UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q


[X]☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2017March 31, 2022
 Or
or
[   ]☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _____________ to _____________


Commission file number 0-11129001-31220


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


Kentucky61-0979818
(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)
41501
(Zip code)

(606) 432-1414
(Registrant’s606) 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 and posted on its corporate Web site, if any, every Interactive Data Fileinteractive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)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 definitiondefinitions 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 ☐
Accelerated filer  ✓Filer  ☑
Non-accelerated filer  Filer  ☐
(Do not check if a smaller reporting company)
   
Smaller reporting company Reporting Company ☐
Emerging growth company 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 7(a)(2)(B)13(a) of the SecuritiesExchange 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 – 17,692,73317,895,181 shares outstanding at October 31, 2017April 30, 2022



CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS


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



PART I - FINANCIAL INFORMATION


Item 1. Condensed Consolidated Financial Statements


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


The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 20162021 for further information in this regard.



1
Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets


(dollars in thousands) 
(unaudited)
September 30
2017
  
December 31
2016
  
(unaudited)
March 31
2022
  
December 31
2021
 
Assets:            
Cash and due from banks $48,738  $48,603  $58,352  $46,558 
Interest bearing deposits  107,178   95,586   106,133   265,198 
Federal funds sold  10,500   527 
Cash and cash equivalents  166,416   144,716   164,485   311,756 
                
Certificates of deposit in other banks  11,270   980   245   245 
Securities available-for-sale at fair value (amortized cost of $604,413 and $608,939, respectively)  603,033   605,394 
Securities held-to-maturity at amortized cost (fair value of $858 and $867, respectively)  858   866 
Debt securities available-for-sale at fair value (amortized cost of $1,588,129 and $1,461,829, respectively)
  1,503,165   1,455,429 
Equity securities at fair value  2,352   2,253 
Loans held for sale  1,605   1,244   1,941   2,632 
                
Loans  3,113,421   2,938,371   3,515,541   3,408,813 
Allowance for loan and lease losses  (36,391)  (35,933)
Allowance for credit losses  (42,309)  (41,756)
Net loans  3,077,030   2,902,438   3,473,232   3,367,057 
                
Premises and equipment, net  46,572   47,940   40,738   40,479 
Right-of-use assets  11,941   12,148 
Federal Home Loan Bank stock  17,927   17,927   8,139   8,139 
Federal Reserve Bank stock  4,887   4,887   4,887   4,887 
Goodwill  65,490   65,490   65,490   65,490 
Core deposit intangible (net of accumulated amortization of $8,602 and $8,483, respectively)  14   133 
Bank owned life insurance  64,998   63,881   91,530   91,097 
Mortgage servicing rights  3,283   3,433   7,748   6,774 
Other real estate owned  32,048   35,856   2,299   3,486 
Deferred tax asset
  19,574   0 
Accrued interest receivable  15,024   15,415 
Other assets  40,464   36,984   30,343   30,970 
Total assets $4,135,895  $3,932,169  $5,443,133  $5,418,257 
                
Liabilities and shareholders’ equity:                
Deposits:                
Noninterest bearing $786,856  $767,918  $1,398,529  $1,331,103 
Interest bearing  2,413,510   2,313,390   3,029,775   3,013,189 
Total deposits  3,200,366   3,081,308   4,428,304   4,344,292 
                
Repurchase agreements  260,007   251,065   254,623   271,088 
Federal funds purchased  8,196   4,816   500   500 
Advances from Federal Home Loan Bank  50,869   944   370   375 
Long-term debt  59,341   61,341   57,841   57,841 
Deferred taxes  8,716   7,836 
Deferred tax liability  0   546 
Operating lease liability  11,380   11,583 
Finance lease liability  1,416   1,422 
Accrued interest payable  1,306   1,016 
Other liabilities  25,471   24,244   34,022   31,392 
Total liabilities  3,612,966   3,431,554   4,789,762   4,720,055 
                
Shareholders’ equity:                
Preferred stock, 300,000 shares authorized and unissued  -   -   0   0 
Common stock, $5 par value, shares authorized 25,000,000; shares outstanding 2017 – 17,677,977; 2016 – 17,628,695  88,390   88,144 
Common stock, $5.00 par value, shares authorized 25,000,000; shares outstanding 2022 – 17,884,106; 2021 – 17,843,081
  89,420   89,215 
Capital surplus  220,875   219,697   227,589   227,085 
Retained earnings  214,561   195,078   399,347   386,750 
Accumulated other comprehensive loss, net of tax  (897)  (2,304)  (62,985)  (4,848)
Total shareholders’ equity  522,929   500,615   653,371   698,202 
                
Total liabilities and shareholders’ equity $4,135,895  $3,932,169  $5,443,133  $5,418,257 

See notes to condensed consolidated financial statements.


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


 Three Months Ended  Nine Months Ended  Three Months Ended 
 September 30  September 30  March 31 
(in thousands except per share data) 2017  2016  2017  2016  2022  2021 
Interest income:                  
Interest and fees on loans, including loans held for sale $36,288  $33,593  $104,643  $100,172  $38,167  $40,689 
Interest and dividends on securities                        
Taxable  2,198   2,030   6,458   6,188   4,384   2,575 
Tax exempt  741   653   2,211   2,003   772   739 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock  308   251   867   757   114   124 
Interest on Federal Reserve Bank deposits  82   76 
Other, including interest on federal funds sold  309   152   844   460   8   8 
Total interest income  39,844   36,679   115,023   109,580   43,527   44,211 
                        
Interest expense:                        
Interest on deposits  3,754   2,799   9,876   8,047   2,954   3,387 
Interest on repurchase agreements  466   288   1,215   836 
Interest on advances from Federal Home Loan Bank  226   3   394   51 
Interest on repurchase agreements and federal funds purchased  254   304 
Interest on long-term debt  428   362   1,238   1,036   287   278 
Total interest expense  4,874   3,452   12,723   9,970   3,495   3,969 
                        
Net interest income  34,970   33,227   102,300   99,610   40,032   40,242 
Provision for loan losses  666   2,191   4,659   5,829 
Net interest income after provision for loan losses  34,304   31,036   97,641   93,781 
Provision for credit losses (recovery)
  875   (2,499)
Net interest income after provision for credit losses (recovery)
  39,157   42,741 
                        
Noninterest income:                        
Service charges on deposit accounts  6,499   6,563   18,658   18,680 
Deposit related fees
  6,746   6,022 
Gains on sales of loans, net  390   595   897   1,357   597   2,433 
Trust and wealth management income  2,534   2,440   7,769   7,111   3,248   2,951 
Loan related fees  792   1,260   2,570   2,610   2,062   2,270 
Bank owned life insurance  583   560   1,633   1,628   691   573 
Brokerage revenue  297   387   1,032   1,067   590   457 
Securities gains  48   458   58   522 
Securities gains (losses)  99   (168)
Other noninterest income  1,059   923   3,475   2,951   932   1,039 
Total noninterest income  12,202   13,186   36,092   35,926   14,965   15,577 
                        
Noninterest expense:                        
Officer salaries and employee benefits  2,933   3,090   8,860   9,147   3,882   3,738 
Other salaries and employee benefits  11,146   11,126   34,187   33,524   13,656   13,095 
Occupancy, net  2,043   2,012   6,042   6,035   2,245   2,195 
Equipment  741   733   2,275   2,177   609   633 
Data processing  1,772   1,601   5,318   4,729   2,201   2,159 
Bank franchise tax  1,205   1,492   4,246   4,291   415   360 
Legal fees  429   455   1,256   1,437   301   352 
Professional fees  478   473   1,525   1,395   566   541 
Advertising and marketing  705   674   2,098   1,883   752   722 
FDIC insurance  316   469   923   1,628   355   326 
Other real estate owned provision and expense  1,313   873   4,056   1,892   353   318 
Repossession expense  269   272   697   911   100   199 
Amortization of limited partnership investments  605   546   1,814   2,078   733   837 
Other noninterest expense  2,977   2,871   8,845   8,994   3,191   2,835 
Total noninterest expense  26,932   26,687   82,142   80,121   29,359   28,310 
                        
Income before income taxes  19,574   17,535   51,591   49,586   24,763   30,008 
Income taxes  5,811   5,223   15,010   14,106   5,035   6,390 
Net income  13,763   12,312   36,581   35,480   19,728   23,618 
                        
Other comprehensive income (loss):                        
Unrealized holding gains (losses) on securities available-for-sale:                
Unrealized holding gains (losses) arising during the period  (522)  (2,374)  2,223   5,750 
Unrealized holding losses on debt securities available-for-sale:        
Unrealized holding losses arising during the period  (78,564)  (13,456)
Less: Reclassification adjustments for realized gains included in net income  48   458   58   522   0   60 
Tax expense (benefit)  (199)  (991)  758   1,830 
Other comprehensive income (loss), net of tax  (371)  (1,841)  1,407   3,398 
Comprehensive income $13,392  $10,471  $37,988  $38,878 
Tax benefit  (20,427)  (3,514)
Other comprehensive loss, net of tax  (58,137)  (10,002)
Comprehensive income (loss)
 $(38,409) $13,616 
                        
Basic earnings per share $0.78  $0.70  $2.08  $2.02  $1.11  $1.33 
Diluted earnings per share $0.78  $0.70  $2.07  $2.02  $1.11  $1.33 
                        
Weighted average shares outstanding-basic  17,633   17,554   17,625   17,532   17,820   17,774 
Weighted average shares outstanding-diluted  17,653   17,569   17,645   17,548   17,832   17,787 
                
Dividends declared per share $0.33  $0.32  $0.97  $0.94 


See notes to condensed consolidated financial statements
statements.

3

Consolidated Statements of Changes in Shareholders’ Equity
(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, 2022
  17,843,081  $89,215  $227,085  $386,750  $(4,848) $698,202 
Net income              19,728       19,728 
Other comprehensive loss
                  (58,137)  (58,137)
Cash dividends declared ($0.40 per share)
              (7,131)      (7,131)
Issuance of common stock  32,491   163   85           248 
Issuance of restricted stock  35,438   177   (177)          0 
Vesting of restricted stock  (26,904)  (135)  135           0 
Stock-based compensation          461           461 
Balance, March 31, 2022
  17,884,106  $89,420  $227,589  $399,347  $(62,985) $653,371 

(in thousands except per share and share amounts) 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
  Total 
Balance, January 1, 2021  17,810,401  $
89,052  $
225,507  $
326,738  $
13,568  $
654,865 
Net income              23,618       23,618 
Other comprehensive loss
                  (10,002)  (10,002)
Cash dividends declared ($0.385 per share)
              (6,845)      (6,845)
Issuance of common stock  24,163   121   117           238 
Issuance of restricted stock  9,193   46   (46)          0 
Vesting of restricted stock  (17,681)  (88)  88           0 
Stock-based compensation          195           195 
Balance, March 31, 2021
  17,826,076  $89,131  $225,861  $343,511  $3,566  $662,069 

See notes to condensed consolidated financial statements.

4
Community Trust Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)


 Nine Months Ended 
 September 30  
Three Months Ended
March 31
 
(in thousands) 2017  2016  2022  2021 
Cash flows from operating activities:            
Net income $36,581  $35,480  $19,728  $23,618 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization  3,019   2,878   1,286   1,265 
Deferred taxes  122   519   307   (643)
Stock-based compensation  447   347   484   213 
Excess tax benefits of stock-based compensation  0   (58)
Provision for loan losses  4,659   5,829 
Provision for credit losses (recovery)
  875   (2,499)
Write-downs of other real estate owned and other repossessed assets  2,871   632   246   154 
Gains on sale of mortgage loans held for sale  (897)  (1,357)  (597)  (2,433)
Securities gains  (58)  (522)  0   (60)
Gain on debt repurchase  (560)  0 
(Gains)/losses on sale of assets, net  (2)  77 
Fair value adjustment in equity securities  (99)  228 
Gains on sale of assets, net  (5)  (214)
Proceeds from sale of mortgage loans held for sale  40,130   61,339   26,257   109,014 
Funding of mortgage loans held for sale  (39,594)  (60,885)  (24,969)  (101,070)
Amortization of securities premiums and discounts, net  2,375   1,614   1,801   1,893 
Change in cash surrender value of bank owned life insurance  (1,117)  (1,151)  (434)  (337)
Payment of operating lease liabilities  (469)  (445)
Mortgage servicing rights:                
Fair value adjustments  419   660   (745)  (780)
New servicing assets created  (269)  (388)  (229)  (736)
Changes in:                
Accrued interest receivable  391   630 
Other assets  (3,412)  (3,902)  627   1,634 
Accrued interest payable  290   122 
Other liabilities  1,181   11,967   2,605   2,152 
Net cash provided by operating activities  45,895   53,079   27,350   31,706 
                
Cash flows from investing activities:                
Certificates of deposit in other banks:        
Purchase of certificates of deposit  (11,515)  0 
Maturity of certificates of deposit  1,225   2,852 
Securities available-for-sale (AFS):                
Purchase of AFS securities  (146,822)  (159,603)  (176,730)  (304,167)
Proceeds from the sales of AFS securities  66,359   54,446 
Proceeds from prepayments and maturities of AFS securities  82,672   73,027 
Securities held-to-maturity (HTM):        
Proceeds from maturities of HTM securities  8   480 
Proceeds from sales of AFS securities  0   1,080 
Proceeds from prepayments, calls, and maturities of AFS securities  48,630   129,804 
Change in loans, net  (181,282)  (65,136)  (106,591)  15,747 
Purchase of premises and equipment  (1,681)  (2,411)  (1,072)  (403)
Proceeds from sale and retirement of premises and equipment  25   10   0   812 
Proceeds from sale of other real estate and other repossessed assets  3,073   4,041 
Proceeds from sale of stock by Federal Home Loan Bank
  0   77 
Proceeds from sale of other real estate owned and repossessed assets  486   762 
Proceeds from settlement of bank owned life insurance
  1   0 
Net cash used in investing activities  (187,938)  (92,294)  (235,276)  (156,288)
                
Cash flows from financing activities:                
Change in deposits, net  119,058   73,203   84,012   217,690 
Change in repurchase agreements and federal funds purchased, net  12,322   14,272   (16,465)  (1,627)
Proceeds from Federal Home Loan Bank advances  150,000   0 
Payments on advances from Federal Home Loan Bank  (100,075)  (100,085)  (5)  (5)
Repurchase of long-term debt  (1,440)  0 
Payment of finance lease liabilities  (6)  (3)
Issuance of common stock  1,017   2,262   248   238 
Repurchase of common stock  0   (382)
Excess tax benefits of stock-based compensation  0   58 
Dividends paid  (17,139)  (16,546)  (7,129)  (6,841)
Net cash provided by (used in) financing activities  163,743   (27,218)
Net cash provided by financing activities  60,655   209,452 
Net increase (decrease) in cash and cash equivalents  21,700   (66,433)  (147,271)  84,870 
Cash and cash equivalents at beginning of period  144,716   187,611   311,756   338,235 
Cash and cash equivalents at end of period $166,416  $121,178  $164,485  $423,105 
                
Supplemental disclosures:                
Income taxes paid $16,250  $13,991 
Income taxes paid
 $50  $87 
Interest paid  11,151   8,796   3,205   3,847 
Non-cash activities:                
Loans to facilitate the sale of other real estate owned and repossessed assets  2,250   2,624   597   381 
Common stock dividends accrued, paid in subsequent quarter  208   212   250   242 
Real estate acquired in settlement of loans  4,156   4,300   137   (136)

See notes to condensed consolidated financial statements.
5
Community Trust Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)


Note 1 - Summary of Significant Accounting Policies



In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring adjustments) necessary, to present fairly the condensed consolidated financial position as of September 30, 2017,March 31, 2022 and the results of operations, for the threeother comprehensive income, changes in shareholders’ equity, and nine months ended September 30, 2017 and 2016, and the cash flows for the ninethree months ended September 30, 2017March 31, 2022 and 2016.2021. In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements. The results of operations, for the threechanges in shareholders’ equity, and nine months ended September 30, 2017 and the cash flows for the ninethree months ended September 30, 2017March 31, 2022 and 20162021 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 20162021 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, 2016,2021, 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.


Reclassifications
New Accounting Standards – Certain reclassifications considered


➢Facilitation of the Effects of Reference Rate Reform on Financial Reporting – In April 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  In response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation.  The amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and provide optional expedients and exceptions for applying generally accepted accounting principles (“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 immaterial have beendiscontinued due to reference rate reform.  The expedients and exceptions provided by the amendments do not apply to contract modifications made inand hedging relationships entered into or evaluated after December 31, 2022.  An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the prior year condensed consolidateddate that the financial statements are available to conformbe issued.  We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to current year classifications.  These reclassifications had no effect on net income.be determined) and December 31, 2022 that are directly related to LIBOR transition.  At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.


New Accounting Standards –


Ø➢         Financial Instruments – Overall —Credit Losses (Topic 326):  Troubled Debt Restructurings and Vintage Disclosures– In January 2016,February 2022, the FASB issued ASU No. 2016-01, 2022-02,Financial Instruments – Overall (Subtopic 825-10)Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  TheThe amendments in this Update require all equity investments to be measured at fair value with changesASU 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 fair value recognized through net income (other than those accountedrecognition and measurement guidance for under equity method of accounting or those that result in consolidation of the investee).  The amendments in this Update also requireTDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to present separatelydetermine whether a modification results in other comprehensive income the portiona new loan or a continuation of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value optionan existing loan.   Additionally, for financial instruments.  In addition, the amendments in this Update eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities.  Public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.  This Update is the final version of Proposed ASU 2013-220—Financial Instruments—Overall (Subtopic 825-10) and Proposed ASU 2013-221—Financial Instruments—Overall (Subtopic 825-10).  For public business entities, the amendments in this UpdateASU 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 are effective for fiscal yearsperiods beginning after December 15, 2017,22, 2022, including interim periods within those fiscal years.  The amendments shouldchanges can be appliedearly adopted, separately by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption.  The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption.  Management does not expect a significant impact on CTBI’s accounting for equity investments as a result of this ASU.  At this time, we cannot quantify the change in the fair value disclosures since we are currently evaluating the full impact of this ASU and are in the planning stages of developing appropriate procedures and processes to comply with the disclosure requirements of such amendments.topic.

ØLeases – In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).   ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases.  A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor does not convey risks and rewards or control, an operating lease results.  The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities.  Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available.  Early adoption is permitted.  CTBI has an implementation team working through the provisions of ASU 2016-02 including reviewing all leases to assess the impact on its accounting and disclosures.  CTBI does not anticipate a significant increase in leasing activity between now and the date of adoption.  While we expect the impact of this ASU to be significant, we have not finalized our calculation of the estimated amounts as we are currently evaluating certain significant variables within the calculation including the impact of individual renewal options and applicable discount rates for each individual lease.

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ØInvestments—Equity Method and Joint Ventures:  Simplifying the Transition to the Equity Method of Accounting – In March 2016, the FASB  issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.

The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held.  The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.  Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.

The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.  The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method.

The amendments became effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and did not have a material impact on CTBI’s consolidated financial statements.

ØCompensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting – In April 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.

Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.

For public companies, the amendments were effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  CTBI adopted this ASU effective January 1, 2017, and it did not have a material impact on our consolidated financial statements.

ØRevenue from Contracts with Customers – In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers.  The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements.  In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 to fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2017.  In March 2016, the FASB issued ASU 2016-08 which clarified the revenue recognition implementation guidance on principal versus agent considerations and is effective during the same period as ASU 2014-09.  In April 2016, the FASB issued ASU 2016-10 which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation and is effective during the same period as ASU 2014-09.  In May 2016, the FASB issued ASU 2016-12 which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax, and transition.  ASU 2016-12 is effective during the same period as ASU 2014-09.  Management is currently evaluating the effects of these ASUs on its financial statements and disclosures.  Initial evaluations indicate that there will be no material change to the timing or amounts of income recognized, as we have determined the majority of the revenues earned by CTBI are not within the scope of ASU 2014-09.

ØAccounting for Credit Losses – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The provisions of ASU 2016-13 were issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date.  This ASU requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.  The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses.  The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense.  Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense.

Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security.

ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. CTBI has an implementation team working through the provisions of ASU 2016-13 including assessing the impact on its accounting and disclosures.

ØStatement of Cash Flows – In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics.  This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.  The amendments in this Update apply to all entities that are required to present a statement of cash flows under Topic 230.  This Update is the final version of Proposed Accounting Standards Update EITF-15F—Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments (Topic 230), which has been deleted.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  The amendments in this Update should be applied using a retrospective transition method to each period presented.  If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.  Management intends to adopt this ASU effective January 1, 2018, and we do not expect a material impact on CTBI’s consolidated financial statements.

ØSimplifying the Test for Goodwill Impairment – In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.  These amendments eliminate Step 2 from the goodwill impairment test.  The amendments also eliminate the requirements from any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.  An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.  The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods with those fiscal years.  ASU 2017-04 should be implemented on a prospective basis.  Management does not expect ASU 2017-04 to have an impact on CTBI’s consolidated financial statements.

ØReceivables – Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities – In April 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.  The ASU shortens the amortization period for certain callable debt securities held at a premium to the earliest call date.  However, the amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  The amendments are effective for public business entities for fiscal periods beginning after December 15, 2018, including interim periods within those fiscal periods.  Entities are required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.  We plan to early adopt this ASU effective January 1, 2018.  We have reviewed the anticipated effects of this ASU and determined that we expect a $150 thousand reduction in retained earnings and a quarterly increase in amortization expense between $24 thousand and $30 thousand.

CriticalSignificant 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 theour 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 criticalsignificant 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 Financial Accounting Standards Board (FASB)FASB Accounting Standards Codification (ASC)(“ASC”) 320, InvestmentInvestments – Debt Securities, investments in debt securities that are not classified as held-to-maturity and equity securities that have readily determinable fair values shall be classified in one of the following categories and measured at fair value in the statement of financial position:

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

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

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



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


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

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HTM securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts.  The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics.  These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased.  At March 31, 2022 and December 31, 2021, CTBI held 0 securities designated as held-to-maturity.


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 security is below its amortized cost,third party service provider using Level 3 inputs as defined in ASC 820, Fair Value Measurement, and depending on the length of time the condition exists and the extent the fair market value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists.  Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other than temporary impairment.  The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity.  Often, the information available to conduct these assessments is limited and rapidly changing, making estimates ofchanges in fair value subject to judgment.  If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the CTBI’s results of operations and financial condition.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 loan and leasecredit losses, and unamortized deferred fees or costs.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.  Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired.  A restructuring of a debt constitutes a troubled debt restructuringTDR if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.



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


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



➢Allowance for LoanCredit 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 Lease Losses – individual assessments.

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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 one basis point and is considered immaterial. The primary difference is for indirect lending premiums.


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



We utilize an internal risk grading system for commercial credits. Those larger commercial credits that exhibit probable or observed credit weaknessesmeet the following criteria are subject to individual review.evaluation: the loan has an outstanding bank share balance of $1 million or greater and meets one of the following criteria: (i) has a criticized risk rating, (ii) is in nonaccrual status, (iii) is a TDR, or (iv) is 90 days or more past due. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated.  The review of individual loans includes those loans that are impaired as defined by ASC 310-10-35, Impairment of a Loan. We evaluate the collectability of both principal and interest when assessing the need for loss provision. Historical loss rates are analyzed and applied to other commercial loansloan segments not subject to specific allocations.  The ALLL allocation for this pool of commercial loans is established based on the historical average, maximum, minimum, and median loss ratios.individual evaluation.


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


Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded.  The associated ALLLACL for these loans is measured in pools with similar risk characteristics under ASC 450, Contingencies.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 sellsell. For commercial loans greater than $1million and classified as criticized, TDR, or nonaccrual, a specific reserve equalis established if a loss is determined to the difference between book value of the loanbe possible and the fair value assigned to the collateralthen charged-off once it is created until such time as the loan is foreclosed.probable. When the foreclosed collateral has been legally assigned to CTBI, the estimated fair value of the collateral less costs to sell is then transferred to other real estate owned or other repossessed assets, and a charge-off is taken for any remaining balance.  When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.



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



Historical loss rates for loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition.  We use twelve rolling quartersWith the implementation of ASC 326, weighted average life (“WAL”) calculations were completed as a tool to determine the life of CTBI’s various loan segments. Vintage modeling was used to determine the life of loan losses for our historical loss rate analysis.  Factors that we considerconsumer and residential real estate loans. Static pool modeling was used to determine the life of loan losses for commercial loan segments. Qualitative factors used to derive CTBI’s total ACL include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge-offs, trends in loan losses, industry concentrations and their relative strengths, amount of unsecured loans, and underwriting exceptions.  Forecasting factors including unemployment rates and industry specific forecasts for industries in which our total exposure is 5% of capital or greater are also included as factors in the ACL model.  Management continually reevaluates the other subjective factors included in its ALLL analysis.our ACL analysis.


Other Real Estate Owned – When foreclosed properties are acquired, appraisals are obtained
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➢        Goodwill and the properties are booked at the current fair market value less expected sales costs.  Additionally, periodic updated appraisals are obtained on unsold foreclosed properties.  When an updated appraisal reflects a fair market value below the current book value, a charge is booked to current earnings to reduce the property to its new fair market value less expected sales costs.  Our policyCore Deposit Intangible–We evaluate total goodwill and core deposit intangible for determining the frequency of periodic reviews isimpairment, based upon considerationASC 350, Intangibles-Goodwill and Other, using fair value techniques including multiples of the specific propertiesprice/equity.  Goodwill and the knowncore deposit intangible are evaluated for impairment on an annual basis or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generallyas other events may warrant.



The balance of goodwill, at $65.5 million, has not more than 24 months.  All revenues and expenses related to the carrying of other real estate owned are recognized through the income statement.changed since January 1, 2015.   Our core deposit intangible has been fully amortized since December 31, 2017.


➢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 theour consolidated financial statements. During the nine monthsquarters ended September 30, 2017March 31, 2022 and 2016,2021, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.


Note 2 – Stock-Based Compensation


CTBI’s compensation expense related to stock option grants was $14 thousand and $15 thousand, respectively, for the three months ended September 30, 2017 and 2016, and $42 thousand for both the nine months ended September 30, 2017 and 2016. 
Restricted stock expense for the three months ended September 30, 2017March 31, 2022 and 20162021 was $131$484 thousand and $97$213 thousand, respectively, including $13$23 thousand and $9$18 thousand, respectively, in dividends paid for each period.  those periods. Restricted stock expense for the nine months ended September 30, 2017 and 2016 was $405first quarter 2022 included the accelerated vesting of restricted stock related to employee retirement in the amount of $245 thousand, and $305 thousand, respectively, including $40 thousand and $28 thousand in dividends paid for each period.  pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan.As of September 30, 2017,March 31, 2022, there was a total of $0.1 million of unrecognized compensation expense related to unvested stock option awards that will be recognized as expense as the awards vest over a weighted average period of 2.6 years and a total of $1.3$2.2 million of unrecognized compensation expense related to restricted stock grants that will be recognized as expense as the awards vest over a weighted average period of 3.1 years.

There were no shares of restricted stock granted during three months ended September 30, 201735,438 and 2016.  There were 23,668 and 18,0699,193 shares of restricted stock granted during the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively.  The restricted stock was issued pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan. The restrictions on the restricted stock will lapse ratably over four years, except for a 5,000 management retention restricted stock award granted in 2017 which will cliff vest at the end of five years.years. 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 was 0 compensation expense related to stock option grants for the three months ended March 31, 2022 or 2021, as all stock option awards have fully vested.  There were no0 stock options granted in the first ninethree months of 2017.  There were 10,000 stock options granted during the nine months ended September 30, 2016.  The fair value of stock options granted during the nine months ended September 30, 2016 were established at the date of grant using a Black-Scholes option pricing model with the weighted average assumptions as follows:2022 or 2021.


    
  
Nine Months Ended
September 30, 2016
 
Expected dividend yield  3.70%
Risk-free interest rate  1.45%
Expected volatility  34.34%
Expected term (in years)  7.5 
Weighted average fair value of options $6.82 

Note 3 – Securities


Securities
Debt securities are classified into held-to-maturityHTM and available-for-saleAFS categories.  Held-to-maturity (HTM)HTM securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost.  Available-for-sale (AFS)AFS securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons.  Available-for-saleAFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.  As of March 31, 2022 and December 31, 2021, CTBI had 0 HTM securities.


10

The amortized cost and fair value of debt securities at September 30, 2017March 31,2022 are summarized as follows:


Available-for-Sale


(in thousands) Amortized Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  Fair Value 
U.S. Treasury and government agencies $218,107  $239  $(488) $217,858  $472,210  $95  $(20,574) $451,731 
State and political subdivisions  134,840   2,670   (853)  136,657   331,756   823   (29,917)  302,662 
U.S. government sponsored agency mortgage-backed securities  226,466   591   (3,059)  223,998   690,098   895   (35,780)  655,213 
Total debt securities  579,413   3,500   (4,400)  578,513 
CRA investment funds  25,000   93   (573)  24,520 
Asset-backed securities  94,065   55   (561)  93,559 
Total available-for-sale securities $604,413  $3,593  $(4,973) $603,033  $1,588,129  $1,868  $(86,832) $1,503,165 


Held-to-Maturity

(in thousands) Amortized Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
State and political subdivisions $858  $0  $0  $858 
Total held-to-maturity securities $858  $0  $0  $858 

The amortized cost and fair value of debt securities at December 31, 20162021 are summarized as follows:


Available-for-Sale


(in thousands) Amortized Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  Fair Value 
U.S. Treasury and government agencies $223,014  $193  $(743) $222,464  $299,606  $351  $(4,187) $295,770 
State and political subdivisions  133,351   1,957   (1,792)  133,516   334,218   5,524   (5,539)  334,203 
U.S. government sponsored agency mortgage-backed securities  227,574   1,008   (3,526)  225,056   733,467   5,107   (7,765)  730,809 
Total debt securities  583,939   3,158   (6,061)  581,036 
CRA investment funds  25,000   76   (718)  24,358 
Asset-backed securities  94,538   301   (192)  94,647 
Total available-for-sale securities $608,939  $3,234  $(6,779) $605,394  $1,461,829  $11,283  $(17,683) $1,455,429 


Held-to-Maturity

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

The amortized cost and fair value of debt securities at September 30, 2017March 31,2022 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


 Available-for-Sale  Held-to-Maturity  Available-for-Sale 
(in thousands) Amortized Cost  Fair Value  Amortized Cost  Fair Value  Amortized Cost  Fair Value 
Due in one year or less $58,967  $58,968  $0  $0  $47,754  $47,673 
Due after one through five years  128,058   128,883   858   858   245,157   235,839 
Due after five through ten years  40,962   41,804   0   0   280,613   263,396 
Due after ten years  124,960   124,860   0   0   230,442   207,485 
U.S. government sponsored agency mortgage-backed securities  226,466   223,998   0   0   690,098   655,213 
Asset-backed securities  94,065   93,559 
Total debt securities  579,413   578,513   858   858  $1,588,129  $1,503,165 
CRA investment funds  25,000   24,520   0   0 
Total securities $604,413  $603,033  $858  $858 



During the three months ended September 30, 2017, there wasMarch 31,2022, we had a net securities gain of $48$99 thousand on salesrealized from the fair value adjustment of AFSequity securities.  During the three months ended March 31,2021, we had a net securities loss of $168 thousand, consisting of a pre-tax gain of $150$60 thousand and a pre-tax loss of $102 thousand.  During the three months ended September 30, 2016, there was a net gain of $458 thousandrealized on sales and calls of AFS securities consistingand an unrealized loss of $228 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 March 31,2022 were $2.4 million, as a result of a pre-tax gain$99 thousand increase in the fair value in the first quarter 2022.  The fair value of $460equity securities decreased $228 thousand and a pre-tax loss of $2 thousand.

During in the ninefirst quarter 2021.NaN equity securities were sold during the three months ended September 30, 2017, there was a combined gain of $58 thousand on salesMarch 31,2022 and calls of AFS securities, consisting of a pre-tax gain of $179 thousand and a pre-tax loss of $121 thousand.  During the nine months ended September 30, 2016, there was a combined gain of $522 thousand on sales and calls of AFS securities, consisting of a pre-tax gain of $529 thousand and a pre-tax loss of $7 thousand.2021.


11

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $222.0$499.8 million at September 30, 2017March 31,2022 and $221.2$545.6 million at December 31, 2016.2021.



The amortized cost of securities sold under agreements to repurchase amounted to $296.4$347.4 million at September 30, 2017March 31,2022 and $303.5$314.1 million at December 31, 2016.2021.



CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of September 30, 2017March 31,2022 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related.  The percentage of total investmentsdebt securities with unrealized losses as of September 30, 2017March 31,2022 was 66.5%87.7%, compared to 65.6%72.4% as of December 31, 2016.2021.  The following tables providetable provides the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of September 30, 2017March 31,2022 that are not deemed to have credit losses.  As stated above, CTBI had no HTM securities as of March 31,2022.

Available-for-Sale

(in thousands) 
Amortized
Cost
  
Gross
Unrealized
Losses
  Fair Value 
Less Than 12 Months         
U.S. Treasury and government agencies $395,941  $(17,249) $378,692 
State and political subdivisions  204,547   (19,287)  185,260 
U.S. government sponsored agency mortgage-backed securities  524,844   (29,719)  495,125 
Asset-backed securities  75,952   (554)  75,398 
Total <12 months temporarily impaired AFS securities  1,201,284   (66,809)  1,134,475 
             
12 Months or More            
U.S. Treasury and government agencies  50,328   (3,325)  47,003 
State and political subdivisions  67,941   (10,630)  57,311 
U.S. government sponsored agency mortgage-backed securities  84,800   (6,061)  78,739 
Asset-backed securities  1,294   (7)  1,287 
Total ≥12 months temporarily impaired AFS securities  204,363   (20,023)  184,340 
             
Total            
U.S. Treasury and government agencies  446,269   (20,574)  425,695 
State and political subdivisions  272,488   (29,917)  242,571 
U.S. government sponsored agency mortgage-backed securities  609,644   (35,780)  573,864 
Asset-backed securities  77,246   (561)  76,685 
Total temporarily impaired AFS securities $1,405,647  $(86,832) $1,318,815 

12

The analysis performed as of December 31,2021 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 31,2021 that are not deemed to be other-than-temporarily impaired.  There wereAs stated above, CTBI had no held-to-maturityHTM securities that were deemed to be impaired as of September 30, 2017.December 31, 2021.


Available-for-Sale


(in thousands) Amortized Cost  Gross Unrealized Losses  Fair Value  
Amortized
Cost
  
Gross
Unrealized
Losses
  Fair Value 
Less Than 12 Months                  
U.S. Treasury and government agencies $143,007  $(471) $142,536  $249,990  $(4,123) $245,867 
State and political subdivisions  20,141   (236)  19,905   197,592   (4,779)  192,813 
U.S. government sponsored agency mortgage-backed securities  71,913   (336)  71,577   473,831   (6,759)  467,072 
Total debt securities  235,061   (1,043)  234,018 
CRA investment funds  7,500   (56)  7,444 
Asset-backed securities  52,229   (190)  52,039 
Total <12 months temporarily impaired AFS securities  242,561   (1,099)  241,462   973,642   (15,851)  957,791 
                        
12 Months or More                        
U.S. Treasury and government agencies  21,559   (17)  21,542   14,505   (64)  14,441 
State and political subdivisions  13,832   (617)  13,215   19,126   (760)  18,366 
U.S. government sponsored agency mortgage-backed securities  113,712   (2,723)  110,989   62,330   (1,006)  61,324 
Total debt securities  149,103   (3,357)  145,746 
CRA investment funds  15,000   (517)  14,483 
Asset-backed securities  1,368   (2)  1,366 
Total ≥12 months temporarily impaired AFS securities  164,103   (3,874)  160,229   97,329   (1,832)  95,497 
                        
Total                        
U.S. Treasury and government agencies  164,566   (488)  164,078   264,495   (4,187)  260,308 
State and political subdivisions  33,973   (853)  33,120   216,718   (5,539)  211,179 
U.S. government sponsored agency mortgage-backed securities  185,625   (3,059)  182,566   536,161   (7,765)  528,396 
Total debt securities  384,164   (4,400)  379,764 
CRA investment funds  22,500   (573)  21,927 
Asset-backed securities  53,597   (192)  53,405 
Total temporarily impaired AFS securities $406,664  $(4,973) $401,691  $1,070,971  $(17,683) $1,053,288 


U.S. Treasury and Government Agencies



The unrealized losses in U.S. Treasury and government agencies were caused by interest rate increases.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 consider those investments to be other-than-temporarily impaired at September 30, 2017, because 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, which may be maturity.cost.


State and Political Subdivisions



The unrealized losses in securities of state and political subdivisions were caused by interest rate increases.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 consider those investments to be other-than-temporarily impaired at September 30, 2017, because  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, which may be maturity.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 increases.changes.  CTBI expects to recover the amortized cost basis over the term of the securities.  CTBI does not consider those investments to be other-than-temporarily impaired at September 30, 2017, because (i) the decline in fair market value is attributable to changes in interest rates and not credit quality, (ii) CTBI does not intend to sell the investments and (iii) it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost, which may be maturity.cost.


CRA Investment Funds
13

CTBI’s CRA investment funds consist of investments in fixed income mutual funds ($24.5 million of the total fair value and $480 thousand of the totalAsset-Backed Securities


The unrealized losses in common stock investments).asset-backed securities were caused by interest rate changes.  The severitycontractual terms of those investments do not permit the impairment (fair value is approximately 2.3%issuer to settle the securities at a price less than cost) and the duration of the impairment correlates with the decline in long-term interest rates in 2017.  CTBI evaluated the near-term prospects of these funds in relation to the severity and duration of the impairment.  Based on that evaluation,par which will equal amortized cost at maturity.  CTBI does not consider thoseintend to sell the investments and it is not more likely than not that we will be required to be other-than-temporarily impaired at September 30, 2017.sell the investments before recovery of their amortized cost.


The analysis performed as of December 31, 2016 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related.  The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2016 that are not deemed to be other-than-temporarily impaired.  There were no held-to-maturity securities that were deemed to be impaired as of December 31, 2016.

Available-for-Sale

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

Note 4 – Loans



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


 
(in thousands)
 
September 30
2017
  
December 31
2016
 
Commercial construction $74,282  $66,998 
Commercial secured by real estate  1,197,604   1,085,428 
Equipment lease financing  3,290   5,512 
Commercial other  339,337   350,159 
Real estate construction  64,441   57,966 
Real estate mortgage  712,237   702,969 
Home equity  96,755   91,511 
Consumer direct  137,657   133,093 
Consumer indirect  487,818   444,735 
Total loans $3,113,421  $2,938,371 
(in thousands) 
March 31
2022
  
December 31
2021
 
Hotel/motel $274,256  $257,062 
Commercial real estate residential  337,447   335,233 
Commercial real estate nonresidential  774,791   757,893 
Dealer floorplans  72,766   69,452 
Commercial other  322,109   290,478 
Commercial unsecured SBA PPP  22,482   47,335 
Commercial loans  1,803,851   1,757,453 
         
Real estate mortgage  780,453   767,185 
Home equity lines  107,230   106,667 
Residential loans  887,683   873,852 
         
Consumer direct  156,620   156,683 
Consumer indirect  667,387   620,825 
Consumer loans  824,007   777,508 
         
Loans and lease financing $3,515,541  $3,408,813 



The loan portfolios presented above are net of unearned fees and unamortized premiums. Unearned fees included above totaled $2.4 million as of March 31, 2022 and $4.0 million as of December 31, 2021 while the unamortized premiums on the indirect lending portfolio totaled $26.0 million as of March 31, 2022 and $24.1 million as of December 31, 2021.


CTBI has segregated and evaluates its loan portfolio through nine10 portfolio segments.segments with similar risk characteristics. CTBI serves customers in small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.  Therefore, CTBI’s exposure to credit risk is significantly affected by changes in these communities.


Commercial
Hotel/motel loans are a significant concentration for CTBI, representing approximately 7.8% 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 for the purpose of erecting or rehabilitating buildings or other structures for commercial purposes, including any infrastructure necessary for development.   Included in this category are improved property, land development, and tract development loans.  The terms of theseprimarily completed as one loan going from construction to permanent financing.  These loans are generally short-term with permanent financing upon completion.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 includeare 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.

14

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

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


Real estate construction
CTBI’s participation in the Paycheck Protection Program (“PPP”) established by the CARES Act resulted in the creation of a new loan segment of unsecured commercial other loans that are typicallyone hundred percent guaranteed by the Small Business Administration (“SBA”).  These loans, which are subject to forgiveness, have maturities of either two or three to five years, depending on when the loan was made.  These loans currently have no allowance for owner-occupied properties.  The terms of these loans are generally short-term with permanent financing upon completion.credit losses.



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



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



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



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



Not includedincluded in the loan balances above were loans held for sale in the amount of $1.6$1.9 million at September 30, 2017March 31, 2022 and $1.2$2.6 million at December 31, 2016.2021.



15

The following tables present the balance in the allowance for credit losses (“ACL”) for the periods ended March 31, 2022,  December 31, 2021 and March 31, 2021:

  
Three Months Ended
March 31, 2022
 
(in thousands) Beginning Balance  Provision Charged to Expense  Losses Charged Off  Recoveries  Ending Balance 
ACL               
Hotel/motel
 
$
5,080
  
$
(153
)
 
$
(216
)
 
$
0
  
$
4,711
 
Commercial real estate residential
  
3,986
   
110
   
(31
)
  
5
   
4,070
 
Commercial real estate nonresidential
  
8,884
   
174
   
0
   
111
   
9,169
 
Dealer floorplans
  
1,436
   
83
   
0
   
0
   
1,519
 
Commercial other
  
4,422
   
478
   
(157
)
  
101
   
4,844
 
Real estate mortgage
  
7,637
   
97
   
(93
)
  
21
   
7,662
 
Home equity
  
866
   
(33
)
  
(19
)
  
5
   
819
 
Consumer direct
  
1,951
   
(180
)
  
(170
)
  
186
   
1,787
 
Consumer indirect
  
7,494
   
299
   
(634
)
  
569
   
7,728
 
Total
 
$
41,756
  
$
875
  
$
(1,320
)
 
$
998
  
$
42,309
 

  
Year Ended
December 31, 2021
 
(in thousands) Beginning Balance  Provision Charged to Expense  Losses Charged Off  Recoveries  Ending Balance 
ACL               
Hotel/motel
 
$
6,356
  
$
(1,276
)
 
$
0
  
$
0
  
$
5,080
 
Commercial real estate residential
  
4,464
   
(488
)
  
(28
)
  
38
   
3,986
 
Commercial real estate nonresidential
  
11,086
   
(2,233
)
  
(306
)
  
337
   
8,884
 
Dealer floorplans
  
1,382
   
54
   
0
   
0
   
1,436
 
Commercial other
  
4,289
   
388
   
(644
)
  
389
   
4,422
 
Real estate mortgage
  
7,832
   
3
   
(266
)
  
68
   
7,637
 
Home equity
  
844
   
39
   
(36
)
  
19
   
866
 
Consumer direct
  
1,863
   
256
   
(684
)
  
516
   
1,951
 
Consumer indirect
  
9,906
   
(3,129
)
  
(2,361
)
  
3,078
   
7,494
 
Total
 
$
48,022
  
$
(6,386
)
 
$
(4,325
)
 
$
4,445
  
$
41,756
 

  
Three Months Ended
March 31, 2021
 
(in thousands) Beginning Balance  Provision Charged to Expense  Losses Charged Off  Recoveries  Ending Balance 
ACL               
Hotel/motel
 
$
6,356
  
$
308
  
$
0
  
$
0
  
$
6,664
 
Commercial real estate residential
  
4,464
   
199
   
(24
)
  
2
   
4,641
 
Commercial real estate nonresidential
  
11,086
   
(135
)
  
(151
)
  
13
   
10,813
 
Dealer floorplans
  
1,382
   
(64
)
  
0
   
0
   
1,318
 
Commercial other
  
4,289
   
269
   
(112
)
  
125
   
4,571
 
Real estate mortgage
  
7,832
   
(690
)
  
(8
)
  
9
   
7,143
 
Home equity
  
844
   
(93
)
  
(5
)
  
4
   
750
 
Consumer direct
  
1,863
   
(14
)
  
(154
)
  
116
   
1,811
 
Consumer indirect
  
9,906
   
(2,279
)
  
(1,016
)
  
1,024
   
7,635
 
Total
 
$
48,022
  
$
(2,499
)
 
$
(1,470
)
 
$
1,293
  
$
45,346
 
 

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

16

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


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

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

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


With the continued impact of the global COVID-19 pandemic, including the high rate of inflation, the potential rising rate environment, and the fact that there is no immediate end foreseen, this has been identified as a significant specific event that could impact our customers’ ability to pay.  Given this uncertainty, management continues to have a significant event qualitative factor to anticipate the continued impact of COVID-19 as deferments have ended and the SBA Paycheck Protection Programs are largely over with no approved capacity to fund new loans.


Provision for loan losses for the quarter was $0.9 million, compared to provision of $0.5 million for the quarter ended December 31, 2021 and a recovery of provision of $2.5 million for the first quarter 2021.  Our reserve coverage (allowance for credit losses to nonperforming loans) at March 31, 2022 was 309.1%, compared to 251.2% at December 31, 2021 and 215.5% at March 31, 2021.  Our credit loss reserve as a percentage of total loans outstanding at March 31, 2022 was 1.20% (1.21% excluding PPP loans) compared to 1.22% at December 31, 2021 (1.24% excluding PPP loans) and 1.28% at March 31, 2021 (1.38% excluding PPP loans).


17

Refer to noteNote 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy.  Nonaccrual loans and loans 90 days past due and still accruing segregated by class of loans for both March 31, 2022 and December 31, 2021 were as follows:


 (in thousands) 
September 30
2017
  
December 31
2016
 
Commercial:      
Commercial construction $1,311  $1,912 
Commercial secured by real estate  7,879   6,326 
Commercial other  1,070   1,559 
         
Residential:        
Real estate construction  1,062   11 
Real estate mortgage  7,915   6,260 
Home equity  561   555 
Total nonaccrual loans $19,798  $16,623 
 March 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   216   202   418 
Commercial real estate nonresidential  2,431   1,430   414   4,275 
Commercial other  0   269   52   321 
Commercial unsecured SBA PPP
  0   0   8   8 
Total commercial loans  2,431   1,915   676   5,022 
                 
Real estate mortgage  0   3,985   3,509   7,494 
Home equity lines  0   501   471   972 
Total residential loans  0   4,486   3,980   8,466 
                 
Consumer direct  0   0   23   23 
Consumer indirect  0   0   179   179 
Total consumer loans  0   0   202   202 
                 
Loans and lease financing $2,431  $6,401  $4,858  $13,690 


 December 31, 2021 
 (in thousands) 
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
 
             
Hotel/motel $0  $1,075  $0  $1,075 
Commercial real estate residential  0   585   312   897 
Commercial real estate nonresidential  2,447   1,602   144   4,193 
Commercial other  0   302   76   378 
Total commercial loans  2,447   3,564   532   6,543 
                 
Real estate mortgage  0   4,081   4,659   8,740 
Home equity lines  0   579   513   1,092 
Total residential loans  0   4,660   5,172   9,832 
                 
Consumer direct  0   0   44   44 
Consumer indirect  0   0   206   206 
Total consumer loans  0   0   250   250 
                 
Loans and lease financing $2,447  $8,224  $5,954  $16,625 

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.

18

The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of September 30, 2017March 31, 2022 and December 31, 2016:2021 (includes loans 90 days past due and still accruing as well):


  September 30, 2017 
(in thousands) 30-59 Days Past Due  60-89 Days Past Due  90+ Days Past Due  
Total Past Due
  
Current
  Total Loans  90+ and Accruing* 
Commercial:                     
Commercial construction $69  $42  $1,311  $1,422  $72,860  $74,282  $0 
Commercial secured by real estate  3,549   1,287   8,316   13,152   1,184,452   1,197,604   1,518 
Equipment lease financing  0   0   0   0   3,290   3,290   0 
Commercial other  773   203   1,134   2,110   337,227   339,337   307 
Residential:                            
Real estate construction  144   382   344   870   63,571   64,441   155 
Real estate mortgage  1,005   5,205   13,646   19,856   692,381   712,237   7,389 
Home equity  685   250   756   1,691   95,064   96,755   333 
Consumer:                            
Consumer direct  810   152   156   1,118   136,539   137,657   156 
Consumer indirect  3,570   927   364   4,861   482,957   487,818   364 
Total $10,605  $8,448  $26,027  $45,080  $3,068,341  $3,113,421  $10,222 
March 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  $274,256  $274,256 
Commercial real estate residential  2,019   202   369   2,590   334,857   337,447 
Commercial real estate nonresidential  1,119   305   3,756   5,180   769,611   774,791 
Dealer floorplans  0   0   0   0   72,766   72,766 
Commercial other  923   10   82   1,015   321,094   322,109 
Commercial unsecured SBA PPP  0   279   8   287   22,195   22,482 
Total commercial loans  4,061   796   4,215   9,072   1,794,779   1,803,851 
                         
Real estate mortgage  1,249   3,206   5,001   9,456   770,997   780,453 
Home equity lines  479   205   775   1,459   105,771   107,230 
Total residential loans  1,728   3,411   5,776   10,915   876,768   887,683 
                         
Consumer direct  371   182   22   575   156,045   156,620 
Consumer indirect  1,516   339   178   2,033   665,354   667,387 
Total consumer loans  1,887   521   200   2,608   821,399   824,007 
                         
Loans and lease financing $7,676  $4,728  $10,191  $22,595  $3,492,946  $3,515,541 


  December 31, 2016 
(in thousands) 30-59 Days Past Due  60-89 Days Past Due  90+ Days Past Due  
Total Past Due
  
Current
  Total Loans  90+ and Accruing* 
Commercial:                     
Commercial construction $22  $0  $1,940  $1,962  $65,036  $66,998  $28 
Commercial secured by real estate  2,033   478   8,847   11,358   1,074,070   1,085,428   3,015 
Equipment lease financing  0   0   0   0   5,512   5,512   0 
Commercial other  997   122   1,235   2,354   347,805   350,159   141 
Residential:                            
Real estate construction  707   42   152   901   57,065   57,966   152 
Real estate mortgage  1,493   5,278   10,695   17,466   685,503   702,969   6,295 
Home equity  829   288   905   2,022   89,489   91,511   467 
Consumer:                            
Consumer direct  873   265   68   1,206   131,887   133,093   68 
Consumer indirect  
3,288
   851   681   4,820   439,915   444,735   681 
Total $10,242  $7,324  $24,523  $42,089  $2,896,282  $2,938,371  $10,847 
December 31, 2021 
(in thousands) 
30-59 Days
Past Due
  
60-89
Days Past
Due
  
90+ Days
Past Due
  
Total Past
Due
  Current  
Total
Loans
 
Hotel/motel $0  $0  $0  $0  $257,062  $257,062 
Commercial real estate residential  274   116   845   1,235   333,998   335,233 
Commercial real estate nonresidential  1,303   147   3,509   4,959   752,934   757,893 
Dealer floorplans  0   0   0   0   69,452   69,452 
Commercial other  1,225   175   108   1,508   288,970   290,478 
Commercial unsecured SBA PPP  14   34   0   48   47,287   47,335 
Total commercial loans  2,816   472   4,462   7,750   1,749,703   1,757,453 
                         
Real estate mortgage  1,171   2,707   6,859   10,737   756,448   767,185 
Home equity lines  656   315   903   1,874   104,793   106,667 
Total residential loans  1,827   3,022   7,762   12,611   861,241   873,852 
                         
Consumer direct  396   179   44   619   156,064   156,683 
Consumer indirect  2,889   533   206   3,628   617,197   620,825 
Total consumer loans  3,285   712   250   4,247   773,261   777,508 
                         
Loans and lease financing $7,928  $4,206  $12,474  $24,608  $3,384,205  $3,408,813 


*90+ and Accruing are also included in 90+ Days Past Due column.
19


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



Hotel/motel loans are a significant concentration for CTBI, representing approximately 7.8% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.  Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.


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



Commercial real estate nonresidential loans are secured by nonfarm, nonresidential properties, farmland, and other commercial real estate.  Construction for commercial real estate nonresidential loans are also included in this segment as these loans are generally one loan for construction to permanent financing.  All commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.

Equipment lease  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 underwritten by our commercial lenders using the same underwriting standards as would be appliedto convert to a secured commercialterm loan, requesting 100% financing.  The pricing for equipment lease financingthe repayment ability is comparablebased on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.  Loans in amounts greater than $500,000 generally require a performance bond to that of borrowers with similar quality commercial credits with similar collateral.  Maximum terms of equipment leasing are determinedbe posted by the type and expected lifegeneral contractor to assure completion of the equipment to be leased.  Residual valuesproject.


Dealer floorplans are determinedsegmented separately as they are a unique product with unique risk factors.  CTBI maintains strict processing procedures over its floorplan product with any exceptions requested by appraisals or opinion letters from industry experts.  Leases must be in conformity with our consolidated annual tax plan.  As we underwrite our equipment lease financing in a manner similar to our commercial loan portfolio described below,officer approved by the risk characteristics for this portfolio mirror that ofappropriate loan committee and the commercial loan portfolio.floorplan manager.


20

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



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


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



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



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


Credit Quality Indicators:



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


Ø➢
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.


21
Ø➢
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.


Ø➢
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.


Ø➢
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.


Ø➢
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.


22

The following tables present the credit risk profile of CTBI’s commercial loan portfolio based on rating category and payment activity, segregated by class of loans asand based on last credit decision or year of September 30, 2017 and December 31, 2016:origination:


(in thousands) Commercial Construction  Commercial Secured by Real Estate  Equipment Leases  Commercial Other  Total 
September 30, 2017               
March 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 $64,983  $1,059,574  $3,229  $292,574  $1,420,360  $37,289  $27,824  $11,120  $53,233  $18,607  $49,251  $0  $197,324 
Watch  3,566   67,065   0   31,270   101,901   3,960   9,149   13,921   8,741   8,709   29,113   0   73,593 
OAEM  1,657   21,676   61   2,056   25,450   0   0   0   0   0   0   0   0 
Substandard  3,898   49,072   0   13,078   66,048   0   0   0   0   3,339   0   0   3,339 
Doubtful  178   217   0   359   754   0   0   0   0   0   0   0   0 
Total $74,282  $1,197,604  $3,290  $339,337  $1,614,513 
Total hotel/motel $41,249  $36,973  $25,041  $61,974  $30,655  $78,364  $0  $274,256 
                                                    
December 31, 2016                    
Commercial real estate residential                                
Risk rating:                                
Pass $55,315  $975,383  $5,206  $299,301  $1,335,205  $26,018  $135,618  $48,239  $17,798  $18,552  $52,486  $10,157  $308,868 
Watch  3,366   51,932   137   32,780   88,215   614   2,214   2,367   2,000   2,409   7,488   37   17,129 
OAEM  2,535   25,772   169   7,913   36,389   0   0   0   0   0   15   0   15 
Substandard  5,592   31,945   0   9,599   47,136   322   4,260   1,917   383   1,715   2,614   224   11,435 
Doubtful  190   396   0   566   1,152   0   0   0   0   0   0   0   0 
Total $66,998  $1,085,428  $5,512  $350,159  $1,508,097 
Total commercial real estate residential $26,954  $142,092  $52,523  $20,181  $22,676  $62,603  $10,418  $337,447 
                                
Commercial real estate nonresidential                                
Risk rating:                                
Pass $46,930  $213,550  $97,038  $80,023  $52,560  $198,565  $29,254  $717,920 
Watch  2,647   4,430   2,688   3,072   2,602   13,046   1,041   29,526 
OAEM  0   0   0   0   0   112   20   132 
Substandard  1,347   4,883   5,499   3,416   1,119   10,618   24   26,906 
Doubtful  0   0   0   0   0   307   0   307 
Total commercial real estate nonresidential $50,924  $222,863  $105,225  $86,511  $56,281  $222,648  $30,339  $774,791 
                                
Dealer floorplans                                
Risk rating:                                
Pass $0  $0  $0  $0  $0  $0  $72,309  $72,309 
Watch  0   0   0   0   0   0   457   457 
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  $72,766  $72,766 
                                
Commercial other                                
Risk rating:                                
Pass $38,977  $60,835  $39,687  $13,194  $29,265  $29,659  $80,968  $292,585 
Watch  949   648   702   364   473   1,177   6,728   11,041 
OAEM  0   0   0   0   3   0   0   3 
Substandard  1,357   6,954   2,844   1,254   329   795   4,947   18,480 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial other $41,283  $68,437  $43,233  $14,812  $30,070  $31,631  $92,643  $322,109 
                                
Commercial unsecured SBA PPP                                
Risk rating:                                
Pass $0  $22,176  $306  $0  $0  $0  $0  $22,482 
Watch  0   0   0   0   0   0   0   0 
OAEM  0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial unsecured SBA PPP $0  $22,176  $306  $0  $0  $0  $0  $22,482 
                                
Commercial loans                                
Risk rating:                                
Pass $149,214  $460,003  $196,390  $164,248  $118,984  $329,961  $192,688  $1,611,488 
Watch  8,170   16,441   19,678   14,177   14,193   50,824   8,263   131,746 
OAEM  0   0   0   0   3   127   20   150 
Substandard  3,026   16,097   10,260   5,053   6,502   14,027   5,195   60,160 
Doubtful  0   0   0   0   0   307   0   307 
Total commercial loans $160,410  $492,541  $226,328  $183,478  $139,682  $395,246  $206,166  $1,803,851 

23

December 31, 2021 Term Loans Amortized Cost Basis by Origination Year 
(in thousands)
 2021  2020  2019  2018  2017  Prior  
Revolving
Loans
  Total 
Hotel/motel                        
 Risk rating:                        
Pass $42,056  $11,231  $53,713  $18,752  $32,765  $20,087  $0  $178,604 
Watch  9,234   14,021   8,813   8,780   2,678   30,502   0   74,028 
OAEM  0   0   0   0   0   0   0   0 
Substandard  0   0   0   3,355   1,075   0   0   4,430 
Doubtful  0   0   0   0   0   0   0   0 
Total hotel/motel $51,290  $25,252  $62,526  $30,887  $36,518  $50,589  $0  $257,062 
                                 
Commercial real estate residential                                
 Risk rating:                                
Pass $142,364  $54,380  $22,320  $19,826  $11,919  $45,791  $9,544  $306,144 
Watch  2,643   2,359   1,962   2,119   554   6,949   156   16,742 
OAEM  0   0   0   0   16   0   0   16 
Substandard  4,822   1,990   620   1,835   596   2,468   0   12,331 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial real estate residential $149,829  $58,729  $24,902  $23,780  $13,085  $55,208  $9,700  $335,233 
                                 
Commercial real estate nonresidential                                
 Risk rating:                                
Pass $214,563  $99,131  $82,386  $57,397  $55,422  $168,533  $22,389  $699,821 
Watch  5,130   2,865   3,981   2,802   3,655   11,828   767   31,028 
OAEM  0   0   0   0   0   178   20   198 
Substandard  5,201   5,098   3,764   600   2,016   9,659   200   26,538 
Doubtful  0   0   0   0   0   308   0   308 
Total commercial real estate nonresidential $224,894  $107,094  $90,131  $60,799  $61,093  $190,506  $23,376  $757,893 
                                 
Dealer floorplans                                
 Risk rating:                                
Pass $0  $0  $0  $0  $0  $0  $69,105  $69,105 
Watch  0   0   0   0   0   0   347   347 
OAEM  0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0 
Total dealer floorplans $0  $0  $0  $0  $0  $0  $69,452  $69,452 
                                 
Commercial other                                
 Risk rating:                                
Pass $72,650  $43,838  $16,495  $29,858  $9,105  $13,346  $75,119  $260,411 
Watch  7,196   1,967   1,582   599   332   1,071   11,792   24,539 
OAEM  0   0   268   383   12   1   482   1,146 
Substandard  1,600   1,589   147   184   287   451   124   4,382 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial other $81,446  $47,394  $18,492  $31,024  $9,736  $14,869  $87,517  $290,478 
                                 
Commercial unsecured SBA PPP                                
 Risk rating:                                
Pass $46,227  $1,108  $0  $0  $0  $0  $0  $47,335 
Watch  0   0   0   0   0   0   0   0 
OAEM  0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial unsecured SBA PPP $46,227  $1,108  $0  $0  $0  $0  $0  $47,335 
                                 
Commercial loans                                
 Risk rating:                                
Pass $517,860  $209,688  $174,914  $125,833  $109,211  $247,757  $176,157  $1,561,420 
Watch  24,203   21,212   16,338   14,300   7,219   50,350   13,062   146,684 
OAEM  0   0   268   383   28   179   502   1,360 
Substandard  11,623   8,677   4,531   5,974   3,974   12,578   324   47,681 
Doubtful  0   0   0   0   0   308   0   308 
Total commercial loans $553,686  $239,577  $196,051  $146,490  $120,432  $311,172  $190,045  $1,757,453 

24

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, as of September 30, 2017 and December 31, 2016:class:


(in thousands) Real Estate Construction  Real Estate Mortgage  Home Equity  Consumer Direct  
Consumer
Indirect
  Total 
September 30, 2017                  
Performing $63,224  $696,933  $95,861  $137,501  $487,454  $1,480,973 
Nonperforming (1)  1,217   15,304   894   156   364   17,935 
Total $64,441  $712,237  $96,755  $137,657  $487,818  $1,498,908 
                         
December 31, 2016                        
Performing $57,803  $690,414  $90,489  $133,025  $444,054  $1,415,785 
Nonperforming (1)  163   12,555   1,022   68   681   14,489 
Total $57,966  $702,969  $91,511  $133,093  $444,735  $1,430,274 
March 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  $11,934  $94,324  $106,258 
Nonperforming  0   0   0   0   0   635   337   972 
Total home equity lines $0  $0  $0  $0  $0  $12,569  $94,661  $107,230 
                                 
Mortgage loans                                
Performing $44,293  $196,891  $151,515  $70,288  $35,606  $274,366  $0  $772,959 
Nonperforming  0   0   0   485   415   6,594   0   7,494 
Total mortgage loans $44,293  $196,891  $151,515  $70,773  $36,021  $280,960  $0  $780,453 
                                 
Residential loans                                
Performing $44,293  $196,891  $151,515  $70,288  $35,606  $286,300  $94,324  $879,217 
Nonperforming  0   0   0   485   415   7,229   337   8,466 
Total residential loans $44,293  $196,891  $151,515  $70,773  $36,021  $293,529  $94,661  $887,683 
                                 
Consumer direct loans                                
Performing $19,055  $62,560  $34,193  $16,419  $9,332  $15,038  $0  $156,597 
Nonperforming  0   0   14   0   9   0   0   23 
Total consumer direct loans $19,055  $62,560  $34,207  $16,419  $9,341  $15,038  $0  $156,620 
                                 
Consumer indirect loans                                
Performing $123,676  $235,189  $167,492  $70,474  $46,187  $24,190  $0  $667,208 
Nonperforming  0   105   7   53   0   14   0   179 
Total consumer indirect loans $123,676  $235,294  $167,499  $70,527  $46,187  $24,204  $0  $667,387 
                                 
Consumer loans                                
Performing $142,731  $297,749  $201,685  $86,893  $55,519  $39,228  $0  $823,805 
Nonperforming  0   105   21   53   9   14   0   202 
Total consumer loans $142,731  $297,854  $201,706  $86,946  $55,528  $39,242  $0  $824,007 

25
(1) 

December 31, 2021 Term Loans Amortized Cost Basis by Origination Year 
(in thousands) 2021  2020  2019  2018  2017  Prior  
Revolving
Loans
  Total 
Home equity lines                        
Performing $0  $0  $0  $0  $0  $10,909  $94,666  $105,575 
Nonperforming  0   0   0   0   0   520   572   1,092 
Total home equity lines $0  $0  $0  $0  $0  $11,429  $95,238  $106,667 
                                 
Mortgage loans                                
Performing $195,731  $161,471  $75,792  $37,188  $42,597  $245,666  $0  $758,445 
Nonperforming  0   63   424   364   558   7,331   0   8,740 
Total mortgage loans $195,731  $161,534  $76,216  $37,552  $43,155  $252,997  $0  $767,185 
                                 
Residential loans                                
Performing $195,731  $161,471  $75,792  $37,188  $42,597  $256,575  $94,666  $864,020 
Nonperforming  0   63   424   364   558   7,851   572   9,832 
Total residential loans $195,731  $161,534  $76,216  $37,552  $43,155  $264,426  $95,238  $873,852 
                                 
Consumer direct loans                                
Performing $71,626  $39,312  $18,492  $10,468  $4,490  $12,251  $0  $156,639 
Nonperforming  0   4   3   34   3   0   0   44 
Total consumer direct loans $71,626  $39,316  $18,495  $10,502  $4,493  $12,251  $0  $156,683 
                                 
Consumer indirect loans                                
Performing $263,127  $190,145  $80,793  $54,437  $23,449  $8,668  $0  $620,619 
Nonperforming  24   135   20   0   23   4   0   206 
Total consumer indirect loans $263,151  $190,280  $80,813  $54,437  $23,472  $8,672  $0  $620,825 
                                 
Consumer loans                                
Performing $334,753  $229,457  $99,285  $64,905  $27,939  $20,919  $0  $777,258 
Nonperforming  24   139   23   34   26   4   0   250 
Total consumer loans $334,777  $229,596  $99,308  $64,939  $27,965  $20,923  $0  $777,508 

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 totaled $4.8have resumed was $4.3 million at September 30, 2017 compared to $3.5 millionMarch 31, 2022.  The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings began, but had been suspended, at December 31, 2016.2021 was $2.3 million.


A loan is considered impaired, in
26

In accordance with ASC 326-20-30-2, if a loan does not share risk characteristics with other pooled loans in determining the impairment accounting guidance (ASC 310-10-35-16), when basedallowance for credit losses, the loan shall be evaluated for expected credit losses on current informationan individual basis. Of the loans that CTBI has individually evaluated, the loans listed below by segment are those that are collateral dependent:

 March 31, 2022 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  1  $8,348  $0 
Commercial real estate residential  4   7,119   0 
Commercial real estate nonresidential  11   19,827   200 
Commercial other  4   11,634   300 
Total collateral dependent loans  20  $46,928  $500 

 December 31, 2021 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  2  $9,462  $600 
Commercial real estate residential  4   7,255   0 
Commercial real estate nonresidential  11   19,943   200 
Commercial other  1   1,113   350 
Total collateral dependent loans  18  $37,773  $1,150 

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


The hotel/motel, commercial real estate residential, and events, it is probable CTBI will be unable to collectcommercial real estate nonresidential segments are all amounts due from the borrower in accordancecollateralized with the contractual termsreal estate.  NaN of the loan.  Impaired4 loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reductionlisted in the interest ratecommercial other segment at March 31, 2022 is collateralized by various chattel, including surface mining equipment, preparation plant equipment, and a first mortgage on the loan, payment extensions, forgiveness of principal, forbearance, ora preparation plant, real estate, and improvements.  The other actions intended to maximize collection.3 loans in this category are collateralized by accounts receivable, equipment, and inventory.


The following table presents impaired

Certain loans the average investment in impaired loans, and interest income recognized on impaired loans for the periods ended September 30, 2017, December 31, 2016, and September 30, 2016:

  September 30, 2017 
(in thousands) Recorded Balance  Unpaid Contractual Principal Balance  Specific Allowance 
Loans without a specific valuation allowance:         
Commercial construction $4,613  $4,621  $0 
Commercial secured by real estate  25,322   25,916   0 
Commercial other  9,994   11,804   0 
Real estate construction  873   873   0 
Real estate mortgage  1,196   1,196   0 
             
Loans with a specific valuation allowance:            
Commercial construction  153   174   25 
Commercial secured by real estate  3,918   5,023   1,301 
Commercial other  130   133   65 
             
Totals:            
Commercial construction  4,766   4,795   25 
Commercial secured by real estate  29,240   30,939   1,301 
Commercial other  10,124   11,937   65 
Real estate construction  873   873   0 
Real estate mortgage  1,196   1,196   0 
Total $46,199  $49,740  $1,391 

  Three Months Ended  Nine Months Ended 
  September 30, 2017  September 30, 2017 
(in thousands) Average Investment in Impaired Loans  *Interest Income Recognized  Average Investment in Impaired Loans  
*Interest Income Recognized
 
Loans without a specific valuation allowance:            
Commercial construction $4,662  $50  $4,955  $136 
Commercial secured by real estate  25,452   276   27,318   980 
Equipment lease financing  0   0   45   0 
Commercial other  10,191   123   10,717   396 
Real estate construction  860   0   569   0 
Real estate mortgage  1,197   8   1,601   30 
                 
Loans with a specific valuation allowance:                
Commercial construction  153   0   156   0 
Commercial secured by real estate  3,984   3   4,236   8 
Commercial other  130   0   87   0 
                 
Totals:                
Commercial construction  4,815   50   5,111   136 
Commercial secured by real estate  29,436   279   31,554   988 
Equipment lease financing  0   0   45   0 
Commercial other  10,321   123   10,804   396 
Real estate construction  860   0   569   0 
Real estate mortgage  1,197   8   1,601   30 
Total $46,629  $460  $49,684  $1,550 

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

  September 30, 2016 
(in thousands) Recorded Balance  Unpaid Contractual Principal Balance  Specific Allowance 
Loans without a specific valuation allowance:         
Commercial construction $4,270  $4,293  $0 
Commercial secured by real estate  32,311   33,004   0 
Commercial other  11,382   13,191   0 
Real estate mortgage  1,489   1,489   0 
             
Loans with a specific valuation allowance:            
Commercial construction  1,668   1,670   212 
Commercial secured by real estate  3,537   4,688   747 
Commercial other  388   408   190 
             
Totals:            
Commercial construction  5,938   5,963   212 
Commercial secured by real estate  35,848   37,692   747 
Commercial other  11,770   13,599   190 
Real estate mortgage  1,489   1,489   0 
Total $55,045  $58,743  $1,149 

  Three Months Ended  Nine Months Ended 
  September 30, 2016  September 30, 2016 
(in thousands) Average Investment in Impaired Loans  *Interest Income Recognized  Average Investment in Impaired Loans  
*Interest Income Recognized
 
Loans without a specific valuation allowance:            
Commercial construction $4,299  $63  $4,450  $168 
Commercial secured by real estate  32,534   390   31,795   1,164 
Commercial other  11,497   153   11,564   470 
Real estate mortgage  1,492   15   1,759   45 
                 
Loans with a specific valuation allowance:                
Commercial construction  1,798   0   2,524   0 
Commercial secured by real estate  3,547   1   3,957   19 
Commercial other  405   0   597   0 
                 
Totals:                
Commercial construction  6,097   63   6,974   168 
Commercial secured by real estate  36,081   391   35,752   1,183 
Commercial other  11,902   153   12,161   470 
Real estate mortgage  1,492   15   1,759   45 
Total $55,572  $622  $56,646  $1,866 

*Cash basis interest is substantially the same as interest income recognized.

Included in certain loan categories of impaired loans are certain loans and leases that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.  Modifications of terms for our loans and their inclusion as troubled debt restructurings are based on individual facts and circumstances.  Loan modifications that are included as troubled debt restructurings may involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal and/or interest payments, regardless of the period of the modification.  All of the loans identified as troubled debt restructuring were modified due to financial stress of the borrower.  In order to determine if a borrower is experiencing financial difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.  This evaluation is performed under CTBI’s internal underwriting policy.

When we modify loans and leases in a troubled debt restructuring, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, or use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determined that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, we evaluate all troubled debt restructuring, including those that have payment defaults, for possible impairment and recognize impairment through the allowance.

During 2017, certain loans were modified in troubled debt restructurings,TDRs, where economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances.  Presented below, segregated by class of loans, are troubled debt restructuringsTDRs that occurred during the three and nine months ended September 30, 2017March 31, 2022 and 20162021 and the year ended December 31, 2016:2021:


 
Three Months Ended
March 31, 2022
 
 
Three Months Ended
September 30, 2017
  Pre-Modification Outstanding Balance 
(in thousands) Number of Loans  Term Modification  Rate Modification  
Combination
  
Post-Modification Outstanding Balance
  Number of Loans  Term Modification  Combination  Total Modification 
Commercial:               
Commercial secured by real estate  6  $295  $0  $0  $295 
Hotel/motel 0  $0  $0  $0 
Commercial real estate residential 2  154  0  154 
Commercial real estate nonresidential 2  245  0  245 
Commercial other  1   102   0   0   102  4  964  0  964 
Total commercial loans 8  1,363  0  1,363 
            
Real estate mortgage  2   0   916   916 
Total residential loans 2  0  916  916 
            
Total troubled debt restructurings  7  $397  $0  $0  $397  10  $1,363  $916  $2,279 


  
Nine Months Ended
September 30, 2017
 
(in thousands) Number of Loans  Term Modification  Rate Modification  
Combination
  
Post-Modification Outstanding Balance
 
Commercial:               
Commercial construction  2  $0  $0  $114  $114 
Commercial secured by real estate  11   874   0   192   1,066 
Commercial other  10   237   0   136   373 
Residential:                    
Real estate construction  1   846   0   0   846 
Real estate mortgage  1   323   0   0   323 
Total troubled debt restructurings  25  $2,280  $0  $442  $2,722 

27
  
Three Months Ended
September 30, 2016
 
(in thousands) Number of Loans  Term Modification  Rate Modification  
Combination
  
Post-Modification Outstanding Balance
 
Commercial:               
Commercial secured by real estate  2  $152  $0  $0  $152 
Total troubled debt restructurings  2  $152  $0  $0  $152 

  
Nine Months Ended
September 30, 2016
 
(in thousands) Number of Loans  Term Modification  Rate Modification  
Combination
  
Post-Modification Outstanding Balance
 
Commercial:               
Commercial construction  5  $1,408  $0  $0  $1,408 
Commercial secured by real estate  23   5,761   0   580   6,341 
Commercial other  16   5,041   0   0   5,041 
Residential:                    
Real estate mortgage  1   0   0   280   280 
Total troubled debt restructurings  45  $12,210  $0  $860  $13,070 
  
Three Months Ended
March 31, 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  4   963   0   963 
Total commercial loans  8   1,361   0   1,361 
                 
Real estate mortgage  2   0   916   916 
Total residential loans  2   0   916   916 
                 
Total troubled debt restructurings  10  $1,361  $916  $2,277 


 
Year Ended
December 31, 2021
 
 
Year Ended
December 31, 2016
  Pre-Modification Outstanding Balance 
(in thousands) Number of Loans  Term Modification  Rate Modification  
Combination
  
Post-Modification Outstanding Balance
  Number of Loans  Term Modification  Combination  Other  Total Modification 
Commercial:               
Commercial construction  1  $1,288  $0  $0  $1,288 
Commercial secured by real estate  27   8,827   0   581   9,408 
Hotel/motel
 
0
  $
0
  $
0
  $
0
  $
0
 
Commercial real estate residential
 
6
  

388
  

0
  

0  
388
 
Commercial real estate nonresidential
 
9
  
4,179
  
2,988
  0  
7,167
 
Commercial other  14   5,088   0   87   5,175  
5
  
417
  
0
  
0
  
417
 
Residential:                    
Total commercial loans
 
20
  
4,984
  
2,988
  
0
  
7,972
 
               
Real estate mortgage  1   0   0   281   281   
3
   
278
   
277
   
262
   
817
 
Total residential loans
 
3
  
278
  
277
  
262
  
817
 
              
     
Total troubled debt restructurings  43  $15,203  $0  $949  $16,152  
23
  
$
5,262
  
$
3,265
  
$
262
  
$
8,789
 


  
Year Ended
December 31, 2021
 
  Post-Modification Outstanding Balance 
(in thousands) Number of Loans  Term Modification  Combination  Other  Total Modification 
Commercial real estate residential
  
6
  
$
424
  
$
0
  
$
0  
$
424
 
Commercial real estate nonresidential
  
9
   
4,282
   
3,000
   
0
   
7,282
 
Hotel/motel
  
0
   
0
   
0
   0   
0
 
Commercial other
  
5
   
340
   
0
   
0
   
340
 
Total commercial loans
  
20
   
5,046
   
3,000
   
0
   
8,046
 
                     
Real estate mortgage
  
3
   
279
   
277
   
262
   
818
 
Total residential loans
  
3
   
279
   
277
   
262
   
818
 
                     
Total troubled debt restructurings  
23
  
$
5,325
  
$
3,277
  
$
262
  
$
8,864
 

28
  
Three Months Ended
March 31, 2021
 
  Pre-Modification Outstanding Balance 
(in thousands) Number of Loans  Term Modification  Combination  Total Modification 
Hotel/motel  0  $0  $0  $0 
Commercial real estate residential  0   0   0   0 
Commercial real estate nonresidential  1   0   284   284 
Commercial other  0   0   0   0 
Total commercial loans  1   0   284   284 
                 
Real estate mortgage  0   0   0   0 
Total residential loans  0   0   0   0 
                 
Total troubled debt restructurings  1  $0  $284  $284 

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


No charge-offs have resulted from modifications for any of the presented periods.  We had commitments to extend additional credit in the amount of $0.1 million$175 thousand and $52 thousand at March 31, 2022 and December 31, 2021, respectively, on loans that were considered troubled debt restructurings at September 30, 2017.TDRs.




Loans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual.  Commercial and consumer loans modified in a troubled debt restructuringTDR are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a troubled debt restructuringTDR subsequently default, CTBI evaluates the loan for possible further impairment.  The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.  Presented below, segregated by class of loans, are loans that were modified as troubled debt restructuringsTDRs within the priorpast twelve months which have subsequently defaulted during the three and nine months ended September 30, 2017 and 2016.defaulted.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.  Presented below, segregated by segment, are TDRs for which there was a payment default during the periods indicated and such default was within twelve months of the loan modification.  There were 0 defaulted restructured loans for the three months ended March 31, 2022.

 (in thousands) 
Three Months Ended
September 30, 2017
  
Nine Months Ended
September 30, 2017
 
  Number of Loans  Recorded Balance  Number of Loans  Recorded Balance 
Commercial:            
Commercial secured by real estate  2  $961   2  $961 
Residential:                
Real estate construction  1   846   1   846 
Total defaulted restructured loans  3  $1,807   3  $1,807 

 (in thousands) 
Three Months Ended
September 30, 2016
  
Nine Months Ended
September 30, 2016
 
  Number of Loans  Recorded Balance  Number of Loans  Recorded Balance 
Commercial:            
Commercial secured by real estate  1  $1,446   2  $1,956 
Commercial other  1   14   2   372 
Total defaulted restructured loans  2  $1,460   4  $2,328 


Note 5 – Allowance for Loan and Lease Losses
29

(in thousands) 
Three Months Ended
March 31, 2022
  
Year Ended
December 31, 2021
 
  Number of Loans  Recorded Balance  Number of Loans  Recorded Balance 
Commercial:
            
Hotel/motel  
0
  
$
0
   
1
  
$
1,113
 
Commercial other  
0
   
0
   
0
   
0
 
Residential:
                
Real estate mortgage  
0
   
0
   
1
   
275
 
Total defaulted restructured loans  
0
  
$
0
   
2
  
$
1,388
 
The following tables present the balance in the allowance for loan and lease losses (“ALLL”) and the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2017, December 31, 2016 and September 30, 2016:


  
Three Months Ended
September 30, 2017
 
(in thousands) Commercial Construction  Commercial Secured by Real Estate  Equipment Lease Financing  Commercial Other  Real Estate Construction  Real Estate Mortgage  
Home
Equity
  Consumer Direct  Consumer Indirect  Total 
Allowance for loan losses                              
Beginning balance $669  $15,299  $33  $4,993  $581  $5,662  $747  $1,866  $7,283  $37,133 
Provision charged to expense  (19)  (1)  (14)  210   49   276   113   47   5   666 
Losses charged off  (6)  (249)  0   (549)  0   (158)  (53)  (166)  (1,262)  (2,443)
Recoveries  28   53   0   308   0   6   0   110   530   1,035 
Ending balance $672  $15,102  $19  $4,962  $630  $5,786  $807  $1,857  $6,556  $36,391 
                                         
Ending balance:                                        
Individually evaluated for impairment $25  $1,301  $0  $65  $0  $0  $0  $0  $0  $1,391 
Collectively evaluated for impairment $647  $13,801  $19  $4,897  $630  $5,786  $807  $1,857  $6,556  $35,000 
                                         
Loans                                        
Ending balance:                                        
Individually evaluated for impairment $4,766  $29,240  $0  $10,124  $873  $1,196  $0  $0  $0  $46,199 
Collectively evaluated for impairment $69,516  $1,168,364  $3,290  $329,213  $63,568  $711,041  $96,755  $137,657  $487,818  $3,067,222 

  
Nine Months Ended
September 30, 2017
 
(in thousands) Commercial Construction  Commercial Secured by Real Estate  Equipment Lease Financing  Commercial Other  Real Estate Construction  Real Estate Mortgage  
Home
Equity
  Consumer Direct  Consumer Indirect  Total 
Allowance for loan losses                              
Beginning balance $884  $14,191  $42  $4,656  $629  $6,027  $774  $1,885  $6,845  $35,933 
Provision charged to expense  (239)  1,622   (23)  1,229   0   1   87   243   1,739   4,659 
Losses charged off  (10)  (776)  0   (1,386)  0   (321)  (57)  (675)  (3,898)  (7,123)
Recoveries  37   65   0   463   1   79   3   404   1,870   2,922 
Ending balance $672  $15,102  $19  $4,962  $630  $5,786  $807  $1,857  $6,556  $36,391 
                                         
Ending balance:                                        
Individually evaluated for impairment $25  $1,301  $0  $65  $0  $0  $0  $0  $0  $1,391 
Collectively evaluated for impairment $647  $13,801  $19  $4,897  $630  $5,786  $807  $1,857  $6,556  $35,000 
                                         
Loans                                        
Ending balance:                                        
Individually evaluated for impairment $4,766  $29,240  $0  $10,124  $873  $1,196  $0  $0  $0  $46,199 
Collectively evaluated for impairment $69,516  $1,168,364  $3,290  $329,213  $63,568  $711,041  $96,755  $137,657  $487,818  $3,067,222 

  
Three Months Ended
September 30, 2016
 
(in thousands) Commercial Construction  Commercial Secured by Real Estate  Equipment Lease Financing  Commercial Other  Real Estate Construction  Real Estate Mortgage  
Home
Equity
  Consumer Direct  Consumer Indirect  Total 
Allowance for loan losses                              
Beginning balance $1,437  $14,438  $94  $4,430  $558  $6,372  $819  $1,634  $5,915  $35,697 
Provision charged to expense  54   585   (28)  185   8   330   3   170   884   2,191 
Losses charged off  (79)  (319)  0   (622)  (61)  (366)  0   (204)  (1,311)  (2,962)
Recoveries  18   78   0   92   4   8   2   111   562   875 
Ending balance $1,430  $14,782  $66  $4,085  $509  $6,344  $824  $1,711  $6,050  $35,801 
                                         
Ending balance:                                        
Individually evaluated for impairment $212  $747  $0  $190  $0  $0  $0  $0  $0  $1,149 
Collectively evaluated for impairment $1,218  $14,035  $66  $3,895  $509  $6,344  $824  $1,711  $6,050  $34,652 
                                         
Loans                                        
Ending balance:                                        
Individually evaluated for impairment $5,938  $35,848  $0  $11,770  $0  $1,489  $0  $0  $0  $55,045 
Collectively evaluated for impairment $62,337  $1,047,792  $6,242  $343,214  $55,412  $704,539  $89,467  $131,815  $435,436  $2,876,254 

  
Nine Months Ended
September 30, 2016
 
(in thousands) Commercial Construction  Commercial Secured by Real Estate  Equipment Lease Financing  Commercial Other  Real Estate Construction  Real Estate Mortgage  
Home
Equity
  Consumer Direct  Consumer Indirect  Total 
Allowance for loan losses                              
Beginning balance $2,199  $14,434  $79  $4,225  $550  $6,678  $839  $1,594  $5,496  $36,094 
Provision charged to expense  (701)  1,726   (13)  1,156   144   440   (1)  669   2,409   5,829 
Losses charged off  (94)  (1,505)  0   (1,667)  (192)  (849)  (21)  (893)  (3,508)  (8,729)
Recoveries  26   127   0   371   7   75   7   341   1,653   2,607 
Ending balance $1,430  $14,782  $66  $4,085  $509  $6,344  $824  $1,711  $6,050  $35,801 
                                         
Ending balance:                                        
Individually evaluated for impairment $212  $747  $0  $190  $0  $0  $0  $0  $0  $1,149 
Collectively evaluated for impairment $1,218  $14,035  $66  $3,895  $509  $6,344  $824  $1,711  $6,050  $34,652 
                                         
Loans                                        
Ending balance:                                        
Individually evaluated for impairment $5,938  $35,848  $0  $11,770  $0  $1,489  $0  $0  $0  $55,045 
Collectively evaluated for impairment $62,337  $1,047,792  $6,242  $343,214  $55,412  $704,539  $89,467  $131,815  $435,436  $2,876,254 

  December 31, 2016 
(in thousands) Commercial Construction  Commercial Secured by Real Estate  Equipment Lease Financing  Commercial Other  Real Estate Construction  Real Estate Mortgage  
Home
Equity
  Consumer Direct  Consumer Indirect  Total 
Allowance for loan losses                              
Beginning balance $2,199  $14,434  $79  $4,225  $550  $6,678  $839  $1,594  $5,496  $36,094 
Provision charged to expense  (1,035)  1,220   (37)  2,128   264   291   (20)  912   4,149   7,872 
Losses charged off  (316)  (1,641)  0   (2,136)  (192)  (1,043)  (54)  (1,236)  (5,050)  (11,668)
Recoveries  36   178   0   439   7   101   9   615   2,250   3,635 
Ending balance $884  $14,191  $42  $4,656  $629  $6,027  $774  $1,885  $6,845  $35,933 
                                         
Ending balance:                                        
Individually evaluated for impairment $213  $1,035  $0  $65  $0  $0  $0  $0  $0  $1,313 
Collectively evaluated for impairment $671  $13,156  $42  $4,591  $629  $6,027  $774  $1,885  $6,845  $34,620 
                                         
Loans                                        
Ending balance:                                        
Individually evaluated for impairment $5,609  $33,756  $0  $11,354  $0  $1,483  $0  $0  $0  $52,202 
Collectively evaluated for impairment $61,389  $1,051,672  $5,512  $338,805  $57,966  $701,486  $91,511  $133,093  $444,735  $2,886,169 

Note 65 – Other Real Estate Owned



Activity for other real estate owned was as follows:


 Three Months Ended  Nine Months Ended 
 September 30  September 30  
Three Months Ended
March 31
 
(in thousands) 2017  2016  2017  2016  2022  2021 
Beginning balance of other real estate owned $32,785  $37,740  $35,856  $40,674  $3,486  $7,694 
New assets acquired  2,722   1,008   4,303   4,300   137   (170)
Capitalized costs  0   0   0   0 
Fair value adjustments  (884)  (408)  (2,871)  (632)  (246)  (154)
Sale of assets  (2,575)  (675)  (5,240)  (6,677)  (1,078)  (1,146)
Ending balance of other real estate owned $32,048  $37,665  $32,048  $37,665  $2,299  $6,224 


Foreclosed properties at September 30, 2017 were $32.0 million. 
Carrying costs and fair value adjustments associated with foreclosed properties were $1.3 million and $0.9 million, respectively, for the three months ended September 30, 2017March 31, 2022 and 2016 and $4.12021 were $0.4 million and $1.9$0.3 million, respectively,respectively.  For a description of our accounting policies relative to foreclosed properties and other real estate owned, see Note 1 to our consolidated financial statements included in our annual report on Form 10-K for the nine monthsyear ended September 30, 2017 and 2016.December 31, 2021.



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


(in thousands) 
September 30
2017
  
December 31
2016
  
March 31
2022
  
December 31
2021
 
1-4 family $5,117  $6,210  $940  $1,130 
Agricultural/farmland  68   93 
Construction/land development/other  16,620   20,778   465   480 
Multifamily  176   270   0   88 
Non-farm/non-residential  10,067   8,505   894   1,788 
Total foreclosed properties $32,048  $35,856  $2,299  $3,486 


Note 76 – 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.


30

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 $296.8$330.9 million and $302.3$317.1 million at September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively.



The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in the accompanying consolidated balance sheets as of September 30, 2017March 31, 2022 and December 31, 20162021 is presented in the following tables:


 September 30, 2017  March 31, 2022 
 Remaining Contractual Maturity of the Agreements  Remaining Contractual Maturity of the Agreements 
(in thousands) 
Overnight and
Continuous
  Up to 30 days  30-90 days  
Greater Than
90 days
  Total  
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 $31,171  $56,126  $0  $26,488  $113,785  $2,470  $0  $25,000  $14,209  $41,679 
State and political subdivisions  63,611   4,573   610   6,919   75,713   82,075   0   0   22,045   104,120 
U.S. government sponsored agency mortgage-backed securities  21,630   36,301   116   12,462   70,509   25,228   0   0   83,596   108,824 
Total $116,412  $97,000  $726  $45,869  $260,007  $109,773  $0  $25,000  $119,850  $254,623 


 December 31, 2016  December 31, 2021 
 Remaining Contractual Maturity of the Agreements  Remaining Contractual Maturity of the Agreements 
(in thousands) 
Overnight and
Continuous
  Up to 30 days  30-90 days  
Greater Than
90 days
  Total  
Overnight
and
Continuous
  
Up to
30 days
  30-90 days  
Greater
Than
90 days
  Total 
Repurchase agreements and
repurchase-to-maturity transactions:
                              
U.S. Treasury and government agencies $17,249  $0  $14,349  $73,076  $104,674  $3,176  $16  $5,400  $10,040  $18,632 
State and political subdivisions  55,354   0   1,998   10,272   67,624   83,375   484   13,633   9,427   106,919 
U.S. government sponsored agency mortgage-backed securities  23,386   0   8,003   47,378   78,767   24,689   0   85,967   34,881   145,537 
Total $95,989  $0  $24,350  $130,726  $251,065  $111,240  $500  $105,000  $54,348  $271,088 


Note 87 – Fair Market Value of Financial Assets and Liabilities


Fair Value Measurements



ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principlesGAAP, 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 assumptions market participants would useexit 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.


31
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 pricingdetermining an exit price for the assets or liabilities.


Recurring Measurements



The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of September 30, 2017March 31, 2022 and December 31, 20162021 and indicate the level within the fair value hierarchy of the valuation techniques.


(in thousands)    
Fair Value Measurements at
March 31, 2022 Using
 
    
Fair Value Measurements at
September 30, 2017 Using
  Fair Value  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
(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 $217,858  $65,093  $152,765  $0  $451,731  $402,275  $49,456  $0 
State and political subdivisions  136,657   0   136,657   0   302,662   0   302,662   0 
U.S. government sponsored agency mortgage-backed securities
  223,998   0   223,998   0 
CRA investment funds  24,520   24,520   0   0 
U.S. government sponsored agency mortgage-backed securities  655,213   0   655,213   0 
Asset-backed securities  93,559   0   93,559   0 
Equity securities at fair value  2,352   0   0   2,352 
Mortgage servicing rights  3,283   0   0   3,283   7,748   0   0   7,748 


(in thousands)    
Fair Value Measurements at
December 31, 2021 Using
 
    
Fair Value Measurements at
December 31, 2016 Using
  Fair Value  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
(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 $222,464  $44,934  $177,530  $0  $295,770  $242,214  $53,556  $0 
State and political subdivisions  133,516   0   133,516   0   334,203   0   334,203   0 
U.S. government sponsored agency mortgage-backed securities
  225,056   0   225,056   0 
CRA investment funds  24,358   24,358   0   0 
U.S. government sponsored agency mortgage-backed securities  730,809   0   730,809   0 
Asset-backed securities  94,647   0   94,647   0 
Equity securities at fair value  2,253   0   0   2,253 
Mortgage servicing rights  3,433   0   0   3,433   6,774   0   0   6,774 



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 September 30, 2017March 31, 2022 and December 31, 2016.2021.  There have been no significant changes in the valuation techniques during the quarter or nine months ended September 30, 2017.March 31, 2022.  For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.


32
Available-for-Sale Securities



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



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



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

Equity Securities at Fair Value


As of September 30, 2017March 31, 2022 and December 31, 2016,2021, the only securities owned by CTBI does not own any securitiesthat were valued using Level 3 inputs.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 mortgage servicing rightsMSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value.



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


Transfers between Levels
33

There were no transfers between Levels 1, 2, and 3 as of September 30, 2017.

Level 3 Reconciliation



Following is a reconciliation of the beginning and ending balances of recurring fair value measurements, recognized infor the accompanying balance sheetperiods indicated, using significant unobservable (Level 3) inputs for the three and nine months ended September 30, 2017 and 2016:inputs:


Mortgage Servicing Rights      
(in thousands) 
Three Months Ended
March 31, 2022
  
Three Months Ended
March 31, 2021
 
 Three Months Ended  Nine Months Ended  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
  
Equity
Securities
at Fair Value
  
Mortgage
Servicing
Rights
 
 September 30  September 30 
(in thousands) 2017  2016  2017  2016 
Beginning balance $3,304  $2,797  $3,433  $3,236  $2,253  $6,774  $2,471  $4,068 
Total recognized gains (losses)                
Included in net income  5   118   (73)  (422)
Total unrealized gains (losses)
Included in net income
  99   983   (228)  1,030 
Issues  98   167   269   388   0   229   0   736 
Settlements  (124)  (118)  (346)  (238)  0   (238)  0   (250)
Ending balance $3,283  $2,964  $3,283  $2,964  $2,352  $7,748  $2,243  $5,584 
                                
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 $5  $118  $(73) $(422) $99  $983  $(228) $1,030 



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

Noninterest Income      
  Three Months Ended  Nine Months Ended 
  September 30  September 30 
(in thousands) 2017  2016  2017  2016 
Total losses $(119) $0  $(419) $(660)


Noninterest Income
 
Three Months Ended
March 31
 
(in thousands) 2022  2021 
Total gains
 $844 $552

Nonrecurring Measurements



The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of September 30, 2017March 31, 2022 and December 31, 20162021 and indicate the level within the fair value hierarchy of the valuation techniques.


(in thousands)    
Fair Value Measurements at
March 31, 2022 Using
 
    
Fair Value Measurements at
September 30, 2017 Using
  Fair Value  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
(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                        
Impaired loans (collateral dependent) $1,732  $0  $0  $1,732 
Other real estate/assets owned  18,843   0   0   18,843 
Collateral dependent loans $759  $0  $0  $759 
Other real estate owned  688   0   0   688 


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

34
(in thousands)    
Fair Value Measurements at
December 31, 2021 Using
 

 Fair Value  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis            
Collateral-dependent loans $1,238  $0  $0  $1,238 
Other real estate owned  1,487   0   0   1,487 


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.


ImpairedCollateral Dependent Loans (Collateral Dependent)



The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell.  Collateral-dependent impaired 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 impaired under ASC 310-35, Impairment of a Loan,collateral dependent are loans for which based on current information and events, itthe repayment is probable thatexpected to be provided substantially through the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Impaired loans are subject to nonrecurring fair value adjustments to reflect subsequent (i) partial write-downs that are based on the observable market priceoperation or current appraised valuesale of the collateral or (ii)when the full charge-off of the loan carrying value.borrower is experiencing financial difficulty in accordance with ASC 326-20-35-5.  Quarter-to-date fair value adjustments on impairedcollateral- dependent loans disclosed above were $0.3was a recovery of $0.1 million at March 31, 2022, and expense of $0.4 million and $0.3 million for the quarters ended September 30, 2017, December 31, 2016,2021 and September 30, 2016.  Year-to-date fair value adjustments were $0.7 million for the nine months ended September 30, 2017, $0.6 million for the year ended December March 31, 2016, and $0.6 million for the nine months ended September 30, 2016.2021, respectively.


Other Real Estate Owned



In accordance with the provisions of ASC 360,Property, Plant, and Equipment, other real estate owned (OREO)(“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired.  Estimated fair value of OREO is based on appraisals or evaluations.  OREO is classified within Level 3 of the fair value hierarchy.  Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral.  Quarter-to-date fair value adjustments on other real estate/assets ownedOREO disclosed above were $0.9$0.2 million $0.6 million, and $0.4 million for each of the quarters ended September 30, 2017,March 31,2022, December 31, 2016,2021, and September 30, 2016, respectively.  Year-to-date adjustments were $2.9 million for the nine months ended September 30, 2017, $1.2 million for the year ended December March 31, 2016, and $0.6 million for the nine months ended September 30, 2016.2021.



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.


35
Unobservable (Level 3) Inputs



The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at September 30, 2017March 31, 2022 and December 31, 2016.2021.


(in thousands) Quantitative Information about Level 3 Fair Value Measurements Quantitative Information about Level 3 Fair Value Measurements
 
Fair Value at
March 31,
2022
 
Valuation
Technique(s)
Unobservable Input 
Range
(Weighted
Average)
Equity securities at fair value $2,352 Discount cash flows, computer pricing modelDiscount rate  
8.0% - 12.0%
(10.0%)
         Conversion date 
Dec 2024 - 
Dec 2028
(Dec 2026)
 Fair Value at September 30, 2017 Valuation Technique(s)Unobservable Input Range (Weighted Average)        
Mortgage servicing rights $3,283 Discount cash flows, computer pricing modelConstant prepayment rate  
7.0% - 29.5%
(10.6%)
 $7,748 Discount cash flows, computer pricing modelConstant prepayment rate  
7.0% - 28.3%
(8.1%)
       Probability of default  
0.0% - 100.0%
(3.3%)
         Probability of default  
0.0% - 66.7%
(1.3%)
       Discount rate  
10.0% - 11.5%
(10.1%)
         Discount rate  
10.0% - 11.5%
(10.1%)
                
Impaired loans (collateral-dependent) $1,732 Market comparable propertiesMarketability discount  
10.0% - 89.0%
(40.4%)
Collateral dependent loans $759 Market comparable propertiesMarketability discount  
20.0% - 20.0%
(20.0%)
                
Other real estate/assets owned $18,843 Market comparable propertiesComparability adjustments  
6.0% - 68.7%
(16.3%)
Other real estate owned $688 Market comparable propertiesComparability adjustments  
10.0% - 34.15%
(14.3%)


(in thousands) Quantitative Information about Level 3 Fair Value Measurements Quantitative Information about Level 3 Fair Value Measurements
 
Fair Value at
December 31,
2021
 
Valuation
Technique(s)
Unobservable Input 
Range
(Weighted
Average)
Equity securities at fair value $2,253 Discount cash flows, computer pricing modelDiscount rate  
8.0% - 12.0%
(10.0%)
         Conversion date 
Dec 2024 - Dec 2028
(Dec 2026)
 Fair Value at December 31, 2016 Valuation Technique(s)Unobservable Input Range (Weighted Average)         
Mortgage servicing rights $3,433 Discount cash flows, computer pricing modelConstant prepayment rate  
7.0% - 27.0%
(9.5%)
 $6,774 Discount cash flows, computer pricing modelConstant prepayment rate  
7.0% - 26.7%
(10.0%)
       Probability of default  
0.0% - 100.0%
(3.0%)
         Probability of default  
0.0% - 75.0%
(1.4%)
       Discount rate  
10.0% - 11.5%
(10.1%)
         Discount rate  
10.0% - 11.5%
(10.1%)
                 
Impaired loans (collateral-dependent) $5,506 Market comparable propertiesMarketability discount  
0.0% - 100.0%
(33.7%)
Collateral-dependent loans $1,238 Market comparable propertiesMarketability discount  
20.0% - 62.0%
(41.0%)
                 
Other real estate/assets owned $4,388 Market comparable propertiesComparability adjustments  
10.0% - 100.0%
(14.9%)
Other real estate owned $1,487 Market comparable propertiesComparability adjustments  
10.0% - 45.5%
(15.1%)


SensitivityUncertainty of Significant Unobservable InputsFair Value Measurements



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


36
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 1.6181 and the most recent dividend rate of 0.6068 were used to derive the fair value estimate.  Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement.  Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate.

Mortgage Servicing Rights



Fair market value for mortgage servicing rightsMSRs 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.


37
Fair Value of Financial Instruments



The following table presents estimated fair value of CTBI’s financial instruments as of September 30, 2017March 31, 2022 and indicates the level within the fair value hierarchy of the valuation techniques.  In accordance with the adoption of ASU 2016-01, the fair values as of March 31, 2022 were measured using an exit price notion.


    
Fair Value Measurements
at September 30, 2017 Using
     
Fair Value Measurements
at March 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)
  
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 $166,416  $166,416  $0  $0  $164,485  $164,485  $0  $0 
Certificates of deposit in other banks  11,270   0   11,244   0   245   0   245   0 
Securities available-for-sale  603,033   89,613   513,420   0 
Securities held-to-maturity  858   0   858   0 
Debt securities available-for-sale  1,503,165   402,275   1,100,890   0 
Equity securities at fair value  2,352   0   0   2,352 
Loans held for sale  1,605   1,651   0   0   1,941   1,979   0   0 
Loans, net  3,077,030   0   0   3,057,809   3,473,232   0   0   3,565,567 
Federal Home Loan Bank stock  17,927   0   17,927   0   8,139   0   8,139   0 
Federal Reserve Bank stock  4,887   0   4,887   0   4,887   0   4,887   0 
Accrued interest receivable  12,920   0   12,920   0   15,024   0   15,024   0 
Mortgage servicing rights  3,283   0   0   3,283 
                
                                
Financial liabilities:                                
Deposits $3,200,366  $786,856  $2,410,741  $0  $4,428,304  $1,398,529  $3,046,220  $0 
Repurchase agreements  260,007   0   0   260,044   254,623   0   0   254,885 
Federal funds purchased  8,196   0   8,196   0   500   0   500   0 
Advances from Federal Home Loan Bank  50,869   0   50,870   0   370   0   392   0 
Long-term debt  59,341   0   0   49,073   57,841   0   0   47,415 
Accrued interest payable  2,771   0   2,771   0   1,306   0   1,306   0 
                                
Unrecognized financial instruments:                                
Letters of credit $0  $0  $0  $0  $0  $0  $0  $0 
Commitments to extend credit  0   0   0   0   0   0   0   0 
Forward sale commitments  0   0   0   0   0   0   0   0 


38

The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 20162021 and indicates the level within the fair value hierarchy of the valuation techniques.


    
Fair Value Measurements
at December 31, 2021 Using
 
(in thousands)
    
Fair Value Measurements
at December 31, 2016 Using
  
Carrying
Amount
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs (Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
 Carrying Amount  
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant Other Observable Inputs (Level 2)  
Significant Unobservable Inputs
(Level 3)
 
Financial assets:                        
Cash and cash equivalents $144,716  $144,716  $0  $0  $311,756  $311,756  $0  $0 
Certificates of deposit in other banks  980   0   982   0   245   0   245   0 
Securities available-for-sale  605,394   69,292   536,102   0 
Securities held-to-maturity  866   0   867   0 
Debt securities available-for-sale  1,455,429   242,214   1,213,215   0 
Equity securities at fair value  2,253   0   0   2,253 
Loans held for sale  1,244   1,260   0   0   2,632   2,693   0   0 
Loans, net  2,902,438   0   0   2,882,348   3,367,057   0   0   3,480,803 
Federal Home Loan Bank stock  17,927   0   17,927   0   8,139   0   8,139   0 
Federal Reserve Bank stock  4,887   0   4,887   0   4,887   0   4,887   0 
Accrued interest receivable  11,922   0   11,922   0   15,415   0   15,415   0 
Mortgage servicing rights  3,433   0   0   3,433 
                
                                
Financial liabilities:                                
Deposits $3,081,308  $767,918  $2,321,690  $0  $4,344,292  $1,331,103  $3,043,339  $0 
Repurchase agreements  251,065   0   0   250,820   271,088   0   0   271,186 
Federal funds purchased  4,816   0   4,816   0   500   0   500   0 
Advances from Federal Home Loan Bank  944   0   1,009   0   375   0   400   0 
Long-term debt  61,341   0   0   49,073   57,841   0   0   45,854 
Accrued interest payable  1,200   0   1,200   0   1,016   0   1,016   0 
                                
Unrecognized financial instruments:                                
Letters of credit $0  $0  $0  $0  $0  $0  $0  $0 
Commitments to extend credit  0   0   0   0   0   0   0   0 
Forward sale commitments  0   0   0   0   0   0   0   0 


The following methods and assumptions were used to estimate the fair value
Note 8 – Revenue Recognition


CTBI’s primary source of each class of financial instruments for which itrevenue is practicable to estimate that value:

Cash and cash equivalents – The carrying amount approximates fair value.

Certificates of deposit in other banks – Fair values are based on quoted market prices or dealer quotes for similar instruments.

Securities held-to-maturity – Fair values are based on quoted market prices, if available.  If a quoted price is not available, fair value is estimated using quoted prices for similar securities.  The fair value estimate is provided to managementinterest income generated from a third party using modeling assumptions specific to each type of security that are reviewed and approved by management.  Quarterly sampling of fair values provided by additional third parties supplement the fair value review process.

Loans held for sale – The fair value is predetermined at origination based on sale price.

Loans (net of the allowance for loan and lease losses) – The fair value of fixed rate loans and variable rate mortgage loansinvestment securities.  Interest income is estimated by discountingrecognized according to the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  For other variable rate loans, the carrying amount approximates fair value.

Federal Home Loan Bank stock – The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Federal Reserve Bank stock – The carrying value of Federal Reserve Bank stock approximates fair value based on the redemption provisions of the Federal Reserve Bank.

Accrued interest receivable – The carrying amount approximates fair value.

Deposits – The fair value of fixed maturity time deposits is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.  For deposits including demand deposits, savings accounts, NOW accounts, and certain money market accounts, the carrying value approximates fair value.

Repurchase agreements – The fair value is estimated by discounting future cash flows using current rates.

Federal funds purchased – The carrying amount approximates fair value.

Advances from Federal Home Loan Bank – The fair value of these fixed-maturity advances is estimated by discounting future cash flows using rates currently offered for advances of similar remaining maturities.

Long-term debt – The fair value is estimated by discounting future cash flows using current rates.

Accrued interest payable – The carrying amount approximates fair value.

Commitments to originate loans, forward sale commitments, letters of credit, and lines of credit – The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements andfinancial instrument agreement over the present creditworthinesslife of the counterparties.  For fixed-rate loan commitments, fair valueor investment security unless it is determined that the counterparty is unable to continue making interest payments.  Interest income also considersincludes prepaid interest fees from commercial customers, which approximates the difference between current levelsinterest foregone on the balance of interest ratesthe loan prepaid.


CTBI’s additional source of income, also referred to as noninterest income, includes service charges on deposit accounts, gains/losses on the sale of OREO, gains/losses on the sale of property, plant and the committed rates.  The fair value of forward sale commitmentsequipment, trust and wealth management income, loan related fees, brokerage revenue, and other miscellaneous income and is estimatedlargely based on current market pricescontracts 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 loansconsideration.  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.

39

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 0t have contract assets, contract liabilities, or related receivable accounts for contracts with customers.   In cases where collectability is a concern, CTBI does not record revenue.


Generally, the pricing of similar termstransactions between CTBI and credit quality.  The fair valueseach 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 letters of credita transaction amount.  No judgment or estimates by management are required to record revenue related to these transactions and lines of creditpricing 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 1 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 under accounting guidance for revenue from contracts with customers during CTBI’s ordinary activities primarily relates to gains on fees currently charged for similar agreements orsales of loans, MSRs, gains/losses on the estimated costsale of investment securities, and income from bank owned life insurance.


For more information related to terminate or otherwise settleour components of noninterest income, see the obligations with the counterparties at the reporting date.  The fair valuesCondensed Consolidated Statements of these commitments are not material.Income and Comprehensive Income above.


Note 9 – Earnings Per Share



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


 Three Months Ended  Nine Months Ended 
 September 30  September 30  
Three Months Ended
March 31
 
(in thousands except per share data) 2017  2016  2017  2016  2022  2021 
Numerator:                  
Net income $13,763  $12,312  $36,581  $35,480  $19,728  $23,618 
                        
Denominator:                        
Basic earnings per share:                        
Weighted average shares  17,633   17,554   17,625   17,532   17,820   17,774 
Diluted earnings per share:                        
Effect of dilutive stock options and restricted stock grants  20   15   20   16   12   13 
Adjusted weighted average shares  17,653   17,569   17,645   17,548   17,832   17,787 
                        
Earnings per share:                        
Basic earnings per share $0.78  $0.70  $2.08  $2.02  $1.11  $1.33 
Diluted earnings per share  0.78   0.70   2.07   2.02   1.11   1.33 


There were no0 options to purchase common shares that were excluded from the diluted calculations above for the three and nine months ended September 30, 2017.  March 31,2022 and 2021. 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.  There were no options to purchase common shares that were excluded from the diluted calculations for the three months ended September 30, 2016.  Options to purchase 15,730 common shares at a weighted average price of $35.409 were excluded from the diluted calculations above for the nine months ended September 30, 2016, because the exercise prices on the options were greater than the average market price for the period.


40
Note 10 – Accumulated Other Comprehensive Income


Unrealized gains on AFS securities



Amounts reclassified from accumulated other comprehensive income (AOCI)(“AOCI”) and the affected line items in the statements of income during the three and nine months ended September 30, 2017March 31, 2022 and 20162021 were:


 Amounts Reclassified from AOCI  
Amounts Reclassified from
AOCI
 
(in thousands) 
Three Months Ended
September 30
  
Nine Months Ended
September 30
  
Three Months Ended
March 31
 
2017  2016  2017  2016 
 2022  2021 
Affected line item in the statements of income                  
Securities gains $48  $458  $58  $522  $0  $60 
Tax expense  17   160   20   183   0   16 
Total reclassifications out of AOCI $31  $298  $38  $339  $0  $44 

Note 11 – Commitments and Contingencies

CTB will be required to make certain customer reimbursements related to two deposit add-on products.  As previously discussed in CTBI’s most recent Form 10-K and Form 10-Q, management established a related accrual in 2014, which was not considered material.  The time period and amount of the reimbursements have not yet been determined; therefore, the actual amount may materially vary from the amount management has evaluated as most likely at September 30, 2017.




41

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 – to—and should be read in conjunction with – with—our condensed consolidated financial statements and the accompanying notes thereto contained in Part I, Item 1 of this quarterly report.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, 2021.  The MD&A includes the following sections:

❖
Our Business
v Our Business
❖
Financial Goals and Performance

❖
Results of Operations and Financial Condition
v Results of Operations and Financial Condition
❖
Liquidity and Market Risk

❖
Interest Rate Risk
v Dividends
❖
Capital Resources

❖
Impact of Inflation, Changing Prices, and Economic Conditions
v Liquidity and Market Risk
❖
Stock Repurchase Program

❖
Critical Accounting Policies and Estimates
v Interest Rate Risk
v Capital Resources
v Impact of Inflation, Changing Prices, and Economic Conditions
v Stock Repurchase Program
v Critical Accounting Policies and Estimates


Our Business


Community Trust Bancorp, Inc. (“CTBI”)CTBI is a bank holding company headquartered in Pikeville, Kentucky.  Currently, we own one commercial bank, Community Trust Bank, Inc. (“CTB”) and one trust company, Community Trust and Investment Company, Inc.Company.  Through our subsidiaries, we have eightyseventy-nine banking locations in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee, four trust offices across Kentucky, and one trust office in northeastern Tennessee.  At September 30, 2017,March 31, 2022, we had total consolidated assets of $4.1$5.4 billion and total consolidated deposits, including repurchase agreements, of $3.5$4.7 billion.  Total shareholders’ equity at September 30, 2017March 31, 2022 was $522.9$653.4 million.  Trust assets under management which are excluded from CTBI’s total consolidated assets, at September 30, 2017,March 31, 2022 were $2.2 billion.  Trust assets under management include$3.6 billion, including CTB’s investment portfolio totaling $0.6$1.5 billion.


Through itsour subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust and wealth management activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals, and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services.  The lending activities of CTB include making commercial, construction, mortgage, and personal loans.  Lease-financing, lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available.  Our corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as paying agents for bond and stock issues, as investment agent, as depositories for securities, and as providers of full service brokerage, and insurance services.  For further information, see Item 1 of our annual report on Form 10-K for the year ended December 31, 2016.2021.

42
Results of Operations and Financial Condition


ForWe reported earnings for the first quarter ended September 30, 2017, we reported record earnings2022 of $13.8$19.7 million, or $0.78$1.11 per basic share, compared to $11.5$19.2 million, or $0.65$1.08 per basic share, earned during the secondfourth quarter 20172021 and $12.3$23.6 million, or $0.70$1.33 per basic share, earned during the thirdfirst quarter 2016.  Earnings2021.  Noninterest income remained relatively flat to prior quarter, but decreased from prior year same quarter; however, our total revenue declined from both periods, primarily as a result of a decline in interest income on U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans.  Provision for loan losses for the nine months ended September 30, 2017 were $36.6quarter was $0.9 million, or $2.08 per basic share, compared to $35.5provision of $0.5 million or $2.02 per basic share, for the nine monthsquarter ended September 30, 2016.December 31, 2021 and a recovery of provision of $2.5 million for the first quarter 2021.


Quarterly Highlights


v❖
Net interest income for the quarter of $35.0$40.0 million was an increase of $0.7$0.8 million, or 2.1%1.9%, from secondbelow prior quarter 2017 and $1.7$0.2 million, or 5.2%0.5%, from prior year third quarter.below first quarter 2021.


v❖
Provision for loan losses for the quarter was $0.9 million, compared to provision of $0.5 million for the quarter ended September 30, 2017 decreased $2.1December 31, 2021 and a recovery of provision of $2.5 million from priorfor the first quarter and $1.5 million from prior year same quarter.  The decrease was the result of sustained improvement in the 12 quarter rolling average core portfolio metrics utilized in our allowance for loan losses model.  While quarter over quarter fluctuations occur, management focuses on longer term trends as an indication of overall credit quality.  The reduction resulted in a three basis point decrease in our loan loss reserve from 1.20% to 1.17% of total loans.2021.


v❖
Our loan portfolio increased $26.1$106.7 million, an annualized 3.4%12.7%, during the quarter but decreased $23.3 million, or 0.7%, from March 31, 2021.  Loans, excluding PPP loans, increased $131.6 million during the quarter.

❖
Net loan charge-offs were $0.3 million, or 0.04% of average loans annualized, for the quarter ended March 31, 2022 compared to a net recovery of loan charge-offs for the fourth quarter 2021 of $8 thousand and net loan charge-offs of $0.2 million, or 0.02% of average loans annualized, for the first quarter 2021.

❖
Asset quality remains strong from prior quarter as our nonperforming loans, excluding troubled debt restructurings (“TDRs”), decreased to $13.7 million at March 31, 2022 from $16.6 million at December 31, 2021 and $21.0 million at March 31, 2021.  Nonperforming assets at $16.0 million decreased $4.1 million from December 31, 2021 and $11.3 million from March 31, 2021.

❖
Deposits, including repurchase agreements, increased $67.5 million, an annualized 5.9%, during the quarter and $175.1$94.9 million, or an annualized 8.0%2.1%, from DecemberMarch 31, 2016.2021.


v❖Net loan charge-offs for the quarter ended September 30, 2017 were $1.4
Shareholders’ equity declined $44.8 million, or 0.18% of average loans annualized, compared to $1.3 million, or 0.18%6.4%, experienced for the second quarter 2017 and $2.1 million, or 0.28%, for the third quarter 2016.

vNonperforming loans at $30.0 million increased $2.0 million from June 30, 2017 and $2.6 million from December 31, 2016.  Nonperforming assets at $62.2 million increased $1.5 million from June 30, 2017, but decreased $1.2 million from December 31, 2016.

vDeposits, including repurchase agreements, increased $97.6 million during the quarter and $128.0due to a $58.1 million from December 31, 2016.  Deposit growth during the quarter included $82.3 millionnet after tax increase in wholesale brokered deposits.unrealized losses on our securities portfolio


v❖
Noninterest income for the quarter ended September 30, 2017March 31, 2022 of $12.2$15.0 million was a decrease of $0.1remained relatively flat to prior quarter, but decreased $0.6 million, or 0.9%, from prior quarter and $1.0 million, or 7.5%3.9%, from prior year same quarter.  The decrease from prior quarter was the result of the gain on the repurchase of trust preferred securities during the second quarter, along with a decrease in trust revenue.  This decrease was partially offset by increases in gains on sales of loans and deposit service charges.  The decrease from same quarter last year was the result of decreases in gains on sales of loans, deposit service charges, loan related fees, and securities gains.


v❖Noninterest
Noninterest expense for the quarter ended September 30, 2017March 31, 2022 of $26.9$29.4 million decreased $0.6$1.8 million, or 2.3%5.7%, from prior quarter, but increased $0.2$1.0 million, or 0.9%3.7%, from prior year same quarter.  The variance in noninterest expense for the quarter was due to a decrease in net other real estate owned expense from prior quarter and an increase in net other real estate owned expense from prior year same quarter.


43
Income Statement Review


(dollars in thousands)       Change 2017 vs. 2016        Change 2022 vs. 2021 
Nine Months Ended September 30 2017  2016  Amount  Percent 
Quarter Ended March 31 2022  2021  Amount  Percent 
Net interest income $102,300  $99,610  $2,690   2.7% 
$
40,032
  
$
40,242
  
$
(210
)
 
(0.5
)%
Provision for loan losses  4,659   5,829   (1,170)  (20.1)
Provision for credit losses 
875
  
(2,499
)
 
3,374
  
(139.0
)%
Noninterest income  36,092   35,926   166   0.5  
14,965
  
15,577
  
(612
)
 
(3.9
)%
Noninterest expense  82,142   80,121   2,021   2.5  
29,359
  
28,310
  
1,049
  
3.7
%
Income taxes  15,010   14,106   904   6.4  
5,035
  
6,390
  
(1,355
)
 
(21.2
)%
Net income $36,581  $35,480  $1,101   3.1% 
$
19,728
  
$
23,618
  
$
(3,890
)
 
(16.5
)%
                            
Average earning assets $3,775,572  $3,640,043  $135,529   3.7% 
$
5,134,150
  
$
4,957,636
  
$
176,514
  
3.6
%
                            
Yield on average earnings assets  4.13%  4.08%  0.05%  1.2%
Yield on average earnings assets, tax equivalent* 
3.46
%
 
3.63
%
 
(0.17
)%
 
(4.9
)%
Cost of interest bearing funds  0.63%  0.51%  0.12%  23.3% 
0.42
%
 
0.48
%
 
(0.06
)%
 
(12.3
)%
                            
Net interest margin  3.68%  3.71%  (0.03)%  (1.0)%
Net interest margin, tax equivalent* 
3.18
%
 
3.31
%
 
(0.13
)%
 
(3.9
)%


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

44
Net Interest Income


           
Percent Change
1Q 2022 Compared to:
 
(dollars in thousands)
Quarterly Periods
  
Q1
2022
   
Q4
2021
   
Q1
2021
   
Q4
2021
   
Q1
2021
 
Components of net interest income                    
Income on earning assets, tax equivalent:                    
Financial assets $5,595  $5,430  $3,883   3.0%  44.1%
Loans and leases:                    
Commercial  20,698   21,613   22,634   (4.2)%  (8.6)%
Residential  8,175   8,073   8,287   1.3%  (1.4)%
Consumer  9,294   9,465   9,624   (1.8)%  (3.4)%
Total loans and leases  38,167   39,151   40,545   (2.5)%  (5.9)%
Interest income, tax equivalent  43,762   44,581   44,428   (1.8)%  (1.5)%
                     
Expense on interest bearing liabilities:                    
Deposits, including repurchase agreements  3,208   3,276   3,691   (2.1)%  (13.1)%
Other financial liabilities  287   265   278   8.3%  3.1%
Interest expense  3,495   3,541   3,969   (1.3)%  (11.9)%
                     
Net interest income, tax equivalent $40,267  $41,040  $40,459   (1.9)%  (0.5)%
                     
Average yield and rates paid                    
Earnings assets yield  3.46%  3.45%  3.63%  0.3%  (4.9)%
Rate paid on interest bearing liabilities  0.42%  0.42%  0.48%  0.5%  (12.3)%
Gross interest margin  3.04%  3.03%  3.15%  0.3%  (3.7)%
Net interest margin  3.18%  3.17%  3.31%  0.3%  (3.9)%
                     
Average balances                    
Investment securities $1,486,799  $1,498,781  $1,063,773   (0.8)%  39.8%
Loans $3,440,439  $3,381,206  $3,548,358   1.8%  (3.0)%
Earning assets $5,134,150  $5,133,843  $4,957,636   0.0%  3.6%
Interest-bearing liabilities $3,350,208  $3,337,053  $3,335,206   0.4%  0.4%

Net interest income for the quarter ended March 31, 2022 of $35.0$40.0 million was an increase of $0.7$0.8 million, or 2.1%1.9%, from secondbelow prior quarter 2017 and $1.7$0.2 million, or 5.2%0.5%, from prior year third quarter.below first quarter 2021.  Our net interest income excluding PPP loans for the quarter ended March 31, 2022 was $38.6 million compared to $38.3 million for the quarter ended December 31, 2021 and $36.3 million for the quarter ended March 31, 2021.  Our net interest margin, on a fully tax equivalent basis, at 3.67% was down one3.18% increased 1 basis point from prior quarter but up onedecreased 13 basis pointpoints from prior year same quarter, whileas our average earningsearning assets increased $55.5$0.3 million from prior quarter and $173.4$176.5 million respectively, during thosefrom prior year same periods.quarter.  Our yield on average earning assets increased 41 basis pointspoint from prior quarter and 13but decreased 17 basis points from prior year same quarter, and our cost of funds increased 9 basis pointsremained unchanged from prior quarter and 18but decreased 6 basis points from prior year same quarter.  As discussed more fully below, the impact of the PPP loans to the net interest margin for the first quarter 2022 was 11 basis points.

The PPP loan portfolio had an annualized yield for the quarter of 17.03% compared to 13.61% for the fourth quarter 2021.  Interest income on the portfolio was $86 thousand during the quarter, down $98 thousand from prior quarter, while the amortization of net loan origination fees from current outstanding loans and recognition of net fee income from paid and forgiven loans was $1.4 million, down $0.9 million from prior quarter.  These fees are amortized over the life of the loan with any unamortized balance fully recognized at the time of loan forgiveness.  The impact of the PPP loan portfolio to the net interest margin was an increase of 11 basis points for the first quarter 2022 compared to an increase of 15 basis points for the fourth quarter 2021.

45
Our ratio of average loans to deposits, including repurchase agreements, was 91.1%74.2% for the quarter ended September 30, 2017March 31, 2022 compared to 89.9%73.3% for the quarter ended June 30, 2017December 31, 2021 and 88.3%79.9% for the quarter ended September 30, 2016.  Net interest income for the nine months ended September 30, 2017 increased $2.7 million, or 2.7%, from September 30, 2016.March 31, 2021.


Provision for LoanCredit Losses


The provision Provision for loan losses that was added to the allowance for the third quarter 2017 was $0.7$0.9 million, compared to $2.8provision of $0.5 million for the quarter ended June 30, 2017December 31, 2021 and $2.2a recovery of provision of $2.5 million for the first quarter ended September 30, 2016.  Year-to-date allocations to the reserve were $4.7 million at September 30, 2017 compared to $5.8 million at September 30, 2016.  This provision represented a charge against current earnings in order to maintain the allowance at an appropriate level determined using the accounting estimates described in the Critical Accounting Policies and Estimates section.  Our reserve coverage (allowance for loan and lease loss reserve to nonperforming loans) at September 30, 2017 was 121.2% compared to 132.6% at June 30, 2017 and 126.5% at September 30, 2016.  Our loan loss reserve as a percentage of total loans outstanding was reduced to 1.17% at September 30, 2017 from the 1.20% at June 30, 2017 and the 1.22% at September 30, 2016.2021.


Noninterest Income


           
Percent Change
1Q 2022 Compared to:
 
(dollars in thousands)
Quarterly Periods
 
1Q
2022
  
4Q
2021
  
1Q
2021
  
4Q
2021
  
1Q
2021
 
Deposit service charges $6,746  $7,083  $6,022   (4.8)%  12.0%
Trust revenue  3,248   3,305   2,951   (1.7)%  10.1%
Gains on sales of loans  597   1,241   2,433   (51.9)%  (75.5)%
Loan related fees  2,062   1,254   2,270   64.4%  (9.2)%
Bank owned life insurance revenue  691   1,036   573   (33.3)%  20.5%
Brokerage revenue  590   432   457   36.5%  29.3%
Other  1,031   626   871   64.8%  18.4%
Total noninterest income $14,965  $14,977  $15,577   (0.1)%  (3.9)%

Noninterest income for the quarter ended September 30, 2017March 31, 2022 of $12.2$15.0 million was relatively flat to prior quarter, but a decrease of $0.1$0.6 million, or 0.9%3.9%, from prior year same quarter.  Decreases from prior quarter in gains on sales of loans ($0.6 million) and deposit related fees ($0.3 million) were offset by increases in loan related fees ($0.8 million) and securities gains ($0.3 million).  The decrease from prior year same quarter included decreases in gains on sales of loans ($1.8 million) and loan related fees ($0.2 million), partially offset by increases in deposit related fees ($0.7 million), trust revenue ($0.3 million), and securities gains ($0.2 million).  Gains on sales of loans were impacted by the slowdown in the industry-wide mortgage refinancing boom.  Deposit related fees were primarily impacted by debit card income.  Loan related fees were primarily impacted by the change in the fair value of MSRs.

Noninterest Expense

           
Percent Change
1Q 2022 Compared to:
 
(dollars in thousands)
Quarterly Periods
 
1Q
2022
  
4Q
2021
  
1Q
2021
  
4Q
2021
  
1Q
2021
 
Salaries $11,739  $11,982  $11,412   (2.0)%  2.9%
Employee benefits  5,799   7,486   5,421   (22.5)%  7.0%
Net occupancy and equipment  2,854   2,625   2,828   8.7%  0.9%
Data processing  2,201   2,099   2,159   4.8%  1.9%
Legal and professional fees  867   868   893   (0.1)%  (2.8)%
Advertising and marketing  752   676   722   11.2%  4.1%
Taxes other than property and payroll  426   542   370   (21.3)%  15.2%
Net other real estate owned expense  353   299   318   17.8%  11.0%
Other  4,368   4,572   4,187   (4.4)%  4.3%
Total noninterest expense $29,359  $31,149  $28,310   (5.7)%  3.7%

46
Noninterest expense for the quarter ended March 31, 2022 of $29.4 million decreased $1.8 million, or 5.7%, from prior quarter, andbut increased $1.0 million, or 7.5%3.7%, from prior year same quarter.  The decrease from priorin noninterest expense quarter over quarter was the result of the $0.6 million gain on the repurchase of $2.0 million in trust preferred securities during the second quarter, along with a $0.1 million decrease in trust revenue.  This decreasepersonnel expense ($1.9 million), which was partially offset by increases in gains on sales of loans ($0.1 million) and deposit service charges ($0.3 million).  The decrease from same quarter last year was the result of decreases in gains on sales of loans ($0.2 million), deposit service charges ($0.1 million), loan related fees ($0.5 million), and securities gains ($0.4 million).  Noninterest income for the nine months ended September 30, 2017 increased $0.2 million, or 0.5%, compared to the nine months ended September 30, 2016.  This increase was also the result of the $0.6 million gain during the second quarter mentioned above, along with a $0.7 million increase in trust revenue, partially offset by decreases in gains on sales of loans ($0.5 million) and securities gains ($0.5 million).

Noninterest Expense

Noninterest expense for the quarter ended September 30, 2017 of $26.9 million decreased $0.6 million, or 2.3%, from prior quarter, but increased $0.2 million, or 0.9%, from prior year same quarter.  The variance in noninterest expense for the quarter wasprimarily due to a $0.5 million decrease in net other real estate owned expense from prior quarterlower accrual for bonuses and a $0.4 million increase in net other real owned expense from prior year same quarter.incentives.  The increase in net other real estate owned expense from prior year same quarter was partially offset by a decreasesprimarily the result of an increase in personnel expense year over year ($0.10.7 million) and FDIC insurance premiumsloan related expenses ($0.2 million).  Noninterest expense for the nine months ended September 30, 2017 increased $2.0 million, or 2.5%, compared to the nine months ended September 30, 2016, as a result of a $2.2 millionThis increase in net other real estate owned expense.  Personnelpersonnel expense for the nine months ended September 30, 2017 increased $0.4 million from prior year with a $0.8 million increaseincluded increases in salaries, and a $0.3 million increase in the cost of group medical and life insurance partially offset by a $0.4 million decrease in bonusesexpense, and incentives.  FDIC insurance premiums decreased $0.7 million from prior year.other employee benefits.


Balance Sheet Review


CTBI’s total assets at $4.1March 31, 2022 of $5.4 billion increased $54.8$24.9 million, or 1.9% annualized, from December 31, 2021 and $83.0 million, or 1.5%, from March 31, 2021.  Loans outstanding at March 31, 2022 were $3.5 billion, an increase of $106.7 million, an annualized 5.3%, from June 30, 2017 and $203.7 million, or an annualized 6.9%12.7%, from December 31, 2016.  Loans outstanding at September 30, 2017 were $3.1 billion, increasing $26.12021 but a decrease of $23.3 million, or an annualized 3.4%0.7%, from June 30, 2017 and $175.1March 31, 2021.  Loans, excluding PPP loans, increased $131.6 million or an annualized 8.0%, from December 31, 2016.  We experienced an increase during the quarter, of $6.2with a $71.3 million increase in the commercial loan portfolio, $12.7a $46.5 million increase in the indirect consumer loan portfolio, and a $13.8 million increase in the residential loan portfolio, $4.8 million in the indirectportfolio.  The PPP loan portfolio and $2.4declined $24.9 million induring the consumer direct loan portfolio.quarter as a result of SBA forgiveness.  CTBI’s investment portfolio decreased $7.3increased $47.8 million, or an annualized 4.8%, from June 30, 2017 and $2.4 million, or an annualized 0.5%13.3%, from December 31, 2016.2021 and $348.1 million, or 30.1%, from March 31, 2021.  Deposits in other banks increased $31.4decreased $159.1 million from prior quarter and $21.9$250.3 million from December 31, 2016.prior year same quarter.  Deposits in other banks were used during the quarter to fund loan growth and additional investments in available-for-sale securities.  Deposits, including repurchase agreements, at $3.5$4.7 billion increased $97.6$67.5 million, or an annualized 11.5%, from June 30, 2017 and $128.0 million, or an annualized 5.1%5.9%, from December 31, 2016.  Deposit growth during the quarter included $82.32021 and $94.9 million, in wholesale brokered deposits.or 2.1%, from March 31, 2021.

Shareholders’ equity at September 30, 2017March 31, 2022 was $522.9$653.4 million, compared to $514.9a $44.8 million, at June 30, 2017 and $500.6or 6.4%, decrease from the $698.2 million at December 31, 2016.  Our tangible common equity/tangible assets ratio2021 and an $8.7 million, or 1.3%, decrease from the $662.1 million at September 30, 2017March 31, 2021.  The decline in shareholders’ equity is due to a $58.1 million net after tax increase during the quarter in unrealized losses on our securities portfolio.  CTBI’s annualized dividend yield to shareholders as of March 31, 2022 was 11.24%3.88%.


47
Loans


(in thousands) September 30, 2017 
(dollars in thousands) March 31, 2022 
Loan Category Balance  Variance from Prior Year-End  
YTD
Net Charge-Offs
  Nonperforming  ALLL  Balance  
Variance
from Prior
Year
  Net (Charge-Offs)/ Recoveries  Nonperforming  ACL 
Commercial:                              
Construction $74,282   10.9% $27  $1,311  $672 
Secured by real estate  1,197,604   10.3   (711)  9,397   15,102 
Equipment lease financing  3,290   (40.3)  0   0   19 
Hotel/motel
 
$
274,256
  
6.7
%
 
$
(216
)
 
$
0
  
$
4,711
 
Commercial real estate residential
 
337,447
  
0.7
  
(26
)
 
418
  
4,070
 
Commercial real estate nonresidential
 
774,791
  
2.2
  
111
  
4,275
  
9,169
 
Dealer floorplans
 
72,766
  
4.8
  
0
  
0
  
1,519
 
Commercial other  339,337   (3.1)  (923)  1,377   4,962  
322,109
  
10.9
  
(56
)
 
321
  
4,844
 
Commercial unsecured SBA PPP
 
22,482
  
(52.5
)
 
0
  
8
  
0
 
Total commercial  1,614,513   7.1   (1,607)  12,085   20,755  
1,803,851
  
2.6
  
(187
)
 
5,022
  
24,313
 
                                   
Residential:                                   
Real estate construction  64,441   11.2   1   1,217   630 
Real estate mortgage  712,237   1.3   (242)  15,304   5,786  
780,453
  
1.7
  
(72
)
 
7,494
  
7,662
 
Home equity  96,755   5.7   (54)  894   807   
107,230
   
0.5
   
(14
)
  
972
   
819
 
Total residential  873,433   2.5   (295)  17,415   7,223  
887,683
  
1.6
  
(86
)
 
8,466
  
8,481
 
                                   
Consumer:                                   
Consumer direct  137,657   3.4   (271)  156   1,857  
156,620
  
(0.0
)
 
16
  
23
  
1,787
 
Consumer indirect  487,818   9.7   (2,028)  364   6,556  
667,387
  
7.5
  
(65
)
 
179
  
7,728
 
Total consumer  625,475   8.2   (2,299)  520   8,413   
824,007
   
6.0
   
(49
)
  
202
   
9,515
 
                                   
Total loans $3,113,421   6.0% $(4,201) $30,020  $36,391  
$
3,515,541
  
3.1
%
 
$
(322
)
 
$
13,690
  
$
42,309
 


Total Deposits and Repurchase Agreements

           
Percent Change
1Q 2022 Compared to:
 
(dollars in thousands) 
1Q
2022
  
4Q
2021
  
1Q
2021
  
4Q
2021
  
1Q
2021
 
Non-interest bearing deposits $1,398,529  $1,331,103  $1,283,309   5.1%  9.0%
Interest bearing deposits                    
Interest checking  89,863   97,064   91,803   (7.4)%  (2.1)%
Money market savings  1,200,408   1,206,401   1,240,530   (0.5)%  (3.2)%
Savings accounts  666,874   632,645   574,181   5.4%  16.1%
Time deposits  1,072,630   1,077,079   1,043,949   (0.4)%  2.7%
Repurchase agreements  254,623   271,088   354,235   (6.1)%  (28.1)%
Total interest bearing deposits and repurchase agreements  3,284,398   3,284,277   3,304,698   0.0%  (0.6)%
Total deposits and repurchase agreements $4,682,927  $4,615,380  $4,588,007   1.5%  2.1%

48
Asset Quality


CTBI’s total nonperforming loans, were $30.0excluding TDRs, decreased to $13.7 million at September 30, 2017, a 7.2% increaseMarch 31, 2022 from the $28.0 million at June 30, 2017 and a 9.3% increase from the $27.5$16.6 million at December 31, 2016.  Loans2021 and $21.0 million at March 31, 2021.  Accruing loans 90+ days past due increased $1.9at $4.9 million during the quarter but decreased $0.6$1.1 million from Decemberprior quarter and $4.0 million from March 31, 2016.2021.  Nonaccrual loans increased $0.1at $8.8 million decreased $1.8 million during the quarter and $3.2$3.4 million from DecemberMarch 31, 2016.  Loans2021.  Accruing loans 30-89 days past due and accruing interest at $17.4$10.8 million was an increase of $2.2remained relatively stable from prior quarter but decreased $2.4 million from June 30, 2017 and $1.0 million from DecemberMarch 31, 2016.2021.  Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.  Our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due.  Any activity regarding a criticized/classified loan (i.e. problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee).  CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of $100,000 or greater.  CTB’s Loan Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio.  We also have a Loan Review Department that reviews every market within CTB annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, troubled debt restructuring, impaired status, impairment,TDR, nonaccrual status, and adequate loan loss reserves.

Impaired loans, loans not expected to meet contractual principal and interest payments other than insignificant delays, at September 30, 2017 totaled $46.2 million, a $4.5 million decrease from  The Loan Review Department has annually reviewed, on average, 96% of the $50.7 million at June 30, 2017 and a $6.0 million decrease from the $52.2 million at December 31, 2016.  At September 30, 2017, CTBI had $29.2 million inoutstanding commercial loans secured by real estate, $4.8 million in commercial real estate construction loans, $10.1 million in commercial other loans, $0.9 million in real estate consumer construction loans, and $1.2 million in real estate mortgage loans that were modified in troubled debt restructurings and impaired.  Management evaluates all impaired loansloan portfolio for the amountpast three years.  The average annual review percentage of impairment, if any,the consumer and records a direct charge-off or provides specific reserves when necessary.

For further information regarding nonperforming and impaired loans, see note 4residential loan portfolio for the past three years was 86% based on the loan production during the number of months included in the review scope.  The review scope is generally four to the condensed consolidated financial statements.

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.


Net loan charge-offsFor further information regarding nonperforming loans, see note 4 to the condensed consolidated financial statements contained herein.

Our reserve coverage (allowance for the quarter ended September 30, 2017 were $1.4 million, or 0.18% of average loans annualized,credit losses to nonperforming loans) at March 31, 2022 was 309.1% compared to $1.3 million, or 0.18%, experienced for the second quarter 2017251.2% at December 31, 2021 and $2.1 million, or 0.28%, for the third quarter 2016.  Of the net charge-offs for the quarter, $0.4 million were in commercial215.5% at March 31, 2021.  Our credit loss reserve as a percentage of total loans $0.7 million were in indirect auto loans, $0.2 million were in residential loans, and $0.1 million were in consumer direct loans.  Net loan charge-offs for the nine months ended September 30, 2017 were $4.2 million, or 0.19% of average loans,outstanding at March 31, 2022 was 1.20% (1.21% excluding PPP loans) compared to $6.1 million, or 0.28%1.22% at December 31, 2021 (1.24% excluding PPP loans) and 1.28% at March 31, 2021 (1.38% excluding PPP loans).

Our level of average loans, experienced for the nine months ended September 30, 2016.

Foreclosedforeclosed properties at September 30, 2017 totaled $32.0 million compared to $32.6$2.3 million at June 30, 2017 and $35.9March 31, 2022 was a $1.2 million decrease from the $3.5 million at December 31, 2016.2021 and a $3.9 million decrease from the $6.2 million at March 31, 2021.  Sales of foreclosed properties for the nine monthsquarter ended September 30, 2017March 31, 2022 totaled $5.1$1.1 million while new foreclosed properties totaled $4.3$0.1 million.  At September 30, 2017,March 31, 2022, the book value of properties under contracts to sell was $2.6$0.3 million; however, the closings had not occurred at quarter-end.


When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current fair market value less expected sales costs.  Additionally, periodic updated appraisals are obtained on unsold foreclosed properties.  When an updated appraisal reflects a fair market value below the current book value, a charge is booked to current earnings to reduce the property to its new fair market value less expected sales costs.  Charges to earnings in the thirdfirst quarter 20172022 to reflect the decrease in current fair market values of foreclosed properties totaled $0.9 million.  There were thirteen properties reappraised$0.2 million, compared to $0.2 million during the third quarter 2017.  Of these, six properties were written down by a totaleach of $0.1 million.  Internal evaluations during the quarter resulted in additional charges of $0.7 million in fair value adjustments.  Charges during the quarters ended June 30, 2017December 31, 2021 and September 30, 2016 were $1.4 million and $0.4 million, respectively.  Year-to-date charges as of September 30, 2017 were $2.9 million compared to $0.6 million for the nine months ended September 30, 2016.March 31, 2021.  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.  Substantially allApproximately 97% of our other real estate owned (“OREO”) properties and approximately 94% of the book value of our OREO properties have been reappraisedappraisals dated within the past 18 months.  Management anticipates that our foreclosed properties will remain elevated as we work through current market conditions.


49
The appraisal aging analysis of foreclosed properties, as well as the holding period, at September 30, 2017March 31, 2022 is shown below:


(in thousands)   
(dollars in thousands)(dollars in thousands)   
Appraisal Aging AnalysisAppraisal Aging Analysis Holding Period Analysis Appraisal Aging Analysis Holding Period Analysis 
Days Since Last Appraisal Current Book Value Holding Period Current Book Value  Number of Properties  Current Book Value Holding Period Current Book Value 
Up to 3 months $4,432 Less than one year $4,319  
20
  
$
1,379
 Less than one year 
$
499
 
3 to 6 months  16,777 1 to 2 years  8,376  
4
  
140
 1 year 
513
 
6 to 9 months  4,944 2 to 3 years  2,734  
5
  
137
 2 years 
231
 
9 to 12 months  3,145 3 to 4 years  1,762  
2
  
35
 3 years 
113
 
12 to 18 months  2,644 4 to 5 years  529  
3
  
478
 4 years 
85
 
18 to 24 months  66 5 to 7 years*  10,303  
1
  
130
 5 years 
0
 
Over 24 months  40 8 to 9 years*  4,025 
Total $32,048 Total $32,048   
35
  
$
2,299
 6 years 
234
 
      7 years 
597
 
      8 years 
0
 
      9 years 
27
 
      Total 
$
2,299
 


*Regulatory approval is required and has been obtained to hold theseforeclosed properties beyond the initial period of 5five years.  Additional approval may beAdditionally, CTBI is required to continue to hold these properties should theydispose of any foreclosed property that has not be liquidated duringbeen sold within ten years.  As of March 31, 2022, one foreclosed property with a total book value of $27 thousand had been held by us for at least nine years.

Net loan charge-offs were $0.3 million, or 0.04% of average loans annualized, for the extension period, which is typically one year.  While we have previously received regulatory approval to continue to hold foreclosed properties for over five years, to the extent such approval is not obtained in the future with respectquarter ended March 31, 2022 compared to a foreclosed property, we might be forced to liquidate such property at a price less than its appraised value.net recovery of loan charge-offs for the fourth quarter 2021 of $8 thousand and net loan charge-offs of $0.2 million, or 0.02% of average loans annualized, for the first quarter 2021.


Dividends


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


Pay DateRecord Date Amount Per Share 
October 1, 2017September 15, 2017 $0.33 
July 1, 2017June 15, 2017 $0.32 
April 1, 2017March 15, 2017 $0.32 
January 1, 2017December 15, 2016 $0.32 
October 1, 2016September 15, 2016 $0.32 
July 1, 2016June 15, 2016 $0.31 
Pay DateRecord Date Amount Per Share 
April 1, 2022March 15, 2022 
$
0.400
 
January 1, 2022December 15, 2021 
$
0.400
 
October 1, 2021September 15, 2021 
$
0.400
 
July 1, 2021June 15, 2021 
$
0.385
 
April 1, 2021March 15, 2021 
$
0.385
 
January 1, 2021December 15, 2020 
$
0.385
 


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 and wholesale funding (including the use of wholesale brokered deposits).deposits.  As of September 30, 2017,March 31, 2022, we had approximately $166.4$164.5 million in cash and cash equivalents and approximately $603.0 million$1.5 billion in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $144.7$311.8 million and $605.4 million$1.5 billion at December 31, 2016.2021.  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.  As of September 30, 2017, we had wholesale brokered deposits outstanding of $82.3 million with one, two, and three-year maturities and a weighted average maturity of 1.97 years.  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 $50.9$0.4 million at September 30, 2017 compared to $0.9 millionMarch 31, 2022 and at December 31, 2016.2021.  As of September 30, 2017,March 31, 2022, we had a $314.7$490.5 million available borrowing position with the Federal Home Loan Bank, compared to $295.8$484.4 million at December 31, 2016.2021.  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.  However, during the nine months ended September 30, 2017, our loan production has outpaced internal deposit growth by $46.6 million; therefore, management determined that it was appropriate to fund this growth with longer term brokered deposits instead of shorter term Federal Home Loan Bank advances.  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, use of wholesale brokered deposits, and issuance of long-term debt.  At September 30, 2017March 31, 2022 and at December 31, 2016,2021, we had $57$75 million in lines of credit with various correspondent banks available to meet any future cash needs.  Our primary investing activities include purchases of securities and loan originations.  We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs.  Included in our cash and cash equivalents at September 30, 2017March 31, 2022 were federal funds sold of $10.5 million compared to $0.5 million at December 31, 2016, and deposits with the Federal Reserve were $104.0of $103.3 million, compared to $93.4$262.4 million at December 31, 2016.2021.  Additionally, we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days.


50
The investment portfolio consists of investment grade short-term issues suitable for bank investments.  The majority of the investment portfolio is in U.S. government and government sponsored agency issuances.  At September 30, 2017,March 31, 2022, available-for-sale (“AFS”) securities comprised substantially all of the total investment portfolio, and the AFS portfoliowas approximately 115% 230%of equity capital.  Ninety-twoFifty-nine percentof the pledge eligiblepledge-eligible portfolio was pledged.


Interest Rate Risk


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


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


Capital Resources


Shareholders’ equity was $522.9 million at September 30, 2017 and $500.6 million at December 31, 2016.  CTBI’sWe continue to offer a dividend to our shareholders, providing an annualized dividend yield for the quarter ended March 31, 2022 of 3.88%.  Shareholders’ equity decreased 6.4% from December 31, 2021 to shareholders$653.4 million at March 31, 2022, as a result of September 30, 2017 was 2.84%.a $58.1 million net after tax increase during the quarter in unrealized losses on our securities portfolio.  Our primary source of capital growth is the retention of earnings.  Cash dividends were $0.97$0.400 per share and $0.94$0.385 per share for the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively.  We retained 53.4%64.0% of our earnings for the first ninethree months of 20172022 compared to 53.5%71.1% for the first ninethree months of 2016.2021.


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

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

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

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including CTB, if their capital levels begin to show signs of weakness.  These revisions took effect January 1, 2015.  Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insuredInsured depository institutions are required to meet the following increasedcertain 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 (“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 qualifybe considered well-capitalized under the prompt corrective action framework; and (iii) any other applicable capital or leverage requirements.

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In April 2020, as “well capitalized:” (i)directed by Section 4012 of the Coronavirus Aid, Relief, and Economic Security Act, the regulatory agencies introduced temporary changes to the CBLR framework.  These changes, which subsequently were adopted as a common equity Tier 1 capital ratiofinal rule, temporarily reduced the CBLR requirement to 8% through the end of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

calendar year 2020.  Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calendar year before returning to 9% in calendar year 2022.  The final rules set forth certain changesrule also provides for the calculation of risk-weighted assets, which we were required to utilize beginning January 1, 2015.  The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rulesa two-quarter grace period for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tierqualifying community banking organizations with $50 billion orwhose leverage ratios fall no more in total assets that are not subjectthan 100 basis points below the applicable CBLR requirement.  Management elected to use the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.  We currently satisfyCBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of March 31, 2022 was 13.15%.  CTB’s CBLR ratio as of March 31, 2022 was 12.53%.  Under either framework, CTBI and CTB would be considered well-capitalized under the well-capitalized and the capital conservation standards, and based on our current capital composition and levels, we anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well-capitalized minimum capital requirements and capital conservation buffer standards.applicable guidelines.


As of September 30, 2017, CTBI had a common equity Tier 1 capital ratio of 15.01%, a Tier 1 capital ratio of 16.90%, a total capital ratio of 18.10%, and a Tier 1 leverage ratio of 12.77%, all above the required levels to be considered “well-capitalized.”  Our capital conservation buffer at September 30, 2017 was 10.10%.

As of September 30, 2017,March 31, 2022, 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.

CTB will be required to make certain customer reimbursements related to two deposit add-on products.  As previously discussed in CTBI’s most recent Form 10-K and Form 10-Q, management established a related accrual in 2014, which was not considered material.  The time period and amount of the reimbursements have not yet been determined; therefore, the actual amount may materially vary from the amount management has evaluated as most likely at September 30, 2017.


Impact of Inflation, Changing Prices, and Economic Conditions


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


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


BeginningWe are all finding ourselves living and operating in 2008,unprecedented times as the U.S. economy faced a severe economic crisis including a major recession from which itCOVID-19 pandemic is recovering.  Commercecausing personal and business growthfinancial hardship to our customers, employees, and communities.  During these challenging times, we have instituted programs to support our customers with loan modifications, forbearance, and fee waivers and participated in certain regions inprograms created by the U.S. remains reducedgovernment stimulus programs like the Paycheck Protection Program, focused on helping small businesses keep their employees and local governmentsmeet their expenses as they were unable to operate due to mandated closures.  We instituted programs supporting our employees focused on healthcare, childcare, and many businessesremote and split schedule work, as well as work space changes that allow for proper social distancing to keep our employees safe as we continue to experience financial difficulty.  In some areasoperate as a critical part of the U.S., including certain partseconomy.  We continue to support our communities through donations to non-profit organizations as they strive to continue their commitments of serving those in need.  We also continue to manage our service area, unemployment levels remain elevated.  There can be no assurance thatcompany for the long term and our strong capital position and culture of building communities built on trust will facilitate our ability to manage through these conditionschallenging times.  We will continue to improve and these conditions could worsen.  In addition,serve our constituents while we all meet the levelchallenges of U.S. debt, the Federal Open Market Committee’s plan for economic stabilization, potential volatility in oil prices, potential U.S. tax law modifications, and the possible repeal of the Patient Protection and Affordable Care Act and the implementation of replacement healthcare legislation may have a destabilizing effect on financial markets or a negative effect on the economy.living with COVID-19.

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

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


Stock Repurchase Program

CTBI has not acquired any shares of common stock through theCTBI’s stock repurchase program since February 2008.  There are 67,371began 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 CTBI’sour current repurchase authorization.  As of March 31, 2022, a total of 2,465,294 shares have been repurchased through this program.


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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 theour 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 critical accounting policies:


Investments Allowance for Credit Losses – Management determinesCTBI accounts for the classification of securities at purchase.  We classify securities into held-to-maturity, trading, or available-for-sale categories.  Held-to-maturity securities are those which we haveallowance for credit losses (“ACL”) and the positive intent and ability to hold to maturity and are reported at amortized cost.  Inreserve for unfunded commitments in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, Investment SecuritiesUpdate (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, investments in debt securitiesand its related subsequent amendments, commonly known as CECL.

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

CTBI maintains the ACL to absorb the amount of credit losses that are not classified as held-to-maturity and equity securities that have readily determinable fair values shallexpected to be classified in oneincurred over the remaining contractual terms of the following categories and measured at fair valuerelated loans.  Contractual terms are adjusted for expected prepayments but are not extended for expected extensions, renewals or modifications except in circumstances where CTBI reasonably expects to execute a TDR with the borrower or where certain extension or renewal options are embedded in the statement oforiginal contract and not unconditionally cancellable by CTBI.  Accrued interest receivable on loans is presented in our consolidated financial position:
a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturity securities) shall be classified as available-for-sale securities.
We do not have any securities that are classified as trading securities.  Available-for-sale securities are reported at fair value, with unrealized gains and losses includedstatements as a separate component of shareholders’ equity, net of tax.  If declines in fair value are other than temporary, the carrying value of the securitiesassets.  When accrued interest is written down to fair value as a realized loss with a charge to income for the portion attributable to credit losses and a charge to other comprehensive income for the portion that is not credit related.

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

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

Loans – Loans with the ability and the intentdeemed to be held until maturity and/or payoff are reported atuncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed.  In the carrying value of unpaid principal reduced by unearned interest, an allowance for loan and lease losses, and unamortized deferred fees or costs.  Income is recorded on the level yield basis.  Interest accrual is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is suchevent that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest is doubtful.  Any loan greater than 90 days past due mustin a timely manner.  Therefore, CTBI elected ASU 2019-04 which allows that accrued interest would continue to be well securedpresented separately and innot part of the processamortized cost of collectionthe loan.  For additional information on CTBI’s accounting policies related to continue accruing interest.  Cash payments received on nonaccrual loans, generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured.  Loans are not reclassified as accruing until principal and interest payments remain current for a period of time, generally six months, and future payments appear reasonably certain.  Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired.  A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons relatedrefer to Note 1 to the debtor’scondensed consolidated financial difficulties grants a concession to the debtor that it would not otherwise consider.statements contained herein.


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

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


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

Larger commercial credits.  Those larger commercial creditsloans with balances exceeding $1 million that exhibit probable or observed credit weaknesses are subject to individual review.  The borrower’s cash flow, adequacyindividually evaluated for an ACL if such loans, (i) have a criticized risk rating, (ii) are on nonaccrual status, (iii) are classified as TDRs, or (iv) are 90 days or more past due.  CTBI considers the current value of collateral, coverage,credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan structure and other options available to CTBI, including legal remedies, are evaluated.  The review of individual loans includes those loans that are impaired as defined by ASC 310-10-35, Impairment of a Loan.  We evaluate the collectability of both principal and interestfactors when assessing the need for loss provision.  Historical loss rates are analyzed and applied to other commercial loans not subject to specific allocations.  The ALLL allocation for this pool of commercial loans is established based on the historical average, maximum, minimum, and median loss ratios.

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

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

When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made.  If the balance of the loan exceedsmeasurement date.  As a practical expedient, the fair value of the collateral may be used for a loan when determining the loanallowance for credit losses for which the repayment is placed on nonaccrual andexpected to be provided substantially through the loan is charged down to the valueoperation or sale of the collateral lesswhen the borrower is experiencing financial difficulty.  The fair value shall be adjusted for selling costs when foreclosure is probable.

Expected credit losses are estimated cost to sell oron a specific reserve equalcollective 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, CTBI uses a static pool methodology based on our risk rating system.  See Note 4 to the difference between book valuecondensed consolidated financial statements contained herein for information on CTBI’s 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.

CTBI’s expected credit loss models consider historical credit loss experience, 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.

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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 loanmodeled results and the appropriateness of qualitative adjustments.  CTBI’s forecasts of market and economic conditions and the internal risk grades assigned to loans in the commercial portfolio segment are examples of inputs to the expected credit loss models that require significant management judgment.  These inputs have the potential to drive significant variability in the resulting ACL.

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

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 CTBI 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 assignedis 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 collateral is created until such time as the loan is foreclosed.  When the foreclosed collateral has been legally assigned to CTBI, the estimated fair valuetotal amount of the collateral less costs to sell is then transferred to other real estate owned or other repossessed assets, and a charge-off is taken for any remaining balance.  When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.

All closed-end consumer loans (excluding conventional 1-4 family residential loans and installment and revolving loans secured by real estate) are charged off no later than 120 days (5 monthly payments) delinquent.  If a loan is considered uncollectable, it is charged off earlier than 120 days delinquent.  For conventional 1-4 family residential loans and installment and revolving loans secured by real estate, when a loan is 90 days past due, a current assessment of the value of the real estate is made.  If the balance of the loan exceedsgoodwill recorded.  A recognized impairment loss cannot be reversed in future periods even if the fair value of the property,reporting unit subsequently recovers.

The fair value of CTBI is the loan is placed on nonaccrual.  Foreclosure proceedings are normally initiated after 120 days.  Whenprice that would be received to sell the foreclosed property has been legally assigned to CTBI,company as a whole in an orderly transaction between market participants at the measurement date.  The determination of the fair value less estimated costsis a subjective process that involves the use of estimates and judgments, particularly related to sell is transferred to other real estate ownedcash flows, the appropriate discount rates and an applicable control premium.  CTBI employs an income-based approach, utilizing forecasted cash flows and the remaining balanceestimated cost of equity as the discount rate.  Significant management judgment is taken as a charge-off.

Historical loss rates for loans are adjusted for significant factors that,necessary in management’s judgment, reflect the impact of any current conditions on loss recognition.  We use twelve rolling quarters for our historical loss rate analysis.  Factors that we consider include delinquency trends, current economic conditions and trends, strength of supervision and administrationpreparation of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge-offs, trends in loan losses, industry concentrationsforecasted cash flows surrounding expectations for earnings projections, growth and their relative strengths,credit loss expectations, and actual results may differ from forecasted results.

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Income Taxes – Income tax liabilities or assets are established for the amount of unsecured loans, and underwriting exceptions.  Management continually reevaluates the other subjective factors included in its ALLL analysis.

Other Real Estate Owned – When foreclosed properties are acquired, appraisals are obtained and the properties are booked attaxes payable or refundable for the current fair market value less expected sales costs.  Additionally, periodic updated appraisalsyear.  Deferred tax liabilities (“DTLs”) and deferred tax assets (“DTAs”) are obtainedalso 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 unsold foreclosed properties.  When an updated appraisal reflects a fair market value below the current book value, a charge is booked to current earnings to reduce the property to its new fair market value less expected sales costs.  Our policy for determining the frequency of periodic reviews is based upon considerationprovisions of the specific propertiesenacted tax laws.  The assessment of tax liabilities and assets involves the known or perceived market fluctuations inuse of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and federal and state tax codes.

Fair Value Measurements – As a particular market and is typically between 12 and 18 months but generally not more than 24 months.  All revenues and expenses related tofinancial services company, the carrying value of other real estate owned are recognized through the income statement.

Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases ofcertain financial assets and liabilities using enacted tax rates.  Any interestis impacted by the application of fair value measurements, either directly or indirectly.  In certain cases, an asset or liability is measured and penalties incurredreported 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 connection with income taxes are recorded as a component of income tax expense in thematerial changes to our consolidated financial statements.  Duringstatements from period to period.  Detailed information regarding fair value measurements can be found in Note 7 to the nine months ended September 30, 2017 and 2016, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.condensed consolidated financial statements contained herein.



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 2.963.99 percent over one year and 3.467.46 percent over two years.  A 25 basis point decrease in the yield curve would decrease net interest income by an estimated 0.170.54 percent over one year and 0.231.02 percent over two years.  For further discussion of CTBI’s market risk, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Market Risk included in the annual report on Form 10-K for the year ended December 31, 2016.2021.



Item 4. Controls and Procedures

EVALUATION
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES


CTBI’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  As of the end of the period covered by this report, an evaluation was carried out by CTBI’s management, with the participation of our Vice Chairman, President, and Chief Executive Officer and the Executive Vice President, Chief Financial Officer, and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, management concluded that disclosure controls and procedures as of September 30, 2017March 31, 2022 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.


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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING


There were no changes in CTBI’s internal control over financial reporting that occurred during the quarterthree months ended September 30, 2017March 31, 2022 that have materially affected, or are reasonably likely to materially affect, CTBI’s internal control over financial reporting.



PART II - OTHER INFORMATION


Item 1.Legal ProceedingsNone
   
Item 1A.Risk FactorsNone
   
Item 2.Unregistered Sales of Equity Securities and Use of ProceedsNone
   
Item 3.
Defaults Upon Senior Securities
None
   
Item 4.
Mine Safety Disclosure
Not applicable
   
Item 5.
Other Information:
 
 
CTBI’sCTBI’s Principal Executive Officer and Principal Financial Officer have furnished to the SEC the certifications with respect to this Form 10-Q that are required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002
 
   
Item 6.Exhibits: 
 (1)   Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
Exhibit 31.2
 (2)   Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
Exhibit 32.2
 (3)   XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
Exhibit 101.INS
 (4)   XBRL Taxonomy Extension Schema Document
Exhibit 101.SCH
 (5)   XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.CAL
 (6)   XBRL Taxonomy Extension Definition Linkbase
Exhibit 101.DEF
 (7)   XBRL Taxonomy Extension Label Linkbase
Exhibit 101.LAB
 (8)   XBRL Taxonomy Extension Presentation Linkbase
Exhibit 101.PRE
(9)  Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)Exhibit 104




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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:  May 9, 2022By:
 
 
November 8, 2017By:/s/ Jean R. HaleMark A. Gooch
 Jean R. HaleMark 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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