1
   
1,158
 
Consumer direct
  
2,563
   
157
   
(148
)
  
41
   
2,613
 
Consumer indirect
  
12,392
   
1,267
   
(1,655
)
  
576
   
12,580
 
Total
 
$
48,018
  
$
1,871
  
$
(2,012
)
 
$
842
  
$
48,719
 

 
 
Nine Months Ended
September 30, 2023
 
(in thousands)
 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  
Recoveries
  
Ending
Balance
 
ACL
               
Hotel/motel
 
$
5,171
  
$
632
  
$
0
  
$
0
  
$
5,803
 
Commercial real estate residential
  
4,894
   
(1,132
)
  
(28
)
  
90
   
3,824
 
Commercial real estate nonresidential
  
9,419
   
(1,765
)
  
(9
)
  
372
   
8,017
 
Dealer floorplans
  
1,776
   
(933
)
  
0
   
0
   
843
 
Commercial other
  
5,285
   
1,376
   
(1,455
)
  
339
   
5,545
 
Real estate mortgage
  
7,932
   
470
   
(99
)
  
33
   
8,336
 
Home equity
  
1,106
   
71
   
(23
)
  
4
   
1,158
 
Consumer direct
  
1,694
   
1,069
   
(386
)
  
236
   
2,613
 
Consumer indirect
  
8,704
   
5,208
   
(3,730
)
  
2,398
   
12,580
 
Total
 
$
45,981
  
$
4,996
  
$
(5,730
)
 
$
3,472
  
$
48,719
 

 
 
Year Ended
December 31, 2022
 
(in thousands)
 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  
Recoveries
  
Ending
Balance
 
ACL
               
Hotel/motel
 
$
5,080
  
$
307
  
$
(216
)
 
$
0
  
$
5,171
 
Commercial real estate residential
  
3,986
   
951
   
(92
)
  
49
   
4,894
 
Commercial real estate
nonresidential
  
8,884
   
(154
)
  
(46
)
  
735
   
9,419
 
Dealer floorplans
  
1,436
   
340
   
0
   
0
   
1,776
 
Commercial other
  
4,422
   
947
   
(1,082
)
  
998
   
5,285
 
Real estate mortgage
  
7,637
   
466
   
(223
)
  
52
   
7,932
 
Home equity
  
866
   
257
   
(37
)
  
20
   
1,106
 
Consumer direct
  
1,951
   
(210
)
  
(609
)
  
562
   
1,694
 
Consumer indirect
  
7,494
   
2,001
   
(3,041
)
  
2,250
   
8,704
 
Total
 
$
41,756
  
$
4,905
  
$
(5,346
)
 
$
4,666
  
$
45,981
 

20
 
 
Three Months Ended
September 30, 2022
 
(in thousands)
 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  
Recoveries
  
Ending
Balance
 
ACL
               
Hotel/motel
 
$
4,844
  
$
39
  
$
0
  
$
0
  
$
4,883
 
Commercial real estate residential
  
4,200
   
651
   
0
   
25
   
4,876
 
Commercial real estate nonresidential
  
8,968
   
617
   
0
   
10
   
9,595
 
Dealer floorplans
  
1,477
   
61
   
0
   
0
   
1,538
 
Commercial other
  
4,473
   
886
   
(307
)
  
145
   
5,197
 
Real estate mortgage
  
8,179
   
(338
)
  
(11
)
  
5
   
7,835
 
Home equity
  
887
   
41
   
0
   
12
   
940
 
Consumer direct
  
1,621
   
(71
)
  
(81
)
  
205
   
1,674
 
Consumer indirect
  
7,695
   
528
   
(804
)
  
476
   
7,895
 
Total
 
$
42,344
  
$
2,414
  
$
(1,203
)
 
$
878
  
$
44,433
 
 

 
Nine Months Ended
September 30, 2022
 
(in thousands)
 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  
Recoveries
  
Ending
Balance
 
ACL
               
Hotel/motel
 
$
5,080
  
$
19
  
$
(216
)
 
$
0
  
$
4,883
 
Commercial real estate residential
  
3,986
   
885
   
(31
)
  
36
   
4,876
 
Commercial real estate nonresidential
  
8,884
   
568
   
0
   
143
   
9,595
 
Dealer floorplans
  
1,436
   
102
   
0
   
0
   
1,538
 
Commercial other
  
4,422
   
1,079
   
(651
)
  
347
   
5,197
 
Real estate mortgage
  
7,637
   
345
   
(188
)
  
41
   
7,835
 
Home equity
  
866
   
79
   
(24
)
  
19
   
940
 
Consumer direct
  
1,951
   
(316
)
  
(426
)
  
465
   
1,674
 
Consumer indirect
  
7,494
   
605
   
(1,815
)
  
1,611
   
7,895
 
Total
 
$
41,756
  
$
3,366
  
$
(3,351
)
 
$
2,662
  
$
44,433
 



Using the ACL software, forecasts were expanded to include gross domestic product (GDP), retail sales and housing price index considerations.  CTBI leverages economic projections from the Federal Open Market Committee to obtain various forecasts for unemployment rate and gross domestic product, the PNC forecast for the Case-Shiller National Home Price Index, and the Wells Fargo forecast for the Advanced Retail Sales.  CTBI has elected to forecast the first four quarters of the credit loss estimate and revert to a long-run average of each considered economic factor as permitted in ASC 326-20-30-9 over four quarters.

21

All periods during the reasonable and supportable forecast period are utilizing a forecasted probability of default.  During the ACL software implementation, loss driver analysis was performed during which regression models were built relating default rates of the various segments to the economic factors noted above.  Historical loss data for both CTBI and segment-specific selected peers was incorporated from FFIEC call report data.  For loss given default, the Frye-Jacobs LGD estimation technique was utilized in the ACL software provided a risk curve that most approximates the asset class under consideration.  Management elected to evaluate internal prepayment experience over a trailing timeframe to determine the appropriate prepayment and curtailment rates to be used in the credit loss estimate.


CTBI continues to use management judgement for qualitative loss factors such as delinquency trends, supervision and administration, quality control exceptions, collateral values, and industry concentrations, although these factors are applied differently in the ACL software.  The software allows management to approve a “worst case” scenario or a maximum loss rate for each segment.  Qualitative dollars available for allocation then become the difference between the worst case and the ACL reserve estimate.  Each factor is then given a risk weighting that is applied to determine a basis point allocation.  The previous model only allowed for a specific basis point allocation determined by management.  In addition to these factors, management has added risk factors related to changes in the nature and volume of the portfolio and terms of loans and changes in the experience, depth, and ability of lending management.  The previous significant event factor has been expanded to reflect changes in international, national, regional and local conditions, as well as the effect of other external factors as noted below.  The previous factors for inherent model risk and levels of nonperforming loans were not incorporated into the ACL software as separate qualitative factors.   The revised qualitative loss factors are as follows:


•
Changes in delinquency trends by loan segment

•
Changes in international, national, regional, and local conditions

•
The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses

•
The existence and effect of any concentrations of credit and changes in the levels of such concentrations

•
A supervision and administration allocation based on CTBI’s loan review process

•
Exceptions in lending policies and procedures as measured by quarterly loan portfolio exceptions reports

•
Changes in the nature and volume of the portfolio and terms of loans

•
Changes in the experience, depth, and ability of lending management


Reserve requirements remained at 1.22% this quarter.  Management continues to note the continued impact of global uncertainty, the current rate of inflation, the significant rising rate environment, and the fact that there is no immediate end foreseen, and these conditions are now part of qualitative factors noted above.  As in previous quarters an allocation was made for delinquency trends, industry concentrations, supervisory and administration, loan exceptions, and collateral values.



Our provision for credit losses for the quarter increased $0.1 million from prior quarter and $0.5 million from prior year same quarter.  Our reserve coverage (allowance for credit losses to nonperforming loans) at September 30, 2023 was 375.2%, compared to 408.9% at June 30, 2023 and 324.5% at September 30, 2022.  Our credit loss reserve as a percentage of total loans outstanding at September 30, 2023 remained unchanged at 1.22% compared to June 30, 2023 and September 30, 2022.

22

Refer to Note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy.  Nonaccrual loans and loans 90 days past due and still accruing segregated by class of loans for both September 30, 2023 and December 31, 2022 were as follows:

 
September 30, 2023
 
 (in thousands)
 
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
 
             
Hotel/motel
 
$
0
  
$
0
  
$
0
  
$
0
 
Commercial real estate residential
  
0
   
514
   
313
   
827
 
Commercial real estate nonresidential
  
0
   
970
   
1,163
   
2,133
 
Commercial other
  
0
   
561
   
379
   
940
 
Total commercial loans
  
0
   
2,045
   
1,855
   
3,900
 
                 
Real estate mortgage
  
0
   
2,678
   
5,159
   
7,837
 
Home equity lines
  
0
   
193
   
468
   
661
 
Total residential loans
  
0
   
2,871
   
5,627
   
8,498
 
                 
Consumer direct
  
0
   
0
   
29
   
29
 
Consumer indirect
  
0
   
0
   
558
   
558
 
Total consumer loans
  
0
   
0
   
587
   
587
 
                 
Loans and lease financing
 
$
0
  
$
4,916
  
$
8,069
  
$
12,985
 

 
December 31, 2022
 
 (in thousands)
 
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
 
             
Hotel/motel
 
$
0
  
$
0
  
$
0
  
$
0
 
Commercial real estate residential
  
0
   
355
   
258
   
613
 
Commercial real estate nonresidential
  
0
   
1,116
   
1,947
   
3,063
 
Commercial other
  
0
   
982
   
369
   
1,351
 
Total commercial loans
  
0
   
2,453
   
2,574
   
5,027
 
                 
Real estate mortgage
  
0
   
4,069
   
4,929
   
8,998
 
Home equity lines
  
0
   
291
   
487
   
778
 
Total residential loans
  
0
   
4,360
   
5,416
   
9,776
 
                 
Consumer direct
  
0
   
0
   
41
   
41
 
Consumer indirect
  
0
   
0
   
465
   
465
 
Total consumer loans
  
0
   
0
   
506
   
506
 
                 
Loans and lease financing
 
$
0
  
$
6,813
  
$
8,496
  
$
15,309
 

Discussion of the Nonaccrual Policy



The accrual of interest income on loans 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 the collection of interest is doubtful.  Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured.  Any loans greater than 90 dayspast due must be well secured and in the process of collection to continue accruing interest.  See Note 1 to the condensed consolidated financial statements for further discussion on our nonaccrual policy.

23

The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of September 30, 2023 and December 31, 2022 (includes loans 90 days past due and still accruing as well):

 
September 30, 2023
 
(in thousands)
 
30-59 Days
Past Due
  
60-89
Days Past
Due
  
90+ Days
Past Due
  
Total
Past Due
  
Current
  
Total Loans
 
Hotel/motel
 
$
0
  
$
0
  
$
0
  
$
0
  
$
386,067
  
$
386,067
 
Commercial real estate residential
  
342
   
737
   
827
   
1,906
   
402,873
   
404,779
 
Commercial real estate nonresidential
  
380
   
486
   
1,798
   
2,664
   
785,623
   
788,287
 
Dealer floorplans
  
0
   
0
   
0
   
0
   
61,920
   
61,920
 
Commercial other
  
970
   
192
   
698
   
1,860
   
313,669
   
315,529
 
Total commercial loans
  
1,692
   
1,415
   
3,323
   
6,430
   
1,950,152
   
1,956,582
 
                         
Real estate mortgage
  
1,017
   
3,008
   
5,976
   
10,001
   
906,579
   
916,580
 
Home equity lines
  
635
   
417
   
498
   
1,550
   
137,535
   
139,085
 
Total residential loans
  
1,652
   
3,425
   
6,474
   
11,551
   
1,044,114
   
1,055,665
 
                         
Consumer direct
  
537
   
135
   
29
   
701
   
160,011
   
160,712
 
Consumer indirect
  
3,474
   
751
   
558
   
4,783
   
807,277
   
812,060
 
Total consumer loans
  
4,011
   
886
   
587
   
5,484
   
967,288
   
972,772
 
                         
Loans and lease financing
 
$
7,355
  
$
5,726
  
$
10,384
  
$
23,465
  
$
3,961,554
  
$
3,985,019
 

 
December 31, 2022
 
(in thousands)
 
30-59 Days
Past Due
  
60-89
Days
Past Due
  
90+ Days
Past Due
  
Total
Past Due
  
Current
  
Total Loans
 
Hotel/motel
 
$
0
  
$
0
  
$
0
  
$
0
  
$
343,640
  
$
343,640
 
Commercial real estate residential
  
602
   
225
   
574
   
1,401
   
371,513
   
372,914
 
Commercial real estate nonresidential
  
2,549
   
395
   
2,611
   
5,555
   
756,794
   
762,349
 
Dealer floorplans
  
0
   
0
   
0
   
0
   
77,533
   
77,533
 
Commercial other
  
1,029
   
850
   
496
   
2,375
   
310,047
   
312,422
 
Total commercial loans
  
4,180
   
1,470
   
3,681
   
9,331
   
1,859,527
   
1,868,858
 
                         
Real estate mortgage
  
869
   
3,402
   
7,067
   
11,338
   
813,658
   
824,996
 
Home equity lines
  
786
   
44
   
740
   
1,570
   
118,970
   
120,540
 
Total residential loans
  
1,655
   
3,446
   
7,807
   
12,908
   
932,628
   
945,536
 
                         
Consumer direct
  
555
   
126
   
41
   
722
   
156,782
   
157,504
 
Consumer indirect
  
4,407
   
764
   
465
   
5,636
   
731,756
   
737,392
 
Total consumer loans
  
4,962
   
890
   
506
   
6,358
   
888,538
   
894,896
 
                         
Loans and lease financing
 
$
10,797
  
$
5,806
  
$
11,994
  
$
28,597
  
$
3,680,693
  
$
3,709,290
 

24

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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.7% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel 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.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.


Commercial real estate residential loans are commercial purpose construction and permanent financed loans for commercial purpose 1-4 family/multi-family properties.  All commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial residential construction loans generally are made to customers for the purpose of building income-producing properties.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.


Commercial real estate nonresidential loans are secured by nonfarm, nonresidential properties, farmland, and other commercial real estate.  Construction for commercial real estate nonresidential loans are also included in this segment as these loans are generally one loan for construction to permanent financing.  All commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial nonresidential construction loans generally are made to customers for the purpose of building income-producing properties.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.


Dealer floorplans are segmented separately as they are a unique product with unique risk factors. CTBI maintains strict processing procedures over our floorplan product with any exceptions requested by a loan officer approved by the appropriate loan committee and the floorplan manager.


Commercial other 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 our customers.  As we underwrite our equipment lease financing in a manner similar to our commercial loan portfolio described below, the risk characteristics for this portfolio mirror that of the commercial loan portfolio.

25

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. Residential construction loans are handled through the home mortgage area of the bank.  The repayment ability of the borrower and the maximum loan-to-value ratio are calculated using the normal mortgage lending criteria.  Draws are processed based on percentage of completion stages including normal inspection procedures.  Such loans generally convert to term loans after the completion of construction.


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.  Our determination of a borrower’s ability to repay 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.


The indirect lending area of the bank is generally responsible for purchasing/funding consumer contracts with new and used automobile dealers.  Dealer loan applications are forwarded to the indirect loan processing area for approval or denial.  Loan approvals or denials are based on the creditworthiness and repayment ability of the borrowers, and on the collateral value.  The dealers may have limited recourse agreements with CTB.

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.

26

The following tables present the credit risk profile of CTBI’s commercial loan portfolio based on rating category and payment activity, as well as gross charge-offs year to date, if any, segregated by class of loans and based on last credit decision or year of origination:

September 30, 2023
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2023
  
2022
  
2021
  
2020
  
2019
  
Prior
  
Revolving
Loans
  
Total
 
Hotel/motel
                        
Risk rating:
                        
Pass
 
$
60,331
  
$
148,174
  
$
28,235
  
$
17,829
  
$
45,797
  
$
42,572
  
$
4,043
  
$
346,981
 
Watch
  
2,910
   
6,873
   
8,798
   
4,651
   
3,387
   
3,677
   0   
30,296
 
OAEM
  
0
   
0
   
6,899
   
0
   
0
   
0
   
0
   
6,899
 
Substandard
  
0
   
0
   
0
   
0
   
0
   
1,130
   
0
   
1,130
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
761
   
0
   
761
 
Total hotel/motel
  
63,241
   
155,047
   
43,932
   
22,480
   
49,184
   
48,140
   
4,043
   
386,067
 
                                 
Commercial real estate residential
                                
Risk rating:
                                
Pass
  
80,388
   
98,714
   
102,817
   
31,746
   
12,506
   
39,286
   
14,935
   
380,392
 
Watch
  
821
   
1,895
   
361
   
1,717
   
733
   
6,548
   
105
   
12,180
 
OAEM
  
0
   
0
   
0
   
0
   
0
   
64
   
0
   
64
 
Substandard
  
480
   
601
   
4,701
   
830
   
288
   
5,243
   
0
   
12,143
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Total commercial real estate residential
  
81,689
   
101,210
   
107,879
   
34,293
   
13,527
   
51,141
   
15,040
   
404,779
 
                                 
Commercial real estate residential current period gross charge-offs
  0   0   (28)  0   0   0   0   (28)
                                 
Commercial real estate nonresidential
                                
Risk rating:
                                
Pass
  
119,199
   
143,457
   
149,481
   
77,786
   
63,228
   
148,356
   
26,884
   
728,391
 
Watch
  
517
   
3,870
   
6,452
   
9,662
   
7,541
   
6,525
   
487
   
35,054
 
OAEM
  
2,375
   
19
   
0
   
0
   
0
   
68
   
0
   
2,462
 
Substandard
  
1,389
   
1,435
   
2,516
   
4,500
   
3,121
   
9,404
   
0
   
22,365
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
15
   
0
   
15
 
Total commercial real estate nonresidential
  
123,480
   
148,781
   
158,449
   
91,948
   
73,890
   
164,368
   
27,371
   
788,287
 
                                 
Commercial real estate nonresidential current period gross charge-offs
  0   0   0   (9)  0   0   0   (9)
                                 
Dealer floorplans
                                
Risk rating:
                                
Pass
  
0
   
0
   
0
   
0
   
0
   
0
   
61,920
   
61,920
 
Watch
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
OAEM
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Substandard
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Total dealer floorplans
  
0
   
0
   
0
   
0
   
0
   
0
   
61,920
   
61,920
 
                                 
Commercial other
                                
Risk rating:
                                
Pass
  
59,794
   
50,682
   
42,666
   
30,987
   
5,456
   
23,384
   
80,933
   
293,902
 
Watch
  
716
   
1,268
   
783
   
132
   
261
   
694
   
5,899
   
9,753
 
OAEM
  
0
   
30
   
0
   
0
   
0
   
0
   
30
   
60
 
Substandard
  
867
   
3,995
   
4,667
   
920
   
260
   
500
   
605
   
11,814
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Total commercial other
  
61,377
   
55,975
   
48,116
   
32,039
   
5,977
   
24,578
   
87,467
   
315,529
 
                                 
Commercial other current period gross charge-offs
  (516)  (632)  (154)  (17)  (90)  (46)  0   (1,455)
                                 
Commercial loans
                                
Risk rating:
                                
Pass
  
319,712
   
441,027
   
323,199
   
158,348
   
126,987
   
253,598
   
188,715
   
1,811,586
 
Watch
  
4,964
   
13,906
   
16,394
   
16,162
   
11,922
   
17,444
   
6,491
   
87,283
 
OAEM
  
2,375
   
49
   
6,899
   
0
   
0
   
132
   
30
   
9,485
 
Substandard
  
2,736
   
6,031
   
11,884
   
6,250
   
3,669
   
16,277
   
605
   
47,452
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
776
   
0
   
776
 
Total commercial loans
 
$
329,787
  
$
461,013
  
$
358,376
  
$
180,760
  
$
142,578
  
$
288,227
  
$
195,841
  
$
1,956,582
 
                                 
Total commercial loans current period gross charge-offs
 $(516) $(632) $(182) $(26) $(90) $(46) $0  $(1,492)

27
December 31, 2022
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2022
  
2021
  
2020
  
2019
  
2018
  
Prior
  
Revolving
Loans
  
Total
 
Hotel/motel
                        
Risk rating:
                        
Pass
 
$
145,262
  
$
36,002
  
$
17,742
  
$
54,328
  
$
13,178
  
$
35,179
  
$
545
  
$
302,236
 
Watch
  
7,921
   
8,996
   
5,523
   
3,453
   
0
   
13,555
   
0
   
39,448
 
OAEM
  
0
   
0
   
0
   
0
   
0
   
1,956
   
0
   
1,956
 
Substandard
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Total hotel/motel
 

153,183
  

44,998
  

23,265
  

57,781
  

13,178
  

50,690
  

545
  

343,640
 
                                 
Commercial real estate residential
                                
Risk rating:
                                
Pass
 

119,826
  

110,963
  

38,423
  

15,467
  

10,492
  

36,307
  

14,297
  

345,775
 
Watch
  
1,474
   
898
   
1,675
   
848
   
2,136
   
7,015
   
152
   
14,198
 
OAEM
  
0
   
0
   
0
   
39
   
0
   
0
   
29
   
68
 
Substandard
  
182
   
4,289
   
1,878
   
346
   
3,639
   
2,539
   
0
   
12,873
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Total commercial real estate residential
 

121,482
  

116,150
  

41,976
  

16,700
  

16,267
  

45,861
  

14,478
  

372,914
 
                                 
Commercial real estate nonresidential
                                
Risk rating:
                                
Pass
 

175,220
  

171,311
  

80,932
  

70,848
  

44,099
  

137,575
  

23,166
  

703,151
 
Watch
  
3,331
   
5,765
   
10,090
   
2,178
   
1,962
   
10,022
   
1,550
   
34,898
 
OAEM
  
19
   
0
   
0
   
0
   
0
   
90
   
0
   
109
 
Substandard
  
1,939
   
2,537
   
4,877
   
3,135
   
508
   
10,865
   
25
   
23,886
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
305
   
0
   
305
 
Total commercial real estate nonresidential
 

180,509
  

179,613
  

95,899
  

76,161
  

46,569
  

158,857
  

24,741
  

762,349
 
                                 
Dealer floorplans
                                
Risk rating:
                                
Pass
 

0
  

0
  

0
  

0
  

0
  

0
  

77,153
  

77,153
 
Watch
  
0
   
0
   
0
   
0
   
0
   
0
   
380
   
380
 
OAEM
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Substandard
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Doubtful
  
0
   
0
   
0
   
0
   
0
   
0
   
0
   
0
 
Total dealer floorplans
 

0
  

0
  

0
  

0
  

0
  

0
  

77,533
  

77,533
 
                                 
Commercial other
                                
Risk rating:
                                
Pass
 

78,846
  

60,550
  

34,841
  

8,922
  

2,333
  

23,961
  

77,355
  

286,808
 
Watch
  
1,622
   
393
   
604
   
217
   
159
   
780
   
6,402
   
10,177
 
OAEM
  
30
   
0
   
0
   
0
   
0
   
0
   
30
   
60
 
Substandard
  
6,090
   
5,489
   
885
   
356
   
143
   
758
   
952
   
14,673
 
Doubtful
  
466
   
129
   
0
   
109
   
0
   
0
   
0
   
704
 
Total commercial other
 

87,054
  

66,561
  

36,330
  

9,604
  

2,635
  

25,499
  

84,739
  

312,422
 
                                 
Commercial loans
                                
Risk rating:
                                
Pass
 

519,154
  

378,826
  

171,938
  

149,565
  

70,102
  

233,022
  

192,516
  

1,715,123
 
Watch
  
14,348
   
16,052
   
17,892
   
6,696
   
4,257
   
31,372
   
8,484
   
99,101
 
OAEM
  
49
   
0
   
0
   
39
   
0
   
2,046
   
59
   
2,193
 
Substandard
  
8,211
   
12,315
   
7,640
   
3,837
   
4,290
   
14,162
   
977
   
51,432
 
Doubtful
  
466
   
129
   
0
   
109
   
0
   
305
   
0
   
1,009
 
Total commercial loans
 
$
542,228
  
$
407,322
  
$
197,470
  
$
160,246
  
$
78,649
  
$
280,907
  
$
202,036
  
$
1,868,858
 

28

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

September 30, 2023
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2023
  
2022
  
2021
  
2020
  
2019
  
Prior
  
Revolving
Loans
  
Total
 
Home equity lines
                        
Performing
 
$
0
  
$
0
  
$
0
  
$
0
  
$
0
  
$
8,194
  
$
130,230
  
$
138,424
 
Nonperforming
  
0
   
0
   
0
   
0
   
0
   
460
   
201
   
661
 
Total home equity lines
  
0
   
0
   
0
   
0
   
0
   
8,654
   
130,431
   
139,085
 
 
                                
Home equity lines current period gross charge-offs
                      (23)  0   (23)
 
                                
Mortgage loans
                                
Performing
  
154,430
   
169,909
   
164,008
   
122,622
   
57,895
   
239,879
   
0
   
908,743
 
Nonperforming
  
85
   
110
   
248
   
192
   
636
   
6,566
   
0
   
7,837
 
Total mortgage loans
  
154,515
   
170,019
   
164,256
   
122,814
   
58,531
   
246,445
   
0
   
916,580
 
 
                                
Mortgage loans current period gross charge-offs
  0   0   (47)  0   (1)  (51)  0   (99)
 
                                
Residential loans
                                
Performing
  
154,430
   
169,909
   
164,008
   
122,622
   
57,895
   
248,073
   
130,230
   
1,047,167
 
Nonperforming
  
85
   
110
   
248
   
192
   
636
   
7,026
   
201
   
8,498
 
Total residential loans
  
154,515
   
170,019
   
164,256
   
122,814
   
58,531
   
255,099
   
130,431
   
1,055,665
 
 
                                
Total residential loans current period gross charge-offs
 $0  $0  $(47) $0  $(1) $(74) $0  $(122)
 
                                
Consumer direct loans
                                
Performing
 
$
52,926
  
$
40,153
  
$
28,867
  
$
17,302
  
$
8,126
  
$
13,309
  
$
0
  
$
160,683
 
Nonperforming
  
22
   
7
   
0
   
0
   
0
   
0
   
0
   
29
 
Total consumer direct loans
  
52,948
   
40,160
   
28,867
   
17,302
   
8,126
   
13,309
   
0
   
160,712
 
 
                                
Total consumer direct loans current period gross charge-offs
  (13)  (229)  (72)  (33)  (25)  (14)  0   (386)
 
                                
Consumer indirect loans
                                
Performing
  
291,394
   
276,030
   
122,173
   
78,939
   
28,370
   
14,596
   
0
   
811,502
 
Nonperforming
  
64
   
280
   
163
   
27
   
6
   
18
   
0
   
558
 
Total consumer indirect loans
  
291,458
   
276,310
   
122,336
   
78,966
   
28,376
   
14,614
   
0
   
812,060
 
 
                                
Total consumer indirect loans current period gross charge-offs
  (213)  (1,568)  (1,375)  (370)  (94)  (110)  0   (3,730)
 
                                
Consumer loans
                                
Performing
  
344,320
   
316,183
   
151,040
   
96,241
   
36,496
   
27,905
   
0
   
972,185
 
Nonperforming
  
86
   
287
   
163
   
27
   
6
   
18
  

0
   
587
 
Total consumer loans
  
344,406
   
316,470
   
151,203
   
96,268
   
36,502
   
27,923
  $
0
   
972,772
 
 
                                
Total consumer loans current period gross charge-offs
 $(226) $(1,797) $(1,447) $(403) $(119) $(124) $0  $(4,116)

29
December 31, 2022
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2022
  
2021
  
2020
  
2019
  
2018
  
Prior
  
Revolving
Loans
  
Total
 
Home equity lines
                        
Performing
 
$
0
  
$
0
  
$
0
  
$
0
  
$
0
  
$
10,195
  
$
109,567
  
$
119,762
 
Nonperforming
  
0
   
0
   
0
   
0
   
0
   
502
   
276
   
778
 
Total home equity lines
 

0
  

0
  

0
  

0
  

0
  

10,697
  

109,843
  

120,540
 
                                 
Mortgage loans
                                
Performing
 

176,736
  

177,469
  

132,795
  

62,415
  

30,473
  

236,110
  

0
  

815,998
 
Nonperforming
  
0
   
282
   
98
   
791
   
422
   
7,405
   
0
   
8,998
 
Total mortgage loans
 

176,736
  

177,751
  

132,893
  

63,206
  

30,895
  

243,515
  

0
  

824,996
 
                                 
Residential loans
                                
Performing
 

176,736
  

177,469
  

132,795
  

62,415
  

30,473
  

246,305
  

109,567
  

935,760
 
Nonperforming
  
0
   
282
   
98
   
791
   
422
   
7,907
   
276
   
9,776
 
Total residential loans
 
$
176,736
  
$
177,751
  
$
132,893
  
$
63,206
  
$
30,895
  
$
254,212
  
$
109,843
  
$
945,536
 
                                 
Consumer direct loans
                                
Performing
 
$
62,239
  
$
42,014
  
$
23,921
  
$
11,166
  
$
6,766
  
$
11,357
  
$
0
  
$
157,463
 
Nonperforming
  
25
   
11
   
5
   
0
   
0
   
0
   
0
   
41
 
Total consumer direct loans
 

62,264
  

42,025
  

23,926
  

11,166
  

6,766
  

11,357
  

0
  

157,504
 
                                 
Consumer indirect loans
                                
Performing
 

371,079
  

168,513
  

116,267
  

45,748
  

26,247
  

9,073
  

0
  

736,927
 
Nonperforming
  
65
   
251
   
96
   
30
   
1
   
22
   
0
   
465
 
Total consumer indirect loans
 

371,144
  

168,764
  

116,363
  

45,778
  

26,248
  

9,095
  

0
  

737,392
 
                                 
Consumer loans
                                
Performing
 

433,318
  

210,527
  

140,188
  

56,914
  

33,013
  

20,430
  

0
  

894,390
 
Nonperforming
  
90
   
262
   
101
   
30
   
1
   
22
   
0
   
506
 
Total consumer loans
 
$
433,408
  
$
210,789
  
$
140,289
  
$
56,944
  
$
33,014
  
$
20,452
  
$
0
  
$
894,896
 

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


The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings are in process was $2.8 million at September 30, 2023.  The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings had resumed with restricted parameters was $3.3  million at December 31, 2022.

30

In accordance with ASC 326-20-30-2, if a loan does not share risk characteristics with other pooled loans in determining the allowance for credit losses, the loan shall be evaluated for expected credit losses on an individual basis. Of the loans that CTBI has individually evaluated, the loans listed below by segment are those that are collateral dependent:

 
September 30, 2023
 
(in thousands)
 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel
  
2
  
$
8,029
  
$
0
 
Commercial real estate residential
  
2
   
5,116
   
0
 
Commercial real estate nonresidential
  
6
   
11,633
   
0
 
Commercial other
  
2
   
6,201
   
0
 
Total collateral dependent loans
  
12
  
$
30,979
  
$
0
 

 
December 31, 2022
 
(in thousands)
 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel
  
1
  
$
1,168
  
$
0
 
Commercial real estate residential
  
4
   
7,786
   
0
 
Commercial real estate nonresidential
  
8
   
14,718
   
200
 
Commercial other
  
2
   
8,926
   
1,000
 
Total collateral dependent loans
  
15
  
$
32,598
  
$
1,200
 

 
September 30, 2022
 
(in thousands)
 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel
  
1
  
$
1,181
  
$
0
 
Commercial real estate residential
  
3
   
5,820
   
0
 
Commercial real estate nonresidential
  
9
   
16,720
   
350
 
Commercial other
  
2
   
9,185
   
1,000
 
Total collateral dependent loans
  
15
  
$
32,906
  
$
1,350
 


The hotel/motel, commercial real estate residential, and commercial real estate nonresidential segments are all collateralized with real estate. The two loans listed in the commercial other segment at September 30, 2023 are collateralized by inventory, equipment, and accounts receivable.

31

Certain loans have been modified where the customer is facing financial difficulty and economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances.  Those loans, segregated by class of loans and concession granted, are presented below for the three months ended September 30, 2023:

  
Interest Rate Reduction
  
Term Extension
 
(in thousands)
 
Amortized Cost at
September 30, 2023
  
% of total
  
Amortized Cost at
September 30, 2023
  
% of total
 
Hotel/motel
 
$
0
   
0.00
%
 
$
0
   
0.00
%
Commercial real estate residential
  
269
   
0.07
   
196
   
0.05
 
Commercial real estate nonresidential
  
0
   0.00
   
1,883
   
0.24
 
Dealer floorplans
  
0
   
0.00
   
0
   
0.00
 
Commercial other
  
0
   
0.00
   
164
   
0.05
 
Commercial loans
  
269
   
0.01
   
2,243
   
0.11
 
                 
Real estate mortgage
  
0
   
0.00
   
1,362
   
0.15
 
Home equity lines
  
0
   
0.00
   
224
   
0.16
 
Residential loans
  
0
   
0.00
   
1,586
   
0.15
 
                 
Consumer direct
  
0
   
0.00
   
0
   
0.00
 
Consumer indirect
  
0
   
0.00
   
0
   
0.00
 
Consumer loans
  
0
   
0.00
   
0
   
0.00
 
                 
Loans and lease financing
 
$
269
   
0.01
%
 
$
3,829
   0.10
%

  
Combination – Term Extension
and Interest Rate Reduction
  
Payment Change
 
(in thousands)
 
Amortized Cost at
September 30, 2023
  
% of total
  
Amortized Cost at
September 30, 2023
  
% of total
 
Hotel/motel
 
$
0
   
0.00
%
 
$
0
   
0.00
%
Commercial real estate residential
  
0
   
0.00
   
0
   
0.00
 
Commercial real estate nonresidential
  
0
   
0.00
   
0
   
0.00
 
Dealer floorplans
  
0
   
0.00
   
0
   
0.00
 
Commercial other
  
0
   
0.00
   
81
   
0.03
 
Commercial loans
  
0
   
0.00
   
81
   
0.00
 
                 
Real estate mortgage
  
661
   
0.07
   
0
   
0.00
 
Home equity lines
  
49
   
0.04
   
0
   
0.00
 
Residential loans
  
710
   
0.07
   
0
   
0.00
 
                 
Consumer direct
  
0
   
0.00
   
0
   
0.00
 
Consumer indirect
  
0
   
0.00
   
0
   
0.00
 
Consumer loans
  
0
   
0.00
   
0
   
0.00
 
                 
Loans and lease financing
 
$
710
   
0.02
%
 
$
81
   
0.00
%

32

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the three months ended September 30, 2023:

Loan Type
 
Interest Rate Reduction
Financial Impact
 
Term Extension
Financial Impact
     
Hotel/motel
       
     
Commercial real estate residential
 
Reduced weighted-average contractual interest rate from 9.5% to 7.5%
 
Added a weighted-average 2 years to life of the loans
     
Commercial real estate nonresidential
 

 
Added a weighted-average 0.2 years to life of the loans
     
Dealer floorplans
       
     
Commercial other
   
Added a weighted-average 0.8 years to life of the loans
           
Real estate mortgage
 

 
Added a weighted-average 1 years to life of the loans
     
Home equity lines
 
 
Added a weighted-average 4.9 years to life of the loans
           
Consumer direct
   

     
Consumer indirect
   


Loan Type
 
Combination – Term Extension and
 Interest Rate Reduction
Financial Impact
 
Payment Changes
Financial Impact
     
Hotel/motel
       
     
Commercial real estate residential
 

  
     
Commercial real estate nonresidential
       
     
Dealer floorplans
       
     
Commercial other
   
Provided payment changes that will be added to the end of the original loan term
           
Real estate mortgage
 
Reduced weighted-average contractual interest rate from 5.8% to 5.7% and increased the weighted-average life by 13.1 years
  
     
Home equity lines
 
Reduced weighted-average contractual interest rate from 9.9% to 8.3% and increased the weighted-average life by 8.2 years
 

           
Consumer direct
   

     
Consumer indirect
    
33


Those loans, segregated by class of loans and concession granted, are presented below for the nine months ended September 30, 2023:

  
Interest Rate Reduction
  
Term Extension
 
(in thousands)
 
Amortized Cost at
September 30, 2023
  
% of total
  
Amortized Cost at
September 30, 2023
  
% of total
 
Hotel/motel
 
$
0
   
0.00
%
 
$
0
   
0.00
%
Commercial real estate residential
  
537
   
0.13
   
1,587
   
0.39
 
Commercial real estate nonresidential
  
4,542
   
0.58
   
5,297
   
0.67
 
Dealer floorplans
  
0
   
0.00
   
0
   
0.00
 
Commercial other
  
0
   
0.00
   
1,524
   
0.48
 
Commercial loans
  
5,079
   
0.26
   
8,408
   
0.43
 
                 
Real estate mortgage
  
58
   
0.01
   
4,373
   
0.48
 
Home equity lines
  
0
   
0.00
   
250
   
0.18
 
Residential loans
  
58
   
0.01
   
4,623
   
0.44
 
                 
Consumer direct
  
0
   
0.00
   
192
   
0.12
 
Consumer indirect
  
0
   
0.00
   
394
   
0.05
 
Consumer loans
  
0
   
0.00
   
586
   
0.06
 
                 
Loans and lease financing
 
$
5,137
   0.13% 
$
13,617
   0.34%

  
Combination – Term Extension
and Interest Rate Reduction
  
Payment Change
 
(in thousands)
 
Amortized Cost at
September 30, 2023
  
% of total
  
Amortized Cost at
September 30, 2023
  
% of total
 
Hotel/motel
 
$
0
   
0.00
%
 
$
0
   
0.00
%
Commercial real estate residential
  
44
   
0.01
   
0
   
0.00
 
Commercial real estate nonresidential
  
0
   
0.00
   
0
   
0.00
 
Dealer floorplans
  
0
   
0.00
   
0
   
0.00
 
Commercial other
  
0
   
0.00
   
130
   
0.04
 
Commercial loans
  
44
   
0.00
   
130
   
0.01
 
                 
Real estate mortgage
  
1,085
   
0.12
   
0
   
0.00
 
Home equity lines
  
126
   
0.09
   
0
   
0.00
 
Residential loans
  
1,211
   
0.11
   
0
   
0.00
 
                 
Consumer direct
  
0
   
0.00
   
19
   
0.01
 
Consumer indirect
  
0
   
0.00
   
0
   
0.00
 
Consumer loans
  
0
   
0.00
   
19
   
0.00
 
                 
Loans and lease financing
 
$
1,255
   
0.03
%
 
$
149
   
0.00
%

34


The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the nine months ended September 30, 2023:

Loan Type
 
Interest Rate Reduction
Financial Impact
 
Term Extension
Financial Impact
Hotel/motel
     
       
Commercial real estate residential
 
Reduced weighted-average contractual interest rate from 9.5% to 7.8%
 
Added a weighted-average 0.6 years to life of the loans
       
Commercial real estate nonresidential
 
Reduced weighted-average contractual interest rate from 9.5% to 7.5%
 
Added a weighted-average 0.1 years to life of the loans
       
Dealer floorplans
     
       
Commercial other
   
Added a weighted-average 1.4 years to life of the loans
       
Real estate mortgage
 
Resulted in no change of the weighted average contractual interest rate of 3.0%
 
Added a weighted-average 2.3 years to life of the loans
       
Home equity lines
   
Added a weighted-average 5.8 years to life of the loans
       
Consumer direct
   
Removed a weighted-average 0.7 years from life of the loans
       
Consumer indirect
   
Added a weighted-average 0.3 years to life of the loans

Loan Type
 
Combination – Term Extension and
Interest Rate Reduction
Financial Impact
 
Payment Changes
Financial Impact
Hotel/motel
     
       
Commercial real estate residential
 
Reduced weighted-average contractual interest rate from 10.8% to 6.5% and increased the weighted-average life by 0.3years
  
       
Commercial real estate nonresidential
     
       
Dealer floorplans
     
       
Commercial other
   
Provided payment changes that will be added to the end of the original loan term
       
Real estate mortgage
 
Reduced weighted-average contractual interest rate from 6.3% to 5.9% and increased the weighted-average life by 12.4years
  
       
Home equity lines
 
Reduced weighted-average contractual interest rate from 9.4% to 8.1% and increased the weighted-average life by 9.4years
 

       
Consumer direct
   
Provided payment changes that will be added to the end of the original loan term
       
Consumer indirect
     

35

 Presented  below, segregated by class of loans, are TDRs that occurred during the three and nine months ended September 30, 2022 and the year ended December 31, 2022:

 
Three Months Ended
September 30, 2022
 
  
Pre-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
  
Term
Modification
  
Combination
  
Total
Modification
 
Commercial real estate residential
  
2
  $
318
  $
0
  $
318
 
Commercial real estate nonresidential
  
1
   
190
   
0
   
190
 
Commercial other
  
1
   
5,222
   
0
   
5,222
 
Total commercial loans
  
4
   
5,730
   
0
   
5,730
 
                 
Real estate mortgage
  2   288   393   681 
Total residential loans
  2   288   393   681 
                 
Total troubled debt restructurings
  
6
  
$
6,018
  
$
393
  
$
6,411
 

 
Three Months Ended
September 30, 2022
 
  
Post-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
  
Term
Modification
  
Combination
  
Total
Modification
 
Commercial real estate residential
  
2
  $
318
  
0
  $
318
 
Commercial real estate nonresidential
  
1
   
189
   
0
   
189
 
Commercial other
  
1
   
5,222
   
0
   
5,222
 
Total commercial loans
  
4
   
5,729
   
0
   
5,729
 
                 
Real estate mortgage
  2   288   393   681 
Total residential loans
  2   288   393   681 
                 
Total troubled debt restructurings
  
6
  
$
6,017
  
$
393
  
$
6,410
 

 
Nine Months Ended
September 30, 2022
 
  
Pre-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
  
Term
Modification
  
Combination
  
Total
Modification
 
Commercial real estate residential
  
4
  $ 
472
  $ 
0
  $
472
 
Commercial real estate nonresidential
  
3
   
435
   
0
   
435
 
Commercial other
  
10
   
11,748
   
0
   
11,748
 
Total commercial loans
  
17
   
12,655
   
0
   
12,655
 
                 
Real estate mortgage
  5   593   1,309   1,902 
Total residential loans
  5   593   1,309   1,902 
                 
Total troubled debt restructurings
  
22
  
$
13,248
  
$
1,309
  
$
14,557
 

36
 
Nine Months Ended
September 30, 2022
 
  
Post-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
  
Term
Modification
  
Combination
  
Total
Modification
 
Commercial real estate residential
  
4
  $
472
  $
0
  $
472
 
Commercial real estate nonresidential
  
3
   
433
   
0
   
433
 
Commercial other
  
10
   
11,747
   
0
   
11,747
 
Total commercial loans
  
17
   
12,652
   
0
   
12,652
 
                 
Real estate mortgage
  5   593   1,309   1,902 
Total residential loans
  5   593   1,309   1,902 
                 
Total troubled debt restructurings
  
22
  
$
13,245
  
$
1,309
  
$
14,554
 

 
Year Ended
December 31, 2022
 
  
Pre-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
  
Term
Modification
  
Combination
  Other   
Total
Modification
 
Commercial real estate residential
  
6
  $
659
  $
0
  $
66  $725 
Commercial real estate nonresidential
  
8
   
1,206
   
0
   118   1,324 
Hotel/motel
  0   0   0   0   0 
Commercial other
  
22
   
12,812
   
0
   66   12,878 
Total commercial loans
  
36
   
14,677
   
0
   250   14,927 
                    
Real estate mortgage
  
5
   
593
   
1,309
   0   1,902 
Total residential loans
  
5
   
593
   
1,309
   0   1,902 
                    
Total troubled debt restructurings
  
41
  
$
15,270
  
$
1,309
  $250  $ 16,829 

 
Year Ended
December 31, 2022
 
  
Post-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
  
Term
Modification
  
Combination
  Other   
Total
Modification
 
Commercial real estate residential
  
6
  $
659
  $
0
  $
66  $
725 
Commercial real estate nonresidential
  
8
   
1,342
   
0
   118   1,460 
Hotel/motel
  0   0   0   0   0 
Commercial other
  
22
   
12,811
   
0
   66   12,877 
Total commercial loans
  
36
   
14,812
   
0
   250   15,062 
                    
Real estate mortgage
  
5
   
593
   
1,309
   0   1,902 
Total residential loans
  
5
   
593
   
1,309
   0   1,902 
                    
Total troubled debt restructurings
  
41
  
$
15,405
  
$
1,309
  $250  $16,964 

37

Loans retain their accrual status at the time of their modification.  As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual.  Commercial and consumer loans modified due to a borrower’s financial difficulty are closely monitored for delinquency as an early indicator of possible future default.  If a loan to a borrower experiencing financial difficulty subsequently defaults, CTBI evaluates the loan for possible further impairment. The table below represents the payment status of modified loans to borrowers experiencing financial difficulty.

  
Past Due Status (Amortized Cost Basis)
 
  
Current
   
30-89 Days
   
90+ Days

 
Nonaccrual
 
Hotel/motel
 
$
0
  
$
0
  
$
0
  
$
0
 
Commercial real estate residential
  
2,122
   
44
   
0
   
0
 
Commercial real estate nonresidential
  
9,813
   
0
   
26
   
0
 
Dealer floorplans
  
0
   
0
   
0
   
0
 
Commercial other
  
1,060
   
320
   
345
   
264
 
Real estate mortgage
  
3,935
   
1,442
   
139
   
349
 
Home equity lines
  
519
   
100
   
0
   
22
 
Consumer direct
  
207
   
3
   
0
   
0
 
Consumer indirect
  
366
   
29
   
0
   
0
 
Total
 
$
18,022
  
$
1,938
  
$
510
  
$
635
 


The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. There were five loans to borrowers experiencing financial difficulty that subsequently defaulted during the quarter ended September 30, 2023, and nine loans to borrowers experiencing financial difficulty that subsequently defaulted during the nine months ended September 30, 2023.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.


Financial instrument credit losses apply to off-balance sheet credit exposures such as unfunded loan commitments and standby letters of credit.  A liability for expected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancellable by the entity.  Changes in this allowance are reflected in other operating expenses within the non-interest expense category.  As of September 30, 2023 and December 31, 2022, the total unfunded commitment off-balance sheet credit exposure was $1.5 million and $0.7 million, respectively.

Note 5 – Other Real Estate Owned


Activity for other real estate owned was as follows:

  Three Months Ended   Nine Months Ended  
 
September 30
  
September 30
 
(in thousands)
 
2023
  
2022
  
2023
  
2022
 
Beginning balance of other real estate owned
 
$
2,047
  
$
1,954
  
$
3,671
  
$
3,486
 
New assets acquired
  
325
   
34
   
500
   
478
 
Capitalized costs
  7   0   46   73 
Fair value adjustments
  
(124
)
  
(6
)
  
(230
)
  
(275
)
Sale of assets
  
(80
)
  
(118
)
  
(1,812
)
  
(1,898
)
Ending balance of other real estate owned
 
$
2,175
  
$
1,864
  
$
2,175
  
$
1,864
 


Carrying costs and fair value adjustments associated with foreclosed properties for the three months ended September 30, 2023 and 2022 were $0.2 million and $42 thousand, respectively. Carrying costs and fair value adjustments associated with foreclosed properties for the nine months ended September 30, 2023 and 2022 were $0.3 million and $0.4 million, respectively.

38

The major classifications of foreclosed properties are shown in the following table:

(in thousands)
 
September 30
2023
  
December 31
2022
 
1-4 family
 
$
774
  
$
859
 
Construction/land development/other
  
683
   
867
 
Non-farm/non-residential
  
718
   
1,945
 
Total foreclosed properties
 
$
2,175
  
$
3,671
 

Note 6 – Repurchase Agreements


We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and provide additional funding to our balance sheet. Repurchase agreements are transactions whereby we offer to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates CTBI to repurchase the security on an agreed upon date at an agreed upon repurchase price plus interest at an agreed upon rate. Securities sold under agreements to repurchase are recorded at the amount of cash received in connection with the transaction and are reflected in the accompanying consolidated balance sheets.


We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities. The primary risk with our repurchase agreements is market risk associated with the securities securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The carrying value of investment securities available-for-sale pledged as collateral under repurchase agreements totaled $294.7 million and $273.8 million at September 30, 2023 and December 31, 2022, respectively.


The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in the accompanying consolidated balance sheets as of September 30, 2023 and December 31, 2022 is presented in the following tables:

 
September 30, 2023
 
  
Remaining Contractual Maturity of the Agreements
 
(in thousands)
 
Overnight
and
Continuous
  
Up to
30 days
  
30-90 days
  
Greater
Than
90 days
  
Total
 
Repurchase agreements and repurchase-to-maturity transactions:
               
U.S. Treasury and government agencies
 
$
20,374
  
$
0
  
$
39
  
$
24,256
  
$
44,669
 
State and political subdivisions
  
103,232
   
0
   
1,760
   
7,430
   
112,422
 
U.S. government sponsored agency mortgage-backed securities
  
21,527
   
0
   
559
   
51,865
   
73,951
 
Asset-backed securities
  1,535   0   0   0   1,535 
Total
 
$
146,668
  
$
0
  
$
2,358
  
$
83,551
  
$
232,577
 

39
 
December 31, 2022
 
  
Remaining Contractual Maturity of the Agreements
 
(in thousands)
 
Overnight
and
Continuous
  
Up to
30 days
  
30-90 days
  
Greater
Than
90 days
  
Total
 
Repurchase agreements and repurchase-to-maturity transactions:
               
U.S. Treasury and government agencies
 
$
21,679
  
$
34
  
$
2,979
  
$
1,832
  
$
26,524
 
State and political subdivisions
  
96,627
   
466
   
9,634
   
2,140
   
108,867
 
U.S. government sponsored agency mortgage-backed securities
  
17,964
   
0
   
52,387
   
9,385
   
79,736
 
Asset-backed securities
  304   0   0   0   304 
Total
 
$
136,574
  
$
500
  
$
65,000
  
$
13,357
  
$
215,431
 

Note 7 – Fair Value of Financial Assets and Liabilities

Fair Value Measurements


ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in GAAP, 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. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs.  In this standard, the FASB clarifies the principle that fair value should be based on the exit price 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 determining an exit price for the assets or liabilities.

40
Recurring Measurements


The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 and indicate the level within the fair value hierarchy of the valuation techniques.

    
Fair Value Measurements at
September 30, 2023 Using
 
(in thousands)
 
Fair Value
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis
            
Available-for-sale securities:
            
U.S. Treasury and government agencies
 
$
351,339
  
$
331,200
  
$
20,139
  
$
0
 
State and political subdivisions
  
244,478
   
0
   
244,478
   
0
 
U.S. government sponsored agency mortgage-backed securities
  
452,298
   
0
   
452,298
   
0
 
Asset-backed securities
  
87,763
   
0
   
87,763
   
0
 
Equity securities at fair value
  
2,900
   
0
   
0
   
2,900
 
Mortgage servicing rights
  
8,289
   
0
   
0
   
8,289
 


    
Fair Value Measurements at
December 31, 2022 Using
 
(in thousands)
 
Fair Value
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis
            
Available-for-sale securities:
            
U.S. Treasury and government agencies
 
$
381,932
  
$
346,265
  
$
35,667
  
$
0
 
State and political subdivisions
  
265,102
   
0
   
265,102
   
0
 
U.S. government sponsored agency mortgage-backed securities
  
520,085
   
0
   
520,085
   
0
 
Asset-backed securities
  
89,107
   
0
   
89,107
   
0
 
Equity securities at fair value
  
2,166
   
0
   
0
   
2,166
 
Mortgage servicing rights
  
8,468
   
0
   
0
   
8,468
 


Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. These valuation methodologies were applied to all of CTBI’s financial assets carried at fair value. CTBI had no liabilities measured and recorded at fair value as of September30, 2023 and December 31, 2022. There have been no significant changes in the valuation techniques during the quarter ended September 30, 2023. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-Sale Securities


Securities classified as AFS are reported at fair value on a recurring basis. U.S. Treasury and government agencies are classified as Level 1 of the valuation hierarchy where quoted market prices are available in the active market on which the individual securities are traded.

41

If quoted market prices are not available, CTBI obtains fair value measurements from an independent pricing service, such as Interactive Data, which utilizes pricing models to determine fair value measurement. CTBI reviews the pricing quarterly to verify the reasonableness of the pricing.  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 factors. U.S. Treasury and government agencies, state and political subdivisions, U.S. government sponsored agency mortgage-backed securities, and asset-backed securities are classified as Level 2 inputs.


In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements are estimated on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States.

Equity Securities at Fair Value


As of September 30, 2023 and December 31, 2022, the only securities owned by CTBI that were valued using Level 3 criteria are Visa Class B Stock (included in equity securities at fair value). Fair value for Visa Class B Stock is determined by an independent third party utilizing assumptions about factors such as quarterly common stock dividend payments, the conversion of the securities to the relevant Class A Stock shares subject to the prevailing conversion rate, and conversion date. We have concluded the third party assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset. See the table below for inputs and valuation techniques used for Level 3 equity securities.

Mortgage Servicing Rights


Mortgage servicing rights (“MSRs”) do not trade in an active, open market with readily observable prices. CTBI reports 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. Accordingly, fair value is determined by the independent third party by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends, and industry demand. Due to the nature of the valuation inputs, MSRs are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements of MSRs are tested for impairment on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States. We have reviewed the assumptions, processes, and conclusions of the third party provider. We have determined these assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset. See the table below for inputs and valuation techniques used for Level 3 MSRs.

42
Level 3 Reconciliation


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


 
Three Months Ended
September 30, 2023
  
Three Months Ended
September 30, 2022
 
(in thousands) 
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
 
Beginning balance
 
$
2,545
  
$
8,230
  
$
2,128
  
$
8,220
 
Total unrealized gains (losses)
                
Included in net income
  
355
   
155
   
(159
)
  
504
 
Issues
  
0
   
45
   
0
   
103
 
Settlements
  
0
   
(141
)
  
0
   
(251
)
Ending balance
 
$
2,900
  
$
8,289
  
$
1,969
  
$
8,576
 
                 
Total gains (losses) for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date
 
$
355
  
$
155
  
$
(159
)
 
$
504
 


 
Nine Months Ended
September 30, 2023
  
Nine Months Ended
September 30, 2022
 
(in thousands) 
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
 
Beginning balance
 
$
2,166
  
$
8,468
  
$
2,253
  
$
6,774
 
Total unrealized gains (losses)
                
Included in net income
  
734
   
21
  
(284
)
  
1,955
 
Issues
  
0
   
141
   
0
   
555
 
Settlements
  
0
   
(341
)
  
0
   
(708
)
Ending balance
 
$
2,900
  
$
8,289
  
$
1,969
  
$
8,576
 
                 
Total gains (losses) for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date
 
$
734
  
$
21
 
$
(284
)
 
$
1,955
 


Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as follows:

Noninterest Income
      
  
Three Months Ended
  
Nine Months Ended
 
  
September 30
  
September 30
 
(in thousands)
 
2023
  
2022
  
2023
  
2022
 
Total gains
 
$
369
  
$
94
  
$
414
  
$
963
 

43
Nonrecurring Measurements


The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022 and indicate the level within the fair value hierarchy of the valuation techniques.

    
Fair Value Measurements at
September 30, 2023 Using
 
(in thousands)
 
Fair Value
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis
            
Other real estate owned
 
$
623
  
$
0
  
$
0
  
$
623
 


    
Fair Value Measurements at
December 31, 2022 Using
 
(in thousands)
 
Fair Value
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis
            
Collateral dependent loans
 
$
2,703
  
$
0
  
$
0
  
$
2,703
 
Other real estate owned
  
570
   
0
   
0
   
570
 


Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy.  For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral Dependent Loans


The estimated fair value of collateral-dependent loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy.


CTBI considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the Chief Credit Officer. Appraisals are reviewed for accuracy and consistency by the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Chief Credit Officer by comparison to historical results.


Loans considered collateral dependent are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty in accordance with ASC 326-20-35-5.  There were no collateral dependent loans as of September 30, 2023.

44
Other Real Estate Owned


In accordance with the provisions of ASC 360, Property, Plant, and Equipment, other real estate owned (“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral.  Fair value adjustments on OREO disclosed above were $124 thousand for the quarter ended September 30, 2023, $188thousand for the nine months ended September 30, 2023, and $152 thousand for the year ended December 31, 2022.


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.  Appraisers are selected from the list of approved appraisers maintained by management.

Unobservable (Level 3) Inputs


The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at September 30, 2023 and December 31, 2022.


 
Quantitative Information about Level 3 Fair Value Measurements
(in thousands) 
Fair Value at
September 30, 2023
 
Valuation
Technique(s)
Unobservable Input
 
Range
(Weighted
Average)
Equity securities at fair value
 
$
2,900
 
Discount cash flows, computer pricing model
Discount rate
 
15.0% - 25.0%
(20.0%)
     
Conversion date
 
Dec 2028 - Dec 2032
(Dec 2030)
         
Mortgage servicing rights
 
$
8,289
 
Discount cash flows, computer pricing model
Constant prepayment rate
 
0.0% - 77.6%
(7.2%)
     
Probability of default
 
0.0% - 66.7%
(0.8%)
     
Discount rate
 
9.5% - 12.0%
(10.0%)
     
   
Other real estate owned
 
$
623
 
Market comparable properties
Comparability adjustments
 
10.0% - 27.3%
(14.0%)

45

 
Quantitative Information about Level 3 Fair Value Measurements
 (in thousands)
 
Fair Value at
December 31,
2022
 
Valuation
Technique(s)
Unobservable Input
 
Range
(Weighted
Average)
Equity securities at fair value
 
$
2,166
 
Discount cash flows, computer pricing model
Discount rate
 
8.0% - 12.0%
(10.0%)
           
Conversion date
 
Dec 2025 - Dec 2029
(Dec 2027)
         
Mortgage servicing rights
 
$
8,468
 
Discount cash flows, computer pricing model
Constant prepayment rate
 
6.5% - 28.0%
(7.1%)
     
Probability of default
 
0.0% - 100.0%
(1.2%)
     
Discount rate
 
9.5% - 12.0%
(10.0%)
     
   
Collateral-dependent loans
 
$
2,703
 
Market comparable properties
Marketability discount
 
52.0% - 52.0%
(52.0%)
     
   
Other real estate owned
 
$
570
 
Market comparable properties
Comparability adjustments
 
10.0% - 30.6%
(10.9%)

Uncertainty of Fair Value Measurements


The following is a discussion of the uncertainty of fair value measurements, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement, and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

Equity Securities at Fair Value


Fair value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock, and the prevailing conversion rate at the conversion date. The most recent conversion rate of 1.5875 and the most recent dividend rate of 0.7144 were used to derive the fair value estimate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate.

Mortgage Servicing Rights


Fair value for MSRs is derived based on unobservable inputs, such as prepayment speeds of the underlying loans generated using the Andrew Davidson Prepayment Model, FHLMC/FNMA guidelines, the weighted average life of the loan, the discount rate, the weighted average coupon, and the weighted average default rate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for prepayment speeds is accompanied by a directionally opposite change in the assumption for interest rates.

46
Fair Value of Financial Instruments


The following table presents estimated fair value of CTBI’s financial instruments as of September 30, 2023 and indicates the level within the fair value hierarchy of the valuation techniques.  In accordance with the adoption of ASU 2016-01, the fair values as of September 30, 2023 were measured using an exit price notion.

    
Fair Value Measurements
at September 30, 2023 Using
 
(in thousands)
 
Carrying
Amount
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:
            
Cash and cash equivalents
 
$
219,258
  
$
219,258
  
$
0
  
$
0
 
Certificates of deposit in other banks
  
245
   
0
   
245
   
0
 
Debt securities available-for-sale
  
1,135,878
   
331,200
   
804,678
   
0
 
Equity securities at fair value
  
2,900
   
0
   
0
   
2,900
 
Loans held for sale
  
0
   
0
   
0
   
0
 
Loans, net
  
3,936,300
   
0
   
0
   
3,753,898
 
Federal Home Loan Bank stock
  
7,670
   
0
   
7,670
   
0
 
Federal Reserve Bank stock
  
4,887
   
0
   
4,887
   
0
 
Accrued interest receivable
  
21,467
   
0
   
21,467
   
0
 
                 
Financial liabilities:
                
Deposits
 
$
4,627,892
  
$
1,314,189
  
$
3,325,940
  
$
0
 
Repurchase agreements
  
232,577
   
0
   
0
   
232,627
 
Federal funds purchased
  
500
   
0
   
500
   
0
 
Advances from Federal Home Loan Bank
  
340
   
0
   
354
   
0
 
Long-term debt
  
64,296
   
0
   
0
   
52,150
 
Accrued interest payable
  
8,210
   
0
   
8,210
   
0
 
                 
Unrecognized financial instruments:
                
Letters of credit
 
$
0
  
$
0
  
$
0
  
$
0
 
Commitments to extend credit
  
0
   
0
   
0
   
0
 
Forward sale commitments
  
0
   
0
   
0
   
0
 

47

The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 2022 and indicates the level within the fair value hierarchy of the valuation techniques.


    
Fair Value Measurements
at December 31, 2022 Using
 
(in thousands) 
Carrying
Amount
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:
            
Cash and cash equivalents
 
$
128,686
  
$
128,686
  
$
0
  
$
0
 
Certificates of deposit in other banks
  
245
   
0
   
245
   
0
 
Debt securities available-for-sale
  
1,256,226
   
346,265
   
909,961
   
0
 
Equity securities at fair value
  
2,166
   
0
   
0
   
2,166
 
Loans held for sale
  
109
   
112
   
0
   
0
 
Loans, net
  
3,663,309
   
0
   
0
   
3,511,810
 
Federal Home Loan Bank stock
  
6,676
   
0
   
6,676
   
0
 
Federal Reserve Bank stock
  
4,887
   
0
   
4,887
   
0
 
Accrued interest receivable
  
19,592
   
0
   
19,592
   
0
 
                 
Financial liabilities:
                
Deposits
 
$
4,426,143
  
$
1,394,915
  
$
3,050,144
  
$
0
 
Repurchase agreements
  
215,431
   
0
   
0
   
215,542
 
Federal funds purchased
  
500
   
0
   
500
   
0
 
Advances from Federal Home Loan Bank
  
355
   
0
   
380
   
0
 
Long-term debt
  
57,841
   
0
   
0
   
55,860
 
Accrued interest payable
  
2,237
   
0
   
2,237
   
0
 
                 
Unrecognized financial instruments:
                
Letters of credit
 
$
0
  
$
0
  
$
0
  
$
0
 
Commitments to extend credit
  
0
   
0
   
0
   
0
 
Forward sale commitments
  
0
   
0
   
0
   
0
 
 
Note 8 – Revenue Recognition


CTBI’s primary source of revenue is interest income generated from loans and investment securities.  Interest income is recognized according to the terms of the financial instrument agreement over the life of the loan or investment security unless it is determined that the counterparty is unable to continue making interest payments.  Interest income also includes prepaid interest fees from commercial customers, which approximates the interest foregone on the balance of the loan prepaid.


CTBI’s additional source of income, also referred to as noninterest income, includes service charges on deposit accounts, gains on sales of loans, trust and wealth management income, loan related fees, brokerage revenue, and other miscellaneous income and is largely based on contracts with customers.  In these cases, CTBI recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. CTBI considers a customer to be any party to which we will provide goods or services that are an output of CTBI’s ordinary activities in exchange for consideration.  There is little seasonality with regards to revenue from contracts with customers and all inter-company revenue is eliminated when CTBI’s financial statements are consolidated.


Generally, CTBI enters into contracts with customers that are short-term in nature where the performance obligations are fulfilled and payment is processed at the same time.  Such examples include revenue related to merchant fees, interchange fees, and investment services income.  In addition, revenue generated from existing customer relationships such as deposit accounts are also considered short-term in nature, because the relationship may be terminated at any time and payment is processed at the time performance obligations are fulfilled.  As a result, CTBI does not have contract assets, contract liabilities, or related receivable accounts for contracts with customers.   In cases where collectability is a concern, CTBI does not record revenue.

48

Generally, the pricing of transactions between CTBI and each customer is either (i) established within a legally enforceable contract between the two parties, as is the case with loan sales, or (ii) disclosed to the customer at a specific point in time, as is the case when a deposit account is opened or before a new loan is underwritten.  Fees are usually fixed at a specific amount or as a percentage of a transaction amount.  No judgment or estimates by management are required to record revenue related to these transactions and pricing is clearly identified within these contracts.


CTBI primarily operates in Kentucky and contiguous areas. Therefore, all significant operating decisions are based upon analysis of CTBI as one operating segment.


We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we believe it best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors.  Noninterest income not generated from customers during CTBI’s ordinary activities primarily relates to MSRs, gains/losses on the sale of investment securities, gains/losses on the sale of OREO, gains/losses on the sale of property, plant and equipment, and income from bank owned life insurance.


For more information related to our components of noninterest income, see the Condensed Consolidated Statements of Income and Comprehensive Income above.

Note 9 – Earnings Per Share


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

  Three Months Ended   Nine Months Ended  
 
September 30
  
September 30
 
(in thousands except per share data)
 
2023
  
2022
  
2023
  
2022
 
Numerator:
            
Net income
 
$
20,628
  
$
19,372
  
$
59,345
  
$
59,371
 
                 
Denominator:
                
Basic earnings per share:
                
Weighted average shares
  
17,893
   
17,841
   
17,882
   
17,832
 
Diluted earnings per share:
                
Effect of dilutive stock options and restricted stock grants
  
11
   
16
   
10
   
12
 
Adjusted weighted average shares
  
17,904
   
17,857
   
17,892
   
17,844
 
                 
Earnings per share:
                
Basic earnings per share
 
$
1.15
  
$
1.09
  
$
3.32
  
$
3.33
 
Diluted earnings per share
  
1.15
   
1.08
   
3.32
   
3.33
 


There were no options to purchase common shares that were excluded from the diluted calculations above for the three and nine months ended September 30, 2023 and 2022. In addition to in-the-money stock options, unvested restricted stock grants were also used in the calculation of diluted earnings per share based on the treasury method.

49
Note 10 – Accumulated Other Comprehensive Income (Loss)

Unrealized gains (losses) on AFS securities


Amounts reclassified from accumulated other comprehensive income (loss) (“AOCI”) and the affected line items in the statements of income during the three and nine months ended September 30, 2023 and 2022 were:

 
Amounts Reclassified from AOCI
 

(in thousands)		 
Three Months Ended
September 30
  
Nine Months Ended
September 30
 
 
2023
  
2022
  
2023
  
2022
 
Affected line item in the statements of income
            
Securities gains (losses)
 
$
0
  
$
0
 
$
4
  
$
(1
)
Tax expense
  
0
   
0
   
1
   
0
 
Total reclassifications out of AOCI
 
$
0
  
$
0
 
$
3
  
$
(1
)


Note 11 – Legal Proceedings



CTBI and subsidiaries, and from time to time, our officers, are named defendants in legal actions arising from ordinary business activities.  Management, after consultation with legal counsel, believes any pending actions are without merit or that the ultimate liability, if any, will not materially affect our consolidated financial position or results of operations.

50
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Community Trust Bancorp, Inc. (“CTBI”), our operations, and our present business environment.  The MD&A is provided as a supplement to—and should be read in conjunction with—our condensed consolidated financial statements and the accompanying notes thereto contained in Part I, Item 1 of this quarterly report, as well as our consolidated financial statements, the accompanying notes thereto, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December, 31, 2022.  The MD&A includes the following sections:

❖
Our Business

❖
Financial Goals and Performance

❖
Results of Operations and Financial Condition

❖
Liquidity and Market Risk

❖
Interest Rate Risk

❖
Capital Resources

❖
Impact of Inflation, Changing Prices, and Economic Conditions

❖
Stock Repurchase Program

❖
Critical Accounting Policies and Estimates

Our Business

Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company headquartered in Pikeville, Kentucky.  Currently, we own one commercial bank, Community Trust Bank, Inc. (“CTB”) and one trust company, Community Trust and Investment Company.  Through our subsidiaries, we have seventy-nine banking locations in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee, four trust offices across Kentucky, and one trust office in northeastern Tennessee.  At September 30, 2023, we had total consolidated assets of $5.6 billion and total consolidated deposits, including repurchase agreements, of $4.9 billion.  Total shareholders’ equity at September 30, 2023 was $653.0 million.  Trust assets under management at September 30, 2023 were $3.2 billion, including CTB’s investment portfolio totaling $1.1 billion.

Through our subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust and wealth management activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals, and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services.  The lending activities of CTB include making commercial, construction, mortgage, and personal loans.  Lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available.  Our corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as paying agents for bond and stock issues, as investment agent, as depositories for securities, and as providers of full-service brokerage and insurance services.  For further information, see Item 1 of our annual report on Form 10-K for the year ended December 31, 2022.

51
Results of Operations and Financial Condition

We reported earnings for the third quarter 2023 of $20.6 million, or $1.15 per basic share, compared to $19.4 million, or $1.09 per basic share, earned during the second quarter 2023 and $19.4 million, or $1.09 per basic share, earned during the third quarter 2022.  Total revenue was $0.8 million above prior quarter and $0.4 million above prior year same quarter.  Net interest revenue increased $0.1 million compared to prior quarter but decreased $0.4 million compared to prior year same quarter, and noninterest income increased $0.7 million compared to prior quarter and $0.8 million compared to prior year same quarter.  Our provision for credit losses for the quarter decreased $0.1 million from prior quarter and $0.5 million from prior year third quarter.  Noninterest expense decreased $0.2 million compared to prior quarter and $0.6 million compared to prior year same quarter.  Earnings for the nine months ended September 30, 2023 were $59.3 million, or $3.32 per basic share, compared to $59.4 million, or $3.33 per basic share for the nine months ended September 30, 2022.

Quarterly Highlights

❖
Net interest income for the quarter of $43.1 million was $0.1 million above prior quarter but $0.4 million below prior year same quarter, as our net interest margin decreased 8 basis points from prior quarter and 9 basis points from prior year same quarter.

❖
Provision for credit losses at $1.9 million for the quarter decreased $0.1 million from prior quarter and $0.5 million from prior year same quarter.

❖
Our loan portfolio increased $55.3 million, an annualized 5.6%, from June 30, 2023 and $275.7 million, or an annualized 9.9%, from December 31, 2022.

❖
We had net loan charge-offs of $1.2 million, or 0.12% of average loans annualized, for the third quarter 2023 compared to $0.7 million, or 0.07% of average loans annualized, for the second quarter 2023 and $0.3 million, or 0.04% of average loans annualized, for the quarter ended September 30, 2022.

❖
Our total nonperforming loans increased to $13.0 million at September 30, 2023 from $11.7 million at June 30, 2023 but decreased $2.3 million from $15.3 million at December 31, 2022.  Nonperforming assets at $15.2 million increased $1.4 million from June 30, 2023 but decreased $3.8 million from $19.0 million at December 31, 2022.

❖
Deposits, including repurchase agreements, at $4.9 billion increased $114.8 million, or an annualized 9.6%, from June 30, 2023 and $218.9 million, or an annualized 6.3%, from December 31, 2022.

❖
Shareholders’ equity at $653.0 million decreased $7.1 million, or an annualized 4.3%, during the quarter but increased $25.0 million, or an annualized 5.3%, from December 31, 2022.

❖
Noninterest income for the quarter ended September 30, 2023 of $15.5 million was $0.7 million, or 5.0%, above prior quarter and $0.8 million, or 5.6%, above prior year same quarter.

❖
Noninterest expense for the quarter ended September 30, 2023 of $30.8 million was $0.2 million, or 0.6%, below prior quarter and $0.6 million, or 2.0%, below prior year same quarter.

52
Income Statement Review

Nine Months Ended September 30
       
Change 2023 vs. 2022
 
(dollars in thousands)
 
2023
  
2022
  
Amount
  
Percent
 
Net interest income
 
$
130,135
  
$
124,358
  
$
5,777
   
4.6
%
Provision for credit losses
  
4,996
   
3,366
   
1,630
   
48.4
%
Noninterest income
  
43,934
   
44,145
   
(211
)
  
(0.5
)%
Noninterest expense
  
93,762
   
90,812
   
2,950
   
3.2
%
Income taxes
  
15,966
   
14,954
   
1,012
   
6.8
%
Net income
 
$
59,345
  
$
59,371
  
$
(26
)
  
0.0
%
 
                
Average earning assets
 
$
5,199,072
  
$
5,146,251
  
$
52,821
   
1.0
%
 
                
Yield on average earnings assets, tax equivalent*
  
5.05
%
  
3.66
%
  
1.39
%
  
38.0
%
Cost of interest bearing funds
  
2.52
%
  
0.63
%
  
1.89
%
  
300.0
%
 
                
Net interest margin, tax equivalent*
  
3.37
%
  
3.25
%
  
0.12
%
  
3.7
%

*Yield on average earning assets and net interest margin are computed on a taxable equivalent basis using a 24.95% tax rate.

Net Interest Income

 
          
Percent Change
          
 
          
3Q 2023 Compared to:
          
($ in thousands)
 
3Q
2023
  
2Q
2023
  
3Q
2022
  
2Q
2023
  
3Q
2022
  
YTD
2023
  
YTD
2022
  
Percent
Change
 
Components of net interest income:
                        
Income on earning assets
 
$
69,499
  
$
64,827
  
$
51,405
   
7.2
%
  
35.2
%
 
$
195,321
  
$
140,284
   
39.2
%
Expense on interest bearing liabilities
  
26,359
   
21,748
   
7,869
   
21.2
%
  
234.9
%
  
65,186
   
15,926
   
309.3
%
Net interest income
 
$
43,140
  
$
43,079
  
$
43,536
   
0.1
%
  
(0.9
)%
 
$
130,135
  
$
124,358
   
4.6
%
TEQ
  
298
   
298
   
240
   
0.0
%
  
24.1
%
  
894
   
707
   
26.4
%
Net interest income, tax equivalent
 
$
43,438
  
$
43,377
  
$
43,776
   
0.1
%
  
(0.8
)%
 
$
131,029
  
$
125,065
   
4.8
%
 
                                
Average yield and rates paid:
                                
Earning assets yield
  
5.25
%
  
5.03
%
  
3.97
%
  
4.3
%
  
32.3
%
  
5.05
%
  
3.66
%
  
37.8
%
Rate paid on interest bearing liabilities
  
2.93
%
  
2.54
%
  
0.93
%
  
15.4
%
  
215.4
%
  
2.52
%
  
0.63
%
  
298.1
%
Gross interest margin
  
2.32
%
  
2.49
%
  
3.04
%
  
(7.0
)%
  
(23.7
)%
  
2.53
%
  
3.03
%
  
(16.7
)%
Net interest margin
  
3.27
%
  
3.35
%
  
3.36
%
  
(2.5
)%
  
(2.9
)%
  
3.37
%
  
3.25
%
  
3.7
%
 
                                
Average balances:
                                
Investment securities
 
$
1,178,707
  
$
1,230,556
  
$
1,380,881
   
(4.2
)%
  
(14.6
)%
 
$
1,220,135
  
$
1,438,769
   
(15.2
)%
Loans
 
$
3,952,096
  
$
3,836,446
  
$
3,568,174
   
3.0
%
  
10.8
%
 
$
3,843,441
  
$
3,516,114
   
9.3
%
Earning assets
 
$
5,274,542
  
$
5,189,716
  
$
5,163,624
   
1.6
%
  
2.1
%
 
$
5,199,072
  
$
5,146,251
   
1.0
%
Interest-bearing liabilities
 
$
3,567,343
  
$
3,435,072
  
$
3,359,242
   
3.9
%
  
6.2
%
 
$
3,455,666
  
$
3,361,097
   
2.8
%

53
Net interest income for the quarter of $43.1 million was $0.1 million above prior quarter but $0.4 million below prior year same quarter.  Our net interest margin, on a fully tax equivalent basis, at 3.27% decreased 8 basis points from prior quarter and 9 basis points from prior year same quarter.  Our average earning assets increased $84.8 million from prior quarter and $110.9 million from prior year same quarter.  Our yield on average earning assets increased 22 basis points from prior quarter and 128 basis points from prior year same quarter, and our cost of funds increased 39 basis points from prior quarter and 200 basis points from prior year same quarter.  Our net interest income for the nine months ended September 30, 2023 was $130.1 million compared to $124.4 million for the nine months ended September 30, 2022.

Our ratio of average loans to deposits, including repurchase agreements, was 83.2% for the quarter ended September 30, 2023 compared to 81.2% for the quarter ended June 30, 2023 and 75.4% for the quarter ended September 30, 2022.

Provision for Credit Losses

Our provision for credit losses for the quarter decreased $0.1 million from prior quarter and $0.5 million from prior year same quarter.  Year-to-date provision increased $1.6 million from prior year.  Our reserve coverage (allowance for credit losses to nonperforming loans) at September 30, 2023 was 375.2% compared to 408.9% at June 30, 2023 and 324.5% at September 30, 2022.  Our credit loss reserve as a percentage of total loans outstanding at September 30, 2023 remained at 1.22% from June 30, 2023 and September 30, 2022.

Noninterest Income

           
Percent Change
          
           
3Q 2023
Compared to:
          
($ in thousands)
 
3Q
2023
  
2Q
2023
  
3Q
2022
  
2Q
2023
  
3Q
2022
  
YTD
2023
  
YTD
2022
  
Percent Change
 
Deposit related fees
 
$
7,823
  
$
7,513
  
$
7,629
   
4.1
%
  
2.5
%
 
$
22,623
  
$
21,638
   
4.6
%
Trust revenue
  
3,277
   
3,351
   
2,989
   
(2.2
%)
  
9.6
%
  
9,707
   
9,435
   
2.9
%
Gains on sales of loans
  
105
   
115
   
235
   
(8.8
%)
  
(55.3
%)
  
341
   
1,351
   
(74.7
%)
Loan related fees
  
1,283
   
1,197
   
1,589
   
7.2
%
  
(19.3
%)
  
3,325
   
5,066
   
(34.4
%)
Bank owned life insurance revenue
  
1,108
   
735
   
743
   
50.7
%
  
49.1
%
  
2,701
   
2,136
   
26.5
%
Brokerage revenue
  
452
   
388
   
453
   
16.5
%
  
(0.2
%)
  
1,188
   
1,502
   
(20.9
%)
Other
  
1,448
   
1,457
   
1,041
   
(0.6
%)
  
39.1
%
  
4,049
   
3,017
   
34.2
%
Total noninterest income
 
$
15,496
  
$
14,756
  
$
14,679
   
5.0
%
  
5.6
%
 
$
43,934
  
$
44,145
   
(0.5
%)

Noninterest income for the quarter ended September 30, 2023 of $15.5 million was $0.7 million, or 5.0%, above prior quarter and $0.8 million, or 5.6%, above prior year same quarter.  The quarter over quarter increase included a $0.3 million increase in deposit related fees, a $0.2 million increase in securities gains, and a $0.4 million increase in bank owned life insurance. The year over year increase included a $0.2 million increase in deposit related fees, a $0.3 million increase in trust revenue, a $0.5 million increase in securities gains, and a $0.4 million increase in bank owned life insurance partially offset by a $0.1 million decline in gains on sales of loans and a $0.3 million decline in loan related fees resulting from the fluctuation in the fair market value of our mortgage servicing rights.  Noninterest income for the first nine months of 2023 was $43.9 million compared to $44.1 million for the nine months ended September 30, 2022.

54
Noninterest Expense

           
Percent Change
          
           
3Q 2023Compared to:
          
($ in thousands)
 
3Q
2023
  
2Q
2023
  
3Q
2022
  
2Q
2023
  
3Q
2022
  
YTD
2023
  
YTD
2022
  
Percent Change
 
Salaries
 
$
12,755
  
$
12,732
  
$
12,537
   
0.2
%
  
1.7
%
 
$
38,120
  
$
36,495
   
4.5
%
Employee benefits
  
5,298
   
5,573
   
6,009
   
(4.9
%)
  
(11.8
%)
  
17,146
   
18,123
   
(5.4
%)
Net occupancy and equipment
  
2,875
   
2,895
   
2,897
   
(0.7
%)
  
(0.8
%)
  
8,798
   
8,507
   
3.4
%
Data processing
  
2,410
   
2,383
   
2,270
   
1.1
%
  
6.2
%
  
7,096
   
6,566
   
8.1
%
Legal and professional fees
  
722
   
912
   
752
   
(20.8
%)
  
(3.9
%)
  
2,450
   
2,503
   
(2.1
%)
Advertising and marketing
  
767
   
704
   
768
   
9.0
%
  
(0.1
%)
  
2,291
   
2,180
   
5.1
%
Taxes other than property and payroll
  
420
   
433
   
422
   
(3.1
%)
  
(0.4
%)
  
1,285
   
1,274
   
0.9
%
Net other real estate owned expense
  
165
   
61
   
42
   
169.9
%
  
292.9
%
  
345
   
438
   
(21.2
%)
Other
  
5,435
   
5,332
   
5,778
   
1.9
%
  
(5.9
%)
  
16,231
   
14,726
   
10.2
%
Total noninterest expense
 
$
30,847
  
$
31,025
  
$
31,475
   
(0.6
%)
  
(2.0
%)
 
$
93,762
  
$
90,812
   
3.2
%

Noninterest expense for the quarter ended September 30, 2023 of $30.8 million was $0.2 million, or 0.6%, below prior quarter and $0.6 million, or 2.0%, below prior year same quarter.  The decrease in noninterest expense quarter over quarter included a $0.3 million decrease in personnel expense.  The decrease in personnel expense included a $0.7 million decrease in group medical and life insurance partially offset by a $0.4 million increase in bonuses and incentives.  The decrease year over year was primarily a decrease in personnel costs of $0.5 million which included a $0.6 million decrease in bonuses and incentives, and a $0.1 million decrease in group medical and life insurance, partially offset by a $0.2 million increase in salary expense.  Noninterest expense for the first nine months of 2023 was $93.8 million compared to $90.8 million for the nine months ended September 30, 2022.

Balance Sheet Review

CTBI’s total assets at September 30, 2023 of $5.6 billion increased $114.1 million, or 8.2% annualized, from June 30, 2023 and $254.6 million, or an annualized 6.3%, from December 31, 2022.  Loans outstanding at September 30, 2023 were $4.0 billion, an increase of $55.3 million, or an annualized 5.6%, from June 30, 2023 and $275.7 million, or an annualized 9.9%, from December 31, 2022.  The increase in loans from prior quarter included a $6.0 million increase in the commercial loan portfolio, a $40.5 million increase in the residential loan portfolio, a $6.0 million increase in the indirect consumer loan portfolio, and a $2.8 million increase in the consumer direct loan portfolio.  CTBI’s investment portfolio decreased $65.0 million, or an annualized 21.4%, from June 30, 2023 and $120.3 million, or an annualized 12.8%, from December 31, 2022.  Deposits in other banks increased $92.3 million from prior quarter and $72.6 million from December 31, 2022.  Deposits, including repurchase agreements, at $4.9 billion increased $114.8 million, or an annualized 9.6%, from June 30, 2023 and $218.9 million, or an annualized 6.3%, from December 31, 2022.

Shareholders’ equity at September 30, 2023 was $653.0 million, a $7.1 million, or an annualized 4.3%, decrease from the $660.1 million at June 30, 2023 but a $25.0 million, or an annualized 5.3%, increase from the $628.0 million at December 31, 2022, as unrealized losses on our securities portfolio continue to impact equity.  Net unrealized losses on securities, net of deferred taxes, were $141.4 million at September 30, 2023, compared to $121.3 million at June 30, 2023 and $139.4 million at September 30, 2022.  Management has evaluated the unrealized losses and determined that they were primarily driven by market rates.  Management has the ability and intent to hold these securities to recovery or maturity.  CTBI’s annualized dividend yield to shareholders as of September 30, 2023 was 5.37%.

55
Loans

(dollars in thousands)
  
September 30, 2023
 
Loan Category
 
Balance
  
Variance from December 31, 2022
  
Net (Charge-Offs)/ Recoveries
  
Nonperforming
  
ACL
 
Commercial:
               
Hotel/motel
 
$
386,067
   
12.3
%
 
$
0
  
$
0
  
$
5,803
 
Commercial real estate residential
  
404,779
   
8.5
   
62
   
827
   
3,824
 
Commercial real estate nonresidential
  
788,287
   
3.4
   
363
   
2,133
   
8,017
 
Dealer floorplans
  
61,920
   
(20.1
)
  
0
   
0
   
843
 
Commercial other
  
315,529
   
1.0
   
(1,116
)
  
940
   
5,545
 
Total commercial
  
1,956,582
   
4.7
   
(691
)
  
3,900
   
24,032
 
                     
Residential:
                    
Real estate mortgage
  
916,580
   
11.1
   
(66
)
  
7,837
   
8,336
 
Home equity
  
139,085
   
15.4
   
(19
)
  
661
   
1,158
 
Total residential
  
1,055,665
   
11.6
   
(85
)
  
8,498
   
9,494
 
                     
Consumer:
                    
Consumer direct
  
160,712
   
2.0
   
(150
)
  
29
   
2,613
 
Consumer indirect
  
812,060
   
10.1
   
(1,332
)
  
558
   
12,580
 
Total consumer
  
972,772
   
8.7
   
(1,482
)
  
587
   
15,193
 
                     
Total loans
 
$
3,985,019
   
7.4
%
 
$
(2,258
)
 
$
12,985
  
$
48,719
 

Total Deposits and Repurchase Agreements

           
Percent Change
3Q 2023 Compared to:
 
(dollars in thousands)
 
3Q
2023
  
2Q
2023
  
YE
2022
  
2Q
2023
  
YE
2022
 
Non-interest bearing deposits
 
$
1,314,189
  
$
1,361,078
  
$
1,394,915
   
(3.4
)%
  
(5.8
)%
Interest bearing deposits
                    
Interest checking
  
125,107
   
142,542
   
112,265
   
(12.2
)%
  
11.4
%
Money market savings
  
1,412,679
   
1,389,081
   
1,348,809
   
1.7
%
  
4.7
%
Savings accounts
  
556,820
   
611,772
   
654,380
   
(9.0
)%
  
(14.9
)%
Time deposits
  
1,219,097
   
1,012,187
   
915,774
   
20.4
%
  
33.1
%
Repurchase agreements
  
232,577
   
229,020
   
215,431
   
1.6
%
  
8.0
%
Total interest bearing deposits and repurchase agreements
  
3,546,280
   
3,384,602
   
3,246,659
   
4.8
%
  
9.2
%
Total deposits and repurchase agreements
 
$
4,860,469
  
$
4,745,680
  
$
4,641,574
   
2.4
%
  
4.7
%

56
Asset Quality

Our total nonperforming loans increased to $13.0 million at September 30, 2023 from $11.7 million at June 30, 2023 but decreased $2.3 million from the $15.3 million at December 31, 2022.  Prior year nonperforming loans, as previously reported, exclude troubled debt restructurings which have been eliminated in the current period due to implementation of Accounting Standard Update 2022-02.  Accruing loans 90+ days past due at $8.1 million increased $1.7 million from prior quarter but decreased $0.4 million from December 31, 2022.  Nonaccrual loans at $4.9 million decreased $0.4 million from prior quarter and $1.9 million from December 31, 2022.  Accruing loans 30-89 days past due at $12.1 million decreased $0.1 million from prior quarter and $3.2 million from December 31, 2022.  Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.  Our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due.  Any activity regarding a criticized/classified loan (i.e. problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee).  CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of $100,000 or greater.  CTB’s Loan Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio.  We also have a Loan Review Department that reviews every market within CTB annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, if a borrower is experiencing financial difficulty with significant payment delay, nonaccrual status, and adequate loan loss reserves.  The Loan Review Department has annually reviewed, on average, 96% of the outstanding commercial loan portfolio for the past three years.  The average annual review percentage of the consumer and residential loan portfolio for the past three years was 83% based on the loan production during the number of months included in the review scope.  The review scope is generally four to six months of production.  CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.

For further information regarding nonperforming loans, see Note 4 to the condensed consolidated financial statements contained herein.

Our level of foreclosed properties at $2.2 million at September 30, 2023 was a $0.2 million increase from the $2.0 million at June 30, 2023 and a $1.5 million decrease from the $3.7 million at December 31, 2022.  Sales of foreclosed properties for the nine months ended September 30, 2023 totaled $1.8 million while new foreclosed properties totaled $0.5 million.  At September 30, 2023, the book value of properties under contracts to sell was $0.8 million; however, the closings had not occurred at quarter-end.
 
We had net loan charge-offs of $1.2 million, or 0.12% of average loans annualized, for the third quarter 2023 compared to $674 thousand, or 0.07% of average loans annualized, for the second quarter 2023 and $325 thousand, or 0.04% of average loans annualized, for the quarter ended September 30, 2022.  Net charge-offs for the nine months ended September 30, 2023 were $2.3 million, or 0.08% of average loans annualized, compared to $0.7 million, or 0.03% of average loans annualized, for the nine months ended September 30, 2022.

Dividends

The following schedule shows the quarterly cash dividends paid for the past six quarters:

Pay Date
Record Date
 
Amount Per Share
 
October 1, 2023
September 15, 2023
 
$
0.46
 
July 1, 2023
June 15, 2023
 
$
0.44
 
April 1, 2023
March 15, 2023
 
$
0.44
 
January 1, 2023
December 15, 2022
 
$
0.44
 
October 1, 2022
September 15, 2022
 
$
0.44
 
July 1, 2022
June 15, 2022
 
$
0.40
 

57
Liquidity and Market Risk

The objective of CTBI’s Asset/Liability management function is to maintain consistent growth in net interest income within our policy limits.  This objective is accomplished through management of our consolidated balance sheet composition, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates, and customer preferences.  The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or deposit withdrawals.  This is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities, sufficient unused borrowing capacity, and growth in core deposits. As of September 30, 2023, we had approximately $219.3 million in cash and cash equivalents and approximately $163.3 million in unpledged securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $128.7 million and $309.2 million at December 31, 2022.  Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans.  In addition to core deposit funding, we also have a variety of other short-term and long-term funding sources available.  We also rely on Federal Home Loan Bank advances for both liquidity and management of our asset/liability position.  Federal Home Loan Bank advances were $0.3 million at September 30, 2023 compared to $0.4 million at December 31, 2022.  As of September 30, 2023, we had a $478.9 million available borrowing position with the Federal Home Loan Bank.  We generally rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash for our investing activities.  As is typical of many financial institutions, significant financing activities include deposit gathering, use of short-term borrowing facilities such as repurchase agreements and federal funds purchased, and issuance of long-term debt.  At September 30, 2023 we had $50 million in lines of credit with various correspondent banks available to meet any future cash needs compared to $75 million at December 31, 2022.  Our primary investing activities include purchases of securities and loan originations.  We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs.  Included in our cash and cash equivalents at September 30, 2023 were deposits with the Federal Reserve of $148.0 million, compared to $72.6 million at December 31, 2022.  Additionally, we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days.

The investment portfolio consists of investment grade short-term issues suitable for bank investments.  The majority of the investment portfolio is in U.S. government and government sponsored agency issuances.  At September 30, 2023, available-for-sale (“AFS”) securities comprised all of the total investment portfolio, and the AFS portfolio was approximately 174% of equity capital.  Eighty-six percent of the pledge-eligible portfolio was pledged.

Interest Rate Risk

We consider interest rate risk one of our most significant market risks.  Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates.  Consistency of our net interest revenue is largely dependent upon the effective management of interest rate risk.  We employ a variety of measurement techniques to identify and manage our interest rate risk, including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates.  The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities.  Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model.  These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income.  Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

CTBI’s Asset/Liability Management Committee (ALCO), which includes executive and senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk within Board-approved policy limits.  Our current exposure to interest rate risks is determined by measuring the anticipated change in net interest income spread evenly over the twelve-month period.

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Capital Resources

We continue to offer a dividend to our shareholders, providing an annualized dividend yield for the quarter ended September 30, 2023 of 5.37%.  Shareholders’ equity decreased $7.1 million, or an annualized 4.3%, during the quarter but increased $50.5 million, or 8.4%, from September 30, 2022, as unrealized losses on our securities portfolio continue to impact equity.  Our primary source of capital growth is the retention of earnings.  Cash dividends were $1.34 per share and $1.24 per share for the nine months ended September 30, 2023 and 2022, respectively.  We retained 59.6% of our earnings for the first nine months of 2023 compared to 62.8% for the first nine months of 2022.

Insured depository institutions are required to meet certain capital level requirements.  On October 29, 2019, federal banking regulators adopted a final rule to simplify the regulatory capital requirements for eligible community banks and holding companies that opt-in to the community bank leverage ratio framework (the “CBLR framework”), as required by Section 201 of the Economic Growth, Relief and Consumer Protection Act of 2018.  Under the final rule, which became effective as of January 1, 2020, community banks and holding companies (which includes CTB and CTBI) that satisfy certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio (referred to as the “community bank leverage ratio”) of greater than 9%, were eligible to opt-in to the CBLR framework.  The community bank leverage ratio is the ratio of a banking organization’s Tier 1 capital to its average total consolidated assets, both as reported on the banking organization’s applicable regulatory filings.  Accordingly, a qualifying community banking organization that has a community bank leverage ratio greater than 9% will be considered to have met: (i) the risk-based and leverage capital requirements of the generally applicable capital rules; (ii) the capital ratio requirements in order to be considered well-capitalized under the prompt corrective action framework; and (iii) any other applicable capital or leverage requirements.

In April 2020, as directed by Section 4012 of the CARES Act, the regulatory agencies introduced temporary changes to the CBLR.  These changes, which subsequently were adopted as a final rule, temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020.  Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calendar year before returning to 9% in calendar year 2022.  Management elected to use the CBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of September 30, 2023 was 13.78%.  CTB’s CBLR ratio as of September 30, 2023 was 13.32%.

As of September 30, 2023, we are not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse impact on our liquidity, capital resources, or operations.

Impact of Inflation, Changing Prices, and Economic Conditions

The majority of our assets and liabilities are monetary in nature.  Therefore, CTBI differs greatly from most commercial and industrial companies that have significant investment in nonmonetary assets, such as fixed assets and inventories.  However, inflation does have an important impact on the growth of assets in the banking industry and on the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio.  Inflation also affects other expenses, which tend to rise during periods of general inflation.

We believe one of the most significant impacts on financial and operating results is our ability to react to changes in interest rates.  We seek to maintain an essentially balanced position between interest rate sensitive assets and liabilities in order to protect against the effects of wide interest rate fluctuations.

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Stock Repurchase Program

CTBI’s stock repurchase program began in December 1998 with the authorization to acquire up to 500,000 shares and was increased by an additional 1,000,000 shares in each of July 2000, May 2003, and March 2020.  CTBI repurchased 32,664 shares of its common stock during the first quarter 2020, leaving 1,034,706 shares remaining under our current repurchase authorization.  As of September 30, 2023, a total of 2,465,294 shares have been repurchased through this program.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States.  Among other provisions, the IRA imposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022.  The impact of this provision will be dependent on the extent of share repurchases made in future periods.

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 in Note 1 to the condensed consolidated financial statements contained herein.  We have identified the following critical accounting policies:

Allowance for Credit Losses – CTBI accounts for the allowance for credit losses (“ACL”) and the reserve for unfunded commitments in accordance with Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its related subsequent amendments, commonly known as CECL.

We disaggregate our portfolio loans into portfolio segments for purposes of determining the ACL.  Our loan portfolio segments include commercial, residential mortgage, and consumer.  We further disaggregate our portfolio segments into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics.  For an analysis of CTBI’s ACL by portfolio segment and credit quality information by class, refer to Note 4 to the condensed consolidated financial statements contained herein.

CTBI maintains the ACL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans.  Effective January 1, 2023, CTBI implemented ASU 2022-02, Financial Instruments-Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, an amendment to 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty along with requiring that disclosures be added by year of origination for gross charge-off information for financing receivables.  Accrued interest receivable on loans is presented in the consolidated financial statements as a component of other assets.  When accrued interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed.  In the event that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest in a timely manner.  Therefore, CTBI elected ASU 2019-04 which allows that accrued interest would continue to be presented separately and not part of the amortized cost of the loan.  For additional information on CTBI’s accounting policies related to nonaccrual loans, refer to Note 1 to the condensed consolidated financial statements contained herein.

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Credit losses are charged and recoveries are credited to the ACL.  The ACL is maintained at a level CTBI considers to be adequate and is based on ongoing quarterly assessments and evaluations of the collectability of loans, including historical credit loss experience, current and forecasted market and economic conditions, and consideration of various qualitative factors that, in management’s judgment, deserve consideration in estimating expected credit losses.  Provisions for credit losses are recorded for the amounts necessary to adjust the ACL to CTBI’s current estimate of expected credit losses on portfolio loans.  CTBI’s strategy for credit risk management includes a combination of conservative exposure limits significantly below legal lending limits and conservative underwriting, documentation, and collection standards.  The strategy also emphasizes diversification on a geographic, industry, and customer level, regular credit examinations, and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality.

CTBI’s methodology for determining the ACL requires significant management judgment and includes an estimate of expected credit losses on a collective basis for groups of loans with similar risk characteristics and specific allowances for loans which are individually evaluated.

Larger commercial loans with balances exceeding $1 million that exhibit probable or observed credit weaknesses and (i) have a criticized risk rating, (ii) are on nonaccrual status, (iii) have a borrower experiencing financial difficulty with significant payment delay, or (iv) are 90 days or more past due, are individually evaluated for an ACL.  CTBI considers the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan structure and other factors when determining the amount of the ACL.  Other factors may include the borrower’s susceptibility to risks presented by the forecasted macroeconomic environment, the industry and geographic region of the borrower, size and financial condition of the borrower, cash flow and leverage of the borrower, and our evaluation of the borrower’s management.  Significant management judgment is required when evaluating which of these factors are most relevant in individual circumstances, and when estimating the amount of expected credit losses based on those factors.  When loans are individually evaluated, allowances are determined based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral and other sources of cash flow, as well as an evaluation of legal options available to CTBI.  Allowances for individually evaluated loans that are collateral-dependent are typically measured based on the fair value of the underlying collateral, less expected costs to sell where applicable.  For collateral-dependent financial assets, the credit loss expected may be zero if the fair value less costs to sell exceeds the amortized cost of the loan.  Loans shall not be included in both collective assessments and individual assessments.  Individually evaluated loans that are not collateral-dependent are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate.  Specific allowances on individually evaluated commercial loans, including loans to borrowers experiencing financial difficulty, are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.  Regardless of an initial measurement method, once it is determined that foreclosure is probable, the ACL is measured based on the fair value of the collateral as of the measurement date.  As a practical expedient, the fair value of the collateral may be used for a loan when determining the ACL for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty.  The fair value shall be adjusted for selling costs when foreclosure is probable.

Expected credit losses are estimated on a collective basis for loans that are not individually evaluated.  These include commercial loans that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and consumer portfolio segments.  For collectively evaluated commercial loans prior to June 30, 2023, CTBI used a static pool methodology based on our risk rating system.  Other homogenous loans such as the residential mortgage and consumer portfolio segments derive their ACL from vintage modeling.  Vintage modeling was chosen primarily because these loans have fixed amortization schedules, and it allows CTBI to track loans from origination to completion, including repayments and prepayments, and captures net charge-offs by the different vintages providing historical loss rates.  These are the two primary models utilized for ACL determination although there are additional models for specific processes in addition.  CTBI’s expected credit loss models were developed based on historical credit loss experience and observations of migration patterns for various credit risk characteristics (such as internal credit risk grades, external credit ratings or scores, delinquency status, etc.) over time, with those observations evaluated in the context of concurrent macroeconomic conditions.  CTBI developed our models from historical observations capturing a full economic cycle when possible.

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Beginning in the second quarter ended June 30, 2023, CTBI uses a third party ACL software to calculate reserve estimates.  During the implementation process, discounted cash flow modeling was chosen for all loan segments.  The primary reasons that contributed to this decision were: DCF models allow for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner; the analysis aligns well with other calculations outside of the ACL estimation which will mitigate model risk in other areas; and peer data is available for certain inputs if first party data is not available or meaningful.  Expected credit losses are estimated on a collective basis for loans that are not individually evaluated.  These include commercial loans that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and consumer portfolio segments.   See Note 4 to the condensed consolidated financial statements contained herein for information on CTBI’s risk rating system.

CTBI’s expected credit loss models consider historical credit loss experience, peer data, current market and economic conditions, and forecasted changes in market and economic conditions if such forecasts are considered reasonable and supportable.  Generally, CTBI considers our forecasts to be reasonable and supportable for a period of up to one year from the estimation date.  For periods beyond the reasonable and supportable forecast period, expected credit losses are estimated by reverting to historical loss information.  CTBI evaluates the length of our reasonable and supportable forecast period, our reversion period, and reversion methodology at least annually, or more often if warranted by economic conditions or other circumstances.

Other qualitative factors are used by CTBI in determining the ACL. These considerations inherently require significant management judgment to determine the appropriate factors to be considered and the extent of their impact on the ACL estimate.  Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within CTBI’s expected credit loss models.  These include adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel, and results of internal audit and quality control reviews.  These may also include adjustments, when deemed necessary, for specific idiosyncratic risks such as geopolitical events, natural disasters and their effects on regional borrowers, and changes in product structures.  Qualitative factors may also be used to address the impacts of unforeseen events on key inputs and assumptions within CTBI’s expected credit loss models, such as the reasonable and supportable forecast period, changes to historical loss information, or changes to the reversion period or methodology.  When evaluating the adequacy of allowances, consideration is also given to regional geographic concentrations and the closely associated effect that changing economic conditions may have on CTBI’s customers.

Overall, the collective evaluation process requires significant management judgment when determining the estimation methodology and inputs into the models, as well as in evaluating the reasonableness of the modeled results and the appropriateness of qualitative adjustments.  CTBI’s forecasts of market and economic conditions and the internal risk grades assigned to loans in the commercial portfolio segment are examples of inputs to the expected credit loss models that require significant management judgment.  These inputs have the potential to drive significant variability in the resulting ACL.

The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities and is included in other liabilities in the consolidated balance sheets.  The determination of the adequacy of the reserve is based upon expected credit losses over the remaining contractual life of the commitments, taking into consideration the current funded balance and estimated exposure over the reasonable and supportable forecast period.  This process takes into consideration the same risk elements that are analyzed in the determination of the adequacy of CTBI’s ACL, as previously discussed.  Net adjustments to the reserve for unfunded commitments are included in other noninterest expense in the consolidated statements of income.

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Goodwill – Business combinations entered into by CTBI typically include the recognition of goodwill.  U.S. generally accepted accounting principles (“GAAP”) require goodwill to be tested for impairment on an annual basis, which for CTBI is October 1, and more frequently if events or circumstances indicate that there may be impairment.  Refer to Note 1 to the condensed consolidated financial statements contained herein for a discussion on the methodology used by CTBI to assess goodwill for impairment.

Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value.  In testing goodwill for impairment, U.S. GAAP permits companies to first assess qualitative factors to determine whether it is more likely than not that its fair value is less than its carrying amount.  In this qualitative assessment, CTBI evaluates events and circumstances which may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of CTBI, and the performance of CTBI’s common stock, to determine if it is not more likely than not that the fair value is less than its carrying amount.  If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, CTBI performs the goodwill impairment test by comparing its fair value with its carrying amount, including goodwill.  If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill recorded.  A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers.

The fair value of CTBI is the price that would be received to sell the company as a whole in an orderly transaction between market participants at the measurement date.  The determination of the fair value is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium.  CTBI employs an income-based approach, utilizing forecasted cash flows and the estimated cost of equity as the discount rate.  Significant management judgment is necessary in the preparation of the forecasted cash flows surrounding expectations for earnings projections, growth and credit loss expectations, and actual results may differ from forecasted results.

Income Taxes – Income tax liabilities or assets are established for the amount of taxes payable or refundable for the current year.  Deferred tax liabilities (“DTLs”) and deferred tax assets (“DTAs”) are also established for the future tax consequences of events that have been recognized in CTBI’s financial statements or tax returns.  A DTL or DTA is recognized for the estimated future tax effects attributable to temporary differences and deductions that can be carried forward (used) in future years.  The valuation of current and deferred income tax liabilities and assets is considered critical, as it requires management to make estimates based on provisions of the enacted tax laws.  The assessment of tax liabilities and assets involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and federal and state tax codes.

Fair Value Measurements – As a financial services company, the carrying value of certain financial assets and liabilities is impacted by the application of fair value measurements, either directly or indirectly.  In certain cases, an asset or liability is measured and reported at fair value on a recurring basis, such as available-for-sale investment securities.  In other cases, management must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment write-down or whether a valuation reserve should be established.  Given the inherent volatility, the use of fair value measurements may have a significant impact on the carrying value of assets or liabilities or result in material changes to the consolidated financial statements from period to period.  Detailed information regarding fair value measurements can be found in Note 7 to the condensed consolidated financial statements contained herein.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits.  CTBI uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates.  Given a 200 basis point increase to the yield curve used in the simulation model, it is estimated net interest income for CTBI would increase by 3.98% over one year and 9.60% over two years.  A 200 basis point decrease in the yield curve would decrease net interest income by an estimated 2.74% over one year and 3.13% over two years.  For further discussion of CTBI’s market risk, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Market Risk included in the annual report on Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

CTBI’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  As of the end of the period covered by this report, an evaluation was carried out by CTBI’s management, with the participation of our Vice Chairman, President, and Chief Executive Officer and the Executive Vice President, Chief Financial Officer, and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, management concluded that disclosure controls and procedures as of September 30, 2023 were effective in ensuring material information required to be disclosed in this quarterly report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in CTBI’s internal control over financial reporting that occurred during the nine months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, CTBI’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.
Legal Proceedings
 
None
    
Item 1A.
Risk Factors
 
None
    
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
None
    
Item 3.
Defaults Upon Senior Securities
 
None
    
Item 4.
Mine Safety Disclosure
 
Not applicable
    
Item 5.
Other Information:
  
    
 
(a)
Information required to be disclosed in a report on Form 8-K None
 
 
  
 
(b)
Changes to director nomination procedures None
 
 
  
 
(c)
Insider trading arrangements  
    
 

 
During the three months ended September 30, 2023, no director or officer of CTBI adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
  
    
Item 6.
Exhibits:
  
 
(1)
Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
Exhibit 31.1
Exhibit 31.2
 
(2)
Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 
Exhibit 32.1
Exhibit 32.2
 
(3)
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 
Exhibit 101.INS
 
(4)
XBRL Taxonomy Extension Schema Document 
Exhibit 101.SCH
 
(5)
XBRL Taxonomy Extension Calculation Linkbase 
Exhibit 101.CAL
 
(6)
XBRL Taxonomy Extension Definition Linkbase 
Exhibit 101.DEF
 
(7)
XBRL Taxonomy Extension Label Linkbase 
Exhibit 101.LAB
 
(8)
XBRL Taxonomy Extension Presentation Linkbase 
Exhibit 101.PRE
 
(9)
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) 
Exhibit 104

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, CTBI has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
COMMUNITY TRUST BANCORP, INC.
  
Date:  November 8, 2023
By:
 
  
 
/s/ Mark A. Gooch
 
Mark A. Gooch
 
Vice Chairman, President, and Chief Executive Officer
  
 
/s/ Kevin J. Stumbo
 
Kevin J. Stumbo
 
Executive Vice President, Chief Financial Officer,
 
and Treasurer


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