COMMUNITY TRUST BANCORP INC /KY/ - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2021
	Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____________ to _____________

Commission file number 001-31220

COMMUNITY TRUST BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

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

(606) 432-1414

(Registrant’s telephone number)

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

Common Stock

(Title of class)

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

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

Yes ☑

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑

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

Large Accelerated Filer ☐	Accelerated Filer ☑	Non-accelerated Filer ☐

Smaller Reporting Company ☐	Emerging Growth Company ☐

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

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

Yes ☐

No ☑

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

Common stock – 17,831,479 shares outstanding at April 30, 2021

CAUTIONARY STATEMENT

REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Community Trust Bancorp, Inc.’s (“CTBI”) actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could.” These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; the effects of the COVID-19 pandemic on our business operations and credit quality and on general economic and financial market conditions, as well as our ability to respond to the related challenges; our participation in the Paycheck Protection Program administered by the Small Business Administration; results of various investment activities; the effects of competitors’ pricing policies, changes in laws and regulations, competition, and demographic changes on target market populations’ savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements or cost savings at levels or within the time frames originally anticipated or unforeseen integration difficulties; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary, operational, and fiscal policies and regulations, which include, but are not limited to, those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and state regulators, whose policies, regulations, and enforcement actions could affect CTBI’s results. These statements are representative only on the date hereof, and CTBI undertakes no obligation to update any forward-looking statements made.

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K. Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 2020 for further information in this regard.

Community Trust Bancorp, Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)	(unaudited) March 31 2021			December 31 2020
Assets:
Cash and due from banks	$	66,664		$	54,250
Interest bearing deposits		356,441			283,985
Cash and cash equivalents		423,105			338,235

Certificates of deposit in other banks		245			245
Debt securities available-for-sale at fair value (amortized cost of $1,150,224 and $978,774, respectively)		1,155,195			997,261
Equity securities at fair value		2,243			2,471
Loans held for sale		17,748			23,259

Loans		3,538,804			3,554,211
Allowance for credit losses		(45,346	)		(48,022	)
Net loans		3,493,458			3,506,189

Premises and equipment, net		40,997			42,001
Right-of-use assets		12,787			13,215
Federal Home Loan Bank stock		9,971			10,048
Federal Reserve Bank stock		4,887			4,887
Goodwill		65,490			65,490
Bank owned life insurance		72,710			72,373
Mortgage servicing rights		5,584			4,068
Other real estate owned		6,224			7,694
Accrued interest receivable		15,188			15,818
Other assets		34,287			35,887
Total assets	$	5,360,119		$	5,139,141

Liabilities and shareholders’ equity:
Deposits:
Noninterest bearing	$	1,283,309		$	1,140,925
Interest bearing		2,950,463			2,875,157
Total deposits		4,233,772			4,016,082

Repurchase agreements		354,235			355,862
Federal funds purchased		500			500
Advances from Federal Home Loan Bank		390			395
Long-term debt		57,841			57,841
Deferred tax liability		530			4,687
Operating lease liability		12,111			12,531
Finance lease liability		1,438			1,441
Accrued interest payable		1,365			1,243
Other liabilities		35,868			33,694
Total liabilities		4,698,050			4,484,276

Shareholders’ equity:
Preferred stock, 300,000 shares authorized and unissued		-			-
Common stock, $5.00 par value, shares authorized 25,000,000; shares outstanding 2021 – 17,826,076; 2020 – 17,810,401		89,131			89,052
Capital surplus		225,861			225,507
Retained earnings		343,511			326,738
Accumulated other comprehensive income, net of tax		3,566			13,568
Total shareholders’ equity		662,069			654,865

Total liabilities and shareholders’ equity	$	5,360,119		$	5,139,141

See notes to condensed consolidated financial statements.

Community Trust Bancorp, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(unaudited)

	Three Months Ended
	March 31
(in thousands except per share data)	2021			2020
Interest income:
Interest and fees on loans, including loans held for sale	$	40,689		$	40,465
Interest and dividends on securities
Taxable		2,575			3,046
Tax exempt		739			527
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock		124			140
Interest on Federal Reserve Bank deposits		76			496
Other, including interest on federal funds sold		8			25
Total interest income		44,211			44,699

Interest expense:
Interest on deposits		3,387			6,942
Interest on repurchase agreements and federal funds purchased		304			1,004
Interest on long-term debt		278			509
Total interest expense		3,969			8,455

Net interest income		40,242			36,244
Provision for credit losses		(2,499	)		12,707
Net interest income after provision for credit losses		42,741			23,537

Noninterest income:
Service charges on deposit accounts		6,022			5,916
Gains on sales of loans, net		2,433			483
Trust and wealth management income		2,951			2,884
Loan related fees		2,270			95
Bank owned life insurance		573			573
Brokerage revenue		457			372
Securities gains (losses)		(168	)		249
Other noninterest income		1,039			949
Total noninterest income		15,577			11,521

Noninterest expense:
Officer salaries and employee benefits		3,738			2,751
Other salaries and employee benefits		13,095			12,280
Occupancy, net		2,195			1,985
Equipment		633			721
Data processing		2,159			1,978
Bank franchise tax		360			1,812
Legal fees		352			477
Professional fees		541			569
Advertising and marketing		722			634
FDIC insurance		326			147
Other real estate owned provision and expense		318			869
Repossession expense		199			135
Amortization of limited partnership investments		837			888
Other noninterest expense		2,835			2,975
Total noninterest expense		28,310			28,221

Income before income taxes		30,008			6,837
Income taxes		6,390			258
Net income		23,618			6,579

Other comprehensive income (loss):
Unrealized holding gains (losses) on debt securities available-for-sale:
Unrealized holding gains (losses) arising during the period		(13,456	)		2,147
Less: Reclassification adjustments for realized gains on debt securities included in net income		60			481
Tax expense (benefit)		(3,514	)		433
Other comprehensive income (loss), net of tax		(10,002	)		1,233
Comprehensive income	$	13,616		$	7,812

Basic earnings per share	$	1.33		$	0.37
Diluted earnings per share	$	1.33		$	0.37

Weighted average shares outstanding-basic		17,774			17,752
Weighted average shares outstanding-diluted		17,787			17,763

See notes to condensed consolidated financial statements.

Consolidated Statements of Changes in Shareholders’ Equity

Quarterly

(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, 2021		17,810,401		$	89,052		$	225,507		$	326,738		$	13,568		$	654,865
Net income											23,618						23,618
Other comprehensive income (loss), net of tax of $(3,514)														(10,002	)		(10,002	)
Cash dividends declared ($0.385 per share)											(6,845	)					(6,845	)
Issuance of common stock		24,163			121			117									238
Issuance of restricted stock		9,193			46			(46	)								0
Vesting of restricted stock		(17,681	)		(88	)		88									0
Stock-based compensation								195									195
Balance, March 31, 2021		17,826,076		$	89,131		$	225,861		$	343,511		$	3,566		$	662,069

(in thousands except per share and share amounts)	Common Shares			Common Stock			Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax		Total
Balance, December 31, 2019		17,793,165		$	88,966		$	224,907		$	296,760		$	4,253	$	614,886
Implementation of ASU 2016-13											(2,366	)				(2,366	)
Balance, January 1, 2020		17,793,165			88,966			224,907			294,394			4,253		612,520
Net income											6,579					6,579
Other comprehensive income (loss), net of tax of $433														1,233		1,233
Cash dividends declared ($0.38 per share)											(6,750	)				(6,750	)
Issuance of common stock		21,953			110			122								232
Repurchase of common stock		(32,664	)		(164	)		(935	)							(1,099	)
Issuance of restricted stock		21,544			108			(108	)							0
Vesting of restricted stock		(16,724	)		(84	)		84								0
Stock-based compensation								207								207
Balance, March 31, 2020		17,787,274		$	88,936		$	224,277		$	294,223		$	5,486	$	612,922

See notes to condensed consolidated financial statements.

Community Trust Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Three Months Ended March 31
(in thousands)	2021			2020
Cash flows from operating activities:
Net income	$	23,618		$	6,579
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,265			1,356
Deferred taxes		(643	)		(2,037	)
Stock-based compensation		213			228
Provision for credit losses		(2,499	)		12,707
Write-downs of other real estate owned and other repossessed assets		154			458
Gains on sale of mortgage loans held for sale		(2,433	)		(483	)
Securities gains, net		(60	)		(481	)
Change in fair market value of equity securities		228			232
Gains on sale of assets, net		(214	)		(3	)
Proceeds from sale of mortgage loans held for sale		109,014			23,032
Funding of mortgage loans held for sale		(101,070	)		(22,785	)
Amortization of securities premiums and discounts, net		1,893			1,271
Change in cash surrender value of bank owned life insurance		(337	)		(340	)
Payment of operating lease liabilities		(445	)		(444	)
Mortgage servicing rights:
Fair value adjustments		(780	)		926
New servicing assets created		(736	)		(144	)
Changes in:
Accrued interest receivable		630			156
Other assets		1,634			(1,173	)
Accrued interest payable		122			608
Other liabilities		2,152			(5,939	)
Net cash provided by operating activities		31,706			13,724

Cash flows from investing activities:
Securities available-for-sale (AFS):
Purchase of AFS securities		(304,167	)		(126,748	)
Proceeds from sales of AFS securities		1,080			21,746
Proceeds from prepayments, calls, and maturities of AFS securities		129,804			72,243
Securities held-to-maturity (HTM):
Proceeds from maturities of HTM securities		0			517
Change in loans, net		15,747			(41,183	)
Purchase of premises and equipment		(403	)		(423	)
Proceeds from sale and retirement of premises and equipment		812			0
Purchase (redemption) of stock by Federal Home Loan Bank		77			(880	)
Proceeds from sale of other real estate owned and repossessed assets		762			116
Net cash used in investing activities		(156,288	)		(74,612	)

Cash flows from financing activities:
Change in deposits, net		217,690			(10,464	)
Change in repurchase agreements and federal funds purchased, net		(1,627	)		6,992
Proceeds from Federal Home Loan Bank advances		0			25,000
Payments on advances from Federal Home Loan Bank		(5	)		(25,004	)
Payment of finance lease liabilities		(3	)		(3	)
Issuance of common stock		238			232
Repurchase of common stock		0			(1,099	)
Dividends paid		(6,841	)		(6,747	)
Net cash provided by (used in) financing activities		209,452			(11,093	)
Net increase (decrease) in cash and cash equivalents		84,870			(71,981	)
Cash and cash equivalents at beginning of period		338,235			264,683
Cash and cash equivalents at end of period	$	423,105		$	192,702

Supplemental disclosures:
Income taxes paid	$	87		$	0
Interest paid		3,847			7,848
Non-cash activities:
Loans to facilitate the sale of other real estate owned and repossessed assets		381			718
Common stock dividends accrued, paid in subsequent quarter		242			224
Real estate acquired in settlement of loans		(136	)		1,625

See notes to condensed consolidated financial statements.

Community Trust Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 - Summary of Significant Accounting Policies

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring adjustments) necessary, to present fairly the condensed consolidated financial position as of March 31, 2021 and the results of operations, other comprehensive income, changes in shareholders’ equity, and cash flows for the three months ended March 31, 2021 and 2020. In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements. The results of operations and cash flows for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (“CTBI”) for that period. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2020, included in our annual report on Form 10-K.

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

New Accounting Standards –

➢ Simplifying the Accounting for Income Taxes – In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing the following exceptions:

1. Exception to the incremental approach for intra period tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);

2. Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

3. Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and

4. Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The amendments in this ASU also simplify the accounting for income taxes by doing the following:

1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax;

2. Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction;

3. Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority;

4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date; and

5. Making minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. CTBI adopted this ASU effective January 1, 2021 with no significant impact to our consolidated financial statements.

➢ Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, a consensus of the FASB Emerging Task Force – In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this ASU clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. CTBI adopted this ASU effective January 1, 2021 with no significant impact to our consolidated financial statements.

➢ Facilitation of the Effects of Reference Rate Reform on Financial Reporting – In April 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) —Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition. At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.

Critical Accounting Policies and Estimates

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

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

Our accounting policies are described in Note 1 to the condensed consolidated financial statements. We have identified the following critical accounting policies:

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

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

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

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

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

An allowance is recognized for credit losses relative to available-for-sale securities rather than as a reduction in the cost basis of the security. Subsequent improvements in credit quality or reductions in estimated credit losses are recognized immediately as a reversal of the previously recorded allowance, which aligns the income statement recognition of credit losses with the reporting period in which changes occur.

Held-to-maturity (“HTM”) securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts. The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics. These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased. At March 31, 2021, CTBI held no securities designated as held-to-maturity.

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

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

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

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) included an election for banking institutions to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The ability to exclude COVID-19-related modifications as troubled debt restructurings was extended under the Consolidated Appropriations Act 2021 to the earlier of (i) 60 days after the COVID-19 national emergency and (ii) January 1, 2022. CTBI elected to adopt these provisions of the CARES Act, as extended by the Consolidated Appropriations Act 2021.

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

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

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

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

We utilize an internal risk grading system for commercial credits. Those credits that meet the following criteria are subject to individual evaluation: the loan has an outstanding bank share balance of $1 million or greater and (i) has a criticized risk rating, (ii) is in nonaccrual status, (iii) is a TDR, or (iv) is 90 days or more past due. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. We evaluate the collectability of both principal and interest when assessing the need for loss provision. Historical loss rates are analyzed and applied to other commercial loan segments not subject to individual evaluation.

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

When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made. If the balance of the loan exceeds the fair value of the collateral, the loan is placed on nonaccrual and the loan is charged down to the value of the collateral less estimated cost to sell. For commercial loans greater than $1 million and classified as criticized, troubled debt restructuring, or nonaccrual, a specific reserve is established if a loss is determined to be possible and then charged-off once it is probable. When the foreclosed collateral has been legally assigned to CTBI, the estimated fair value of the collateral less costs to sell is then transferred to other real estate owned or other repossessed assets, and a charge-off is taken for any remaining balance. When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.

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

Historical loss rates for loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. With the implementation of ASC 326, weighted average life (“WAL”) calculations were completed as a tool to determine the life of CTBI’s various loan segments. Vintage modeling was used to determine the life of loan losses for consumer and residential real estate loans. Static pool modeling was used to determine the life of loan losses for commercial loan segments. Qualitative factors used to derive CTBI’s total ACL include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, trends in loan losses, and underwriting exceptions. Forecasting factors including unemployment rates and industry specific forecasts for industries in which our total exposure is 5% of capital or greater are also included as factors in the ACL model. Management continually reevaluates the other subjective factors included in its ACL analysis.

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

Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Any interest and penalties incurred in connection with income taxes are recorded as a component of income tax expense in the consolidated financial statements. During the quarters ended March 31, 2021 and 2020, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.

Note 2 – Stock-Based Compensation

There was no compensation expense related to stock option grants for the three months March 31, 2021. CTBI’s compensation expense related to stock option grants was $2 thousand for the three months ended March 31, 2020. As of March 31, 2021, there was no unrecognized compensation expense related to unvested stock option awards, as all stock option awards have fully vested. There were no stock options granted in the first three months of 2021 or 2020.

Restricted stock expense for the three months ended March 31, 2021 and 2020 was $213 thousand and $226 thousand, respectively, including $18 thousand and $21 thousand, respectively, in dividends paid for those periods. As of March 31, 2021, there was a total of $1.7 million of unrecognized compensation expense related to restricted stock grants that will be recognized as expense as the awards vest over a weighted average period of 2.6 years. There were 9,193 and 21,544 shares of restricted stock granted during the three months ended March 31, 2021 and 2020, respectively. The restricted stock was issued pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan. The restrictions on the restricted stock will lapse ratably over four years, except for a 2,500 management retention restricted stock award granted in January 2020 which will vest at the end of five years, subject to such employee’s continued employment. However, in the event of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of the participant, the restrictions will lapse, and in the event of the participant’s disability, the restrictions will lapse on a pro rata basis. The Compensation Committee will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement.

Note 3 – Securities

Debt securities are classified into held-to-maturity and available-for-sale categories. Held-to-maturity (HTM) securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale (AFS) securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax. As of March 31, 2021 and December 31, 2020, CTBI had no held-to-maturity securities.

The amortized cost and fair value of debt securities at March 31, 2021 are summarized as follows:

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	205,355	$	419	$	(2,155	)	$	203,619
State and political subdivisions		219,389		5,416		(4,688	)		220,117
U.S. government sponsored agency mortgage-backed securities		669,134		8,616		(2,918	)		674,832
Other debt securities		56,346		301		(20	)		56,627
Total available-for-sale securities	$	1,150,224	$	14,752	$	(9,781	)	$	1,155,195

The amortized cost and fair value of debt securities at December 31, 2020 are summarized as follows:

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government agencies	$	148,507	$	483	$	(197	)	$	148,793
State and political subdivisions		133,287		7,132		(3	)		140,416
U.S. government sponsored agency mortgage-backed securities		640,537		11,648		(378	)		651,807
Other debt securities		56,443		10		(208	)		56,245
Total available-for-sale securities	$	978,774	$	19,273	$	(786	)	$	997,261

The amortized cost and fair value of debt securities at March 31, 2021 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale
(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,330	$	1,334
Due after one through five years		92,173		92,176
Due after five through ten years		167,212		166,553
Due after ten years		164,029		163,673
U.S. government sponsored agency mortgage-backed securities		669,134		674,832
Other debt securities		56,346		56,627
Total debt securities	$	1,150,224	$	1,155,195

During the three months ended March 31, 2021, we had a net securities loss of $168 thousand, consisting of a pre-tax gain of $60 thousand realized on sales and calls of AFS securities and an unrealized loss of $228 thousand from the fair market value adjustment of equity securities. During the three months ended March 31, 2020, we had a net securities gain of $249 thousand, consisting of a pre-tax gain of $481 thousand realized on calls of AFS securities and an unrealized loss of $232 thousand from the fair market value adjustment of equity securities.

Equity Securities at Fair Value

CTBI made the election permitted by ASC 321-10-35-2 to record its Visa Class B shares at fair value. Equity securities at fair value as of March 31, 2021 were $2.2 million, as a result of a $0.2 million decrease in the fair market value in the first quarter 2021. The fair market value of equity securities decreased $0.2 million in the first quarter 2020. No equity securities were sold during the three months ended March 31, 2021 and 2020.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $413.5 million at March 31, 2021 and $354.5 million at December 31, 2020.

The amortized cost of securities sold under agreements to repurchase amounted to $389.9 million at March 31,2021 and $386.6 million at December 31, 2020.

CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of March 31, 2021 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related. The percentage of total debt securities with unrealized losses as of March 31,2021 was 53.2% compared to 16.2% as of December 31, 2020. The following table provides the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of March 31, 2021 that are not deemed to have credit losses. As stated above, CTBI had no HTM securities as of March 31, 2021.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	136,625	$	(2,028	)	$	134,597
State and political subdivisions		101,944		(4,660	)		97,284
U.S. government sponsored agency mortgage-backed securities		347,136		(2,905	)		344,231
Other debt securities		0		0			0
Total <12 months temporarily impaired AFS securities		585,705		(9,593	)		576,112

12 Months or More
U.S. Treasury and government agencies		28,763		(127	)		28,636
State and political subdivisions		533		(28	)		505
U.S. government sponsored agency mortgage-backed securities		2,614		(13	)		2,601
Other debt securities		6,538		(20	)		6,518
Total ≥12 months temporarily impaired AFS securities		38,448		(188	)		38,260

Total
U.S. Treasury and government agencies		165,388		(2,155	)		163,233
State and political subdivisions		102,477		(4,688	)		97,789
U.S. government sponsored agency mortgage-backed securities		349,750		(2,918	)		346,832
Other debt securities		6,538		(20	)		6,518
Total temporarily impaired AFS securities	$	624,153	$	(9,781	)	$	614,372

The analysis performed as of December 31, 2020 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related. The following table provides the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2020 that are not deemed to be other-than-temporarily impaired. As stated above, CTBI had no HTM securities as of December 31, 2020.

Available-for-Sale

(in thousands)	Amortized Cost		Gross Unrealized Losses			Fair Value
Less Than 12 Months
U.S. Treasury and government agencies	$	5,604	$	(7	)	$	5,597
State and political subdivisions		534		(3	)		531
U.S. government sponsored agency mortgage-backed securities		58,463		(336	)		58,127
Other debt securities		22,660		(29	)		22,631
Total <12 months temporarily impaired AFS securities		87,261		(375	)		86,886

12 Months or More
U.S. Treasury and government agencies		46,163		(190	)		45,973
State and political subdivisions		0		0			0
U.S. government sponsored agency mortgage-backed securities		2,801		(42	)		2,759
Other debt securities		26,283		(179	)		26,104
Total ≥12 months temporarily impaired AFS securities		75,247		(411	)		74,836

Total
U.S. Treasury and government agencies		51,767		(197	)		51,570
State and political subdivisions		534		(3	)		531
U.S. government sponsored agency mortgage-backed securities		61,264		(378	)		60,886
Other debt securities		48,943		(208	)		48,735
Total temporarily impaired AFS securities	$	162,508	$	(786	)	$	161,722

U.S. Treasury and Government Agencies

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

State and Political Subdivisions

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

U.S. Government Sponsored Agency Mortgage-Backed Securities

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

Other Debt Securities

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

Note 4 – Loans

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

(in thousands)	March 31 2021		December 31 2020
Hotel/motel	$	258,974	$	260,699
Commercial real estate residential		305,079		287,928
Commercial real estate nonresidential		732,978		743,238
Dealer floorplans		63,545		69,087
Commercial other		285,176		279,908
Commercial unsecured SBA PPP		254,732		252,667
Commercial loans		1,900,484		1,893,527

Real estate mortgage		770,026		784,559
Home equity lines		101,595		103,770
Residential loans		871,621		888,329

Consumer direct		149,394		152,304
Consumer indirect		617,305		620,051
Consumer loans		766,699		772,355

Loans and lease financing	$	3,538,804	$	3,554,211

The loan portfolios presented above are net of unearned fees and unamortized premiums. Unearned fees included above totaled $9.4 million as of March 31, 2021 and $9.3 million as of December 31, 2020 while the unamortized premiums on the indirect lending portfolio totaled $23.9 million as of March 31, 2021 and $23.8 million as of December 31, 2020.

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

Commercial real estate residential loans are commercial purpose construction and permanent financed loans for commercial purpose 1-4 family/multi-family properties. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.

Commercial real estate nonresidential loans are secured by nonfarm, nonresidential properties, farmland, and other commercial real estate. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral. Construction for commercial real estate nonresidential loans are also included in this segment as these loans are generally one loan for construction to permanent financing.

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

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

CTBI’s participation in the Paycheck Protection Program (“PPP”) established by the CARES Act resulted in the creation of a new loan segment of unsecured commercial other loans that are one hundred percent guaranteed by the Small Business Administration (“SBA”). These loans, which are subject to forgiveness, have maturities of either two or three to five years, depending on when the loan was made. These loans currently have no allowance for credit losses.

Residential real estate loans are a mixture of fixed rate and adjustable rate first and second lien residential mortgage loans and also include real estate construction loans which are typically for owner-occupied properties. The terms of the real estate construction loans are generally short-term with permanent financing upon completion. As a policy, CTBI holds adjustable rate loans and sells the majority of its fixed rate first lien mortgage loans into the secondary market. Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and interest payments. Residential real estate loans are secured by real property.

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

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

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

Not included in the loan balances above were loans held for sale in the amount of $17.7 million at March 31, 2021 and $23.3 million at December 31, 2020.

The following tables present the balance in the allowance for credit losses (“ACL”) for the periods ended March 31, 2021, December 31, 2020 and March 31, 2020:

	Three Months Ended March 31, 2021
(in thousands)	Hotel/ Motel		Commercial Real Estate Residential			Commercial Real Estate Nonresidential			Dealer Floorplans			Commercial Other			Real Estate Mortgage			Home Equity			Consumer Direct			Consumer Indirect			Total
ACL
Beginning balance	$	6,356	$	4,464		$	11,086		$	1,382		$	4,289		$	7,832		$	844		$	1,863		$	9,906		$	48,022
Provision charged to expense		308		199			(135	)		(64	)		269			(690	)		(93	)		(14	)		(2,279	)		(2,499	)
Losses charged off		0		(24	)		(151	)		0			(112	)		(8	)		(5	)		(154	)		(1,016	)		(1,470	)
Recoveries		0		2			13			0			125			9			4			116			1,024			1,293
Ending balance	$	6,664	$	4,641		$	10,813		$	1,318		$	4,571		$	7,143		$	750		$	1,811		$	7,635		$	45,346

	Year Ended December 31, 2020
(in thousands)	Hotel/Motel			Commercial Real Estate Residential			Commercial Real Estate Nonresidential			Dealer Floorplans			Commercial Other			Real Estate Mortgage			Home Equity			Consumer Direct			Consumer Indirect			Total
ACL
Beginning balance, prior to adoption of ASC 326	$	3,371		$	3,439		$	8,515		$	802		$	5,556		$	4,604		$	897		$	1,711		$	6,201		$	35,096
Impact of adoption of ASC 326		170			(721	)		119			820			(391	)		1,893			(75	)		(40	)		1,265			3,040
Provision charged to expense		2,858			1,772			3,303			(214	)		2,040			1,584			16			609			4,079			16,047
Losses charged off		(43	)		(182	)		(941	)		(26	)		(3,339	)		(321	)		(4	)		(927	)		(4,670	)		(10,453	)
Recoveries		0			156			90			0			423			72			10			510			3,031			4,292
Ending balance	$	6,356		$	4,464		$	11,086		$	1,382		$	4,289		$	7,832		$	844		$	1,863		$	9,906		$	48,022

	Three Months Ended March 31, 2020
(in thousands)	Hotel/ Motel		Commercial Real Estate Residential			Commercial Real Estate Nonresidential			Dealer Floorplans		Commercial Other			Real Estate Mortgage			Home Equity			Consumer Direct			Consumer Indirect			Total
ACL
Beginning balance, prior to adoption of ASC 326	$	3,371	$	3,439		$	8,515		$	802	$	5,556		$	4,604		$	897		$	1,711		$	6,201		$	35,096
Impact of adoption of ASC 326		170		(721	)		119			820		(391	)		1,893			(75	)		(40	)		1,265			3,040
Provision charged to expense		2,381		1,337			2,984			91		1,434			1,099			67			739			2,575			12,707
Losses charged off		0		(51	)		(59	)		0		(359	)		(60	)		0			(369	)		(1,517	)		(2,415	)
Recoveries		0		8			4			0		169			7			1			122			706			1,017
Ending balance	$	5,922	$	4,012		$	11,563		$	1,713	$	6,409		$	7,543		$	890		$	2,163		$	9,230		$	49,445

CTBI derived its ACL balance by using vintage modeling for the consumer and residential portfolios. Static pool models incorporating losses by credit risk rating were developed to determine credit loss balances for the commercial loan segments.

Qualitative loss factors are based on CTBI’s judgment of delinquency trends, level of nonperforming loans, trend in loan losses, supervision and administration, quality control exceptions, and reasonable and supportable forecasts based on unemployment rates and industry concentrations. CTBI has determined that twelve months represents a reasonable and supportable forecast period and reverts back to a historical loss rate immediately. CTBI leverages economic projections from a reputable and independent third party to form its loss driver forecasts over the twelve month forecast period. Other internal and external indicators of economic forecasts are also considered by CTBI when developing the forecast metrics.

CTBI also has an inherent model risk allocation included in its ACL calculation to allow for certain known model limitations as well as other potential risks not quantified elsewhere. Management has identified the following known model limitations and made adjustments through this portion of the calculation for them:

(1) The inability to completely identify revolving lines of credit within the commercial other segment. Management had to make assumptions regarding commercial renewals as those renewals are not tracked well by its loan system.

(2) The inability within the model to estimate the value of modifications made under troubled debt restructurings. Management has manually calculated the estimated impact based on research of modified terms for troubled debt restructurings.

With the continued impact of the global COVID-19 pandemic and the fact that there is no immediate end foreseen, this has been identified as a significant specific event that could impact our customers’ ability to pay. CTBI added a new factor during the prior year as an allocation to recognize when there are significant events occurring that could impact the loan portfolio. Management noted that the qualitative factors for current delinquency trends and our levels of nonperforming loans were driving a reduction in the overall calculation for our ACL. Management was concerned that these factors may have been artificially influenced by the current credit environment and the number of loans that have received payment deferrals. Given this uncertainty, management elected to maintain this significant event qualitative factor to anticipate continued impact of COVID-19 once further deferments are no longer available and SBA Payroll Protection Programs end.

We recognized a recapture of allowance for credit losses with a credit to provision for credit losses of $2.5 million for the first quarter of 2021, compared to a provision for credit losses of $1.0 million for the prior quarter and $12.7 million for the first quarter of 2020. The change in the provision for credit losses compared to the fourth quarter of 2020 was due primarily to the improvement in net charge off experience affecting our vintage loss analysis in several segments, the most significant of those being the indirect lending and residential lending segments. The indirect lending segment experienced no net losses in the quarter, compared to the 12 quarter rolling average losses of 0.35 percent. The residential lending segment experienced no net losses in the quarter compared to the 12 quarter rolling average of 0.07 percent. Overall, the decrease in the allowance for credit losses attributed to historical loss factors was $2.4 million. Our reserve coverage (allowance for credit losses to nonperforming loans) at March 31, 2021 was 215.5% compared to 180.7% at December 31, 2020 and 139.8% at March 31, 2020. Our credit loss reserve as a percentage of total loans outstanding at March 31, 2021 was 1.28% (1.38% excluding PPP loans) compared to 1.35% at December 31, 2020 (1.46% excluding PPP loans) and 1.50% at March 31, 2020. The PPP program began in April 2020.

Refer to Note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy. Nonaccrual loans and loans 90 days past due and still accruing segregated by class of loans for both March 31,2021 and December 31, 2020 were as follows:

	March 31, 2021
(in thousands)	Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		90+ and Still Accruing		Total Nonperforming Loans

Hotel/motel	$	0	$	0	$	0	$	0
Commercial real estate residential		0		981		1,067		2,048
Commercial real estate nonresidential		3,311		1,400		3,418		8,129
Commercial other		0		743		335		1,078
Total commercial loans		3,311		3,124		4,820		11,255

Real estate mortgage		0		5,268		3,035		8,303
Home equity lines		0		520		656		1,176
Total residential loans		0		5,788		3,691		9,479

Consumer direct		0		0		31		31
Consumer indirect		0		0		274		274
Total consumer loans		0		0		305		305

Loans and lease financing	$	3,311	$	8,912	$	8,816	$	21,039

	December 31, 2020
(in thousands)	Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		90+ and Still Accruing		Total Nonperforming Loans

Hotel/motel	$	0	$	0	$	0	$	0
Commercial real estate residential		0		1,225		4,776		6,001
Commercial real estate nonresidential		0		1,424		7,852		9,276
Commercial other		0		867		269		1,136
Total commercial loans		0		3,516		12,897		16,413

Real estate mortgage		0		5,346		3,420		8,766
Home equity lines		0		582		392		974
Total residential loans		0		5,928		3,812		9,740

Consumer direct		0		0		71		71
Consumer indirect		0		0		353		353
Total consumer loans		0		0		424		424

Loans and lease financing	$	0	$	9,444	$	17,133	$	26,577

The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of March 31, 2021 and December 31, 2020 (includes loans 90 days past due and still accruing as well):

March 31, 2021
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans
Hotel/motel	$	0	$	0	$	0	$	0	$	258,974	$	258,974
Commercial real estate residential		1,205		516		1,650		3,371		301,708		305,079
Commercial real estate nonresidential		1,096		863		7,566		9,525		723,453		732,978
Dealer floorplans		0		0		0		0		63,545		63,545
Commercial other		2,005		1,201		655		3,861		281,315		285,176
Commercial unsecured SBA PPP		0		0		0		0		254,732		254,732
Total commercial loans		4,306		2,580		9,871		16,757		1,883,727		1,900,484

Real estate mortgage		1,843		3,462		5,393		10,698		759,328		770,026
Home equity lines		285		168		1,115		1,568		100,027		101,595
Total residential loans		2,128		3,630		6,508		12,266		859,355		871,621

Consumer direct		459		45		31		535		148,859		149,394
Consumer indirect		1,099		360		274		1,733		615,572		617,305
Total consumer loans		1,558		405		305		2,268		764,431		766,699

Loans and lease financing	$	7,992	$	6,615	$	16,684	$	31,291	$	3,507,513	$	3,538,804

December 31, 2020
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans
Hotel/motel	$	0	$	0	$	0	$	0	$	260,699	$	260,699
Commercial real estate residential		722		413		5,577		6,712		281,216		287,928
Commercial real estate nonresidential		1,199		0		8,703		9,902		733,336		743,238
Dealer floorplans		0		0		0		0		69,087		69,087
Commercial other		658		136		835		1,629		278,279		279,908
Commercial unsecured SBA PPP		0		0		0		0		252,667		252,667
Total commercial loans		2,579		549		15,115		18,243		1,875,284		1,893,527

Real estate mortgage		1,784		3,501		6,897		12,182		772,377		784,559
Home equity lines		509		305		919		1,733		102,037		103,770
Total residential loans		2,293		3,806		7,816		13,915		874,414		888,329

Consumer direct		659		87		71		817		151,487		152,304
Consumer indirect		2,960		973		353		4,286		615,765		620,051
Total consumer loans		3,619		1,060		424		5,103		767,252		772,355

Loans and lease financing	$	8,491	$	5,415	$	23,355	$	37,261	$	3,516,950	$	3,554,211

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

Hotel/motel loans are a significant concentration for CTBI, representing approximately 7.3% of total loans. This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria. Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment. Personal guarantees of the principals are generally required. Such loans are made on a projected cash flow basis and are secured by the project being constructed. Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements. Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source. If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow. Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested. Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.

Commercial real estate residential loans are commercial purpose construction and permanent financed loans for commercial purpose 1-4 family/multi-family properties. All commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria. Commercial residential construction loans generally are made to customers for the purpose of building income-producing properties. Personal guarantees of the principals are generally required. Such loans are made on a projected cash flow basis and are secured by the project being constructed. Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements. Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source. If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow. Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested. Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.

Commercial real estate nonresidential loans are secured by nonfarm, nonresidential properties, farmland, and other commercial real estate. Construction for commercial real estate nonresidential loans are also included in this segment as these loans are generally one loan for construction to permanent financing. All commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria. Commercial nonresidential construction loans generally are made to customers for the purpose of building income-producing properties. Personal guarantees of the principals are generally required. Such loans are made on a projected cash flow basis and are secured by the project being constructed. Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements. Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source. If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow. Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested. Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.

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

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

CTBI’s participation in the CARES Act PPP loan program has resulted in a new loan segment of unsecured commercial other loans that are one hundred percent SBA guaranteed. These loans, which are subject to forgiveness, have maturities of either two or three to five years, depending on when the loans were made. These loans currently have no allowance for credit losses.

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, CTBI generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences. Residential construction loans are handled through the home mortgage area of the bank. The repayment ability of the borrower and the maximum loan-to-value ratio are calculated using the normal mortgage lending criteria. Draws are processed based on percentage of completion stages including normal inspection procedures. Such loans generally convert to term loans after the completion of construction.

Consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Our determination of a borrower’s ability to repay these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

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

Credit Quality Indicators:

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

➢

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

➢

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

➢

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

➢

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

➢

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

The following tables present the credit risk profile of CTBI’s commercial loan portfolio based on rating category and payment activity, segregated by class of loans and based on last credit decision or year of origination:

March 31, 2021	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Hotel/motel
Risk rating:
Pass	$	14,733	$	11,498	$	54,602	$	27,835	$	38,701	$	25,794	$	50	$	173,213
Watch		0		23,865		5,251		0		2,730		24,125		0		55,971
OAEM		0		0		1,993		9,479		0		0		0		11,472
Substandard		0		0		0		3,295		1,113		13,910		0		18,318
Doubtful		0		0		0		0		0		0		0		0
Total hotel/motel	$	14,733	$	35,363	$	61,846	$	40,609	$	42,544	$	63,829	$	50	$	258,974

Commercial real estate residential
Risk rating:
Pass	$	37,400	$	80,666	$	37,372	$	27,044	$	16,221	$	60,778	$	9,966	$	269,447
Watch		205		1,471		2,074		2,208		2,851		8,759		164		17,732
OAEM		328		2,246		1,433		204		140		128		0		4,479
Substandard		3,674		2,900		585		1,595		524		4,118		25		13,421
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate residential	$	41,607	$	87,283	$	41,464	$	31,051	$	19,736	$	73,783	$	10,155	$	305,079

Commercial real estate nonresidential
Risk rating:
Pass	$	60,781	$	117,993	$	95,141	$	72,884	$	75,415	$	217,747	$	24,882	$	664,843
Watch		227		4,526		3,041		4,516		5,474		17,591		557		35,932
OAEM		0		0		0		18		0		338		20		376
Substandard		1,641		6,726		5,625		3,453		2,396		11,644		309		31,794
Doubtful		0		0		0		0		0		33		0		33
Total commercial real estate nonresidential	$	62,649	$	129,245	$	103,807	$	80,871	$	83,285	$	247,353	$	25,768	$	732,978

Dealer floorplans
Risk rating:
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	63,229	$	63,229
Watch		0		0		0		0		0		0		316		316
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total dealer floorplans	$	0	$	0	$	0	$	0	$	0	$	0	$	63,545	$	63,545

Commercial other
Risk rating:
Pass	$	29,710	$	67,210	$	24,136	$	32,847	$	12,867	$	18,250	$	77,740	$	262,760
Watch		727		2,067		335		6,049		640		879		6,879		17,576
OAEM		0		0		0		5		0		314		0		319
Substandard		234		2,012		354		310		447		785		379		4,521
Doubtful		0		0		0		0		0		0		0		0
Total commercial other	$	30,671	$	71,289	$	24,825	$	39,211	$	13,954	$	20,228	$	84,998	$	285,176

Commercial unsecured SBA PPP
Risk rating:
Pass	$	97,412	$	157,320	$	0	$	0	$	0	$	0	$	0	$	254,732
Watch		0		0		0		0		0		0		0		0
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total commercial unsecured SBA PPP	$	97,412	$	157,320	$	0	$	0	$	0	$	0	$	0	$	254,732

Commercial loans
Risk rating:
Pass	$	240,036	$	434,687	$	211,251	$	160,610	$	143,204	$	322,569	$	175,867	$	1,688,224
Watch		1,159		31,929		10,701		12,773		11,695		51,354		7,916		127,527
OAEM		328		2,246		3,426		9,706		140		780		20		16,646
Substandard		5,549		11,638		6,564		8,653		4,480		30,457		713		68,054
Doubtful		0		0		0		0		0		33		0		33
Total commercial loans	$	247,072	$	480,500	$	231,942	$	191,742	$	159,519	$	405,193	$	184,516	$	1,900,484

December 31, 2020	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Hotel/motel
Risk rating:
Pass	$	11,507	$	70,504	$	27,453	$	39,651	$	6,357	$	22,372	$	0	$	177,844
Watch		23,951		2,506		3,366		2,102		16,740		7,422		0		56,087
OAEM		0		1,993		9,576		0		0		0		0		11,569
Substandard		0		0		0		1,113		8,840		5,246		0		15,199
Doubtful		0		0		0		0		0		0		0		0
Total hotel/motel	$	35,458	$	75,003	$	40,395	$	42,866	$	31,937	$	35,040	$	0	$	260,699

Commercial real estate residential
Risk rating:
Pass	$	85,403	$	39,238	$	29,179	$	17,390	$	21,272	$	46,419	$	10,470	$	249,371
Watch		1,714		2,214		2,438		2,962		4,520		5,306		182		19,336
OAEM		1,921		1,361		323		142		129		0		0		3,876
Substandard		4,301		606		1,991		4,076		1,108		3,263		0		15,345
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate residential	$	93,339	$	43,419	$	33,931	$	24,570	$	27,029	$	54,988	$	10,652	$	287,928

Commercial real estate nonresidential
Risk rating:
Pass	$	125,205	$	97,204	$	77,685	$	80,416	$	100,740	$	165,839	$	25,524	$	672,613
Watch		5,133		3,175		5,075		6,366		3,020		11,046		601		34,416
OAEM		0		887		68		0		0		3,382		115		4,452
Substandard		7,254		6,152		3,471		2,462		1,358		10,817		215		31,729
Doubtful		0		0		0		0		0		28		0		28
Total commercial real estate nonresidential	$	137,592	$	107,418	$	86,299	$	89,244	$	105,118	$	191,112	$	26,455	$	743,238

Dealer floorplans
Risk rating:
Pass	$	0	$	0	$	0	$	0	$	0	$	0	$	68,610	$	68,610
Watch		0		0		0		0		0		0		477		477
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total dealer floorplans	$	0	$	0	$	0	$	0	$	0	$	0	$	69,087	$	69,087

Commercial other
Risk rating:
Pass	$	75,014	$	26,385	$	33,825	$	13,975	$	6,225	$	22,733	$	78,547	$	256,704
Watch		2,888		378		1,130		555		464		595		7,030		13,040
OAEM		25		0		5,056		181		367		0		124		5,753
Substandard		2,136		556		318		460		460		411		70		4,411
Doubtful		0		0		0		0		0		0		0		0
Total commercial other	$	80,063	$	27,319	$	40,329	$	15,171	$	7,516	$	23,739	$	85,771	$	279,908

Commercial unsecured SBA PPP
Risk rating:
Pass	$	252,667	$	0	$	0	$	0	$	0	$	0	$	0	$	252,667
Watch		0		0		0		0		0		0		0		0
OAEM		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total commercial unsecured SBA PPP	$	252,667	$	0	$	0	$	0	$	0	$	0	$	0	$	252,667

Commercial loans
Risk rating:
Pass	$	549,796	$	233,331	$	168,142	$	151,432	$	134,594	$	257,363	$	183,151	$	1,677,809
Watch		33,686		8,273		12,009		11,985		24,744		24,369		8,290		123,356
OAEM		1,946		4,241		15,023		323		496		3,382		239		25,650
Substandard		13,691		7,314		5,780		8,111		11,766		19,737		285		66,684
Doubtful		0		0		0		0		0		28		0		28
Total commercial loans	$	599,119	$	253,159	$	200,954	$	171,851	$	171,600	$	304,879	$	191,965	$	1,893,527

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

March 31, 2021	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Home equity lines
Performing	$	0	$	0	$	0	$	0	$	0	$	10,454	$	89,965	$	100,419
Nonperforming		0		0		0		0		0		634		542		1,176
Total home equity lines	$	0	$	0	$	0	$	0	$	0	$	11,088	$	90,507	$	101,595

Mortgage loans
Performing	$	42,225	$	206,775	$	104,572	$	49,852	$	54,276	$	304,023	$	0	$	761,723
Nonperforming		0		0		451		304		440		7,108		0		8,303
Total mortgage loans	$	42,225	$	206,775	$	105,023	$	50,156	$	54,716	$	311,131	$	0	$	770,026

Residential loans
Performing	$	42,225	$	206,775	$	104,572	$	49,852	$	54,276	$	314,477	$	89,965	$	862,142
Nonperforming		0		0		451		304		440		7,742		542		9,479
Total residential loans	$	42,225	$	206,775	$	105,023	$	50,156	$	54,716	$	322,219	$	90,507	$	871,621

Consumer direct loans
Performing	$	17,940	$	62,340	$	28,626	$	16,071	$	7,553	$	16,833	$	0	$	149,363
Nonperforming		0		0		11		20		0		0		0		31
Total consumer direct loans	$	17,940	$	62,340	$	28,637	$	16,091	$	7,553	$	16,833	$	0	$	149,394

Consumer indirect loans
Performing	$	69,625	$	272,369	$	120,724	$	87,806	$	42,636	$	23,871	$	0	$	617,031
Nonperforming		0		109		60		40		53		12		0		274
Total consumer indirect loans	$	69,625	$	272,478	$	120,784	$	87,846	$	42,689	$	23,883	$	0	$	617,305

Consumer loans
Performing	$	87,565	$	334,709	$	149,350	$	103,877	$	50,189	$	40,704	$	0	$	766,394
Nonperforming		0		109		71		60		53		12		0		305
Total consumer loans	$	87,565	$	334,818	$	149,421	$	103,937	$	50,242	$	40,716	$	0	$	766,699

December 31, 2020	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Home equity lines
Performing	$	0	$	0	$	0	$	0	$	23	$	12,049	$	90,724	$	102,796
Nonperforming		0		0		0		0		0		585		389		974
Total home equity lines	$	0	$	0	$	0	$	0	$	23	$	12,634	$	91,113	$	103,770

Mortgage loans
Performing	$	214,629	$	119,301	$	56,812	$	60,915	$	48,253	$	275,883	$	0	$	775,793
Nonperforming		0		436		303		314		352		7,361		0		8,766
Total mortgage loans	$	214,629	$	119,737	$	57,115	$	61,229	$	48,605	$	283,244	$	0	$	784,559

Residential loans
Performing	$	214,629	$	119,301	$	56,812	$	60,915	$	48,276	$	287,932	$	90,724	$	878,589
Nonperforming		0		436		303		314		352		7,946		389		9,740
Total residential loans	$	214,629	$	119,737	$	57,115	$	61,229	$	48,628	$	295,878	$	91,113	$	888,329

Consumer direct loans
Performing	$	72,677	$	32,993	$	18,461	$	9,157	$	6,581	$	12,364	$	0	$	152,233
Nonperforming		7		57		0		7		0		0		0		71
Total consumer direct loans	$	72,684	$	33,050	$	18,461	$	9,164	$	6,581	$	12,364	$	0	$	152,304

Consumer indirect loans
Performing	$	301,494	$	135,123	$	100,482	$	50,665	$	23,777	$	8,157	$	0	$	619,698
Nonperforming		27		115		118		52		30		11		0		353
Total consumer indirect loans	$	301,521	$	135,238	$	100,600	$	50,717	$	23,807	$	8,168	$	0	$	620,051

Consumer loans
Performing	$	374,171	$	168,116	$	118,943	$	59,822	$	30,358	$	20,521	$	0	$	771,931
Nonperforming		34		172		118		59		30		11		0		424
Total consumer loans	$	374,205	$	168,288	$	119,061	$	59,881	$	30,388	$	20,532	$	0	$	772,355

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

The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings began, but have been suspended, was $2.7 million at March 31, 2021. The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings began, but had been suspended, at December 31, 2020 was $2.9 million.

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

	March 31, 2021
(in thousands)	Number of Loans		Recorded Investment		Specific Reserve
Hotel/motel		6	$	34,174	$	550
Commercial real estate residential		5		8,679		0
Commercial real estate nonresidential		10		19,431		200
Commercial other		1		1,267		0
Total collateral dependent loans		22	$	63,551	$	750

	December 31, 2020
(in thousands)	Number of Loans		Recorded Investment		Specific Reserve
Hotel/motel		5	$	26,194	$	250
Commercial real estate residential		4		7,833		0
Commercial real estate nonresidential		12		24,497		200
Commercial other		1		5,050		0
Total collateral dependent loans		22	$	63,574	$	450

	March 31, 2020
(in thousands)	Number of Loans		Recorded Investment		Specific Reserve
Hotel/motel		3	$	14,712	$	250
Commercial real estate residential		7		5,125		92
Commercial real estate nonresidential		16		25,296		720
Commercial other		5		9,569		957
Total collateral dependent loans		31	$	54,702	$	2,019

The hotel/motel, commercial real estate residential, and commercial real estate nonresidential segments are all collateralized with real estate. The one loan listed in the commercial other segment at March 31, 2021 is collateralized by various chattel, including surface mining equipment, preparation plant equipment, and a first mortgage on a preparation plant, real estate, and improvements. The one loan listed in the commercial other segment at December 31, 2020 was collateralized by various chattel and real estate collateral with $5.1 million collateralized by a leasehold mortgage and assignment of lease on commercial property as well as furniture, fixtures, and equipment of the leasehold property. The five loans listed in the commercial other segment at March 31, 2020 were collateralized by various chattel and real estate collateral with $5.1 million collateralized by a leasehold mortgage and assignment of lease on commercial property as well as furniture, fixtures, and equipment of the leasehold property, $4.1 million primarily collateralized by underground coal mining equipment and junior real estate liens, and the remaining $0.4 million collateralized by a mix of commercial real estate and liens on furniture, fixtures, and equipment.

Certain loans have been modified in troubled debt restructurings, where economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances. Presented below, segregated by class of loans, are troubled debt restructurings that occurred during the three months ended March 31, 2021 and 2020 and the year ended December 31, 2020:

	Three Months Ended March 31, 2021
	Pre-Modification Outstanding Balance
(in thousands)	Number of Loans		Term Modification		Combination		Total Modification
Hotel/motel		0	$	0	$	0	$	0
Commercial real estate residential		0		0		0		0
Commercial real estate nonresidential		1		0		284		284
Commercial other		0		0		0		0
Total commercial loans		1		0		284		284

Real estate mortgage		0		0		0		0
Total residential loans		0		0		0		0

Total troubled debt restructurings		1	$	0	$	284	$	284

	Three Months Ended March 31, 2021
	Post-Modification Outstanding Balance
(in thousands)	Number of Loans		Term Modification		Combination		Total Modification
Hotel/motel		0	$	0	$	0	$	0
Commercial real estate residential		0		0		0		0
Commercial real estate nonresidential		1		0		284		284
Commercial other		0		0		0		0
Total commercial loans		1		0		284		284

Real estate mortgage		0		0		0		0
Total residential loans		0		0		0		0

Total troubled debt restructurings		1	$	0	$	284	$	284

	Year Ended December 31, 2020
	Pre-Modification Outstanding Balance
(in thousands)	Number of Loans		Term Modification		Combination		Total Modification
Hotel/motel		1	$	1,113	$	0	$	1,113
Commercial real estate residential		12		4,694		1,809		6,503
Commercial real estate nonresidential		18		7,295		782		8,077
Commercial other		12		637		53		690
Total commercial loans		43		13,739		2,644		16,383

Real estate mortgage		4		1,496		0		1,496
Total residential loans		4		1,496		0		1,496

Total troubled debt restructurings		47	$	15,235	$	2,644	$	17,879

	Year Ended December 31, 2020
	Post-Modification Outstanding Balance
(in thousands)	Number of Loans		Term Modification		Combination		Total Modification
Hotel/motel		1	$	1,113	$	0	$	1,113
Commercial real estate residential		12		4,696		1,809		6,505
Commercial real estate nonresidential		18		7,349		782		8,131
Commercial other		12		571		51		622
Total commercial loans		43		13,729		2,642		16,371

Real estate mortgage		4		1,479		0		1,479
Total residential loans		4		1,479		0		1,479

Total troubled debt restructurings		47	$	15,208	$	2,642	$	17,850

	Three Months Ended March 31, 2020
			Pre- Modification Outstanding Recorded Investment				Post- Modification Outstanding Recorded Investment
(in thousands)	Number of Loans		Term		Total Modification		Term Modification		Total Modification
New troubled debt restructurings
Hotel/motel		0	$	0	$	0	$	0	$	0
Commercial real estate residential		8		4,397		4,397		4,399		4,399
Commercial real estate nonresidential		9		2,345		2,345		2,336		2,336
Commercial other		5		464		464		399		399
Total commercial loans		22		7,206		7,206		7,134		7,134

Real estate mortgage		1		388		388		388		388
Total residential loans		1		388		388		388		388

Total troubled debt restructurings		23	$	7,594	$	7,594	$	7,522	$	7,522

No charge-offs have resulted from modifications for any of the presented periods. We had commitments to extend additional credit in the amount of $88 thousand and $85 thousand at March 31, 2021 and December 31, 2020, respectively, on loans that were considered troubled debt restructurings.

Loans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual. Commercial and consumer loans modified in a troubled debt restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a troubled debt restructuring subsequently default, CTBI evaluates the loan for possible further impairment. The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. Presented below, segregated by class of loans, are loans that were modified as troubled debt restructurings within the past twelve months which have subsequently defaulted. CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual. Presented below, segregated by segment, are troubled debt restructurings for which there was a payment default during the periods indicated and such default was within twelve months of the loan modification as of December 31, 2020. There were no defaults as of March 31, 2021.

(in thousands)	Year Ended December 31, 2020
	Number of Loans		Recorded Balance
Commercial:
Commercial other		3	$	368
Total defaulted restructured loans		3	$	368

Note 5 – Other Real Estate Owned

Activity for other real estate owned was as follows:

	Three Months Ended March 31
(in thousands)	2021			2020
Beginning balance of other real estate owned	$	7,694		$	19,480
New assets acquired		(170	)		1,625
Fair value adjustments		(154	)		(458	)
Sale of assets		(1,146	)		(831	)
Ending balance of other real estate owned	$	6,224		$	19,816

Carrying costs and fair value adjustments associated with foreclosed properties for the three months ended March 31, 2021 and 2020 were $0.3 million and $0.9 million, respectively. See Note 1 for a description of our accounting policies relative to foreclosed properties and other real estate owned.

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

(in thousands)	March 31 2021		December 31 2020
1-4 family	$	1,277	$	1,888
Construction/land development/other		616		1,069
Multifamily		88		88
Non-farm/non-residential		4,243		4,649
Total foreclosed properties	$	6,224	$	7,694

Note 6 – Repurchase Agreements

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

We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities. The primary risk with our repurchase agreements is market risk associated with the securities securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The carrying value of investment securities available-for-sale pledged as collateral under repurchase agreements totaled $396.2 million and $397.4 million at March 31, 2021 and December 31, 2020, respectively.

The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in the accompanying consolidated balance sheets as of March 31, 2021 and December 31, 2020 is presented in the following tables:

	March 31, 2021
	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	$	3,894	$	22	$	0	$	38,051	$	41,967
State and political subdivisions		63,479		179		0		32,463		96,121
U.S. government sponsored agency mortgage-backed securities		26,952		1,104		0		188,091		216,147
Total	$	94,325	$	1,305	$	0	$	258,605	$	354,235

	December 31, 2020
	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	$	8,777	$	0	$	2,831	$	31,800	$	43,408
State and political subdivisions		54,639		0		1,132		21,421		77,192
U.S. government sponsored agency mortgage-backed securities		33,040		0		101,037		101,185		235,262
Total	$	96,456	$	0	$	105,000	$	154,406	$	355,862

Note 7 – Fair Market Value of Financial Assets and Liabilities

Fair Value Measurements

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

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

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

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

Recurring Measurements

The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 and indicate the level within the fair value hierarchy of the valuation techniques.

			Fair Value Measurements at March 31, 2021 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – recurring basis
Available-for-sale securities:
U.S. Treasury and government agencies	$	203,619	$	134,598	$	69,021	$	0
State and political subdivisions		220,117		0		220,117		0
U.S. government sponsored agency mortgage-backed securities		674,832		0		674,832		0
Other debt securities		56,627		0		56,627		0
Equity securities at fair value		2,243		0		0		2,243
Mortgage servicing rights		5,584		0		0		5,584

			Fair Value Measurements at December 31, 2020 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – recurring basis
Available-for-sale securities:
U.S. Treasury and government agencies	$	148,793	$	74,991	$	73,802	$	0
State and political subdivisions		140,416		0		140,416		0
U.S. government sponsored agency mortgage-backed securities		651,807		0		651,807		0
Other debt securities		56,245		0		56,245		0
Equity securities at fair value		2,471		0		0		2,471
Mortgage servicing rights		4,068		0		0		4,068

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. These valuation methodologies were applied to all of CTBI’s financial assets carried at fair value. CTBI had no liabilities measured and recorded at fair value as of March 31, 2021 and December 31, 2020. There have been no significant changes in the valuation techniques during the quarter ended March 31, 2021. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-Sale Securities

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

If quoted market prices are not available, CTBI obtains fair value measurements from an independent pricing service, such as Interactive Data, which utilizes pricing models to determine fair value measurement. CTBI reviews the pricing quarterly to verify the reasonableness of the pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other factors. U.S. Treasury and government agencies, state and political subdivisions, U.S. government sponsored agency mortgage-backed securities, and other debt securities are classified as Level 2 inputs.

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

Equity Securities at Fair Value

As of March 31, 2021 and December 31, 2020, the only securities owned by CTBI that were valued using Level 3 criteria are Visa Class B Stock (included in equity securities at fair value). Fair value for Visa Class B Stock is determined by an independent third party utilizing assumptions about factors such as quarterly common stock dividend payments, the conversion of the securities to the relevant Class A Stock shares subject to the prevailing conversion rate and conversion date. We have concluded that the third party assumptions, processes, and conclusions are reasonable and appropriate in determining the fair value of this asset. See the table below for inputs and valuation techniques used for Level 3 equity securities.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. CTBI reports mortgage servicing rights at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value.

In determining fair value, CTBI utilizes the expertise of an independent third party. Accordingly, fair value is determined by the independent third party by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements of mortgage servicing rights are tested for impairment on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States. We have reviewed the assumptions, processes, and conclusions of the third party provider. We have determined these assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset. See the table below for inputs and valuation techniques used for Level 3 mortgage servicing rights.

Level 3 Reconciliation

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

(in thousands)	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
	Equity Securities at Fair Value			Mortgage Servicing Rights			Equity Securities at Fair Value			Mortgage Servicing Rights
Beginning balance	$	2,471		$	4,068		$	1,953		$	3,263
Total unrealized gains (losses) Included in net income		(228	)		1,030			(232	)		(818	)
Issues		0			736			0			144
Settlements		0			(250	)		0			(108	)
Ending balance	$	2,243		$	5,584		$	1,721		$	2,481

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	$	(228	)	$	1,030		$	(232	)	$	(818	)

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

Noninterest Income

	Three Months Ended March 31
(in thousands)	2021		2020
Total gains (losses)	$	552	$	(1,159	)

Nonrecurring Measurements

The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020 and indicate the level within the fair value hierarchy of the valuation techniques.

			Fair Value Measurements at March 31, 2021 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – nonrecurring basis
Collateral dependent loans	$	563	$	0	$	0	$	563
Other real estate owned		530		0		0		530

			Fair Value Measurements at December 31, 2020 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – nonrecurring basis
Collateral-dependent loans	$	1,768	$	0	$	0	$	1,768
Other real estate owned		2,395		0		0		2,395

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

Collateral Dependent Loans

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

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

Loans considered collateral dependent are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty in accordance with ASC 326-20-35-5. Quarter-to-date fair value adjustments on collateral- dependent loans disclosed above were $0.3 million, $0.0 million, and $0.8 million for the quarters ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

Other Real Estate Owned

In accordance with the provisions of ASC 360, Property, Plant, and Equipment, other real estate owned (“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral. Quarter-to-date fair value adjustments on other real estate owned disclosed above were $0.2 million, $0.1 million, and $0.4 million for the quarters ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months. Appraisers are selected from the list of approved appraisers maintained by management.

Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at March 31, 2021 and December 31, 2020.

(in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at March 31, 2021	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Equity securities at fair value	$2,243	Discount cash flows, computer pricing model	Discount rate	8.0% - 12.0% (10.0%)
			Conversion date	Dec 2023 – Dec 2027 (Dec 2025)

Mortgage servicing rights	$5,584	Discount cash flows, computer pricing model	Constant prepayment rate	0.0% - 36.5% (11.0%)
			Probability of default	0.0% - 100.0% (1.8%)
			Discount rate	10.0% - 11.5% (10.1%)

Collateral dependent loans	$563	Market comparable properties	Marketability discount	0.0%- 55.3% (55.3%)

Other real estate owned	$530	Market comparable properties	Comparability adjustments	9.1% - 58.1% (24.9%)

(in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2020	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Equity securities at fair value	$2,471	Discount cash flows, computer pricing model	Discount rate	8.0% - 12.0% (10.0%)
			Conversion date	Dec 2022 – Dec 2026 (Dec 2024)

Mortgage servicing rights	$4,068	Discount cash flows, computer pricing model	Constant prepayment rate	0.0% - 32.8% (15.7%)
			Probability of default	0.0% - 100.0% (1.7%)
			Discount rate	10.0% - 11.5% (10.1%)

Collateral-dependent loans	$1,768	Market comparable properties	Marketability discount	17.5% - 31.5% (24.5%)

Other real estate owned	$2,395	Market comparable properties	Comparability adjustments	(9.1)% - 64.3% (12.8%)

Uncertainty of Fair Value Measurements

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

Equity Securities at Fair Value

Fair market value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock and the prevailing conversion rate at the conversion date. The most recent conversion rate of 1.6228 and the most recent dividend rate of 0.5193 were used to derive the fair value estimate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate.

Mortgage Servicing Rights

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

Fair Value of Financial Instruments

The following table presents estimated fair value of CTBI’s financial instruments as of March 31, 2021 and indicates the level within the fair value hierarchy of the valuation techniques. In accordance with the adoption of ASU 2016-01, the fair values as of March 31, 2021 were measured using an exit price notion.

			Fair Value Measurements at March 31, 2021 Using
(in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	423,105	$	423,105	$	0	$	0
Certificates of deposit in other banks		245		0		245		0
Debt securities available-for-sale		1,155,195		134,598		1,020,597		0
Equity securities at fair value		2,243		0		0		2,243
Loans held for sale		17,748		18,195		0		0
Loans, net		3,493,458		0		0		3,649,893
Federal Home Loan Bank stock		9,971		0		9,971		0
Federal Reserve Bank stock		4,887		0		4,887		0
Accrued interest receivable		15,188		0		15,188		0
Mortgage servicing rights		5,584		0		0		5,584

Financial liabilities:
Deposits	$	4,233,772	$	1,283,309	$	3,002,615	$	0
Repurchase agreements		354,235		0		0		354,158
Federal funds purchased		500		0		500		0
Advances from Federal Home Loan Bank		390		0		427		0
Long-term debt		57,841		0		0		38,425
Accrued interest payable		1,365		0		1,365		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

The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 2020 and indicates the level within the fair value hierarchy of the valuation techniques.

			Fair Value Measurements at December 31, 2020 Using
(in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	338,235	$	338,235	$	0	$	0
Certificates of deposit in other banks		245		0		245		0
Debt securities available-for-sale		997,261		74,991		922,270		0
Equity securities at fair value		2,471		0		0		2,471
Loans held for sale		23,259		23,884		0		0
Loans, net		3,506,189		0		0		3,658,554
Federal Home Loan Bank stock		10,048		0		10,048		0
Federal Reserve Bank stock		4,887		0		4,887		0
Accrued interest receivable		15,818		0		15,818		0
Mortgage servicing rights		4,068		0		0		4,068

Financial liabilities:
Deposits	$	4,016,082	$	1,140,925	$	2,913,217	$	0
Repurchase agreements		355,862		0		0		355,918
Federal funds purchased		500		0		500		0
Advances from Federal Home Loan Bank		395		0		436		0
Long-term debt		57,841		0		0		40,081
Accrued interest payable		1,243		0		1,243		0

Unrecognized financial instruments:
Letters of credit	$	0	$	0	$	0	$	0
Commitments to extend credit		0		0		0		0
Forward sale commitments		0		0		0		0

Note 8 – Revenue Recognition

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

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

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

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

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

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

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

Note 9 – Earnings Per Share

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

	Three Months Ended March 31
(in thousands except per share data)	2021		2020
Numerator:
Net income	$	23,618	$	6,579

Denominator:
Basic earnings per share:
Weighted average shares		17,774		17,752
Diluted earnings per share:
Effect of dilutive stock options and restricted stock grants		13		11
Adjusted weighted average shares		17,787		17,763

Earnings per share:
Basic earnings per share	$	1.33	$	0.37
Diluted earnings per share		1.33		0.37

There were no options to purchase common shares that were excluded from the diluted calculations above for the three months ended March 31, 2021. Options to purchase 20,000 common shares at a weighted average price of $32.27 were excluded from the diluted calculations above for the three months ended March 31, 2020, because the exercise prices on the options were greater than the average market price for the period. In addition to in-the-money stock options, unvested restricted stock grants were also used in the calculation of diluted earnings per share based on the treasury method.

Note 10 – Accumulated Other Comprehensive Income

Unrealized gains on AFS securities

Amounts reclassified from accumulated other comprehensive income (AOCI) and the affected line items in the statements of income during the three months ended March 31, 2021 and 2020 were:

	Amounts Reclassified from AOCI
(in thousands)	Three Months Ended March 31
	2021		2020
Affected line item in the statements of income
Securities gains	$	60	$	481
Tax expense		16		125
Total reclassifications out of AOCI	$	44	$	356

Note 11 – COVID-19 and CARES Act Loan Activities

We continue working with our customers through the COVID-19 pandemic. At March 31, 2021, the number of customers with CARES Act deferrals reduced to 226 for a total outstanding amount of $81.8 million. The majority of our CARES Act deferrals have been 90 day deferrals. Total outstanding deferrals include 73 commercial loan deferrals with a total outstanding amount of $73.8 million, 83 residential loan deferrals with a total outstanding amount of $6.5 million, and 70 consumer loan deferrals with a total outstanding amount of $1.5 million. Included in the commercial loan deferrals are 20 four time deferrals totaling $40.5 million and 2 five time deferrals totaling $10.6 million. In most cases, these loans have been downgraded; however, they remain within the pass category, as little to no loss is anticipated. One of the loans was already graded substandard prior to the deferrals being granted. These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans.

At March 31, 2021, we had closed 2,962 Paycheck Protection Program (PPP) loans totaling $277.0 million, stemming from the CARES Act passed by Congress as a stimulus response to the potential economic impacts of COVID-19. The initial phase of the PPP program expired on August 8, 2020, and the loan forgiveness process began shortly thereafter. Through March 31, 2021, we have had 1,563 of our PPP loans forgiven by the SBA in a total amount of $117.2 million. During the first quarter, $98.1 million in PPP loans were paid off or forgiven. An additional stimulus package, included as part of the Consolidated Appropriations Act 2021, was signed into law in late December 2020 providing for an additional $284 billion in funding under the PPP, with authority to make loans under the program being extended through March 31, 2021. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law providing, among other things, additional funds for the PPP and an expansion of certain PPP eligibility requirements. On March 30, 2021, the PPP Extension Act of 2021 was signed into law giving applicants two additional months (through May 31, 2021) to apply for PPP loans and giving the SBA until June 30, 2021 to process loan applications. As of March 31, 2021, CTBI has closed 1,857 loans totaling $99.1 million in new PPP loans stemming from the second phase of lending authorized by the Consolidated Appropriations Act 2021.

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

Results of Operations

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Community Trust Bancorp, Inc., our operations, and our present business environment. The MD&A is provided as a supplement to – and should be read in conjunction with – our condensed consolidated financial statements and the accompanying notes contained in this quarterly report. The MD&A includes the following sections:

❖	Our Business

❖	Results of Operations and Financial Condition

❖

Dividends

❖	Liquidity and Market Risk

❖	Interest Rate Risk

❖	Capital Resources

❖	Impact of Inflation, Changing Prices, and Economic Conditions

❖	Stock Repurchase Program

❖	Critical Accounting Policies and Estimates

Our Business

Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company headquartered in Pikeville, Kentucky. Currently, we own one commercial bank, Community Trust Bank, Inc. (“CTB”) and one trust company, Community Trust and Investment Company, Inc. Through our subsidiaries, we have seventy-nine banking locations in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee, four trust offices across Kentucky, and one trust office in northeastern Tennessee. At March 31, 2021, we had total consolidated assets of $5.4 billion and total consolidated deposits, including repurchase agreements, of $4.6 billion. Total shareholders’ equity at March 31, 2021 was $662.1 million. Trust assets under management, which are excluded from CTBI’s total consolidated assets, at March 31, 2021, were $3.0 billion. Trust assets under management include CTB’s investment portfolio totaling $1.1 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. For further information, see Item 1 of our annual report on Form 10-K for the year ended December 31, 2020.

Results of Operations and Financial Condition

We reported record earnings for the first quarter 2021 of $23.6 million, or $1.33 per basic share, compared to $15.8 million, or $0.89 per basic share, earned during the fourth quarter 2020 and $6.6 million, or $0.37 per basic share, earned during the first quarter 2020.

Quarterly Highlights

❖	Net interest income for the quarter of $40.2 million was $1.6 million, or 4.2%, above prior quarter and $4.0 million, or 11.0%, above first quarter 2020.

❖

We recognized a recapture of our allowance for credit losses with a credit to our provision for credit losses of $2.5 million during the quarter ended March 31, 2021, as a result of improvement in our net charge-off experience affecting our vintage loss analysis in several segments, the most significant of those being the indirect lending and residential lending segments. Provision for credit losses for the prior quarter and prior year same quarter was $1.0 million and $12.7 million, respectively.

❖	Our loan portfolio decreased $15.4 million, an annualized 1.8%, during the quarter but increased $251.3 million, or 7.6%, from March 31, 2020.

❖

CTBI experienced significant improvement in loan losses, as our net loan charge-offs for the quarter ended March 31, 2021 decreased to $0.2 million, or 0.02% of average loans annualized, compared to $0.9 million, or 0.10% annualized, experienced for the fourth quarter 2020 and $1.4 million, or 0.17% annualized, for the first quarter 2020.

❖

Asset quality has continued to improve, as our nonperforming loans, excluding troubled debt restructurings, at $21.0 million decreased $5.5 million from December 31, 2020 and $14.3 million from March 31, 2020. Nonperforming assets at $27.3 million decreased $7.0 million from December 31, 2020 and $27.9 million from March 31, 2020.

❖	Deposits, including repurchase agreements, increased $216.1 million, an annualized 20.0%, during the quarter and $956.0 million, or 26.3%, from March 31, 2020.

❖	Noninterest income for the quarter ended March 31, 2021 of $15.6 million was a $0.3 million, or 2.1%, increase from prior quarter and a $4.1 million, or 35.2%, increase from prior year same quarter.

❖	Noninterest expense for the quarter ended March 31, 2021 of $28.3 million decreased $5.3 million, or 15.8%, from prior quarter, but increased slightly by $0.1 million, or 0.3%, from prior year same quarter.

COVID-19

We continue working with our customers through the COVID-19 pandemic. At March 31, 2021, the number of customers with deferrals permitted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) reduced to 226 for a total outstanding amount of $81.8 million. The majority of our CARES Act deferrals have been 90 day deferrals. Total outstanding deferrals include 73 commercial loan deferrals with a total outstanding amount of $73.8 million, 83 residential loan deferrals with a total outstanding amount of $6.5 million, and 70 consumer loan deferrals with a total outstanding amount of $1.5 million. Included in the commercial loan deferrals are 20 four time deferrals totaling $40.5 million and 2 five time deferrals totaling $10.6 million. In most cases, these loans have been downgraded; however, they remain within the pass category, as little to no loss is anticipated. One of the loans was already graded substandard prior to the deferrals being granted. These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans disclosed below.

At March 31, 2021, we had closed 2,962 Paycheck Protection Program (PPP) loans totaling $277.0 million, stemming from the CARES Act passed by Congress as a stimulus response to the potential economic impacts of COVID-19. The initial phase of the PPP program expired on August 8, 2020, and the loan forgiveness process began shortly thereafter. Through March 31, 2021, we have had 1,563 of our PPP loans forgiven by the SBA in a total amount of $117.2 million, including $98.1 million during the first quarter 2021. An additional stimulus package, included as part of the Consolidated Appropriations Act 2021, was signed into law in late December 2020 providing for an additional $284 billion in funding under the PPP, with authority to make loans under the program being extended through March 31, 2021. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law providing, among other things, additional funds for the PPP and an expansion of certain PPP eligibility requirements. On March 30, 2021, the PPP Extension Act of 2021 was signed into law giving applicants two additional months (through May 31, 2021) to apply for PPP loans and giving the SBA until June 30, 2021 to process loan applications. As of March 31, 2021, CTBI has closed 1,857 loans totaling $99.1 million in new PPP loans stemming from the second phase of lending authorized by the Consolidated Appropriations Act 2021. CTBI intends to continue its participation in the PPP.

Income Statement Review

(dollars in thousands)							Change 2021 vs. 2020
Three Months Ended March 31	2021			2020			Amount			Percent
Net interest income	$	40,242		$	36,244		$	3,998			11.0	%
Provision for credit losses		(2,499	)		12,707			(15,206	)		(119.7	)%
Noninterest income		15,577			11,521			4,056			35.2
Noninterest expense		28,310			28,221			89			0.3
Income taxes		6,390			258			6,132			2,376.7
Net income	$	23,618		$	6,579		$	17,039			259.0	%

Average earning assets	$	4,957,636		$	4,093,833		$	863,803			21.1	%

Yield on average earning assets, tax equivalent*		3.63	%		4.41	%		(0.78	)%		(17.7	)%
Cost of interest bearing funds		0.48	%		1.19	%		(0.71	)%		(59.7	)%
Net interest margin, tax equivalent*		3.31	%		3.58	%		(0.27	)%		(7.5	)%

*Yield on average earning assets and net interest margin were computed on a tax equivalent basis using a 21% tax rate.

Net Interest Income

Net interest income for the quarter of $40.2 million was an increase of $1.6 million, or 4.2%, from fourth quarter 2020 and $4.0 million, or 11.0%, from first quarter 2020. Our net interest margin at 3.31% increased 11 basis points from prior quarter but decreased 27 basis points from prior year same quarter, while our average earning assets increased $136.4 million and $863.8 million, respectively, during those same periods. Our yield on average earning assets increased 5 basis points from prior quarter but decreased 78 basis points from prior year same quarter, and our cost of funds decreased 7 basis points from prior quarter and 71 basis points from prior year same quarter. The PPP loan portfolio had an annualized yield for the quarter of 6.03%. Interest income on the portfolio was $0.7 million, while the amortization of loan origination fees from current outstanding loans and recognition of net fee income from paid and forgiven loans was $3.3 million. These fees are amortized over the life of the loan with any unamortized balance fully recognized at the time of loan forgiveness. The impact to the net interest margin of the $3.3 million in fee income recognized was 27 basis points.

Our ratio of average loans to deposits, including repurchase agreements, was 79.9% for the quarter ended March 31, 2021 compared to 82.3% for the quarter ended December 31, 2020 and 89.9% for the quarter ended March 31, 2020.

Provision for Credit Losses

Noninterest Income

Noninterest income for the quarter ended March 31, 2021 of $15.6 million was a $0.3 million, or 2.1%, increase from prior quarter and a $4.1 million, or 35.2%, increase from prior year same quarter. The increase in noninterest income from prior quarter was primarily the result of increases in loan related fees ($0.5 million), net gains on other real estate owned ($0.5 million), and trust revenue ($0.2 million), partially offset by a decline in securities gains ($0.6 million) and deposit related fees ($0.3 million). The increase from prior year same quarter resulted from increases in loan related fees ($2.2 million) and net gains on loans ($2.0 million), partially offset by a decline in securities gains ($0.4 million). The increase in loan related fees was primarily the result of a $1.0 million positive adjustment to the fair market value of our mortgage servicing rights.

Noninterest Expense

Noninterest expense for the quarter ended March 31, 2021 of $28.3 million decreased $5.3 million, or 15.8%, from prior quarter, but increased slightly by $0.1 million, or 0.3%, from prior year same quarter. The decrease in noninterest expense quarter over quarter included decreases in personnel expense ($3.3 million), taxes other than property and payroll ($1.5 million), and net other real estate owned expense ($0.4 million). The decrease in personnel expense from prior quarter was primarily the result of a $2.4 million charge in the fourth quarter 2020 to post retirement benefits related to our bank owned life insurance and a $1.3 million increase in our accruals during the fourth quarter 2020 for special payments to employees. Noninterest expense year over year was impacted by increases in personnel expense ($1.8 million primarily as a result of resumed normal accruals for our incentive program) and data processing expense ($0.2 million), offset by decreases in taxes other than property and payroll ($1.5 million) and net other real estate owned expense ($0.6 million). In March 2019, Kentucky enacted legislation requiring financial institutions to transition from a bank franchise tax to the Kentucky corporate income tax beginning in 2021. As a result, we have experienced a decline in taxes other than property and payroll and a corresponding increase in income taxes.

Balance Sheet Review

CTBI’s total assets at $5.4 billion increased $221.0 million, or 17.4% annualized, from December 31, 2020 and $1.0 billion, or 23.1%, from March 31, 2020. Loans outstanding at March 31, 2021 were $3.5 billion, a decrease of $15.4 million, an annualized 1.8%, from December 31, 2020 but an increase of $251.3 million, or 7.6%, from March 31, 2020. Loans, excluding PPP loans, declined $17.5 million during the quarter as we experienced the payoff of a $30 million credit and continuing soft loan demand. We experienced an increase in the commercial loan portfolio during the quarter of $7.0 million (including $2.1 million in PPP loans), offset by decreases of $16.7 million in the residential loan portfolio as customers continued to refinance into the secondary market with low fixed rate mortgages, $2.9 million in the direct consumer loan portfolio, and $2.8 million in the indirect consumer loan portfolio. CTBI’s investment portfolio increased $157.7 million, or an annualized 64.0%, from December 31, 2020 and $522.2 million, or 82.2%, from March 31, 2020 as we continued to deploy our increased liquidity in investments due to continued soft loan demand. Deposits in other banks increased $72.5 million from prior quarter and $231.5 million from prior year same quarter. Deposits, including repurchase agreements, at $4.6 billion increased $216.1 million, or an annualized 20.0%, from December 31, 2020 and $956.0 million, or 26.3%, from March 31, 2020.

Shareholders’ equity at March 31, 2021 was $662.1 million, a $7.2 million increase from the $654.9 million at December 31, 2020, and a $49.1 million increase from the $612.9 million at March 31, 2020. Our tangible common equity/tangible assets ratio at March 31, 2021 was 11.27%.

Loans

(in thousands)	March 31, 2021
Loan Category	Balance		Variance from Prior Year-End			YTD Net Charge- Offs			Nonperforming		ACL
Commercial:
Hotel/motel	$	258,974		(0.7	)%	$	0		$	0	$	6,664
Commercial real estate residential		305,079		6.0			(22	)		2,048		4,641
Commercial real estate nonresidential		732,978		(1.4	)		(138	)		8,129		10,813
Dealer floorplans		63,545		(8.0	)		0			0		1,318
Commercial other		285,176		1.9			13			1,078		4,571
Commercial unsecured SBA PPP		254,732		0.8			0			0		0
Total commercial		1,900,484		0.4			(147	)		11,255		28,007

Residential:
Real estate mortgage		770,026		(1.9	)		1			8,303		7,143
Home equity		101,595		(2.1	)		(1	)		1,176		750
Total residential		871,621		(1.9	)		0			9,479		7,893

Consumer:
Consumer direct		149,394		(1.9	)		(38	)		31		1,811
Consumer indirect		617,305		(0.4	)		8			274		7,635
Total consumer		766,699		(0.7	)		(30	)		305		9,446

Total loans	$	3,538,804		(0.4	)%	$	(177	)	$	21,039	$	45,346

Asset Quality

CTBI’s total nonperforming loans, not including performing troubled debt restructurings, were $21.0 million, or 0.59% of total loans, at March 31, 2021 compared to $26.6 million, or 0.75% of total loans, at December 31, 2020 and $35.4 million, or 1.08% of total loans, at March 31, 2020. Accruing loans 90+ days past due decreased $8.3 million from prior quarter and $9.2 million from March 31, 2020. Nonaccrual loans increased $2.8 million during the quarter but decreased $5.1 million from March 31, 2020. Accruing loans 30-89 days past due at $13.2 million increased $0.7 million from prior quarter but decreased $10.9 million from March 31, 2020. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss. Our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due. Any activity regarding a criticized/classified loan (i.e. problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee). CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of $100,000 or greater. CTB’s Loan Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio. We also have a Loan Review Department that reviews every market within CTB annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, troubled debt restructuring, nonaccrual status, and adequate loan loss reserves. CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.

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

Our reserve coverage (allowance for credit losses to nonperforming loans) at March 31, 2021 was 215.5% compared to 180.7% at December 31, 2020 and 139.8% at March 31, 2020. Our credit loss reserve as a percentage of total loans outstanding at March 31, 2021 was 1.28% (1.38% excluding PPP loans) compared to 1.35% at December 31, 2020 (1.46% excluding PPP loans) and 1.50% at March 31, 2020. The PPP program began in April 2020.

Our level of foreclosed properties at $6.2 million at March 31, 2021 was a $1.5 million decrease from the $7.7 million at December 31, 2020 and a $13.6 million decrease from the $19.8 million at March 31, 2020. Sales of foreclosed properties for the quarter ended March 31, 2021 totaled $1.1 million. No significant new foreclosed properties were booked during the first quarter 2021. At March 31, 2021, the book value of properties under contracts to sell was $0.9 million; however, the closings had not occurred at quarter-end.

When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current market value less expected sales costs. Additionally, periodic updated appraisals are obtained on unsold foreclosed properties. When an updated appraisal reflects a fair market value below the current book value, a charge is booked to current earnings to reduce the property to its new market value less expected sales costs. Charges to earnings in the first quarter 2021 to reflect the decrease in current market values of foreclosed properties totaled $0.2 million. There were 7 properties reappraised during the first quarter 2021. Of these, 4 properties were written down by a total of $0.1 million. Charges to earnings during the quarters ended December 31, 2020 and March 31, 2020 were $0.4 million and $0.5 million, respectively. Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months. Approximately 87% of our OREO properties and approximately 84% of the book value of our OREO properties have appraisals dated within the past 18 months.

The appraisal aging analysis of foreclosed properties, as well as the holding period, at March 31, 2021 is shown below:

(in thousands)
Appraisal Aging Analysis			Holding Period Analysis
Days Since Last Appraisal	Number of Properties	Current Book Value	Holding Period	Current Book Value
Up to 3 months	5	$457	Less than one year	$1,959
3 to 6 months	19	1,952	1 year	985
6 to 9 months	5	1,431	2 years	257
9 to 12 months	2	87	3 years	798
12 to 18 months	23	1,281	4 years	212
18 to 24 months	4	733	5 years	348
Over 24 months	4	283	6 years	839
Total	62	$6,224	7 years	50
			8 years	748
			9 years	28
			Total	$6,224

Regulatory approval is required and has been obtained to hold foreclosed properties beyond the initial period of 5 years. Additionally, CTBI is required to dispose of any foreclosed property that has not been sold within 10 years. As of March 31, 2021, one foreclosed property with a total book value of $28 thousand had been held by us for at least nine years.

Net loan charge-offs for the quarter ended March 31, 2021 were $0.2 million, or 0.02% of average loans annualized, compared to $0.9 million, or 0.10%, experienced for the fourth quarter 2020 and $1.4 million, or 0.17%, for the first quarter 2020. Loan charge-offs for the quarter were primarily in the commercial loan portfolio.

Dividends

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

Pay Date	Record Date	Amount Per Share
April 1, 2021	March 15, 2021	$	0.385
January 1, 2021	December 15, 2020	$	0.385
October 1, 2020	September 15, 2020	$	0.385
July 1, 2020	June 15, 2020	$	0.380
April 1, 2020	March 15, 2020	$	0.380
January 1, 2020	December 15, 2019	$	0.380

Liquidity and Market Risk

The objective of CTBI’s Asset/Liability management function is to maintain consistent growth in net interest income within our policy limits. This objective is accomplished through management of our consolidated balance sheet composition, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates, and customer preferences. The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or deposit withdrawals. This is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities, sufficient unused borrowing capacity, and growth in core deposits. As of March 31, 2021, we had approximately $423.1 million in cash and cash equivalents and approximately $1.2 billion in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $338.2 million and $997.3 million at December 31, 2020. Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans. In addition to core deposit funding, we also have a variety of other short-term and long-term funding sources available. We also rely on Federal Home Loan Bank advances for both liquidity and management of our asset/liability position. Federal Home Loan Bank advances were $0.4 million at each of March 31, 2021 and December 31, 2020. As of March 31, 2021, we had a $509.9 million available borrowing position with the Federal Home Loan Bank compared to $477.2 million at December 31, 2020. We generally rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash for our investing activities. As is typical of many financial institutions, significant financing activities include deposit gathering, use of short-term borrowing facilities such as repurchase agreements and federal funds purchased, and issuance of long-term debt. At each of March 31, 2021 and December 31, 2020, we had $75 million in lines of credit with various correspondent banks available to meet any future cash needs. Our primary investing activities include purchases of securities and loan originations. We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs. Included in our cash and cash equivalents at March 31, 2021 were deposits with the Federal Reserve of $353.0 million compared to $280.7 million at December 31, 2020. Additionally, we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days.

The investment portfolio consists of investment grade short-term issues suitable for bank investments. The majority of the investment portfolio is in U.S. government and government sponsored agency issuances. At March 31, 2021, available-for-sale (“AFS”) securities comprised all of the total investment portfolio, and the AFS portfolio was approximately 174% of equity capital. Seventy-seven percent of the pledge eligible portfolio was pledged.

Interest Rate Risk

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

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

Capital Resources

We continue to grow our shareholders’ equity while also providing an annualized dividend yield to shareholders which, as of March 31, 2021, was 3.50%. Shareholders’ equity at March 31, 2021 was $662.1 million, a $7.2 million increase from the $654.9 million at March 31, 2020. Cash dividends were $0.385 per share and $0.380 per share for the three months ended March 31, 2021 and 2020, respectively. CTBI’s annualized dividend yield to shareholders as of March 31, 2021 was 3.50%. Our primary source of capital growth is the retention of earnings. We retained 71.1% of our earnings for the first three months of 2021.

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

In April 2020, as directed by Section 4012 of the CARES Act, the regulatory agencies introduced temporary changes to the CBLR. These changes, which subsequently were adopted as a final rule, temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020. Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calendar year before returning to 9% in calendar year 2022. The final rule also provides for a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement. Management elected to use the CBLR framework for CTBI and CTB. CTBI’s CBLR ratio as of March 31, 2021 was 12.70%. CTB’s CBLR ratio as of March 31, 2021 was 12.12%. Under either framework, CTBI and CTB would be considered well-capitalized under the applicable guidelines.

As of March 31, 2021, we are not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse impact on our liquidity, capital resources, or operations.

Impact of Inflation, Changing Prices, and Economic Conditions

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

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

We are all finding ourselves living and operating in unprecedented times as the COVID-19 pandemic continues to cause personal and financial hardship to our customers, employees, and communities. During these challenging times, we instituted programs to support our customers with loan modifications, forbearance, and fee waivers and participated in programs created by the government stimulus programs like the Paycheck Protection Program, focused on helping small businesses keep their employees and meet their expenses as they are unable to operate due to mandated closures. We instituted programs supporting our employees focused on healthcare, childcare, and remote and split schedule work, as well as work space changes that allow for proper social distancing to keep our employees safe as we continue to operate as a critical part of the economy. We continue to support our communities through donations to non-profit organizations as they strive to continue their commitments of serving those in need. We also continue to manage our company for the long term and our strong capital position and culture of building communities built on trust will facilitate our ability to manage through these challenging times. We will continue to serve our constituents while we all meet the challenges of COVID-19.

Stock Repurchase Program

CTBI’s stock repurchase program began in December 1998 with the authorization to acquire up to 500,000 shares and was increased by an additional 1,000,000 shares in July 2000, May 2003, and March 2020. CTBI repurchased 32,664 shares of its common stock during the first quarter 2020, leaving 1,034,706 shares remaining under our current repurchase authorization. As of March 31, 2021, a total of 2,465,294 shares have been repurchased through this program.

Critical Accounting Policies and Estimates

We have identified the following critical accounting policies:

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

The provisions of the CARES Act included an election for banking institutions to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The ability to exclude COVID-19-related modifications as troubled debt restructurings was extended under the Consolidated Appropriations Act 2021 to the earlier of (i) 60 days after the COVID-19 national emergency and (ii) January 1, 2022. CTBI elected to adopt these provisions of the CARES Act, as extended by the Consolidated Appropriations Act 2021.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. CTBI uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. Given a 200 basis point increase to the yield curve used in the simulation model, it is estimated net interest income for CTBI would increase by 5.58 percent over one year and 9.42 percent over two years. A 25 basis point decrease in the yield curve would decrease net interest income by an estimated 0.69 percent over one year and 1.58 percent over two years. For further discussion of CTBI’s market risk, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Market Risk included in the annual report on Form 10-K for the year ended December 31, 2020.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

CTBI’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. As of the end of the period covered by this report, an evaluation was carried out by CTBI’s management, with the participation of our Chief Executive Officer and the Executive Vice President, Chief Financial Officer, and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, management concluded that disclosure controls and procedures as of March 31, 2021 were effective in ensuring material information required to be disclosed in this quarterly report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in CTBI’s internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, CTBI’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		None

Item 1A.	Risk Factors		None

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		None

Item 3.	Defaults Upon Senior Securities		None

Item 4.	Mine Safety Disclosure		Not applicable

Item 5.	Other Information:
	CTBI’s Principal Executive Officer and Principal Financial Officer have furnished to the SEC the certifications with respect to this Form 10-Q that are required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002

Item 6.	Exhibits:
	(1)	Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Exhibit 31.1 Exhibit 31.2
	(2)	Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Exhibit 32.1 Exhibit 32.2
	(3)	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL	Exhibit 101.INS
	(4)	XBRL Taxonomy Extension Schema Document	Exhibit 101.SCH
	(5)	XBRL Taxonomy Extension Calculation Linkbase	Exhibit 101.CAL
	(6)	XBRL Taxonomy Extension Definition Linkbase	Exhibit 101.DEF
	(7)	XBRL Taxonomy Extension Label Linkbase	Exhibit 101.LAB
	(8)	XBRL Taxonomy Extension Presentation Linkbase	Exhibit 101.PRE
	(9)	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)	Exhibit 104

SIGNATURES

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

	COMMUNITY TRUST BANCORP, INC.

Date: May 7, 2021	By:

	/s/ Jean R. Hale
	Jean R. Hale
	Chairman, President, and Chief Executive Officer

	/s/ Kevin J. Stumbo
	Kevin J. Stumbo
	Executive Vice President, Chief Financial Officer,
	and Treasurer