COMMUNITY TRUST BANCORP INC /KY/ - Annual Report: 2016 (Form 10-K)

 

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-K

Commission file number 0-11129

COMMUNITY TRUST BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

(606) 432-1414

(Registrant’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:

 Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

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.

 

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

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

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

Based upon the closing price of the Common Shares of the Registrant on the NASDAQ-Stock Market LLC – Global Select Market, the aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2016 was $578.0 million.  For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates.  The number of shares outstanding of the Registrant’s Common Stock as of February 28, 2017 was 17,660,868.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2017.

 

 

 

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TABLE OF CONTENTS

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; 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

Item 1.  Business

Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company registered with the Board of Governors of the Federal Reserve System pursuant to Section 5(a) of the Bank Holding Company Act of 1956, as amended.  CTBI was incorporated August 12, 1980, under the laws of the Commonwealth of Kentucky for the purpose of becoming a bank holding company.  Currently, CTBI owns all the capital stock of one commercial bank and one trust company, serving small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.  The commercial bank is Community Trust Bank, Inc., Pikeville, Kentucky (“CTB”) and the trust company is Community Trust and Investment Company, Lexington, Kentucky.

At December 31, 2016, CTBI had total consolidated assets of $3.9 billion and total consolidated deposits, including repurchase agreements, of $3.3 billion.  Total shareholders’ equity at December 31, 2016 was $500.6 million.  Trust assets under management at December 31, 2016 were $2.1 billion, including CTB’s investment portfolio totaling $0.6 billion.

Through its 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.  Lease-financing, 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.

 

COMPETITION

CTBI’s subsidiaries face substantial competition for deposit, credit, trust, wealth management, and brokerage relationships in the communities we serve.  Competing providers include state banks, national banks, thrifts, trust companies, insurance companies, mortgage banking operations, credit unions, finance companies, brokerage companies, and other financial and non-financial companies which may offer products functionally equivalent to those offered by our subsidiaries.  As financial services become increasingly dependent on technology, permitting transactions to be conducted by telephone, mobile banking, and the internet, non-bank institutions are able to attract funds and provide lending and other financial services without offices located in our market areas.  Many of our nonbank competitors have fewer regulatory constraints, broader geographic service areas, greater capital and, in some cases, lower cost structures.  In addition, competition for quality customers has intensified as a result of changes in regulation, consolidation among financial service providers, and advances in technology and product delivery systems.  Many of these providers offer services within and outside the market areas served by our subsidiaries.  We strive to offer competitively priced products along with quality customer service to build customer relationships in the communities we serve.

The United States and global markets, as well as general economic conditions, have been volatile.  Some financial institutions have failed and others have been forced to seek acquisition partners.  Larger financial institutions could strengthen their competitive position as a result of ongoing consolidation within the financial services industry.

Banking legislation in Kentucky places no limits on the number of banks or bank holding companies that a bank holding company may acquire.  Interstate acquisitions are allowed where reciprocity exists between the laws of Kentucky and the home state of the bank or bank holding company to be acquired.  Bank holding companies continue to be limited to control of less than 15% of deposits held by banks in the states where they do business (exclusive of inter-bank and foreign deposits).  Competition for deposits may be increasing as a consequence of FDIC assessments shifting from deposits to an asset based formula, as larger banks may move away from non-deposit funding sources.

No material portion of our business is seasonal.  We are not dependent upon any one customer or a few customers, and the loss of any one or a few customers would not have a material adverse effect on us.  See note 19 to the consolidated financial statements for additional information regarding concentrations of credit.

We do not engage in any operations in foreign countries.

EMPLOYEES

As of December 31, 2016, CTBI and subsidiaries had 996 full-time equivalent employees.  Our employees are provided with a variety of employee benefits.  A retirement plan, an employee stock ownership plan, group life insurance, major medical insurance, a cafeteria plan, and management and employee incentive compensation plans are available to all eligible personnel.

SUPERVISION AND REGULATION

General

We, as a registered bank holding company, are restricted to those activities permissible under the Bank Holding Company Act of 1956, as amended, and are subject to actions of the Board of Governors of the Federal Reserve System thereunder.  We are required to file an annual report with the Federal Reserve Board and are subject to an annual examination by the Board.

Community Trust Bank, Inc. is a state-chartered bank subject to state and federal banking laws and regulations and periodic examination by the Kentucky Department of Financial Institutions and the restrictions, including dividend restrictions, thereunder.  CTB is also a member of the Federal Reserve System and is subject to certain restrictions imposed by and to examination and supervision under the Federal Reserve Act.  Community Trust and Investment Company is also regulated by the Kentucky Department of Financial Institutions and the Federal Reserve.

Deposits of CTB are insured up to applicable limits by the Federal Deposit Insurance Corporation (FDIC), which subjects banks to regulation and examination under the provisions of the Federal Deposit Insurance Act.

The operations of CTBI and our subsidiaries are also affected by other banking legislation and policies and practices of various regulatory authorities.  Such legislation and policies include statutory maximum rates on some loans, reserve requirements, domestic monetary and fiscal policy, and limitations on the kinds of services that may be offered.

CTBI’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our website at www.ctbi.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission.  CTBI’s Code of Business Conduct and Ethics and other corporate governance documents are also available on our website.  Copies of our annual report will be made available free of charge upon written request to:

Community Trust Bancorp, Inc.

Jean R. Hale

Chairman, President and CEO

P.O. Box 2947

Pikeville, KY  41502-2947

Basel III

On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to CTBI and CTB.  The FDIC subsequently approved these rules.  The final rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

The rules include new risk-based capital and leverage ratios, which are being phased in from 2015 to 2019, and refine the definition of what constitutes “capital” for purposes of calculating those ratios.  The new minimum capital level requirements applicable to CTBI and CTB under the final rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions.  The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital.  The capital conservation buffer began to be phased in on January 1, 2016 at 0.625% of risk-weighted assets and will increase by 0.625% annually until fully implemented in January 2019.  An institution is subject to limitations on certain activities including payment of dividends, share repurchases, and discretionary bonuses to executive officers if its capital level is below the capital conservation buffer amount.

The final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time.  However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes CTBI) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness.  These revisions took effect January 1, 2015.  Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

The final rules set forth certain changes for the calculation of risk-weighted assets, which we were required to utilize beginning January 1, 2015.  The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.  We currently satisfy the well-capitalized and capital conservation buffer standards, and based on our current capital composition and levels, we anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well-capitalized minimum capital requirements and the capital conservation buffer standards.

Item 1A. Risk Factors

An investment in our common stock is subject to risks inherent to our business.  The material risks and uncertainties that management believes affect us are described below.  Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein.  The risks and uncertainties described below are not the only ones facing us.  Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations.  This report is qualified in its entirety by these risk factors.  See also, “Cautionary Statement Regarding Forward-Looking Statements.”  If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected.  If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

Economic Risk

CTBI may continue to be adversely affected by economic and market conditions.

Beginning in 2008, the U.S. economy faced a severe economic crisis including a major recession from which it is recovering.  Commerce and business growth in certain regions in the U.S. remains reduced and local governments and many businesses continue to experience financial difficulty.  In some areas of the U.S., including certain parts of our service area, unemployment levels remain elevated.  There can be no assurance that these conditions will continue to improve and these conditions could worsen.  In addition, the level of U.S. debt, the Federal Open Market Committee’s plan for economic stabilization, potential volatility in oil prices, potential U.S. tax law modifications, and the repeal of the Patient Protection and Affordable Care Act and the implementation of replacement healthcare legislation may have a destabilizing effect on financial markets or a negative effect on the economy.

Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the markets where we operate, in the states of Kentucky, West Virginia, and Tennessee and in the United States as a whole.  While unemployment rates have improved in many areas of the United States, unemployment rates remain elevated in certain markets in which we operate.  A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.  Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters; or a combination of these or other factors.

Overall, during recent years, the business environment has been adverse for many households and businesses in the United States and worldwide.  While economic conditions in the United States and worldwide have improved since the recession, there can be no assurance that this improvement will continue or that another recession will not occur.  Economic pressure on consumers and uncertainty regarding continuing economic improvement may result in changes in consumer and business spending, borrowing, and savings habits.  Such conditions could adversely affect the credit quality of our loans and our business, financial condition, and results of operations.

Economy of Our Markets

Our business may continue to be adversely affected by ongoing weaknesses in the local economies on which we depend.

Our loan portfolio is concentrated primarily in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.  Our profits depend on providing products and services to clients in these local regions.  While unemployment rates have improved in many areas of the United States, unemployment rates remain elevated in certain markets in which we operate.  Increases in unemployment, decreases in real estate values, or increases in interest rates could weaken the local economies in which we operate.  These economic indicators typically affect certain industries, such as real estate and financial services, more significantly.  High levels of unemployment and depressed real estate asset values in certain of the markets we serve would likely prolong the economic recovery period in our market area.  Also, our growth within certain of our markets may be adversely affected by the lack of population growth in such markets in recent years.  Weakness in our market area could depress our earnings and consequently our financial condition because:

·	Clients may not want, need, or qualify for our products and services;

·	Borrowers may not be able to repay their loans;

·	The value of the collateral securing our loans to borrowers may decline; and

·	The quality of our loan portfolio may decline.

Mortgage Assistance Risk

As government funded mortgage assistance programs lapse, consumer real estate defaults may increase.

During the economic recession, various legislation was enacted designed to assist those hit hardest through economic subsidies.  These subsidies most often came in the form of mortgage payment assistance or mortgage note restructuring.  Examples of these programs include: Consumer Financial Protection Bureau Alternatives to Foreclosure In House Modification Program, Kentucky Housing Unemployed Bridge Loan Program, Tennessee Hardest Hit Fund, Home Affordable Modification Program Home Affordable Refinance Program, and Freddie Mac Alternatives to Foreclosure.  As these programs sunset or as the participants complete their eligibility in the program(s), we may experience significantly higher levels of past due mortgage loans and default rates.

Interest Rate Risk

Changes in interest rates could adversely affect our earnings and financial condition.

Our earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings.  The narrowing of interest-rate spreads, meaning the difference between the interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect our earnings and financial condition.  Interest rates are highly sensitive to many factors, including:

·	The rate of inflation;

·	The rate of economic growth;

·	Employment levels;

·	Monetary policies; and

·	Instability in domestic and foreign financial markets.

Changes in market interest rates will also affect the level of voluntary prepayments on our loans and the receipt of payments on our mortgage-backed securities resulting in the receipt of proceeds that may be reinvested at a lower rate than the loan or mortgage-backed security being prepaid.

We originate residential loans for sale and for our portfolio. The origination of loans for sale is designed to meet client financing needs and earn fee income. The origination of loans for sale is highly dependent upon the local real estate market and the level and trend of interest rates.  Increasing interest rates may reduce the origination of loans for sale and consequently the fee income we earn.  While our commercial banking, construction, and income property business lines remain a significant portion of our activities, high interest rates may reduce our mortgage-banking activities and thereby our income.  In contrast, decreasing interest rates have the effect of causing clients to refinance mortgage loans faster than anticipated.  This causes the value of assets related to the servicing rights on loans sold to be lower than originally anticipated.  If this happens, we may need to write down our servicing assets faster, which would accelerate our expense and lower our earnings.

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 financial 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.

Liquidity Risk

CTBI is subject to liquidity risk.

CTBI requires liquidity to meet its deposit and debt obligations as they come due and to fund loan demands.  CTBI’s access to funding sources in amounts adequate to finance its activities or on terms that are acceptable to it could be impaired by factors that affect it specifically or the financial services industry or economy in general.  Factors that could reduce its access to liquidity sources include a downturn in the market, difficult credit markets, or adverse regulatory actions against CTBI.  CTBI’s access to deposits may also be affected by the liquidity needs of its depositors.  In particular, a substantial majority of CTBI’s liabilities are demand, savings, interest checking, and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of its assets are loans, which cannot be called or sold in the same time frame.  To the extent that consumer confidence in other investment vehicles, such as the stock market, increases, customers may move funds from bank deposits and products into such other investment vehicles.  Although CTBI historically has been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future, especially if a large number of its depositors sought to withdraw their accounts, regardless of the reason.  A failure to maintain adequate liquidity could have a material adverse effect on our financial condition and results of operations.

Banking Reform

Our business may be adversely affected by “banking reform” legislation.

On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to CTBI and CTB.  The FDIC subsequently approved these rules.  The final rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

The rules include new risk-based capital and leverage ratios, which are being phased in from 2015 to 2019, and refine the definition of what constitutes “capital” for purposes of calculating those ratios.  The new minimum capital level requirements applicable to CTBI and CTB under the final rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions.  The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital.  The capital conservation buffer began to be phased in on January 1, 2016 at 0.625% of risk-weighted assets and will increase by 0.625% annually until fully implemented in January 2019.  An institution is subject to limitations on certain activities including payment of dividends, share repurchases, and discretionary bonuses to executive officers if its capital level is below the capital conservation buffer amount.

The final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time.  However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes CTBI) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness.  These revisions took effect January 1, 2015.  Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

The final rules set forth certain changes for the calculation of risk-weighted assets, which we were required to utilize beginning January 1, 2015.  The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.  We currently satisfy the well-capitalized and capital conservation buffer standards, and based on our current capital composition and levels, we anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well-capitalized minimum capital requirements and capital conservation buffer standards.

Government Policies and Oversight

Our business may be adversely affected by changes in government policies and oversight.

The earnings of banks and bank holding companies such as ours are affected by the policies of regulatory authorities, including the Federal Reserve Board, which regulates the money supply.  Among the methods employed by the Federal Reserve Board are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits.  These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid on deposits.  The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial and savings banks in the past and are expected to continue to do so in the future.

Many states and municipalities are experiencing financial stress.  As a result, various levels of government have sought to increase their tax revenues through increased tax levies, which could have an adverse impact on our results of operations.

In recent years, federal banking regulators have increased regulatory scrutiny, and additional limitations (including those contained in the Dodd-Frank Act) on financial institutions have been proposed or adopted by regulators and by Congress.  Moreover, banking regulatory agencies have increasingly over the last few years used authority under Section 5 of the Federal Trade Commission Act to take supervisory or enforcement action with respect to alleged unfair or deceptive acts or practices by banks to address practices that may not necessarily fall within the scope of a specific banking or consumer finance law.  The banking industry is highly regulated and changes in federal and state banking regulations as well as policies and administration guidelines may affect our practices, growth prospects, and earnings.  In particular, there is no assurance that governmental actions designed to stabilize the economy and banking system will not adversely affect the financial position or results of operations of CTBI.

From time to time, CTBI and/or its subsidiaries may be involved in information requests, reviews, investigations, and proceedings (both formal and informal) by various governmental agencies and law enforcement authorities regarding our respective businesses.  Any of these matters may result in material adverse consequences to CTBI and its subsidiaries, including adverse judgements, findings, limitations on merger and acquisition activity, settlements, fines, penalties, orders, injunctions, and other actions.  Such adverse consequences may be material to the financial position of CTBI or its results of operations.

In particular, consumer products and services are subject to increasing regulatory oversight and scrutiny with respect to compliance with consumer laws and regulations.  We may face a greater number or wider scope of investigations, enforcement actions, and litigation in the future related to consumer practices.  In addition, any required changes to our business operations resulting from these developments could result in a significant loss of revenue, require remuneration to customers, trigger fines or penalties, limit the products or services we offer, require us to increase certain prices and therefore reduce demand for our products, impose additional compliance costs on us, cause harm to our reputation, or otherwise adversely affect our consumer business.

On February 3, 2017, President Trump issued an executive order directing the Secretary of the Treasury to consult with the heads of members agencies of the Financial Stability Oversight Council and identify federal regulations that inhibit certain core principles, including making regulation efficient, effective and appropriately tailored.  While this process may lead to the revision or easing of some regulations applicable to us, there can be no assurance that the regulatory environment for financial institutions will become more favorable.

Credit Risk

Our earnings and reputation may be adversely affected if we fail to effectively manage our credit risk.

Originating and underwriting loans are integral to the success of our business.  This business requires us to take “credit risk,” which is the risk of losing principal and interest income because borrowers fail to repay loans.  Collateral values and the ability of borrowers to repay their loans may be affected at any time by factors such as:

·	The length and severity of downturns in the local economies in which we operate or the national economy;

·	The length and severity of downturns in one or more of the business sectors in which our customers operate, particularly the automobile, hotel/motel, coal, and residential development industries; or

·	A rapid increase in interest rates.

Our loan portfolio includes loans with a higher risk of loss.

We originate commercial real estate loans, construction and development loans, consumer loans, and residential mortgage loans, primarily within our market area.  Commercial real estate, commercial, and construction and development loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are most susceptible to a risk of loss during a downturn in the business cycle.  These loans also have historically had a greater credit risk than other loans for the following reasons:

·	Commercial Real Estate Loans.  Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.  As of December 31, 2016, commercial real estate loans, including multi-family loans, comprised approximately 37% of our total loan portfolio.

·

Other Commercial Loans.  Repayment is generally dependent upon the successful operation of the borrower’s business.  In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business.  As of December 31, 2016, other commercial loans comprised approximately 12% of our total loan portfolio.

·

Construction and Development Loans.  The risk of loss is largely dependent on our initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing.  During the construction phase, a number of factors can result in delays or cost overruns.  If our estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.  As of December 31, 2016, construction and development loans comprised approximately 4% of our total loan portfolio.

Consumer loans may carry a higher degree of repayment risk than residential mortgage loans, particularly when the consumer loan is unsecured.  Repayment of a consumer loan typically depends on the borrower’s financial stability, and it is more likely to be affected adversely by job loss, illness, or personal bankruptcy.  In addition, federal and state bankruptcy, insolvency, and other laws may limit the amount we can recover when a consumer client defaults.  As of December 31, 2016, consumer loans comprised approximately 20% of our total loan portfolio.

A significant part of our lending business is focused on small to medium-sized business which may be impacted more severely during periods of economic weakness.

A significant portion of our commercial loan portfolio is tied to small to medium-sized businesses in our markets.  During periods of economic weakness, small to medium-sized businesses may be impacted more severely than larger businesses.  As a result, the ability of smaller businesses to repay their loans may deteriorate, particularly if economic challenges persist over a period of time, and such deterioration would adversely impact our results of operations and financial condition.

A large percentage of our loan portfolio is secured by real estate, in particular commercial real estate.  Weakness in the real estate market or other segments of our loan portfolio would lead to additional losses, which could have a material adverse effect on our business, financial condition, and results of operations.

As of December 31, 2016, approximately 68% of our loan portfolio is secured by real estate, 39% of which is commercial real estate.  High levels of commercial and consumer delinquencies or declines in real estate market values could require increased net charge-offs and increases in the allowance for loan and lease losses, which could have a material adverse effect on our business, financial condition, and results of operations and prospects.

Our level of other real estate owned remains above our historical norm, primarily as a result of foreclosures.  To the extent that we continue to hold a higher level of other real estate owned, related real estate expense will likely remain high.

During the economic downturn which began in 2008, we experienced an increase in nonperforming real estate loans.  As a result, we have experienced, and we continue to experience, an increased level of foreclosed properties.  Foreclosed real estate expense consists of maintenance costs, taxes, valuation adjustments to appraisal values, and gains or losses on disposition.  The amount that we may realize after a default is dependent upon factors outside of our control, including but not limited to: (i) general and local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the properties; (vi) environmental remediation liabilities; (vii) ability to obtain and maintain occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations, and fiscal policies; (x) potential vandalism; and (xi) acts of God.  Expenditures associated with the ownership of real estate, such as real estate taxes, insurance, and maintenance costs, may adversely affect income from the real estate.  The cost of operating real property may exceed the income earned from the property, and we may need to advance funds in order to protect our investment in the property, or we may be required to dispose of the property at a loss.  If our levels of other real estate owned increase or are sustained and local real estate values decline, our foreclosed real estate expense will increase, which would adversely impact our results of operations.

As of December 31, 2016, forty-two percent (based on book value) of our foreclosed properties had been held by us for over five years.  Regulatory approval is required and has been obtained to hold these properties beyond the initial period of five years.  Additional approval may be required to continue to hold these properties in the event they are not liquidated during the extension period, which is typically one year.  While we have previously received regulatory approval to continue to hold foreclosed properties for over five years, to the extent such approval is not obtained in the future with respect to a foreclosed property, we might be forced to liquidate such property at a price less than its appraised value.

Environmental Liability Risk

We are subject to environmental liability risk associated with lending activity.

A significant portion of our loan portfolio is secured by real property.  During the ordinary course of business, we may foreclose on and take title to properties securing loans.  In doing so, there is a risk that hazardous or toxic substances could be found on these properties.  If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage.  Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.  Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards.  The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Competition

Strong competition within our market area may reduce our ability to attract and retain deposits and originate loans.

We face competition both in originating loans and in attracting deposits. Competition in the financial services industry is intense.  We compete for clients by offering excellent service and competitive rates on our loans and deposit products.  The type of institutions we compete with include commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms.  Competition arises from institutions located within and outside our market areas.  As financial services become increasingly dependent on technology, permitting transactions to be conducted by telephone, mobile banking, and the internet, non-bank institutions are able to attract funds and provide lending and other financial services without offices located in our market areas.  As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer.  With the increased consolidation in the financial industry, larger financial institutions may strengthen their competitive positions.  In addition, to stay competitive in our markets we may need to adjust the interest rates on our products to match the rates offered by our competitors, which could adversely affect our net interest margin.  As a result, our profitability depends upon our continued ability to successfully compete in our market areas while achieving our investment objectives.

Technology and other changes are allowing consumers to complete financial transactions through alternative methods to those which historically involved banks.  For example, consumers can now hold funds that would have been held as bank deposits in mutual funds, brokerage accounts, or general purpose reloadable prepaid cards.  In addition, consumers can complete transactions, such as paying bills or transferring funds, directly without utilizing the services of a bank.  The process of eliminating banks as intermediaries (known as disintermediation), could result in the loss of fee income, as well as the loss of deposits and the income that might be generated from those deposits.  The related revenue reduction could adversely affect our financial condition, cash flows, and results of operations.

Acquisition Risk

We may have difficulty in the future continuing to grow through acquisitions.

We may experience difficulty in making acquisitions on acceptable terms due to the decreasing number of suitable acquisition targets, competition for attractive acquisitions, regulatory impediments, and certain limitations on interstate acquisitions.

Any future acquisitions or mergers by CTBI or its banking subsidiary are subject to approval by the appropriate federal and state banking regulators.  The banking regulators evaluate a number of criteria in making their approval decisions, such as:

·	Safety and soundness guidelines;

·

Compliance with all laws including the USA Patriot Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act, the Sarbanes-Oxley Act and the related rules and regulations promulgated under such Act or the Exchange Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, and all other applicable fair lending and consumer protection laws and other laws relating to discriminatory business practices; and

·	Anti-competitive concerns with the proposed transaction.

If the banking regulators or a commenter on our regulatory application raise concerns about any of these criteria at the time a regulatory application is filed, the banking regulators may deny, delay, or condition their approval of a proposed transaction.  As more fully described under “Results of Operations and Financial Condition” in Item 7, the resolution of a Federal Reserve investigation in 2014 has resulted in impediments to CTBI’s merger and acquisition activity for an unspecified period of time.

We have grown, and, subject to regulatory approval, intend to continue to grow, through acquisitions of banks and other financial institutions.  After these acquisitions, we may experience adverse changes in results of operations of acquired entities, unforeseen liabilities, asset quality problems of acquired entities, loss of key personnel, loss of clients because of change of identity, difficulties in integrating data processing and operational procedures, and deterioration in local economic conditions.  These various acquisition risks can be heightened in larger transactions.

Integration Risk

We may not be able to achieve the expected integration and cost savings from our bank acquisition activities.

We have a long history of acquiring financial institutions and, subject to regulatory approval, we expect this acquisition activity to continue in the future.  Difficulties may arise in the integration of the business and operations of the financial institutions that agree to merge with and into CTBI and, as a result, we may not be able to achieve the cost savings and synergies that we expect will result from the merger activities.  Achieving cost savings is dependent on consolidating certain operational and functional areas, eliminating duplicative positions and terminating certain agreements for outside services.  Additional operational savings are dependent upon the integration of the banking businesses of the acquired financial institution with that of CTBI, including the conversion of the acquired entity’s core operating systems, data systems and products to those of CTBI and the standardization of business practices.  Complications or difficulties in the conversion of the core operating systems, data systems, and products of these other banks to those of CTBI may result in the loss of clients, damage to our reputation within the financial services industry, operational problems, one-time costs currently not anticipated by us, and/or reduced cost savings resulting from the merger activities.

Operational Risk

An extended disruption of vital infrastructure or a security breach could negatively impact our business, results of operations, and financial condition.

Our operations depend upon, among other things, our infrastructure, including equipment and facilities.  Extended disruption of vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking or viruses, terrorist activity or the domestic and foreign response to such activity, or other events outside of our control could have a material adverse impact on the financial services industry as a whole and on our business, results of operations, cash flows, and financial condition in particular.  Our business recovery plan may not work as intended or may not prevent significant interruption of our operations.  The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in the loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have an adverse effect on our financial condition and results of operation.

Third party vendors provide key components of our business infrastructure, such as processing, internet connections, and network access.  While CTBI has selected these third party vendors carefully through its vendor management process, it does not control their actions and generally is not able to obtain satisfactory indemnification provisions in its third party vendor written contracts.  Any problems caused by third parties or arising from their services, such as disruption in service, negligence in the performance of services or a breach of customer data security with regard to the third parties’ systems, could adversely affect our ability to deliver services, negatively impact our business reputation, cause a loss of customers, or result in increased expenses, regulatory fines and sanctions, or litigation.

Market Risk

Community Trust Bancorp, Inc.’s stock price is volatile.

Our stock price has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future.  These factors include:

·	Actual or anticipated variations in earnings;

·	Changes in analysts’ recommendations or projections;

·	CTBI’s announcements of developments related to our businesses;

·	Operating and stock performance of other companies deemed to be peers;

·	New technology used or services offered by traditional and non-traditional competitors;

·	News reports of trends, concerns, and other issues related to the financial services industry; and

·	Additional governmental policies and enforcement of current laws.

Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to CTBI’s performance.  Although investor confidence in financial institutions has strengthened, the financial crisis adversely impacted investor confidence in the financial institutions sector.  General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

Technology Risk

CTBI continually encounters technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.  The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.  Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.  Many of our competitors have substantially greater resources to invest in technological improvements.  We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.  Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

Cyber Risk

A breach in the security of our systems could disrupt our business, result in the disclosure of confidential information, damage our reputation, and create significant financial and legal exposure for us.

Our businesses are dependent on our ability and the ability of our third party service providers to process, record, and monitor a large number of transactions.  If the financial, accounting, data processing, or other operating systems and facilities fail to operate properly, become disabled, experience security breaches, or have other significant shortcomings, our results of operations could be materially adversely affected.

Although we and our third party service providers devote significant resources to maintain and upgrade our systems and processes that are designed to protect the security of computer systems, software, networks, and other technology assets and the confidentiality, integrity, and availability of information belonging to us and our customers, there is no assurance that our security systems and those of our third party service providers will provide absolute security.  Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks, and other means.  Despite our efforts and those of our third party service providers to ensure the integrity of these systems, it is possible that we or our third party service providers may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because techniques used change frequently or are not recognized until launched, and because security attacks can originate from a wide variety of sources.

A successful breach of the security of our systems or those of our third party service providers could cause serious negative consequences to us, including significant disruption of our operations, misappropriation of our confidential information or the confidential information of our customers, or damage to our computers or operating systems, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss in confidence in our security measures, customer dissatisfaction, litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us.  While we maintain insurance coverage that should, subject to policy terms and conditions, cover certain aspects of our cyber risks, this insurance coverage may be insufficient to cover all losses we could experience resulting from a cyber security breach.

We could incur increased costs or reductions in revenue or suffer reputational damage in the event of misuse of information.

Our operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks regarding our customers and their accounts.  To provide these products and services, we use information systems and infrastructure that we and third party service providers operate.  As a financial institution, we also are subject to and examined for compliance with an array of data protection laws, regulations, and guidance, as well as to our own internal privacy and information security policies and programs.

Information security risks for financial institutions like us have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, and other external parties.  Our technologies and systems may become the target of cyber-attacks or other attacks that could result in the misuse or destruction of our or our customers’ confidential, proprietary, or other information or that could result in disruptions to the business operations of us or our customers or other third parties.  Also, our customers, in order to access some of our products and services, may use personal computers, smart mobile phones, tablet PCs, and other devices that are beyond our controls and security systems.  Further, a breach or attack affecting one of our third-party service providers or partners could impact us through no fault of our own.  In addition, because the methods and techniques employed by perpetrators of fraud and others to attack systems and applications change frequently and often are not fully recognized or understood until after they have been launched, we and our third-party service providers and partners may be unable to anticipate certain attack methods in order to implement effective preventative measures.

While we have policies and procedures designed to prevent or limit the effect of the possible security breach of our information systems, if unauthorized persons were somehow to get access to confidential or proprietary information in our possession or to our proprietary information, it could result in significant legal and financial exposure, damage to our reputation, or a loss of confidence in the security of our systems that could materially adversely affect our business.

Counterparty Risk

The soundness of other financial institutions could adversely affect CTBI.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.  Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships.  We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional counterparties. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.  Many of these transactions expose us to credit risk in the event of default of our counterparty or client.  In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan due us.  There is no assurance that any such losses would not materially and adversely affect our businesses, financial condition, or results of operations.

Item 1B. Unresolved Staff Comments

None.

 

SELECTED STATISTICAL INFORMATION

The following tables set forth certain statistical information relating to CTBI and subsidiaries on a consolidated basis and should be read together with our consolidated financial statements.

		Total Change				Change Due to								Total Change				Change Due to
(in thousands)			2016/2015			Volume				Rate					2015/2014			Volume				Rate
Interest income:
Loans		$	3,151			$	5,760			$	(2,609	)		$	2,375			$	7,141			$	(4,766	)
Loans held for sale			6				(24	)			30				21				11				10
U.S. Treasury and agencies			(756	)			(10	)			(746	)			(1,877	)			(572	)			(1,305	)
Tax exempt state and political subdivisions			20				(93	)			113				199				244				(45	)
Other securities			(132	)			(176	)			44				(284	)			(220	)			(64	)
Federal Reserve Bank and Federal Home Loan Bank stock			1				0				1				(126	)			(57	)			(69	)
Federal funds sold			6				(1	)			7				(2	)			(2	)			0
Interest bearing deposits			319				52				267				(29	)			(32	)			3
Other investments			(39	)			(35	)			(4	)			(31	)			(29	)			(2	)
Investment in unconsolidated subsidiaries			8				0				8				1				0				1
Total interest income			2,584				5,473				(2,889	)			247				6,484				(6,237	)
Interest expense:
Savings and demand deposits			267				161				106				158				141				17
Time deposits			1,038				(84	)			1,122				(340	)			(438	)			98
Repurchase agreements and federal funds purchased			217				23				194				97				83				14
Advances from Federal Home Loan Bank			13				(4	)			17				22				42				(20	)
Long-term debt			247				0				247				39				0				39
Total interest expense			1,782				96				1,686				(24	)			(172	)			148
Net interest income		$	802			$	5,377			$	(4,575	)		$	271			$	6,656			$	(6,385	)

(dollars in thousands)														Change 2016 vs. 2015
Year Ended December 31		2016				2015				2014				Amount				Percent
Net interest income		$	133,021			$	132,247			$	132,070			$	774				0.6	%
Provision for loan losses			7,872				8,650				8,755				(778	)			(9.0	)
Noninterest income			48,441				46,809				45,081				1,632				3.5
Noninterest expense			107,126				105,443				105,999				1,683				1.6
Income taxes			19,118				18,531				19,146				587				3.2
Net income		$	47,346			$	46,432			$	43,251			$	914				2.0	%
Average earning assets		$	3,652,714			$	3,524,506			$	3,422,450			$	128,208				3.6	%
Yield on average earnings assets			4.07	%			4.14	%			4.26	%			(0.07	)%			(1.8	)%
Cost of interest bearing funds			0.52	%			0.46	%			0.46	%			0.06	%			12.5	%
Net interest margin			3.70	%			3.81	%			3.92	%			(0.11	)%			(2.9	)%

(in thousands)		December 31, 2016
Loan Category		Balance				Variance from Prior Year				Net Charge-Offs				Nonperforming				ALLL
Commercial:
Construction		$	66,998				(14.1	)%		$	280			$	1,940			$	884
Secured by real estate			1,085,428				3.1				1,463				9,341				14,191
Equipment lease financing			5,512				(35.3	)			0				0				42
Other commercial			350,159				(2.4	)			1,697				1,700				4,656
Total commercial			1,508,097				0.7				3,440				12,981				19,773
Residential:
Real estate construction			57,966				(6.1	)			185				163				629
Real estate mortgage			702,969				(0.7	)			942				12,555				6,027
Home equity			91,511				2.3				45				1,022				774
Total residential			852,446				(0.8	)			1,172				13,740				7,430
Consumer:
Consumer direct			133,093				5.3				621				68				1,885
Consumer indirect			444,735				14.0				2,800				681				6,845
Total consumer			577,828				11.9				3,421				749				8,730
Total loans		$	2,938,371				2.2	%		$	8,033			$	27,470			$	35,933

(in thousands)
Appraisal Aging Analysis					Holding Period Analysis
Days Since Last Appraisal		Current Book Value			Holding Period		Current Book Value
Up to 3 months		$	2,783		Less than one year		$	5,095
3 to 6 months			3,739		1 to 2 years			9,145
6 to 9 months			1,317		2 to 3 years			3,330
9 to 12 months			3,493		3 to 4 years			976
12 to 18 months			20,289		4 to 5 years			2,203
18 to 24 months			4,195		Over 5 years*			15,107
Over 24 months			40
Total		$	35,856		Total		$	35,856

Contractual Obligations:		Payments Due by Period
(in thousands)		Total				1 Year				2-5 Years				After 5 Years
Deposits without stated maturity		$	1,868,265			$	1,868,265			$	0			$	0
Certificates of deposit and other time deposits			1,213,043				988,296				224,419				328
Repurchase agreements and federal funds purchased			255,881				255,881				0				0
Advances from Federal Home Loan Bank			944				106				464				374
Interest on advances from Federal Home Loan Bank*			21				12				9				0
Long-term debt			61,341				0				0				61,341
Interest on long-term debt*			57,842				1,842				10,280				45,720
Annual rental commitments under leases			8,878				2,010				3,779				3,089
Total contractual obligations		$	3,466,215			$	3,116,412			$	238,951			$	110,852

Other Commitments:		Amount of Commitment - Expiration by Period
(in thousands)		Total				1 Year				2-5 Years				After 5 Years
Standby letters of credit		$	29,917			$	19,829			$	10,088			$	0
Commitments to extend credit			570,467				436,984				121,080				12,403
Total other commitments		$	600,384			$	456,813			$	131,168			$	12,403

Change in Interest Rates (basis points)	Percentage Change in Net Interest Income (12 Months)
+400	7.05%
+300	5.10%
+200	3.15%
+100	1.30%
-25	(0.21)%

Change in Interest Rates (basis points)	Percentage Change in Net Interest Income (12 Months)
+400	7.54%
+300	5.46%
+200	3.33%
+100	1.35%
-25	(0.30)%

(dollars in thousands)		1-3 Months				4-6 Months				7-9 Months				10-12 Months				2-3 Years				4-5 Years				> 5 Years
Assets		$	1,435,324			$	227,194			$	193,639			$	215,660			$	756,883			$	469,905			$	633,565
Liabilities and Equity			871,530				341,950				421,541				595,465				1,075,805				92,109				533,769
Repricing difference			563,794				(114,756	)			(227,902	)			(379,805	)			(318,921	)			377,795				99,795
Cumulative GAP			563,794				449,038				221,136				(158,669	)			(477,590	)			(99,795	)			0
RSA/RSL			1.65	x			0.66	x			0.46	x			0.36	x			0.70	x			5.10	x			1.19	x
Cumulative GAP to total assets			14.34	%			11.42	%			5.62	%			(4.04	)%			(12.15	)%			(2.54	)%			0.00	%

	Board Authorizations	Repurchases*		Shares Available for Repurchase
		Average Price ($)	# of Shares
1998	500,000	-	0
1999	0	14.45	144,669
2000	1,000,000	10.25	763,470
2001	0	13.35	489,440
2002	0	17.71	396,316
2003	1,000,000	19.62	259,235
2004	0	23.14	60,500
2005	0	-	0
2006	0	-	0
2007	0	28.56	216,150
2008	0	25.53	102,850
2009	0	-	0
2010	0	-	0
2011	0	-	0
2012	0	-	0
2013	0	-	0
2014	0	-	0
2015	0	-	0
2016	0	-	0
Total	2,500,000	15.93	2,432,629	67,371

(dollars in thousands) December 31		2016				2015
Assets:
Cash and due from banks		$	48,603			$	51,974
Interest bearing deposits			95,586				134,846
Federal funds sold			527				791
Cash and cash equivalents			144,716				187,611
Certificates of deposit in other banks			980				3,832
Securities available-for-sale at fair value (amortized cost of $608,939 and $593,381, respectively)			605,394				594,936
Securities held-to-maturity at amortized cost (fair value of $867 and $1,651, respectively)			866				1,661
Loans held for sale			1,244				1,172
Loans			2,938,371				2,873,961
Allowance for loan and lease losses			(35,933	)			(36,094	)
Net loans			2,902,438				2,837,867
Premises and equipment, net			47,940				48,188
Federal Home Loan Bank stock			17,927				17,927
Federal Reserve Bank stock			4,887				4,887
Goodwill			65,490				65,490
Core deposit intangible (net of accumulated amortization of $8,483 and $8,324, respectively)			133				291
Bank owned life insurance			63,881				62,335
Mortgage servicing rights			3,433				3,236
Other real estate owned			35,856				40,674
Other assets			36,984				33,827
Total assets		$	3,932,169			$	3,903,934
Liabilities and shareholders’ equity:
Deposits:
Noninterest bearing		$	767,918			$	749,975
Interest bearing			2,313,390				2,230,807
Total deposits			3,081,308				2,980,782
Repurchase agreements			251,065				251,225
Federal funds purchased			4,816				3,596
Advances from Federal Home Loan Bank			944				101,056
Long-term debt			61,341				61,341
Deferred taxes			7,836				8,920
Other liabilities			24,244				21,431
Total liabilities			3,431,554				3,428,351
Commitments and contingencies (notes 18 and 20)
Shareholders’ equity:
Preferred stock, 300,000 shares authorized and unissued			-				-
Common stock, $5 par value, shares authorized 25,000,000; shares outstanding 2016 – 17,628,695; 2015 – 17,536,914			88,144				87,685
Capital surplus			219,697				217,032
Retained earnings			195,078				169,855
Accumulated other comprehensive income (loss), net of tax			(2,304	)			1,011
Total shareholders’ equity			500,615				475,583
Total liabilities and shareholders’ equity		$	3,932,169			$	3,903,934

(in thousands except per share data) Year Ended December 31		2016				2015				2014
Interest income:
Interest and fees on loans, including loans held for sale		$	133,965			$	130,829			$	128,457
Interest and dividends on securities:
Taxable			8,265				9,153				11,314
Tax exempt			2,718				2,705				2,576
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock			1,011				1,010				1,136
Other, including interest on federal funds sold			617				323				384
Total interest income			146,576				144,020				143,867
Interest expense:
Interest on deposits			10,921				9,616				9,798
Interest on repurchase agreements			1,155				938				841
Interest on advances from Federal Home Loan Bank			62				49				27
Interest on long-term debt			1,417				1,170				1,131
Total interest expense			13,555				11,773				11,797
Net interest income			133,021				132,247				132,070
Provision for loan losses			7,872				8,650				8,755
Net interest income after provision for loan losses			125,149				123,597				123,315
Noninterest income:
Service charges on deposit accounts			24,966				24,282				23,892
Gains on sales of loans, net			1,831				1,978				1,468
Trust and wealth management income			9,585				9,286				9,011
Loan related fees			4,107				3,821				3,531
Bank owned life insurance			2,199				2,158				1,996
Brokerage revenue			1,314				1,426				2,454
Securities gains (losses)			522				(106	)			(211	)
Other noninterest income			3,917				3,964				2,940
Total noninterest income			48,441				46,809				45,081
Noninterest expense:
Officer salaries and employee benefits			12,198				11,652				11,076
Other salaries and employee benefits			44,877				42,911				43,417
Occupancy, net			7,999				7,826				8,017
Equipment			2,950				3,049				3,414
Data processing			6,497				6,743				7,877
Bank franchise tax			5,671				5,174				4,857
Legal fees			1,906				2,236				2,444
Professional fees			1,890				1,884				1,832
Advertising and marketing			2,614				2,428				2,421
FDIC insurance			1,789				2,382				2,400
Other real estate owned provision and expense			2,879				3,533				3,897
Repossession expense			1,156				1,265				1,508
Amortization of limited partnership investments			2,623				2,580				859
Other noninterest expense			12,077				11,780				11,980
Total noninterest expense			107,126				105,443				105,999
Income before income taxes			66,464				64,963				62,397
Income taxes			19,118				18,531				19,146
Net income		$	47,346			$	46,432			$	43,251
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period			(4,578	)			(342	)			13,928
Less: Reclassification adjustments for realized gains (losses) included in net income			522				(106	)			(211	)
Tax expense (benefit)			(1,785	)			(83	)			4,949
Other comprehensive income (loss), net of tax			(3,315	)			(153	)			9,190
Comprehensive income		$	44,031			$	46,279			$	52,441
Basic earnings per share		$	2.70			$	2.66			$	2.50
Diluted earnings per share		$	2.70			$	2.66			$	2.49
Weighted average shares outstanding-basic			17,548				17,431				17,326
Weighted average shares outstanding-diluted			17,566				17,483				17,397
Dividends declared per share		$	1.260			$	1.220			$	1.181

(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, January 1, 2014			17,403,441			$	79,107			$	167,122			$	174,289			$	(8,026	)		$	412,492
Net income															43,251								43,251
Other comprehensive income, net of tax of $4,949																			9,190				9,190
Cash dividends declared ($1.181 per share)															(20,539	)							(20,539	)
Issuance of 10% stock dividend							7,910				44,394				(52,304	)							0
Issuance of common stock			69,138				346				1,646												1,992
Vesting of restricted stock			(8,945	)			(45	)			45												0
Issuance of restricted stock			4,576				23				(23	)											0
Forfeiture of restricted stock			(1,835	)			(9	)			9												0
Stock-based compensation and related excess tax benefits											1,491												1,491
Balance, December 31, 2014			17,466,375				87,332				214,684				144,697				1,164				447,877
Net income															46,432								46,432
Other comprehensive loss, net of tax of $(83)																			(153	)			(153	)
Cash dividends declared ($1.22 per share)															(21,274	)							(21,274	)
Issuance of common stock			112,837				564				1,518												2,082
Repurchase of common stock			(5,724	)			(29	)			(160	)											(189	)
Vesting of restricted stock			(46,482	)			(232	)			232												0
Issuance of restricted stock			10,582				53				(53	)											0
Forfeiture of restricted stock			(674	)			(3	)			3												0
Stock-based compensation and related excess tax benefits											808												808
Balance, December 31, 2015			17,536,914				87,685				217,032				169,855				1,011				475,583
Net income															47,346								47,346
Other comprehensive loss, net of tax of $(1,785)																			(3,315	)			(3,315	)
Cash dividends declared ($1.26 per share)															(22,123	)							(22,123	)
Issuance of common stock			138,605				693				2,292												2,985
Repurchase of common stock			(11,574	)			(57	)			(325	)											(382	)
Vesting of restricted stock			(52,963	)			(265	)			265												0
Issuance of restricted stock			18,069				90				(90	)											0
Forfeiture of restricted stock			(356	)			(2	)			2												0
Stock-based compensation and related excess tax benefits											521												521
Balance, December 31, 2016			17,628,695			$	88,144			$	219,697			$	195,078			$	(2,304	)		$	500,615

(in thousands) Year Ended December 31		2016				2015				2014
Cash flows from operating activities:
Net income		$	47,346			$	46,432			$	43,251
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,904				3,932				4,314
Deferred taxes			701				115				(1,048	)
Stock-based compensation			458				783				852
Excess tax benefits of stock-based compensation			100				104				760
Provision for loan losses			7,872				8,650				8,755
Write-downs of other real estate owned and other repossessed assets			1,214				1,656				1,730
Gains on sale of mortgage loans held for sale			(1,831	)			(1,978	)			(1,468	)
Securities (gains) losses			(522	)			106				211
Gains on sale of assets, net			46				(321	)			(73	)
Proceeds from sale of mortgage loans held for sale			81,441				80,571				51,181
Funding of mortgage loans held for sale			(79,682	)			(77,501	)			(51,149	)
Amortization of securities premiums and discounts, net			2,452				3,098				2,661
Change in cash surrender value of bank owned life insurance			(1,546	)			(1,638	)			(1,506	)
Mortgage servicing rights:
Fair value adjustments			324				289				830
New servicing assets created			(521	)			(557	)			(374	)
Changes in:
Other assets			(3,205	)			(6,274	)			(60	)
Other liabilities			2,874				(2,488	)			(1,339	)
Net cash provided by operating activities			61,425				54,979				57,528
Cash flows from investing activities:
Certificates of deposit in other banks:
Purchase of certificates of deposit			0				0				(245	)
Maturity of certificates of deposit			2,852				4,365				1,616
Securities available-for-sale (AFS):
Purchase of AFS securities			(176,236	)			(81,456	)			(217,949	)
Proceeds from sales of AFS securities			54,446				44,198				135,411
Proceeds from prepayments, calls, and maturities of AFS securities			104,302				79,068				63,023
Securities held-to-maturity (HTM):
Proceeds from prepayments and maturities of HTM securities			795				1				0
Change in loans, net			(74,379	)			(161,702	)			(132,906	)
Purchase of premises and equipment			(3,498	)			(2,246	)			(2,081	)
Proceeds from sale of premises and equipment			10				239				82
Redemption of stock by FHLB			0				0				7,746
Additional investment in Federal Reserve Bank stock			0				(18	)			(1	)
Cancellation of Federal Reserve Bank stock			0				0				18
Proceeds from sale of other real estate owned and repossessed assets			5,601				9,287				6,714
Additional investment in other real estate owned and repossessed assets			0				(85	)			0
Additional investment in bank owned life insurance			0				0				(5,504	)
Net cash used in investing activities			(86,107	)			(108,349	)			(144,076	)
Cash flows from financing activities:
Change in deposits, net			100,526				106,525				19,183
Change in repurchase agreements and federal funds purchased, net			1,060				8,594				25,695
Advances from Federal Home Loan Bank			50,000				170,000				60,000
Payments on advances from Federal Home Loan Bank			(150,112	)			(130,114	)			(116	)
Issuance of common stock			2,985				2,082				1,992
Repurchase of common stock			(382	)			(189	)			0
Excess tax benefits of stock-based compensation			(100	)			(104	)			(760	)
Dividends paid			(22,190	)			(21,330	)			(20,570	)
Net cash provided by (used in) financing activities			(18,213	)			135,464				85,424
Net increase (decrease) in cash and cash equivalents			(42,895	)			82,094				(1,124	)
Cash and cash equivalents at beginning of year			187,611				105,517				106,641
Cash and cash equivalents at end of year		$	144,716			$	187,611			$	105,517
Supplemental disclosures:
Income taxes paid		$	19,244			$	20,527			$	15,818
Interest paid			13,426				11,609				11,922
Non-cash activities:
Loans to facilitate the sale of other real estate owned and repossessed assets			3,964				4,343				6,168
Common stock dividends accrued, paid in subsequent quarter			209				239				216
Real estate acquired in settlement of loans			5,900				18,557				12,199

(in thousands)		2016				2015				2014
Beginning balance, January 1		$	291			$	477			$	690
Amortization			(158	)			(186	)			(213	)
Ending balance, December 31		$	133			$	291			$	477

(in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. Treasury and government agencies		$	223,014			$	193			$	(743	)		$	222,464
State and political subdivisions			133,351				1,957				(1,792	)			133,516
U.S. government sponsored agency mortgage-backed securities			227,574				1,008				(3,526	)			225,056
Total debt securities			583,939				3,158				(6,061	)			581,036
CRA investment funds			25,000				76				(718	)			24,358
Total available-for-sale securities		$	608,939			$	3,234			$	(6,779	)		$	605,394

(in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. Treasury and government agencies		$	0			$	0			$	0			$	0
State and political subdivisions			866				1				0				867
Total held-to-maturity securities		$	866			$	1			$	0			$	867

(in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. Treasury and government agencies		$	240,434			$	311			$	(1,351	)		$	239,394
State and political subdivisions			125,665				3,707				(157	)			129,215
U.S. government sponsored agency mortgage-backed securities			202,282				1,564				(2,270	)			201,576
Total debt securities			568,381				5,582				(3,778	)			570,185
CRA investment funds			25,000				132				(381	)			24,751
Total available-for-sale securities		$	593,381			$	5,714			$	(4,159	)		$	594,936

(in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. Treasury and government agencies		$	480			$	0			$	(12	)		$	468
State and political subdivisions			1,181				2				0				1,183
Total held-to-maturity securities		$	1,661			$	2			$	(12	)		$	1,651

		Available-for-Sale								Held-to-Maturity
(in thousands)		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Due in one year or less		$	104,396			$	104,383			$	0			$	0
Due after one through five years			101,799				102,135				866				867
Due after five through ten years			60,047				60,358				0				0
Due after ten years			90,123				89,104				0				0
U.S. government sponsored agency mortgage-backed securities			227,574				225,056				0				0
Total debt securities			583,939				581,036				866				867
CRA investment funds			25,000				24,358				0				0
Total securities		$	608,939			$	605,394			$	866			$	867

(in thousands)		Amortized Cost				Gross Unrealized Losses				Fair Value
Less Than 12 Months
U.S. Treasury and government agencies		$	158,732			$	(716	)		$	158,016
State and political subdivisions			53,491				(1,780	)			51,711
U.S. government sponsored agency mortgage-backed securities			135,939				(2,646	)			133,293
Total debt securities			348,162				(5,142	)			343,020
CRA investment funds			17,500				(444	)			17,056
Total <12 months temporarily impaired AFS securities			365,662				(5,586	)			360,076
12 Months or More
U.S. Treasury and government agencies			1,880				(27	)			1,853
State and political subdivisions			751				(12	)			739
U.S. government sponsored agency mortgage-backed securities			31,132				(880	)			30,252
Total debt securities			33,763				(919	)			32,844
CRA investment funds			5,000				(274	)			4,726
Total ≥12 months temporarily impaired AFS securities			38,763				(1,193	)			37,570
Total
U.S. Treasury and government agencies			160,612				(743	)			159,869
State and political subdivisions			54,242				(1,792	)			52,450
U.S. government sponsored agency mortgage-backed securities			167,071				(3,526	)			163,545
Total debt securities			381,925				(6,061	)			375,864
CRA investment funds			22,500				(718	)			21,782
Total temporarily impaired AFS securities		$	404,425			$	(6,779	)		$	397,646

(in thousands)		Amortized Cost				Gross Unrealized Losses				Fair Value
12 Months or More
U.S. Treasury and government agencies		$	0			$	0			$	0
Total temporarily impaired HTM securities		$	0			$	0			$	0

(in thousands)		Amortized Cost				Gross Unrealized Losses				Fair Value
Less Than 12 Months
U.S. Treasury and government agencies		$	142,147			$	(487	)		$	141,660
State and political subdivisions			11,190				(106	)			11,084
U.S. government sponsored agency mortgage-backed securities			92,009				(899	)			91,110
Total debt securities			245,346				(1,492	)			243,854
CRA investment funds			10,000				(183	)			9,817
Total <12 months temporarily impaired AFS securities			255,346				(1,675	)			253,671
12 Months or More
U.S. Treasury and government agencies			54,773				(864	)			53,909
State and political subdivisions			3,187				(51	)			3,136
U.S. government sponsored agency mortgage-backed securities			49,908				(1,371	)			48,537
Total debt securities			107,868				(2,286	)			105,582
CRA investment funds			5,000				(198	)			4,802
Total ≥12 months temporarily impaired AFS securities			112,868				(2,484	)			110,384
Total
U.S. Treasury and government agencies			196,920				(1,351	)			195,569
State and political subdivisions			14,377				(157	)			14,220
U.S. government sponsored agency mortgage-backed securities			141,917				(2,270	)			139,647
Total debt securities			353,214				(3,778	)			349,436
CRA investment funds			15,000				(381	)			14,619
Total temporarily impaired AFS securities		$	368,214			$	(4,159	)		$	364,055

(in thousands)		Amortized Cost				Gross Unrealized Losses				Fair Value
12 Months or More
U.S. Treasury and government agencies		$	480			$	(12	)		$	468
Total temporarily impaired HTM securities		$	480			$	(12	)		$	468

(in thousands)		December 31 2016				December 31 2015
Commercial construction		$	66,998			$	78,020
Commercial secured by real estate			1,085,428				1,052,919
Equipment lease financing			5,512				8,514
Commercial other			350,159				358,898
Real estate construction			57,966				61,750
Real estate mortgage			702,969				707,874
Home equity			91,511				89,450
Consumer direct			133,093				126,406
Consumer indirect			444,735				390,130
Total loans		$	2,938,371			$	2,873,961

(in thousands)		December 31 2016				December 31 2015
Commercial:
Commercial construction		$	1,912			$	3,402
Commercial secured by real estate			6,326				5,928
Commercial other			1,559				1,485
Residential:
Real estate construction			11				249
Real estate mortgage			6,260				5,206
Home equity			555				183
Consumer:
Consumer direct			0				110
Total nonaccrual loans		$	16,623			$	16,563

		December 31, 2016
(in thousands)		30-59 Days Past Due				60-89 Days Past Due				90+ Days Past Due				Total Past Due				Current				Total Loans				90+ and Accruing*
Commercial:
Commercial construction		$	22			$	0			$	1,940			$	1,962			$	65,036			$	66,998			$	28
Commercial secured by real estate			2,033				478				8,847				11,358				1,074,070				1,085,428				3,015
Equipment lease financing			0				0				0				0				5,512				5,512				0
Commercial other			997				122				1,235				2,354				347,805				350,159				141
Residential:
Real estate construction			707				42				152				901				57,065				57,966				152
Real estate mortgage			1,493				5,278				10,695				17,466				685,503				702,969				6,295
Home equity			829				288				905				2,022				89,489				91,511				467
Consumer:
Consumer direct			873				265				68				1,206				131,887				133,093				68
Consumer indirect			3,288				851				681				4,820				439,915				444,735				681
Total		$	10,242			$	7,324			$	24,523			$	42,089			$	2,896,282			$	2,938,371			$	10,847

		December 31, 2015
(in thousands)		30-59 Days Past Due				60-89 Days Past Due				90+ Days Past Due				Total Past Due				Current				Total Loans				90+ and Accruing*
Commercial:
Commercial construction		$	36			$	6			$	3,431			$	3,473			$	74,547			$	78,020			$	30
Commercial secured by real estate			2,947				622				7,923				11,492				1,041,427				1,052,919				3,757
Equipment lease financing			199				0				0				199				8,315				8,514				0
Commercial other			762				121				1,476				2,359				356,539				358,898				310
Residential:
Real estate construction			443				62				291				796				60,954				61,750				55
Real estate mortgage			1,128				3,888				10,907				15,923				691,951				707,874				6,925
Home equity			527				148				580				1,255				88,195				89,450				448
Consumer:
Consumer direct			835				479				126				1,440				124,966				126,406				126
Consumer indirect			2,133				814				395				3,342				386,788				390,130				395
Total		$	9,010			$	6,140			$	25,129			$	40,279			$	2,833,682			$	2,873,961			$	12,046

(in thousands)		Commercial Construction				Commercial Secured by Real Estate				Equipment Leases				Commercial Other				Total
December 31, 2016
Pass		$	55,315			$	975,383			$	5,206			$	299,301			$	1,335,205
Watch			3,366				51,932				137				32,780				88,215
OAEM			2,535				25,772				169				7,913				36,389
Substandard			5,592				31,945				0				9,599				47,136
Doubtful			190				396				0				566				1,152
Total		$	66,998			$	1,085,428			$	5,512			$	350,159			$	1,508,097
December 31, 2015
Pass		$	62,978			$	937,196			$	8,514			$	312,100			$	1,320,788
Watch			4,931				71,830				0				37,670				114,431
OAEM			2,206				13,765				0				963				16,934
Substandard			6,780				29,232				0				7,072				43,084
Doubtful			1,125				896				0				1,093				3,114
Total		$	78,020			$	1,052,919			$	8,514			$	358,898			$	1,498,351

(in thousands)		Real Estate Construction				Real Estate Mortgage				Home Equity				Consumer Direct				Consumer Indirect				Total
December 31, 2016
Performing		$	57,803			$	690,414			$	90,489			$	133,025			$	444,054			$	1,415,785
Nonperforming (1)			163				12,555				1,022				68				681				14,489
Total		$	57,966			$	702,969			$	91,511			$	133,093			$	444,735			$	1,430,274
December 31, 2015
Performing		$	61,446			$	695,743			$	88,819			$	126,170			$	389,735			$	1,361,913
Nonperforming (1)			304				12,131				631				236				395				13,697
Total		$	61,750			$	707,874			$	89,450			$	126,406			$	390,130			$	1,375,610

		December 31, 2016
(in thousands)		Recorded Balance				Unpaid Contractual Principal Balance				Specific Allowance				Average Investment in Impaired Loans				*Interest Income Recognized
Loans without a specific valuation allowance:
Commercial construction		$	4,102			$	4,123			$	0			$	4,367			$	218
Commercial secured by real estate			29,025				29,594				0				31,136				1,609
Commercial other			11,215				13,155				0				11,561				632
Real estate mortgage			1,483				1,483				0				1,691				52
Loans with a specific valuation allowance:
Commercial construction			1,507				1,509				213				2,290				0
Commercial secured by real estate			4,731				5,885				1,035				4,151				19
Commercial other			139				139				65				483				0
Totals:
Commercial construction			5,609				5,632				213				6,657				218
Commercial secured by real estate			33,756				35,479				1,035				35,287				1,628
Commercial other			11,354				13,294				65				12,044				632
Real estate mortgage			1,483				1,483				0				1,691				52
Total		$	52,202			$	55,888			$	1,313			$	55,679			$	2,530

		December 31, 2015
(in thousands)		Recorded Balance				Unpaid Contractual Principal Balance				Specific Allowance				Average Investment in Impaired Loans				*Interest Income Recognized
Loans without a specific valuation allowance:
Commercial construction		$	2,861			$	2,862			$	0			$	4,574			$	200
Commercial secured by real estate			30,761				32,166				0				30,605				1,378
Commercial other			7,500				9,148				0				8,802				316
Real estate mortgage			1,744				1,744				0				1,179				50
Loans with a specific valuation allowance:
Commercial construction			3,402				3,402				831				3,631				0
Commercial secured by real estate			2,660				2,768				1,227				2,349				7
Commercial other			960				1,153				403				836				1
Totals:
Commercial construction			6,263				6,264				831				8,205				200
Commercial secured by real estate			33,421				34,934				1,227				32,954				1,385
Commercial other			8,460				10,301				403				9,638				317
Real estate mortgage			1,744				1,744				0				1,179				50
Total		$	49,888			$	53,243			$	2,461			$	51,976			$	1,952

		December 31, 2014
(in thousands)		Recorded Balance				Unpaid Contractual Principal Balance				Specific Allowance				Average Investment in Impaired Loans				*Interest Income Recognized
Loans without a specific valuation allowance:
Commercial construction		$	5,653			$	5,654			$	0			$	5,415			$	205
Commercial secured by real estate			31,639				33,268				0				34,650				1,180
Commercial other			13,069				14,597				0				15,663				783
Real estate mortgage			1,277				1,277				0				1,507				53
Loans with a specific valuation allowance:
Commercial construction			3,974				3,974				734				4,216				0
Commercial secured by real estate			2,718				2,876				827				4,376				11
Commercial other			738				862				181				531				1
Totals:
Commercial construction			9,627				9,628				734				9,631				205
Commercial secured by real estate			34,357				36,144				827				39,026				1,191
Commercial other			13,807				15,459				181				16,194				784
Real estate mortgage			1,277				1,277				0				1,507				53
Total		$	59,068			$	62,508			$	1,742			$	66,358			$	2,233

		Year Ended December 31, 2016
(in thousands)		Number of Loans				Term Modification				Rate Modification				Combination				Post-Modification Outstanding Balance
Commercial:
Commercial construction			1			$	1,288			$	0			$	0			$	1,288
Commercial secured by real estate			27				8,827				0				581				9,408
Commercial other			14				5,088				0				87				5,175
Residential:
Real estate mortgage			1				0				0				281				281
Total troubled debt restructurings			43			$	15,203			$	0			$	949			$	16,152

		Year Ended December 31, 2015
(in thousands)		Number of Loans				Term Modification				Rate Modification				Combination				Post-Modification Outstanding Balance
Commercial:
Commercial construction			3			$	428			$	0			$	0			$	428
Commercial secured by real estate			21				4,244				0				1,760				6,004
Commercial other			7				3,847				0				0				3,847
Residential:
Real estate mortgage			3				0				0				848				848
Total troubled debt restructurings			34			$	8,519			$	0			$	2,608			$	11,127

(in thousands)		Year Ended December 31, 2016
		Number of Loans				Recorded Balance
Commercial:
Commercial secured by real estate			1			$	67
Commercial other			1				12
Total defaulted restructured loans			2			$	79

(in thousands)		Year Ended December 31, 2015
		Number of Loans				Recorded Balance
Commercial:
Commercial secured by real estate			3			$	114
Total defaulted restructured loans			3			$	114

(in thousands) Year Ended December 31		2016				2015				2014
Net gain on sale of loans held for sale		$	1,831			$	1,978			$	1,468
Net loan servicing income (expense)
Servicing fees			1,239				1,197				1,129
Late fees			78				88				112
Ancillary fees			322				212				149
Fair value adjustments			(324	)			(289	)			(830	)
Net loan servicing income			1,315				1,208				560
Mortgage banking income		$	3,146			$	3,186			$	2,028

(in thousands)		2016				2015				2014
Fair value of MSRs, beginning of period		$	3,236			$	2,968			$	3,424
New servicing assets created			521				557				374
Change in fair value during the period due to:
Time decay (1)			(175	)			(168	)			(162	)
Payoffs (2)			(313	)			(247	)			(202	)
Changes in valuation inputs or assumptions (3)			164				126				(466	)
Fair value of MSRs, end of period		$	3,433			$	3,236			$	2,968

(in thousands)		2016				2015
Related party extensions of credit, beginning of period		$	29,224			$	37,473
New loans and advances on lines of credit			2,456				867
Repayments			(4,599	)			(9,116	)
Related party extensions of credit, end of period		$	27,081			$	29,224

2016
(in thousands)		Commercial Construction				Commercial Secured by Real Estate				Equipment Lease Financing				Commercial Other				Real Estate Construction				Real Estate Mortgage				Home Equity				Consumer Direct				Consumer Indirect				Total
ALLL
Balance, beginning of year		$	2,199			$	14,434			$	79			$	4,225			$	550			$	6,678			$	839			$	1,594			$	5,496			$	36,094
Provision charged to expense			(1,035	)			1,220				(37	)			2,128				264				291				(20	)			912				4,149				7,872
Losses charged off			(316	)			(1,641	)			0				(2,136	)			(192	)			(1,043	)			(54	)			(1,236	)			(5,050	)			(11,668	)
Recoveries			36				178				0				439				7				101				9				615				2,250				3,635
Balance, end of year		$	884			$	14,191			$	42			$	4,656			$	629			$	6,027			$	774			$	1,885			$	6,845			$	35,933
Ending balance:
Individually evaluated for impairment		$	213			$	1,035			$	0			$	65			$	0			$	0			$	0			$	0			$	0			$	1,313
Collectively evaluated for impairment		$	671			$	13,156			$	42			$	4,591			$	629			$	6,027			$	774			$	1,885			$	6,845			$	34,620
Loans
Ending balance:
Individually evaluated for impairment		$	5,609			$	33,756			$	0			$	11,354			$	0			$	1,483			$	0			$	0			$	0			$	52,202
Collectively evaluated for impairment		$	61,389			$	1,051,672			$	5,512			$	338,805			$	57,966			$	701,486			$	91,511			$	133,093			$	444,735			$	2,886,169

2015
(in thousands)		Commercial Construction				Commercial Secured by Real Estate				Equipment Lease Financing				Commercial Other				Real Estate Construction				Real Estate Mortgage				Home Equity				Consumer Direct				Consumer Indirect				Total
ALLL
Balance, beginning of year		$	2,896			$	13,618			$	119			$	4,263			$	534			$	6,094			$	756			$	1,574			$	4,593			$	34,447
Provision charged to expense			(707	)			2,135				(40	)			1,338				147				1,888				158				891				2,840				8,650
Losses charged off			(3	)			(1,379	)			0				(1,961	)			(135	)			(1,421	)			(129	)			(1,306	)			(3,536	)			(9,870	)
Recoveries			13				60				0				585				4				117				54				435				1,599				2,867
Balance, end of year		$	2,199			$	14,434			$	79			$	4,225			$	550			$	6,678			$	839			$	1,594			$	5,496			$	36,094
Ending balance:
Individually evaluated for impairment		$	831			$	1,227			$	0			$	403			$	0			$	0			$	0			$	0			$	0			$	2,461
Collectively evaluated for impairment		$	1,368			$	13,207			$	79			$	3,822			$	550			$	6,678			$	839			$	1,594			$	5,496			$	33,633
Loans
Ending balance:
Individually evaluated for impairment		$	6,263			$	33,421			$	0			$	8,460			$	0			$	1,744			$	0			$	0			$	0			$	49,888
Collectively evaluated for impairment		$	71,757			$	1,019,498			$	8,514			$	350,438			$	61,750			$	706,130			$	89,450			$	126,406			$	390,130			$	2,824,073

2014
(in thousands)		Commercial Construction				Commercial Secured by Real Estate				Equipment Lease Financing				Commercial Other				Real Estate Construction				Real Estate Mortgage				Home Equity				Consumer Direct				Consumer Indirect				Total
ALLL
Balance, beginning of year		$	3,396			$	14,535			$	121			$	5,238			$	397			$	4,939			$	601			$	1,127			$	3,654			$	34,008
Provision charged to expense			(513	)			941				(2	)			1,545				258				2,173				265				1,207				2,881				8,755
Losses charged off			(15	)			(2,163	)			0				(3,141	)			(123	)			(1,058	)			(115	)			(1,326	)			(3,495	)			(11,436	)
Recoveries			28				305				0				621				2				40				5				566				1,553				3,120
Balance, end of year		$	2,896			$	13,618			$	119			$	4,263			$	534			$	6,094			$	756			$	1,574			$	4,593			$	34,447
Ending balance:
Individually evaluated for impairment		$	734			$	827			$	0			$	181			$	0			$	0			$	0			$	0			$	0			$	1,742
Collectively evaluated for impairment		$	2,162			$	12,791			$	119			$	4,082			$	534			$	6,094			$	756			$	1,574			$	4,593			$	32,705
Loans
Ending balance:
Individually evaluated for impairment		$	9,627			$	34,357			$	0			$	13,807			$	0			$	1,277			$	0			$	0			$	0			$	59,068
Collectively evaluated for impairment		$	112,315			$	914,269			$	10,344			$	338,241			$	62,412			$	711,188			$	88,335			$	122,136			$	315,516			$	2,674,756

(in thousands) December 31		2016				2015
Land and buildings		$	78,086			$	76,709
Leasehold improvements			4,886				4,793
Furniture, fixtures, and equipment			36,831				35,382
Construction in progress			769				196
Total premises and equipment			120,572				117,080
Less accumulated depreciation and amortization			(72,632	)			(68,892	)
Premises and equipment, net		$	47,940			$	48,188

(in thousands)		2016				2015
Beginning balance of other real estate owned		$	40,674			$	36,776
New assets acquired			5,900				18,850
Capitalized costs			0				85
Fair value adjustments			(1,214	)			(1,656	)
Sale of assets			(9,504	)			(13,381	)
Ending balance of other real estate owned		$	35,856			$	40,674

(in thousands) December 31		2016				2015
1-4 family		$	6,210			$	7,493
Agricultural/farmland			93				116
Construction/land development/other			20,778				22,570
Multifamily			270				833
Non-farm/non-residential			8,505				9,662
Total foreclosed properties		$	35,856			$	40,674

(in thousands) December 31		2016				2015
Noninterest bearing deposits		$	767,918			$	749,975
NOW accounts			45,872				44,567
Money market deposits			649,917				614,911
Savings			404,558				382,131
Certificates of deposit and other time deposits of $100,000 or more			651,882				606,859
Certificates of deposit and other time deposits less than $100,000			561,161				582,339
Total deposits		$	3,081,308			$	2,980,782

		Maturities by Period at December 31, 2016
(in thousands)		Total				Within 1 Year				2 Years				3 Years				4 Years				5 Years				After 5 Years
Certificates of deposit and other time deposits of $100,000 or more		$	651,882			$	516,384			$	56,494			$	23,180			$	24,074			$	31,750			$	0
Certificates of deposit and other time deposits less than $100,000			561,161				471,912				38,109				17,628				13,354				19,830				328
Total maturities		$	1,213,043			$	988,296			$	94,603			$	40,808			$	37,428			$	51,580			$	328

(in thousands) December 31		2016				2015
Repurchase agreements		$	251,065			$	251,225
Federal funds purchased			4,816				3,596
Total short-term debt		$	255,881			$	254,821

(in thousands) December 31		2016				2015
Junior subordinated debentures, 2.52%, due 6/1/37		$	61,341			$	61,341

		December 31, 2016
		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		$	17,249			$	0			$	14,349			$	73,076			$	104,674
State and political subdivisions			55,354				0				1,998				10,272				67,624
U.S. government sponsored agency mortgage-backed securities			23,386				0				8,003				47,378				78,767
Total		$	95,989			$	0			$	24,350			$	130,726			$	251,065

		December 31, 2015
		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		$	19,184			$	0			$	10,401			$	48,695			$	78,280
State and political subdivisions			58,676				494				1,656				9,159				69,985
U.S. government sponsored agency mortgage-backed securities			27,810				6				12,278				62,866				102,960
Total		$	105,670			$	500			$	24,335			$	120,720			$	251,225

(in thousands)		2016				2015
Monthly amortizing		$	944			$	1,056
Term			0				100,000
Total FHLB advances		$	944			$	101,056

		Principal Payments Due by Period at December 31, 2016
(in thousands)		Total				Within 1 Year				2 Years				3 Years				4 Years				5 Years				After 5 Years
Outstanding advances, weighted average interest rate – 1.33%		$	944			$	106			$	404			$	20			$	20			$	20			$	374

(in thousands)		2016				2015				2014
Current income tax expense		$	18,417			$	18,416			$	20,194
Deferred income tax expense (benefit)			701				115				(1,048	)
Total income tax expense		$	19,118			$	18,531			$	19,146

(in thousands)		2016								2015								2014
Computed at the statutory rate		$	23,262				35.00	%		$	22,737				35.00	%		$	21,839				35.00	%
Adjustments resulting from:
Tax-exempt interest			(1,289	)			(1.94	)			(1,275	)			(1.96	)			(1,204	)			(1.93	)
Housing and new markets credits			(2,680	)			(4.03	)			(2,692	)			(4.14	)			(1,076	)			(1.72	)
Dividends received deduction			(136	)			(0.20	)			(128	)			(0.20	)			(178	)			(0.29	)
Bank owned life insurance			(518	)			(0.78	)			(549	)			(0.84	)			(503	)			(0.81	)
ESOP dividend deduction			(313	)			(0.47	)			(298	)			(0.46	)			(284	)			(0.46	)
Other, net			792				1.18				736				1.13				552				0.89
Total		$	19,118				28.76	%		$	18,531				28.53	%		$	19,146				30.68	%

(in thousands)		2016				2015
Deferred tax assets:
Allowance for loan and lease losses		$	12,577			$	12,633
Interest on nonperforming loans			806				806
Accrued expenses			1,883				2,087
Allowance for other real estate owned			1,898				2,185
Unrealized losses on available-for-sale securities			1,241				0
Other			282				665
Total deferred tax assets			18,687				18,376
Deferred tax liabilities:
Depreciation and amortization			(20,287	)			(20,150	)
FHLB stock dividends			(3,460	)			(3,460	)
Loan fee income			(536	)			(552	)
Mortgage servicing rights			(1,202	)			(1,133	)
Capitalized lease obligations			(65	)			(211	)
Unrealized gains on AFS securities			0				(544	)
Limited partnership investments			(411	)			(650	)
Other			(562	)			(596	)
Total deferred tax liabilities			(26,523	)			(27,296	)
Net deferred tax liability		$	(7,836	)		$	(8,920	)

Plan Category (shares in thousands)

Number of Shares to Be Issued Upon Exercise

Weighted Average Price

Shares Available for Future Issuance

Equity compensation plans approved by shareholders:

Stock options

71

$

30.36

540

(a)

Restricted stock

(c)

(b)

(a)

Performance units

(d)

(b)

(a)

Stock appreciation rights (“SARs”)

(e)

(b)

(a)

Total

540

Plan Category	Shares Available for Future Issuance
Shares available at January 1, 2016	550,000
Stock option issuances	(10,000)
Restricted stock issuances	0
Forfeitures	131
Shares available for future issuance	540,131

	2016	2015	2014
Expected option life (in years)	7.5	7.5	7.5
Expected volatility	34.34%	43.11%	43.32%
Expected dividend yield	3.70%	3.72%	3.40%
Risk-free interest rate	1.45%	1.54%	2.01%

December 31		2016
		Options				Weighted Average Exercise Price
Outstanding at beginning of year			0				--
Granted			10,000			$	33.55
Exercised			0				--
Forfeited/expired			0				--
Outstanding at end of year			10,000			$	33.55
Exercisable at end of year			0				--

Nonvested Options		Options				Weighted Average Grant Date Fair Value
Nonvested at January 1, 2016			0				--
Granted			10,000			$	6.82
Vested			0				--
Forfeited			0				--
Nonvested at December 31, 2016			10,000			$	6.82

(in thousands)		2016
Options exercised			--
Options exercisable			--
Outstanding options		$	161

December 31		2016
		Grants				Weighted Average Fair Value at Grant
Outstanding at beginning of year			0			$	--
Granted*			18,069				33.55
Vested			(442	)			33.55
Forfeited			(131	)			33.55
Outstanding at end of year			17,496			$	33.55

December 31		2016								2015								2014
		Options				Weighted Average Exercise Price				Options				Weighted Average Exercise Price				Options				Weighted Average Exercise Price
Outstanding at beginning of year			118,574			$	32.36				98,821			$	32.35				97,047			$	32.29
Granted			0				--				20,000				32.27				10,000				34.75
Exercised			(57,423	)			35.02				(247	)			24.12				(5,757	)			34.62
Forfeited/expired			(110	)			35.41				0				--				(2,469	)			34.29
Outstanding at end of year			61,041			$	29.84				118,574			$	32.36				98,821			$	32.35
Exercisable at end of year			30,629			$	26.64				87,749			$	32.12				86,264			$	32.25

Nonvested Options		Options				Weighted Average Grant Date Fair Value
Nonvested at January 1, 2016			30,825			$	7.02
Granted			0				--
Vested			(413	)			8.23
Forfeited			0				--
Nonvested at December 31, 2016			30,412			$	7.00

(in thousands)		2016				2015				2014
Options exercised		$	139			$	3			$	11
Options exercisable			703				275				376
Outstanding options			1,206				334				421

December 31		2016								2015								2014
		Grants				Weighted Average Fair Value at Grant				Grants				Weighted Average Fair Value at Grant				Grants				Weighted Average Fair Value at Grant
Outstanding at beginning of year			64,735			$	28.92				101,309			$	26.19				107,511			$	25.91
Granted			0				--				10,582				32.27				4,561				37.85
Vested			(52,521	)			28.01				(46,482	)			23.66				(8,949	)			28.35
Forfeited			(225	)			32.52				(674	)			33.31				(1,814	)			28.38
Outstanding at end of year			11,989			$	32.85				64,735			$	28.92				101,309			$	26.19

December 31		2016								2015								2014
		Options				Weighted Average Exercise Price				Options				Weighted Average Exercise Price				Options				Weighted Average Exercise Price
Outstanding at beginning of year			2,980			$	29.49				43,960			$	29.43				78,066			$	28.91
Granted			0				--				0				--				0				--
Exercised			(2,980	)			29.49				(40,980	)			29.42				(34,106	)			28.25
Forfeited/expired			0				--				0				--				0				--
Outstanding at end of year			0				--				2,980			$	29.49				43,960			$	29.43
Exercisable at end of year			0				--				2,980			$	29.49				43,960			$	29.43

(in thousands)		2016				2015				2014
Options exercised		$	13			$	241			$	270
Options exercisable			0				16				316
Outstanding options			0				16				316

(in thousands)		2016				2015				2014
Unrecognized compensation cost of unvested share-based compensation arrangements granted under the plan at year-end		$	835			$	495			$	861
Grant date fair value of shares vested for the year			1,490				1,111				343
Cash received from option exercises under all share-based payment arrangements for the year			2,099				1,212				1,163
Tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements for the year			3				82				93

(in thousands)		Payments				Receipts
2017		$	2,010			$	561
2018			1,501				350
2019			943				261
2020			725				227
2021			610				147
Thereafter			3,089				81
Total		$	8,878			$	1,627

(in thousands)						Fair Value Measurements at December 31, 2016 Using
		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		$	222,464			$	44,934			$	177,530			$	0
State and political subdivisions			133,516				0				133,516				0
U.S. government sponsored agency mortgage-backed securities			225,056				0				225,056				0
CRA investment funds			24,358				24,358				0				0
Mortgage servicing rights			3,433				0				0				3,433

(in thousands)						Fair Value Measurements at December 31, 2015 Using
		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		$	239,394			$	44,702			$	194,692			$	0
State and political subdivisions			129,215				0				129,215				0
U.S. government sponsored agency mortgage-backed securities			201,576				0				201,576				0
CRA investment funds			24,751				24,751				0				0
Mortgage servicing rights			3,236				0				0				3,236

Mortgage Servicing Rights
(in thousands)		2016				2015
Beginning balance		$	3,236			$	2,968
Total recognized gains (losses)
Included in net income			164				126
Issues			521				557
Settlements			(488	)			(415	)
Ending balance		$	3,433			$	3,236
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		$	164			$	126

Noninterest Income
(in thousands)		2016				2015
Total losses		$	(324	)		$	(289	)

(in thousands)						Fair Value Measurements at December 31, 2016 Using
		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
Impaired loans (collateral dependent)		$	5,506			$	0			$	0			$	5,506
Other real estate/assets owned			4,388				0				0				4,388

(in thousands)						Fair Value Measurements at December 31, 2015 Using
		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
Impaired loans (collateral dependent)		$	3,192			$	0			$	0			$	3,192
Other real estate/assets owned			6,798				0				0				6,798

(in thousands)		Quantitative Information about Level 3 Fair Value Measurements
		Fair Value at December 31, 2016			Valuation Technique(s)	Unobservable Input		Range (Weighted Average)
Mortgage servicing rights		$	3,433		Discount cash flows, computer pricing model	Constant prepayment rate			7.0% - 27.0% (9.5%)
						Probability of default			0.0% - 100.0% (3.0%)
						Discount rate			10.0% - 11.5% (10.1%)
Impaired loans (collateral-dependent)		$	5,506		Market comparable properties	Marketability discount			0.0% - 100.0% (33.7%)
Other real estate owned		$	4,388		Market comparable properties	Comparability adjustments			10.0% - 100.0% (14.9%)

(in thousands)		Quantitative Information about Level 3 Fair Value Measurements
		Fair Value at December 31, 2015			Valuation Technique(s)	Unobservable Input		Range (Weighted Average)
Mortgage servicing rights		$	3,236		Discount cash flows, computer pricing model	Constant prepayment rate			6.1% - 22.4% (10.0%)
						Probability of default			0.0% - 100.0% (2.6%)
						Discount rate			10.0% - 11.5% (10.1%)
Impaired loans (collateral-dependent)		$	3,192		Market comparable properties	Marketability discount			0.0% - 76.7% (26.8%)
Other real estate owned		$	6,798		Market comparable properties	Comparability adjustments			5.0% - 51.8% (11.7%)

(in thousands)						Fair Value Measurements at December 31, 2016 Using
		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		$	144,716			$	144,716			$	0			$	0
Certificates of deposit in other banks			980				0				982				0
Securities available-for-sale			605,394				69,292				536,102				0
Securities held-to-maturity			866				0				867				0
Loans held for sale			1,244				1,260				0				0
Loans, net			2,902,438				0				0				2,882,348
Federal Home Loan Bank stock			17,927				0				17,927				0
Federal Reserve Bank stock			4,887				0				4,887				0
Accrued interest receivable			11,922				0				11,922				0
Mortgage servicing rights			3,433				0				0				3,433
Financial liabilities:
Deposits		$	3,081,308			$	767,918			$	2,321,690			$	0
Repurchase agreements			251,065				0				0				250,820
Federal funds purchased			4,816				0				4,816				0
Advances from Federal Home Loan Bank			944				0				1,009				0
Long-term debt			61,341				0				0				49,073
Accrued interest payable			1,200				0				1,200				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

(in thousands)						Fair Value Measurements at December 31, 2015 Using
		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		$	187,611			$	187,611			$	0			$	0
Certificates of deposit in other banks			3,832				0				3,836				0
Securities available-for-sale			594,936				69,453				525,483				0
Securities held-to-maturity			1,661				0				1,651				0
Loans held for sale			1,172				1,196				0				0
Loans, net			2,837,867				0				0				2,833,267
Federal Home Loan Bank stock			17,927				0				17,927				0
Federal Reserve Bank stock			4,887				0				4,887				0
Accrued interest receivable			12,194				0				12,194				0
Mortgage servicing rights			3,236				0				0				3,236
Financial liabilities:
Deposits		$	2,980,782			$	749,975			$	2,208,120			$	0
Repurchase agreements			251,225				0				0				250,873
Federal funds purchased			3,596				0				3,596				0
Advances from Federal Home Loan Bank			101,056				0				100,905				0
Long-term debt			61,341				0				0				49,073
Accrued interest payable			1,071				0				1,071				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

(in thousands)		2016				2015
Standby letters of credit		$	29,917			$	28,143
Commitments to extend credit			570,467				455,273
Total off-balance sheet financial instruments		$	600,384			$	483,416

		Actual								For Capital Adequacy Purposes
(in thousands)		Amount				Ratio				Amount				Ratio
As of December 31, 2016:
Tier 1 capital (to average assets)		$	496,432				12.75	%		$	155,743				4.00	%
Common equity Tier 1 capital (to risk weighted assets)			436,932				15.18				129,525				4.50
Tier 1 capital (to risk weighted assets)			496,432				17.25				172,672				6.00
Total capital (to risk weighted assets)			532,332				18.50				230,198				8.00
As of December 31, 2015:
Tier 1 capital (to average assets)		$	468,304				12.40	%		$	151,066				4.00	%
Common equity Tier 1 capital (to risk weighted assets)			408,804				14.58				126,194				4.50
Tier 1 capital (to risk weighted assets)			468,304				16.70				168,253				6.00
Total capital (to risk weighted assets)			503,296				17.95				224,310				8.00

		Actual								For Capital Adequacy Purposes								To Be Well-Capitalized Under Prompt Corrective Action Provision
(in thousands)		Amount				Ratio				Amount				Ratio				Amount				Ratio
As of December 31, 2016:
Tier 1 capital (to average assets)		$	472,615				12.19	%		$	155,083				4.00	%		$	193,854				5.00	%
Common equity Tier 1 capital (to risk weighted assets)			472,615				16.46				129,208				4.50				186,634				6.50
Tier 1 capital (to risk weighted assets)			472,615				16.46				172,278				6.00				229,704				8.00
Total capital (to risk weighted assets)			508,515				17.71				229,708				8.00				287,134				10.00
As of December 31, 2015:
Tier 1 capital (to average assets)		$	445,107				11.84	%		$	150,374				4.00	%		$	187,967				5.00	%
Common equity Tier 1 capital (to risk weighted assets)			445,107				15.91				125,895				4.50				181,848				6.50
Tier 1 capital (to risk weighted assets)			445,107				15.91				167,859				6.00				223,812				8.00
Total capital (to risk weighted assets)			480,099				17.16				223,822				8.00				279,778				10.00

(in thousands) December 31		2016				2015
Assets:
Cash on deposit		$	1,525			$	1,462
Investment in and advances to subsidiaries			556,975				531,702
Goodwill			4,973				4,973
Premises and equipment, net			142				145
Other assets			391				911
Total assets		$	564,006			$	539,193
Liabilities and shareholders’ equity:
Long-term debt		$	61,341			$	61,341
Other liabilities			2,050				2,269
Total liabilities			63,391				63,610
Shareholders’ equity			500,615				475,583
Total liabilities and shareholders’ equity		$	564,006			$	539,193

(in thousands) Year Ended December 31		2016				2015				2014
Income:
Dividends from subsidiary banks		$	20,708			$	19,808			$	19,534
Other income			459				414				196
Total income			21,167				20,222				19,730
Expenses:
Interest expense			1,417				1,170				1,131
Depreciation expense			107				130				153
Other expenses			2,256				2,465				2,550
Total expenses			3,780				3,765				3,834
Income before income taxes and equity in undistributed income of subsidiaries			17,387				16,457				15,896
Income tax benefit			(1,373	)			(1,371	)			(1,548	)
Income before equity in undistributed income of subsidiaries			18,760				17,828				17,444
Equity in undistributed income of subsidiaries			28,586				28,604				25,807
Net income		$	47,346			$	46,432			$	43,251
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period			(4,578	)			(342	)			13,928
Less: Reclassification adjustments for realized gains (losses) included in net income			522				(106	)			(211	)
Tax expense (benefit)			(1,785	)			(83	)			4,949
Other comprehensive income (loss), net of tax			(3,315	)			(153	)			9,190
Comprehensive income		$	44,031			$	46,279			$	52,441

(in thousands) Year Ended December 31		2016				2015				2014
Cash flows from operating activities:
Net income		$	47,346			$	46,432			$	43,251
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			107				130				153
Equity in undistributed earnings of subsidiaries			(28,586	)			(28,604	)			(25,807	)
Stock-based compensation			458				783				838
Excess tax benefits of stock-based compensation			100				104				760
Changes in:
Other assets			519				240				(558	)
Other liabilities			(90	)			968				563
Net cash provided by operating activities			19,854				20,053				19,200
Cash flows from investing activities:
Purchase of premises and equipment			(104	)			(45	)			(125	)
Repayment of investments in and advances to subsidiaries			0				0				(14	)
Net cash used in investing activities			(104	)			(45	)			(139	)
Cash flows from financing activities:
Issuance of common stock			2,985				2,082				1,992
Repurchase of common stock			(382	)			(189	)			0
Excess tax benefits of stock-based compensation			(100	)			(104	)			(760	)
Dividends paid			(22,190	)			(21,330	)			(20,570	)
Net cash used in financing activities			(19,687	)			(19,541	)			(19,338	)
Net increase (decrease) in cash and cash equivalents			63				467				(277	)
Cash and cash equivalents at beginning of year			1,462				995				1,272
Cash and cash equivalents at end of year		$	1,525			$	1,462			$	995

Year Ended December 31 (in thousands except per share data)		2016				2015				2014
Numerator:
Net income		$	47,346			$	46,432			$	43,251
Denominator:
Basic earnings per share:
Weighted average shares			17,548				17,431				17,326
Diluted earnings per share:
Dilutive effect of equity grants			18				52				71
Adjusted weighted average shares			17,566				17,483				17,397
Earnings per share:
Basic earnings per share		$	2.70			$	2.66			$	2.50
Diluted earnings per share			2.70				2.66				2.49

		Amounts Reclassified from AOCI
Year Ended December 31 (in thousands)		2016				2015				2014
Affected line item in the statements of income
Securities gains (losses)		$	522			$	(106	)		$	(211	)
Tax expense (benefit)			183				(37	)			(74	)
Total reclassifications out of AOCI		$	339			$	(69	)		$	(137	)

		A				B				C
Plan Category (shares in thousands)		Number of Common Shares to be Issued Upon Exercise				Weighted Average Price				Number of Securities Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in Column A)
Equity compensation plans approved by shareholders:
Stock options			71			$	30.36				540
Equity compensation plans not approved by shareholders			0				--				0
Total											540

Exhibit No.	Description of Exhibits
3.1	Articles of Incorporation and all amendments thereto {incorporated by reference to registration statement no. 33-35138}
3.2	By-laws of CTBI as amended July 25, 1995 {incorporated by reference to registration statement no. 33-61891}
3.3	By-laws of CTBI as amended January 29, 2008 {incorporated by reference to current report on Form 8-K filed January 30, 2008}
10.1	Community Trust Bancorp, Inc. Employee Stock Ownership Plan (effective January 1, 2007) {incorporated herein by reference to Form 10-K for the fiscal year ended December 31, 2006 under SEC file no. 000-111-29}
10.2	Community Trust Bancorp, Inc. Savings and Employee Stock Ownership Plan (Amendment Number One effective January 1, 2002, Amendment Number Two effective January 1, 2004, Amendment Number Three effective March 28, 2005, and Amendment Number Four effective January 1, 2006) {incorporated herein by reference to Form 10-K for the fiscal year ended December 31, 2006 under SEC file no. 000-111-29}
10.4	Community Trust Bancorp, Inc. 1998 Stock Option Plan {incorporated by reference to registration statement no. 333-74217}
10.5	Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated by reference to Proxy Statement dated March 24, 2006}
10.6	Form of Severance Agreement between Community Trust Bancorp, Inc. and executive officers (currently in effect with respect to twelve executive officers) {incorporated herein by reference to Form 10-K for the fiscal year ended December 31, 2001 under SEC file no. 000-111-29}
10.7	Senior Management Incentive Compensation Plan (2017) {incorporated herein by reference to current report on Form 8-K dated January 24, 2017}
10.8	Restricted Stock Agreement {incorporated herein by reference to Form 10-K for the fiscal year ended December 31, 2011 under SEC file no. 000-111-29}
10.9	Employee Incentive Compensation Plan (2017) {incorporated herein by reference to current report on Form 8-K dated January 24, 2017}
10.10	Amendment to the Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated herein by reference to current report on Form 8-K dated January 26, 2012}
10.11	Community Trust Bancorp, Inc. 2015 Stock Ownership Incentive Plan {incorporated herein by reference to registration statement no. 333-208053}
10.13	Community Trust Bancorp, Inc. 2014 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to current report on Form 8-K dated January 30, 2014}
10.15	Community Trust Bancorp, Inc. 2015 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to current report on Form 8-K dated January 27, 2015}
10.16	Community Trust Bancorp, Inc. 2016 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to current report on Form 8-K dated January 28, 2016}
10.17	Community Trust Bancorp, Inc. 2017 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to current report on Form 8-K dated January 24, 2017}
21	List of subsidiaries
23.1	Consent of BKD, LLP, Independent Registered Public Accounting Firm
31.1	Certification of Principal Executive Officer (Jean R. Hale, Chairman, President, and Chief Executive Officer)
31.2	Certification of Principal Financial Officer (Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer)
32.1	Certification of Jean R. Hale, Chairman, President and CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Community Trust Bancorp, Inc. Dividend Reinvestment Plan, as amended December 20, 2013 {incorporated by reference to registration statement no. 333-193011}
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

March 15, 2017	/s/ Jean R. Hale	Chairman, President, and Chief Executive Officer
	Jean R. Hale
March 15, 2017	/s/ Kevin J. Stumbo	Executive Vice President, Chief Financial Officer, and Treasurer
	Kevin J. Stumbo
March 15, 2017	/s/ Charles J. Baird	Director
	Charles J. Baird
March 15, 2017	/s/ Nick Carter	Director
	Nick Carter
March 15, 2017	/s/ James E. McGhee, II	Director
	James E. McGhee II
March 15, 2017	/s/ M. Lynn Parrish	Director
	M. Lynn Parrish
March 15, 2017	/s/ James R. Ramsey	Director
	James R. Ramsey
March 15, 2017	/s/ Anthony W. St. Charles	Director
	Anthony W. St. Charles

Exhibit No.	Description of Exhibits
3.1	Articles of Incorporation for CTBI {incorporated herein by reference}
3.2	By-laws of CTBI as amended July 25, 1995 {incorporated herein by reference}
3.3	By-laws of CTBI as amended January 29, 2008 {incorporated herein by reference}
10.1	Community Trust Bancorp, Inc. Employee Stock Ownership Plan (effective January 1, 2007) {incorporated herein by reference}
10.2	Community Trust Bancorp, Inc. Savings and Employee Stock Ownership Plan (Amendment Number One effective January 1, 2002, Amendment Number Two effective January 1, 2004, Amendment Number Three effective March 28, 2005, and Amendment Number Four effective January 1, 2006) {incorporated herein by reference}
10.4	Community Trust Bancorp, Inc. 1998 Stock Option Plan {incorporated herein by reference}
10.5	Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated herein by reference}
10.6	Form of Severance Agreement between Community Trust Bancorp, Inc. and executive officers (currently in effect with respect to twelve executive officers) {incorporated herein by reference}
10.7	Senior Management Incentive Compensation Plan (2017) {incorporated herein by reference}
10.8	Restricted Stock Agreement{incorporated herein by reference}
10.9	Employee Incentive Compensation Plan (2017) {incorporated herein by reference}
10.10	Amendment to the Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated herein by reference}
10.11	Community Trust Bancorp, Inc. 2015 Stock Ownership Incentive Plan {incorporated herein by reference}
10.13	Community Trust Bancorp, Inc. 2014 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference}
10.15	Community Trust Bancorp, Inc. 2015 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference}
10.16	Community Trust Bancorp, Inc. 2016 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference}
10.17	Community Trust Bancorp, Inc. 2017 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference}
21	List of subsidiaries
23.1	Consent of BKD, LLP, Independent Registered Public Accounting Firm
31.1	Certification of Principal Executive Officer (Jean R. Hale, Chairman, President and CEO)
31.2	Certification of Principal Financial Officer (Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer)
32.1	Certification of Jean R. Hale, Chairman, President and CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Community Trust Bancorp, Inc. Dividend Reinvestment Plan, as amended December 20, 2013
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase