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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, 2024
 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’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
(Title of class)

(606) 432-1414
CTBIThe NASDAQ Global Select Market
(Trading symbol)(Name of exchange on which registered)
(Registrant’s telephone number)


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 – 17,692,73318,026,091 shares outstanding at October 31, 2017April 30, 2024



CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS


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



PART I - FINANCIAL INFORMATION


Item 1. Condensed Consolidated Financial Statements


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


The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 20162023 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
2024
  
December 31
2023
 
Assets:            
Cash and due from banks $48,738  $48,603  $55,841  $58,833 
Interest bearing deposits  107,178   95,586   237,457   212,567 
Federal funds sold  10,500   527 
Cash and cash equivalents  166,416   144,716   293,298   271,400 
                
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 $1,253,750 and $1,301,244, respectively)
  1,111,505   1,163,724 
Equity securities at fair value  3,529   3,158 
Loans held for sale  1,605   1,244   57   152 
                
Loans  3,113,421   2,938,371   4,161,175   4,050,906 
Allowance for loan and lease losses  (36,391)  (35,933)
Allowance for credit losses  (50,571)  (49,543)
Net loans  3,077,030   2,902,438   4,110,604   4,001,363 
                
Premises and equipment, net  46,572   47,940   46,595   45,311 
Operating right-of-use assets  12,433
   12,607
 
Finance right-of-use assets  3,067   3,096 
Federal Home Loan Bank stock  17,927   17,927   4,440   4,712 
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   101,178   101,461 
Mortgage servicing rights  3,283   3,433   7,792   7,665 
Other real estate owned  32,048   35,856   1,266   1,616 
Deferred tax asset
  29,917   28,141 
Accrued interest receivable  23,532   23,575 
Other assets  40,464   36,984   30,420   31,093 
Total assets $4,135,895  $3,932,169  $5,850,255  $5,769,696 
                
Liabilities and shareholders’ equity:                
Deposits:                
Noninterest bearing $786,856  $767,918  $1,274,583  $1,260,690 
Interest bearing  2,413,510   2,313,390   3,509,687   3,463,932 
Total deposits  3,200,366   3,081,308   4,784,270   4,724,622 
                
Repurchase agreements  260,007   251,065   234,671   225,245 
Federal funds purchased  8,196   4,816   500   500 
Advances from Federal Home Loan Bank  50,869   944   329   334 
Long-term debt  59,341   61,341   64,185   64,241 
Deferred taxes  8,716   7,836 
Operating lease liability  12,771   12,958 
Finance lease liability  3,437   3,435 
Accrued interest payable  9,365   7,389 
Other liabilities  25,471   24,244   33,003   28,764 
Total liabilities  3,612,966   3,431,554   5,142,531   5,067,488 
                
Shareholders’ equity:                
Preferred stock, 300,000 shares authorized and unissued  -   -   -   - 
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 issued and outstanding 2024 – 18,019,349; 2023 – 17,999,840
  90,096   89,999 
Capital surplus  220,875   219,697   231,626   231,130 
Retained earnings  214,561   195,078   492,869   484,400 
Accumulated other comprehensive loss, net of tax  (897)  (2,304)  (106,867)  (103,321)
Total shareholders’ equity  522,929   500,615   707,724   702,208 
                
Total liabilities and shareholders’ equity $4,135,895  $3,932,169  $5,850,255  $5,769,696 

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  2024  2023 
Interest income:                  
Interest and fees on loans, including loans held for sale $36,288  $33,593  $104,643  $100,172  $64,716  $51,947 
Interest and dividends on securities                        
Taxable  2,198   2,030   6,458   6,188   6,730   6,758 
Tax exempt  741   653   2,211   2,003   659   682 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock  308   251   867   757   209   174 
Interest on Federal Reserve Bank deposits  2,591   1,350 
Other, including interest on federal funds sold  309   152   844   460   97   84 
Total interest income  39,844   36,679   115,023   109,580   75,002   60,995 
                        
Interest expense:                        
Interest on deposits  3,754   2,799   9,876   8,047   27,676   14,391 
Interest on repurchase agreements  466   288   1,215   836 
Interest on repurchase agreements and federal funds purchased  2,575   1,616 
Interest on advances from Federal Home Loan Bank  226   3   394   51   0   43 
Interest on long-term debt  428   362   1,238   1,036   1,160   1,029 
Total interest expense  4,874   3,452   12,723   9,970   31,411   17,079 
                        
Net interest income  34,970   33,227   102,300   99,610   43,591   43,916 
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
  2,656   1,116 
Net interest income after provision for credit losses
  40,935   42,800 
                        
Noninterest income:                        
Service charges on deposit accounts  6,499   6,563   18,658   18,680 
Deposit related fees
  7,011   7,287 
Gains on sales of loans, net  390   595   897   1,357   45   121 
Trust and wealth management income  2,534   2,440   7,769   7,111   3,517   3,079 
Loan related fees  792   1,260   2,570   2,610   1,352   845 
Bank owned life insurance  583   560   1,633   1,628   1,292   858 
Brokerage revenue  297   387   1,032   1,067   490   348 
Securities gains  48   458   58   522   371   218 
Other noninterest income  1,059   923   3,475   2,951   1,056   926 
Total noninterest income  12,202   13,186   36,092   35,926   15,134   13,682 
                        
Noninterest expense:                        
Officer salaries and employee benefits  2,933   3,090   8,860   9,147   4,241   4,152 
Other salaries and employee benefits  11,146   11,126   34,187   33,524   15,881   14,756 
Occupancy, net  2,043   2,012   6,042   6,035   2,378   2,302 
Equipment  741   733   2,275   2,177   650   726 
Data processing  1,772   1,601   5,318   4,729   2,518   2,303 
Bank franchise tax  1,205   1,492   4,246   4,291   424   419 
Legal fees  429   455   1,256   1,437   218   268 
Professional fees  478   473   1,525   1,395   614   548 
Advertising and marketing  705   674   2,098   1,883   577   820 
FDIC insurance  316   469   923   1,628   642   606 
Other real estate owned provision and expense  1,313   873   4,056   1,892 
Repossession expense  269   272   697   911   226   231 
Amortization of limited partnership investments  605   546   1,814   2,078 
Other noninterest expense  2,977   2,871   8,845   8,994   3,851   4,759 
Total noninterest expense  26,932   26,687   82,142   80,121   32,220   31,890 
                        
Income before income taxes  19,574   17,535   51,591   49,586   23,849   24,592 
Income taxes  5,811   5,223   15,010   14,106   5,170   5,279 
Net income  13,763   12,312   36,581   35,480   18,679   19,313 
                        
Other comprehensive income (loss):                
Unrealized holding gains (losses) on securities available-for-sale:                
Other comprehensive gain (loss):        
Unrealized holding gains (losses) on debt securities available-for-sale:        
Unrealized holding gains (losses) arising during the period  (522)  (2,374)  2,223   5,750   (4,725)  24,716 
Less: Reclassification adjustments for realized gains included in net income  48   458   58   522   0   4 
Tax expense (benefit)  (199)  (991)  758   1,830   (1,179)  7,997 
Other comprehensive income (loss), net of tax  (371)  (1,841)  1,407   3,398 
Other comprehensive gain (loss), net of tax  (3,546)  16,715 
Comprehensive income $13,392  $10,471  $37,988  $38,878  $15,133  $36,028 
                        
Basic earnings per share $0.78  $0.70  $2.08  $2.02  $1.04  $1.08 
Diluted earnings per share $0.78  $0.70  $2.07  $2.02  $1.04  $1.08 
                        
Weighted average shares outstanding-basic  17,633   17,554   17,625   17,532   17,926   17,872 
Weighted average shares outstanding-diluted  17,653   17,569   17,645   17,548   17,943   17,884 
                
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, December 31, 2023
  17,999,840  $89,999  $231,130  $484,400  $(103,321) $702,208 
Net income              18,679       18,679 
Other comprehensive loss
                  (3,546)  (3,546)
Cash dividends declared ($0.46 per share)
              (8,249)      (8,249)
Issuance of common stock  29,026   145   146           291 
Issuance of restricted stock  15,000   75   (75)          0 
Vesting of restricted stock  (22,408)  (112)  112           0 
Forfeiture of restricted stock
  (2,109)  (11)  11           0 
Stock-based compensation          302           302 
Cumulative effect of FASB adjustment
              (1,961)      (1,961)
Balance, March 31, 2024
  18,019,349  $90,096  $231,626  $492,869  $(106,867) $707,724 

(in thousands except per share and share amounts) 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
  Total 
Balance, December 31, 2022  17,918,280  $89,591  $229,012  $438,596  $(129,152) $628,047 
Net income              19,313       19,313 
Other comprehensive income
                  16,715  16,715
Cash dividends declared ($0.44 per share)
              (7,865)      (7,865)
Issuance of common stock  26,118   131   147           278 
Issuance of restricted stock  52,865   264   (264)          0 
Vesting of restricted stock  (20,128)  (101)  101           0 
Forfeiture of restricted stock
  (790)  (4)  4           0 
Stock-based compensation          333           333 
Balance, March 31, 2023
  17,976,345  $89,881  $229,333  $450,044  $(112,437) $656,821 

See notes to condensed consolidated financial statements.

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


  Nine Months Ended 
  September 30 
(in thousands) 2017  2016 
Cash flows from operating activities:      
Net income $36,581  $35,480 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  3,019   2,878 
Deferred taxes  122   519 
Stock-based compensation  447   347 
Excess tax benefits of stock-based compensation  0   (58)
Provision for loan losses  4,659   5,829 
Write-downs of other real estate owned and other repossessed assets  2,871   632 
Gains on sale of mortgage loans held for sale  (897)  (1,357)
Securities gains  (58)  (522)
Gain on debt repurchase  (560)  0 
(Gains)/losses on sale of assets, net  (2)  77 
Proceeds from sale of mortgage loans held for sale  40,130   61,339 
Funding of mortgage loans held for sale  (39,594)  (60,885)
Amortization of securities premiums and discounts, net  2,375   1,614 
Change in cash surrender value of bank owned life insurance  (1,117)  (1,151)
Mortgage servicing rights:        
 Fair value adjustments  419   660 
 New servicing assets created  (269)  (388)
Changes in:        
 Other assets  (3,412)  (3,902)
 Other liabilities  1,181   11,967 
Net cash provided by operating activities  45,895   53,079 
         
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)
 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 
Change in loans, net  (181,282)  (65,136)
Purchase of premises and equipment  (1,681)  (2,411)
Proceeds from sale and retirement of premises and equipment  25   10 
Proceeds from sale of other real estate and other repossessed assets  3,073   4,041 
Net cash used in investing activities  (187,938)  (92,294)
         
Cash flows from financing activities:        
Change in deposits, net  119,058   73,203 
Change in repurchase agreements and federal funds purchased, net  12,322   14,272 
Proceeds from Federal Home Loan Bank advances  150,000   0 
Payments on advances from Federal Home Loan Bank  (100,075)  (100,085)
Repurchase of long-term debt  (1,440)  0 
Issuance of common stock  1,017   2,262 
Repurchase of common stock  0   (382)
Excess tax benefits of stock-based compensation  0   58 
Dividends paid  (17,139)  (16,546)
Net cash provided by (used in) financing activities  163,743   (27,218)
Net increase (decrease) in cash and cash equivalents  21,700   (66,433)
Cash and cash equivalents at beginning of period  144,716   187,611 
Cash and cash equivalents at end of period $166,416  $121,178 
         
Supplemental disclosures:        
Income taxes paid $16,250  $13,991 
Interest paid  11,151   8,796 
Non-cash activities:        
Loans to facilitate the sale of other real estate owned and repossessed assets  2,250   2,624 
Common stock dividends accrued, paid in subsequent quarter  208   212 
Real estate acquired in settlement of loans  4,156   4,300 
 Three Months Ended
 
  March 31 
(in thousands) 2024  2023 
Cash flows from operating activities:      
Net income $18,679  $19,313 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  1,100   907 
Non-cash operating lease expense  0   398 
Deferred taxes  246   228 
Stock-based compensation  343   377 
Provision for credit losses
  2,656   1,116 
Write-downs of other real estate owned and other repossessed assets  42   81 
Gains on sale of mortgage loans held for sale  (45)  (121)
Securities gains
  0   (4)
Fair value adjustments in equity securities  (371)  (214)
Gains on sale of assets, net  (40)  (37)
Proceeds from sale of mortgage loans held for sale  1,758   4,658 
Funding of mortgage loans held for sale  (1,619)  (4,610)
Amortization of securities premiums and discounts, net  595   752 
Change in cash surrender value of bank owned life insurance  (983)  (578)
Changes in lease liabilities  (187)  (376)
Mortgage servicing rights:        
Fair value adjustments  (108)  397 
New servicing assets created  (19)  (50)
Changes in:        
Accrued interest receivable  43   580 
Other assets  (2,131)  (658)
Accrued interest payable  1,976   1,901 
Other liabilities  4,211   1,113 
Net cash provided by operating activities  26,146   25,173 
         
Cash flows from investing activities:        
Securities available-for-sale (AFS):        
Purchase of AFS securities  (8,448)  (161)
Proceeds from sales of AFS securities  1,084   18,561 
Proceeds from prepayments, calls, and maturities of AFS securities  54,263   20,710 
Change in loans, net  (111,772)  (67,837)
Purchase of premises and equipment  (2,181)  (910)
Proceeds from sale of stock by Federal Home Loan Bank
  272   1,850 
Proceeds from sale of other real estate owned and repossessed assets  236   204 
Additional investment in other real estate owned and repossessed assets
  (13)  0 
Liquidation of cash surrender value of bank owned life insurance
  870   0 
Proceeds from settlement of bank owned life insurance
  396   0 
Net cash used in investing activities  (65,293)  (27,583)
         
Cash flows from financing activities:        
Change in deposits, net  59,648   117,281 
Change in repurchase agreements and federal funds purchased, net  9,426   (6,654)
Proceeds from Federal Home Loan Bank advances  0   50,000 
Payments on advances from Federal Home Loan Bank  (5)  (50,005)
Proceeds from long-term debt/other borrowings  0   6,563 
Repayment of long-term debt/other borrowings
  (56)  0 
Issuance of common stock  291   278 
Dividends paid  (8,259)  (7,865)
Net cash provided by financing activities  61,045   109,598 
Net increase in cash and cash equivalents  21,898   107,188 
Cash and cash equivalents at beginning of period  271,400   128,686 
Cash and cash equivalents at end of period $293,298  $235,874 
         
Supplemental disclosures:     
 

Income taxes paid
 $160  $578 
Interest paid  29,435   15,177 
Non-cash activities:        
Loans to facilitate the sale of other real estate owned and repossessed assets  157   698 
Common stock dividends accrued, paid in subsequent quarter  281   279 
Real estate acquired in settlement of loans  31   51 
Right-of-use assets obtained in exchange for new operating lease liabilities  0   364 

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, 2024, the results of operations, for the three and nine months ended September 30, 2017 and 2016,other comprehensive income (loss), changes in shareholders’ equity, and the cash flows for the ninethree months ended September 30, 2017March 31, 2024 and 2016.2023.  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 three and nine months ended September 30, 2017other comprehensive income (loss), changes in shareholders’ equity, and the cash flows for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 are not necessarily indicative of the results to be expected for the full year.  The condensed consolidated balance sheet as of December 31, 20162023 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, 2016,2023, 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 – Certain reclassifications considered to be immaterial have been made in the prior year condensed consolidated financial statements to conform to current year classifications.  These reclassifications had no effect on net income.

New Accounting Standards –


Ø

➢Facilitation of the Effects of Reference Rate Reform on Financial InstrumentsReporting – Overall – In January 2016,December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time preparers can utilize the reference rate reform relief guidance.  The amendments in ASU No. 2022-06 are effective for all entities upon issuance.  In 2020, the FASB issued ASU No. 2016-01, 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Instruments – Overall (Subtopic 825-10).Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published.  The amendments in this Update require all equity investmentsASU No. 2020-04 provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and provide optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  This ASU applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be measured at fair value with changesdiscontinued due to reference rate reform.  The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.  In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU No. 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.



On January 27, 2023, CTBI received notice from the trustee of the trust subsidiary, that based on their review of the junior subordinated debentures and the related trust preferred securities (the “TRUPS Documents”), after application of the LIBOR Act (as implemented by the Final Regulations (defined below), the “LIBOR Act”) and the final regulations of the Board of Governors of the Federal Reserve System issued on December 16, 2022 implementing the LIBOR Act (the “Final Regulations”), the TRUPS Documents issued by the trust subsidiary do not provide a replacement rate for Applicable LIBOR (a “Replacement Rate”) or include other fallback provisions which would apply on the first London banking day after June 30, 2023 (the “LIBOR Replacement Date”).  Absent an amendment to the TRUPS Documents, some other change in applicable law, rule, regulation, or some other development, the LIBOR Act as implemented by the Final Regulations provides that (i) on and after the LIBOR Replacement Date, 3-month CME Term SOFR or 6-month CME Term SOFR (as defined in the fair value recognized through net income (other than those accountedFinal Regulations) as adjusted by the relevant spread adjustment, which is 0.26161 percent or 0.42826 percent, shall be the benchmark replacement for under equity method of accounting or those that resultthe Applicable LIBOR in consolidationthe TRUPS Documents and (ii) all applicable benchmark replacement conforming changes (as specified in the Final Regulations) will become an integral part of the investee)TRUPS Documents, without any action by any party.

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➢       Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions – In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.  The amendmentsFASB issued this ASU to (1) clarify the guidance in this Update also require an entity to present separately in other comprehensive income the portion of the total change inTopic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a liability resulting from a change in the instrument-specific credit risk when the entity has electedrelated illustrative example, and (3) introduce new disclosure requirements for equity securities subject to measure the liabilitycontractual sale restrictions that are measured at fair value in accordance with the fair value option for financial instruments.  In addition, theTopic 820.  The amendments in this Update eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair valueASU clarify that is required to be disclosed for financial instruments measured at amortized costa contractual restriction on the balance sheetsale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.  The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.  The amendments in this ASU also require the following disclosures for public business entities.  Public business entities will be requiredequity securities subject to use the exit price notion when measuringcontractual sale restrictions: (1) the fair value of financial instruments for disclosure purposes.  This Update isequity securities subject to contractual sale restrictions reflected in the final versionbalance sheet; (2) the nature and remaining duration of Proposed ASU 2013-220—Financial Instruments—Overall (Subtopic 825-10)the restriction(s); and Proposed ASU 2013-221—Financial Instruments—Overall (Subtopic 825-10)(3) the circumstances that could cause a lapse in the restriction(s).  For public business entities, the amendments in this UpdateASU are effective for fiscal years beginning after December 15, 2017, including2023, and interim periods within those fiscal years.  The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet asadoption 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 doesASU did not expecthave a significant impact on CTBI’s accountingto our consolidated financial statements.


    ➢       FASB Improves the Accounting for equity investments as a result of this ASU.  At this time, we cannot quantify the changeInvestments 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.

ØLeasesTax Credit Structures– In February 2016, theThe FASB issued ASU No. 2016-02, Leases2023-02, Investments—Equity Method and Joint Ventures (Topic 842)323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which is intended to improve the accounting and disclosures for investments in tax credit structures. This ASU is a consensus of the FASB’s Emerging Issues Task Force (“EITF”).  This ASU 2016-02 establishesallows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.  This ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a rightbetter understanding of use modelthe returns from investments that requires a lesseeare made primarily for the purpose of receiving income tax credits and other income tax benefits.  Reporting entities were previously permitted to record a rightapply the proportional amortization method only to qualifying tax equity investments in low-income housing tax credit (“LIHTC”) structures.  In recent years, stakeholders asked the FASB to extend the application of 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 recognitionproportional amortization method to qualifying tax equity investments that generate tax credits through other programs, which resulted in the income statement.EITF addressing this issue.  For lessors,public business entities, 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, 2018,2023, including interim periods within those fiscal years for public business entities.  Entities are required to useyears. 



As a modified retrospective approach for leases that exist or are entered into after the beginningresult 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 asrecorded a cumulative effect impact that reduced retained earnings by $2.0 million. Additionally, 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.

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 entitieshad a decrease in amortization expense, recognized in other direct expenses, that have an investment that becomes qualifiedtotaled $0.7 million for the equity method of accounting as a result of an increasethree months ended December 31, 2023. The amortization expense included 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 qualifyingincome tax expense for the equity methodthree months ended March 31,2024 was $0.8 million.The amount 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) classificationcredits and other tax benefits recognized during the quarter was $1.1 million and was included in income tax expense on the statement of awards as either equity or liabilities;income and (c) classificationin net income on the statement of cash flows.We had $18.3 million in tax investments at March 31, 2024 included in other assets on the balance sheet. There were no non-income tax related activities or other returns received that were recognized outside of income tax expense and the statement of income and the statement of cash flows.  There were also no significant modifications or events that resulted in a change in the nature of the investment or change in the relationship with the underlying projects.  No investment income or loss was included in pre-tax income, and no impairment was recognized during the quarter resulting from the forfeiture or ineligibility of income tax credits or other circumstances. At March 31, 2024, there was $4.7 million in unfunded commitments. Of the amount outstanding, the contribution schedule is as follows:

(in thousands)
Amount due in:
 Unfunded Commitments 
2024 $1,512 
2025  2,000 
2026  315 
2027  146 
2028  146 
After  538 
For

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➢    FASB Issues Standard that Enhance Income Tax Disclosures –In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which addresses requests for improved income tax disclosures from investors, lenders, creditors, and other allocators of capital that use the financial statements to make capital allocation decisions.  The new update is effective for public companies, the amendments were effectivebusiness entities 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, 2019.2024.  Early adoption is permitted for fiscal years,annual financial statements that have not yet been issued or made available for issuance.  The ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and interim periods within those fiscal years, beginning after December 15, 2018. CTBI has an implementation team working through the provisionsgreater disaggregation 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 classifiedinformation in the statementrate reconciliation and (2) income taxes paid disaggregated by jurisdiction.  It also includes certain other amendments intended to improve the effectiveness 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 relationincome tax disclosures.  CTBI does not intend 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 weearly adopt.  We do not expectanticipate a materialsignificant impact on CTBI’sto our 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)the 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.
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. Investments not classified as trading securities (nor as HTM securities) shall be classified as available-for-sale (“AFS”) securities.

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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.



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



In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, we consider the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.  There were no credit related factors underlying unrealized losses on AFS debt securities at March 31, 2024 and December 31, 2023, therefore, no ACL for AFS securities was recorded.



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


Gains or losses on disposition of debt securities are computed by specific identification for 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
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, 2024 and 2023, CTBI held no securities designated as HTM.


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


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


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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 lease losses,ACL, 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 restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.

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 ACL under ASC 326.  CTBI measures expected credit losses of financial assets on a collective (pool) basis using the discounted cash flow method 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 ACL is measured based on the fair value of the collateral as of the measurement date.  As a practical expedient, the fair value of the collateral may be used for a loan when determining the ACL for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty.  The fair value shall be adjusted for selling costs when foreclosure is probable.  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.



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 ACL calculation by one basis point and is considered immaterial.


We maintain an allowance for loan and lease 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) the borrower is experiencing financial difficulty with significant payment delay, 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.


10

When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made. If the balance of the loan exceeds the fair value of the collateral, the loan is placed on nonaccrual and the loan is charged down to the value of the collateral less estimated cost to sell orsell. For commercial loans greater than $1million that are categorized as individually evaluated based on the criteria listed above, 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(five monthly payments) delinquent.  If a loan is considered uncollectable, it is charged off earlier than 120 days delinquent. For conventional 1-4 family residential loans and installment and revolving loans secured by real estate, when a loan is 90 days past due, a current assessment of the value of the real estate is made.  If the balance of the loan exceeds the fair value of the property, the loan is placed on nonaccrual. Foreclosure proceedings are normally initiated after 120 days. When the foreclosed property has been legally assigned to CTBI, the fair value less estimated costs to sell is transferred to other real estate owned and the remaining balance is taken as a charge-off.


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 quarters for our historical

CTBI utilizes third party software and discounted cash flow loss rate analysis.  Factorsmethodologies for all loan segments.  Within the discount cash flow calculation, an effective yield of the instrument is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows.   The expected cash flows were modeled considering probability of default and segment-specific loss given default (“LGD”) risk factors, utilizing the software’s proprietary database of financial institutions’ filings, evaluated first by geography and asset size and then with the utilization of standard deviations, to assure relevance to CTBI’s loan segments along with CTBI’s own loss history.  Cash flows are then discounted at that we consider includeeffective yield to produce an instrument-level net present value (“NPV”) of expected cash flows.  An ACL is established for the difference between the instrument’s NPV and amortized cost basis.  Any changes in NPV between periods is recorded as provision for credit losses.  The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions.  Management incorporates qualitative factors to loss estimates used to derive CTBI’s total ACL including delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveriesand underwriting exceptions.  Forecast factors were expanded to prior year’s charge-offs, trends in loan losses,include gross domestic product, retail and food service sales, and S&P/Case-Shiller US National Home Price Index, while industry concentrations and their relative strengths, amount of unsecured loans, and underwriting exceptions.was added as a qualitative factor. Management continually reevaluates the other subjective factors included in its ALLLour ACL analysis.


Other Real Estate Owned – When foreclosed properties are acquired, appraisals are obtained

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.


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 ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.taxes.



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

11
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, 2024 and 20162023 was $131$343 thousand and $97 thousand, respectively, including $13 thousand and $9 thousand in dividends paid for each period.  Restricted stock expense for the nine months ended September 30, 2017 and 2016 was $405 thousand and $305$377 thousand, respectively, including $40 thousand and $28$44 thousand, respectively, in dividends paid for each period.those periods.  As of September 30, 2017,March 31, 2024, 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$3.2 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, 201715,000 and 2016.  There were 23,668 and 18,06952,865 shares of restricted stock granted during the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, 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.subject to such employee’s continued employment.  However, in the event of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of the participant, the restrictions will lapse, and in the event of the participant’s disability, the restrictions will lapse on a pro rata basis.  The Compensation Committee will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement. There were 2,109 and 790 shares of restricted stock forfeited during the three months ended March 31, 2024 and 2023, respectively.


There was no compensation expense related to stock option grants for the three months ended March 31, 2024 and 2023.As of March 31, 2024, there was no unrecognized compensation expense related to unvested stock option awards, as all stock option awards have fully vested.  There were no stock options granted in the first 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:2024 or 2023.


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


The amortized cost and fair value of debt securities at September 30, 2017March 31, 2024 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  $367,961  $115  $(27,575) $340,501 
State and political subdivisions  134,840   2,670   (853)  136,657   311,207   31   (49,808)  261,430 
U.S. government sponsored agency mortgage-backed securities  226,466   591   (3,059)  223,998   500,922   228   (64,774)  436,376 
Total debt securities  579,413   3,500   (4,400)  578,513 
CRA investment funds  25,000   93   (573)  24,520 
Asset-backed securities  73,660   0   (462)  73,198 
Total available-for-sale securities $604,413  $3,593  $(4,973) $603,033  $1,253,750  $374  $(142,619) $1,111,505 


Held-to-Maturity
12

(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, 20162023 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  $381,268  $121  $(26,572) $354,817 
State and political subdivisions  133,351   1,957   (1,792)  133,516   313,147   88   (48,290)  264,945 
U.S. government sponsored agency mortgage-backed securities  227,574   1,008   (3,526)  225,056   518,836   36   (62,136)  456,736 
Total debt securities  583,939   3,158   (6,061)  581,036 
CRA investment funds  25,000   76   (718)  24,358 
Asset-backed securities  87,993   0   (767)  87,226 
Total available-for-sale securities $608,939  $3,234  $(6,779) $605,394  $1,301,244  $245  $(137,765) $1,163,724 


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, 2024 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  $105,493  $102,371 
Due after one through five years  128,058   128,883   858   858   275,234   249,805 
Due after five through ten years  40,962   41,804   0   0   136,040   118,168 
Due after ten years  124,960   124,860   0   0   162,401   131,587 
U.S. government sponsored agency mortgage-backed securities  226,466   223,998   0   0   500,922   436,376 
Asset-backed securities  73,660   73,198 
Total debt securities  579,413   578,513   858   858  $1,253,750  $1,111,505 
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, 2024, we had an unrealized gain of $371 thousand from the fair value adjustment of equity securities.  During the three months ended March 31, 2023, we had a net securities gain of $48$218 thousand, on sales of AFS securities, consisting of a pre-tax gain of $150$4 thousand on the sale of AFS securities and an unrealized gain of $214 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, 2024 were $3.5 million, as a pre-tax lossresult of $102 thousand.  Duringa $371 thousand increase in the fair value in the first quarter 2024.  The fair value of equity securities increased $214 thousand in the first quarter 2023.  No equity securities were sold during the three months ended September 30, 2016, there was a net gain of $458 thousand on salesMarch 31, 2024 and calls of AFS securities, consisting of a pre-tax gain of $460 thousand and a pre-tax loss of $2 thousand.2023.


During the nine months ended September 30, 2017, there was a combined gain of $58 thousand on sales 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.


The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $222.0$737.6 million at September 30, 2017March 31, 2024 and $221.2$761.5 million at December 31, 2016.2023.



The amortized cost of securities sold under agreements to repurchase amounted to $296.4$332.4 million at September 30, 2017March 31, 2024 and $303.5$333.6 million at December 31, 2016.2023.


13

CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of September 30, 2017March 31, 2024 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, 2024 was 66.5%96.8% compared to 65.6%97.3% as of December 31, 2016.2023.  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, 2024 that are not deemed to have credit losses.


Available-for-Sale

(in thousands) 
Amortized
Cost
  
Gross
Unrealized
Losses
  Fair Value 
Less Than 12 Months         
U.S. Treasury and government agencies $2,785  $(1) $2,784 
State and political subdivisions  11,081   (234)  10,847 
U.S. government sponsored agency mortgage-backed securities  2,869   (18)  2,851 
Asset-backed securities  1,932   (3)  1,929 
Total <12 months
  18,667   (256)  18,411 
             
12 Months or More            
U.S. Treasury and government agencies  351,685   (27,574)  324,111 
State and political subdivisions  297,619   (49,574)  248,045 
U.S. government sponsored agency mortgage-backed securities  479,271   (64,756)  414,515 
Asset-backed securities  71,728   (459)  71,269 
Total ≥12 months
  1,200,303   (142,363)  1,057,940 
             
Total            
U.S. Treasury and government agencies  354,470   (27,575)  326,895 
State and political subdivisions  308,700   (49,808)  258,892 
U.S. government sponsored agency mortgage-backed securities  482,140   (64,774)  417,366 
Asset-backed securities  73,660   (462)  73,198 
Total
 $1,218,970  $(142,619) $1,076,351 

14

The analysis performed as of December 31, 2023 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, 2023 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 September 30, 2017.


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  $3,761  $(5) $3,756 
State and political subdivisions  20,141   (236)  19,905   16,154   (1,250)  14,904 
U.S. government sponsored agency mortgage-backed securities  71,913   (336)  71,577   16,056   (289)  15,767 
Total debt securities  235,061   (1,043)  234,018 
CRA investment funds  7,500   (56)  7,444 
Total <12 months temporarily impaired AFS securities  242,561   (1,099)  241,462 
Asset-backed securities  0   0  0 
Total <12 months
  35,971   (1,544)  34,427 
                        
12 Months or More                        
U.S. Treasury and government agencies  21,559   (17)  21,542   361,038   (26,567)  334,471 
State and political subdivisions  13,832   (617)  13,215   284,397   (47,040)  237,357 
U.S. government sponsored agency mortgage-backed securities  113,712   (2,723)  110,989   500,763   (61,847)  438,916 
Total debt securities  149,103   (3,357)  145,746 
CRA investment funds  15,000   (517)  14,483 
Total ≥12 months temporarily impaired AFS securities  164,103   (3,874)  160,229 
Asset-backed securities  87,993   (767)  87,226 
Total ≥12 months
  1,234,191   (136,221)  1,097,970 
                        
Total                        
U.S. Treasury and government agencies  164,566   (488)  164,078   364,799   (26,572)  338,227 
State and political subdivisions  33,973   (853)  33,120   300,551   (48,290)  252,261 
U.S. government sponsored agency mortgage-backed securities  185,625   (3,059)  182,566   516,819   (62,136)  454,683 
Total debt securities  384,164   (4,400)  379,764 
CRA investment funds  22,500   (573)  21,927 
Total temporarily impaired AFS securities $406,664  $(4,973) $401,691 
Asset-backed securities  87,993   (767)  87,226 
Total
 $1,270,162  $(137,765) $1,132,397 


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
15

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
2024
  
December 31
2023
 
Hotel/motel $416,759  $395,765 
Commercial real estate residential  456,585   417,943 
Commercial real estate nonresidential  813,904   778,637 
Dealer floorplans  77,221   70,308 
Commercial other  320,701   321,082 
Commercial loans  2,085,170   1,983,735 
         
Real estate mortgage  955,616   937,524 
Home equity lines  151,577   147,036 
Residential loans  1,107,193   1,084,560 
         
Consumer direct  155,807   159,106 
Consumer indirect  813,005   823,505 
Consumer loans  968,812   982,611 
         
Loans and lease financing $4,161,175  $4,050,906 


The loan portfolios presented above are net of unearned fees and unamortized premiums. Unearned fees included above totaled $0.8 million as of March 31, 2024 and December 31, 2023, while the unamortized premiums on the indirect lending portfolio totaled $30.9 million as of March 31, 2024 and $31.4 million as of December 31, 2023.


CTBI has segregated and evaluates itsour loan portfolio through nine 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 10.0% 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.

16

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 secondarily 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 loans are typically for owner-occupied properties.  The terms of these loans are generally short-term with permanent financing upon completion.


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 itsour fixed rate first lien mortgage loans into the secondary market.  Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and interest payments.  Residential real estate loans are secured by real property.



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



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

Consumer indirect

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



Not includedincluded in the loan balances above were loans held for sale in the amount of $1.6 million$57 thousand at September 30, 2017March 31, 2024 and $1.2 million$152 thousand at December 31, 2016.2023.



17

The following tables present the balance in the ACL for the periods ended March 31, 2024, December 31, 2023 and March 31, 2023.

  
Three Months Ended
March 31, 2024
 
(in thousands) 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  Recoveries  
Ending
Balance
 
ACL               
Hotel/motel $4,592  $348  $0  $0  $4,940 
Commercial real estate residential  4,285   (161)  0   4   4,128 
Commercial real estate nonresidential  7,560   615   0   3   8,178 
Dealer floorplans  659   62   0   0   721 
Commercial other  3,760   114   (167)  92   3,799 
Real estate mortgage  10,197   141   (27)  14   10,325 
Home equity  1,367   (65)  0   2   1,304 
Consumer direct  3,261   803   (533)  40   3,571 
Consumer indirect  13,862   799   (1,940)  884   13,605 
Total $49,543  $2,656  $(2,667) $1,039  $50,571 

  
Year Ended
December 31, 2023
 
(in thousands) 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  Recoveries  
Ending
Balance
 
ACL               
Hotel/motel $5,171  $(579) $0  $0  $4,592 
Commercial real estate residential  4,894   (706)  (28)  125   4,285 
Commercial real estate nonresidential  9,419   (2,252)  (294)  687   7,560 
Dealer floorplans  1,776   (1,117)  0   0   659 
Commercial other  5,285   (91)  (1,900)  466   3,760 
Real estate mortgage  7,932   2,364   (140)  41   10,197 
Home equity  1,106   278   (23)  6   1,367 
Consumer direct  1,694   1,804   (541)  304   3,261 
Consumer indirect  8,704   7,110   (5,333)  3,381   13,862 
Total $45,981  $6,811  $(8,259) $5,010  $49,543 

  
Three Months Ended
March 31, 2023
 
(in thousands) 
Beginning
Balance
  
Provision
Charged to
Expense
  
Losses
Charged Off
  Recoveries  
Ending
Balance
 
ACL               
Hotel/motel $5,171  $116  $0  $0  $5,287 
Commercial real estate residential  4,894   186   0   77   5,157 
Commercial real estate nonresidential  9,419   (553)  0   144   9,010 
Dealer floorplans  1,776   (82)  0   0   1,694 
Commercial other  5,285   (416)  (187)  100   4,782 
Real estate mortgage  7,932   21   (40)  4   7,917 
Home equity  1,106   (64)  0   2   1,044 
Consumer direct  1,694   105   (156)  103   1,746 
Consumer indirect  8,704   1,803   (1,382)  921   10,046 
Total $45,981  $1,116  $(1,765) $1,351  $46,683 
 

Using the ACL software, forecasts include gross domestic product (GDP), retail sales and housing price index considerations.  CTBI leverages economic projections from the Federal Open Market Committee to obtain various forecasts for unemployment rate and gross domestic product, the PNC forecast for the Case-Shiller National Home Price Index, and the Wells Fargo forecast for the Advanced Retail Sales.  CTBI has elected to forecast the first four quarters of the credit loss estimate and revert to a long-run average of each considered economic factor, as permitted in ASC 326-20-30-9, over four quarters.
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All periods during the reasonable and supportable forecast period are utilizing a forecasted probability of default. Loss driver analysis was performed during which regression models were built relating default rates of the various segments to the economic factors noted above.  Historical loss data for both CTBI and segment-specific selected peers was incorporated from Federal Financial Institutions Examination Council call report data.  For loss given default, the Frye-Jacobs LGD estimation technique was utilized in the ACL software provided a risk curve that most approximates the asset class under consideration.  Management elected to evaluate internal prepayment experience over a trailing timeframe to determine the appropriate prepayment and curtailment rates to be used in the credit loss estimate.


CTBI uses management judgement for qualitative loss factors such as delinquency trends, supervision and administration, quality control exceptions, collateral values, and industry concentrations. The ACL software allows management to approve a “worst case” scenario or a maximum loss rate for each segment.  Qualitative dollars available for allocation then become the difference between the worst case and the ACL quantitative reserve estimate.  Each factor is then given a risk weighting that is applied to determine a basis point allocation. The qualitative loss factors are as follows:



•Changes in delinquency trends by loan segment

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

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

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

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

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

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

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



Our provision for credit losses for the quarter increased $0.8 million from prior quarter and $1.5 million from prior year same quarter.  Our reserve coverage (ACL to nonperforming loans) at March 31, 2024 was 319.0%, compared to 354.7% at December 31, 2023 and 382.3% at March 31, 2023.  Our credit loss reserve as a percentage of total loans outstanding at March 31, 2024 remained at 1.22% from December 31, 2023, down from the 1.24% at March 31, 2023.



Management continues to note the continued impact of global uncertainty, the current rate of inflation, the uncertain interest rate environment, and the fact that there is no immediate end foreseen, and these conditions are now part of qualitative factors noted above.  As in previous periods, an allocation was made for delinquency trends, industry concentrations, supervisory and administration, loan exceptions, and collateral values.


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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, 2024 and December 31, 2023 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, 2024 
 (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   283   1,458   1,741 
Commercial real estate nonresidential  0   632   2,136   2,768 
Commercial other  232   398   748   1,378 
Total commercial loans  232   1,313   4,342   5,887 
                 
Real estate mortgage  0   2,149   5,853   8,002 
Home equity lines  0   157   588   745 
Total residential loans  0   2,306   6,441   8,747 
                 
Consumer direct  0   451   48   499 
Consumer indirect  0   0   719   719 
Total consumer loans  0   451   767   1,218 
                 
Loans and lease financing $232  $4,070  $11,550  $15,852 


 December 31, 2023 
 (in thousands) 
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
 
             
Hotel/motel $0  $0  $0  $0 
Commercial real estate residential  0   498   1,059   1,557 
Commercial real estate nonresidential  0   680   2,270   2,950 
Dealer floorplans
  0   0   0   0 
Commercial other  236   452   162   850 
Total commercial loans  236   1,630   3,491   5,357 
                 
Real estate mortgage  0   1,996   5,302   7,298 
Home equity lines  0   186   557   743 
Total residential loans  0   2,182   5,859   8,041 
                 
Consumer direct  0   0   15   15 
Consumer indirect  0   0   555   555 
Total consumer loans  0   0   570   570 
                 
Loans and lease financing $236  $3,812  $9,920  $13,968 

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.

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The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of September 30, 2017March 31, 2024 and December 31, 2016:2023 (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 

  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 

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


 March 31, 2024 
(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  $416,759  $416,759 
Commercial real estate residential  406   0   1,741   2,147   454,438   456,585 
Commercial real estate nonresidential  1,295   757   2,490   4,542   809,362   813,904 
Dealer floorplans  0   0   0   0   77,221   77,221 
Commercial other  317   172   1,201   1,690   319,011   320,701 
Total commercial loans  2,018   929   5,432   8,379   2,076,791   2,085,170 
                         
Real estate mortgage  894   2,471   6,801   10,166   945,450   955,616 
Home equity lines  749   317   719   1,785   149,792   151,577 
Total residential loans  1,643   2,788   7,520   11,951   1,095,242   1,107,193 
                         
Consumer direct  623   168   499   1,290   154,517   155,807 
Consumer indirect  3,596   831   719   5,146   807,859   813,005 
Total consumer loans  4,219   999   1,218   6,436   962,376   968,812 
                         
Loans and lease financing $7,880  $4,716  $14,170  $26,766  $4,134,409  $4,161,175 

                  December 31, 2023 
(in thousands) 
30-59 Days
Past Due
  
60-89
Days Past
Due
  
90+ Days
Past Due
  
Total Past
Due
  Current  Total Loans
 
Hotel/motel $0  $0  $0  $0  $395,765  $395,765 
Commercial real estate residential  1,047   275   1,525   2,847   415,096   417,943 
Commercial real estate nonresidential  549   332   2,619   3,500   775,137   778,637 
Dealer floorplans  0   0   0   0   70,308   70,308 
Commercial other  663   494   641   1,798   319,284   321,082 
Total commercial loans  2,259   1,101   4,785   8,145   1,975,590   1,983,735 
                         
Real estate mortgage  1,323   3,455   6,168   10,946   926,578   937,524 
Home equity lines  911   273   707   1,891   145,145   147,036 
Total residential loans  2,234   3,728   6,875   12,837   1,071,723   1,084,560 
                         
Consumer direct  1,013   118   15   1,146   157,960   159,106 
Consumer indirect  4,550   1,029   555   6,134   817,371   823,505 
Total consumer loans  5,563   1,147   570   7,280   975,331   982,611 
                         
Loans and lease financing $10,056  $5,976  $12,230  $28,262  $4,022,644  $4,050,906 

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



Hotel/motel loans are a significant concentration for CTBI, representing approximately 10.0% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.


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


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 amounts greater than $500,000this segment as these loans are generally require a performance bondone loan for construction to be posted by the general contractor to assure completion of the project.

Commercialpermanent 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 comparable to that of borrowersbased on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.


Dealer floorplans are segmented separately as they are a unique product with similar quality commercial creditsunique risk factors.  CTBI maintains strict processing procedures over our floorplan product with similar collateral.  Maximum terms of equipment leasing are determinedany exceptions requested by a loan officer approved by the typeappropriate loan committee and expected life of the equipment to be leased.  Residual values are determined 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, the risk characteristics for this portfolio mirror that of the commercial loan portfolio.floorplan manager.



Commercial other loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value.  Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from itsour 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.


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



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



The indirect lending area of the bank is generally deals withresponsible for purchasing/funding consumer contracts with new and used automobile dealers.  The dealers generate consumerDealer 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,borrowers, and on the collateral value.  The dealers mayUpon a dealer being funded on an approved loan application and assignment of the retail installment contract to CTB, CTB will have limited recourse agreements with CTB.the dealer, as set forth in the CTB dealer agreement.  On occasion, the dealer will execute a separate, full recourse agreement with CTB to obtain customer financing.


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.


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.


23
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.


24

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               
Pass $64,983  $1,059,574  $3,229  $292,574  $1,420,360 
Watch  3,566   67,065   0   31,270   101,901 
OAEM  1,657   21,676   61   2,056   25,450 
Substandard  3,898   49,072   0   13,078   66,048 
Doubtful  178   217   0   359   754 
Total $74,282  $1,197,604  $3,290  $339,337  $1,614,513 
                     
December 31, 2016                    
Pass $55,315  $975,383  $5,206  $299,301  $1,335,205 
Watch  3,366   51,932   137   32,780   88,215 
OAEM  2,535   25,772   169   7,913   36,389 
Substandard  5,592   31,945   0   9,599   47,136 
Doubtful  190   396   0   566   1,152 
Total $66,998  $1,085,428  $5,512  $350,159  $1,508,097 



 Term Loans Amortized Cost Basis by Origination Year 
(in thousands)
March 31
  2024   2023   2022   2021   2020  Prior  
Revolving
Loans
  Total 
Hotel/motel                             
Risk rating:                             
Pass $23,157  $75,614  $148,082  $27,789  $17,576  $81,081  $5,146  $378,445 
Watch  0   11,494   2,801   6,745   4,566   4,925   0   30,531 
OAEM  0   0   3,982   0   0   1,954   0   5,936 
Substandard  0   0   0   0   0   1,847   0   1,847 
Doubtful  0   0   0   0   0   0   0   0 
Total hotel/motel  23,157   87,108   154,865   34,534   22,142   89,807   5,146   416,759 
                                 
Commercial real estate residential                                
Risk rating:                                
Pass  53,504   100,676   88,387   96,851   30,029   44,984   15,866   430,297 
Watch  91   2,211   3,661   425   1,422   6,830   177   14,817 
OAEM  0   0   0   0   0   62   0   62 
Substandard  0   995   414   4,188   734   4,936   142   11,409 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial real estate residential  53,595   103,882   92,462   101,464   32,185   56,812   16,185   456,585 
                                 
Commercial real estate nonresidential                                
Risk rating:                                
Pass  50,150   152,323   135,583   133,424   66,865   190,555   32,112   761,012 
Watch  0   548   3,643   6,249   2,298   7,637   338   20,713 
OAEM  0   0   15   0   7,255   1,459   0   8,729 
Substandard  470   4,341   1,594   2,523   4,480   9,966   74   23,448 
Doubtful  0   0   0   0   0   2   0   2 
Total commercial real estate nonresidential  50,620   157,212   140,835   142,196   80,898   209,619   32,524   813,904 
                                 
Dealer floorplans                                
Risk rating:                                
Pass  0   0   0   0   0   0   76,789   76,789 
Watch  0   0   0   0   0   0   432   432 
OAEM  0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0 
Total dealer floorplans  0   0   0   0   0   0   77,221   77,221 
                                 
Commercial other                                
Risk rating:                                
Pass  25,705   57,125   45,270   38,679   28,943   23,401   80,907   300,030 
Watch  457   700   620   291   119   837   6,065   9,089 
OAEM  0   28   0   0   0   0   30   58 
Substandard  1,584   4,579   2,552   538   862   253   1,006   11,374 
Doubtful  0   0   117   33   0   0   0   150 
Total commercial other  27,746   62,432   48,559   39,541   29,924   24,491   88,008   320,701 
                                 
Commercial other current period gross charge-offs
  (145)  0   (20)  0   (2)  0   0   (167)
                                 
Commercial loans                                
Risk rating:                                
Pass  152,516   385,738   417,322   296,743   143,413   340,021   210,820   1,946,573 
Watch  548   14,953   10,725   13,710   8,405   20,229   7,012   75,582 
OAEM  0   28   3,997   0   7,255   3,475   30   14,785 
Substandard  2,054   9,915   4,560   7,249   6,076   17,002   1,222   48,078 
Doubtful  0   0   117   33   0   2   0   152 
Total commercial loans $155,118  $410,634  $436,721  $317,735  $165,149  $380,729  $219,084  $2,085,170 
                                 
Total commercial loans current period gross charge-offs
 $(145) $0  $(20) $0  $(2) $0  $0  $(167)
25

  Term Loans Amortized Cost Basis by Origination Year 
(in thousands)
December 31
 2023  2022  2021  2020  2019  Prior  
Revolving
Loans
  Total 
Hotel/motel                        
 Risk rating:                        
Pass $79,651  $144,826  $28,011  $17,664  $40,873  $42,030  $4,042  $357,097 
Watch  11,569   2,826   6,835   4,623   3,361   1,648   0   30,862 
OAEM  0   3,982   0   0   0   1,954   0   5,936 
Substandard  0   0   0   0   0   1,118   0   1,118 
Doubtful  0   0   0   0   0   752   0   752 
Total hotel/motel  91,220   151,634   34,846   22,287   44,234   47,502   4,042   395,765 
                                 
Commercial real estate residential                                
 Risk rating:                                
Pass  109,304   89,119   98,896   30,972   11,908   36,964   14,700   391,863 
Watch  2,317   2,131   473   1,395   721   6,359   124   13,520 
OAEM  0   0   0   0   0   63   0   63 
Substandard  760   854   4,532   834   285   5,232   0   12,497 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial real estate residential  112,381   92,104   103,901   33,201   12,914   48,618   14,824   417,943 
                                 
Commercial real estate residential current period gross charge-offs
  0   0   (28)  0   0   0   0   (28)

                                
Commercial real estate nonresidential                                
 Risk rating:                                
Pass  149,633   142,580   136,090   68,240   55,850   140,074   31,536   724,003 
Watch  552   3,664   6,305   2,347   1,938   6,003   354   21,163 
OAEM  2,375   15   0   7,255   0   1,486   0   11,131 
Substandard  2,520   1,598   2,538   4,472   2,000   9,199   0   22,327 
Doubtful  0   0   0   0   0   13   0   13 
Total commercial real estate nonresidential  155,080   147,857   144,933   82,314   59,788   156,775   31,890   778,637 
                                 
Commercial real estate nonresidential current period gross charge-offs
  0   0   (7)  0   0   (287)  0   (294)
                                 
Dealer floorplans                                
 Risk rating:                                
Pass  0   0   0   0   0   0   70,308   70,308 
Watch  0   0   0   0   0   0   0   0 
OAEM  0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0 
Total dealer floorplans  0   0   0   0   0   0   70,308   70,308 
                                 
Commercial other                                
 Risk rating:                                
Pass  73,115   47,575   40,448   30,033   4,780   22,588   81,791   300,330 
Watch  1,138   1,109   569   126   239   635   5,877   9,693 
OAEM  29   0   0   0   0   0   30   59 
Substandard  4,921   3,581   381   890   211   403   613   11,000 
Doubtful  0   0   0   0   0   0   0   0 
Total commercial other  79,203   52,265   41,398   31,049   5,230   23,626   88,311   321,082 
                                 
Commercial other current period gross charge-offs
  (725)  (710)  (302)  (27)  (90)  (46)  0   (1,900)
                                 
Commercial loans                                
 Risk rating:                                
Pass  411,703   424,100   303,445   146,909   113,411   241,655   202,377   1,843,600 
Watch  15,576   9,730   14,182   8,491   6,259   14,645   6,355   75,238 
OAEM  2,404   3,997   0   7,255   0   3,503   30   17,189 
Substandard  8,201   6,033   7,451   6,196   2,496   15,952   613   46,942 
Doubtful  0   0   0   0   0   766   0   766 
Total commercial loans $437,884  $443,860  $325,078  $168,851  $122,166  $276,521  $209,375  $1,983,735 
                                 
Total commercial loans current period gross charge-offs
 $
(725) $
(710) $
(337) $
(27) $
(90) $
(333) $
0  $
(2,222)

26

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 

(1)
(in thousands)
 Term Loans Amortized Cost Basis by Origination Year 
March 31
 2024  2023  2022  2021  2020  Prior  
Revolving
Loans
  Total 
Home equity lines                        
Performing $0  $0  $0  $0  $0  $7,846  $142,986  $150,832 
Nonperforming  0   0   0   0   0   471   274   745 
Total home equity lines  0   0   0   0   0   8,317   143,260   151,577 
                                 
Mortgage loans                                
Performing  35,865   207,193   154,086   156,133   116,396   277,941   0   947,614 
Nonperforming  0   29   469   188   192   7,124   0   8,002 
Total mortgage loans  35,865   207,222   154,555   156,321   116,588   285,065   0   955,616 
                                 
Mortgage loans current period gross charge-offs
  0   0   0   0   0   (27)  0   (27)
                                 
Residential loans                                
Performing  35,865   207,193   154,086   156,133   116,396   285,787   142,986   1,098,446 
Nonperforming  0   29   469   188   192   7,595   274   8,747 
Total residential loans $35,865  $207,222  $154,555  $156,321  $116,588  $293,382  $143,260  $1,107,193 
                                 
Total residential loans current period gross charge-offs
 $0  $0  $0  $0  $0  $(27) $0  $(27)
                                 
Consumer direct loans                                
Performing $14,253  $54,867  $30,487  $24,055  $14,354  $17,292  $0  $155,308 
Nonperforming  0   44   451   0   4   0   0   499 
Total consumer direct loans  14,253   54,911   30,938   24,055   14,358   17,292   0   155,807 
                                 
Total consumer direct loans current period gross charge-offs  0   (24)  (470)  (14)  (7)  (18)  0   (533)
                                 
Consumer indirect loans                                
Performing  72,500   329,063   227,378   97,397   59,720   26,228   0   812,286 
Nonperforming  0   316   249   110   3   41   0   719 
Total consumer indirect loans  72,500   329,379   227,627   97,507   59,723   26,269   0   813,005 
                                 
Total consumer indirect loans current period gross charge-offs
  0   (577)  (743)  (442)  (79)  (99)  0   (1,940)
                                 
Consumer loans                                
Performing  86,753   383,930   257,865   121,452   74,074   43,520   0   967,594 
Nonperforming  0   360   700   110   7   41   0   1,218 
Total consumer loans $86,753  $384,290  $258,565  $121,562  $74,081  $43,561  $0  $968,812 
                                 
Total consumer loans current period gross charge-offs
 $0  $(601) $(1,213) $(456) $(86) $(117) $0  $(2,473)
27

(in thousands) Term Loans Amortized Cost Basis by Origination Year 

December 31
 2023  2022  2021  2020  2019  Prior  
Revolving
Loans
  Total 
Home equity lines                        
Performing $0  $0  $0  $0  $0  $7,630  $138,663  $146,293 
Nonperforming  0   0   0   0   0   442   301   743 
Total home equity lines  0   0   0   0   0   8,072   138,964   147,036 
                                 
Home equity lines current period gross charge-offs
  0   0   0   0   0   (23)  0   (23)
                                 
Mortgage loans                                
Performing  200,442   162,407   159,857   119,772   56,601   231,147   0   930,226 
Nonperforming  0   200   151   192   533   6,222   0   7,298 
Total mortgage loans  200,442   162,607   160,008   119,964   57,134   237,369   0   937,524 
                                 
Mortgage loans current period gross charge-offs
  0   0   (47)  0   (40)  (53)  0   (140)
                                 
Residential loans                                
Performing  200,442   162,407   159,857   119,772   56,601   238,777   138,663   1,076,519 
Nonperforming  0   200   151   192   533   6,664   301   8,041 
Total residential loans $200,442  $162,607  $160,008  $119,964  $57,134  $245,441  $138,964  $1,084,560 
                                 
Total residential loans current period gross charge-offs
 $
0  $
0  $
(47) $
0  $
(40) $
(76) $
0  $
(163)
                                 
Consumer direct loans                                
Performing $63,686  $34,722  $26,250  $15,560  $6,951  $11,922  $0  $159,091 
Nonperforming  0   4   11   0   0   0   0   15 
Total consumer direct loans  63,686   34,726   26,261   15,560   6,951   11,922   0   159,106 
                                 
Total consumer direct loans current period gross charge-offs  (65)  (263)  (129)  (37)  (27)  (20)  0   (541)
                                 
Consumer indirect loans                                
Performing  359,049   251,086   109,231   69,319   23,767   10,498   0   822,950 
Nonperforming  133   223   157   11   22   9   0   555 
Total consumer indirect loans  359,182   251,309   109,388   69,330   23,789   10,507   0   823,505 
                                 
Total consumer indirect loans current period gross charge-offs
  (541)  (2,320)  (1,688)  (492)  (121)  (171)  0   (5,333)
                                 
Consumer loans                                
Performing  422,735   285,808   135,481   84,879   30,718   22,420   0   982,041 
Nonperforming  133   227   168   11   22   9   0   570 
Total consumer loans $422,868  $286,035  $135,649  $84,890  $30,740  $22,429  $0  $982,611 
                                 
Total consumer loans current period gross charge-offs
 $
(606) $
(2,583) $
(1,817) $
(529) $
(148) $
(191) $
0  $
(5,874)

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


28

The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings are in process totaled $4.8was $3.1 million at September 30, 2017 compared toand $3.5 million at March 31, 2024 and December 31, 2016.2023, respectively.

A loan is considered impaired, in

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 basedACL, 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, 2024 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  3  $6,798  $0 
Commercial real estate residential  2   4,530   0 
Commercial real estate nonresidential  9   21,549   325 
Commercial other  2
   5,265   0 
Total collateral dependent loans  16  $38,142  $325 


 December 31, 2023 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  3  $6,810  $0 
Commercial real estate residential  2   5,080   0 
Commercial real estate nonresidential  9   21,637   250 
Commercial other  2   5,658   0 
Total collateral dependent loans  16  $39,185  $250 

29

 March 31, 2023 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  2  $8,193  $0 
Commercial real estate residential  3   6,380   0 
Commercial real estate nonresidential  6   11,712   0 
Commercial other  2   8,043   0 
Total collateral dependent loans  13  $34,328  $0 


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 terms of the loan.  Impairedreal estate.  The two 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 rate on the loan, payment extensions, forgiveness of principal, forbearance, orcommercial other actions intended to maximize collection.segment at March 31, 2024 are collateralized by inventory, equipment, and accounts receivable.



The following table presents impairedCertain 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 borrowercustomer is experiencingfacing 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, where economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances.  Presented below,These loans, segregated by class of loans and concession granted, are troubled debt restructurings that occurred duringpresented below for the quarters ended March 31, 2024 and 2023:

 Amortized Cost at March 31, 2024
 
(in thousands)
Interest Rate
Reduction
 % of total Term Extension % of total 
Hotel/motel $0   0.00% $0   0.00%
Commercial real estate residential  0   0.00
   65   0.01 
Commercial real estate nonresidential  0   0.00   0   0.00 
Dealer floorplans  0   0.00   0   0.00 
Commercial other  0   0.00   1,517   0.47 
Commercial loans  0   0.00   1,582   0.08 
                 
Real estate mortgage  189   0.02   2,782   0.29 
Home equity lines  0   0.00   32   0.02 
Residential loans  189   0.02   2,814   0.25 
                 
Consumer direct  0   0.00   38   0.02 
Consumer indirect  0   0.00   269   0.03 
Consumer loans  0   0.00   307   0.03 
                 
Loans and lease financing $189   0.00% $4,703   0.11%
                 
   Amortized Cost at March 31, 2024 
(in thousands)
Combination –
Term Extension
and Interest Rate
Reduction
 % of total Payment Change % of total 
Hotel/motel $
0   0.00% $0   0.00%
Commercial real estate residential  15   0.00   0   0.00 
Commercial real estate nonresidential  28   0.00   11   0.00 
Dealer floorplans  0   0.00   0   0.00 
Commercial other  0   0.00   858   0.27 
Commercial loans  43   0.00   869   0.04 
                 
Real estate mortgage  278   0.03   0   0.00 
Home equity lines  39   0.03   0   0.00 
Residential loans  317   0.03   0   0.00 
                 
Consumer direct  0   0.00   0   0.00 
Consumer indirect  0   0.00   25   0.00 
Consumer loans  0   0.00   25   0.00 
                 
Loans and lease financing $360   0.01% $894   0.02%

30
  Interest Rate Reduction  Term Extension 
(in thousands) 
Amortized Cost at
March 31, 2023
  % of total  
Amortized Cost at
March 31, 2023
  % of total 
Hotel/motel $0   0.00% $0   0.00%
Commercial real estate residential  358   0.09   1,369   0.36 
Commercial real estate nonresidential  4,506   0.60   4,715   0.63 
Dealer floorplans  0   0.00   0   0.00 
Commercial other  0   0.00   963   0.30 
Commercial loans  4,864   0.26

  7,047   0.38

                 
Real estate mortgage  59   0.01   2,446   0.29 
Home equity lines  0   0.00   55   0.04 
Residential loans  59   0.01   2,501   0.26 
                 
Consumer direct  0   0.00   178   0.11 
Consumer indirect  0   0.00   396   0.05 
Consumer loans  0   0.00   574   0.06 
                 
Loans and lease financing $4,923   0.13% $10,122   0.27%

  
Combination – Term Extension
and Interest Rate Reduction
  Payment Change 
(in thousands) 
Amortized Cost at
March 31, 2023
  % of total  
Amortized Cost at
March 31, 2023
  % of total 
Hotel/motel $0   0.00% $0   0.00%
Commercial real estate residential  45   0.01   0   0.00 
Commercial real estate nonresidential  0   0.00   0   0.00 
Dealer floorplans  0   0.00   0   0.00 
Commercial other  0   0.00   111   0.04 
Commercial loans  45   0.00   111   0.01 
                 
Real estate mortgage  217   0.03   0   0.00 
Home equity lines  35   0.03   60   0.05 
Residential loans  252   0.03   60   0.01 
                 
Consumer direct  0   0.00   21   0.01 
Consumer indirect  0   0.00   0   0.00 
Consumer loans  0   0.00   21   0.00 
                 
Loans and lease financing $297   0.01% $192   0.01%

31

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2017 and 2016March 31, 2024:

Interest Rate ReductionTerm Extension
Loan TypeFinancial ImpactFinancial Impact
Hotel/motel
Commercial real estate residential
Added a weighted-average 0.3 years to life of the loans
Commercial real estate nonresidential

Dealer floorplans
Commercial otherAdded a weighted-average 0.5 years to life of the loans
Real estate mortgageReduced weighted-average contractual interest rate from 9.8% to 5.0%Added a weighted-average 0.4 years to life of the loans
Home equity linesAdded a weighted-average 0.5 years to life of the loans
Consumer directAdded a weighted-average 0.1 years to life of the loans
Consumer indirectAdded a weighted-average 0.1 years to life of the loans

32
Combination – Term Extension and
Interest Rate Reduction
Payment Changes
Loan TypeFinancial ImpactFinancial Impact
Hotel/motel
Commercial real estate residentialWeighted-average contractual interest rate remained at 8.5% and increased the weighted-average life by 4.0 years
Commercial real estate nonresidentialWeighted-average contractual interest rate remained at 6.0% and increased the weighted-average life by 10.3 years
Provided payment changes that will be added to the end of the original loan term.
Dealer floorplans
Commercial otherProvided payment changes that will be added to the end of the original loan term.
Real estate mortgageReduced weighted-average contractual interest rate from 5.3% to 5.2% and increased the weighted-average life by 5 years
Home equity linesReduced weighted-average contractual interest rate from 10.0% to 8.5% and increased the weighted-average life by 17.7 years

Consumer direct
Consumer indirectProvided payment changes that will be added to the end of the original loan term.
33


The following tables describe the year ended December 31, 2016:

  
Three Months Ended
September 30, 2017
 
(in thousands) Number of Loans  Term Modification  Rate Modification  
Combination
  
Post-Modification Outstanding Balance
 
Commercial:               
Commercial secured by real estate  6  $295  $0  $0  $295 
Commercial other  1   102   0   0   102 
Total troubled debt restructurings  7  $397  $0  $0  $397 

  
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 

  
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 

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

No charge-offs have resulted from modifications for anyfinancial effect of the presented periods.  We had commitmentsmodifications made to extend additional credit in the amount of $0.1 million on loans that were considered troubled debt restructuringsborrowers experiencing financial difficulty at September 30, 2017.March 31, 2023:



Loan Type
Interest Rate Reduction
Financial Impact
Term Extension
Financial Impact
Hotel/motel
Commercial real estate residentialReduced weighted-average contractual interest rate from 9.6% to 8.0%The weighted-average term was not increased with the changes to this portfolio
Commercial real estate nonresidentialReduced weighted-average contractual interest rate from 9.5% to 7.5%The weighted-average term was not increased with the changes to this portfolio
Dealer floorplans
Commercial otherAdded a weighted-average 1.8 years to life of the loans, which reduced monthly payment amounts to the borrower
Real estate mortgageChanged from an adjustable rate to a fixed rate mortgage maintaining the contractual interest rate of 3.0%Added a weighted-average 2.3 years to life of the loans, which reduced monthly payment amounts to the borrower
Home equity linesAdded a weighted-average 6.67 years to life of the loans, which reduced monthly payment amounts to the borrower
Consumer directAdded a weighted-average 0.2 years to the life of the loans
Consumer indirectAdded a weighted-average 0.3 years to the life of the loans

34
Loan Type
Combination – Term Extension and
Interest Rate Reduction
Financial Impact
Payment Changes
Financial Impact
Hotel/motel
Commercial real estate residentialReduced weighted-average contractual interest rate from 10.8% to 6.5% and increased the weighted-average life by 0.3 years
Commercial real estate nonresidential
Dealer floorplans
Commercial otherProvided payment changes that will be added to the end of the original loan term
Real estate mortgageReduced weighted-average contractual interest rate from 7.4% to 6.1% and increased the weighted-average life by 12.9 years
Home equity linesWhile the weighted-average contractual interest rate did not change materially from 7.7%, the weighted-average life increased by 5.0 yearsProvided payment changes that will be added to the end of the original loan term
Consumer directProvided payment changes that will be added to the end of the original loan term
Consumer indirect


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 indue to a troubled debt restructuringborrower’s financial difficulty are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a troubled debt restructuringloan to a borrower experiencing financial difficulty subsequently default,defaults, CTBI evaluates the loan for possible further impairment.The table below represents the payment status of modified loans to borrowers experiencing financial difficulty.

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

 Nonaccrual 
Hotel/motel $1,955  $0  $0  $0 
Commercial real estate residential  624   0   412   0 
Commercial real estate nonresidential  1,606   0   28   0 
Dealer floorplans  0   0   0   0 
Commercial other  5,961   135   389   75 
Real estate mortgage  6,145   418   380   365 
Home equity lines  423   0   0   0 
Consumer direct  64   14   0   0 
Consumer indirect  346   3   0   0 
Total
 $17,124  $570  $1,209  $440 

35

The allowance for loancredit losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.  Presented below, segregated by class of loans, are loans that were modified as troubled debt restructurings within the prior twelve months which subsequently defaulted during the three and nine months ended September 30, 2017 and 2016.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.  Presented below, segregated by class of loans, are loans to borrowers experiencing financial difficulty for which there was a payment default during the period indicated and such default was within twelve months of the loan modification. There were no defaults as of March 31, 2023.

 (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
 
Three Months Ended
March 31, 2024
 
(in thousands)Number of Loans Recorded Balance 
Commercial:    
  Commercial other  4  $422 
  Commercial real estate residential  2   412 
Real estate mortgage  3   197 
Total defaulted restructured loans  9  $1,031 



Financial instrument credit losses apply to off-balance sheet credit exposures such as unfunded loan commitments and standby letters of credit.  A liability for Loan and Lease Losses

The following tablesexpected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend the balance in the allowance for loan and lease losses (“ALLL”)credit and the recorded investmentobligation is not unconditionally cancellable by the entity.  Changes in loans based on portfolio segmentthis allowance are reflected in other operating expenses within the non-interest expense category.  As of March 31, 2024 and impairment method as of September 30, 2017, December 31, 2016 and September 30, 2016:2023, the total unfunded commitment off-balance sheet credit exposure was $1.5 million, respectively.

  
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  Three Months Ended
 
 September 30  September 30 
March 31
 
(in thousands) 2017  2016  2017  2016  2024  2023 
Beginning balance of other real estate owned $32,785  $37,740  $35,856  $40,674  $1,616  $3,671 
New assets acquired  2,722   1,008   4,303   4,300   31   51 
Capitalized costs  0   0   0   0   12   0 
Fair value adjustments  (884)  (408)  (2,871)  (632)  (42)  (81)
Sale of assets  (2,575)  (675)  (5,240)  (6,677)  (351)  (865)
Ending balance of other real estate owned $32,048  $37,665  $32,048  $37,665  $1,266  $2,776 


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, 2024 and 20162023 were $40 thousand and $4.1$0.1 million, respectively.  See Note 1 for a description of our accounting policies relative to foreclosed properties and $1.9 million, respectively, for the nine months ended September 30, 2017 and 2016.other real estate owned.



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


(in thousands) 
September 30
2017
  
December 31
2016
  
March 31
2024
  
December 31
2023
 
1-4 family $5,117  $6,210  $492  $827 
Agricultural/farmland  68   93 
Construction/land development/other  16,620   20,778   369   383 
Multifamily  176   270 
Non-farm/non-residential  10,067   8,505   405   406 
Total foreclosed properties $32,048  $35,856  $1,266  $1,616 


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.


36

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$294.1 million and $302.3$296.6 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, 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, 2024 and December 31, 20162023 is presented in the following tables:


 September 30, 2017 March 31, 2024 
 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  $22,889  $0  $22,000  $4,673  $49,562 
State and political subdivisions  63,611   4,573   610   6,919   75,713   103,406   0   0   11,072   114,478 
U.S. government sponsored agency mortgage-backed securities  21,630   36,301   116   12,462   70,509   18,425   0   0   48,209   66,634 
Asset-backed securities
  3,997   0   0   0   3,997 
Total $116,412  $97,000  $726  $45,869  $260,007  $148,717  $0  $22,000  $63,954  $234,671 


 December 31, 2016  December 31, 2023 
 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  $21,156  $19  $1,817  $23,640  $46,632 
State and political subdivisions  55,354   0   1,998   10,272   67,624   98,053   481   5,962   3,219   107,715 
U.S. government sponsored agency mortgage-backed securities  23,386   0   8,003   47,378   78,767   17,538   0   41,521   9,269   68,328 
Asset-backed securities
  2,570   0   0   0   2,570 
Total $95,989  $0  $24,350  $130,726  $251,065  $139,317  $500  $49,300  $36,128  $225,245 


37
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.


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, 2024 and December 31, 20162023 and indicate the level within the fair value hierarchy of the valuation techniques.


    
Fair Value Measurements at
September 30, 2017 Using
     
Fair Value Measurements at
March 31, 2024 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)
  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  $340,501  $323,332  $17,169  $0 
State and political subdivisions  136,657   0   136,657   0   261,430   0   261,430   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  436,376   0   436,376   0 
Asset-backed securities  73,198   0   73,198   0 
Equity securities at fair value  3,529   0   0   3,529 
Mortgage servicing rights  3,283   0   0   3,283   7,792   0   0   7,792 


     
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 – recurring basis            
Available-for-sale securities:            
U.S. Treasury and government agencies $222,464  $44,934  $177,530  $0 
State and political subdivisions  133,516   0   133,516   0 
U.S. government sponsored agency mortgage-backed securities
  225,056   0   225,056   0 
CRA investment funds  24,358   24,358   0   0 
Mortgage servicing rights  3,433   0   0   3,433 

38

    
Fair Value Measurements at
December 31, 2023 Using
 
(in thousands) Fair Value  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis            
Available-for-sale securities:            
U.S. Treasury and government agencies $354,817  $336,285  $18,532  $0 
State and political subdivisions  264,945   0   264,945   0 
U.S. government sponsored agency mortgage-backed securities  456,736   0   456,736   0 
Asset-backed securities  87,226   0   87,226   0 
Equity securities at fair value  3,158   0   0   3,158 
Mortgage servicing rights  7,665   0   0   7,665 


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, 2024 and December 31, 2016.2023.  There have been no significant changes in the valuation techniques during the quarter or nine months ended September 30, 2017.March 31, 2024.  For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.


Available-for-Sale Securities



Securities classified as available-for-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, 2024 and December 31, 2016,2023, 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.


39
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

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      
 Three Months Ended  Nine Months Ended 
 September 30  September 30  
Three Months Ended
March 31, 2024
  
Three Months Ended
March 31, 2023
 
(in thousands) 2017  2016  2017  2016  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
  
Equity
Securities
at Fair Value
  
Mortgage
Servicing
Rights
 
Beginning balance $3,304  $2,797  $3,433  $3,236  $3,158  $7,665  $2,166  $8,468 
Total recognized gains (losses)                
Total unrealized gains (losses)
                
Included in net income  5   118   (73)  (422)  371   276   214   (214)
Issues  98   167   269   388   0   19   0   50 
Settlements  (124)  (118)  (346)  (238)  0   (168)  0   (183)
Ending balance $3,283  $2,964  $3,283  $2,964  $3,529  $7,792  $2,380  $8,121 
                                
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) $371  $276  $214  $(214)



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) 2024  2023 
Total gains
 $479 $(183)

40
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, 2024 and December 31, 20162023 and indicate the level within the fair value hierarchy of the valuation techniques.


    
Fair Value Measurements at
September 30, 2017 Using
     
Fair Value Measurements at
March 31, 2024 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)
  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
 $8,322  $
0  $
0  $8,322 
Other real estate owned  0  
0  
0  
0 


    
Fair Value Measurements at
December 31, 2016 Using
     
Fair Value Measurements at
December 31, 2023 Using
 
(in thousands) Fair Value  
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Significant Unobservable Inputs
(Level 3)
  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 
Collateral dependent loans $8,397  $0  $0  $8,397 
Other real estate owned  205   0   0   205 



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.  Quarter-to-date fairborrower is experiencing financial difficulty in accordance with ASC 326-20-35-5.  Fair value adjustments on impairedcollateral-dependent loans disclosed above were $0.3$0.1 million for the quartersquarter ended September 30, 2017, DecemberMarch 31, 2016, and September 30, 2016.  Year-to-date fair value adjustments2024.  There were $0.7 millionno losses reported for the nine monthsquarter ended September 30, 2017, $0.6 millionMarch 31, 2023, while losses for the year ended December 31, 2016, and $0.6 million for the nine months ended September 30, 2016.2023 were $0.3 million.



41
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-dateThere were no fair value adjustments on other real estate/assets owned were $0.9 million, $0.6 million, and $0.4 million for the quarters ended September 30, 2017, DecemberMarch 31, 2016, and September 30, 2016, respectively.  Year-to-date adjustments were $2.9 million2024 on OREO disclosed above.  Losses for the nine monthsquarter ended September 30, 2017, $1.2 million for theMarch 31, 2023 and year ended December 31, 2016, and $0.6 million for the nine months ended September 30, 2016.2023 were $0.1 million.




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


Unobservable (Level 3) Inputs



The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at September 30, 2017March 31, 2024 and December 31, 2016.2023.



 Quantitative Information about Level 3 Fair Value Measurements
(in thousands) Quantitative Information about Level 3 Fair Value Measurements 
Fair Value at
March 31,
2024
 
Valuation
Technique(s)
Unobservable Input 
Range
(Weighted
Average)
Equity securities at fair value $3,529 Discount cash flows, computer pricing modelDiscount rate  
15.0% - 25.0%
(20.0%)
            Conversion date 
Dec 2028 -
Dec 2032
(Dec 2030)
 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%)
 $7,792 Discount cash flows, computer pricing modelConstant prepayment rate  
0.0% - 28.7%
(7.4%)
       Probability of default  
0.0% - 100.0%
(3.3%)
            Probability of default  
0.0% - 66.7%
(1.0%)
       Discount rate  
10.0% - 11.5%
(10.1%)
            Discount rate  
9.7% - 12.0%
(10.0%)
Collateral-dependent loans
 
$
8,322  Market comparable properties Marketability discount  
10.5% - 27.4%
(13.9%)
                
Impaired loans (collateral-dependent) $1,732 Market comparable propertiesMarketability discount  
10.0% - 89.0%
(40.4%)
        
Other real estate/assets owned $18,843 Market comparable propertiesComparability adjustments  
6.0% - 68.7%
(16.3%)
Other real estate owned $0 Market comparable propertiesComparability adjustments  0%

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


Sensitivity
42
  Quantitative Information about Level 3 Fair Value Measurements
(in thousands)
 
Fair Value at
December 31,
2023
 
Valuation
Technique(s)
Unobservable Input 
Range
(Weighted
Average)
Equity securities at fair value $3,158 Discount cash flows, computer pricing modelDiscount rate  
15.0% - 12.0%
(10.0%)
             Conversion date 
Dec 2028 - Dec 2032
(Dec 2030)
          
Mortgage servicing rights $7,665 Discount cash flows, computer pricing modelConstant prepayment rate  
0.0% - 77.6%
(7.5%)
             Probability of default  
0.0% - 66.7%
(1.0%)
             Discount rate  
9.5% - 12.0%
(10.0%)
          
Collateral-dependent loans $8,397 Market comparable propertiesMarketability discount  
10.9% - 19.6%
(12.2%)
          
Other real estate owned $205 Market comparable propertiesComparability adjustments  
10.0% - 23.9%
(17.5%)

Uncertainty 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.


Equity Securities at Fair Value


Fair value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock, and the prevailing conversion rate at the conversion date.  The most recent conversion rate of 1.5875 and the most recent dividend rate of 0.8255 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.


43
Fair Value of Financial Instruments



The following table presents estimated fair value of CTBI’s financial instruments as of September 30, 2017March 31, 2024 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, 2024 were measured using an exit price notion.


    
Fair Value Measurements
at September 30, 2017 Using
     
Fair Value Measurements
at March 31, 2024 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  $293,298  $293,298  $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  1,111,505   323,332   788,173   0 
Equity securities at fair value  3,529   0   0   3,529 
Loans held for sale  1,605   1,651   0   0   57   59   0   0 
Loans, net  3,077,030   0   0   3,057,809   4,110,604   0   0   3,831,409 
Federal Home Loan Bank stock  17,927   0   17,927   0   4,440   0   4,440   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   23,532   0   23,532   0 
Mortgage servicing rights  3,283   0   0   3,283 
                                
Financial liabilities:                                
Deposits $3,200,366  $786,856  $2,410,741  $0  $4,784,270  $1,016,951  $3,346,616  $0 
Repurchase agreements  260,007   0   0   260,044   234,671   0   0   234,671 
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   329   0   340   0 
Long-term debt  59,341   0   0   49,073   64,185   0   0   49,200 
Accrued interest payable  2,771   0   2,771   0   9,365   0   9,365   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 


44

The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 20162023 and indicates the level within the fair value hierarchy of the valuation techniques.


    
Fair Value Measurements
at December 31, 2023 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  $271,400  $271,400  $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  1,163,724   336,285   827,439   0 
Equity securities at fair value  3,158   0   0   3,158 
Loans held for sale  1,244   1,260   0   0   152   154   0   0 
Loans, net  2,902,438   0   0   2,882,348   4,001,363   0   0   3,745,477 
Federal Home Loan Bank stock  17,927   0   17,927   0   4,712   0   4,712   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   23,575   0   23,575   0 
Mortgage servicing rights  3,433   0   0   3,433 
                                
Financial liabilities:                                
Deposits $3,081,308  $767,918  $2,321,690  $0  $4,724,622  $1,260,690  $3,480,806  $0 
Repurchase agreements  251,065   0   0   250,820   225,245   0   0   225,187 
Federal funds purchased  4,816   0   4,816   0   500   0   500   0 
Advances from Federal Home Loan Bank  944   0   1,009   0   334   0   349   0 
Long-term debt  61,341   0   0   49,073   64,241   0   0   50,326 
Accrued interest payable  1,200   0   1,200   0   7,389   0   7,389   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 on sales of loans, trust and the committed rates.  The fair value of forward sale commitmentswealth 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.

45

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


Generally, the pricing of 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 on fees currently charged for similar agreements orupon analysis of CTBI as one operating segment.


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


For more information related to 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  Three Months Ended
 
 September 30  September 30  March 31 
(in thousands except per share data) 2017  2016  2017  2016  2024  2023 
Numerator:                  
Net income $13,763  $12,312  $36,581  $35,480  $18,679  $19,313 
                        
Denominator:                        
Basic earnings per share:                        
Weighted average shares  17,633   17,554   17,625   17,532   17,926   17,872 
Diluted earnings per share:                        
Effect of dilutive stock options and restricted stock grants  20   15   20   16   17   12 
Adjusted weighted average shares  17,653   17,569   17,645   17,548   17,943   17,884 
                        
Earnings per share:                        
Basic earnings per share $0.78  $0.70  $2.08  $2.02  $1.04  $1.08 
Diluted earnings per share  0.78   0.70   2.07   2.02   1.04   1.08 


There were no options to purchase common shares that were excluded from the diluted calculations above for the three and nine months ended September 30, 2017.  March 31,2024 and 2023. 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.


46
Note 10 – Accumulated Other Comprehensive Income (Loss)


Unrealized gains (losses) on AFS securities



Amounts reclassified from accumulated other comprehensive income (AOCI)(loss) (“AOCI”) and the affected line items in the statements of income during the three and nine months ended September 30, 2017March 31, 2024 and 20162023 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
 
(in thousands) 2017  2016  2017  2016  2024  2023 
 
Securities gains $48  $458  $58  $522  $0  $4 
Tax expense  17   160   20   183   0   1 
Total reclassifications out of AOCI $31  $298  $38  $339  $0  $3 


Note 11 – Commitments and Contingencies
47

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.




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, 2023.  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”) 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 eighty 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, 2024, we had total consolidated assets of $4.1$5.9 billion and total consolidated deposits, including repurchase agreements, of $3.5$5.0 billion.  Total shareholders’ equity at September 30, 2017March 31, 2024 was $522.9$707.7 million.  Trust assets under management which are excluded from CTBI’s total consolidated assets, at September 30, 2017,March 31, 2024 were $2.2 billion.  Trust assets under management include$3.5 billion, including CTB’s investment portfolio totaling $0.6$1.1 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, linesLines 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 servicefull-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, 2016.2023.

48
Results of Operations and Financial Condition


ForWe reported earnings for the first quarter ended September 30, 2017, we reported record earnings2024 of $13.8$18.7 million, or $0.78$1.04 per basic share, compared to $11.5$18.7 million, or $0.65$1.04 per basic share, earned during the secondfourth quarter 20172023 and $12.3$19.3 million, or $0.70$1.08 per basic share, earned during the thirdfirst quarter 2016.  Earnings2023.  Total revenue was $2.0million above prior quarter and $1.1 million above prior year same quarter.  Net interest revenue increased $0.6 million compared to prior quarter but decreased $0.3 million compared to prior year same quarter, and noninterest income increased $1.4 million compared to prior quarter and $1.5 million compared to prior year same quarter.  Our provision for credit losses for the ninequarter increased $0.8 million from prior quarter and $1.5million from prior year same quarter.  Noninterest expense increased $0.6 million compared to prior quarter and $0.3million compared to prior year same quarter.  Noninterest expense and tax expense were impacted by an accounting method change (ASU No. 2023-02), which is intended to improve the accounting and disclosures for investments in tax credit structures.  Historically, the amortization expense related to our tax credits has been booked to noninterest expense.  Beginning in January 2024, the amortization expense is now booked to tax expense.  Our total amortization expense related to tax credits was $0.8 million for the three months ended September 30, 2017 were $36.6 million, or $2.08 per basic share, compared to $35.5 million, or $2.02 per basic share, for the nine months ended September 30, 2016.March 31, 2024.


Quarterly Highlights


v❖
Net interest income for the quarter of $35.0$43.6 million was an increase of $0.7$0.6 million or 2.1%,above prior quarter but $0.3 million below prior year same quarter, as our net interest margin increased 4 basis points from secondprior quarter 2017 and $1.7 million, or 5.2%,but decreased 26 basis points from prior year thirdsame quarter.


v❖
Provision for loancredit losses at $2.7 million for the quarter ended September 30, 2017 decreased $2.1increased $0.8 million from prior 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.


v❖
Our loan portfolio at $4.2 billion increased $26.1$110.3 million, an annualized 3.4%10.9%, from December 31, 2023 and $383.8 million, or 10.2%, from March 31, 2023.

❖
We had net loan charge-offs of $1.6 million, or 0.16% of average loans annualized, for the first quarter 2024 compared to $1.0 million, or 0.10% of average loans annualized, for the fourth quarter 2023 and $0.4 million for the first quarter 2023.

❖
Our total nonperforming loans increased to $15.9 million at March 31, 2024 from $14.0 million at December 31, 2023 and $12.2 million at March 31, 2023.  Nonperforming assets at $17.1 million increased $1.5 million from December 31, 2023 and $2.1 million from March 31, 2023.

❖
Deposits, including repurchase agreements, at $5.0 billion increased $69.1 million, or an annualized 5.6%, from December 31, 2023 and $266.7 million, or 5.6%, from March 31, 2023.

❖
Shareholders’ equity at $707.7 million increased $5.5 million, or an annualized 3.2%, during the quarter and $175.1$50.9 million, or an annualized 8.0%7.7%, from DecemberMarch 31, 2016.2023.


v❖Net loan charge-offs for the quarter ended September 30, 2017 were $1.4 million, or 0.18% of average loans annualized, compared to $1.3 million, or 0.18%, 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 $128.0 million from December 31, 2016.  Deposit growth during the quarter included $82.3 million in wholesale brokered deposits.

vNoninterest income for the quarter ended September 30, 2017March 31, 2024 of $12.2$15.1 million was a decrease of $0.1$1.4 million, or 0.9%10.3%, fromabove prior quarter and $1.0$1.5 million, or 7.5%10.6%, fromabove 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, 2024 of $26.9$32.2 million decreasedwas $0.6 million, or 2.3%1.9%, fromabove prior quarter but increased $0.2and $0.3 million, or 0.9%1.0%, fromabove 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.


49
Income Statement Review


       Change Q-O-Q 
(dollars in thousands)       Change 2017 vs. 2016  1Q 2024  1Q 2023  Amount  Percent 
Nine Months Ended September 30 2017  2016  Amount  Percent 
Net interest income $102,300  $99,610  $2,690   2.7% 
$
43,591
  
$
43,916
  
$
(325
)
 
(0.7
)%
Provision for loan losses  4,659   5,829   (1,170)  (20.1)
Provision for credit losses
 
2,656
  
1,116
  
1,540
  
138.0
 %
Noninterest income  36,092   35,926   166   0.5  
15,134
  
13,682
  
1,452
  
10.6
 %
Noninterest expense  82,142   80,121   2,021   2.5  
32,220
  
31,890
  
330
  
1.0
 %
Income taxes  15,010   14,106   904   6.4   
5,170
   
5,279
   
(109
)
  
(2.1
)%
Net income $36,581  $35,480  $1,101   3.1% 
$
18,679
  
$
19,313
  
$
(634
)
 
(3.3
)%
                            
Average earning assets $3,775,572  $3,640,043  $135,529   3.7% 
$
5,458,075
  
$
5,131,385
  
$
326,690
  
6.4
 %
                            
Yield on average earnings assets  4.13%  4.08%  0.05%  1.2%
Yield on average earnings assets, tax equivalent*
 
5.55
%
 
4.84
%
 
0.71
%
 
14.5
 %
Cost of interest bearing funds  0.63%  0.51%  0.12%  23.3% 
3.35
%
 
2.06
%
 
1.29
%
 
62.5
 %
                            
Net interest margin  3.68%  3.71%  (0.03)%  (1.0)%
Net interest margin, tax equivalent*
 
3.23
%
 
3.49
%
 
(0.26
)%
 
(7.5
)%


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

Net Interest Income


           Percent Change 
           1Q 2024 Compared to: 
($ in thousands) 
1Q
2024
  
4Q
2023
  
1Q
2023
  
4Q
2023
  
1Q
2023
 
Components of net interest income:               
Income on earning assets 
$
75,002
  
$
73,329
  
$
60,995
   
2.3
%
  
23.0
 %
Expense on interest bearing liabilities  
31,411
   
30,354
   
17,079
   
3.5
%
  
83.9
 %
Net interest income 
$
43,591
  
$
42,975
  
$
43,916
   
1.4
%
  
(0.7
)%
TEQ  
294
   
297
   
298
   
(1.0
)%
  
(1.3
)%
Net interest income, tax equivalent 
$
43,885
  
$
43,272
  
$
44,214
   
1.4
%
  
(0.7
)%
                     
Average yield and rates paid:                    
Earning assets yield  
5.55
%
  
5.43
%
  
4.84
%
  
2.2
%
  
14.7
 %
Rate paid on interest bearing liabilities  
3.35
%
  
3.27
%
  
2.06
%
  
2.4
%
  
62.6
 %
Gross interest margin  
2.20
%
  
2.16
%
  
2.78
%
  
1.9
%
  
(20.9
)%
Net interest margin  
3.23
%
  
3.19
%
  
3.49
%
  
1.3
%
  
(7.4
)%
                     
Average balances:                    
Investment securities 
$
1,148,014
  
$
1,144,078
  
$
1,251,948
   
0.3
%
  
(8.3
)%
Loans 
$
4,096,866
  
$
4,022,547
  
$
3,739,443
   
1.8
%
  
9.6
 %
Earning assets 
$
5,458,075
  
$
5,377,827
  
$
5,131,385
   
1.5
%
  
6.4
 %
Interest-bearing liabilities 
$
3,773,513
  
$
3,687,660
  
$
3,362,331
   
2.3
%
  
12.2
 %

Net interest income for the quarter of $35.0$43.6 million was an increase of $0.7$0.6 million or 2.1%, from secondabove prior quarter 2017 and $1.7but $0.3 million or 5.2%, frombelow prior year thirdsame quarter.  Our net interest margin, on a fully tax equivalent basis, at 3.67% was down one3.23% increased 4 basis pointpoints from prior quarter but up onedecreased 26 basis pointpoints from prior year same quarter, while ourquarter.  Our average earningsearning assets increased $55.5$80.2 million from prior quarter and $173.4$326.7 million respectively, during thosefrom prior year same periods.quarter.  Our yield on average earning assets increased 412 basis points from prior quarter and 1371 basis points from prior year same quarter, and our cost of funds increased 98 basis points from prior quarter and 18129 basis points from prior year same quarter.

50
Our ratio of average loans to deposits, including repurchase agreements, was 91.1%82.7% for the quarter ended September 30, 2017March 31, 2024 compared to 89.9%81.8% for the quarter ended June 30, 2017December 31, 2023 and 88.3%79.8% 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, 2023.


Provision for LoanCredit Losses


TheOur provision for loancredit losses that was added to the allowance for the third quarter 2017 was $0.7 million compared to $2.8 million for the quarter ended June 30, 2017increased $0.8 million from prior quarter and $2.2$1.5 million for the 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.from prior year same quarter.  Our reserve coverage (allowance for loan and lease loss reserve(ACL to nonperforming loans) at September 30, 2017March 31, 2024 was 121.2%319.0% compared to 132.6%354.7% at June 30, 2017December 31, 2023 and 126.5%382.3% at September 30, 2016.March 31, 2023.  Our loancredit loss reserve as a percentage of total loans outstanding was reduced to 1.17% at September 30, 2017March 31, 2024 remained at 1.22% from December 31, 2023, down from the 1.20%1.24% at June 30, 2017 and the 1.22% at September 30, 2016.March 31, 2023.


Noninterest Income


           Percent Change 
           1Q 2024 Compared to: 
($ in thousands) 
1Q
2024
  
4Q
2023
  
1Q
2023
  
4Q
2023
  
1Q
2023
 
Deposit related fees $7,011  $7,312  $7,287   (4.1)%  (3.8)%
Trust revenue  3,517   3,318   3,079   6.0%  14.2 %
Gains on sales of loans  45   54   121   (16.7)%  (62.8)%
Loan related fees  1,352   467   845   189.5%  60.0 %
Bank owned life insurance revenue  1,292   816   858   58.3%  50.6 %
Brokerage revenue  490   285   348   71.9%  40.8 %
Other  1,427   1,473   1,144   (3.1)%  24.7 %
Total noninterest income $15,134  $13,725  $13,682   10.3%  10.6 %

Noninterest income for the quarter ended September 30, 2017March 31, 2024 of $12.2$15.1 million was a decrease of $0.1$1.4 million, or 0.9%10.3%, fromabove prior quarter and $1.0$1.5 million, or 7.5%10.6%, fromabove prior year same quarter.  The decrease from prior quarter was the result of the $0.6over quarter increase included a $0.9 million gain on the repurchase of $2.0 millionincrease in trust preferred securities during the second quarter, along with a $0.1 million decrease in trust revenue.  This decrease 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 increaseda $0.5 million increase in bank owned life insurance revenue, a $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, and a $0.2 million increase in brokerage revenue, partially offset by decreasesa $0.3 million decrease 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 priordeposit related fees. The year same quarter.  The variance in noninterest expense for the quarter was due toover year increase included a $0.5 million decreaseincrease in net other real estateloan related fees, a $0.4 million increase in bank owned expense from prior quarterlife insurance revenue, and a $0.4 million increase in net other real ownedtrust revenue.  The increase in loan related fees resulted from the fluctuation in the fair market value of our mortgage servicing rights.

51
Noninterest Expense

           Percent Change 
           1Q 2024 Compared to: 
($ in thousands) 
1Q
2024
  
4Q
2023
  
1Q
2023
  
4Q
2023
  
1Q
2023
 
Salaries $13,036  $13,163  $12,633   (1.0)%  3.2 %
Employee benefits  7,086   5,282   6,275   34.2%  12.9 %
Net occupancy and equipment  3,028   3,045   3,028   (0.6)%  0.0 %
Data processing  2,518   2,630   2,303   (4.3)%  9.3 %
Legal and professional fees  832   900   816   (7.6)%  2.0 %
Advertising and marketing  577   923   820   (37.5)%  (29.6)%
Taxes other than property and payroll  442   421   432   5.0%  2.3 %
Other  4,701   5,264   5,583   (10.7)%  (15.8)%
Total noninterest expense $32,220  $31,628  $31,890   1.9%  1.0 %

Noninterest expense fromfor the quarter ended March 31, 2024 of $32.2 million was $0.6 million, or 1.9%, above prior quarter and $0.3 million, or 1.0%, above prior year same quarter.  The increase in net other real estate ownednoninterest expense from prior year same quarter wasover quarter included a $1.7 million increase in personnel expense, partially offset by a decreases in other direct expenses ($0.7 million) and advertising expense ($0.2 million).  The increase in personnel expense ($0.1 million) and FDIC insurance premiums ($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, asincluded a result of a $2.2$1.0 million increase in net other real estate owned expense.  Personnel expense for the nine months ended September 30, 2017 increased $0.4 million from prior year with a $0.8 million increase in salariesbonuses and incentives and a $0.3$0.7 million increase in the cost of group medical and life insurance benefits.  The decrease in other direct expenses was the result of the accounting change related to the amortization of tax credits discussed above.  The increase year over year primarily resulted from a $1.2 million increase in personnel expense, partially offset by a $0.4$1.0 million decrease in bonusesother direct expenses related to the amortization of tax credits.  The year over year increase in personnel expense included a $0.4 million increase in salaries and incentives.  FDIC insurance premiums decreaseda $0.7 million from prior year.increase in the cost of group medical and life insurance benefits.


Balance Sheet Review


CTBI’s total assets at $4.1March 31, 2024 of $5.9 billion increased $54.8$80.6 million, or 5.6% annualized, from December 31, 2023 and $320.9 million, or 10.2%, from March 31, 2023.  Loans outstanding at March 31, 2024 were $4.2 billion, an increase of $110.3 million, or an annualized 5.3%, from June 30, 2017 and $203.7 million, or an annualized 6.9%10.9%, from December 31, 2016.  Loans outstanding at September 30, 2017 were $3.1 billion, increasing $26.12023 and $383.8 million, or an annualized 3.4%10.2%, from June 30, 2017 and $175.1March 31, 2023.  The increase in loans from prior quarter included a $101.4 million or an annualized 8.0%, from December 31, 2016.  We experienced an increase during the quarter of $6.2 million in the commercial loan portfolio $12.7and a $22.6 million increase in the residential loan portfolio, $4.8partially offset by a $10.5 million decrease in the indirect consumer loan portfolio and $2.4a $3.3 million decrease in the consumer direct loan portfolio.  CTBI’s investment portfolio decreased $7.3$51.8 million, or an annualized 4.8%, from June 30, 2017 and $2.4 million, or an annualized 0.5%17.9%, from December 31, 2016.2023 and $128.4 million, or 10.3%, from March 31, 2023.  Deposits in other banks increased $31.4$24.9 million from prior quarter and $21.9$62.3 million from DecemberMarch 31, 2016.2023.  Deposits, including repurchase agreements, at $3.5$5.0 billion increased $97.6$69.1 million, or an annualized 11.5%5.6%, from June 30, 2017December 31, 2023 and $128.0$266.7 million, or 5.6%, from March 31, 2023.  CTBI is not dependent on any one customer or group of customers for its source of deposits.  As of March 31, 2024, no one customer accounted for more than 2.25% of our $5.0 billion in deposits.  Only three customer relationships accounted for more than 1% each.

Shareholders’ equity at $707.7 million increased $5.5 million, or an annualized 5.1%3.2%, from December 31, 2016.  Deposit growth during the quarter included $82.3and $50.9 million, in wholesale brokered deposits.

Shareholders’ equityor 7.7%, from March 31, 2023.  Net unrealized losses on securities, net of deferred taxes, were $106.9 million at September 30, 2017 was $522.9 millionMarch 31, 2024, compared to $514.9 million at June 30, 2017 and $500.6$103.3 million at December 31, 2016.  Our tangible common equity/tangible assets ratio2023 and $112.4 million at September 30, 2017 was 11.24%.March 31, 2023.  In addition, we had a cumulative effect impact related to the adoption of ASU No. 2023-02, discussed above, that reduced retained earnings by $2.0 million.


52
Loans


(in thousands) September 30, 2017 
(dollars in thousands) March 31, 2024 
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
 
$
416,759
  
5.3
%
 
$
0
  
$
0
  
$
4,940
 
Commercial real estate residential
 
456,585
  
9.2
  
4
  
1,741
  
4,128
 
Commercial real estate nonresidential
 
813,904
  
4.5
  
3
  
2,768
  
8,178
 
Dealer floorplans
 
77,221
  
9.8
  
0
  
0
  
721
 
Commercial other  339,337   (3.1)  (923)  1,377   4,962  
320,701
  
(0.1
)
 
(75
)
 
1,378
  
3,799
 
Total commercial  1,614,513   7.1   (1,607)  12,085   20,755  
2,085,170
  
5.1
  
(68
)
 
5,887
  
21,766
 
                                   
Residential:                                   
Real estate construction  64,441   11.2   1   1,217   630 
Real estate mortgage  712,237   1.3   (242)  15,304   5,786  
955,616
  
1.9
  
(13
)
 
8,002
  
10,325
 
Home equity  96,755   5.7   (54)  894   807  
151,577
  
3.1
  
2
  
745
  
1,304
 
Total residential  873,433   2.5   (295)  17,415   7,223  
1,107,193
  
2.1
  
(11
)
 
8,747
  
11,629
 
                                   
Consumer:                                   
Consumer direct  137,657   3.4   (271)  156   1,857  
155,807
  
(2.1
)
 
(493
)
 
499
  
3,571
 
Consumer indirect  487,818   9.7   (2,028)  364   6,556   
813,005
   
(1.3
)
  
(1,056
)
  
719
   
13,605
 
Total consumer  625,475   8.2   (2,299)  520   8,413  
968,812
  
(1.4
)
 
(1,549
)
 
1,218
  
17,176
 
                                   
Total loans $3,113,421   6.0% $(4,201) $30,020  $36,391  
$
4,161,175
  
2.7
%
 
$
(1,628
)
 
$
15,852
  
$
50,571
 


Total Deposits and Repurchase Agreements

           Percent Change 
           1Q 2024 Compared to: 
(dollars in thousands) 
1Q
2024
  
4Q
2023
  
1Q
2023
  
4Q
2023
  
1Q
2023
 
Noninterest bearing deposits $1,274,583  $1,260,690  $1,409,839   1.1%  (9.6)%
Interest bearing deposits                    
Interest checking  131,227   123,927   120,678   5.9%  8.7%
Money market savings  1,608,849   1,525,537   1,408,314   5.5%  14.2%
Savings accounts  543,338   535,063   642,232   1.5%  (15.4)%
Time deposits  1,226,273   1,279,405   962,361   (4.2)%  27.4%
Repurchase agreements  234,671   225,245   208,777   4.2%  12.4%
Total interest bearing deposits and repurchase agreements  3,744,358   3,689,177   3,342,362   1.5%  12.0%
Total deposits and repurchase agreements $5,018,941  $4,949,867  $4,752,201   1.4%  5.6%

53
Asset Quality


CTBI’sOur total nonperforming loans were $30.0increased to $15.9 million at September 30, 2017, a 7.2% increaseMarch 31, 2024 from the $28.0 million at June 30, 2017 and a 9.3% increase from the $27.5$14.0 million at December 31, 2016.  Loans2023 and $12.2 million at March 31, 2023.  Accruing loans 90+ days past due at $11.6 million increased $1.9$1.6 million during thefrom prior quarter and $5.3 million from March 31, 2023.  Nonaccrual loans at $4.3 million increased $0.3 million from prior quarter but decreased $0.6$1.7 million from DecemberMarch 31, 2016.  Nonaccrual2023.  Accruing loans increased $0.1 million during the quarter and $3.2 million from December 31, 2016.  Loans 30-89 days past due and accruing interest at $17.4$12.2 million was an increase of $2.2decreased $3.1 million from June 30, 2017 and $1.0prior quarter but increased $0.5 million from DecemberMarch 31, 2016.2023.  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,if a borrower is experiencing financial difficulty with significant payment delay, 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, 97% 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 83% 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.


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

We had net loan charge-offs for the quarter ended September 30, 2017 were $1.4of $1.6 million, or 0.18%0.16% of average loans annualized, for the first quarter 2024 compared to $1.3$1.0 million, or 0.18%, experienced for the second quarter 2017 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 commercial 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%0.10% of average loans compared to $6.1annualized, for the fourth quarter 2023 and $0.4 million, or 0.28%0.04% of average loans experiencedannualized for the nine months ended September 30, 2016.first quarter 2023.

Foreclosed properties at September 30, 2017 totaled $32.0 million compared to $32.6 million at June 30, 2017 and $35.9 million at December 31, 2016.  Sales of foreclosed properties for the nine months ended September 30, 2017 totaled $5.1 million while new foreclosed properties totaled $4.3 million.  At September 30, 2017, the book value of properties under contracts to sell was $2.6 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 third quarter 2017 to reflect the decrease in current fair market values of foreclosed properties totaled $0.9 million.  There were thirteen properties reappraised during the third quarter 2017.  Of these, six properties were written down by a total 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, 2017 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.  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 all of our OREO properties have been reappraised within the past 18 months.  Management anticipates that our foreclosed properties will remain elevated as we work through current market conditions.

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

(in thousands)   
Appraisal Aging Analysis Holding Period Analysis 
Days Since Last Appraisal Current Book Value Holding Period Current Book Value 
Up to 3 months $4,432 Less than one year $4,319 
3 to 6 months  16,777 1 to 2 years  8,376 
6 to 9 months  4,944 2 to 3 years  2,734 
9 to 12 months  3,145 3 to 4 years  1,762 
12 to 18 months  2,644 4 to 5 years  529 
18 to 24 months  66 5 to 7 years*  10,303 
Over 24 months  40 8 to 9 years*  4,025 
Total $32,048 Total $32,048 

*Regulatory approval is required and has been obtained to hold these properties beyond the initial period of 5 years.  Additional approval may be required to continue to hold these properties should they not be liquidated during the extension period, which is typically one year.  While we have previously received regulatory approval to continue to hold foreclosed properties for over five years, to the extent such approval is not obtained in the future with respect to a foreclosed property, we might be forced to liquidate such property at a price less than its appraised value.


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, 2024March 15, 2024 
$
0.46
 
January 1, 2024December 15, 2023 
$
0.46
 
October 1, 2023September 15, 2023 
$
0.46
 
July 1, 2023June 15, 2023 
$
0.44
 
April 1, 2023March 15, 2023 
$
0.44
 
January 1, 2023December 15, 2022 
$
0.44
 


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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, 2024, we had approximately $166.4$293.3 million in cash and cash equivalents and approximately $603.0 $133.2million in unpledged securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $144.7$271.4 million and $605.4$157.5 million at December 31, 2016.2023.  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$0.3 million at September 30, 2017 compared to $0.9 million atMarch 31, 2024 and December 31, 2016.2023.  As of September 30, 2017,March 31, 2024, we had a $314.7$557.3 million available borrowing position with the Federal Home Loan Bank, compared to $295.8$476.2 million at December 31, 2016.2023.  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, 2024 and December 31, 2016,2023, we had $57$50 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, 2024 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 $231.9 million, compared to $93.4$207.6 million at December 31, 2016.2023.  Additionally, we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days.


The investment portfolio consists of investment grade short-term issues suitable for bank investments.  The majority of the investment portfolio is in U.S. government and government sponsored agency issuances.  At September 30, 2017,March 31, 2024, available-for-sale (“AFS”) securities comprised substantially all of the total investment portfolio, and the AFS portfoliowas approximately 115% 157%of equity capital.  Ninety-twoEighty-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 to shareholders asfor the quarter ended March 31, 2024 of September 30, 2017 was 2.84%4.31%.  Our primary source of capital growth is the retention of earnings.  Cash dividends were $0.97$0.46 per share and $0.94$0.44 per share for the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, respectively.  We retained 53.4%55.8% of our earnings for the first ninethree months of 20172024 compared to 53.5%59.3% for the first ninethree months of 2016.2023.


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

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.  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).

The final rules set forth certain changescalendar year 2020.  Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calculationcalendar year before returning to 9% in calendar year 2022.  Management elected to use the CBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of risk-weighted assets, which we were required to utilize beginning January 1, 2015.  The standardized approach final rule utilizes an increased numberMarch 31, 2024 was 13.74%.  CTB’s CBLR ratio as of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.  We currently satisfy the well-capitalized and 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.March 31, 2024 was 13.26%.


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, 2024, 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.

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

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, 2024, a total of 2,465,294 shares have been repurchased through this program.


Critical Accounting Policies and Estimates


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


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


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


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 haveACL and the positive intent and ability to hold to maturity and are reported at amortized cost.  Inreserve for unfunded commitments in accordance with ASU 2016-13, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, Investment SecuritiesInstruments—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 categoriesrelated loans.  Effective January 1, 2023, CTBI implemented ASU 2022-02, Financial Instruments-Credit Losses (Topic 326) Troubled Debt Restructurings and measured at fair valueVintage Disclosures, an amendment to ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty along with requiring that disclosures be added by year of origination for gross charge-off information for financing receivables.  Accrued interest receivable on loans is presented in the statement ofconsolidated 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 utilizeCTBI’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.

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Larger commercial credits.  Those larger commercial creditsloans with balances exceeding $1 million that exhibit probable or observed credit weaknesses and (i) have a criticized risk rating, (ii) are subject to individual review.  The borrower’s cash flow, adequacyon nonaccrual status, (iii) have a borrower experiencing financial difficulty with significant payment delay, or (iv) are 90 days or more past due, are individually evaluated for an ACL.  CTBI considers the current value of collateral, 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 loans to borrowers experiencing financial difficulty, are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.  Regardless of an initial measurement method, once it is determined that foreclosure is probable, the loan’s obtainable market price, orACL 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 loanACL 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 coston a collective basis for loans that are not individually evaluated.  These include commercial loans that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and consumer portfolio segments.  CTBI uses a third party ACL software to sellcalculate reserve estimates.  Discounted cash flow (“DCF”) modeling was used for all loan segments.  The primary reasons that contributed to this decision were: DCF models allow for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner; the analysis aligns well with other calculations outside of the ACL estimation which will mitigate model risk in other areas; and peer data is available for certain inputs if first party data is not available or meaningful.  Expected credit losses are estimated on a 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.   See Note 4 to the difference between book valuecondensed consolidated financial statements contained herein for information on CTBI’s risk rating system.

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

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

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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. GAAP require goodwill to be tested for impairment on an annual basis, which for CTBI is October 1, and more frequently if events or circumstances indicate that there may be impairment.  Refer to Note 1 to the condensed consolidated financial statements contained herein for a discussion on the methodology used by CTBI to assess goodwill for impairment.

Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value.  In testing goodwill for impairment, U.S. GAAP permits companies to first assess qualitative factors to determine whether it is more likely than not that its fair value is less than its carrying amount.  In this qualitative assessment, CTBI evaluates events and circumstances which may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of CTBI, and the performance of CTBI’s common stock, to determine if it is not more likely than not that the fair value 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, amount of unsecured loans,credit loss expectations, and underwriting exceptions.  Management continually reevaluates the other subjective factors included in its ALLL analysis.actual results may differ from forecasted results.


Other Real Estate OwnedFair Value Measurements – 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 reflectsAs a fair market value below the current book value, a charge is booked to current earnings to reduce the property to its new fair market value less expected sales costs.  Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months.  All revenues and expenses related 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 inmaterial changes to the 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.



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Item 3.  Quantitative and Qualitative Disclosures About Market Risk


Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits.  CTBI uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates.  Given a 200 basis point increase to the yield curve used in the simulation model, it is estimated net interest income for CTBI would increase by 2.96 percent1.39% over one year and 3.46 percent3.19% over two years.  A 25200 basis point decrease in the yield curve would decrease net interest income by an estimated 0.17 percent2.64% over one year and 0.23 percent6.21% 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, 2016.2023.



Item 4.  Controls and Procedures


EVALUATIONEVALUATION 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) underof the Securities Exchange Act of 1934.  As of the end of the period covered by this report,March 31, 2024, an evaluation was carried out by CTBI’s management, with the participation of our Chief Executive Officer and the Executive Vice President,our 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, 2024 were effective in ensuring material information required to be disclosed in this quarterly report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING


There were no changes in CTBI’s internal control over financial reporting that occurred during the quarterthree months ended September 30, 2017March 31, 2024 that have materially affected, or are reasonably likely to materially affect, CTBI’s internal control over financial reporting.



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PART II - OTHER INFORMATION


Item 1.Legal 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’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
 
   

(a)          Information required to be disclosed in a report on Form 8-K
None




(b)          Changes to director nomination procedures
None




(c)          Insider trading arrangements





During the three months ended March 31, 2024, no director or officer of CTBI adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.



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




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SIGNATURES


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

 COMMUNITY TRUST BANCORP, INC.
Date:  May 9, 2024By:
 
 
November 8, 2017By:/s/ Jean R. HaleMark A. Gooch
 Jean R. HaleMark A. Gooch
 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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