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COMMUNITY TRUST BANCORP INC /KY/ - Quarter Report: 2023 June (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 June 30, 2023
 
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to _____________

Commission file number 001-31220

COMMUNITY TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)

Kentucky
61-0979818
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
   
346 North Mayo Trail
P.O. Box 2947
Pikeville, Kentucky
41502
(Address of principal executive offices)
(Zip code)

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

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

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

Yes  ☑
No

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

Yes  ☑
No

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

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

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

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

Yes  ☐
   No ☑

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

Common stock – 17,991,419 shares outstanding at July 31, 2023



CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS

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

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 2022 for further information in this regard.

1

Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands)
 
(unaudited)
June 30
2023
   
December 31
2022
 
Assets:
           
Cash and due from banks
 
$
48,915
   
$
51,306
 
Interest bearing deposits
    57,630       77,380  
Federal funds sold     3,000       0  
Cash and cash equivalents
   
109,545
     
128,686
 
                 
Certificates of deposit in other banks
   
245
     
245
 
Debt securities available-for-sale at fair value (amortized cost of $1,362,748 and $1,430,605, respectively)
   
1,201,253
     
1,256,226
 
Equity securities at fair value
   
2,545
     
2,166
 
Loans held for sale
   
238
     
109
 
                 
Loans
   
3,929,695
     
3,709,290
 
Allowance for credit losses
   
(48,018
)
   
(45,981
)
Net loans
   
3,881,677
     
3,663,309
 
                 
Premises and equipment, net
   
42,911
     
42,633
 
Operating right-of-use assets
   
13,476
     
13,809
 
Finance right-of-use assets     3,202       3,262  
Federal Home Loan Bank stock
   
6,545
     
6,676
 
Federal Reserve Bank stock
   
4,887
     
4,887
 
Goodwill
   
65,490
     
65,490
 
Bank owned life insurance
   
93,775
     
92,746
 
Mortgage servicing rights
   
8,230
     
8,468
 
Other real estate owned
   
2,047
     
3,671
 
Deferred tax asset
    34,591       39,878  
Accrued interest receivable
   
20,257
     
19,592
 
Other assets
   
29,884
     
28,463
 
Total assets
 
$
5,520,798
   
$
5,380,316
 
                 
Liabilities and shareholders’ equity:
               
Deposits:
               
Noninterest bearing
 
$
1,361,078
   
$
1,394,915
 
Interest bearing
   
3,155,582
     
3,031,228
 
Total deposits
   
4,516,660
     
4,426,143
 
                 
Repurchase agreements
   
229,020
     
215,431
 
Federal funds purchased
   
500
     
500
 
Advances from Federal Home Loan Bank
   
345
     
355
 
Long-term debt
   
64,350
     
57,841
 
Operating lease liability
   
13,843
     
14,160
 
Finance lease liability
   
3,474
     
3,468
 
Accrued interest payable
   
5,624
     
2,237
 
Other liabilities
   
26,857
     
32,134
 
Total liabilities
   
4,860,673
     
4,752,269
 
                 
Shareholders’ equity:
               
Preferred stock, 300,000 shares authorized and unissued
   
-
     
-
 
Common stock, $5.00 par value, shares authorized 25,000,000; shares issued and outstanding 202317,983,700; 202217,918,280
   
89,918
     
89,591
 
Capital surplus
   
229,943
     
229,012
 
Retained earnings
   
461,578
     
438,596
 
Accumulated other comprehensive loss, net of tax
   
(121,314
)
   
(129,152
)
Total shareholders’ equity
   
660,125
     
628,047
 
                 
Total liabilities and shareholders’ equity
 
$
5,520,798
   
$
5,380,316
 

See notes to condensed consolidated financial statements.

2

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

    Three Months Ended     Six Months Ended  
   
June 30
   
June 30
 
(in thousands except per share data)
 
2023
   
2022
   
2023
   
2022
 
Interest income:
                       
Interest and fees on loans, including loans held for sale
 
$
55,822
   
$
39,234
   
$
107,769
   
$
77,401
 
Interest and dividends on securities
                               
Taxable
   
6,811
     
4,944
     
13,569
     
9,328
 
Tax exempt
   
669
     
752
     
1,351
     
1,524
 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
   
172
     
134
     
346
     
248
 
Interest on Federal Reserve Bank deposits
   
1,289
     
273
     
2,639
     
355
 
Other, including interest on federal funds sold
   
64
     
15
     
148
     
23
 
Total interest income
   
64,827
     
45,352
     
125,822
     
88,879
 
                                 
Interest expense:
                               
Interest on deposits
   
18,462
     
3,847
     
32,853
     
6,801
 
Interest on repurchase agreements and federal funds purchased
   
2,190
     
336
     
3,806
     
590
 
Interest on advances from Federal Home Loan Bank
    7       1       50       1  
Interest on long-term debt
   
1,089
     
378
     
2,118
     
665
 
Total interest expense
   
21,748
     
4,562
     
38,827
     
8,057
 
                                 
Net interest income
   
43,079
     
40,790
     
86,995
     
80,822
 
Provision for credit losses
   
2,009
     
77
     
3,125
     
952
 
Net interest income after provision for credit losses
   
41,070
     
40,713
     
83,870
     
79,870
 
                                 
Noninterest income:
                               
Deposit related fees
    7,513
      7,263
      14,800
      14,009
 
Gains on sales of loans, net
   
115
     
519
     
236
     
1,116
 
Trust and wealth management income
   
3,351
     
3,198
     
6,430
     
6,446
 
Loan related fees
   
1,197
     
1,415
     
2,042
     
3,477
 
Bank owned life insurance
   
735
     
702
     
1,593
     
1,393
 
Brokerage revenue
   
388
     
459
     
736
     
1,049
 
Securities gains (losses)
   
165
     
(225
)
   
383
     
(126
)
Other noninterest income
   
1,292
     
1,170
     
2,218
     
2,102
 
Total noninterest income
   
14,756
     
14,501
     
28,438
     
29,466
 
                                 
Noninterest expense:
                               
Officer salaries and employee benefits
   
3,574
     
4,239
     
7,726
     
8,121
 
Other salaries and employee benefits
   
14,731
     
14,295
     
29,487
     
27,951
 
Occupancy, net
   
2,181
     
2,120
     
4,483
     
4,365
 
Equipment
   
714
     
636
     
1,440
     
1,245
 
Data processing
   
2,383
     
2,095
     
4,686
     
4,296
 
Bank franchise tax
   
419
     
416
     
838
     
831
 
Legal fees
   
381
     
348
     
649
     
649
 
Professional fees
   
531
     
536
     
1,079
     
1,102
 
Advertising and marketing
   
704
     
659
     
1,524
     
1,411
 
FDIC insurance
   
610
     
358
     
1,216
     
713
 
Other real estate owned provision and expense
   
61
     
43
     
180
     
396
 
Repossession expense
   
98
     
131
     
329
     
231
 
Amortization of limited partnership investments
   
598
     
747
     
1,195
     
1,480
 
Other noninterest expense
   
4,040
     
3,355
     
8,083
     
6,546
 
Total noninterest expense
   
31,025
     
29,978
     
62,915
     
59,337
 
                                 
Income before income taxes
   
24,801
     
25,236
     
49,393
     
49,999
 
Income taxes
   
5,397
     
4,965
     
10,676
     
10,000
 
Net income
   
19,404
     
20,271
     
38,717
     
39,999
 
                                 
Other comprehensive income (loss):
                               
Unrealized holding gains (losses) on debt securities available-for-sale:
                               
Unrealized holding gains (losses) arising during the period
   
(11,828
)
   
(47,222
)
   
12,888
     
(125,786
)
Less: Reclassification adjustments for realized gains included in net income
   
0
     
(1
)
   
4
     
(1
)
Tax expense (benefit)
   
(2,951
)
   
(12,277
)
   
5,046
     
(32,704
)
Other comprehensive income (loss), net of tax
   
(8,877
)
   
(34,944
)
   
7,838
     
(93,081
)
Comprehensive income (loss)
 
$
10,527
   
$
(14,673
)
 
$
46,555
   
$
(53,082
)
                                 
Basic earnings per share
 
$
1.09
   
$
1.14
   
$
2.17
   
$
2.24
 
Diluted earnings per share
 
$
1.08
   
$
1.14
   
$
2.16
   
$
2.24
 
                                 
Weighted average shares outstanding-basic
   
17,884
     
17,835
     
17,877
     
17,827
 
Weighted average shares outstanding-diluted
   
17,890
     
17,843
     
17,885
     
17,838
 

See notes to condensed consolidated financial statements.
3

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

(in thousands except per share and share amounts)
 
Common
Shares
   
Common
Stock
   
Capital
Surplus
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
   
Total
 
Balance, March 31, 2023
   
17,976,345
   
$
89,881
   
$
229,333
   
$
450,044
   
$
(112,437
)
 
$
656,821
 
Net income
                           
19,404
             
19,404
 
Other comprehensive income (loss)
                                   
(8,877
)
   
(8,877
)
Cash dividends declared ($0.44 per share)
                           
(7,870
)
           
(7,870
)
Issuance of common stock
   
8,604
     
43
     
237
                     
280
 
Vesting of restricted stock
    (1,249 )     (6 )     6                       0  
Stock-based compensation
                   
367
                     
367
 
Balance,  June 30, 2023
   
17,983,700
   
$
89,918
   
$
229,943
   
$
461,578
   
$
(121,314
)
 
$
660,125
 

(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, March 31, 2022
   
17,884,106
   
$
89,420
   
$
227,589
   
$
399,347
   
$
(62,985
)
 
$
653,371
 
Net income
                           
20,271
             
20,271
 
Other comprehensive income (loss)
                                   
(34,944
)
   
(34,944
)
Cash dividends declared ($0.40 per share)
                           
(7,134
)
           
(7,134
)
Issuance of common stock
   
6,075
     
30
     
221
                     
251
 
Issuance of restricted stock
    5,000       25       (25 )                     0  
Stock-based compensation
                   
235
                     
235
 
Balance, June 30, 2022
   
17,895,181
   
$
89,475
   
$
228,020
   
$
412,484
   
$
(97,929
)
 
$
632,050
 

See notes to condensed consolidated financial statements.

4

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

(in thousands except per share and share amounts)
 
Common
Shares
   
Common
Stock
   
Capital
Surplus
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss), Net of Tax
   
Total
 
Balance, January 1, 2023
   
17,918,280
   
$
89,591
   
$
229,012
   
$
438,596
   
$
(129,152
)
 
$
628,047
 
Net income
                           
38,717
             
38,717
 
Other comprehensive income (loss)
                                   
7,838
     
7,838
 
Cash dividends declared ($0.88 per share)
                           
(15,735
)
           
(15,735
)
Issuance of common stock
   
34,722
     
174
     
384
                     
558
 
Issuance of restricted stock
   
52,865
     
264
     
(264
)
                   
0
 
Vesting of restricted stock
   
(21,377
)
   
(107
)
   
107
                     
0
 
Forfeiture of restricted stock
    (790 )     (4 )     4                       0  
Stock-based compensation
                   
700
                     
700
 
Balance, June 30, 2023
   
17,983,700
   
$
89,918
   
$
229,943
   
$
461,578
   
$
(121,314
)
 
$
660,125
 

(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, 2022
   
17,843,081
   
$
89,215
   
$
227,085
   
$
386,750
   
$
(4,848
)
 
$
698,202
 
Net income
                           
39,999
             
39,999
 
Other comprehensive income (loss)
                                   
(93,081
)
   
(93,081
)
Cash dividends declared ($0.80 per share)
                           
(14,265
)
           
(14,265
)
Issuance of common stock
   
38,566
     
193
     
306
                     
499
 
Issuance of restricted stock
   
40,438
     
202
     
(202
)
                   
0
 
Vesting of restricted stock
   
(26,904
)
   
(135
)
   
135
                     
0
 
Stock-based compensation
                   
696
                     
696
 
Balance, June 30, 2022
   
17,895,181
   
$
89,475
   
$
228,020
   
$
412,484
   
$
(97,929
)
 
$
632,050
 

See notes to condensed consolidated financial statements.

5

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

  Six Months Ended
 
   
June 30
 
(in thousands)
 
2023
   
2022
 
Cash flows from operating activities:
           
Net income
 
$
38,717
   
$
39,999
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
2,561
     
2,560
 
Deferred taxes
   
242
     
306
 
Stock-based compensation
   
788
     
742
 
Provision for credit losses
   
3,125
     
952
 
Write-downs of other real estate owned and other repossessed assets
   
106
     
269
 
Gains on sale of mortgage loans held for sale
   
(236
)
   
(1,116
)
Securities (gains)/losses
   
(4
)
   
1
 
Fair value adjustments in equity securities
   
(379
)
   
125
 
Gains on sale of assets, net
   
(325
)
   
(43
)
Proceeds from sale of mortgage loans held for sale
   
9,098
     
49,301
 
Funding of mortgage loans held for sale
   
(8,991
)
   
(46,489
)
Amortization of securities premiums and discounts, net
   
1,454
     
3,341
 
Change in cash surrender value of bank owned life insurance
   
(1,029
)
   
(878
)
Changes in lease liabilities
   
(678
)
   
(894
)
Mortgage servicing rights:
               
Fair value adjustments
   
334
     
(994
)
New servicing assets created
   
(96
)
   
(452
)
Changes in:
               
Accrued interest receivable
   
(665
)
   
(386
)
Other assets
   
(1,421
)
   
(154
)
Accrued interest payable
   
3,387
     
847
 
Other liabilities
   
(5,364
)
   
(855
)
Net cash provided by operating activities
   
40,624
     
46,182
 
                 
Cash flows from investing activities:
               
Securities available-for-sale (AFS):
               
Purchase of AFS securities
   
(8,820
)
   
(178,054
)
Proceeds from sales of AFS securities
   
18,561
     
0
 
Proceeds from prepayments, calls, and maturities of AFS securities
   
56,666
     
102,230
 
Change in loans, net
   
(220,647
)
   
(149,504
)
Purchase of premises and equipment
   
(2,081
)
   
(2,262
)
Proceeds from sale and retirement of premises and equipment
    296       0  
Proceeds from sale of stock by Federal Home Loan Bank
   
131
     
0
 
Proceeds from sale of other real estate owned and repossessed assets
   
739
     
888
 
Additional investment in other real estate owned and repossessed assets
    (40 )     (73 )
Proceeds from settlement of bank owned life insurance
    0       1  
Net cash used in investing activities
   
(155,195
)
   
(226,774
)
                 
Cash flows from financing activities:
               
Change in deposits, net
   
90,517
     
128,636
 
Change in repurchase agreements and federal funds purchased, net
   
13,589
     
(32,355
)
Proceeds from Federal Home Loan Bank advances
    100,000       20,000  
Payments on advances from Federal Home Loan Bank
   
(100,010
)
   
(20,010
)
Payment of finance lease liabilities
   
0
     
(12
)
Proceeds from long-term debt/other borrowings
    6,563       0  
Repayment of long-term debt/other borrowings
    (54 )     0  
Issuance of common stock
   
558
     
499
 
Dividends paid
   
(15,733
)
   
(14,256
)
Net cash provided by financing activities
   
95,430
     
82,502
 
Net decrease in cash and cash equivalents    
(19,141
)
   
(98,090
)
Cash and cash equivalents at beginning of period
   
128,686
     
311,756
 
Cash and cash equivalents at end of period
 
$
109,545
   
$
213,666
 
                 
Supplemental disclosures:
         
 

Income taxes paid
 
$
12,308
   
$
8,710
 
Interest paid
   
35,440
     
7,210
 
Non-cash activities:
               
Loans to facilitate the sale of other real estate owned and repossessed assets
   
1,022
     
935
 
Common stock dividends accrued, paid in subsequent quarter
   
281
     
257
 
Real estate acquired in settlement of loans
   
175
     
444
 
Right-of-use assets obtained in exchange for new operating lease liabilities
    364       405  

See notes to condensed consolidated financial statements.

6

Community Trust Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 - Summary of Significant Accounting Policies


In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring adjustments) necessary, to present fairly the condensed consolidated financial position as of June 30, 2023, the results of operations, other comprehensive income (loss), and changes in shareholders’ equity for the three and six months ended June 30, 2023 and 2022 and the cash flows for the six months ended June 30, 2023 and 2022.  In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements.  The results of operations, other comprehensive income (loss), and changes in shareholders’ equity for the three and six months ended June 30, 2023 and 2022 and the cash flows for the six months ended June 30, 2023 and 2022 are not necessarily indicative of the results to be expected for the full year.  The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (“CTBI”) for that period.  For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2022, included in our annual report on Form 10-K.


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


New Accounting Standards


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

7


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



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


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

8

Significant Accounting Policies –


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


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


We have identified the following significant accounting policies:


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


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

b. Available-for-sale securities. Investments not classified as trading securities (nor as HTM securities) shall be classified as available-for-sale (“AFS”) securities.


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



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



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

9


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


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


HTM securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts.  The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics.  These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased.  At June 30, 2023 and 2022, CTBI held no securities designated as HTM.


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


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


        Loans  Loans with the ability and the intent to be held until maturity and/or payoff are reported at the carrying value of unpaid principal reduced by unearned interest, an allowance for credit losses, and unamortized deferred fees or costs and premiums.  Income is recorded on the level yield basis.  Interest accrual is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful.  Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest.  Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured.  Loans are not reclassified as accruing until principal and interest payments remain current for a period of time, generally six months, and future payments appear reasonably certain. With the implementation of ASU 2022-02 described above in the New Accountings Standards, TDRs have been eliminated while enhanced disclosure requirements have been implemented for certain loan modifications when a borrower is experiencing financial difficulty.


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


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

10


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


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


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


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


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


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

11


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



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


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



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

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


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

12

Note 2 – Stock-Based Compensation


Restricted stock expense for the three and six months ended June 30, 2023 was $411 thousand and $788 thousand, respectively, including $44 thousand and $88 thousand, respectively, in dividends paid for those periods.  Restricted stock expense for the three and six months ended June 30, 2022 was $258 thousand and $742 thousand, respectively, including $24 thousand and $46 thousand, respectively, in dividends paid for those periods.  As of June 30, 2023, there was a total of $3.7 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 3.4 years. There were no shares of restricted stock granted during the three months ended June 30, 2023, but there were 5,000 shares of restricted stock granted during the three months ended June 30, 2022.  There were 52,865 and 40,438 shares of restricted stock granted during the six months ended June 30, 2023 and 2022, respectively.  The restricted stock was issued pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan. The restrictions on the restricted stock will lapse ratably over four years, except for the 5,000 management retention restricted stock award granted in April 2022 which will vest at the end of five years, subject to such employee’s continued employment.  However, in the event of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of the participant, the restrictions will lapse, and in the event of the participant’s disability, the restrictions will lapse on a pro rata basis.  The Compensation Committee will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement.There were no shares of restricted stock forfeited during the three months ended June 30, 2023, but there were 790 shares of restricted stock forfeited during the six months ended June 30, 2023.  No shares were forfeited during the three and six months ended June 30, 2022.


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

Note 3 – Securities


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



The amortized cost and fair value of debt securities at June 30, 2023 are summarized as follows:

Available-for-Sale

(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
U.S. Treasury and government agencies
 
$
400,148
   
$
143
   
$
(34,897
)
 
$
365,394
 
State and political subdivisions
   
314,048
     
2
     
(54,225
)
   
259,825
 
U.S. government sponsored agency mortgage-backed securities
   
558,964
     
1
     
(71,066
)
   
487,899
 
Asset-backed securities
   
89,588
     
0
     
(1,453
)
   
88,135
 
Total available-for-sale securities
 
$
1,362,748
   
$
146
   
$
(161,641
)
 
$
1,201,253
 

13


The amortized cost and fair value of debt securities at December 31, 2022 are summarized as follows:

Available-for-Sale

(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
U.S. Treasury and government agencies
 
$
418,579
   
$
212
   
$
(36,859
)
 
$
381,932
 
State and political subdivisions
   
326,746
     
32
     
(61,676
)
   
265,102
 
U.S. government sponsored agency mortgage-backed securities
   
593,917
     
1
     
(73,833
)
   
520,085
 
Asset-backed securities
   
91,363
     
0
     
(2,256
)
   
89,107
 
Total available-for-sale securities
 
$
1,430,605
   
$
245
   
$
(174,624
)
 
$
1,256,226
 



The amortized cost and fair value of debt securities at June 30, 2023 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
Available-for-Sale
 
(in thousands)
 
Amortized Cost
   
Fair Value
 
Due in one year or less
 
$
33,089
   
$
32,613
 
Due after one through five years
   
336,248
     
305,693
 
Due after five through ten years
   
169,173
     
145,760
 
Due after ten years
   
175,686
     
141,153
 
U.S. government sponsored agency mortgage-backed securities
   
558,964
     
487,899
 
Asset-backed securities
   
89,588
     
88,135
 
Total debt securities
 
$
1,362,748
   
$
1,201,253
 


During the three months ended June 30, 2023, we had an unrealized gain of $165 thousand from the fair value adjustment of equity securities.  During the three months ended June 30, 2022, we had a net securities loss of $225 thousand, consisting of a pre-tax loss of $1 thousand realized on calls of AFS securities and an unrealized loss of $224 thousand from the fair value adjustment of equity securities.



During the six months ended June 30, 2023, we had a net securities gain of $383 thousand, consisting of a pre-tax gain of $4 thousand realized on sales and calls of AFS securities and an unrealized gain of $379 thousand from the fair value adjustment of equity securities.  During the six months ended June 30, 2022, we had a net securities loss of $126 thousand, consisting of a pre-tax loss of $1 thousand realized on calls of AFS securities and an unrealized loss of $125 thousand from the fair 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 June 30, 2023 were $2.5 million, as a result of a $165 thousand increase in the fair value in the second quarter 2023.  The fair value of equity securities decreased $224 thousand in the second quarter 2022.  No equity securities were sold during the six months ended June 30, 2023 and 2022.


The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $744.4 million at June 30, 2023 and $725.0 million at December 31, 2022.


The amortized cost of securities sold under agreements to repurchase amounted to $342.9 million at June 30, 2023 and $316.9 million at December 31, 2022.

14


CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of June 30, 2023 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 June 30, 2023 was 98.7% compared to 97.4% as of December 31, 2022.  The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of June 30, 2023 that are not deemed to have credit losses.  As stated above, CTBI had no HTM securities as of June 30, 2023.

Available-for-Sale

(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Losses
   
Fair Value
 
Less Than 12 Months
                 
U.S. Treasury and government agencies
 
$
7,188
   
$
(10
)
 
$
7,178
 
State and political subdivisions
   
34,386
     
(1,493
)
   
32,893
 
U.S. government sponsored agency mortgage-backed securities
   
51,640
     
(1,806
)
   
49,834
 
Asset-backed securities
   
0
     
0
   
0
 
Total <12 months temporarily impaired AFS securities
   
93,214
     
(3,309
)
   
89,905
 
                         
12 Months or More
                       
U.S. Treasury and government agencies
   
380,143
     
(34,887
)
   
345,256
 
State and political subdivisions
   
277,291
     
(52,732
)
   
224,559
 
U.S. government sponsored agency mortgage-backed securities
   
507,278
     
(69,260
)
   
438,018
 
Asset-backed securities
   
89,588
     
(1,453
)
   
88,135
 
Total ≥12 months temporarily impaired AFS securities
   
1,254,300
     
(158,332
)
   
1,095,968
 
                         
Total
                       
U.S. Treasury and government agencies
   
387,331
     
(34,897
)
   
352,434
 
State and political subdivisions
   
311,677
     
(54,225
)
   
257,452
 
U.S. government sponsored agency mortgage-backed securities
   
558,918
     
(71,066
)
   
487,852
 
Asset-backed securities
   
89,588
     
(1,453
)
   
88,135
 
Total temporarily impaired AFS securities
 
$
1,347,514
   
$
(161,641
)
 
$
1,185,873
 

15


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

Available-for-Sale

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

U.S. Treasury and Government Agencies


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

State and Political Subdivisions


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

U.S. Government Sponsored Agency Mortgage-Backed Securities


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

16

Asset-Backed Securities


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

Note 4 – Loans


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

(in thousands)
 
June 30
2023
   
December 31
2022
 
Hotel/motel
 
$
372,981
   
$
343,640
 
Commercial real estate residential
   
393,309
     
372,914
 
Commercial real estate nonresidential
   
787,598
     
762,349
 
Dealer floorplans
   
76,903
     
77,533
 
Commercial other
   
319,838
     
312,422
 
Commercial loans
   
1,950,629
     
1,868,858
 
                 
Real estate mortgage
   
883,104
     
824,996
 
Home equity lines
   
132,033
     
120,540
 
Residential loans
   
1,015,137
     
945,536
 
                 
Consumer direct
   
157,848
     
157,504
 
Consumer indirect
   
806,081
     
737,392
 
Consumer loans
   
963,929
     
894,896
 
                 
Loans and lease financing
 
$
3,929,695
   
$
3,709,290
 


The loan portfolios presented above are net of unearned fees and unamortized premiums.  Unearned fees included above totaled $1.0 million as of June 30, 2023 and as of December 31, 2022, while the unamortized premiums on the indirect lending portfolio totaled $30.9 million as of June 30, 2023 and $28.5 million as of December 31, 2022.


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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.5% of total loans. This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility. Additionally, any hotel/motel construction loans would be included in this segment as CTBI’s construction loans are primarily completed as one loan going from construction to permanent financing. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.


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

17


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


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


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



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


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


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



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


Not included in the loan balances above were loans held for sale in the amount of $0.2 million at June 30, 2023 and $0.1 million at December 31, 2022.



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


18


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

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


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



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


 
 
Three Months Ended
June 30, 2023
 
(in thousands)
 
Beginning
Balance
   
Provision
Charged to
Expense
   
Losses
Charged Off
   
Recoveries
   
Ending
Balance
 
ACL
                             
Hotel/motel
 
$
5,287
   
$
(95
)
 
$
0
   
$
0
   
$
5,192
 
Commercial real estate residential
   
5,157
     
(1,384
)
   
(28
)
   
4
     
3,749
 
Commercial real estate
nonresidential
   
9,010
     
(1,393
)
   
(9
)
   
189
     
7,797
 
Dealer floorplans
   
1,694
     
(537
)
   
0
     
0
     
1,157
 
Commercial other
   
4,782
     
2,387
     
(1,073
)
   
80
     
6,176
 
Real estate mortgage
   
7,917
     
10
     
(55
)
   
12
     
7,884
 
Home equity
   
1,044
     
76
     
(13
)
   
1
     
1,108
 
Consumer direct
   
1,746
     
807
     
(82
)
   
92
     
2,563
 
Consumer indirect
   
10,046
     
2,138
     
(693
)
   
901
     
12,392
 
Total
 
$
46,683
   
$
2,009
   
$
(1,953
)
 
$
1,279
   
$
48,018
 

19

 
 
Six Months Ended
June 30, 2023
 
(in thousands)
 
Beginning
Balance
   
Provision
Charged to
Expense
   
Losses
Charged Off
   
Recoveries
   
Ending
Balance
 
ACL
                             
Hotel/motel
 
$
5,171
   
$
21
   
$
0
   
$
0
   
$
5,192
 
Commercial real estate residential
   
4,894
     
(1,198
)
   
(28
)
   
81
     
3,749
 
Commercial real estate nonresidential
   
9,419
     
(1,946
)
   
(9
)
   
333
     
7,797
 
Dealer floorplans
   
1,776
     
(619
)
   
0
     
0
     
1,157
 
Commercial other
   
5,285
     
1,971
     
(1,260
)
   
180
     
6,176
 
Real estate mortgage
   
7,932
     
31
     
(95
)
   
16
     
7,884
 
Home equity
   
1,106
     
12
     
(13
)
   
3
     
1,108
 
Consumer direct
   
1,694
     
912
     
(238
)
   
195
     
2,563
 
Consumer indirect
   
8,704
     
3,941
     
(2,075
)
   
1,822
     
12,392
 
Total
 
$
45,981
   
$
3,125
   
$
(3,718
)
 
$
2,630
   
$
48,018
 

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

 
 
Three Months Ended
June 30, 2022
 
(in thousands)
 
Beginning
Balance
   
Provision
Charged to
Expense
   
Losses
Charged Off
   
Recoveries
   
Ending
Balance
 
ACL
                             
Hotel/motel
 
$
4,711
   
$
133
   
$
0
   
$
0
   
$
4,844
 
Commercial real estate residential
   
4,070
     
124
     
0
     
6
     
4,200
 
Commercial real estate nonresidential
   
9,169
     
(223
)
   
0
     
22
     
8,968
 
Dealer floorplans
   
1,519
     
(42
)
   
0
     
0
     
1,477
 
Commercial other
   
4,844
     
(285
)
   
(187
)
   
101
     
4,473
 
Real estate mortgage
   
7,662
     
586
     
(84
)
   
15
     
8,179
 
Home equity
   
819
     
71
     
(5
)
   
2
     
887
 
Consumer direct
   
1,787
     
(65
)
   
(175
)
   
74
     
1,621
 
Consumer indirect
   
7,728
     
(222
)
   
(377
)
   
566
     
7,695
 
Total
 
$
42,309
   
$
77
   
$
(828
)
 
$
786
   
$
42,344
 

20

 
 
Six Months Ended
June 30, 2022
 
(in thousands)
 
Beginning
Balance
   
Provision
Charged to
Expense
   
Losses
Charged Off
   
Recoveries
   
Ending
Balance
 
ACL
                             
Hotel/motel
 
$
5,080
   
$
(20
)
 
$
(216
)
 
$
0
   
$
4,844
 
Commercial real estate residential
   
3,986
     
234
     
(31
)
   
11
     
4,200
 
Commercial real estate nonresidential
   
8,884
     
(49
)
   
0
     
133
     
8,968
 
Dealer floorplans
   
1,436
     
41
     
0
     
0
     
1,477
 
Commercial other
   
4,422
     
193
     
(344
)
   
202
     
4,473
 
Real estate mortgage
   
7,637
     
683
     
(177
)
   
36
     
8,179
 
Home equity
   
866
     
38
     
(24
)
   
7
     
887
 
Consumer direct
   
1,951
     
(245
)
   
(345
)
   
260
     
1,621
 
Consumer indirect
   
7,494
     
77
     
(1,011
)
   
1,135
     
7,695
 
Total
 
$
41,756
   
$
952
   
$
(2,148
)
 
$
1,784
   
$
42,344
 



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


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


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


Changes in delinquency trends by loan segment

Changes in international, national, regional, and local conditions

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

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

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

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

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

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

21


Economic forecast factors utilized in the estimate improved quarter over quarter and the slight reduction in reserve requirements from 1.24% to 1.22% is reflective of this improvement.  Management continues to note the continued impact of global uncertainty, the current rate of inflation, the significant rising rate environment, and the fact that there is no immediate end foreseen, and these conditions are now part of qualitative factors noted above.  As in previous quarters an allocation was made for delinquency trends, industry concentrations, supervisory and administration, loan exceptions, and collateral values.



Our provision for credit losses for the quarter increased $0.9 million from prior quarter and $1.9 million from prior year same quarter.  Our reserve coverage (allowance for credit losses to nonperforming loans) at June 30, 2023 was 408.9%, compared to 382.3% at March 31, 2023 and 305.9% at June 30, 2022.  Our credit loss reserve as a percentage of total loans outstanding at June 30, 2023 was 1.22% compared to 1.24% at March 31, 2023 and 1.19% at June 30, 2022.


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 June 30, 2023 and December 31, 2022 were as follows:

 
June 30, 2023
 
 (in thousands)
 
Nonaccrual Loans
with No ACL
   
Nonaccrual Loans
with ACL
   
90+ and Still
Accruing
   
Total
Nonperforming
Loans
 
                         
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
 
Commercial real estate residential
   
0
     
322
     
712
     
1,034
 
Commercial real estate nonresidential
   
0
     
982
     
300
     
1,282
 
Commercial other
   
0
     
753
     
277
     
1,030
 
Total commercial loans
   
0
     
2,057
     
1,289
     
3,346
 
                                 
Real estate mortgage
   
0
     
3,093
     
4,206
     
7,299
 
Home equity lines
   
0
     
195
     
459
     
654
 
Total residential loans
   
0
     
3,288
     
4,665
     
7,953
 
                                 
Consumer direct
   
0
     
0
     
6
     
6
 
Consumer indirect
   
0
     
0
     
439
     
439
 
Total consumer loans
   
0
     
0
     
445
     
445
 
                                 
Loans and lease financing
 
$
0
   
$
5,345
   
$
6,399
   
$
11,744
 

22

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

Discussion of the Nonaccrual Policy



The accrual of interest income on loans is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that the collection of interest is doubtful.  Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured.  Any loans greater than 90 days past due must be well secured and in the process of collection to continue accruing interest.  See Note 1 to the condensed consolidated financial statements for further discussion on our nonaccrual policy.


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

 
June 30, 2023
 
(in thousands)
 
30-59 Days
Past Due
   
60-89
Days Past
Due
   
90+ Days
Past Due
   
Total
Past Due
   
Current
   
Total Loans
 
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
   
$
372,981
   
$
372,981
 
Commercial real estate residential
   
152
     
279
     
1,000
     
1,431
     
391,878
     
393,309
 
Commercial real estate nonresidential
   
1,101
     
110
     
940
     
2,151
     
785,447
     
787,598
 
Dealer floorplans
   
0
     
0
     
0
     
0
     
76,903
     
76,903
 
Commercial other
   
1,062
     
330
     
694
     
2,086
     
317,752
     
319,838
 
Total commercial loans
   
2,315
     
719
     
2,634
     
5,668
     
1,944,961
     
1,950,629
 
                                                 
Real estate mortgage
   
1,440
     
2,528
     
6,220
     
10,188
     
872,916
     
883,104
 
Home equity lines
   
733
     
435
     
490
     
1,658
     
130,375
     
132,033
 
Total residential loans
   
2,173
     
2,963
     
6,710
     
11,846
     
1,003,291
     
1,015,137
 
                                                 
Consumer direct
   
557
     
95
     
6
     
658
     
157,190
     
157,848
 
Consumer indirect
   
3,147
     
865
     
439
     
4,451
     
801,630
     
806,081
 
Total consumer loans
   
3,704
     
960
     
445
     
5,109
     
958,820
     
963,929
 
                                                 
Loans and lease financing
 
$
8,192
   
$
4,642
   
$
9,789
   
$
22,623
   
$
3,907,072
   
$
3,929,695
 

23

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


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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.5% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.


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

24


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


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


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


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


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


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

25

Credit Quality Indicators:


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

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

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

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

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

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

26


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

June 30, 2023
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2023
   
2022
   
2021
   
2020
   
2019
   
Prior
   
Revolving
Loans
   
Total
 
Hotel/motel
                                               
Risk rating:
                                               
Pass
 
$
38,210
   
$
150,521
   
$
28,454
   
$
17,968
   
$
47,039
   
$
47,091
   
$
4,043
   
$
333,326
 
Watch
   
2,949
     
6,957
     
8,873
     
4,709
     
3,412
     
3,871
      0      
30,771
 
OAEM
   
0
     
0
     
6,971
     
0
     
0
     
1,913
     
0
     
8,884
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total hotel/motel
   
41,159
     
157,478
     
44,298
     
22,677
     
50,451
     
52,875
     
4,043
     
372,981
 
                                                                 
Commercial real estate residential
                                                               
Risk rating:
                                                               
Pass
   
55,238
     
104,912
     
104,205
     
35,701
     
12,921
     
41,206
     
14,132
     
368,315
 
Watch
   
753
     
1,010
     
835
     
1,948
     
743
     
7,367
     
144
     
12,800
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
65
     
0
     
65
 
Substandard
   
286
     
617
     
4,295
     
623
     
289
     
6,019
     
0
     
12,129
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial real estate residential
   
56,277
     
106,539
     
109,335
     
38,272
     
13,953
     
54,657
     
14,276
     
393,309
 
                                                                 
Commercial real estate residential current period gross charge-offs
    0       0       (28 )     0       0       0       0       (28 )
                                                                 
Commercial real estate nonresidential
                                                               
Risk rating:
                                                               
Pass
   
81,927
     
153,561
     
152,539
     
79,949
     
66,557
     
166,883
     
25,508
     
726,924
 
Watch
   
300
     
3,966
     
6,499
     
9,716
     
7,618
     
6,710
     
711
     
35,520
 
OAEM
   
2,375
     
19
     
0
     
0
     
0
     
74
     
0
     
2,468
 
Substandard
   
1,370
     
1,439
     
2,522
     
4,543
     
3,096
     
9,701
     
0
     
22,671
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
15
     
0
     
15
 
Total commercial real estate nonresidential
   
85,972
     
158,985
     
161,560
     
94,208
     
77,271
     
183,383
     
26,219
     
787,598
 
                                                                 
Commercial real estate nonresidential current period gross charge-offs
    0       0       0       (9 )     0       0       0       (9 )
                                                                 
Dealer floorplans
                                                               
Risk rating:
                                                               
Pass
   
0
     
0
     
0
     
0
     
0
     
0
     
76,903
     
76,903
 
Watch
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total dealer floorplans
   
0
     
0
     
0
     
0
     
0
     
0
     
76,903
     
76,903
 
                                                                 
Commercial other
                                                               
Risk rating:
                                                               
Pass
   
41,105
     
60,219
     
54,817
     
31,984
     
6,523
     
24,483
     
78,670
     
297,801
 
Watch
   
541
     
1,390
     
980
     
156
     
334
     
771
     
5,990
     
10,162
 
OAEM
   
0
     
30
     
0
     
0
     
0
     
0
     
30
     
60
 
Substandard
   
466
     
4,216
     
4,807
     
943
     
219
     
564
     
600
     
11,815
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial other
   
42,112
     
65,855
     
60,604
     
33,083
     
7,076
     
25,818
     
85,290
     
319,838
 
                                                                 
Commercial other current period gross charge-offs
    (321 )     (632 )     (154 )     (17 )     (90 )     (46 )     0       (1,260 )
                                                                 
Commercial loans
                                                               
Risk rating:
                                                               
Pass
   
216,480
     
469,213
     
340,015
     
165,602
     
133,040
     
279,663
     
199,256
     
1,803,269
 
Watch
   
4,543
     
13,323
     
17,187
     
16,529
     
12,107
     
18,719
     
6,845
     
89,253
 
OAEM
   
2,375
     
49
     
6,971
     
0
     
0
     
2,052
     
30
     
11,477
 
Substandard
   
2,122
     
6,272
     
11,624
     
6,109
     
3,604
     
16,284
     
600
     
46,615
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
15
     
0
     
15
 
Total commercial loans
 
$
225,520
   
$
488,857
   
$
375,797
   
$
188,240
   
$
148,751
   
$
316,733
   
$
206,731
   
$
1,950,629
 
                                                                 
Total commercial loans current period gross charge-offs
  $ (321 )   $ (632 )   $ (182 )   $ (26 )   $ (90 )   $ (46 )   $ 0     $ (1,297 )

27

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

153,183
   

44,998
   

23,265
   

57,781
   

13,178
   

50,690
   

545
   

343,640
 
                                                                 
Commercial real estate residential
                                                               
Risk rating:
                                                               
Pass
 

119,826
   

110,963
   

38,423
   

15,467
   

10,492
   

36,307
   

14,297
   

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

121,482
   

116,150
   

41,976
   

16,700
   

16,267
   

45,861
   

14,478
   

372,914
 
                                                                 
Commercial real estate nonresidential
                                                               
Risk rating:
                                                               
Pass
 

175,220
   

171,311
   

80,932
   

70,848
   

44,099
   

137,575
   

23,166
   

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

180,509
   

179,613
   

95,899
   

76,161
   

46,569
   

158,857
   

24,741
   

762,349
 
                                                                 
Dealer floorplans
                                                               
Risk rating:
                                                               
Pass
 

0
   

0
   

0
   

0
   

0
   

0
   

77,153
   

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

0
   

0
   

0
   

0
   

0
   

0
   

77,533
   

77,533
 
                                                                 
Commercial other
                                                               
Risk rating:
                                                               
Pass
 

78,846
   

60,550
   

34,841
   

8,922
   

2,333
   

23,961
   

77,355
   

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

87,054
   

66,561
   

36,330
   

9,604
   

2,635
   

25,499
   

84,739
   

312,422
 
                                                                 
Commercial loans
                                                               
Risk rating:
                                                               
Pass
 

519,154
   

378,826
   

171,938
   

149,565
   

70,102
   

233,022
   

192,516
   

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

28


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

June 30, 2023
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2023
   
2022
   
2021
   
2020
   
2019
   
Prior
   
Revolving
Loans
   
Total
 
Home equity lines
                                               
Performing
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
9,047
   
$
122,332
   
$
131,379
 
Nonperforming
   
0
     
0
     
0
     
0
     
0
     
403
     
251
     
654
 
Total home equity lines
   
0
     
0
     
0
     
0
     
0
     
9,450
     
122,583
     
132,033
 
                                                                 
Home equity lines current period gross charge-offs
                                            (13 )     0       (13 )
                                                                 
Mortgage loans
                                                               
Performing
   
96,372
     
175,566
     
169,481
     
125,782
     
59,375
     
249,229
     
0
     
875,805
 
Nonperforming
   
0
     
0
     
311
     
121
     
773
     
6,094
     
0
     
7,299
 
Total mortgage loans
   
96,372
     
175,566
     
169,792
     
125,903
     
60,148
     
255,323
     
0
     
883,104
 
                                                                 
Mortgage loans current period gross charge-offs
    0       0       (47 )     0       (1 )     (47 )     0       (95 )
                                                                 
Residential loans
                                                               
Performing
   
96,372
     
175,566
     
169,481
     
125,782
     
59,375
     
258,276
     
122,332
     
1,007,184
 
Nonperforming
   
0
     
0
     
311
     
121
     
773
     
6,497
     
251
     
7,953
 
Total residential loans
 
$
96,372
   
$
175,566
   
$
169,792
   
$
125,903
   
$
60,148
   
$
264,773
   
$
122,583
   
$
1,015,137
 
                                                                 
Total residential loans current period gross charge-offs
  $
0     $
0     $
(47 )   $
0     $
(1 )   $
(60 )   $
0     $
(108 )
                                                                 
Consumer direct loans
                                                               
Performing
 
$
35,168
   
$
45,893
   
$
33,307
   
$
19,215
   
$
9,082
   
$
15,177
   
$
0
   
$
157,842
 
Nonperforming
   
0
     
6
     
0
     
0
     
0
     
0
     
0
     
6
 
Total consumer direct loans
   
35,168
     
45,899
     
33,307
     
19,215
     
9,082
     
15,177
     
0
     
157,848
 
                                                                 
Total consumer direct loans current period gross charge-offs
    0       (146 )     (42 )     (30 )     (14 )     (6 )     0       (238 )
                                                                 
Consumer indirect loans
                                                               
Performing
   
217,355
     
306,664
     
136,812
     
90,812
     
33,856
     
20,143
     
0
     
805,642
 
Nonperforming
   
0
     
157
     
183
     
36
     
18
     
45
     
0
     
439
 
Total consumer indirect loans
   
217,355
     
306,821
     
136,995
     
90,848
     
33,874
     
20,188
     
0
     
806,081
 
                                                                 
Total consumer indirect loans current period gross charge-offs
    (42 )     (785 )     (883 )     (217 )     (75 )     (73 )     0       (2,075 )
                                                                 
Consumer loans
                                                               
Performing
   
252,523
     
352,557
     
170,119
     
110,027
     
42,938
     
35,320
     
0
     
963,484
 
Nonperforming
   
0
     
163
     
183
     
36
     
18
     
45
     
0
     
445
 
Total consumer loans
 
$
252,523
   
$
352,720
   
$
170,302
   
$
110,063
   
$
42,956
   
$
35,365
   
$
0
   
$
963,929
 
                                                                 
Total consumer loans current period gross charge-offs
  $
(42 )   $
(931 )   $
(925 )   $
(247 )   $
(89 )   $
(79 )   $
0     $
(2,313 )

29

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

0
   

0
   

0
   

0
   

0
   

10,697
   

109,843
   

120,540
 
                                                                 
Mortgage loans
                                                               
Performing
 

176,736
   

177,469
   

132,795
   

62,415
   

30,473
   

236,110
   

0
   

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

176,736
   

177,751
   

132,893
   

63,206
   

30,895
   

243,515
   

0
   

824,996
 
                                                                 
Residential loans
                                                               
Performing
 

176,736
   

177,469
   

132,795
   

62,415
   

30,473
   

246,305
   

109,567
   

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

62,264
   

42,025
   

23,926
   

11,166
   

6,766
   

11,357
   

0
   

157,504
 
                                                                 
Consumer indirect loans
                                                               
Performing
 

371,079
   

168,513
   

116,267
   

45,748
   

26,247
   

9,073
   

0
   

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

371,144
   

168,764
   

116,363
   

45,778
   

26,248
   

9,095
   

0
   

737,392
 
                                                                 
Consumer loans
                                                               
Performing
 

433,318
   

210,527
   

140,188
   

56,914
   

33,013
   

20,430
   

0
   

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

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


The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings are in process was $3.8 million at June 30, 2023.  The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings have resumed with restricted parameters was $3.3  million at December 31, 2022.

30


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

 
June 30, 2023
 
(in thousands)
 
Number of
Loans
   
Recorded
Investment
   
Specific
Reserve
 
Hotel/motel
   
2
   
$
8,114
   
$
0
 
Commercial real estate residential
   
3
     
6,353
     
0
 
Commercial real estate nonresidential
   
6
     
11,704
     
0
 
Commercial other
   
2
     
6,585
     
0
 
Total collateral dependent loans
   
13
   
$
32,756
   
$
0
 

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

 
June 30, 2022
 
(in thousands)
 
Number of
Loans
   
Recorded
Investment
   
Specific
Reserve
 
Hotel/motel
   
1
   
$
1,196
   
$
0
 
Commercial real estate residential
   
4
     
6,957
     
0
 
Commercial real estate nonresidential
   
10
     
18,218
     
200
 
Commercial other
   
3
     
10,190
     
550
 
Total collateral dependent loans
   
18
   
$
36,561
   
$
750
 


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

31


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

   
Interest Rate Reduction
   
Term Extension
 
(in thousands)
 
Amortized Cost at
June 30, 2023
   
% of total
   
Amortized Cost at
June 30, 2023
   
% of total
 
Hotel/motel
 
$
0
     
0.00
%
 
$
0
     
0.00
%
Commercial real estate residential
   
0
     
0.00
     
44
     
0.01
 
Commercial real estate nonresidential
   
73
      0.01
     
13
     
0.00
 
Dealer floorplans
   
0
     
0.00
     
0
     
0.00
 
Commercial other
   
0
     
0.00
     
522
     
0.16
 
Commercial loans
   
73
     
0.00
     
579
     
0.03
 
                                 
Real estate mortgage
   
0
     
0.00
     
877
     
0.10
 
Home equity lines
   
0
     
0.00
     
0
     
0.00
 
Residential loans
   
0
     
0.00
     
877
     
0.09
 
                                 
Consumer direct
   
0
     
0.00
     
54
     
0.03
 
Consumer indirect
   
0
     
0.00
     
95
     
0.01
 
Consumer loans
   
0
     
0.00
     
149
     
0.02
 
                                 
Loans and lease financing
 
$
73
     
0.00
%
 
$
1,605
      0.04
%

   
Combination – Term Extension
and Interest Rate Reduction
   
Payment Change
 
(in thousands)
 
Amortized Cost at
June 30, 2023
   
% of total
   
Amortized Cost at
June 30, 2023
   
% of total
 
Hotel/motel
 
$
0
     
0.00
%
 
$
0
     
0.00
%
Commercial real estate residential
   
0
     
0.00
     
0
     
0.00
 
Commercial real estate nonresidential
   
0
     
0.00
     
0
     
0.00
 
Dealer floorplans
   
0
     
0.00
     
0
     
0.00
 
Commercial other
   
0
     
0.00
     
300
     
0.09
 
Commercial loans
   
0
     
0.00
     
300
     
0.02
 
                                 
Real estate mortgage
   
209
     
0.02
     
0
     
0.00
 
Home equity lines
   
43
     
0.03
     
116
     
0.09
 
Residential loans
   
252
     
0.02
     
116
     
0.01
 
                                 
Consumer direct
   
0
     
0.00
     
0
     
0.00
 
Consumer indirect
   
0
     
0.00
     
0
     
0.00
 
Consumer loans
   
0
     
0.00
     
0
     
0.00
 
                                 
Loans and lease financing
 
$
252
     
0.01
%
 
$
416
     
0.01
%

32


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

Loan Type
 
Interest Rate Reduction
Financial Impact
 
Term Extension
Financial Impact
         
Hotel/motel
          
         
Commercial real estate residential
 

 
Added a weighted-average 11.7 years to life of the loans
         
Commercial real estate nonresidential
 
Reduced weighted-average contractual interest rate from 10.8% to 8.5%
 

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

 
Added a weighted-average 4 years to life of the loans
         
Home equity lines
     

               
Consumer direct
     
Added a weighted-average 0.2 years to the life of the loans
         
Consumer indirect
     
Added a weighted-average 0.5 years to the life of the loans

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

   
         
Commercial real estate nonresidential
          
         
Dealer floorplans
          
         
Commercial other
     
Provided payment changes that will be added to the end of the original loan term
               
Real estate mortgage
 
Reduced weighted-average contractual interest rate from 6.8% to 6.2% and increased the weighted-average life by 9.7 years
   
         
Home equity lines
 
Reduced weighted-average contractual interest rate from 10.3% to 8.3% and increased the weighted-average life by 14.3 years
 
Provided payment changes that will be added to the end of the original loan term
               
Consumer direct
     

         
Consumer indirect
       
33



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

   
Interest Rate Reduction
   
Term Extension
 
(in thousands)
 
Amortized Cost at
June 30, 2023
   
% of total
   
Amortized Cost at
June 30, 2023
   
% of total
 
Hotel/motel
 
$
0
     
0.00
%
 
$
0
     
0.00
%
Commercial real estate residential
   
311
     
0.08
     
1,383
     
0.35
 
Commercial real estate nonresidential
   
4,573
     
0.58
     
4,800
     
0.61
 
Dealer floorplans
   
0
     
0.00
     
0
     
0.00
 
Commercial other
   
0
     
0.00
     
1,474
     
0.46
 
Commercial loans
   
4,884
     
0.25
     
7,657
     
0.39
 
                                 
Real estate mortgage
   
58
     
0.01
     
3,317
     
0.38
 
Home equity lines
   
0
     
0.00
     
54
     
0.04
 
Residential loans
   
58
     
0.01
     
3,371
     
0.33
 
                                 
Consumer direct
   
0
     
0.00
     
224
     
0.14
 
Consumer indirect
   
0
     
0.00
     
450
     
0.06
 
Consumer loans
   
0
     
0.00
     
674
     
0.07
 
                                 
Loans and lease financing
 
$
4,942
      0.13 %  
$
11,702
      0.30 %

   
Combination – Term Extension
and Interest Rate Reduction
   
Payment Change
 
(in thousands)
 
Amortized Cost at
June 30, 2023
   
% of total
   
Amortized Cost at
June 30, 2023
   
% of total
 
Hotel/motel
 
$
0
     
0.00
%
 
$
0
     
0.00
%
Commercial real estate residential
   
88
     
0.02
     
0
     
0.00
 
Commercial real estate nonresidential
   
0
     
0.00
     
0
     
0.00
 
Dealer floorplans
   
0
     
0.00
     
0
     
0.00
 
Commercial other
   
0
     
0.00
     
300
     
0.09
 
Commercial loans
   
88
     
0.00
     
300
     
0.02
 
                                 
Real estate mortgage
   
427
     
0.05
     
0
     
0.00
 
Home equity lines
   
77
     
0.06
     
116
     
0.09
 
Residential loans
   
504
     
0.05
     
116
     
0.01
 
                                 
Consumer direct
   
0
     
0.00
     
20
     
0.01
 
Consumer indirect
   
0
     
0.00
     
0
     
0.00
 
Consumer loans
   
0
     
0.00
     
20
     
0.00
 
                                 
Loans and lease financing
 
$
592
     
0.02
%
 
$
436
     
0.01
%
34



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

Loan Type
 
Interest Rate Reduction
Financial Impact
 
Term Extension
Financial Impact
Hotel/motel
        
           
Commercial real estate residential
 
Reduced weighted-average contractual interest rate from 9.6% to 8.0%
 
The weighted-average term was not increased with the changes to this portfolio
           
Commercial real estate nonresidential
 
Reduced weighted-average contractual interest rate from 9.5% to 7.5%
 
The weighted-average term was not increased with the changes to this portfolio
           
Dealer floorplans
        
           
Commercial other
     
Added a weighted-average 1.4 years to life of the loans
           
Real estate mortgage
 
Resulted in no change of the weighted average contractual interest rate of 3.0%
 
Added a weighted-average 2.8 years to life of the loans
           
Home equity lines
     
Added a weighted-average 6.8 years to life of the loans
           
Consumer direct
     
Removed a weighted-average 0.6 years from the life of the loans
           
Consumer indirect
     
Added a weighted-average 0.3 years to the life of the loans

Loan Type
 
Combination – Term Extension and
Interest Rate Reduction
Financial Impact
 
Payment Changes
Financial Impact
Hotel/motel
        
           
Commercial real estate residential
 
Reduced weighted-average contractual interest rate from 10.4% to 7.2% and increased the weighted-average life by 5.9 years
   
           
Commercial real estate nonresidential
        
           
Dealer floorplans
        
           
Commercial other
     
Provided payment changes that will be added to the end of the original loan term
           
Real estate mortgage
 
Reduced weighted-average contractual interest rate from 7.1% to 6.1% and increased the weighted-average life by 11.3 years
   
           
Home equity lines
 
Reduced weighted-average contractual interest rate from 9.1% to 8.0% and increased the weighted-average life by 10.2 years
 
Provided payment changes that will be added to the end of the original loan term
           
Consumer direct
     
Provided payment changes that will be added to the end of the original loan term
           
Consumer indirect
        

35


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

 
Three Months Ended
June 30, 2022
 
   
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
   
0
     
0
     
0
     
0
 
Commercial other
   
5
     
5,562
     
0
     
5,562
 
Total commercial loans
   
5
     
5,562
     
0
     
5,562
 
                                 
Real estate mortgage
    1       305       0       305  
Total residential loans
    1       305       0       305  
                                 
Total troubled debt restructurings
   
6
   
$
5,867
   
$
0
   
$
5,867
 

 
Three Months Ended
June 30, 2022
 
   
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
   
0
     
0
     
0
     
0
 
Commercial other
   
5
     
5,562
     
0
     
5,562
 
Total commercial loans
   
5
     
5,562
     
0
     
5,562
 
                                 
Real estate mortgage
    1       305       0       305  
Total residential loans
    1       305       0       305  
                                 
Total troubled debt restructurings
   
6
   
$
5,867
   
$
0
   
$
5,867
 

 
Six Months Ended
June 30, 2022
 
   
Pre-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
   
Term
Modification
   
Combination
   
Total
Modification
 
Hotel/motel
    0     $
0     $
0     $
0  
Commercial real estate residential
   
2
     
154
     
0
   
154
 
Commercial real estate nonresidential
   
2
     
245
     
0
     
245
 
Commercial other
   
9
     
6,526
     
0
     
6,526
 
Total commercial loans
   
13
     
6,925
     
0
     
6,925
 
                                 
Real estate mortgage
    3       305       916       1,221  
Total residential loans
    3       305       916       1,221  
                                 
Total troubled debt restructurings
   
16
   
$
7,230
   
$
916
   
$
8,146
 

36

 
Six Months Ended
June 30, 2022
 
   
Post-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
   
Term
Modification
   
Combination
   
Total
Modification
 
Hotel/motel
    0     $
0     $
0     $ 0  
Commercial real estate residential
   
2
   
154
   
0
   
154
 
Commercial real estate nonresidential
   
2
     
244
     
0
     
244
 
Commercial other
   
9
     
6,525
     
0
     
6,525
 
Total commercial loans
   
13
     
6,923
     
0
     
6,923
 
                                 
Real estate mortgage
    3       305       916       1,221  
Total residential loans
    3       305       916       1,221  
                                 
Total troubled debt restructurings
   
16
   
$
7,228
   
$
916
   
$
8,144
 

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

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

37


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

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

 
Nonaccrual
 
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
 
Commercial real estate residential
   
1,741
     
40
     
0
     
0
 
Commercial real estate nonresidential
   
9,373
     
0
     
0
     
0
 
Dealer floorplans
   
0
     
0
     
0
     
0
 
Commercial other
   
1,145
     
292
     
0
     
337
 
Real estate mortgage
   
3,374
     
125
     
118
     
185
 
Home equity lines
   
168
     
59
     
0
     
22
 
Consumer direct
   
239
     
5
     
0
     
0
 
Consumer indirect
   
371
     
78
     
0
     
0
 
Total
 
$
16,411
   
$
599
   
$
118
   
$
544
 


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.  During the quarter ended June 30, 2023, there were three loans to borrowers experiencing financial difficulty that subsequently defaulted.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.


There were no troubled debt restructured loans for the three and six months ended June 30, 2023.


Financial instrument credit losses apply to off-balance sheet credit exposures such as unfunded loan commitments and standby letters of credit.  A liability for expected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancellable by the entity.  Changes in this allowance are reflected in other operating expenses within the non-interest expense category.  As of June 30, 2023 and December 31, 2022, the total unfunded commitment off-balance sheet credit exposure was $1.1 million and $0.7 million, respectively.

Note 5 – Other Real Estate Owned


Activity for other real estate owned was as follows:

    Three Months Ended     Six Months Ended  
 
June 30
   
June 30
 
(in thousands)
 
2023
   
2022
   
2023
   
2022
 
Beginning balance of other real estate owned
 
$
2,776
   
$
2,299
   
$
3,671
   
$
3,486
 
New assets acquired
   
124
     
307
     
175
     
444
 
Capitalized costs
    40       73       40       73  
Fair value adjustments
   
(25
)
   
(23
)
   
(106
)
   
(269
)
Sale of assets
   
(868
)
   
(702
)
   
(1,733
)
   
(1,780
)
Ending balance of other real estate owned
 
$
2,047
   
$
1,954
   
$
2,047
   
$
1,954
 


Carrying costs and fair value adjustments associated with foreclosed properties for the three months ended June 30, 2023 and 2022 were $0.1 million in each period. Carrying costs and fair value adjustments associated with foreclosed properties for the six months ended June 30, 2023 and 2022 were $0.2 million and $0.4 million, respectively. See Note 1 for a description of our accounting policies relative to foreclosed properties and other real estate owned.

38


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

(in thousands)
 
June 30
2023
   
December 31
2022
 
1-4 family
 
$
574
   
$
859
 
Construction/land development/other
   
683
     
867
 
Non-farm/non-residential
   
790
     
1,945
 
Total foreclosed properties
 
$
2,047
   
$
3,671
 

Note 6 – Repurchase Agreements


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


We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities. The primary risk with our repurchase agreements is market risk associated with the securities securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The carrying value of investment securities available-for-sale pledged as collateral under repurchase agreements totaled $300.3 million and $273.8 million at June 30, 2023 and December 31, 2022, respectively.


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

 
June 30, 2023
 
   
Remaining Contractual Maturity of the Agreements
 
(in thousands)
 
Overnight
and
Continuous
   
Up to
30 days
   
30-90 days
   
Greater
Than
90 days
   
Total
 
Repurchase agreements and repurchase-to-maturity transactions:
                             
U.S. Treasury and government agencies
 
$
19,951
   
$
2,000
   
$
0
   
$
22,608
   
$
44,559
 
State and political subdivisions
   
99,257
     
1,391
     
0
     
7,898
     
108,546
 
U.S. government sponsored agency mortgage-backed securities
   
23,552
     
7,609
     
0
     
43,633
     
74,794
 
Asset-backed securities
    1,121       0       0       0       1,121  
Total
 
$
143,881
   
$
11,000
   
$
0
   
$
74,139
   
$
229,020
 

39

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

Note 7 – Fair Value of Financial Assets and Liabilities

Fair Value Measurements


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

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

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

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

40

Recurring Measurements


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

       
Fair Value Measurements at
June 30, 2023 Using
 
(in thousands)
 
Fair Value
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis
                       
Available-for-sale securities:
                       
U.S. Treasury and government agencies
 
$
365,394
   
$
341,199
   
$
24,195
   
$
0
 
State and political subdivisions
   
259,825
     
0
     
259,825
     
0
 
U.S. government sponsored agency mortgage-backed securities
   
487,899
     
0
     
487,899
     
0
 
Asset-backed securities
   
88,135
     
0
     
88,135
     
0
 
Equity securities at fair value
   
2,545
     
0
     
0
     
2,545
 
Mortgage servicing rights
   
8,230
     
0
     
0
     
8,230
 


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


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

Available-for-Sale Securities


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

41


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


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

Equity Securities at Fair Value


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

Mortgage Servicing Rights


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


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

42

Level 3 Reconciliation


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


 
Three Months Ended
June 30, 2023
   
Three Months Ended
June 30, 2022
 
(in thousands)  
Equity
Securities
at Fair
Value
   
Mortgage
Servicing
Rights
   
Equity
Securities
at Fair
Value
   
Mortgage
Servicing
Rights
 
Beginning balance
 
$
2,380
   
$
8,121
   
$
2,352
   
$
7,748
 
Total unrealized gains (losses)
                               
Included in net income
   
165
     
80
     
(224
)
   
468
 
Issues
   
0
     
46
     
0
     
223
 
Settlements
   
0
     
(17
)
   
0
     
(219
)
Ending balance
 
$
2,545
   
$
8,230
   
$
2,128
   
$
8,220
 
                                 
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
 
$
165
   
$
80
   
$
(224
)
 
$
468
 


 
Six Months Ended
June 30, 2023
   
Six Months Ended
June 30, 2022
 
(in thousands)  
Equity
Securities
at Fair
Value
   
Mortgage
Servicing
Rights
   
Equity
Securities
at Fair
Value
   
Mortgage
Servicing
Rights
 
Beginning balance
 
$
2,166
   
$
8,468
   
$
2,253
   
$
6,774
 
Total unrealized gains (losses)
                               
Included in net income
   
379
     
(134
)
   
(125
)
   
1,451
 
Issues
   
0
     
96
     
0
     
452
 
Settlements
   
0
     
(200
)
   
0
     
(457
)
Ending balance
 
$
2,545
   
$
8,230
   
$
2,128
   
$
8,220
 
                                 
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
 
$
379
   
$
(134
)
 
$
(125
)
 
$
1,451
 


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
   
Six Months Ended
 
   
June 30
   
June 30
 
(in thousands)
 
2023
   
2022
   
2023
   
2022
 
Total gains
 
$
227
   
$
25
   
$
44
   
$
869
 

43

Nonrecurring Measurements


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

       
Fair Value Measurements at
June 30, 2023 Using
 
(in thousands)
 
Fair Value
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis
                       
Other real estate owned
 
$
177
   
$
0
   
$
0
   
$
177
 


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


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

Collateral Dependent Loans


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


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


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

44

Other Real Estate Owned


In accordance with the provisions of ASC 360, Property, Plant, and Equipment, other real estate owned (“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral.  Fair value adjustments on OREO disclosed above were $25 thousand for the quarter ended June 30, 2023, $106 thousand for the six months ended June 30, 2023, and $285 thousand for the year ended December 31, 2022.


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

Unobservable (Level 3) Inputs


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


 
Quantitative Information about Level 3 Fair Value Measurements
(in thousands)  
Fair Value at
June 30, 2023
 
Valuation
Technique(s)
Unobservable Input
 
Range
(Weighted
Average)
Equity securities at fair value
 
$
2,545
 
Discount cash flows, computer pricing model
Discount rate
 
8.0% - 12.0%
(10.0%)
         
Conversion date
 
Dec 2025 - Dec 2029
(Dec 2027)
                 
Mortgage servicing rights
 
$
8,230
 
Discount cash flows, computer pricing model
Constant prepayment rate
 
0.0% - 26.7%
(7.4%)
         
Probability of default
 
0.0% - 100%
(1.3%)
         
Discount rate
 
9.5% - 11.5%
(10.0%)
         
     
Other real estate owned
 
$
177
 
Market comparable properties
Comparability adjustments
 
0.0% - 10.0%
(10.0%)

45


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

Uncertainty of Fair Value Measurements


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

Equity Securities at Fair Value


Fair value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock, and the prevailing conversion rate at the conversion date. The most recent conversion rate of 1.5902 and the most recent dividend rate of 0.7156 were used to derive the fair value estimate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate.

Mortgage Servicing Rights


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

46

Fair Value of Financial Instruments


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

       
Fair Value Measurements
at June 30, 2023 Using
 
(in thousands)
 
Carrying
Amount
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:
                       
Cash and cash equivalents
 
$
109,545
   
$
109,545
   
$
0
   
$
0
 
Certificates of deposit in other banks
   
245
     
0
     
245
     
0
 
Debt securities available-for-sale
   
1,201,253
     
341,199
     
860,054
     
0
 
Equity securities at fair value
   
2,545
     
0
     
0
     
2,545
 
Loans held for sale
   
238
     
244
     
0
     
0
 
Loans, net
   
3,881,677
     
0
     
0
     
3,717,729
 
Federal Home Loan Bank stock
   
6,545
     
0
     
6,545
     
0
 
Federal Reserve Bank stock
   
4,887
     
0
     
4,887
     
0
 
Accrued interest receivable
   
20,257
     
0
     
20,257
     
0
 
                                 
Financial liabilities:
                               
Deposits
 
$
4,516,660
   
$
1,361,078
   
$
3,163,628
   
$
0
 
Repurchase agreements
   
229,020
     
0
     
0
     
229,277
 
Federal funds purchased
   
500
     
0
     
500
     
0
 
Advances from Federal Home Loan Bank
   
345
     
0
     
242
     
0
 
Long-term debt
   
64,350
     
0
     
0
     
52,043
 
Accrued interest payable
   
5,624
     
0
     
5,624
     
0
 
                                 
Unrecognized financial instruments:
                               
Letters of credit
 
$
0
   
$
0
   
$
0
   
$
0
 
Commitments to extend credit
   
0
     
0
     
0
     
0
 
Forward sale commitments
   
0
     
0
     
0
     
0
 

47


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


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


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


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


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

48


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


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


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


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

Note 9 – Earnings Per Share


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

    Three Months Ended     Six Months Ended  
 
June 30
   
June 30
 
(in thousands except per share data)
 
2023
   
2022
   
2023
   
2022
 
Numerator:
                       
Net income
 
$
19,404
   
$
20,271
   
$
38,717
   
$
39,999
 
                                 
Denominator:
                               
Basic earnings per share:
                               
Weighted average shares
   
17,884
     
17,835
     
17,877
     
17,827
 
Diluted earnings per share:
                               
Effect of dilutive stock options and restricted stock grants
   
6
     
8
     
8
     
11
 
Adjusted weighted average shares
   
17,890
     
17,843
     
17,885
     
17,838
 
                                 
Earnings per share:
                               
Basic earnings per share
 
$
1.09
   
$
1.14
   
$
2.17
   
$
2.24
 
Diluted earnings per share
   
1.08
     
1.14
     
2.16
     
2.24
 


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

49

Note 10 – Accumulated Other Comprehensive Income (Loss)

Unrealized gains (losses) on AFS securities


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

 
Amounts Reclassified from AOCI
 

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

50

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

Overview

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

Our Business

Financial Goals and Performance

Results of Operations and Financial Condition

Liquidity and Market Risk

Interest Rate Risk

Capital Resources

Impact of Inflation, Changing Prices, and Economic Conditions

Stock Repurchase Program

Critical Accounting Policies and Estimates

Our Business

Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company headquartered in Pikeville, Kentucky.  Currently, we own one commercial bank, Community Trust Bank, Inc. (“CTB”) and one trust company, Community Trust and Investment Company.  Through our subsidiaries, we have seventy-nine banking locations in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee, four trust offices across Kentucky, and one trust office in northeastern Tennessee.  At June 30, 2023, we had total consolidated assets of $5.5 billion and total consolidated deposits, including repurchase agreements, of $4.7 billion.  Total shareholders’ equity at June 30, 2023 was $660.1 million.  Trust assets under management at June 30, 2023 were $3.3 billion, including CTB’s investment portfolio totaling $1.2 billion.

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

51

Results of Operations and Financial Condition

We reported earnings for the second quarter 2023 of $19.4 million, or $1.09 per basic share, compared to $19.3 million, or $1.08 per basic share, earned during the first quarter 2023 and $20.3 million, or $1.14 per basic share, earned during the second quarter 2022.  Total revenue was $0.2 million above prior quarter and $2.5 million above prior year same quarter.  Net interest revenue decreased $0.8 million compared to prior quarter but increased $2.3 million compared to prior year same quarter, and noninterest income increased $1.1 million compared to prior quarter and $0.3 million compared to prior year same quarter.  Our provision for credit losses for the quarter increased $0.9 million from prior quarter and was $1.9 million higher than second quarter 2022.  Noninterest expense decreased $0.9 million compared to prior quarter but was $1.0 million higher than prior year same quarter.  Earnings for the six months ended June 30, 2023 were $38.7 million, or $2.17 per basic share, compared to $40.0 million, or $2.24 per basic share, for the six months ended June 30, 2022.

Quarterly Highlights

Net interest income for the quarter of $43.1 million was $0.8 million below prior quarter but $2.3 million above prior year same quarter, as our net interest margin decreased 14 basis points from prior quarter but increased 15 basis points from prior year same quarter.

Provision for credit losses at $2.0 million for the quarter increased $0.9 million from prior quarter and $1.9 million from prior year same quarter.

Our loan portfolio increased $152.3 million, an annualized 16.2%, from March 31, 2023 and $220.4 million, or an annualized 12.0%, from December 31, 2022.

We had net loan charge-offs of $674 thousand, or 0.07% of average loans annualized for the second quarter 2023 compared to $414 thousand, or 0.04% of average loans annualized for the first quarter 2023 and $43 thousand, or less than 0.01% of average loans annualized, for the quarter ended June 30, 2022.

Our total nonperforming loans decreased to $11.7 million at June 30, 2023 from $12.2 million at March 31, 2023 and $15.3 million at December 31, 2022.  Nonperforming assets at $13.8 million decreased $1.2 million from March 31, 2023 and $5.2 million from December 31, 2022.

Deposits, including repurchase agreements, at $4.7 billion decreased $6.5 million, or an annualized 0.6%, from March 31, 2023 but increased $104.1 million, or an annualized 4.5%, from December 31, 2022.

Shareholders’ equity at $660.1 million increased $3.3 million, or an annualized 2.0%, during the quarter and $32.1 million, or an annualized 10.3%, from December 31, 2022.

Noninterest income for the quarter ended June 30, 2023 of $14.8 million was $1.1 million, or 7.9%, above prior quarter and $0.3 million, or 1.8%, above prior year same quarter.

Noninterest expense for the quarter ended June 30, 2023 of $31.0 million was $0.9 million, or 2.7%, below prior quarter but $1.0 million, or 3.5%, above prior year same quarter.

52

Income Statement Review

Six Months Ended June 30
             
Change 2023 vs. 2022
 
(dollars in thousands)
 
2023
   
2022
   
Amount
   
Percent
 
Net interest income
 
$
86,995
   
$
80,822
   
$
6,173
     
7.6
%
Provision for credit losses
   
3,125
     
952
     
2,173
     
228.2

Noninterest income
   
28,438
     
29,466
     
(1,028
)
   
(3.5
)
Noninterest expense
   
62,915
     
59,337
     
3,578
     
6.0

Income taxes
   
10,676
     
10,000
     
676
     
6.8

Net income
 
$
38,717
   
$
39,999
   
$
(1,282
)
   
(3.2
)%
                                 
Average earning assets
 
$
5,160,712
   
$
5,137,421
   
$
23,291
     
0.5
%
                                 
Yield on average earnings assets, tax equivalent*
   
4.94
%
   
3.51
%
   
1.43
%
   
40.9
%
Cost of interest bearing funds
   
2.30
%
   
0.48
%
   
1.82
%
   
376.7
%
                                 
Net interest margin, tax equivalent*
   
3.42
%
   
3.19
%
   
0.23
%
   
7.3
%

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

Net Interest Income

                     
Percent Change
                   
                     
2Q 2023
Compared to:
                   
($ in thousands)
 
2Q
2023
   
1Q
2023
   
2Q
2022
   
1Q
2023
   
2Q
2022
   
YTD
2023
   
YTD
2022
   
Percent Change
 
Components of net interest income:
                                               
Income on earning assets
 
$
64,827
   
$
60,995
   
$
45,352
     
6.3
%
   
42.9
%
 
$
125,822
   
$
88,879
     
41.6
%
Expense on interest bearing liabilities
   
21,748
     
17,079
     
4,562
     
27.3

   
376.7

   
38,827
     
8,057
     
381.9

Net interest income
 

43,079
   

43,916
   

40,790
     
(1.9
)
   
5.6

 

86,995
   

80,822
     
7.6

TEQ
   
298
     
298
     
232
     
0.1

   
28.6

   
596
     
467
     
27.6

Net interest income, tax equivalent
 
$
43,377
   
$
44,214
   
$
41,022
     
(1.9
%)
   
5.7
%
 
$
87,591
   
$
81,289
     
7.8
%
                                                                 
Average yield and rates paid:
                                                               
Earning assets yield
   
5.03
%
   
4.84
%
   
3.56
%
   
3.9
%
   
41.5
%
   
4.94
%
   
3.51
%
   
40.9
%
Rate paid on interest bearing liabilities
   
2.54

   
2.06

   
0.54

   
23.3

   
368.2

   
2.30

   
0.48

   
376.7

Gross interest margin
   
2.49
%
   
2.78
%
   
3.02
%
   
(10.4
)%
   
(17.5
)%
   
2.64
%
   
3.03
%
   
(12.8
)%
Net interest margin
   
3.35
%
   
3.49
%
   
3.20
%
   
(4.1
)%
   
4.7
%
   
3.42
%
   
3.19
%
   
7.3
%
                                                                 
Average balances:
                                                               
Investment securities
 
$
1,230,556
   
$
1,251,948
   
$
1,454,371
     
(1.7
)%
   
(15.3
)%
 
$
1,241,193
   
$
1,470,495
     
(15.5
)%
Loans
 
$
3,836,446
   
$
3,739,443
   
$
3,538,324
     
2.6
%
   
8.4
%
 
$
3,788,213
   
$
3,489,652
     
8.6
%
 Earning assets
 
$
5,189,716
   
$
5,131,385
   
$
5,140,656
     
1.1
%
   
1.0
%
 
$
5,160,712
   
$
5,137,421
     
0.5
%
Interest-bearing liabilities
 
$
3,435,072
   
$
3,362,331
   
$
3,373,741
     
2.2
%
   
1.8
%
 
$
3,398,902
   
$
3,362,039
     
1.1
%

53

Net interest income for the quarter of $43.1 million was $0.8 million below prior quarter but $2.3 million above prior year same quarter.  Our net interest margin, on a fully tax equivalent basis, at 3.35% decreased 14 basis points from prior quarter but increased 15 basis points from prior year same quarter.  Our average earning assets increased $58.3 million from prior quarter and $49.1 million from prior year same quarter.  Our yield on average earning assets increased 19 basis points from prior quarter and 147 basis points from prior year same quarter, and our cost of funds increased 48 basis points from prior quarter and 200 basis points from prior year same quarter.  Money market accounts, certificates of deposit, and other time deposits all experienced significant increases in rates during the quarter.  Our net interest income for the six months ended June 30, 2023 was $87.0 million compared to $80.8 million for the six months ended June 30, 2022.

Our ratio of average loans to deposits, including repurchase agreements, was 81.2% for the quarter ended June 30, 2023 compared to 79.8% for the quarter ended March 31, 2023 and 75.2% for the quarter ended June 30, 2022.

Provision for Credit Losses

Our provision for credit losses for the quarter increased $0.9 million from prior quarter and $1.9 million from prior year same quarter.  Year-to-date provision increased $2.2 million from prior year.  Our reserve coverage (allowance for credit losses to nonperforming loans) at June 30, 2023 was 408.9% compared to 382.3% at March 31, 2023 and 305.9% at June 30, 2022.  Our credit loss reserve as a percentage of total loans outstanding at June 30, 2023 was 1.22% compared to 1.24% at March 31, 2023 and 1.19% at June 30, 2022.

Noninterest Income

                     
Percent Change
                   
                     
2Q 2023 Compared
to:
                   
($ in thousands)
 
2Q
2023
   
1Q
2023
   
2Q
2022
   
1Q
2023
   
2Q
2022
   
YTD
2023
   
YTD
2022
   
Percent Change
 
Deposit related fees
 
$
7,513
   
$
7,287
   
$
7,263
     
3.1
%
   
3.4
%
 
$
14,800
   
$
14,009
     
5.6
%
Trust revenue
   
3,351
     
3,079
     
3,198
     
8.9

   
4.8

   
6,430
     
6,446
     
(0.2
)
Gains on sales of loans
   
115
     
121
     
519
     
(5.3
)
   
(77.9
)
   
236
     
1,116
     
(78.9
)
Loan related fees
   
1,197
     
845
     
1,415
     
41.7

   
(15.4
)
   
2,042
     
3,477
     
(41.3
)
Bank owned life insurance revenue
   
735
     
858
     
702
     
(14.4
)
   
4.7

   
1,593
     
1,393
     
14.4

Brokerage revenue
   
388
     
348
     
459
     
11.5

   
(15.4
)
   
736
     
1,049
     
(29.8
)
Other
   
1,457
     
1,144
     
945
     
27.4

   
54.3

   
2,601
     
1,976
     
31.6

Total noninterest income
 
$
14,756
   
$
13,682
   
$
14,501
     
7.9
%
   
1.8
%
 
$
28,438
   
$
29,466
     
(3.5
)%

Noninterest income for the quarter ended June 30, 2023 of $14.8 million was $1.1 million, or 7.9%, above prior quarter and $0.3 million, or 1.8%, above prior year same quarter.  The quarter over quarter increase included a $0.2 million increase in deposit related fees, a $0.3 million increase in trust revenue, and a $0.4 million increase in loan related fees due to the change in the fair market value of our mortgage servicing rights. The year over year increase included a $0.3 million increase in deposit related fees, a $0.2 million increase in trust revenue, and a $0.4 million increase in securities gains, partially offset by a $0.4 million decline in gains on sales of loans and a $0.2 million decline in loan related fees also resulting from the fluctuation in the fair market value of our mortgage servicing rights.  Noninterest income for the first six months of 2023 was $28.4 million compared to $29.5 million for the six months ended June 30, 2022.

54

Noninterest Expense

                     
Percent Change
                   
                     
2Q 2022 Compared
to:
                   
($ in thousands)
 
2Q
2023
   
1Q
2023
   
2Q
2022
   
1Q
2023
   
2Q
2022
   
YTD
2023
   
YTD
2022
   
Percent Change
 
Salaries
 
$
12,732
   
$
12,633
   
$
12,219
     
0.8
%
   
4.2
%
 
$
25,365
   
$
23,958
     
5.9
%
Employee benefits
   
5,573
     
6,275
     
6,315
     
(11.2
)
   
(11.7
)
   
11,848
     
12,114
     
(2.2
)
Net occupancy and equipment
   
2,895
     
3,028
     
2,756
     
(4.4
)
   
5.1

   
5,923
     
5,610
     
5.6

Data processing
   
2,383
     
2,303
     
2,095
     
3.5

   
13.8

   
4,686
     
4,296
     
9.1

Legal and professional fees
   
912
     
816
     
884
     
11.8

   
3.2

   
1,728
     
1,751
     
(1.3
)
Advertising and marketing
   
704
     
820
     
659
     
(14.1
)
   
6.9

   
1,524
     
1,411
     
8.0

Taxes other than property and payroll
   
433
     
432
     
425
     
0.1

   
1.7

   
865
     
851
     
1.6

Net other real estate owned expense
   
61
     
119
     
43
     
(48.4
)
   
43.6

   
180
     
396
     
(54.6
)
Other
   
5,332
     
5,464
     
4,582
     
(2.4
)
   
16.4

   
10,796
     
8,950
     
20.6

Total noninterest expense
 
$
31,025
   
$
31,890
   
$
29,978
     
(2.7
)%
   
3.5
%
 
$
62,915
   
$
59,337
     
6.0
%

Noninterest expense for the quarter ended June 30, 2023 of $31.0 million was $0.9 million, or 2.7%, below prior quarter but $1.0 million, or 3.5%, above prior year same quarter.  The decrease in noninterest expense quarter over quarter was primarily a result of a decrease in the accruals for incentive payments based on our current projected earnings for the year.  The year over year increase included a $0.3 million increase in data processing expense, a $0.3 million increase in FDIC insurance premiums, and a $0.1 million increase in occupancy and equipment.  A year over year decrease in personnel costs of $0.2 million was the result of a reduction in the accruals for incentive payments of $1.3 million, partially offset by increases in salary expense ($0.5 million), group medical and life insurance expense ($0.5 million), and other employee benefits ($0.1 million).  Noninterest expense for the first six months of 2023 was $62.9 million compared to $59.3 million for the six months ended June 30, 2022.

Balance Sheet Review

CTBI’s total assets at June 30, 2023 of $5.5 billion decreased $8.5 million, or 0.6% annualized, from March 31, 2023 but increased $140.5 million, or an annualized 5.3%, from December 31, 2022.  Loans outstanding at June 30, 2023 were $3.9 billion, an increase of $152.3 million, or an annualized 16.2%, from March 31, 2023 and $220.4 million, or an annualized 12.0%, from December 31, 2022.  The increase in loans from prior quarter included a $73.5 million increase in the commercial loan portfolio, a $44.6 million increase in the residential loan portfolio, a $33.5 million increase in the indirect consumer loan portfolio, and a $0.7 million increase in the consumer direct loan portfolio.  CTBI’s investment portfolio decreased $39.7 million, or an annualized 12.8%, from March 31, 2023 and $55.0 million, or an annualized 8.8%, from December 31, 2022.  Deposits in other banks decreased $117.5 million from prior quarter and $19.8 million from December 31, 2022.  Deposits, including repurchase agreements, at $4.7 billion decreased $6.5 million, or an annualized 0.6%, from March 31, 2023 but increased $104.1 million, or an annualized 4.5%, from December 31, 2022.

55

Shareholders’ equity at June 30, 2023 was $660.1 million, a $3.3 million, or an annualized 2.0%, increase from the $656.8 million at March 31, 2023 and a $32.1 million, or an annualized 10.3%, increase from the $628.0 million at December 31, 2022, as unrealized losses on our securities portfolio continue to impact equity.  Net unrealized losses on securities, net of deferred taxes, were $121.3 million at June 30, 2023, compared to $112.4 million at March 31, 2023 and $97.9 million at June 30, 2022.  Management has evaluated the unrealized losses and determined that they were primarily driven by market rates.  Management has the ability and intent to hold these securities to recovery or maturity.  CTBI’s annualized dividend yield to shareholders as of June 30, 2023 was 4.95%.

Loans

(dollars in thousands)
   
June 30, 2023
 
Loan Category
 
Balance
   
Variance from Prior Year
   
Net (Charge-
Offs)/
Recoveries
   
Nonperforming
   
ACL
 
Commercial:
                             
Hotel/motel
 
$
372,981
     
8.5
%
 
$
0
   
$
0
   
$
5,192
 
Commercial real estate residential
   
393,309
     
5.5
     
53
     
1,034
     
3,749
 
Commercial real estate nonresidential
   
787,598
     
3.3
     
324
     
1,282
     
7,797
 
Dealer floorplans
   
76,903
     
(0.8
)
   
0
     
0
     
1,157
 
Commercial other
   
319,838
     
2.4
     
(1,080
)
   
1,030
     
6,176
 
Total commercial
   
1,950,629
     
4.4
     
(703
)
   
3,346
     
24,071
 
                                         
Residential:
                                       
Real estate mortgage
   
883,104
     
7.0
     
(79
)
   
7,299
     
7,884
 
Home equity
   
132,033
     
9.5
     
(10
)
   
654
     
1,108
 
Total residential
   
1,015,137
     
7.4
     
(89
)
   
7,953
     
8,992
 
                                         
Consumer:
                                       
Consumer direct
   
157,848
     
0.2
     
(43
)
   
6
     
2,563
 
Consumer indirect
   
806,081
     
9.3
     
(253
)
   
439
     
12,392
 
Total consumer
   
963,929
     
7.7
     
(296
)
   
445
     
14,955
 
                                         
Total loans
 
$
3,929,695
     
5.9
%
 
$
(1,088
)
 
$
11,744
   
$
48,018
 

Total Deposits and Repurchase Agreements

                     
Percent Change
2Q 2023 Compared to:
 
(dollars in thousands)
 
2Q
2023
   
1Q
2023
   
YE
2022
   
1Q
2023
   
YE
2022
 
Non-interest bearing deposits
 
$
1,361,078
   
$
1,409,839
   
$
1,394,915
     
(3.5
)%
   
(2.4
)%
Interest bearing deposits
                                       
Interest checking
   
142,542
     
120,678
     
112,265
     
18.1

   
27.0

Money market savings
   
1,389,081
     
1,408,314
     
1,348,809
     
(1.4
)
   
3.0

Savings accounts
   
611,772
     
642,232
     
654,380
     
(4.7
)
   
(6.5
)
Time deposits
   
1,012,187
     
962,361
     
915,774
     
5.2

   
10.5

Repurchase agreements
   
229,020
     
208,777
     
215,431
     
9.7

   
6.3

Total interest bearing deposits and repurchase agreements
   
3,384,602
     
3,342,362
     
3,246,659
     
1.3

   
4.2

Total deposits and repurchase agreements
 
$
4,745,680
   
$
4,752,201
   
$
4,641,574
     
(0.1
)%
   
2.2
%

56

Asset Quality

Our total nonperforming loans decreased to $11.7 million at June 30, 2023 from $12.2 million at March 31, 2023 and $15.3 million at December 31, 2022.  Prior year nonperforming loans, as previously reported, exclude troubled debt restructurings which have been eliminated in the current period due to implementation of Accounting Standard Update 2022-02.  Accruing loans 90+ days past due at $6.4 million increased $0.2 million from prior quarter but decreased $2.1 million from December 31, 2022.  Nonaccrual loans at $5.3 million decreased $0.6 million from prior quarter and $1.5 million from December 31, 2022.  Accruing loans 30-89 days past due at $12.2 million increased $0.4 million from prior quarter but decreased $3.1 million from December 31, 2022.  Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.  Our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due.  Any activity regarding a criticized/classified loan (i.e. problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee).  CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of $100,000 or greater.  CTB’s Loan Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio.  We also have a Loan Review Department that reviews every market within CTB annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, if a borrower is experiencing financial difficulty with significant payment delay, nonaccrual status, and adequate loan loss reserves.  The Loan Review Department has annually reviewed, on average, 96% of the outstanding commercial loan portfolio for the past three years.  The average annual review percentage of the consumer and residential loan portfolio for the past three years was 85% based on the loan production during the number of months included in the review scope.  The review scope is generally four to six months of production.  CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.

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

Our level of foreclosed properties at $2.0 million at June 30, 2023 was a $0.8 million decrease from the $2.8 million at March 31, 2023 and a $1.7 million decrease from the $3.7 million at December 31, 2022.  Sales of foreclosed properties for the six months ended June 30, 2023 totaled $1.7 million while new foreclosed properties totaled $0.2 million.  At June 30, 2023, the book value of properties under contracts to sell was $0.7 million; however, the closings had not occurred at quarter-end.
 
We had net loan charge-offs of $674 thousand, or 0.07% of average loans annualized, for the second quarter 2023 compared to $414 thousand, or 0.04% of average loans annualized, for the first quarter 2023 and $43 thousand, or less than 0.01% of average loans annualized, for the quarter ended June 30, 2022.  Net charge-offs for the six months ended June 30, 2023 were $1.1 million, or 0.06% of average loans annualized, compared to $0.4 million, or 0.02% of average loans annualized, for the six months ended June 30, 2022.

Dividends

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

Pay Date
Record Date
 
Amount Per Share
 
July 1, 2023
June 15, 2023
 
$
0.440
 
April 1, 2023
March 15, 2023
 
$
0.440
 
January 1, 2023
December 15, 2022
 
$
0.440
 
October 1, 2022
September 15, 2022
 
$
0.440
 
July 1, 2022
June 15, 2022
 
$
0.400
 
April 1, 2022
March 15, 2022
 
$
0.400
 

57

On July 25, 2023, the Board of Directors of CTBI declared a quarterly cash dividend of $0.46 per share to be paid on October 1, 2023 to shareholders of record on September 15, 2023.  This represents an increase of 4.5% in the quarterly cash dividend.

Allowance for Credit Losses

Our reserve coverage (allowance for credit losses to nonperforming loans) at June 30, 2023 was 408.9% compared to 382.3% at March 31, 2023 and 300.4% at December 31, 2022.  Our credit loss reserve as a percentage of total loans outstanding at June 30, 2023 was 1.22% compared to 1.24% at March 31, 2023 and December 31, 2022.

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 June 30, 2023, we had approximately $109.5 million in cash and cash equivalents and approximately $213.5 million in unpledged securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $128.7 million and $309.2 million at December 31, 2022.  Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans.  In addition to core deposit funding, we also have a variety of other short-term and long-term funding sources available.  We also rely on Federal Home Loan Bank advances for both liquidity and management of our asset/liability position.  Federal Home Loan Bank advances were $0.3 million at June 30, 2023 compared to $0.4 million at December 31, 2022.  As of June 30, 2023, we had a $539.2 million available borrowing position with the Federal Home Loan Bank, compared to $501.0 million at December 31, 2022.  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 June 30, 2023 we had $50 million in lines of credit with various correspondent banks available to meet any future cash needs compared to $75 million at December 31, 2022.  Our primary investing activities include purchases of securities and loan originations.  We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs.  Included in our cash and cash equivalents at June 30, 2023 were deposits with the Federal Reserve of $55.1 million, compared to $72.6 million at December 31, 2022.  At June 30, 2023, we had $3.0 million in federal funds sold; however, we had no federal funds sold as of December 31, 2022.  Additionally, we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days.

The investment portfolio consists of investment grade short-term issues suitable for bank investments.  The majority of the investment portfolio is in U.S. government and government sponsored agency issuances.  At June 30, 2023, available-for-sale (“AFS”) securities comprised all of the total investment portfolio, and the AFS portfolio was approximately 182% of equity capital.  Eighty-three percent of the pledge-eligible portfolio was pledged.

58

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 offer a dividend to our shareholders, providing an annualized dividend yield for the quarter ended June 30, 2023 of 4.95%.  Shareholders’ equity increased $3.3 million, or an annualized 2.0%, during the quarter and $28.1 million, or 4.4%, from June 30, 2022, as unrealized losses on our securities portfolio continue to impact equity.  Our primary source of capital growth is the retention of earnings.  Cash dividends were $0.88 per share and $0.80 per share for the six months ended June 30, 2023 and 2022, respectively.  We retained 59.4% of our earnings for the first six months of 2023 compared to 64.3% for the first six months of 2022.

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

In April 2020, as directed by Section 4012 of the CARES Act, the regulatory agencies introduced temporary changes to the CBLR.  These changes, which subsequently were adopted as a final rule, temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020.  Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calendar year before returning to 9% in calendar year 2022.  Management elected to use the CBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of June 30, 2023 was 13.82%.  CTB’s CBLR ratio as of June 30, 2023 was 13.24%.

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

Impact of Inflation, Changing Prices, and Economic Conditions

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

59

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.

Stock Repurchase Program

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

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

Critical Accounting Policies and Estimates

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

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

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

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

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

60

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits.  CTBI uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates.  Given a 200 basis point increase to the yield curve used in the simulation model, it is estimated net interest income for CTBI would increase by 3.92% over one year and 7.36% over two years.  A 200 basis point decrease in the yield curve would decrease net interest income by an estimated 3.63% over one year and 2.89% over two years.  For further discussion of CTBI’s market risk, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Market Risk included in the annual report on Form 10-K for the year ended December 31, 2022.

Item 4.  Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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PART II - OTHER INFORMATION

Item 1.
Legal Proceedings
None
     
Item 1A.
Risk Factors
None
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None
     
Item 3.
Defaults Upon Senior Securities
None
     
Item 4.
Mine Safety Disclosure
Not applicable
     
Item 5.
Other Information:
 
 

 
(a)      Information required to be disclosed in a report on Form 8-K
None
 
 
 
 
(b)      Changes to director nomination procedures
None
 
 
 
 
(c)      Insider trading arrangements
 
     
 
During the three months ended June 30, 2023, no director or officer of CTBI adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
 
     
Item 6.
Exhibits:
 
 
(1)    Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
(2)    Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
(3)    XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
Exhibit 101.INS
 
(4)    XBRL Taxonomy Extension Schema Document
Exhibit 101.SCH
 
(5)    XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.CAL
 
(6)    XBRL Taxonomy Extension Definition Linkbase
Exhibit 101.DEF
 
(7)    XBRL Taxonomy Extension Label Linkbase
Exhibit 101.LAB
 
(8)    XBRL Taxonomy Extension Presentation Linkbase
Exhibit 101.PRE
 
(9)    Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
Exhibit 104

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SIGNATURES

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

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


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