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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 20212022
 Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _____________ to _____________

Commission file number 001-31220

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

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)(Zip code)

(606) 432-1414
(Registrant’s telephone number)

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

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

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

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

Yes  ☑
No

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

Yes  ☑
No

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

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

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

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

Yes ☐
   No ☑

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

Common stock – 17,843,08117,918,280 shares outstanding at October 31, 20212022

CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS

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

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 20202021 for further information in this regard.

1
Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands) 
(unaudited)
September 30
2021
  
December 31
2020
  
(unaudited)
September 30
2022
  
December 31
2021
 
Assets:            
Cash and due from banks $66,075  $54,250  $60,527  $46,558 
Interest bearing deposits  140,701   283,985   199,102   265,198 
Federal funds sold
  1,000   0
 
Cash and cash equivalents  207,776   338,235   259,629   311,756 
                
Certificates of deposit in other banks  245   245   245   245 
Debt securities available-for-sale at fair value (amortized cost of $1,524,014 and $978,774, respectively)
  1,525,738   997,261 
Debt securities available-for-sale at fair value (amortized cost of $1,486,869 and $1,461,829, respectively)
  1,298,592   1,455,429 
Equity securities at fair value  2,461   2,471   1,969   2,253 
Loans held for sale  12,056   23,259   1,043   2,632 
                
Loans  3,398,229   3,554,211   3,630,616   3,408,813 
Allowance for credit losses  (41,215)  (48,022)  (44,433)  (41,756)
Net loans  3,357,014   3,506,189   3,586,183   3,367,057 
                
Premises and equipment, net  40,145   42,001   41,593   40,479 
Right-of-use assets  12,399   13,215   12,131   12,148 
Federal Home Loan Bank stock  8,139   10,048   6,676   8,139 
Federal Reserve Bank stock  4,887   4,887   4,887   4,887 
Goodwill  65,490   65,490   65,490   65,490 
Bank owned life insurance  91,292   72,373   92,453   91,097 
Mortgage servicing rights  6,265   4,068   8,576   6,774 
Other real estate owned  4,314   7,694   1,864   3,486 
Deferred tax asset
  314   0   46,435   0 
Accrued interest receivable  15,280   15,818   16,513   15,415 
Other assets  31,770   35,887   30,059   30,970 
Total assets $5,385,585  $5,139,141  $5,474,338  $5,418,257 
                
Liabilities and shareholders’ equity:                
Deposits:                
Noninterest bearing $1,318,158  $1,140,925  $1,481,078  $1,331,103 
Interest bearing  2,978,078   2,875,157   3,053,990   3,013,189 
Total deposits  4,296,236   4,016,082   4,535,068   4,344,292 
                
Repurchase agreements  292,022   355,862   230,123   271,088 
Federal funds purchased  500   500   500   500 
Advances from Federal Home Loan Bank  380   395   360   375 
Long-term debt  57,841   57,841   57,841   57,841 
Deferred tax liability  0   4,687   0   546 
Operating lease liability  11,802   12,531   11,232   11,583 
Finance lease liability  1,427   1,441   1,404   1,422 
Accrued interest payable  1,844   1,243   2,501   1,016 
Other liabilities  31,890   33,694   32,749   31,392 
Total liabilities  4,693,942   4,484,276   4,871,778   4,720,055 
                
Shareholders’ equity:                
Preferred stock, 300,000 shares authorized and unissued
  0   0   -   - 
Common stock, $5.00 par value, shares authorized 25,000,000; shares outstanding 2021 – 17,837,313; 2020 – 17,810,401
  89,188   89,052 
Common stock, $5.00 par value, shares authorized 25,000,000; shares issued and outstanding 2022 – 17,901,373; 2021 – 17,843,081
  89,506   89,215 
Capital surplus  226,671   225,507   228,484   227,085 
Retained earnings  374,621   326,738   424,006   386,750 
Accumulated other comprehensive income, net of tax  1,163   13,568 
Accumulated other comprehensive loss, net of tax  (139,436)  (4,848)
Total shareholders’ equity  691,643   654,865   602,560   698,202 
                
Total liabilities and shareholders’ equity $5,385,585  $5,139,141  $5,474,338  $5,418,257 

See notes to condensed consolidated financial statements.

2

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

 
Three Months Ended
September 30
  
Nine Months Ended
September 30
  
Three Months Ended
September 30
  
Nine Months Ended
September 30
 
(in thousands except per share data) 2021  2020  2021  2020  2022  2021  2022  2021 
Interest income:                        
Interest and fees on loans, including loans held for sale $40,636  $39,577  $121,009  $121,306  $43,524  $40,636  $120,925  $121,009 
Interest and dividends on securities                                
Taxable  4,083   3,220   9,806   9,133   5,830   4,083   15,158   9,806 
Tax exempt  783   629   2,317   1,752   740   783   2,264   2,317 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock  122   129   369   407   175   122   423   369 
Interest on Federal Reserve Bank deposits  93   61   285   645   1,105   93   1,460   285 
Other, including interest on federal funds sold  9   10   26   50   31   9   54   26 
Total interest income  45,726   43,626   133,812   133,293   51,405   45,726   140,284   133,812 
                                
Interest expense:                                
Interest on deposits  3,119   4,975   9,734   17,229   6,648   3,119   13,449   9,734 
Interest on repurchase agreements and federal funds purchased  326   691   996   2,472   666   326   1,256   996 
Interest on advances from Federal Home Loan Bank  0   0   1   0 
Interest on long-term debt  267   280   819   1,206   555   267   1,220   819 
Total interest expense  3,712   5,946   11,549   20,907   7,869   3,712   15,926   11,549 
                                
Net interest income  42,014   37,680   122,263   112,386   43,536   42,014   124,358   122,263 
Provision for credit losses (recovery)
  (163)  2,433   (6,919)  15,091   2,414   (163)  3,366   (6,919)
Net interest income after provision for credit losses (recovery)
  42,177   35,247   129,182   97,295   41,122   42,177   120,992   129,182 
                                
Noninterest income:                                
Service charges on deposit accounts  7,066   6,296   19,446   17,179 
Deposit related fees
  7,629
   7,066
   21,638
   19,446
 
Gains on sales of loans, net  1,239   2,470   5,579   4,706   235   1,239   1,351   5,579 
Trust and wealth management income  3,039   2,692   9,339   8,145   2,989   3,039   9,435   9,339 
Loan related fees  1,050   1,383   4,324   2,300   1,589   1,050   5,066   4,324 
Bank owned life insurance  654   602   1,808   1,739   743   654   2,136   1,808 
Brokerage revenue  519   310   1,530   995   453   519   1,502   1,530 
Securities gains (losses)
  (62)  142   50   1,328   (159)  (62)  (285)  50 
Other noninterest income  883   1,016   3,410   2,919   1,200   883   3,302   3,410 
Total noninterest income  14,388   14,911   45,486   39,311   14,679   14,388   44,145   45,486 
                                
Noninterest expense:                                
Officer salaries and employee benefits  4,861   3,115   13,978   8,970   4,114   4,861   12,235   13,978 
Other salaries and employee benefits  13,992   13,022   40,668   37,351   14,432   13,992   42,383   40,668 
Occupancy, net  2,087   2,029   6,300   5,952   2,259   2,087   6,624   6,300 
Equipment  646   695   1,929   2,102   638   646   1,883   1,929 
Data processing  1,911   1,936   5,940   5,789   2,270   1,911   6,566   5,940 
Bank franchise tax  453   1,815   1,178   5,439   413   453   1,244   1,178 
Legal fees  245   467   884   1,440   240   245   889   884 
Professional fees  440   534   1,447   1,617   512   440   1,614   1,447 
Advertising and marketing  819   797   2,251   1,999   768   819   2,179   2,251 
FDIC insurance  393   295   1,042   736   360   393   1,073   1,042 
Other real estate owned provision and expense  296   505   1,102   1,975   42   296   438   1,102 
Repossession expense  83   285   294   595   104   83   335   294 
Amortization of limited partnership investments  839   984   2,514   2,792   687   839   2,167   2,514 
Other noninterest expense  3,263   2,994   8,609   8,846   4,636   3,263   11,182   8,609 
Total noninterest expense  30,328   29,473   88,136   85,603   31,475   30,328   90,812   88,136 
                                
Income before income taxes  26,237   20,685   86,532   51,003   24,326   26,237   74,325   86,532 
Income taxes  5,095   3,238   17,841   7,325   4,954   5,095   14,954   17,841 
Net income  21,142   17,447   68,691   43,678   19,372   21,142   59,371   68,691 
                                
Other comprehensive income (loss):                                
Unrealized holding gains (losses) on debt securities available-for-sale:                                
Unrealized holding gains (losses) arising during the period  (9,322)  2,107   (16,703)  12,340 
Less: Reclassification adjustments for realized gains on debt securities included in net income  0   24   60   1,069 
Tax expense (benefit)  (2,423)  541   (4,358)  2,930 
Other comprehensive income (loss), net of tax  (6,899)  1,542   (12,405)  8,341 
Comprehensive income $14,243  $18,989  $56,286  $52,019 
Unrealized holding losses arising during the period  (56,091)  (9,322)  (181,877)  (16,703)
Less: Reclassification adjustments for realized gains (losses) included in net income  0   0   (1)  60 
Tax benefit  (14,584)  (2,423)  (47,288)  (4,358)
Other comprehensive loss, net of tax  (41,507)  (6,899)  (134,588)  (12,405)
Comprehensive income (loss)
 $(22,135) $14,243  $(75,217) $56,286 
                                
Basic earnings per share $1.19  $0.98  $3.86  $2.46  $1.09  $1.19  $3.33  $3.86 
Diluted earnings per share $1.19  $0.98  $3.86  $2.46  $1.08  $1.19  $3.33  $3.86 
                                
Weighted average shares outstanding-basic  17,790   17,746   17,783   17,746   17,841   17,790   17,832   17,783 
Weighted average shares outstanding-diluted  17,808   17,752   17,798   17,753   17,857   17,808   17,844   17,798 

See notes to condensed consolidated financial statements.
3

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

(in thousands except per share and share amounts) 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income, Net of
Tax
  Total  
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
  Total 
Balance, June 30, 2021
  17,831,479  $89,158  $226,268  $360,595  $8,062  $684,083 
Balance, June 30, 2022
  17,895,181  $89,475  $228,020  $412,484  $(97,929) $632,050 
Net income              21,142       21,142               19,372       19,372 
Other comprehensive loss, net of tax of $(2,423)
                  (6,899)  (6,899)
Cash dividends declared ($0.40 per share)
              (7,116)      (7,116)
Other comprehensive loss
                  (41,507)  (41,507)
Cash dividends declared ($0.44 per share)
              (7,850)      (7,850)
Issuance of common stock  5,834   30   209           239   6,192   31   225           256 
Stock-based compensation          194           194           239           239 
Balance, September 30, 2021
  17,837,313  $89,188  $226,671  $374,621  $1,163  $691,643 
Balance, September 30, 2022
  17,901,373  $89,506  $228,484  $424,006  $(139,436) $602,560 

(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  
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income,
Net of Tax
  Total 
Balance, June 30, 2020
  17,794,598  $88,973  $224,688  $307,134  $11,052  $631,847 
Balance, June 30, 2021
  17,831,479  $89,158  $226,268  $360,595  $8,062  $684,083 
Net income              17,447       17,447               21,142       21,142 
Other comprehensive income, net of tax of $541
                  1,542   1,542 
Cash dividends declared ($0.385 per share)
              (6,833)      (6,833)
Other comprehensive loss
                  (6,899)  (6,899)
Cash dividends declared ($0.40 per share)
              (7,116)      (7,116)
Issuance of common stock  7,414   37   195           232   5,834   30   209           239 
Stock-based compensation          215           215           194           194 
Balance, September 30, 2020
  17,802,012  $89,010  $225,098  $317,748  $12,594  $644,450 
Balance, September 30, 2021
  17,837,313  $89,188  $226,671  $374,621  $1,163  $691,643 

See notes to condensed consolidated financial statements.

4
Consolidated Statements of Changes in Shareholders’ Equity
Year-to-Date
(unaudited)

(in thousands except per share and share amounts) 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income, Net of
Tax
  Total  
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss), Net of Tax
  Total 
Balance, January 1, 2021
  17,810,401  $89,052  $225,507  $326,738  $13,568  $654,865 
Balance, December 31, 2021  17,843,081  $89,215  $227,085  $386,750  $(4,848) $698,202 
Net income              68,691       68,691               59,371       59,371 
Other comprehensive loss, net of tax of $(4,358)
                  (12,405)  (12,405)
Cash dividends declared ($1.17 per share)
              (20,808)      (20,808)
Other comprehensive loss
                  (134,588)  (134,588)
Cash dividends declared ($1.24 per share)
              (22,115)      (22,115)
Issuance of common stock  35,400   178   541           719   44,758   224   531           755 
Repurchase of common stock  0   0   0           0 
Issuance of restricted stock  9,193   46   (46)          0   40,438   202   (202)          0 
Vesting of restricted stock  (17,681)  (88)  88           0   (26,904)  (135)  135           0 
Stock-based compensation          581           581           935           935 
Balance, September 30, 2021
  17,837,313  $89,188  $226,671  $374,621  $1,163  $691,643 
Balance, September 30, 2022
  17,901,373  $89,506  $228,484  $424,006  $(139,436) $602,560 

(in thousands except per share and share amounts) 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
  Total 
Balance, December 31, 2019
  17,793,165  $88,966  $224,907  $296,760  $4,253  $614,886 
Implementation of ASU 2016-13              (2,366)      (2,366)
Balance, January 1, 2020  17,793,165   88,966   224,907   294,394   4,253   612,520 
Net income              43,678       43,678 
Other comprehensive income, net of tax of $2,930
                  8,341   8,341 
Cash dividends declared ($1.145 per share)
              (20,324)      (20,324)
Issuance of common stock  36,952   185   504           689 
Repurchase of common stock  (32,664)  (164)  (935)          (1,099)
Issuance of restricted stock  21,544   108   (108)          0 
Vesting of restricted stock  (16,985)  (85)  85           0 
Stock-based compensation          645           645 
Balance, September 30, 2020
  17,802,012  $89,010  $225,098  $317,748  $12,594  $644,450 
(in thousands except per share and share amounts) 
Common
Shares
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income,
Net of Tax
  Total 
Balance, December 31, 2020  17,810,401  $89,052  $225,507  $326,738  $13,568  $654,865 
Net income              68,691       68,691 
Other comprehensive loss
                  (12,405)  (12,405)
Cash dividends declared ($1.17 per share)
              (20,808)      (20,808)
Issuance of common stock  35,400   178   541           719 
Issuance of restricted stock  9,193   46   (46)          0 
Vesting of restricted stock  (17,681)  (88)  88           0 
Stock-based compensation          581           581 
Balance, September 30, 2021
  17,837,313  $89,188  $226,671  $374,621  $1,163  $691,643 

See notes to condensed consolidated financial statements.

5

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

 
Nine Months Ended
September 30
 
(in thousands) 2021  2020 
Cash flows from operating activities:      
Net income $68,691  $43,678 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  3,791   4,063 
Deferred taxes  (642)  (2,034)
Stock-based compensation  636   708 
Provision for credit losses (recovery)
  (6,919)  15,091 
Write-downs of other real estate owned and other repossessed assets  637   1,021 
Gains on sale of mortgage loans held for sale  (5,579)  (4,706)
Securities gains
  (60)  (1,069)
Change in fair market value of equity securities  10  ��(259)
Gains on sale of assets, net  (223)  (120)
Proceeds from sale of mortgage loans held for sale  250,070   224,796 
Funding of mortgage loans held for sale  (233,288)  (239,048)
Amortization of securities premiums and discounts, net  5,977   4,049 
Change in cash surrender value of bank owned life insurance  (1,094)  (1,048)
Payment of operating lease liabilities  (1,271)  (1,269)
Mortgage servicing rights:        
Fair value adjustments  (380)  1,325 
New servicing assets created  (1,817)  (1,171)
Changes in:        
Accrued interest receivable  538   122 
Other assets  4,125   (3,461)
Accrued interest payable  601   2,340 
Other liabilities  (1,869)  (818)
Net cash provided by operating activities  81,934   42,190 
         
Cash flows from investing activities:        
Securities available-for-sale (AFS):        
Purchase of AFS securities  (795,657)  (645,652)
Proceeds from sales of AFS securities  1,080   82,314 
Proceeds from prepayments, calls, and maturities of AFS securities  243,420   222,385 
Securities held-to-maturity (HTM):        
Proceeds from maturities of HTM securities  0   517 
Change in loans, net  156,259   (314,299)
Purchase of premises and equipment  (1,171)  (766)
Proceeds from sale and retirement of premises and equipment  830   0 
Proceeds from sale of stock by Federal Home Loan Bank
  1,909   351 
Proceeds from sale of other real estate owned and repossessed assets  2,556   2,814 
Additional investment in bank owned life insurance
  (17,825)  0 
Net cash used in investing activities  (408,599)  (652,336)
         
Cash flows from financing activities:        
Change in deposits, net  280,154   488,609 
Change in repurchase agreements and federal funds purchased, net  (63,840)  135,365 
Proceeds from Federal Home Loan Bank advances  0   25,000 
Payments on advances from Federal Home Loan Bank  (15)  (25,015)
Payment of finance lease liabilities  (14)  (10)
Issuance of common stock  719   689 
Repurchase of common stock  0   (1,099)
Dividends paid  (20,798)  (20,308)
Net cash provided by financing activities  196,206   603,231 
Net decrease in cash and cash equivalents  (130,459)  (6,915)
Cash and cash equivalents at beginning of period  338,235   264,683 
Cash and cash equivalents at end of period $207,776  $257,768 
         
Supplemental disclosures:        
Income taxes paid
 $16,885  $13,100 
Interest paid  10,948   18,567 
Non-cash activities:        
Loans to facilitate the sale of other real estate owned and repossessed assets  1,095   2,279 
Common stock dividends accrued, paid in subsequent quarter  247   236 
Real estate acquired in settlement of loans  929   2,100 
 Nine Months Ended
 
  September 30 
(in thousands) 2022  2021 
Cash flows from operating activities:      
Net income $59,371  $68,691 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  3,843   3,791 
Deferred taxes  306   (642)
Stock-based compensation  1,008   636 
Provision for credit losses (recovery)
  3,366   (6,919)
Write-downs of other real estate owned and other repossessed assets  275   637 
Gains on sale of mortgage loans held for sale  (1,351)  (5,579)
Securities (gains)/losses
  1   (60)
Fair value adjustment in equity securities  284   10 
Gains on sale of assets, net  (211)  (223)
Proceeds from sale of mortgage loans held for sale  59,416   250,070 
Funding of mortgage loans held for sale  (56,476)  (233,288)
Amortization of securities premiums and discounts, net  4,521   5,977 
Change in cash surrender value of bank owned life insurance  (1,357)  (1,094)
Payment of operating lease liabilities  (1,325)  (1,271)
Mortgage servicing rights:        
Fair value adjustments  (1,247)  (380)
New servicing assets created  (555)  (1,817)
Changes in:        
Accrued interest receivable  (1,098)  538 
Other assets  911   4,125 
Accrued interest payable  1,485   601 
Other liabilities  1,247   (1,869)
Net cash provided by operating activities  72,414   81,934 
         
Cash flows from investing activities:        
Securities available-for-sale (AFS):        
Purchase of AFS securities  (178,055)  (795,657)
Proceeds from sales of AFS securities  0   1,080 
Proceeds from prepayments, calls, and maturities of AFS securities  148,494   243,420 
Change in loans, net  (221,985)  156,259 
Purchase of premises and equipment  (4,309)  (1,171)
Proceeds from sale and retirement of premises and equipment  512   830 
Proceeds from sale of stock by Federal Home Loan Bank
  1,463   1,909 
Proceeds from sale of other real estate owned and repossessed assets  955   2,556 
Additional investment in other real estate owned and repossessed assets  (73)  (17,825)
Proceeds from settlement of bank owned life insurance
  1   0 
Net cash used in investing activities  (252,997)  (408,599)
         
Cash flows from financing activities:        
Change in deposits, net  190,776   280,154 
Change in repurchase agreements and federal funds purchased, net  (40,965)  (63,840)
Proceeds from Federal Home Loan Bank advances  20,000   0 
Payments on advances from Federal Home Loan Bank  (20,015)  (15)
Payment of finance lease liabilities  (18)  (14)
Issuance of common stock  755   719 
Dividends paid  (22,077)  (20,798)
Net cash provided by financing activities  128,456   196,206 
Net decrease in cash and cash equivalents  (52,127)  (130,459)
Cash and cash equivalents at beginning of period  311,756   338,235 
Cash and cash equivalents at end of period $259,629  $207,776 
         
Supplemental disclosures:     
 

Income taxes paid
 $12,260  $16,885 
Interest paid  14,441   10,948 
Non-cash activities:        
Loans to facilitate the sale of other real estate owned and repossessed assets  985   1,095 
Common stock dividends accrued, paid in subsequent quarter  286   247 
Real estate acquired in settlement of loans  478   929 

See notes to condensed consolidated financial statements.
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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, 2021 and2022, the results of operations, other comprehensive income (loss), and changes in shareholders’ equity for the three and nine months ended September 30, 2022 and 2021, and 2020 andthe cash flows for the nine months ended September 30, 20212022 and 2020.2021.  In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements.  The results of operations, other comprehensive income (loss), and changes in shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and 2020 andthe cash flows for the nine months ended September 30, 20212022 and 20202021 are not necessarily indicative of the results to be expected for the full year.  The condensed consolidated balance sheet as of December 31, 20202021 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (“CTBI”) for that period.  For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2020,2021, included in our annual report on Form 10-K.



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


New Accounting Standards –


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


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


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


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


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


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


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


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


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

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


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


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


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


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


➢     8  Troubled Debt Restructurings and Vintage Disclosures – In February 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.  Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan.   Additionally, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, in the vintage disclosures required by paragraph 326-20-50-6.  The amendments in the ASU are for fiscal periods beginning after December 22, 2022, including interim periods within those fiscal years.  The changes can be early adopted, separately by topic. We do not anticipate a significant impact to our consolidated financial statements.
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Critical
➢          Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions – In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.  The FASB issued this ASU (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.  The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.  The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.  The amendments in ASU also require the following disclosures for equity securities subject to contractual sale restrictions: (1) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; (2) the nature and remaining duration of the restriction(s); and (3) the circumstances that could cause a lapse in the restriction(s).  For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.  Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. We do not anticipate a significant impact to our consolidated financial statements.

Significant 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 BoardFASB Accounting Standards Codification (“ASC”) 320, Investments – Debt Securities, investments in debt securities that are not classified as held-to-maturity shall be classified in one of the following categories and measured at fair value in the statement of financial position:

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

b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturityHTM 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.


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


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


Held-to-maturity (“HTM”)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 SeptemberJune 30, 2022 and December 31, 2021, CTBI held 0no securities designated as held-to-maturity.

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CTBI accounts for equity securities in accordance with Accounting Standards Codification (“ASC”)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 throughin 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 itsour Visa Class B equity securities.  The fair value of these securities was determined by a third party service provider using Level 3 inputs as defined in ASC 820, Fair Value Measurement, and changes in fair value are recognized in income.


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

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


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


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

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In the event that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest in a timely manner. Therefore, CTBI elected ASU 2019-04 which allows that accrued interest would continue to be presented separately and not part of the amortized cost of the loan. The methodology used by CTBI is developed using the current loan balance, which is then compared to amortized cost balances to analyze the impact. The difference in amortized cost basis versus consideration of loan balances impacts the allowance for credit losses calculation by one1 basis point and is considered immaterial. The primary difference is for indirect lending premiums.


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


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


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


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

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

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

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

The balance of goodwill, 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.$65.5 million, has not changed since January 1, 2015.   Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months. All revenues and expenses related to the carrying of other real estate owned are recognized through the income statement.core deposit intangible has been fully amortized since December 31, 2017.
 

➢Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.  Any interest and penalties incurred in connection with income taxes are recorded as a component of income tax expense in theour consolidated financial statements.  During the nine months ended September 30, 2022 and 2021, and 2020, CTBI didhas not recognizerecognized a significant amount of interest expense or penalties in connection with income taxes.

Note 2 – Stock-Based Compensation


Restricted stock expense for the three and nine months ended September 30, 20212022 was $213$0.3 million and $1.0 million, respectively, including $27 thousand and $636 thousand, respectively, including $19 thousand and $55$73 thousand, respectively, in dividends paid for those periods.  Restricted stock expense for the three and nine months ended September 30, 20202021 was $236$0.2 million and $0.6 million, respectively, including $19 thousand and $706 thousand, respectively, including $21 thousand and $63$55 thousand, respectively, in dividends paid for those periods.  As of September 30, 2021,2022, there was a total of $1.3$2.0 million of unrecognized compensation expense related to restricted stock grants that will be recognized as expense as the awards vest over a weightedweighted average period of 2.22.9 years. There were 0no shares of restricted stock grantsgranted during the three months ended September 30, 2021 and 2020.2022 or 2021.  There were 9,19340,438 and 21,5449,193 shares of restricted stock granted during the nine months ended September 30, 20212022 and 2020,2021, respectively.  The restricted stock was issued pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan.  The The restrictions on the restricted stock will lapse ratably over four years, except for a 2,500the 5,000 shares of management retention restricted stock award granted in January 2020April 2022 which will vest at the end of five years, subject to such employee’s continued employment.  However, in the event of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of the participant, the restrictions will lapse, and in the event of the participant’s disability, the restrictions will lapse on a pro rata basis.  The Compensation Committee will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement.

11

There was 0no compensation expense related to stock option grants for the three and nine months ended September 30, 2021 or the three months ended September 30, 2020.  CTBI’s compensation expense related to stock option grants was $2 thousand for the nine months ended September 30, 2020.2022 and 2021. As of September 30, 2021,2022, there was 0no unrecognized compensation expense related to unvested stock option awards, as all stock option awards have fully vested.  There were 0no stock options granted in the first nine months of 20212022 or 20202021.

Note 3 – Securities


Debt securities are classified into held-to-maturityHTM and available-for-saleAFS categories.  Held-to-maturity (HTM)HTM securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost.  Available-for-sale (AFS)AFS securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons.  Available-for-saleAFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.  As of September 30, 20212022 and December 31, 2020,2021, CTBI had 0no held-to-maturityHTM securities.

12

The amortized cost and fair value of debt securities at September 30, 20212022 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 $303,897  $575  $(2,062) $302,410  $441,216  $272  $(39,716) $401,772 
State and political subdivisions  335,389   5,548   (5,381)  335,556   326,248   12   (68,184)  258,076 
U.S. government sponsored agency mortgage-backed securities  784,733   7,070   (4,296)  787,507   626,731   2   (77,694)  549,039 
Asset-backed securities  99,995   401   (131)  100,265   92,674   0   (2,969)  89,705 
Total available-for-sale securities $1,524,014  $13,594  $(11,870) $1,525,738  $1,486,869  $286  $(188,563) $1,298,592 


The amortized cost and fair value of debt securities at December 31, 20202021 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 $148,507  $483  $(197) $148,793  $299,606  $351  $(4,187) $295,770 
State and political subdivisions  133,287   7,132   (3)  140,416   334,218   5,524   (5,539)  334,203 
U.S. government sponsored agency mortgage-backed securities  640,537   11,648   (378)  651,807   733,467   5,107   (7,765)  730,809 
Asset-backed securities  56,443   10   (208)  56,245   94,538   301   (192)  94,647 
Total available-for-sale securities $978,774  $19,273  $(786) $997,261  $1,461,829  $11,283  $(17,683) $1,455,429 
12



The amortized cost and fair value of debt securities at September 30, 20212022 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  Available-for-Sale 
(in thousands) Amortized Cost  Fair Value  Amortized Cost  Fair Value 
Due in one year or less $5,945  $6,032  $38,956  $38,386 
Due after one through five years  110,913   110,757   238,514   219,227 
Due after five through ten years  288,950   288,026   273,334   237,002 
Due after ten years  233,478   233,151   216,660   165,233 
U.S. government sponsored agency mortgage-backed securities  784,733   787,507   626,731   549,039 
Asset-backed securities  99,995   100,265   92,674   89,705 
Total debt securities $1,524,014  $1,525,738  $1,486,869  $1,298,592 


During the three months ended September 30, 2022, we had an unrealized loss of $159 thousand from the fair value adjustment of equity securities.  During the three months ended September 30, 2021, we had an unrealized loss of $62$62 thousand from the fair market value adjustment of equity securities.


During the threenine months ended September 30, 2020,2022, we had a net securities gainloss of $142$285 thousand, consisting of a pre-tax gainloss of $23$1 thousand realized on sales and calls of AFS securities and an unrealized gainloss of $119$284 thousand from the fair market value adjustment of equity securities.


During the nine months ended September 30, 2021, we had a net securities gain of $50$50 thousand,, consisting of a pre-tax gain of $62$62 thousand and a pre-tax loss of $2 thousand realized on sales and calls of AFS securities and an unrealized loss of $10$10 thousand from the fair market value adjustment of equity securities. During the nine months ended September 30,2020, we had a net securities gain of $1.3 million, consisting of a pre-tax gain of $1.0 million realized on sales and calls of AFS securities and an unrealized gain of $0.3 million from the fair market value adjustment of equity securities.

13

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 September 30, 20212022 were $2.52.0 million, as a result of a $62159 thousand decrease in the fair market value in the third quarter 2022.  The fair value of equity securities decreased $62 thousand in the third quarter 2021.  The fair market value of equity securities increased $119 thousand in the third quarter 2020.NaNNo equity securities were sold during the nine months ended September 30, 20212022 and 20202021.


The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $434.4584.8 million at September 30, 20212022 and $354.5545.6 million at December 31, 2020.2021.


The amortized cost of securities sold under agreements to repurchase amounted to $389.2306.6 million at September 30,30,20212022 and $386.6314.1 million at December 31, 2020.2021.

13

CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of September 30, 20212022 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related.  The percentage of total debt securities with unrealized losses as of September 30,202130,2022 was 61.0%97.2% compared to 16.2%72.4% as of December 31, 2020.2021.  The following table provides the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of September 30, 20212022 that are not deemed to have credit losses.  As stated above, CTBI had no HTM securities as of September 30, 2021.2022.

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 $206,535  $(1,996) $204,539  $174,884  $(9,685) $165,199 
State and political subdivisions  194,869   (5,363)  189,506   138,322   (19,957)  118,365 
U.S. government sponsored agency mortgage-backed securities  470,340   (4,257)  466,083   191,768   (11,796)  179,972 
Asset-backed securities  49,236   (130)  49,106   47,343   (1,439)  45,904 
Total <12 months temporarily impaired AFS securities  920,980   (11,746)  909,234   552,317   (42,877)  509,440 
                        
12 Months or More                        
U.S. Treasury and government agencies  15,963   (66)  15,897   234,630   (30,031)  204,599 
State and political subdivisions  532   (18)  514   184,173   (48,227)  135,946 
U.S. government sponsored agency mortgage-backed securities  3,487   (39)  3,448   434,704   (65,898)  368,806 
Asset-backed securities  1,420   (1)  1,419   45,331   (1,530)  43,801 
Total ≥12 months temporarily impaired AFS securities  21,402   (124)  21,278   898,838   (145,686)  753,152 
                        
Total                        
U.S. Treasury and government agencies  222,498   (2,062)  220,436   409,514   (39,716)  369,798 
State and political subdivisions  195,401   (5,381)  190,020   322,495   (68,184)  254,311 
U.S. government sponsored agency mortgage-backed securities  473,827   (4,296)  469,531   626,472   (77,694)  548,778 
Asset-backed securities  50,656   (131)  50,525   92,674   (2,969)  89,705 
Total temporarily impaired AFS securities $942,382  $(11,870) $930,512  $1,451,155  $(188,563) $1,262,592 

14

The analysis performed as of December 31, 20202021 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related.  The following table provides the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 20202021 that are not deemed to be other-than-temporarily impaired.  As stated above, CTBI had no HTM securities as of December 31, 2020.2021.

Available-for-Sale

(in thousands) 
Amortized
Cost
  
Gross
Unrealized
Losses
  Fair Value  
Amortized
Cost
  
Gross
Unrealized
Losses
  Fair Value 
Less Than 12 Months                  
U.S. Treasury and government agencies $5,604  $(7) $5,597  $249,990  $(4,123) $245,867 
State and political subdivisions  534   (3)  531   197,592   (4,779)  192,813 
U.S. government sponsored agency mortgage-backed securities  58,463   (336)  58,127   473,831   (6,759)  467,072 
Asset-backed securities  22,660   (29)  22,631   52,229   (190)  52,039 
Total <12 months temporarily impaired AFS securities  87,261   (375)  86,886   973,642   (15,851)  957,791 
                        
12 Months or More                        
U.S. Treasury and government agencies  46,163   (190)  45,973   14,505   (64)  14,441 
State and political subdivisions  0   0   0   19,126   (760)  18,366 
U.S. government sponsored agency mortgage-backed securities  2,801   (42)  2,759   62,330   (1,006)  61,324 
Asset-backed securities  26,283   (179)  26,104   1,368   (2)  1,366 
Total ≥12 months temporarily impaired AFS securities  75,247   (411)  74,836   97,329   (1,832)  95,497 
                        
Total                        
U.S. Treasury and government agencies  51,767   (197)  51,570   264,495   (4,187)  260,308 
State and political subdivisions  534   (3)  531   216,718   (5,539)  211,179 
U.S. government sponsored agency mortgage-backed securities  61,264   (378)  60,886   536,161   (7,765)  528,396 
Asset-backed securities  48,943   (208)  48,735   53,597   (192)  53,405 
Total temporarily impaired AFS securities $162,508  $(786) $161,722  $1,070,971  $(17,683) $1,053,288 

U.S. Treasury and Government Agencies


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

State and Political Subdivisions


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

U.S. Government Sponsored Agency Mortgage-Backed Securities


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

15
Asset-Backed Securities


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

Note 4 – Loans


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

(in thousands)
 
September 30
2021
  
December 31
2020
  
September 30
2022
  
December 31
2021
 
Hotel/motel $252,951  $260,699  $335,253  $257,062 
Commercial real estate residential  330,660   287,928   359,643   335,233 
Commercial real estate nonresidential  732,442   743,238   756,138   757,893 
Dealer floorplans  61,423   69,087   73,221   69,452 
Commercial other  286,209   279,908   310,177   290,478 
Commercial unsecured SBA PPP  99,116   252,667   1,958   47,335 
Commercial loans  1,762,801   1,893,527   1,836,390   1,757,453 
                
Real estate mortgage  763,005   784,559   814,944   767,185 
Home equity lines  105,007   103,770   115,400   106,667 
Residential loans  868,012   888,329   930,344   873,852 
                
Consumer direct  155,022   152,304   160,866   156,683 
Consumer indirect  612,394   620,051   703,016   620,825 
Consumer loans  767,416   772,355   863,882   777,508 
                
Loans and lease financing $3,398,229  $3,554,211  $3,630,616  $3,408,813 


The loan portfolios presented above are net of unearned fees and unamortized premiums.  Unearned fees included above totaled $7.00.9 million as of September 30, 20212022 and $9.34.0 million as of December 31, 20202021 while the unamortized premiums on the indirect lending portfolio totaled $23.727.3 million as of September 30, 20212022 and $23.824.1 million as of December 31, 20202021.


CTBI has segregated and evaluates its loan portfolio through 10ten portfolio segments with similar risk characteristics. CTBI serves customers in small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.  Therefore, CTBI’s exposure to credit risk is significantly affected by changes in these communities.


Hotel/motel loans are a significant concentration for CTBI, representing approximately 7.4%9.2% of total loans. This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility. Additionally, any hotel/motel construction loans would be included in this segment as CTBI’s construction loans are primarily completed as one loan going from construction to permanent financing. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.


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

16

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


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


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


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


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


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


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


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


Not included in the loan balances above were loans held for sale in the amount of $12.1$1.0 million at September30, 20212022 and $23.3$2.6 million at December 31, 2020.2021.

17

The following tables present the balance in the allowance for credit losses (“ACL”)ACL for the periods ended September 30, 2021,2022, December 31, 2020,2021, and SeptemberSeptember 30, 20202021:


 		 
Three Months Ended
September 30, 2022
 
(in thousands) Beginning Balance  Provision Charged to Expense  
Losses
Charged Off
  Recoveries  Ending Balance 
ACL               
Hotel/motel $4,844  $39  $0  $0  $4,883 
Commercial real estate residential  4,200   651   0   25   4,876 
Commercial real estate nonresidential  8,968   617   0   10   9,595 
Dealer floorplans  1,477   61   0   0   1,538 
Commercial other  4,473   886   (307)  145   5,197 
Real estate mortgage  8,179   (338)  (11)  5   7,835 
Home equity  887   41   0   12   940 
Consumer direct  1,621   (71)  (81)  205   1,674 
Consumer indirect  7,695   528   (804)  476   7,895 
Total $42,344  $2,414  $(1,203) $878  $44,433 

  
Nine Months Ended
September 30, 2022
 
(in thousands) Beginning Balance  Provision Charged to Expense  
Losses
Charged Off
  Recoveries  Ending Balance 
ACL               
Hotel/motel $5,080  $19 $(216) $0  $4,883 
Commercial real estate residential  3,986   885   (31)  36   4,876 
Commercial real estate nonresidential  8,884   568  0   143   9,595 
Dealer floorplans  1,436   102   0   0   1,538 
Commercial other  4,422   1,079   (651)  347   5,197 
Real estate mortgage  7,637   345   (188)  41   7,835 
Home equity  866   79   (24)  19   940 
Consumer direct  1,951   (316)  (426)  465   1,674 
Consumer indirect  7,494   605   (1,815)  1,611   7,895 
Total $41,756  $3,366  $(3,351) $2,662  $44,433 

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

18
  
Three Months Ended
September 30, 2021
 
(in thousands) Beginning Balance  Provision Charged to Expense  
Losses
Charged Off
  Recoveries  Ending Balance 
ACL               
Hotel/motel $5,674  $(467) $0  $0  $5,207 
Commercial real estate residential  3,796   79   (4)  5   3,876 
Commercial real estate nonresidential  9,308   (569)  (117)  8   8,630 
Dealer floorplans  1,261   (85)  0   0   1,176 
Commercial other  4,574   320   (203)  52   4,743 
Real estate mortgage  7,708   (269)  (9)  8   7,438 
Home equity  673   181   (14)  5   845 
Consumer direct  1,635   290   (194)  110   1,841 
Consumer indirect  7,066   357   (515)  551   7,459 
Total $41,695  $(163) $(1,056) $739  $41,215 

  
Nine Months Ended
September 30, 2021
 
(in thousands) Beginning Balance  Provision Charged to Expense  
Losses
Charged Off
  Recoveries  Ending Balance 
ACL               
Hotel/motel $6,356  $(1,149) $0  $0  $5,207 
Commercial real estate residential  4,464   (567)  (28)  7   3,876 
Commercial real estate nonresidential  11,086   (2,502)  (268)  314   8,630 
Dealer floorplans  1,382   (206)  0   0   1,176 
Commercial other  4,289   632   (433)  255   4,743 
Real estate mortgage  7,832   (214)  (203)  23   7,438 
Home equity  844   20   (33)  14   845 
Consumer direct  1,863   91   (502)  389   1,841 
Consumer indirect  9,906   (3,024)  (2,007)  2,584   7,459 
Total $48,022  $(6,919) $(3,474) $3,586  $41,215 

  
Year Ended
December 31, 2020
 
(in thousands) Beginning Balance, Prior to Adoption of ASC 326  Impact of Adoption of ASC 326  Provision Charged to Expense  
Losses
Charged Off
  Recoveries  Ending Balance 
ACL                  
Hotel/motel $3,371  $170  $2,858  $(43) $0  $6,356 
Commercial real estate residential  3,439   (721)  1,772   (182)  156   4,464 
Commercial real estate
nonresidential
  8,515   119   3,303   (941)  90   11,086 
Dealer floorplans  802   820   (214)  (26)  0   1,382 
Commercial other  5,556   (391)  2,040   (3,339)  423   4,289 
Real estate mortgage  4,604   1,893   1,584   (321)  72   7,832 
Home equity  897   (75)  16   (4)  10   844 
Consumer direct  1,711   (40)  609   (927)  510   1,863 
Consumer indirect  6,201   1,265   4,079   (4,670)  3,031   9,906 
Total $35,096  $3,040  $16,047  $(10,453) $4,292  $48,022 

18
  
Three Months Ended
September 30, 2020
 
(in thousands) Beginning Balance  Provision Charged to Expense  
Losses
Charged Off
  Recoveries  Ending Balance 
ACL               
Hotel/motel $6,132  $(81) $(42) $0  $6,009 
Commercial real estate residential  3,439   1,224   (50)  5   4,618 
Commercial real estate nonresidential  11,408   475   (761)  32   11,154 
Dealer floorplans  1,585   (172)  0   0   1,413 
Commercial other  4,703   112   (318)  101   4,598 
Real estate mortgage  7,336   524   (97)  23   7,786 
Home equity  856   56   (4)  1   909 
Consumer direct  1,932   42   (150)  95   1,919 
Consumer indirect  9,243   253   (846)  930   9,580 
Total $46,634  $2,433  $(2,268) $1,187  $47,986 

  
Nine Months Ended
September 30, 2020
 
(in thousands) Beginning Balance, Prior to Adoption of ASC 326  Impact of Adoption of ASC 326  Provision Charged to Expense  
Losses
Charged Off
  Recoveries  Ending Balance 
ACL                  
Hotel/motel $3,371  $170  $2,510  $(42) $0  $6,009 
Commercial real estate residential  3,439   (721)  2,035   (148)  13   4,618 
Commercial real estate nonresidential  8,515   119   3,408   (937)  49   11,154 
Dealer floorplans  802   820   (183)  (26)  0   1,413 
Commercial other  5,556   (391)  1,749   (2,669)  353   4,598 
Real estate mortgage  4,604   1,893   1,511   (276)  54   7,786 
Home equity  897   (75)  88   (4)  3   909 
Consumer direct  1,711   (40)  715   (780)  313   1,919 
Consumer indirect  6,201   1,265   3,258   (3,610)  2,466   9,580 
Total $35,096  $3,040  $15,091  $(8,492) $3,251  $47,986 



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


Qualitative loss factors are based on CTBI'sCTBI’s judgment of delinquency trends, level of nonperforming loans, trend in loan losses, supervision and administration, quality control exceptions, and reasonable and supportable forecasts based on unemployment rates and industry concentrations.  CTBI has determined that twelve12 months represents a reasonable and supportable forecast period and reverts back to a historical loss rate immediately. CTBI leverages economic projections from a reputable and independent third party to form its loss driver forecasts over the twelve12 month forecast period. Other internal and external indicators of economic forecasts are also considered by CTBI when developing the forecast metrics.


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

19
(1) The inability to completely identify revolving lines of credit within the commercial other segment.  Management had to make assumptions regarding commercial renewals as those renewals are not tracked well by its loan system.

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

19

With the continued impact of the global COVID-19 pandemic, including the current historically high rate of inflation, the significant rising rate environment, and the fact that there is no immediate end foreseen, this has been identified as a significant specific event that could impact our customers’ ability to pay. CTBI added a new factorAs segments stabilize, these allocations are adjusted with reductions made in the hotel/motel and mortgage segments during the prior year as an allocationthird quarter of 2022.  Management continues to recognize when there are significant events occurring that could impact the loan portfolio.  Management noted that the qualitative factors for current delinquency trends and our levels of nonperforming loans were drivinghave a reduction in the overall calculation for our ACL.  Management was concerned that these factors may have been artificially influenced by the current credit environment and the number of loans that have received payment deferrals. Given this uncertainty, management elected to maintain this significant event qualitative factor to anticipate the continued impact of COVID-19 once furtheras deferments are no longer availablehave ended and the SBA PayrollPaycheck Protection Programs end.are largely over with no approved capacity to fund new loans.


We recovered $0.2 million of our provision for credit losses during the quarter ended September 30, 2021, as a result of improved credit metrics.  We also recognized a recapture of allowance for credit losses in the second quarter 2021 with a credit to the provision for credit losses of $4.3 million. 
Provision for credit losses for the quarter was $2.4 million, compared to provision of $0.1 million for the quarter ended June 30, 2022 and a recovery of provision of $0.2 million for the third quarter 2020 totaled $2.4 million.  2021.  Year-to-date provision was $3.4 million compared to a recovery of $6.9 million during the first nine months of 2021.  Our reserve coverage (allowance for credit losses to nonperforming loans) at September 30, 20212022 was 220.0%324.5%, compared to 197.2%305.9% at June 30, 20212022 and 160.7%220.0% at September 30, 2020.2021.  Our credit loss reserve as a percentage of total loans outstanding at September 30, 20212022 was 1.21% (1.25% excluding PPP loans)1.22% compared to 1.21%1.19% at June 30, 2021 (1.27% excluding PPP loans)2022  and 1.35%1.21% at September 30, 2020 (1.46% excluding PPP loans).2021.


Refer to Note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy. Nonaccrual loans and loans 90 days past due and still accruing segregated by class of loans for both September 30, 20212022 and December 31, 20202021 were as follows:

 September 30, 2021  September 30, 2022 
(in thousands) 
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
  
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
 
                        
Hotel/motel $0  $1,099  $0  $1,099  $0  $0  $0  $0 
Commercial real estate residential  0   671   925   1,596   0   420   72   492 
Commercial real estate nonresidential  3,276   1,396   963   5,635   0   3,133   509   3,642 
Commercial other  0   402   226   628   0   214   208   422 
Commercial unsecured SBA PPP
  0   0   0   0 
Total commercial loans  3,276   3,568   2,114   8,958   0   3,767   789   4,556 
                                
Real estate mortgage  0   4,673   3,824   8,497   0   3,945   4,038   7,983 
Home equity lines  0   567   392   959   0   426   377   803 
Total residential loans  0   5,240   4,216   9,456   0   4,371   4,415   8,786 
                                
Consumer direct  0   0   114   114   0   0   9   9 
Consumer indirect  0   0   206   206   0   0   341   341 
Total consumer loans  0   0   320   320   0   0   350   350 
                                
Loans and lease financing $3,276  $8,808  $6,650  $18,734  $0  $8,138  $5,554  $13,692 

20

 December 31, 2020  December 31, 2021 
(in thousands) 
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
  
Nonaccrual Loans
with No ACL
  
Nonaccrual Loans
with ACL
  
90+ and Still
Accruing
  
Total
Nonperforming
Loans
 
                        
Hotel/motel $0  $0  $0  $0  $0  $1,075  $0  $1,075 
Commercial real estate residential  0   1,225   4,776   6,001   0   585   312   897 
Commercial real estate nonresidential  0   1,424   7,852   9,276   2,447   1,602   144   4,193 
Commercial other  0   867   269   1,136   0   302   76   378 
Total commercial loans  0   3,516   12,897   16,413   2,447   3,564   532   6,543 
                                
Real estate mortgage  0   5,346   3,420   8,766   0   4,081   4,659   8,740 
Home equity lines  0   582   392   974   0   579   513   1,092 
Total residential loans  0   5,928   3,812   9,740   0   4,660   5,172   9,832 
                                
Consumer direct  0   0   71   71   0   0   44   44 
Consumer indirect  0   0   353   353   0   0   206   206 
Total consumer loans  0   0   424   424   0   0   250   250 
                                
Loans and lease financing $0  $9,444  $17,133  $26,577  $2,447  $8,224  $5,954  $16,625 

Discussion of the Nonaccrual Policy



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


The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of September 30, 20212022 and December 31, 2020 (includes loans 90 days past due and still accruing as well):2021:

 September 30, 2021  September 30, 2022 
(in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90+ Days
Past Due
  
Total
Past Due
  Current  
Total
Loans
  
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  $252,951  $252,951  $0  $0  $0  $0  $335,253  $335,253 
Commercial real estate residential  1,037   146   1,494   2,677   327,983   330,660   235   203   450   888   358,755   359,643 
Commercial real estate nonresidential  741   294   5,092   6,127   726,315   732,442   1,461   1,136   3,180   5,777   750,361   756,138 
Dealer floorplans  0   0   0   0   61,423   61,423   0   0   0   0   73,221   73,221 
Commercial other  544   43   290   877   285,332   286,209   219   155   221   595   309,582   310,177 
Commercial unsecured SBA PPP  0   0   0   0   99,116   99,116   73   1   0   74   1,884   1,958 
Total commercial loans  2,322   483   6,876   9,681   1,753,120   1,762,801   1,988   1,495   3,851   7,334   1,829,056   1,836,390 
                                                
Real estate mortgage  1,283   1,887   6,731   9,901   753,104   763,005   1,100   3,877   6,126   11,103   803,841   814,944 
Home equity lines  569   243   916   1,728   103,279   105,007   529   72   541   1,142   114,258   115,400 
Total residential loans  1,852   2,130   7,647   11,629   856,383   868,012   1,629   3,949   6,667   12,245   918,099   930,344 
                                                
Consumer direct  393   91   114   598   154,424   155,022   407   90   9   506   160,360   160,866 
Consumer indirect  2,128   500   205   2,833   609,561   612,394   2,852   581   341   3,774   699,242   703,016 
Total consumer loans  2,521   591   319   3,431   763,985   767,416   3,259   671   350   4,280   859,602   863,882 
                                                
Loans and lease financing $6,695  $3,204  $14,842  $24,741  $3,373,488  $3,398,229  $6,876  $6,115  $10,868  $23,859  $3,606,757  $3,630,616 

21

 December 31, 2020  December 31, 2021 
(in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90+ Days
Past Due
  
Total
Past Due
  Current  
Total
Loans
  
30-59 Days
Past Due
  
60-89
Days
Past Due
  
90+ Days
Past Due
  
Total
Past Due
  Current  Total Loans 
Hotel/motel $0  $0  $0  $0  $260,699  $260,699  $0  $0  $0  $0  $257,062  $257,062 
Commercial real estate residential  722   413   5,577   6,712   281,216   287,928   274   116   845   1,235   333,998   335,233 
Commercial real estate nonresidential  1,199   0   8,703   9,902   733,336   743,238   1,303   147   3,509   4,959   752,934   757,893 
Dealer floorplans  0   0   0   0   69,087   69,087   0   0   0   0   69,452   69,452 
Commercial other  658   136   835   1,629   278,279   279,908   1,225   175   108   1,508   288,970   290,478 
Commercial unsecured SBA PPP  0   0   0   0   252,667   252,667   14   34   0   48   47,287   47,335 
Total commercial loans  2,579   549   15,115   18,243   1,875,284   1,893,527   2,816   472   4,462   7,750   1,749,703   1,757,453 
                                                
Real estate mortgage  1,784   3,501   6,897   12,182   772,377   784,559   1,171   2,707   6,859   10,737   756,448   767,185 
Home equity lines  509   305   919   1,733   102,037   103,770   656   315   903   1,874   104,793   106,667 
Total residential loans  2,293   3,806   7,816   13,915   874,414   888,329   1,827   3,022   7,762   12,611   861,241   873,852 
                                                
Consumer direct  659   87   71   817   151,487   152,304   396   179   44   619   156,064   156,683 
Consumer indirect  2,960   973   353   4,286   615,765   620,051   2,889   533   206   3,628   617,197   620,825 
Total consumer loans  3,619   1,060   424   5,103   767,252   772,355   3,285   712   250   4,247   773,261   777,508 
                                                
Loans and lease financing $8,491  $5,415  $23,355  $37,261  $3,516,950  $3,554,211  $7,928  $4,206  $12,474  $24,608  $3,384,205  $3,408,813 


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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 7.4%9.2% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.  Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.


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

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


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


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


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


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


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

23

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

Credit Quality Indicators:


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

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

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

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

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

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

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 and based on last credit decision or year of origination:

September 30, 2021 Term Loans Amortized Cost Basis by Origination Year 
September 30, 2022 Term Loans Amortized Cost Basis by Origination Year 
(in thousands)
 2021  2020  2019  2018  2017  Prior  
Revolving
Loans
  Total  2022  2021  2020  2019  2018  Prior  
Revolving
Loans
  Total 
Hotel/motel                                                
Risk rating:                                                
Pass $28,642  $11,297  $54,177  $18,893  $34,319  $25,001  $90  $172,419  $112,819  $35,913  $17,878  $54,855  $18,332  $44,135  $0  $283,932 
Watch  9,317   14,137   8,882   8,850   2,702   32,176   0   76,064   8,013   9,019   6,184   3,879   3,312   18,935   0   49,342 
OAEM  0   0   0   0   0   0   0   0   0   0   0   0   0   1,979   0   1,979 
Substandard  0   0   0   3,369   1,099   0   0   4,468   0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total hotel/motel $37,959  $25,434  $63,059  $31,112  $38,120  $57,177  $90  $252,951  
120,832  
44,932  
24,062  
58,734  
21,644  
65,049  
0  
335,253 
                                                                
Commercial real estate residential                                                                
Risk rating:                                                                
Pass $107,880  $59,176  $34,280  $21,489  $14,686  $53,399  $9,628  $300,538  
94,915  
119,441  
40,624  
16,026  
11,053  
39,688  
11,474  
333,221 
Watch  2,367   2,385   1,976   2,169   681   7,683   167   17,428   1,164   456   1,526   855   4,132   6,891   112   15,136 
OAEM  0   0   0   0   138   0   0   138   0   0   0   40   0   14   28   82 
Substandard  4,307   2,120   632   1,863   484   3,125   25   12,556   425   4,388   1,754   354   1,655   2,628   0   11,204 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total commercial real estate residential $114,554  $63,681  $36,888  $25,521  $15,989  $64,207  $9,820  $330,660  
96,504  
124,285  
43,904  
17,275  
16,840  
49,221  
11,614  
359,643 
                                                                
Commercial real estate nonresidential                                                                
Risk rating:                                                                
Pass $143,376  $102,955  $93,085  $58,540  $73,293  $179,541  $19,996  $670,786  
142,815  
176,194  
83,163  
76,669  
45,760  
150,451  
22,608  
697,660 
Watch  3,743   2,943   3,584   3,910   3,654   12,305   788   30,927   2,908   2,813   9,819   2,334   1,621   11,122   839   31,456 
OAEM  0   0   0   0   0   272   20   292   0   0   0   0   0   96   19   115 
Substandard  6,326   6,260   3,843   973   2,230   10,572   202   30,406   1,618   4,757   4,981   2,903   714   11,603   25   26,601 
Doubtful  0   0   0   0   0   31   0   31   0   0   0   0   0   306   0   306 
Total commercial real estate nonresidential $153,445  $112,158  $100,512  $63,423  $79,177  $202,721  $21,006  $732,442  
147,341  
183,764  
97,963  
81,906  
48,095  
173,578  
23,491  
756,138 
                                                                
Dealer floorplans                                                                
Risk rating:                                                                
Pass $0  $0  $0  $0  $0  $0  $61,068  $61,068  
0  
0  
0  
0  
0  
0  
72,731  
72,731 
Watch  0   0   0   0   0   0   355   355   0   0   0   0   0   0   490   490 
OAEM  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total dealer floorplans $0  $0  $0  $0  $0  $0  $61,423  $61,423  
0  
0  
0  
0  
0  
0  
73,221  
73,221 
                                                                
Commercial other                                                                
Risk rating:                                                                
Pass $57,905  $49,472  $18,560  $30,565  $10,019  $14,906  $72,931  $254,358  
71,441  
62,568  
36,470  
9,792  
2,673  
24,792  
75,652  
283,388 
Watch  7,189   2,285   1,609   872   409   1,181   11,402   24,947   1,376   519   673   280   261   1,057   6,602   10,768 
OAEM  0   0   551   389   16   0   482   1,438   0   31   0   0   2   0   30   63 
Substandard  2,106   1,707   209   164   335   618   327   5,466   6,911   5,599   931   945   164   621   787   15,958 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total commercial other $67,200  $53,464  $20,929  $31,990  $10,779  $16,705  $85,142  $286,209  
79,728  
68,717  
38,074  
11,017  
3,100  
26,470  
83,071  
310,177 
                                                                
Commercial unsecured SBA PPP                                                                
Risk rating:                                                                
Pass $84,205  $14,911  $0  $0  $0  $0  $0  $99,116  
0  
1,958  
0  
0  
0  
0  
0  
1,958 
Watch  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
OAEM  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total commercial unsecured SBA PPP $84,205  $14,911  $0  $0  $0  $0  $0  $99,116  
0  
1,958  
0  
0  
0  
0  
0  
1,958 
                                                                
Commercial loans                                                                
Risk rating:                                                                
Pass $422,008  $237,811  $200,102  $129,487  $132,317  $272,847  $163,713  $1,558,285  
421,990  
396,074  
178,135  
157,342  
77,818  
259,066  
182,465  
1,672,890 
Watch  22,616   21,750   16,051   15,801   7,446   53,345   12,712   149,721   13,461   12,807   18,202   7,348   9,326   38,005   8,043   107,192 
OAEM  0   0   551   389   154   272   502   1,868   0   31   0   40   2   2,089   77   2,239 
Substandard  12,739   10,087   4,684   6,369   4,148   14,315   554   52,896   8,954   14,744   7,666   4,202   2,533   14,852   812   53,763 
Doubtful  0   0   0   0   0   31   0   31   0   0   0   0   0   306   0   306 
Total commercial loans $457,363  $269,648  $221,388  $152,046  $144,065  $340,810  $177,481  $1,762,801  $444,405  $423,656  $204,003  $168,932  $89,679  $314,318  $191,397  $1,836,390 

25

December 31, 2020 Term Loans Amortized Cost Basis by Origination Year 
December 31, 2021 Term Loans Amortized Cost Basis by Origination Year 
(in thousands)
 2020  2019  2018  2017  2016  Prior  
Revolving
Loans
  Total  2021  2020  2019  2018  2017  Prior  
Revolving
Loans
  Total 
Hotel/motel                                                
Risk rating:                                                
Pass $11,507  $70,504  $27,453  $39,651  $6,357  $22,372  $0  $177,844  $42,056  $11,231  $53,713  $18,752  $32,765  $20,087  $0  $178,604 
Watch  23,951   2,506   3,366   2,102   16,740   7,422   0   56,087   9,234   14,021   8,813   8,780   2,678   30,502   0   74,028 
OAEM  0   1,993   9,576   0   0   0   0   11,569   0   0   0   0   0   0   0   0 
Substandard  0   0   0   1,113   8,840   5,246   0   15,199   0   0   0   3,355   1,075   0   0   4,430 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total hotel/motel $35,458  $75,003  $40,395  $42,866  $31,937  $35,040  $0  $260,699  
51,290  
25,252  
62,526  
30,887  
36,518  
50,589  
0  
257,062 
                                                                
Commercial real estate residential                                                                
Risk rating:                                                                
Pass $85,403  $39,238  $29,179  $17,390  $21,272  $46,419  $10,470  $249,371  
142,364  
54,380  
22,320  
19,826  
11,919  
45,791  
9,544  
306,144 
Watch  1,714   2,214   2,438   2,962   4,520   5,306   182   19,336   2,643   2,359   1,962   2,119   554   6,949   156   16,742 
OAEM  1,921   1,361   323   142   129   0   0   3,876   0   0   0   0   16   0   0   16 
Substandard  4,301   606   1,991   4,076   1,108   3,263   0   15,345   4,822   1,990   620   1,835   596   2,468   0   12,331 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total commercial real estate residential $93,339  $43,419  $33,931  $24,570  $27,029  $54,988  $10,652  $287,928  
149,829  
58,729  
24,902  
23,780  
13,085  
55,208  
9,700  
335,233 
                                                                
Commercial real estate nonresidential                                                                
Risk rating:                                                                
Pass $125,205  $97,204  $77,685  $80,416  $100,740  $165,839  $25,524  $672,613  
214,563  
99,131  
82,386  
57,397  
55,422  
168,533  
22,389  
699,821 
Watch  5,133   3,175   5,075   6,366   3,020   11,046   601   34,416   5,130   2,865   3,981   2,802   3,655   11,828   767   31,028 
OAEM  0   887   68   0   0   3,382   115   4,452   0   0   0   0   0   178   20   198 
Substandard  7,254   6,152   3,471   2,462   1,358   10,817   215   31,729   5,201   5,098   3,764   600   2,016   9,659   200   26,538 
Doubtful  0   0   0   0   0   28   0   28   0   0   0   0   0   308   0   308 
Total commercial real estate nonresidential $137,592  $107,418  $86,299  $89,244  $105,118  $191,112  $26,455  $743,238  
224,894  
107,094  
90,131  
60,799  
61,093  
190,506  
23,376  
757,893 
                                                                
Dealer floorplans                                                                
Risk rating:                                                                
Pass $0  $0  $0  $0  $0  $0  $68,610  $68,610  
0  
0  
0  
0  
0  
0  
69,105  
69,105 
Watch  0   0   0   0   0   0   477   477   0   0   0   0   0   0   347   347 
OAEM  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total dealer floorplans $0  $0  $0  $0  $0  $0  $69,087  $69,087  
0  
0  
0  
0  
0  
0  
69,452  
69,452 
                                                                
Commercial other                                                                
Risk rating:                                                                
Pass $75,014  $26,385  $33,825  $13,975  $6,225  $22,733  $78,547  $256,704  
72,650  
43,838  
16,495  
29,858  
9,105  
13,346  
75,119  
260,411 
Watch  2,888   378   1,130   555   464   595   7,030   13,040   7,196   1,967   1,582   599   332   1,071   11,792   24,539 
OAEM  25   0   5,056   181   367   0   124   5,753   0   0   268   383   12   1   482   1,146 
Substandard  2,136   556   318   460   460   411   70   4,411   1,600   1,589   147   184   287   451   124   4,382 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total commercial other $80,063  $27,319  $40,329  $15,171  $7,516  $23,739  $85,771  $279,908  
81,446  
47,394  
18,492  
31,024  
9,736  
14,869  
87,517  
290,478 
                                                                
Commercial unsecured SBA PPP                                                                
Risk rating:                                                                
Pass $252,667  $0  $0  $0  $0  $0  $0  $252,667  
46,227  
1,108  
0  
0  
0  
0  
0  
47,335 
Watch  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
OAEM  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Substandard  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Doubtful  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total commercial unsecured SBA PPP $252,667  $0  $0  $0  $0  $0  $0  $252,667  
46,227  
1,108  
0  
0  
0  
0  
0  
47,335 
                                                                
Commercial loans                                                                
Risk rating:                                                                
Pass $549,796  $233,331  $168,142  $151,432  $134,594  $257,363  $183,151  $1,677,809  
517,860  
209,688  
174,914  
125,833  
109,211  
247,757  
176,157  
1,561,420 
Watch  33,686   8,273   12,009   11,985   24,744   24,369   8,290   123,356   24,203   21,212   16,338   14,300   7,219   50,350   13,062   146,684 
OAEM  1,946   4,241   15,023   323   496   3,382   239   25,650   0   0   268   383   28   179   502   1,360 
Substandard  13,691   7,314   5,780   8,111   11,766   19,737   285   66,684   11,623   8,677   4,531   5,974   3,974   12,578   324   47,681 
Doubtful  0   0   0   0   0   28   0   28   0   0   0   0   0   308   0   308 
Total commercial loans $599,119  $253,159  $200,954  $171,851  $171600000  $304,879  $191,965  $1,893,527  $553,686  $239,577  $196,051  $146,490  $120,432  $311,172  $190,045  $1,757,453 

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:

September 30, 2021 Term Loans Amortized Cost Basis by Origination Year 
September 30, 2022 Term Loans Amortized Cost Basis by Origination Year 
(in thousands) 2021  2020  2019  2018  2017  Prior  
Revolving
Loans
  Total  2022  2021  2020  2019  2018  Prior  
Revolving
Loans
  Total 
Home equity lines                                                
Performing $0  $0  $0  $0  $0  $11,722  $92,326  $104,048  $0  $0  $0  $0  $0  $10,866  $103,731  $114,597 
Nonperforming  0   0   0   0   0   550   409   959   0   0   0   0   0   471   332   803 
Total home equity lines $0  $0  $0  $0  $0  $12,272  $92,735  $105,007  
0  
0  
0  
0  
0  
11,337  
104,063  
115,400 
                                                                
Mortgage loans                                                                
Performing $143,400  $178,922  $83,055  $41,138  $46,078  $261,915  $0  $754,508  
143,060  
183,460  
137,463  
64,827  
31,710  
246,441  
0  
806,961 
Nonperforming  0   0   318   233   499   7,447   0   8,497   0   167   77   478   291   6,970   0   7,983 
Total mortgage loans $143,400  $178,922  $83,373  $41,371  $46,577  $269,362  $0  $763,005  
143,060  
183,627  
137,540  
65,305  
32,001  
253,411  
0  
814,944 
                                                                
Residential loans                                                                
Performing $143,400  $178,922  $83,055  $41,138  $46,078  $273,637  $92,326  $858,556  
143,060  
183,460  
137,463  
64,827  
31,710  
257,307  
103,731  
921,558 
Nonperforming  0   0   318   233   499   7,997   409   9,456   0   167   77   478   291   7,441   332   8,786 
Total residential loans $143,400  $178,922  $83,373  $41,371  $46,577  $281,634  $92,735  $868,012  $143,060  $183,627  $137,540  $65,305  $32,001  $264,748  $104,063  $930,344 
                                                                
Consumer direct loans                                                                
Performing $56,175  $46,993  $21,184  $12,154  $5,183  $13,219  $0  $154,908  $54,072  $47,750  $27,195  $12,335  $7,345  $12,160  $0  $160,857 
Nonperforming  0   112   2   0   0   0   0   114   0   6   0   0   3   0   0   9 
Total consumer direct loans $56,175  $47,105  $21,186  $12,154  $5,183  $13,219  $0  $155,022  
54,072  
47,756  
27,195  
12,335  
7,348  
12,160  
0  
160,866 
                                                                
Consumer indirect loans                                                                
Performing $200,025  $214,770  $92,138  $64,216  $28,806  $12,233  $0  $612,188  
289,378  
185,678  
130,552  
52,575  
31,669  
12,823  
0  
702,675 
Nonperforming  10   54   65   28   24   25   0   206   73   70   129   21   35   13   0   341 
Total consumer indirect loans $200,035  $214,824  $92,203  $64,244  $28,830  $12,258  $0  $612,394  
289,451  
185,748  
130,681  
52,596  
31,704  
12,836  
0  
703,016 
                                                                
Consumer loans                                                                
Performing $256,200  $261,763  $113,322  $76,370  $33,989  $25,452  $0  $767,096  
343,450  
233,428  
157,747  
64,910  
39,014  
24,983  
0  
863,532 
Nonperforming  10   166   67   28   24   25   0   320   73   76   129   21   38   13   0   350 
Total consumer loans $256,210  $261,929  $113,389  $76,398  $34,013  $25,477  $0  $767,416  $343,523  $233,504  $
157,876  $
64,931  $39,052  $24,996  $0  $863,882 

27

December 31, 2020 Term Loans Amortized Cost Basis by Origination Year 
December 31, 2021 Term Loans Amortized Cost Basis by Origination Year 
(in thousands) 2020  2019  2018  2017  2016  Prior  
Revolving
Loans
  Total  2021  2020  2019  2018  2017  Prior  
Revolving
Loans
  Total 
Home equity lines                                                
Performing $0  $0  $0  $0  $23  $12,049  $90,724  $102,796  $0  $0  $0  $0  $0  $10,909  $94,666  $105,575 
Nonperforming  0   0   0   0   0   585   389   974   0   0   0   0   0   520   572   1,092 
Total home equity lines $0  $0  $0  $0  $23  $12,634  $91,113  $103,770  
0  
0  
0  
0  $
0  
11,429  
95,238  
106,667 
                                                                
Mortgage loans                                                                
Performing $214,629  $119,301  $56,812  $60,915  $48,253  $275,883  $0  $775,793  
195,731  
161,471  
75,792  
37,188  
42,597  
245,666  
0  
758,445 
Nonperforming  0   436   303   314   352   7,361   0   8,766   0   63   424   364   558   7,331   0   8,740 
Total mortgage loans $214,629  $119,737  $57,115  $61,229  $48,605  $283,244  $0  $784,559  
195,731  
161,534  
76,216  
37,552  
43,155  
252,997  
0  
767,185 
                                                                
Residential loans                                                                
Performing $214,629  $119,301  $56,812  $60,915  $48,276  $287,932  $90,724  $878,589  
195,731  
161,471  
75,792  $
37,188  
42,597  
256,575  
94,666  
864,020 
Nonperforming  0   436   303   314   352   7,946   389   9,740   0   63   424   364   558   7,851   572   9,832 
Total residential loans $214,629  $119,737  $57,115  $61,229  $48,628  $295,878  $91,113  $888,329  $195,731  $161,534  $76,216  $37,552  $43,155  $264,426  $95,238  $873,852 
                                                                
Consumer direct loans                                                                
Performing $72,677  $32,993  $18,461  $9,157  $6,581  $12,364  $0  $152,233  $71,626  $39,312  $18,492  $10,468  $4,490  $12,251  $0  $156,639 
Nonperforming  7   57   0   7   0   0   0   71   0   4   3   34   3   0   0   44 
Total consumer direct loans $72,684  $33,050  $18,461  $9,164  $6,581  $12,364  $0  $152,304  
71,626  
39,316  
18,495  
10,502  
4,493  
12,251  
0  
156,683 
                                                                
Consumer indirect loans                                                                
Performing $301,494  $135,123  $100,482  $50,665  $23,777  $8,157  $0  $619,698  
263,127  
190,145  
80,793  
54,437  
23,449  
8,668  
0  
620,619 
Nonperforming  27   115   118   52   30   11   0   353   24   135   20   0   23   4   0   206 
Total consumer indirect loans $301,521  $135,238  $100,600  $50,717  $23,807  $8,168  $0  $620,051  
263,151  
190,280  
80,813  
54,437  
23,472  
8,672  
0  
620,825 
                                                                
Consumer loans                                                                
Performing $374,171  $168,116  $118,943  $59,822  $30,358  $20,521  $0  $771,931  
334,753  
229,457  
99,285  
64,905  
27,939  
20,919  
0  
777,258 
Nonperforming  34   172   118   59   30   11   0   424   24   139   23   34   26   4   0   250 
Total consumer loans $374,205  $168,288  $119,061  $59,881  $30,388  $20,532  $0  $772,355  $334,777  $229,596  $99,308  $64,939  $27,965  $20,923  $0  $777,508 

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


The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings have resumed with restricted parameters was $1.43.4 million at September 30, 2021.2022.  The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings began, but had been suspended, at December 31, 20202021 was $2.92.3 million.

28

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

 September 30, 2021  September 30, 2022 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
  
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  2  $9,522  $600   1  $1,181  $0 
Commercial real estate residential  4   7,363   0   3   5,820   0 
Commercial real estate nonresidential  12   21,920   200   9   16,720   350 
Commercial other  1   1,165   400   2   9,185   1,000 
Total collateral dependent loans  19  $39,970  $1,200   15  $32,906  $1,350 

 December 31, 2020  December 31, 2021 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
  
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  5  $26,194  $250   2  $9,462  $600 
Commercial real estate residential  4   7,833   0   4   7,255   0 
Commercial real estate nonresidential  12   24,497   200   11   19,943   200 
Commercial other  1   5,050   0   1   1,113   350 
Total collateral dependent loans  22  $63,574  $450   18  $37,773  $1,150 

 September 30, 2020  September 30, 2021 
(in thousands) 
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
  
Number of
Loans
  
Recorded
Investment
  
Specific
Reserve
 
Hotel/motel  4  $24,357  $250   2  $9,522  $600 
Commercial real estate residential  4   7,932   0   4   7,363   0 
Commercial real estate nonresidential  11   22,383   200   12   21,920   200 
Commercial other  2   6,087   350   1   1,165   400 
Total collateral dependent loans  21  $60,759  $800   19  $39,970  $1,200 


The hotel/motel, commercial real estate residential, and commercial real estate nonresidential segments are all collateralized with real estate. The 1 loantwo loans listed in the commercial other segment at September 30, 2021 is2022 are collateralized by various chattel, including surface mining equipment, preparation plantinventory, equipment, and a first mortgage on a preparation plant, real estate, and improvements.  There was a slight decrease in the specific reserve for the commercial other loan reported this quarter due to payment activityaccounts receivable..

29

Certain loans have been modified in troubled debt restructurings,TDRs, where economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances.  Presented below, segregated by class of loans, are troubled debt restructuringsTDRs that occurred during the three and nine months ended September 30, 20212022 and 20202021 and the year ended December 31, 2020:2021:

 
Three Months Ended
September 30, 2021
 
  Pre-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Hotel/motel  0  $0  $0  $0 
Commercial real estate residential  2   255   0   255 
Commercial real estate nonresidential  4   2,098   2,568   4,666 
Commercial other  1   95   0   95 
Total commercial loans  7   2,448   2,568   5,016 
                 
Total troubled debt restructurings  7  $2,448  $2,568  $5,016 

 
Three Months Ended
September 30, 2021
 
  Post-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Hotel/motel  0  $0  $0  $0 
Commercial real estate residential  2   254   0   254 
Commercial real estate nonresidential  4   2,196   2,562   4,758 
Commercial other  1   101   0   101 
Total commercial loans  7   2,551   2,562   5,113 
                 
Total troubled debt restructurings  7  $2,551  $2,562  $5,113 

 
Nine Months Ended
September 30, 2021
  
Three Months Ended
September 30, 2022
 
 Pre-Modification Outstanding Balance  Pre-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
  
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Hotel/motel  0  $0  $0  $0 
Commercial real estate residential  2   255   0   255   2  $
318  $
0  $
318 
Commercial real estate nonresidential  9   4,179   2,988   7,167   1   190   0   190 
Commercial other  3   393   0   393   1   5,222   0   5,222 
Total commercial loans  14   4,827   2,988   7,815   4   5,730   0   5,730 
                                
Real estate mortgage
  2   288   393   681 
Total residential loans
  2   288   393   681 
                
Total troubled debt restructurings  14  $4,827  $2,988  $7,815   6  $6,018  $393  $6,411 

3029
 
Three Months Ended
September 30, 2022
 
  Post-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Commercial real estate residential  2  $
318  $
0  $
318 
Commercial real estate nonresidential  1   189   0   189 
Commercial other  1   5,222   0   5,222 
Total commercial loans  4   5,729   0   5,729 
                 
Real estate mortgage
  2   288   393   681 
Total residential loans
  2   288   393   681 
                 
Total troubled debt restructurings  6  $6,017  $393  $6,410 

 
Nine Months Ended
September 30, 2021
  
Nine Months Ended
September 30, 2022
 
 Post-Modification Outstanding Balance  Pre-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
  
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Hotel/motel  0  $0  $0  $0 
Commercial real estate residential  2   254   0   254   4  $
472  $
0  $
472 
Commercial real estate nonresidential  9   4,282   3,000   7,282   3   435   0   435 
Commercial other  3   317   0   317   10   11,748   0   11,748 
Total commercial loans  14   4,853   3,000   7,853   17   12,655   0   12,655 
                                
Real estate mortgage
  5   593   1,309   1,902 
Total residential loans
  5   593   1,309   1,902 
                
Total troubled debt restructurings  14  $4,853  $3,000  $7,853   22  $13,248  $1,309  $14,557 

 
Year Ended
December 31, 2020
 
  Pre-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Hotel/motel  1  $1,113  $0  $1,113 
Commercial real estate residential  12   4,694   1,809   6,503 
Commercial real estate nonresidential  18   7,295   782   8,077 
Commercial other  12   637   53   690 
Total commercial loans  43   13,739   2,644   16,383 
                 
Real estate mortgage  4   1,496   0   1,496 
Total residential loans  4   1,496   0   1,496 
                 
Total troubled debt restructurings  47  $15,235  $2,644  $17,879 

 
Year Ended
December 31, 2020
  
Nine Months Ended
September 30, 2022
 
 Post-Modification Outstanding Balance  Post-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
  
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Hotel/motel  1  $1,113  $0  $1,113 
Commercial real estate residential  12   4,696   1,809   6,505   4  $
472  $
0  $
472 
Commercial real estate nonresidential  18   7,349   782   8,131   3   433   0   433 
Commercial other  12   571   51   622   10   11,747   0   11,747 
Total commercial loans  43   13,729   2,642   16,371   17   12,652   0   12,652 
                                
Real estate mortgage  4   1,479   0   1,479   5   593   1,309   1,902 
Total residential loans  4   1,479   0   1,479   5   593   1,309   1,902 
                                
Total troubled debt restructurings  47  $15,208  $2,642  $17,850   22  $13,245  $1,309  $14,554 

3130
 
Year Ended
December 31, 2021
    
  Pre-Modification Outstanding Balance    
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  Other  
Total
Modification
 
Commercial real estate residential  6  $
388  $
0  $
0  $388 
Commercial real estate nonresidential  9   4,179   2,988   0   7,167 
Commercial other  5   417   0   0   417 
Total commercial loans  20   4,984   2,988   0   7,972 
                    
Real estate mortgage  3   278   277   262   817 
Total residential loans  3   278   277   262   817 
                    
Total troubled debt restructurings  23  $5,262  $3,265  $262  $8,789 

 
Three Months Ended
September 30, 2020
  
Year Ended
December 31, 2021
   
 Pre-Modification Outstanding Balance  Post-Modification Outstanding Balance   
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
  
Number of
Loans
  
Term
Modification
  Combination  Other 
Total
Modification
 
Commercial real estate residential  1  $101  $0  $101   6  $
424  $
0  $
0  $
424 
Commercial real estate nonresidential  3   4,421   0   4,421   9   4,282   3,000   0   7,282 
Commercial other  1   52   0   52   5   340   0   0   340 
Total commercial loans  5   4,574   0   4,574   20   5,046   3,000   0   8,046 
                                   
Real estate mortgage  1   283   0   283   3   279   277   262   818 
Total residential loans  1   283   0   283   3   279   277   262   818 
                                   
Total troubled debt restructurings  6  $4,857  $0  $4,857   23  $5,325  $3,277  $262  $8,864 

 
Three Months Ended
September 30, 2020
  
Three Months Ended
September 30, 2021
 
 Post-Modification Outstanding Balance  Pre-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
  
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Commercial real estate residential  1  $101  $0  $101   2  $
255  $
0  $
255 
Commercial real estate nonresidential  3   4,479   0   4,479   4   2,098   2,568   4,666 
Commercial other  1   52   0   52   1   95   0   95 
Total commercial loans  5   4,632   0   4,632   7   2,448   2,568   5,016 
                                
Real estate mortgage  1   282   0   282 
Total residential loans  1   282   0   282 
                
Total troubled debt restructurings  6  $4,914  $0  $4,914   7  $2,448  $2,568  $5,016 

 
Nine Months Ended
September 30, 2020
 
  Pre-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Commercial real estate residential  12  $4,694  $1,809  $6,503 
Commercial real estate nonresidential  15   7,185   510   7,695 
Commercial other  10   631   25   656 
Total commercial loans  37   12,510   2,344   14,854 
                 
Real estate mortgage  3   1,216   0   1,216 
Total residential loans  3   1,216   0   1,216 
                 
Total troubled debt restructurings  40  $13,726  $2,344  $16,070 
31
 
Three Months Ended
September 30, 2021
 
  Post-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Commercial real estate residential  2  $
254  $
0  $
254 
Commercial real estate nonresidential  4   2,196   2,562   4,758 
Commercial other  1   101   0   101 
Total commercial loans  7   2,551   2,562   5,113 
                 
Total troubled debt restructurings  7  $2,551  $2,562  $5,113 

 
Nine Months Ended
September 30, 2020
  
Nine Months Ended
September 30, 2021
 
 Post-Modification Outstanding Balance  Pre-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
  
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Commercial real estate residential  12  $4,696  $1,809  $6,505   2  $
255  $
0  $
255 
Commercial real estate nonresidential  15   7,234   510   7,744   9   4,179   2,988   7,167 
Commercial other  10   565   25   590   3   393   0   393 
Total commercial loans  37   12,495   2,344   14,839   14   4,827   2,988   7,815 
                                
Real estate mortgage  3   1,203   0   1,203 
Total residential loans  3   1,203   0   1,203 
                
Total troubled debt restructurings  40  $13,698  $2,344  $16,042   14  $4,827  $2,988  $7,815 

 
Nine Months Ended
September 30, 2021
 
  Post-Modification Outstanding Balance 
(in thousands)
 
Number of
Loans
  
Term
Modification
  Combination  
Total
Modification
 
Commercial real estate residential  2  $
254  $
0  $
254 
Commercial real estate nonresidential  9   4,282   3,000   7,282 
Commercial other  3   317   0   317 
Total commercial loans  14   4,853   3,000   7,853 
                 
Total troubled debt restructurings  14  $4,853  $3,000  $7,853 


NoNo charge-offs have resulted from modifications for any of the presented periods.  We had commitments to extend additional credit in the amount of $136 $41 thousand and $85 $52 thousand at September 30, 20212022 and December 31, 2020,2021, respectively, on loans that were considered troubled debt restructurings.TDRs.

32

LoansLoans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual.  Commercial and consumer loans modified in a troubled debt restructuringTDR are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a troubled debt restructuringTDR subsequently default, CTBI evaluates the loan for possible further impairment.  The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.  Presented below, segregated by class of loans, are loans that were modified as troubled debt restructuringsTDRs within the past twelve12 months which have subsequently defaulted.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.  Presented below, segregated by segment, are troubled debt restructurings for which there was a payment default during the periods indicated and such default was within twelve months of the loan modification.  There were 0no defaulted restructured loans for the three and nine months ended September 30, 2021 and 2020.2022.

32
  
Three Months Ended
September 30, 2021
  
Nine Months Ended
September 30, 2021
 
(in thousands) Number of Loans  Recorded Balance  Number of Loans  Recorded Balance 
Commercial:            
Hotel/motel  0  $0   1  $1,113 
Residential:                
Real estate mortgage  0   0   1   275 
Total defaulted restructured loans  0  $0   2  $1,388 
(in thousands) 
Nine Months Ended
September 30, 2021
  
Nine Months Ended
September 30, 2020
 
  Number of Loans  Recorded Balance  Number of Loans  Recorded Balance 
Commercial:            
Hotel/motel  1
  $1,113
   0
  $0
 
Commercial other  0
   0
   3   368 
Residential:                
Real estate mortgage  1   275   0   0 
Total defaulted restructured loans  2  $1,388   3  $368 

Note 5 – Other Real Estate Owned


Activity for other real estate owned was as follows:

 
Three Months Ended
September 30
  
Nine Months Ended
September 30
  
Three Months Ended
September 30
  
Nine Months Ended
September 30
 
(in thousands) 2021  2020  2021  2020  2022  2021  2022  2021 
Beginning balance of other real estate owned $5,848  $17,675  $7,694  $19,480  $1,954  $5,848  $3,486  $7,694 
New assets acquired  644   238   895   2,100   34   644   478   895 
Capitalized costs
  0   0   73   0 
Fair value adjustments  (132)  (257)  (637)  (1,021)  (6)  (132)  (275)  (637)
Sale of assets  (2,046)  (2,070)  (3,638)  (4,973)  (118)  (2,046)  (1,898)  (3,638)
Ending balance of other real estate owned $4,314  $15,586  $4,314  $15,586  $1,864  $4,314  $1,864  $4,314 


Carrying costs and fair value adjustments associated with foreclosed properties for the three months ended September 30, 20212022 and 20202021 were $0.3 million$42 thousand and $0.5$0.3 million, respectively. Carrying costs and fair value adjustments associated with foreclosed properties for the nine months ended September 30, 20212022 and 20202021 were $1.10.4 million and $2.01.1 million, respectively. See Note 1 for a description of our accounting policies relative to foreclosed properties and other real estate owned.


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

(in thousands) 
September 30
2021
  
December 31
2020
  
September 30
2022
  
December 31
2021
 
1-4 family $1,735  $1,888  $583  $1,130 
Construction/land development/other  564   1,069   438   480 
Multifamily  88   88   0   88 
Non-farm/non-residential  1,927   4,649   843   1,788 
Total foreclosed properties $4,314  $7,694  $1,864  $3,486 

33
Note 6 – Repurchase Agreements


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

33

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 $393.3$263.9 million and $397.4$317.1 million at September 30, 20212022 and December 31, 2020,2021, respectively.


The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in the accompanying consolidated balance sheets as of September 30,2021 2022 and December 31, 20202021 is presented in the following tables:

 September 30, 2021  September 30, 2022 
 Remaining Contractual Maturity of the Agreements  Remaining Contractual Maturity of the Agreements 
(in thousands) 
Overnight
and
Continuous
  
Up to
30 days
  30-90 days  
Greater
Than
90 days
  Total  
Overnight
and
Continuous
  
Up to
30 days
  30-90 days  
Greater
Than
90 days
  Total 
Repurchase agreements and repurchase-to-maturity transactions:                              
U.S. Treasury and government agencies $6,183  $7,734  $0  $7,267  $21,184  $6,645  $8,153  $55  $4,973  $19,826 
State and political subdivisions  75,188   4,534   6,224   14,602   100,548   90,502   5,155   1,663   10,091   107,411 
U.S. government sponsored agency mortgage-backed securities  33,897   18,732   11,723   105,938   170,290   23,121   17,692   637   61,436   102,886 
Total $115,268  $31,000  $17,947  $127,807  $292,022  $120,268  $31,000  $2,355  $76,500  $230,123 

 December 31, 2020  December 31, 2021 
 Remaining Contractual Maturity of the Agreements  Remaining Contractual Maturity of the Agreements 
(in thousands) 
Overnight
and
Continuous
  
Up to
30 days
  30-90 days  
Greater
Than
90 days
  Total  
Overnight
and
Continuous
  
Up to
30 days
  30-90 days  
Greater
Than
90 days
  Total 
Repurchase agreements and repurchase-to-maturity transactions:                              
U.S. Treasury and government agencies $8,777  $0  $2,831  $31,800  $43,408  $3,176  $16  $5,400  $10,040  $18,632 
State and political subdivisions  54,639   0   1,132   21,421   77,192   83,375   484   13,633   9,427   106,919 
U.S. government sponsored agency mortgage-backed securities  33,040   0   101,037   101,185   235,262   24,689   0   85,967   34,881   145,537 
Total $96,456  $0  $105,000  $154,406  $355,862  $111,240  $500  $105,000  $54,348  $271,088 

34
Note 7 – Fair Market Value of Financial Assets and Liabilities

Fair Value Measurements


ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting 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 exit price when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

34
Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.

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

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

Recurring Measurements


The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of September 30, 20212022 and December 31, 20202021 and indicate the level within the fair value hierarchy of the valuation techniques.

    
Fair Value Measurements at
September 30, 2021 Using
     
Fair Value Measurements at
September 30, 2022 Using
 
(in thousands) Fair Value  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  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 $302,410  $244,361  $58,049  $0  $401,772  $362,015  $39,757  $0 
State and political subdivisions  335,556   0   335,556   0   258,076   0   258,076   0 
U.S. government sponsored agency mortgage-backed securities  787,507   0   787,507   0   549,039   0   549,039   0 
Asset-backed securities  100,265   0   100,265   0   89,705   0   89,705   0 
Equity securities at fair value  2,461   0   0   2,461   1,969   0   0   1,969 
Mortgage servicing rights  6,265   0   0   6,265   8,576   0   0   8,576 

(in thousands)    
Fair Value Measurements at
December 31, 2020 Using
 
  Fair Value  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis            
Available-for-sale securities:            
U.S. Treasury and government agencies $148,793  $74,991  $73,802  $0 
State and political subdivisions  140,416   0   140,416   0 
U.S. government sponsored agency mortgage-backed securities  651,807   0   651,807   0 
Asset-backed securities  56,245   0   56,245   0 
Equity securities at fair value  2,471   0   0   2,471,000 
Mortgage servicing rights  4,068   0   0   4,068 
35

    
Fair Value Measurements at
December 31, 2021 Using
 
(in thousands)
 Fair Value  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis            
Available-for-sale securities:            
U.S. Treasury and government agencies $295,770  $242,214  $53,556  $0 
State and political subdivisions  334,203   0   334,203   0 
U.S. government sponsored agency mortgage-backed securities  730,809   0   730,809   0 
Asset-backed securities  94,647   0   94,647   0 
Equity securities at fair value  2,253   0   0   2,253 
Mortgage servicing rights  6,774   0   0   6,774 


Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. These valuation methodologies were applied to all of CTBI’s financial assets carried at fair value. CTBI had no liabilities measured and recorded at fair value as of September 30, 20212022 and December 31, 2020.2021. There have been no significant changes in the valuation techniques during the quarter ended September 30, 2021.2022. 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 are classified as Level 1 of the valuation hierarchy where quoted market prices are available in the active market on which the individual securities are traded.


If quoted market prices are not available, CTBI obtains fair value measurements from an independent pricing service, such as Interactive Data, which utilizes pricing models to determine fair value measurement. CTBI reviews the pricing quarterly to verify the reasonableness of the pricing.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other factors. U.S. Treasury and government agencies, state and political subdivisions, U.S. government sponsored agency mortgage-backed securities, and 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, 20212022 and December 31, 2020,2021, the only securities owned by CTBI that were valued using Level 3 criteria are Visa Class B Stock (included in equity securities at fair value). Fair value for Visa Class B Stock is determined by an independent third party utilizing assumptions about factors such as quarterly common stock dividend payments, the conversion of the securities to the relevant Class A Stock shares subject to the prevailing conversion rate, and conversion date. We have concluded that the third party assumptions, processes, and conclusions areto 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.

36
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.

36
Level 3 Reconciliation


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


 
Three Months Ended
September 30, 2022
  
Three Months Ended
September 30, 2021
 
(in thousands) 
Three Months Ended
September 30, 2021
  
Three Months Ended
September 30, 2020
  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
 
 
Equity
Securities at
Fair Value
  
Mortgage
Servicing
Rights
  
Equity
Securities at
Fair Value
  
Mortgage
Servicing
Rights
 
Beginning balance $2,523  $5,899  $2,094  $2,518  $2,128  $8,220  $2,523  $5,899 
Total unrealized gains (losses)                                
Included in net income  (62)  141   118   286   (159)  504   (62)  141 
Issues  0   407   0   611   0   103   0   407 
Settlements  0   (182)  0   (306)  0   (251)  0   (182)
Ending balance $2,461  $6,265  $2,212  $3,109  $1,969  $8,576  $2,461  $6,265 
                                
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 $(62) $141  $119  $286  $(159) $504  $(62) $141 


 
Nine Months Ended
September 30, 2022
  
Nine Months Ended
September 30, 2021
 
(in thousands) 
Nine Months Ended
September 30, 2021
  
Nine Months Ended
September 30, 2020
  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
  
Equity
Securities
at Fair
Value
  
Mortgage
Servicing
Rights
 
 
Equity
Securities at
Fair Value
  
Mortgage
Servicing
Rights
  
Equity
Securities at
Fair Value
  
Mortgage
Servicing
Rights
 
Beginning balance $2,471  $4,068  $1,953  $3,263  $2,253  $6,774  $2,471  $4,068 
Total unrealized gains (losses)                                
Included in net income  (10)  1,042   259   (680)  (284)  1,955   (10)  1,042 
Issues  0   1,817   0   1,171   0   555   0   1,817 
Settlements  0   (662)  0   (645)  0   (708)  0   (662)
Ending balance $2,461  $6,265  $2,212  $3,109  $1,969  $8,576  $2,461  $6,265 
                                
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 $(10) $1,042  $259  $(680) $(284) $1,955  $(10) $1,042 

37

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  Three Months Ended  Nine Months Ended 
 September 30  September 30  September 30  September 30 
(in thousands) 2021  2020  2021  2020  2022  2021  2022  2021 
Total gains (losses) $(103) $99 $370  $(1,066) $94 $(103) $963  $370

37
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, 20212022 and December 31, 20202021 and indicate the level within the fair value hierarchy of the valuation techniques.

    
Fair Value Measurements at
September 30, 2021 Using
     
Fair Value Measurements at
September 30, 2022 Using
 
(in thousands) Fair Value  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  Fair Value  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis                        
Collateral dependent loans $1,264  $0  $0  $1,264  $4,809  $0  $0  $4,809 
Other real estate owned  522   0   0   522   597   0   0   597 


    
Fair Value Measurements at
December 31, 2021 Using
 
(in thousands)    
Fair Value Measurements at
December 31, 2020 Using
  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                        
Collateral-dependent loans $1,768  $0  $0  $1,768 
Collateral dependent loans $1,238  $0  $0  $1,238 
Other real estate owned  2,395   0   0   2,395   1,487   0   0   1,487 


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

Collateral Dependent Loans


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


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

38

Loans considered collateral dependent are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty in accordance with ASC 326-20-35-5. Quarter-to-date fair value adjustments on collateralcollateral- dependent loans disclosed above were $0.1$0.9 million,, $0.5 $0.4 million, and $0.4$0.1 million for the quarters ended September 30, 2022, December 31, 2021, June and September 30, 2021,, and September 30, 2020, respectively.  Year-to-date adjustments were $0.8$1.2 million, $0.5$0.7 million, and $1.7$0.8 million for the nine months ended September 30, 2021,2022, the year ended December 31, 2020,2021, and the nine months ended September 30, 2020,2021, respectively.

38
Other Real Estate Owned


In accordance with the provisions of ASC 360, Property, Plant, and Equipment, other real estate owned (“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral. Quarter-to-date There were no quarter-to-date fair value adjustments on other real estate ownedOREO disclosed above for the quarter ended September 30, 2022 while the adjustments were $0.1million, $0.3$0.2 million and $0.2$0.1 million for the quarters ended December 31, 2021, and September 30, 2021, June 30, 2021, and September 30, 2020, respectively.  Year-to-date adjustments were $0.1$0.2 million, $0.3 million, and $0.1 million for the nine months ended September 30, 2021, $0.7 million2022, for the year ended December 31, 2020,2021, and $0.6 million for the nine months ended September 30, 2020.2021, respectively.


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

39
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, 20212022 and December 31, 2020.2021.

(in thousands)Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
September 30, 2021
Valuation Technique(s)Unobservable Input
Range
(Weighted
Average)
Equity securities at fair value$2,461Discount cash flows, computer pricing modelDiscount rate
8.0% - 12.0%
(10.0%)
Conversion date
Dec 2023 –
Dec 2027
(Dec 2025)
Mortgage servicing rights$6,265Discount cash flows, computer pricing modelConstant prepayment rate
0.0% - 26.5%
(10.6%)
Probability of default
0.0% - 75.0%
(1.2%)
Discount rate
10.0% - 11.5%
(10.1%)
Collateral dependent loans$1,264Market comparable propertiesMarketability discount
19.3% - 53.3%
(36.3%)
Other real estate owned$522Market comparable propertiesComparability adjustments
10.0% - 45.5%
(18.9%)

 Quantitative Information about Level 3 Fair Value Measurements
(in thousands) 
Fair Value at
September 30, 2022
 
Valuation
Technique(s)
Unobservable Input 
Range
(Weighted
Average)
Equity securities at fair value $1,969 Discount cash flows, computer pricing modelDiscount rate  
8.0% - 12.0%
(10.0%)
        Conversion date 
Dec 2024 –
Dec 2028
(Dec 2026)
          
Mortgage servicing rights $8,576 Discount cash flows, computer pricing modelConstant prepayment rate  
7.0% - 24.9%
(7.1%)
        Probability of default  
0.0% - 100.0%
(1.2%)
        Discount rate  
9.5% - 11.7%
(10.0%)
          
Collateral dependent loans $4,809 Market comparable propertiesMarketability discount  
33.0% - 46.0%
(39.0%)
          
Other real estate owned $597 Market comparable propertiesComparability adjustments  
0.0% - 10.0%
(10.0%)

39

 (in thousands)Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
December 31, 2020
Valuation Technique(s)Unobservable Input
Range
(Weighted
Average)
Equity securities at fair value$2,471Discount cash flows, computer pricing modelDiscount rate
8.0% - 12.0%
(10.0%)
Conversion date
Dec 2022 –
Dec 2026
(Dec 2024)
Mortgage servicing rights$4,068Discount cash flows, computer pricing modelConstant prepayment rate
0.0% - 32.8%
(15.7%)
Probability of default
0.0% - 100.0%
(1.7%)
Discount rate
10.0% - 11.5%
(10.1%)
Collateral-dependent loans$1,768Market comparable propertiesMarketability discount
17.5% - 31.5%
(24.5%)
Other real estate owned$2,395Market comparable propertiesComparability adjustments
(9.1)% - 64.3%
(12.8%)

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

Uncertainty of Fair Value Measurements


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

40
Equity Securities at Fair Value


Fair market value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock, and the prevailing conversion rate at the conversion date. The most recent conversion rate of 1.62281.6059 and the most recent dividend rate of 0.51930.6022 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.

40
Fair Value of Financial Instruments


The following table presents estimated fair value of CTBI’s financial instruments as of September 30, 20212022 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 September 30, 20212022 were measured using an exit price notion.

    
Fair Value Measurements
at September 30, 2021 Using
     
Fair Value Measurements
at September 30, 2022 Using
 
(in thousands) 
Carrying
Amount
  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs (Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Carrying
Amount
  
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:                        
Cash and cash equivalents $207,776  $207,776  $0  $0  $259,629  $259,629  $0  $0 
Certificates of deposit in other banks  245   0   245   0   245   0   245   0 
Debt securities available-for-sale  1,525,738   244,361   1,281,377   0   1,298,592   362,015   936,577   0 
Equity securities at fair value  2,461   0   0   2,461   1,969   0   0   1,969 
Loans held for sale  12,056   12,321   0   0   1,043   1,065   0   0 
Loans, net  3,357,014   0   0   3,467,692   3,586,183   0   0   3,540,716 
Federal Home Loan Bank stock  8,139   0   8,139   0   6,676   0   6,676   0 
Federal Reserve Bank stock  4,887   0   4,887   0   4,887   0   4,887   0 
Accrued interest receivable  15,280   0   15,280   0   16,513   0   16,513   0 
Mortgage servicing rights  6,265   0   0   6,265 
                                
Financial liabilities:                                
Deposits $4,296,236  $1,318,158  $3,023,135  $0  $4,535,068  $1,481,078  $3,064,938  $0 
Repurchase agreements  292,022   0   0   292,023   230,123   0   0   230,238 
Federal funds purchased  500   0   500   0   500   0   500   0 
Advances from Federal Home Loan Bank  380   0   413   0   360   0   381   0 
Long-term debt  57,841   0   0   39,404   57,841   0   0   50,759 
Accrued interest payable  1,844   0   1,844   0   2,501   0   2,501   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 

41

The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 20202021 and indicates the level within the fair value hierarchy of the valuation techniques.


    
Fair Value Measurements
at December 31, 2021 Using
 
(in thousands)    
Fair Value Measurements
at December 31, 2020 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 $338,235  $338,235  $0  $0  $311,756  $311,756  $0  $0 
Certificates of deposit in other banks  245   0   245   0   245   0   245   0 
Debt securities available-for-sale  997,261   74,991   922,270   0   1,455,429   242,214   1,213,215   0 
Equity securities at fair value  2,471   0   0   2,471   2,253   0   0   2,253 
Loans held for sale  23,259   23,884   0   0   2,632   2,693   0   0 
Loans, net  3,506,189   0   0   3,658,554   3,367,057   0   0   3,480,803 
Federal Home Loan Bank stock  10,048   0   10,048   0   8,139   0   8,139   0 
Federal Reserve Bank stock  4,887   0   4,887   0   4,887   0   4,887   0 
Accrued interest receivable  15,818   0   15,818   0   15,415   0   15,415   0 
Mortgage servicing rights  4,068   0   0   4,068 
                                
Financial liabilities:                                
Deposits $4,016,082  $1,140,925  $2,913,217  $0  $4,344,292  $1,331,103  $3,043,339  $0 
Repurchase agreements  355,862   0   0   355,918   271,088   0   0   271,186 
Federal funds purchased  500   0   500   0   500   0   500   0 
Advances from Federal Home Loan Bank  395   0   436   0   375   0   400   0 
Long-term debt  57,841   0   0   40,081   57,841   0   0   45,854 
Accrued interest payable  1,243   0   1,243   0   1,016   0   1,016   0 
                                
Unrecognized financial instruments:                                
Letters of credit $0  $0  $0  $0  $0  $0  $0  $0 
Commitments to extend credit  0   0   0   0   0   0   0   0 
Forward sale commitments  0   0   0   0   0   0   0   0 
 
Note 8 – Revenue Recognition


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


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

42

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


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


CTBI primarily operates in Kentucky and contiguous areas. Therefore, all significant operating decisions are based upon analysis of CTBI as 1one operating segment.


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


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

Note 9 – Earnings Per Share


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

 
Three Months Ended
September 30
  
Nine Months Ended
September 30
  
Three Months Ended
September 30
  
Nine Months Ended
September 30
 
(in thousands except per share data) 2021  2020  2021  2020  2022  2021  2022  2021 
Numerator:                        
Net income $21,142  $17,447  $68,691  $43,678  $19,372  $21,142  $59,371  $68,691 
                                
Denominator:                                
Basic earnings per share:                                
Weighted average shares  17,790   17,746   17,783   17,746   17,841   17,790   17,832   17,783 
Diluted earnings per share:                                
Effect of dilutive stock options and restricted stock grants  18   6   15   7   16   18   12   15 
Adjusted weighted average shares  17,808   17,752   17,798   17,753   17,857   17,808   17,844   17,798 
                                
Earnings per share:                                
Basic earnings per share $1.19  $0.98  $3.86  $2.46  $1.09  $1.19  $3.33  $3.86 
Diluted earnings per share  1.19   0.98   3.86   2.46   1.08   1.19   3.33   3.86 


There were 0no options to purchase common shares that were excluded from the diluted calculations above for the three and nine months ended September 30, 20212022 and 2020.2021.  In addition to in-the-money stock options, unvested restricted stock grants were also used in the calculation of diluted earnings per share based on the treasury method.

43
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, 20212022 and 20202021 were:

 Amounts Reclassified from AOCI 
(in thousands) 
Three Months Ended
September 30
  
Nine Months Ended
September 30
 
  2021  2020  2021  2020 
Affected line item in the statements of income            
Securities gains $0  $24  $60  $1,069 
Tax expense  0   6   16   278 
Total reclassifications out of AOCI $0  $18  $44  $791 

Note 11 – COVID-19 and CARES Act Loan Activities


We continue working with our customers through the COVID-19 pandemic.  At September 30, 2021, the number of customers with CARES Act deferrals reduced to 27 for a total outstanding amount of $15.8 million.  The majority of our CARES Act deferrals have been 90 day deferrals.  Total outstanding deferrals include 6 commercial loan deferrals with a total outstanding amount of $14.3 million, 17 residential loan deferrals with a total outstanding amount of $1.4 million, and 4 consumer loan deferrals with a total outstanding amount of $0.1 million. These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act.  Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans disclosed below.
 Amounts Reclassified from AOCI 

(in thousands)		 
Three Months Ended
September 30
  
Nine Months Ended
September 30
 
 2022  2021  2022  2021 
Affected line item in the statements of income            
Securities gains (losses) $0 $0  $(1) $60 
Tax expense (benefit)  0   0   0   16 
Total reclassifications out of AOCI $0 $0  $(1) $44 


At September 30, 2021, we had closed 6,312 Paycheck Protection Program (PPP) loans totaling $401.3 million, including 3,352 loans totaling $124.3 million stemming from the Consolidated Appropriations Act 2021 (second round).  Through September 30, 2021, we have had 4,730 of our PPP loans totaling $297.7 million forgiven by the SBA, and repaid to CTB, including 1,877 loans totaling $35.9 million from the second round.

44
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Community Trust Bancorp, Inc. (“CTBI”), our operations, and our present business environment.  The MD&A is provided as a supplement to – to—and should be read in conjunction with – with—our condensed consolidated financial statements and the accompanying notes thereto contained in Part I, Item 1 of this quarterly report.report, as well as our consolidated financial statements, the accompanying notes thereto, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December, 31, 2021.  The MD&A includes the following sections:

❖
Our Business

❖
Financial Goals and Performance

❖
Results of Operations and Financial Condition

❖
Dividends
❖
Liquidity and Market Risk

❖
Interest Rate Risk

❖
Capital Resources

❖
Impact of Inflation, Changing Prices, and Economic Conditions

❖
Stock Repurchase Program

❖
Critical Accounting Policies and Estimates

Our Business

Community Trust Bancorp, Inc. (“CTBI”)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 seventy-nine78 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, 2021,2022, we had total consolidated assets of $5.4$5.5 billion and total consolidated deposits, including repurchase agreements, of $4.6$4.8 billion.  Total shareholders’ equity at September 30, 20212022 was $691.6$602.6 million.  Trust assets under management which are excluded from CTBI’s total consolidated assets, at September 30, 2021,2022 were $3.6 billion.  Trust assets under management include$3.1 billion, including CTB’s investment portfolio totaling $1.5$1.3 billion.

Through itsour subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust and wealth management activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals, and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services.  The lending activities of CTB include making commercial, construction, mortgage, and personal loans.  Lease-financing, lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available.  Our corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as paying agents for bond and stock issues, as investment agent, as depositories for securities, and as providers of full service brokerage, and insurance services.  For further information, see Item 1 of our annual report on Form 10-K for the year ended December 31, 2020.2021.

45
Results of Operations and Financial Condition

We reported earnings for the third quarter 20212022 of $21.1$19.4 million, or $1.19$1.09 per basic share, compared to $23.9$20.3 million, or $1.35$1.14 per basic share, earned during the second quarter 20212022 and $17.4$21.1 million, or $0.98$1.19 per basic share, earned during the third quarter 2020.  Our loan portfolio quality continues to see improvement, allowing a further reduction in credit loss reserves.  Noninterest income declined; however, total2021.  Total revenue was $2.9 million above prior quarter and $1.8 million above prior year same quarter.  Net interest revenue increased as our net interest margin saw improvement resulting primarily from$2.7 million compared to prior quarter and $1.5 million compared to prior year same quarter, and noninterest income increased $0.2 million compared to prior quarter and $0.3 million compared to prior year same quarter.  Provision for credit losses for the quarter was $2.4 million, compared to provision of $0.1 million for the quarter ended June 30, 2022 and a redeploymentrecovery of Federal Reserve funds into our investment portfolioprovision of $0.2 million for the third quarter 2021.  Noninterest expense increased $1.5 million compared to prior quarter and forgiveness of Paycheck Protection Program (PPP) loans.  Earnings$1.1 million compared to prior year same quarter.  Net income for the nine months ended September 30, 2022 was below prior year by $9.3 million, primarily due to the $6.9 million recovery of provision for credit losses taken in 2021 were $68.7and the $4.2 million compared to $43.7 milliondecline in gains on sales of loans.

As reported in our Form 10-Q for the nine monthsquarter ended SeptemberJune 30, 2020.2022, several counties in eastern Kentucky experienced major flooding during which six of our branch locations were impacted.  After assessing the situation, we have determined that there has been no material impact to our financial condition as a result of the flooding.

Quarterly Highlights

❖
Net interest income for the quarter of $42.0$43.5 million was $2.0$2.7 million or 5.0%, above prior quarter and $4.3$1.5 million or 11.5%, above third quarter 2020.prior year same quarter.

❖
We recovered $0.2 million of our provision for credit losses during the quarter ended September 30, 2021.  The reduction to our allowance for credit losses was the result of improved credit metrics.  We also recognized a recapture of allowance for credit losses in the second quarter 2021 with a credit to the provision for credit losses of $4.3 million.  Provision for credit losses for the quarter was $2.4 million, compared to provision of $0.1 million for the quarter ended June 30, 2022 and a recovery of provision of $0.2 million for the third quarter 2020 totaled $2.4 million.2021.

❖
Our loan portfolio decreased $50.3increased $72.2 million, an annualized 5.8%8.0%, during the quarter and $156.0$221.8 million, or an annualized 5.9%8.7%, from December 31, 2020.  Loans, excluding PPP loans, increased $26.6 million during the quarter.2021.

❖
Net loan charge-offs for the quarter were $0.3 million, or 0.04% of average loans annualized, for the quarter ended September 30, 2021,2022 compared to a net recovery of loan losses of $0.6 million for the quarter ended June 30, 2021 and net loan charge-offs of $1.1$0.04 million, or 0.12%less than 0.01% of average loans annualized, for the thirdsecond quarter 2020.2022 and $0.3 million, or 0.04% of average loans annualized for the quarter ended September 30, 2021.

❖
Asset quality remains strong from prior quarter as our nonperforming loans, excluding troubled debt restructurings (“TDRs”), decreased slightly to $18.7$13.7 million at September 30, 20212022 from $21.1$13.8 million at June 30, 20212022 and $26.6decreased $2.9 million from the $16.6 million at December 31, 2021.  Nonperforming assets at $15.6 million decreased $0.2 million from June 30, 2022 and $4.6 million from December 31, 2020.  Nonperforming assets at $23.0 million decreased $3.9 million from June 30, 2021 and $11.2 million from December 31, 2020.2021.

❖
Deposits, including repurchase agreements, decreased $106.0increased $53.5 million, an annualized 9.0%4.5%, during the quarter but increased $216.3and $149.8 million, or an annualized 6.6%4.3%, from December 31, 2020.  The decrease from prior quarter was primarily due to the transfer of a $75 million repurchase agreement into a managed fund with our trust subsidiary.2021.

❖
Shareholders’ equity declined $29.5 million, an annualized 18.5%, during the quarter and $95.6 million, an annualized 18.3%, from December 31, 2021, as a result of the continued increase in unrealized losses on our securities portfolio.

❖
Noninterest income for the quarter ended September 30, 20212022 of $14.4$14.7 million decreased fromwas $0.2 million, or 1.2%, above prior quarter by $1.1and $0.3 million, or 7.3%2.0%, and $0.5 million, or 3.5%, fromabove prior year same quarter.

❖
Noninterest expense for the quarter ended September 30, 20212022 of $30.3$31.5 million increased $0.8was $1.5 million, or 2.8%5.0%, fromhigher than prior quarter and $0.9$1.1 million, or 2.9%3.8%, fromabove prior year same quarter.

46
COVID-19

We continue working with our customers through the COVID-19 pandemic.  At September 30, 2021, the number of customers with CARES Act deferrals reduced to 27 for a total outstanding amount of $15.8 million.  The majority of our CARES Act deferrals have been 90 day deferrals.  Total outstanding deferrals include 6 commercial loan deferrals with a total outstanding amount of $14.3 million, 17 residential loan deferrals with a total outstanding amount of $1.4 million, and 4 consumer loan deferrals with a total outstanding amount of $0.1 million.  These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act.  Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans disclosed below.

At September 30, 2021, we had closed 6,312 Paycheck Protection Program (PPP) loans totaling $401.3 million, including 3,352 loans totaling $124.3 million stemming from the Consolidated Appropriations Act 2021 (second round).  Through September 30, 2021, we have had 4,730 of our PPP loans totaling $297.7 million forgiven by the SBA, and repaid to CTB, including 1,877 loans totaling $35.9 million from the second round.

Income Statement Review

(dollars in thousands)
Nine Months Ended September 30
 2021    2020  Change 2021 vs. 2020 
 Amount  Percent 
(dollars in thousands)       Change 2022 vs. 2021 
Nine Months Ended September 30 2022  2021  Amount  Percent 
Net interest income 
$
122,263
  
$
112,386
  
$
9,877
  
8.8
%
 
$
124,358
  
$
122,263
  
$
2,095
  
1.7
%
Provision for credit losses (recovery) 
(6,919
)
 
15,091
  
(22,010
)
 
(145.9
)
 
3,366
  
(6,919
)
 
10,285
  
(148.6
)%
Noninterest income 
45,486
  
39,311
  
6,175
  
15.7
  
44,145
  
45,486
  
(1,341
)
 
(2.9
)%
Noninterest expense 
88,136
  
85,603
  
2,533
  
3.0
  
90,812
  
88,136
  
2,676
  
3.0
%
Income taxes  
17,841
   
7,325
   
10,516
   
143.6
   
14,954
  
17,841
  
(2,887
)
 
(16.2
)%
Net income 
$
68,691
  
$
43,678
  
$
25,013
  
57.3
%
 
$
59,371
  
$
68,692
  
$
(9,321
)
 
(13.6
)%
                        
Average earning assets 
$
5,109,934
  
$
4,475,200
  
$
634,734
  
14.2
%
 
$
5,146,251
  
$
5,109,934
  
$
36,317
  
0.7
%
                        
Yield on average earning assets,
tax equivalent*
 
3.52
%
 
3.99
%
 
(0.47
)%
 
(11.9
)%
Yield on average earnings assets, tax equivalent*
 
3.66
%
 
3.52
%
 
0.14
%
 
4.1
%
Cost of interest bearing funds 
0.46
%
 
0.91
%
 
(0.45
)%
 
(50.1
)%
 
0.63
%
 
0.46
%
 
0.17
%
 
39.1
%
            
Net interest margin, tax equivalent* 
3.22
%
 
3.37
%
 
(0.15
)%
 
(4.6
)%
 
3.25
%
 
3.22
%
 
0.03
%
 
1.0
%

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

47
Net Interest Income

       
Percent
Change
3Q 2022
Compared to:
       
($ in thousands)   
3Q
2021
     
2Q
2021
    
3Q
2020
    
Percent Change
3Q 2021
Compared to:
  
YTD
2021
     
YTD
2020
    
Percent
Change
   
3Q
2022
 
2Q
2022
 
3Q
2021
 2Q
2022		 3Q
2021		 
YTD
2022
 
YTD
2021
 Percent
 Change		 
2Q
2021
  
3Q
2020
  
Components of net interest income                        
Components of net interest income:                 
Income on earning assets $45,952  $44,105  $43,815  4.2% 4.9% $134,485  $133,832   0.5% $51,405 $45,352 $45,726 
13.3
%
 
12.4
%
 $140,284 $133,812 
4.8
%
Expense on interest bearing liabilities 3,712  3,868  5,946  (4.0) (37.6)  11,549  20,907   (44.8) 7,869 4,562 3,712 
72.5
%
 
112.0
%
 15,926 11,549 
37.9
%
Net interest income (tax equivalent) $42,240  $40,237  $37,869  5.0% 11.5% $122,936  $112,925   8.9%
Net interest income 43,536 40,790 42,014 
6.7
%
 
3.6
%
 124,358 122,263 
1.7
%
TEQ 
240
 
233
 
226
 
3.0
%
 
6.2
%
 
707
 
673
 
5.1
%
Net interest income, tax equivalent $43,776 $41,023 $42,240 6.7% 3.6% $125,065 $122,936 1.7%
                                           
Average yield and rates paid                          
Average yield and rates paid:                 
Earning assets yield 3.52% 3.41% 3.66% 3.1% (3.8)%  3.52% 3.99%  (11.9)% 3.97% 3.56% 3.52% 11.6% 12.8% 3.66% 3.52% 4.1%
Rate paid on interest bearing liabilities  0.43   0.45   0.73   (4.7)  (40.9)  0.46   0.91   (50.1)  0.93%  0.54%  0.43%  71.4%  115.2%  0.63%  0.46%  39.1%
Gross interest margin 3.09% 2.96% 2.93% 4.3% 5.4%  3.06% 3.08%  (0.6)% 3.04% 3.02% 3.09% 0.7% (1.6%) 3.03% 3.06% (1.0%)
Net interest margin 3.23% 3.11% 3.16% 3.8% 2.3%  3.22% 3.37%  (4.6)% 3.36% 3.20% 3.23% 5.1% 4.1% 3.25% 3.22% 1.0%
                                           
Average balances                          
Average balances:                 
Investment securities $1,511,178  $1,223,123  $946,426  23.55% 59.7% $1,266,850  $770,184   64.5% $1,380,881 $1,452,021 $1,511,178 (4.9%) (8.6%) $1,438,769 $1,266,850 13.6%
Loans $3,400,194  $3,495,655  $3,539,520  (2.73)% (3.9)% $3,480,860  $3,421,749   1.7% $3,568,174 $3,538,324 $3,400,194 0.8% 4.9% $3,516,114 $3,480,860 1.0%
Earning assets $5,184,749  $5,184,923  $4,768,869  0.00% 8.7% $5,109,934  $4,475,200   14.2% $5,163,624 $5,140,656 $5,184,749 0.4% (0.4%) $5,146,251 $5,109,934 0.7%
Interest-bearing liabilities $3,410,286  $3,424,218  $3,238,474   (0.41)%  5.3% $3,390,178  $3,060,851   10.8% $3,359,242 $3,373,741 $3,410,286 (0.4%) (1.5%) $3,361,097 $3,390,178 (0.9%)

Net interest income for the quarter of $42.0 million increased $2.0 million, or 5.0%, from second quarter 2021 and $4.3 million, or 11.5%, from third quarter 2020.  Our net interest income excluding PPP loans for the quarter ended September 30, 20212022 of $43.5 million was $37.9$2.7 million compared to $36.7above prior quarter and $1.5 million for the quarter ended June 30, 2021 and $36.6 million for the quarter ended September 30, 2020.above prior year same quarter.  Our net interest margin, on a fully tax equivalent basis, at 3.23%3.36%  for the third quarter 2022 increased 1216 basis points from prior quarter and 713 basis points from prior year same quarter, as our average earning assets decreased $0.2increased $23.0 million from prior quarter but increased $415.9decreased $21.1 million from prior year same quarter.  Our yield on average earning assets for the third quarter 2022 increased 1141 basis points from prior quarter but decreased 14and 45 basis points from prior year same quarter, and our cost of funds decreased 2increased 39 basis points from prior quarter and 3050 basis points from prior year same quarter.  The improvement in our net interest margin resulted primarily from a redeployment of Federal Reserve funds into our investment portfolio  Noninterest bearing deposits at September 30, 2022 increased $72.9 million over prior quarter and forgiveness of PPP loans.  As discussed more fully below, the impact of the PPP loans to the net interest margin for the third quarter 2021 was 25 basis points.$162.9 million over prior year.  Net interest income for the nine months ended September 30, 20212022 increased $9.9$2.1 million or 8.8%, compared to1.7% from the nine months ended September 30, 2020.2021.

The PPP loan portfolio had an annualized yield for the quarter of 12.24%, a 620 basis point increase from the 6.04% yield in the second quarter 2021.  Interest income on the portfolio was $0.4 million during the quarter, down $0.2 million from prior quarter, while the amortization of net loan origination fees from current outstanding loans and recognition of net fee income from paid and forgiven loans was $4.0 million, up $1.0 million from prior quarter.  These fees are amortized over the life of the loan with any unamortized balance fully recognized at the time of loan forgiveness.  The impact of the PPP loan portfolio to the net interest margin was 25 basis points for the third quarter 2021, an 11 basis point increase from the 14 basis points for the second quarter 2021.

48
Our ratio of average loans to deposits, including repurchase agreements, was 75.4% for the quarter ended September 30, 2022 compared to 75.2% for the quarter ended June 30, 2022 and 73.1% for the quarter ended September 30, 2021 compared to 75.0% for the quarter ended June 30, 2021 and 82.8% for the quarter ended September 30, 2020..

48
Provision for Credit Losses

We recovered $0.2 million of our provision for credit losses during the quarter ended September 30, 2021 as a result of improved credit metrics.  We also recognized a recapture of allowance for credit losses in the second quarter 2021 with a credit to the provision for credit losses of $4.3 million.  Provision for credit losses for the quarter ended September 30, 2022 was $2.4 million, compared to provision of $0.1 million for the quarter ended June 30, 2022 and a recovery of provision of $0.2 million for the third quarter 2020 totaled $2.42021.  Year-to-date provision was $3.4 million compared to a recovery of $6.9 million during the first nine months of 2021.  The primary reasons for the change in provision expense year over year were the release of reserves that occurred in 2021 and the funding of additional loan growth that has occurred in 2022.  Loans declined $156.0 million for the nine months ended September 30, 2021, while loans have grown $221.8 million for the nine months ended September 30, 2022.  .  Our reserve coverage (allowance for credit losses to nonperforming loans) at September 30, 20212022 was 220.0%324.5% compared to 197.2%305.9% at June 30, 20212022 and 160.7%220.0% at September 30, 2020.2021.  Our credit loss reserve as a percentage of total loans outstanding at September 30, 20212022 was 1.21% (1.25% excluding PPP loans)1.22% compared to 1.21%1.19% at June 30, 2021 (1.27% excluding PPP loans)2022 and 1.35%1.21% at September 30, 2020 (1.46% excluding PPP loans).2021.

Noninterest Income

       
Percent Change
3Q 2022 Compared
to:
       
($ in thousands)   
3Q
2021
   
2Q
2021
  
3Q
2020
  
Percent Change
3Q 2021 Compared
to:
    
YTD
2021
   
YTD
2020
  
Percent
Change
   
3Q
2022
 
2Q
2022
 
3Q
2021
 
2Q
2022
 
3Q
2021
 YTD
2022		 
YTD
2021
 
Percent
Change
 
2Q
2021
  
3Q
2020
Deposit service charges $7,066 $6,358 $6,296 11.1% 12.2% $19,446 $17,179  13.2%
Deposit related fees $7,629 $7,263 $7,066 5.0% 8.0% $21,638 $19,446 11.3%
Trust revenue 3,039 3,349 2,692 (9.2) 12.9   9,339  8,145  14.7  2,989 3,198 3,039 (6.5%) (1.6%) 9,435 9,339 1.0%
Gains on sales of loans 1,239 1,907 2,470 (35.0) (49.8)  5,579  4,706  18.6  235 519 1,239 (54.7%) (81.0%) 1,351 5,579 (75.8%)
Loan related fees 1,050 1,004 1,383 4.7  (24.0)  4,324  2,300  88.0  1,589 1,415 1,050 12.3% 51.3% 5,066 4,324 17.2%
Bank owned life insurance revenue 654 581 602 12.4  8.7   1,808  1,739  4.0  743 702 654 5.8% 13.6% 2,136 1,808 18.1%
Brokerage revenue 519 554 310 (6.3) 67.4   1,530  995  53.7  453 459 519 (1.3%) (12.8%) 1,502 1,530 (1.8%)
Other  821  1,768  1,158  (53.7)  (29.3)  3,460  4,247  (18.6)  1,041  945  821  10.3%  26.9%  3,017  3,460  (12.8%)
Total noninterest income $14,388 $15,521 $14,911  (7.3)%  (3.5)% $45,486 $39,311  15.7% $14,679 $14,501 $14,388 1.2% 2.0% $44,145 $45,486 (2.9%)

Noninterest income for the quarter ended September 30, 20212022 of $14.4$14.7 million was a decrease of $1.1$0.2 million, or 7.3%1.2%, fromabove prior quarter and $0.5$0.3 million, or 3.5%2.0%, fromabove prior year same quarter.  The decrease from prior quarter over quarter increase included decreasesa $0.4 million increase in deposit related fees and a $0.2 million increase in loan related fees, partially offset by a $0.3 million decrease in gains on sales of loans ($0.7 million),and a $0.2 million decrease in trust revenue ($0.3 million), securities gains ($0.3 million), and other operating revenue ($0.4 million), partially offset by an increase in deposit service charges ($0.7 million).  The decreaserevenue.  Year-to-date noninterest income decreased $1.3 million from prior year same quarter included decreases in gains on sales of loans ($1.2 million), loan related fees ($0.3 million), and securities gains ($0.2 million), partially offset by increases in deposit service charges ($0.8 million) and trust revenue ($0.3 million).  Noninterest income for the nine months ended September 30, 2021 due to a $4.2 million decline in gains on sales of $45.5loans, partially offset by a $2.2 million wasincrease in deposit related fees and a $6.2$0.7 million or 15.7%, increase from the nine months ended September 30, 2020.

in loan related fees.  Gains on sales of loans continue to be impacted by the slowdown in the industry-wide mortgage refinancing boom.  Deposit service charges were impacted during the quarter by an increase in overdraft charges. The year over year increase in noninterest income was driven by increases in gains on sales of loans, deposit service charges, trust revenue, and loan related fees.  Deposit service chargesfees were primarily impacted year over year by an increase in debit card income.income and overdraft charges.  Loan related fees were primarily impacted by the increasechange in the fair market value of mortgage servicing rights.  The decrease in trust revenue quarter over quarter was due to the decline in the market value of managed assets.

49
Noninterest Expense

($ in thousands)   
3Q
2021
   
2Q
2021
  
3Q
2020
  
Percent Change
3Q 2021 Compared
to:
  
YTD
2021
   YTD 2020  
Percent
Change
  
       
Percent Change
3Q 2022 Compared
to:
       
($ in thousands)   
3Q
2021
   
2Q
2021
  
3Q
2020
  
2Q
2021
 
3Q
2020
  
YTD
2021
   YTD 2020  
Percent
Change
   
3Q
2022
 
2Q
2022
 
3Q
2021
 
2Q
2022
 
3Q
2021
 
YTD
2022
 
YTD
2021
 
Percent
Change
 
 2.2% 2.8 $12,537 $12,219 $11,962 2.6% 4.8% $36,495 $35,080 4.0%
Employee benefits 6,891 7,254 4,497 (5.0) 53.3 19,566 11,670 67.7  6,009 6,315 6,891 (4.8%) (12.8%) 18,123 19,566 (7.4%)
Net occupancy and equipment 2,733 2,668 2,724 2.4 0.3 8,229 8,054 2.2  2,897 2,756 2,733 5.1% 6.0% 8,507 8,229 3.4%
Data processing 1,911 1,870 1,936 2.3 (1.2) 5,940 5,789 2.6  2,270 2,095 1,911 8.3% 18.8% 6,566 5,940 10.5%
Legal and professional fees 685 753 1,001 (9.2) (31.6) 2,331 3,057 (23.7) 752 884 685 (15.0%) 9.7% 2,503 2,331 7.4%
Advertising and marketing 819 710 797 13.5 2.8 2,251 1,999 12.6  769 659 819 16.7% (6.1%) 2,180 2,251 (3.2%)
Telephone 486 502 500 (3.1) (2.7) 1,498 1,389 7.8 
Taxes other than property and payroll 422 425 464 (0.8%) (9.1%) 1,274 1,209 5.4%
Net other real estate owned expense
 41 43 296 (4.3%) (86.2%) 438 1,102 (60.2%)
Other 4,841 4,035 6,378 20.0 (24.1) 13,241 18,994 (30.3)  5,778  4,582  4,567  26.1%  26.5%  14,726  12,428  18.5%
Total noninterest expense $30,328 $29,498 $29,473 2.8% 2.9% $88,136 $85,603 3.0% $31,475 $29,978 $30,328 5.0% 3.8% $90,812 $88,136 3.0%

Noninterest expense for the quarter ended September 30, 20212022 of $30.3$31.5 million increased $0.8was $1.5 million, or 2.8%5.0%, fromhigher than prior quarter and $0.9$1.1 million, or 2.9%3.8%, fromabove prior year same quarter.  The increase in noninterest expense quarter over quarter included increases in operating losses ($0.3 million), marketing and promotional expense ($0.2 million), and loan related expense ($0.2 million).  The increase from prior year same quarter was primarily the result of an increase in personnel expense ($2.7 million), partially offset by decreases in taxes other than property and payroll ($1.4 million), net other real estate owned expense ($0.2 million), and repossession expense ($0.2 million).  The increase in personnel expense included a $1.8$1.4 million increase in bonuses and incentives as we increased the accrualsaccrual for incentive payments based on our current projected earnings for the year.customer refunds of re-presented returned item fees.  Noninterest expense for the nine months ended September 30, 2021 increased $2.52022 was $2.7 million or 3.0%, compared tohigher than the nine months ended September 30, 2020.2021.

Balance Sheet Review

CTBI’s total assets at $5.4September 30, 2022 of $5.5 billion decreased $108.6increased $27.0 million, or 7.8%an annualized 2.0%, from June 30, 2021 but increased $246.42022 and $56.1 million, or 6.4%an annualized 1.4%, from December 31, 2020.2021.  Loans outstanding at September 30, 20212022 were $3.4$3.6 billion, a decreasean increase of $50.3$72.2 million, an annualized 5.8%8.0%, from June 30, 20212022 and $156.0$221.8 million, or 5.9%an annualized 8.7%, from December 31, 2020.  Loans, excluding PPP2021.  The increase in loans increased $26.6 million during the quarter, withincluded a $17.9$38.9 million increase in the commercial loan portfolio, a $3.5 million increase in the direct consumer loan portfolio, a $2.8$26.3 million increase in the residential loan portfolio, and a $2.4$5.9 million increase in the indirect consumer loan portfolio.  The PPPportfolio, and a $1.1 million increase in the consumer direct loan portfolio declined $76.9 million as a result of SBA forgiveness.portfolio.  CTBI’s investment portfolio increased $168.1decreased $103.7 million, or an annualized 49.0%29.3%, from June 30, 20212022 and $528.5$156.8 million, or 70.9%an annualized 14.4%, from December 31, 2020 as we redeployed funds from our Federal Reserve account into our investment portfolio.  Interest bearing deposits2021.  Deposits in other banks decreased $249.8increased $62.8 million from prior quarter and $143.2but decreased $66.1 million from December 31, 2020, as we moved funds out of a lower yielding asset into our investment portfolio.2021.  Deposits, including repurchase agreements, at $4.6$4.8 billion decreased $106.0increased $53.5 million, or an annualized 9.0%4.5%, from June 30, 2021 but increased $216.32022 and $149.8 million, or 6.6%an annualized 4.3%, from December 31, 2020.  The decrease from prior quarter was primarily due to the transfer of a $75 million repurchase agreement into a managed fund with our trust subsidiary.2021.

50
Shareholders’ equity at September 30, 20212022 was $691.6$602.6 million, a $7.6$29.5 million, increaseor annualized 18.5%, decrease from the $684.1$632.0 million at June 30, 2021,2022 and a $36.8$95.6 million, increaseor annualized 18.3%, decrease from the $654.9$698.2 million at December 31, 2020.  Our tangible common equity/tangible assets ratio at2021, as a result of the continued increase in unrealized losses on our securities portfolio.  CTBI’s annualized dividend yield to shareholders as of September 30, 20212022 was 11.77%4.34%.

Loans
(in thousands)
 September 30, 2021 
Loan Category Balance  
Variance
from Prior
Year-End
  
YTD
Net (Charge-
Offs)/
Recoveries
  Nonperforming  ACL 
Commercial:               
Hotel/motel 
$
252,951
   
(3.0
)%
 
$
0
  
$
1,099
  
$
5,207
 
Commercial real estate residential  
330,660
   
14.8
   
(21
)
  
1,596
   
3,876
 
Commercial real estate nonresidential  
732,442
   
(1.5
)
  
46
   
5,635
   
8,630
 
Dealer floorplans  
61,423
   
(11.1
)
  
0
   
0
   
1,176
 
Commercial other  
286,209
   
2.3
   
(178
)
  
628
   
4,743
 
Commercial unsecured SBA PPP  
99,116
   
(60.8
)
  
0
   
0
   
0
 
Total commercial  
1,762,801
   
(6.9
)
  
(153
)
  
8,958
   
23,632
 
                     
Residential:                    
Real estate mortgage  
763,005
   
(2.7
)
  
(180
)
  
8,497
   
7,438
 
Home equity  
105,007
   
1.2
   
(19
)
  
959
   
845
 
Total residential  
868,012
   
(2.3
)
  
(199
)
  
9,456
   
8,283
 
                     
Consumer:                    
Consumer direct  
155,022
   
1.8
   
(113
)
  
114
   
1,841
 
Consumer indirect  
612,394
   
(1.2
)
  
577
   
206
   
7,459
 
Total consumer  
767,416
   
(0.6
)
  
464
   
320
   
9,300
 
                     
Total loans 
$
3,398,229
   
(4.4
)%
 
$
112
  
$
18,734
  
$
41,215
 
50
Loans

Total Deposits and Repurchase Agreements             
           
Percent Change
3Q 2021 Compared to:
 
($ in thousands) 
3Q
2021
  
2Q
2021
  
YE
2020
  
2Q
2021
  
YE
2020
 
Non-interest bearing deposits $1,318,158  $1,286,989  $1,140,925   2.4%  15.5%
Interest bearing deposits                    
Interest checking  90,657   99,226   78,308   (8.6)  15.8 
Money market savings  1,210,551   1,281,431   1,228,742   (5.5)  (1.5)
Savings accounts  616,561   596,426   527,436   3.4   16.9 
Time deposits  1,060,309   1,059,630   1,040,671   0.1   1.9 
Repurchase agreements  292,022   370,568   355,862   (21.2)  (17.9)
Total interest bearing deposits and repurchase agreements  3,270,100   3,407,281   3,231,019   (4.0)  1.2 
Total deposits and repurchase agreements $4,588,258  $4,694,270  $4,371,944   (2.3)%  4.9%
(dollars in thousands) September 30, 2022 
Loan Category Balance  
Variance
 from Prior
Year
  
Net (Charge
Offs)/
Recoveries
  Nonperforming  ACL 
Commercial:
               
Hotel/motel
 
$
335,253
   
30.4
%
 
$
(216
)
 
$
0
  
$
4,883
 
Commercial real estate residential
  
359,643
   
7.3
   
5
   
492
   
4,876
 
Commercial real estate nonresidential
  
756,138
   
(0.2
)
  
143
   
3,642
   
9,595
 
Dealer floorplans
  
73,221
   
5.4
   
0
   
0
   
1,538
 
Commercial other
  
310,177
   
6.8
   
(304
)
  
422
   
5,197
 
Commercial unsecured SBA PPP
  
1,958
   
(95.9
)
  
0
   
0
   
0
 
Total commercial
  
1,836,390
   
4.5
   
(372
)
  
4,556
   
26,089
 
                     
Residential:
                    
Real estate mortgage
  
814,944
   
6.2
   
(147
)
  
7,983
   
7,835
 
Home equity
  
115,400
   
8.2
   
(5
)
  
803
   
940
 
Total residential
  
930,344
   
6.5
   
(152
)
  
8,786
   
8,775
 
                     
Consumer:
                    
Consumer direct
  
160,866
   
2.7
   
(39
)
  
9
   
1,674
 
Consumer indirect
  
703,016
   
13.2
   
(204
)
  
341
   
7,895
 
Total consumer
  
863,885
   
11.1
   
(165
)
  
350
   
9,569
 
                     
Total loans
 
$
3,630,616
   
6.5
%
 
$
(689
)
 
$
13,692
  
$
44,433
 

Total Deposits and Repurchase Agreements

           
Percent Change
3Q 2022 Compared to:
 
(dollars in thousands) 
3Q
2022
  2Q
2022		  
YE
2021
  2Q
2022		  
YE
2021
 
Non-interest bearing deposits $1,481,078  $1,408,148  $1,331,103   5.2%  11.3%
Interest bearing deposits                    
Interest checking  100,680   99,055   97,064   1.6%  3.7%
Money market savings  1,268,682   1,243,817   1,206,401   2.0%  5.2%
Savings accounts  683,697   671,349   632,645   1.8%  8.1%
Time deposits  1,000,931   1,050,559   1,077,079   (4.7)%  (7.1)%
Repurchase agreements  230,123   238,733   271,088   (3.6)%  (15.1)%
Total interest bearing deposits and repurchase agreements  3,284,113   3,303,513   3,284,277   (0.6)%  0.0%
Total deposits and repurchase agreements $4,765,191  $4,711,661  $4,615,380   1.1%  3.2%

51
Asset Quality

CTBI’s total nonperforming loans, not including performing troubled debt restructurings, were $18.7excluding TDRs, decreased slightly to $13.7 million or 0.55% of total loans, at September 30, 2021 compared to $21.12022 from $13.8 million or 0.61% of total loans, at June 30, 20212022 and $26.6decreased $2.9 million or 0.75% of total loans,from the $16.6 million at December 31, 2020.2021.  Accruing loans 90+ days past due at $6.7$5.6 million increased $0.5 million from prior quarter but decreased $0.4 million from December 31, 2021.  Nonaccrual loans at $8.1 million decreased $1.6$0.7 million from prior quarter and $10.5$2.5 million from December 31, 2020.  Nonaccrual loans at $12.1 million decreased $0.8 million during the quarter but increased $2.6 million from December 31, 2020.2021.  Accruing loans 30-89 days past due at $8.9$12.1 million decreased $2.0increased $1.5 million from prior quarter and $3.6$1.2 million from December 31, 2020.2021.  Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.  Our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due.  Any activity regarding a criticized/classified loan (i.e. problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee).  CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of $100,000 or greater.  CTB’s Loan Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio.  We also have a Loan Review Department that reviews every market within CTB annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, troubled debt restructuring,TDR, nonaccrual status, and adequate loan loss reserves.  The Loan Review Department has annually reviewed, on average, 96% of the outstanding commercial loan portfolio for the past three years.  The average annual review percentage of the consumer and residential loan portfolio for the past three years was 86% based on the loan production during the number of months included in the review scope.  The review scope is generally four to six months of production.  CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.

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

Our level of foreclosed properties at $4.3$1.9 million at September 30, 20212022 was a $1.5$0.1 million decrease from the $5.8$2.0 million at June 30, 20212022 and a $3.4$1.6 million decrease from the $7.7$3.5 million at December 31, 2020.2021.  Sales of foreclosed properties for the nine months ended September 30, 20212022 totaled $3.6$1.9 million while new foreclosed properties totaled $0.9$0.5 million.  At September 30, 2021,2022, the book value of properties under contracts to sell was $0.4 million; however, the closings had not occurred at quarter-end.

When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current market value less expected sales costs.  Additionally, periodic updated appraisals are obtained on unsold foreclosed properties.  When an updated appraisal reflects a fair market value below the current book value, a charge is booked to current earnings to reduce the property to its new market value less expected sales costs.  Charges to earnings in the third quarter 2021 to reflect the decrease in current market values of foreclosed properties totaled $0.1 million.  There were ten properties reappraised during the third quarter 2021.  Of these, three properties were written down by a total of $19 thousand.  Charges to earnings during the quarters ended June 30, 2021 and September 30, 2020 were $0.1 million and $0.3 million, respectively.  Charges to earnings for the nine months ended September 30, 2021 were $0.6 million compared to $1.0 million for the nine months ended September 30, 2020.  Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months.  Approximately 74% of our OREO properties and approximately 90% of the book value of our OREO properties have appraisals dated within the past 18 months.

52
The appraisal aging analysis of foreclosed properties, as well as the holding period, at September 30, 20212022 is shown below:

(in thousands)   
(dollars in thousands)(dollars in thousands)   
Appraisal Aging AnalysisAppraisal Aging Analysis Holding Period Analysis Appraisal Aging Analysis Holding Period Analysis 
Days Since Last
Appraisal
 
Number of
Properties
  
Current Book
Value
 Holding Period 
Current Book
Value
  
Number of
Properties
  
Current Book
Value
 Holding Period 
Current Book
Value
 
Up to 3 months 
10
  
$
457
 Less than one year 
$
2,243
  
1
  
$
40
 Less than one year 
$
104
 
3 to 6 months 
5
  
704
 1 year 
314
  
1
  
20
 1 year 
670
 
6 to 9 months 
7
  
633
 2 years 
222
  
14
  
1,311
 2 years 
92
 
9 to 12 months 
10
  
1,156
 3 years 
128
  
3
  
111
 3 years 
37
 
12 to 18 months 
2
  
936
 4 years 
84
  
3
  
81
 4 years 
101
 
18 to 24 months 
10
  
357
 5 years 
450
  
4
  
301
 5 years 
62
 
Over 24 months  
2
   
71
 6 years 
148
 
Total 
46
  
$
4,314
 7 years 
648
  
26
  
$
1,864
 6 years 
234
 
      8 years 
50
       7 years 
6
 
      9 years 
27
       8 years 
558
 
      Total 
$
4,314
       9 years 
0
 
      Total 
$
1,864
 

Regulatory approval is required and has been obtained to hold foreclosed properties beyond the initial period of 5five years.  Additionally, CTBI is required to dispose of any foreclosed property that has not been sold within 10 years.  As of September 30, 2021, one foreclosed property with a total book value of $27 thousand had been held by us for at least nineten years.

Net loan charge-offs for the quarter were $0.3 million, or 0.04% of average loans annualized, for the quarter ended September 30, 2022 compared to net loan charge-offs of $42 thousand, less than 0.01% of average loans annualized, for the second quarter 2022 and net loan charge-offs for the third quarter 2021 of $0.3 million.  Year-to-date net loan charge-offs were $0.7 million, 0.03% of average loans annualized, compared to a net recovery of loan lossescharge-offs of $0.6$0.1 million for the quarter ended June 30, 2021 and net loan charge-offs of $1.1 million, or 0.12% of average loans annualized, for the third quarter 2020.  For thefirst nine months ended September 30, 2021, we experienced a net recovery of loan losses of $0.1 million compared to net charge-offs of $5.2 million, or 0.20% of average loans annualized, for the nine months ended September 30, 2020.2021.

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Dividends

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

Pay DateRecord Date Amount Per Share 
October 1, 2021September 15, 2021 
$
0.400
 
July 1, 2021June 15, 2021 
$
0.385
 
April 1, 2021March 15, 2021 
$
0.385
 
January 1, 2021December 15, 2020 
$
0.385
 
October 1, 2020September 15, 2020 
$
0.385
 
July 1, 2020June 15, 2020 
$
0.380
 
Pay DateRecord DateAmount Per Share
October 1, 2022September 15, 2022$0.440
July 1, 2022June 15, 2022$0.400
April 1, 2022March 15, 2022$0.400
January 1, 2022December 15, 2021$0.400
October 1, 2021September 15, 2021$0.400
July 1, 2021June 15, 2021$0.385

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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.  As of September 30, 2021,2022, we had approximately $207.8$259.6 million in cash and cash equivalents and approximately $1.5$1.3 billion in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $338.2$311.8 million and $997.3 million$1.5 billion at December 31, 2020.2021.  Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans.  In addition to core deposit funding, we also have a variety of other short-term and long-term funding sources available.  We also rely on Federal Home Loan Bank advances for both liquidity and management of our asset/liability position.  Federal Home Loan Bank advances were $0.4 million at September 30, 20212022 and at December 31, 2020.2021.  As of September 30, 2021,2022, we had a $489.2$517.3 million available borrowing position with the Federal Home Loan Bank, compared to $477.2$484.4 million at December 31, 2020.2021.  We generally rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash for our investing activities.  As is typical of many financial institutions, significant financing activities include deposit gathering, use of short-term borrowing facilities such as repurchase agreements and federal funds purchased, and issuance of long-term debt.  At September 30, 20212022 and at December 31, 2020,2021, we had $75 million in lines of credit with various correspondent banks available to meet any future cash needs.  Our primary investing activities include purchases of securities and loan originations.  We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs.  Included in our cash and cash equivalents at September 30, 20212022 were deposits with the Federal Reserve of $138.2$194.6 million, compared to $280.7$262.4 million at December 31, 2020.  At September 30, 2021, cash and cash equivalents included federal funds sold of $1.0 million; however, we had no federal funds sold as of December 30, 2020.2021.  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, 2021,2022, available-for-sale (“AFS”) securities comprised allof the total investment portfolio, and the AFS portfolio was approximately 221%216% of equity capital.  SixtySixty-seven percent of 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.

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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-month12-month period.

Capital Resources

We continue to growoffer a dividend to our shareholders’ equity while alsoshareholders, providing an annualized dividend yield to shareholders which, asfor the quarter ended September 30, 2022 of 4.34%.  Shareholders’ equity declined $29.5 million, or an annualized 13.5%, during the quarter and $89.1 million, or 12.9%, from September 30, 2021, was 3.80%.  Shareholders’ equity at September 30, 2021 was $691.6 million,as a $47.2 millionresult of the continued increase from the $644.4 million at September 30, 2020.  Cash dividends were $1.170 per share and $1.145 per share for the nine months ended September 30, 2021 and 2020, respectively.in unrealized losses on our securities portfolio.  Our primary source of capital growth is the retention of earnings.  Cash dividends were $1.24 per share and $1.17 per share for the nine months ended September 30, 2022 and 2021, respectively.  We retained 69.7%62.8% of our earnings for the first nine months of 20212022 compared to 53.5%69.7% for the first nine months of 2020.2021.

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

In April 2020, as directed by Section 4012 of the CARESCoronavirus Aid, Relief, and Economic Security Act, the regulatory agencies introduced temporary changes to the CBLR.CBLR framework.  These changes, which subsequently were adopted as a final rule, temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020.  Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calendar year before returning to 9% in calendar year 2022.  The final rule also provides for a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.  Management elected to use the CBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of September 30, 20212022 was 12.71%13.24%.  CTB’s CBLR ratio as of September 30, 20212022 was 12.15%12.68%.  Under either framework, CTBI and CTB would be considered well-capitalized under the applicable guidelines.

As of September 30, 2021,2022, we are not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse impact on our liquidity, capital resources, or operations.

54
Impact of Inflation, Changing Prices, and Economic Conditions

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

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

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

55
Stock Repurchase Program

CTBI’s stock repurchase program began in December 1998 with the authorization to acquire up to 500,000 shares and was increased by an additional 1,000,000 shares in each of July 2000, May 2003, and March 2020.  CTBI repurchased 32,664 shares of its common stock during the first quarter 2020, leaving 1,034,706 shares remaining under our current repurchase authorization.  As of September 30, 2021,2022, 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 theour consolidated financial statements.

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

We have identified the following critical accounting policies:

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

a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturity securities) shall be classified as available-for-sale securities.
We do not have any securities that are classified as trading securities.  Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders’ equity, net of tax.  If declines in fair value are other than temporary, the carrying value of the securities is written down to fair value as a realized loss with a charge to income for the portion attributable to credit losses and a charge to other comprehensive income for the portion that is not credit related.

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

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

56
Held-to-maturity (“HTM”) securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts.  The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics.  These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased.  At September 30, 2021, CTBI held no securities designated as held-to-maturity.

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

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

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

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

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

57
Allowance for Credit Losses – CTBI accounts for the allowance for credit losses under ASC 326,(“ACL”) and the reserve for unfunded commitments in accordance with Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its related subsequent amendments, commonly known as CECL.

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

55
CTBI measuresmaintains the ACL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans.  Contractual terms are adjusted for expected prepayments but are not extended for expected extensions, renewals, or modifications except in circumstances where CTBI reasonably expects to execute a TDR with the borrower or where certain extension or renewal options are embedded in the original contract and not unconditionally cancellable by CTBI.  Accrued interest receivable on loans is presented in our consolidated financial statements as a component of other assets.  When accrued interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed.  In the event that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest in a timely manner.  Therefore, CTBI elected ASU 2019-04 which allows that accrued interest would continue to be presented separately and not part of the amortized cost of the loan.  For additional information on CTBI’s accounting policies related to nonaccrual loans, refer to Note 1 to the condensed consolidated financial statements contained herein.

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

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

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

56
Expected credit losses are estimated on a collective basis for loans that are not individually evaluated.  These include commercial loans that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and consumer portfolio segments.  For collateral-dependentcollectively evaluated commercial loans, CTBI uses a static pool methodology based on our risk rating system.  See Note 4 to the condensed consolidated financial assets,statements contained herein for information on CTBI’s risk rating system.  Other homogenous loans such as the residential mortgage and consumer portfolio segments derive their ACL from vintage modeling.  Vintage modeling was chosen primarily because these loans have fixed amortization schedules, and it allows CTBI to track loans from origination to completion, including repayments and prepayments, and captures net charge-offs by the different vintages providing historical loss rates.  These are the two primary models utilized for ACL determination although there are additional models for specific processes in addition.  CTBI’s expected credit loss models were developed based on historical credit loss experience and observations of migration patterns for various credit risk characteristics (such as internal credit risk grades, external credit ratings or scores, delinquency status, etc.) over time, with those observations evaluated in the context of concurrent macroeconomic conditions.  CTBI developed our models from historical observations capturing a full economic cycle when possible.

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

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

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

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.

57
Goodwill – Business combinations entered into by CTBI typically include the recognition of goodwill.  U.S. generally accepted accounting principles (“GAAP”) require goodwill to be tested for impairment on an annual basis, which for CTBI is October 1, and more frequently if events or circumstances indicate that there may be zero ifimpairment.  Refer to Note 1 to the fair value less costs to sell exceedcondensed consolidated financial statements contained herein for a discussion on the amortized cost of the loan.  Loans shall not be included in both collective assessments and individual assessments.

In the event that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest in a timely manner.  Therefore, CTBI elected ASU 2019-04 which allows that accrued interest would continue to be presented separately and not part of 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 allowanceassess goodwill for credit losses calculation by one basis point and is considered immaterial.  The primary difference is for indirect lending premiums.impairment.

We maintain an allowanceImpairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value.  In testing goodwill for credit losses (“ACL”) at a levelimpairment, U.S. GAAP permits CTBI to first assess qualitative factors to determine whether it is more likely than not that its fair value is appropriate to cover estimated credit losses on individually evaluated loans, as well as estimated credit losses inherent in the remainder of the loanless than its carrying amount.  In this qualitative assessment, CTBI evaluates events and lease portfolio.  Credit lossescircumstances which may include, but are charged and recoveries are creditednot limited to, the ACL.

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

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

When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made.less than its carrying amount.  If the balancequantitative impairment test is required or the decision to bypass the qualitative assessment is elected, CTBI performs the goodwill impairment test by comparing its fair value with its carrying amount, including goodwill.  If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of the loan exceedsgoodwill recorded.  A recognized impairment loss cannot be reversed in future periods even if the fair value of the collateral, the loan is placed on nonaccrual and the loan is charged down to the value of the collateral less estimated cost to sell.  For commercial loans greater than $1 million and classified as criticized, troubled debt restructuring, or nonaccrual, a specific reserve is established if a loss is determined to be possible and then charged-off once it is probable.  When the foreclosed collateral has been legally assigned to CTBI, the estimatedreporting unit subsequently recovers.

The fair value of CTBI is the collateral less costsprice that would be received to sell is then transferred to other real estate owned or other repossessed assets, andthe company as a charge-off is taken for any remaining balance.  When any unsecured commercial loan is considered uncollectablewhole in an orderly transaction between market participants at 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 assessmentmeasurement date.  The determination of the value of the real estate is made.  If the balance of the loan exceeds the fair value is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates, and an applicable control premium.  CTBI employs an income-based approach, utilizing forecasted cash flows and the estimated cost of equity as the discount rate.  Significant management judgment is necessary in the preparation of the 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 ownedforecasted cash flows surrounding expectations for earnings projections, growth and the remaining balance is taken as a charge-off.

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

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

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

Fair Value Measurements – As a financial services company, the expected future tax benefits and consequencescarrying value of temporary differences between carrying amounts and tax bases ofcertain financial assets and liabilities using enacted tax rates.  Any interestis impacted by the application of fair value measurements, either directly or indirectly.  In certain cases, an asset or liability is measured and penalties incurredreported at fair value on a recurring basis, such as available-for-sale investment securities.  In other cases, management must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment write-down or whether a valuation reserve should be established.  Given the inherent volatility, the use of fair value measurements may have a significant impact on the carrying value of assets or liabilities or result in connection with income taxes are recorded as a component of income tax expense in thematerial changes to our consolidated financial statements.  Duringstatements from period to period.  Detailed information regarding fair value measurements can be found in Note 7 to the nine months ended September 30, 2021 and 2020, CTBI did not recognize 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 3.94 percent3.83% over one year and 5.53 percent6.30% over two years.  A 25200 basis point decrease in the yield curve would decrease net interest income by an estimated 0.62 percent4.74% over one year and 1.49 percent7.04% over two years.  For further discussion of CTBI’s market risk, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Market Risk included in the annual report on Form 10-K for the year ended December 31, 2020.2021.

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Item 4.  Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

CTBI’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  As of the end of the period covered by this report, an evaluation was carried out by CTBI’s management, with the participation of our Vice Chairman, President, and Chief Executive Officer and the Executive Vice President, Chief Financial Officer, and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, management concluded that disclosure controls and procedures as of September 30, 20212022 were effective in ensuring material information required to be disclosed in this quarterly report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis.

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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in CTBI’s internal control over financial reporting that occurred during the three months ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, CTBI’s internal control over financial reporting.


PART II - OTHER INFORMATION

Item 1.Legal ProceedingsNone
   
Item 1A.Risk FactorsNone
   
Item 2.Unregistered Sales of Equity Securities and Use of ProceedsNone
   
Item 3.
Defaults Upon Senior Securities
None
   
Item 4.
Mine Safety Disclosure
Not applicable
   
Item 5.
Other Information:
 
 CTBI’s Principal Executive Officer and Principal Financial Officer have furnished to the SEC the certifications with respect to this Form 10-Q that are required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 
   
Item 6.Exhibits: 
 (1)   Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
Exhibit 31.2
 (2)   Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
Exhibit 32.2
 (3)   XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRLExhibit 101.INS
 (4)   XBRL Taxonomy Extension Schema DocumentExhibit 101.SCH
 (5)   XBRL Taxonomy Extension Calculation LinkbaseExhibit 101.CAL
 (6)   XBRL Taxonomy Extension Definition LinkbaseExhibit 101.DEF
 (7)   XBRL Taxonomy Extension Label LinkbaseExhibit 101.LAB
 (8)   XBRL Taxonomy Extension Presentation LinkbaseExhibit 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:  November 8, 2021
2022		By:
  
 /s/ Jean R. HaleMark A. Gooch
 Jean R. HaleMark A. Gooch
 Vice Chairman, President, and Chief Executive Officer
  
 /s/ Kevin J. Stumbo
 Kevin J. Stumbo
 Executive Vice President, Chief Financial Officer,
 and Treasurer


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