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 accruals) necessary, to present fairly the condensed consolidated financial position as of March 31, 2014, the results of operations for the three months ended March 31, 2014 and 2013, and the cash flows for the three months ended March 31, 2014 and 2013. In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements. The results of operations for the three months ended March 31, 2014 and 2013, and the cash flows for the three months ended March 31, 2014 and 2013, are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2013 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, 2013, 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. (the “Bank”) and Community Trust and Investment Company. All significant intercompany transactions have been eliminated in consolidation.
Reclassifications –
Certain reclassifications considered to be immaterial have been made in the prior year condensed consolidated financial statements to conform to current year classifications. These reclassifications had no effect on net income.
New Accounting Standards
–
Ø
Accounting for Investments in Qualified Affordable Housing Projects –
In January 2104, the FASB issued ASU No. 2014-01,
Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects
, which enables companies that invest in affordable housing projects that qualify for the low-income housing tax credit (LIHTC) to elect to use the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial investment cost of the project is amortized in proportion to the amount of tax credits and benefits received, with the results of the investment presented on a net basis as a component of income tax expense (benefit). ASU 2014-01 is effective for interim and annual periods beginning after December 15, 2014, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2014-01, but we do not expect the adoption to have a material effect on CTBI’s financial condition or results of operations.
Ø
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure
– In January 2014, the FASB also issued ASU No. 2014-04,
Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure
, which clarifies when an in-substance foreclosure or repossession of residential real estate property occurs, requiring a creditor to reclassify the loan to other real estate. According to ASU 2014-04, a consumer mortgage loan should be reclassified to other real estate either upon the creditor obtaining legal title to the real estate collateral or when the borrower voluntarily conveys all interest in the real estate property to the creditor through a deed in lieu of foreclosure or similar legal agreement. ASU 2014-04 also clarifies that a creditor should not delay reclassification when a borrower has a legal right of redemption. Our current practice is consistent with the new guidance. We expect to adopt ASU 2014-04 in the first quarter 2015 and do not expect the adoption to have a material effect on CTBI’s financial condition or results of operations.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements.
We believe the application of accounting policies and the estimates required therein are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
We have identified the following critical accounting policies:
Investments
–
Management determines the classification of securities at purchase. We classify securities into held-to-maturity, trading, or available-for-sale categories. Held-to-maturity securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320,
Investment Securities
, investments in debt securities that are not classified as held-to-maturity and equity securities that have readily determinable fair values shall be classified in one of the following categories and measured at fair value in the statement of financial position:
a. Trading securities
.
Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities
.
Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-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 securities are computed by specific identification for all securities except for shares in mutual funds, which are computed by average cost. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings.
When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair market value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other than temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the CTBI’s results of operations and financial condition.
Loans
–
Loans with the ability and the intent to be held until maturity and/or payoff are reported at the carrying value of unpaid principal reduced by unearned interest, an allowance for loan and lease losses, and unamortized deferred fees or costs. Income is recorded on the level yield basis. Interest accrual is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest. Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured. Loans are not reclassified as accruing until principal and interest payments remain current for a period of time, generally six months, and future payments appear reasonably certain. Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired. A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.
Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans, leases, or commitments as a yield adjustment.
Allowance for Loan and Lease Losses
–
We maintain an allowance for loan and lease losses (“ALLL”) at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Since arriving at an appropriate ALLL involves a high degree of management judgment, we use an ongoing quarterly analysis to develop a range of estimated losses. In accordance with accounting principles generally accepted in the United States, we use our best estimate within the range of potential credit loss to determine the appropriate ALLL. Credit losses are charged and recoveries are credited to the ALLL.
We utilize an internal risk grading system for commercial credits. Those larger commercial credits that exhibit probable or observed credit weaknesses are subject to individual review. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. The review of individual loans includes those loans that are impaired as defined by ASC 310-35,
Impairment of a Loan
. We evaluate the collectability of both principal and interest when assessing the need for loss provision. Historical loss rates are analyzed and applied to other commercial loans not subject to specific allocations. The ALLL allocation for this pool of commercial loans is established based on the historical average, maximum, minimum, and median loss ratios.
A loan is considered impaired when, based on current information and events, it is probable that CTBI will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded. The associated ALLL for these loans is measured under ASC 450,
Contingencies
.
When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made. If the balance of the loan exceeds the fair value of the collateral, the loan is placed on non-accrual and the loan is charged down to the value of the collateral less estimated cost to sell or a specific reserve equal to the difference between book value of the loan and the fair value assigned to the collateral is created until such time as the loan is foreclosed. When the foreclosed collateral has been legally assigned to CTBI, a charge off is taken, if necessary, in order that the remaining balance reflects the fair value estimated less costs to sell of the collateral then transferred to other real estate owned or other repossessed assets. When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.
All closed-end consumer loans (excluding conventional 1-4 family residential loans and installment and revolving loans secured by real estate) are charged off no later than 120 days (5 monthly payments) delinquent. If a loan is considered uncollectable, it is charged off earlier than 120 days delinquent. For conventional 1-4 family residential loans and installment and revolving loans secured by real estate, when a loan is 90 days past due, a current assessment of the value of the real estate is made. If the balance of the loan exceeds the fair value of the property, the loan is placed on nonaccrual. Foreclosure proceedings are normally initiated after 120 days. When the foreclosed property has been legally assigned to CTBI, a charge-off is taken with the remaining balance, reflecting the fair value less estimated costs to sell, transferred to other real estate owned.
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. During the quarter ended March 31, 2014, we continued to use twelve rolling quarters for our historical loss rate analysis. Factors that we consider include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge-offs, trends in loan losses, industry concentrations and their relative strengths, amount of unsecured loans, and underwriting exceptions. Based upon management’s judgment, “best case,” “worst case,” and “most likely” scenarios are determined. The total of each of these weighted factors is then applied against the applicable portion of the portfolio and the ALLL is adjusted accordingly to approximate the most likely scenario. Management continually reevaluates the other subjective factors included in its ALLL analysis.
Other Real Estate Owned
– When foreclosed properties are acquired, appraisals are obtained and the properties are booked 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 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. 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 by a charge to income.
Note 2 – Stock-Based Compensation
CTBI’s compensation expense related to stock option grants was $4 thousand and $2 thousand for the three months ended March 31, 2014 and 2013, respectively. Restricted stock expense for the three months ended March 31, 2014 and 2013 was $187 thousand and $162 thousand, respectively, including $30 thousand and $31 thousand in dividends paid for each period. As of March 31, 2014, there was a total of $12 thousand of unrecognized compensation expense related to unvested stock option awards that will be recognized as expense as the awards vest over a weighted average period of 2.5 years and a total of $1.4 million of unrecognized compensation expense related to restricted stock grants that will be recognized as expense as the awards vest over a weighted average period of 2.0 years.
There were 3,952 shares of restricted stock granted during the three months ended March 31, 2014, and 10,822 shares of restricted stock granted during the three months ended March 31, 2013. The restrictions on the restricted stock lapse ratably over four years or in the event of a change in control of CTBI or the death of the participant. In the event of the disability of the participant, the restrictions will lapse on a pro rata basis. The Compensation Committee of the Board of Directors will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement. There were no options granted to purchase shares of CTBI common stock during the three months ended March 31, 2014 and 1,500 options granted during the three months ended March 2013.
The fair values of options granted during the three months ended March 31, 2013, were established at the date of grant using a Black-Scholes option pricing model with the weighted average assumptions as follows:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2013
|
|
Expected dividend yield
|
|
|
3.74
|
%
|
Risk-free interest rate
|
|
|
1.33
|
%
|
Expected volatility
|
|
|
39.11
|
%
|
Expected term (in years)
|
|
|
7.5
|
|
Weighted average fair value of options
|
|
$
|
9.05
|
|
Note 3 – Securities
Securities are classified into held-to-maturity and available-for-sale categories. Held-to-maturity (HTM) securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale (AFS) securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.
The amortized cost and fair value of securities at March 31, 2014 are summarized as follows:
Available-for-Sale
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
U.S. Treasury and government agencies
|
|
$
|
140,033
|
|
|
$
|
229
|
|
|
$
|
(3,783
|
)
|
|
$
|
136,479
|
|
State and political subdivisions
|
|
|
129,975
|
|
|
|
2,480
|
|
|
|
(1,885
|
)
|
|
|
130,570
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
361,327
|
|
|
|
3,086
|
|
|
|
(5,762
|
)
|
|
|
358,651
|
|
Total debt securities
|
|
|
631,335
|
|
|
|
5,795
|
|
|
|
(11,430
|
)
|
|
|
625,700
|
|
Marketable equity securities
|
|
|
25,000
|
|
|
|
0
|
|
|
|
(573
|
)
|
|
|
24,427
|
|
Total available-for-sale securities
|
|
$
|
656,335
|
|
|
$
|
5,795
|
|
|
$
|
(12,003
|
)
|
|
$
|
650,127
|
|
Held-to-Maturity
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
U.S. Treasury and government agencies
|
|
$
|
480
|
|
|
$
|
0
|
|
|
$
|
(44
|
)
|
|
$
|
436
|
|
State and political subdivisions
|
|
|
1,182
|
|
|
|
1
|
|
|
|
0
|
|
|
|
1,183
|
|
Total held-to-maturity securities
|
|
$
|
1,662
|
|
|
$
|
1
|
|
|
$
|
(44
|
)
|
|
$
|
1,619
|
|
The amortized cost and fair value of securities as of December 31, 2013 are summarized as follows:
Available-for-Sale
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
U.S. Treasury and government agencies
|
|
$
|
65,524
|
|
|
$
|
225
|
|
|
$
|
(5,139
|
)
|
|
$
|
60,610
|
|
State and political subdivisions
|
|
|
118,055
|
|
|
|
1,907
|
|
|
|
(3,259
|
)
|
|
|
116,703
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
383,174
|
|
|
|
4,325
|
|
|
|
(8,189
|
)
|
|
|
379,310
|
|
Total debt securities
|
|
|
566,753
|
|
|
|
6,457
|
|
|
|
(16,587
|
)
|
|
|
556,623
|
|
Marketable equity securities
|
|
|
55,000
|
|
|
|
0
|
|
|
|
(2,218
|
)
|
|
|
52,782
|
|
Total available-for-sale securities
|
|
$
|
621,753
|
|
|
$
|
6,457
|
|
|
$
|
(18,805
|
)
|
|
$
|
609,405
|
|
Held-to-Maturity
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
U.S. Treasury and government agencies
|
|
$
|
480
|
|
|
$
|
0
|
|
|
$
|
(62
|
)
|
|
$
|
418
|
|
State and political subdivisions
|
|
|
1,182
|
|
|
|
1
|
|
|
|
0
|
|
|
|
1,183
|
|
Total held-to-maturity securities
|
|
$
|
1,662
|
|
|
$
|
1
|
|
|
$
|
(62
|
)
|
|
$
|
1,601
|
|
The amortized cost and fair value of securities at March 31, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
2,366
|
|
|
$
|
2,377
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Due after one through five years
|
|
|
104,520
|
|
|
|
104,901
|
|
|
|
0
|
|
|
|
0
|
|
Due after five through ten years
|
|
|
123,723
|
|
|
|
120,778
|
|
|
|
1,182
|
|
|
|
1,183
|
|
Due after ten years
|
|
|
39,399
|
|
|
|
38,993
|
|
|
|
480
|
|
|
|
436
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
361,327
|
|
|
|
358,651
|
|
|
|
0
|
|
|
|
0
|
|
Total debt securities
|
|
|
631,335
|
|
|
|
625,700
|
|
|
|
1,662
|
|
|
|
1,619
|
|
Marketable equity securities
|
|
|
25,000
|
|
|
|
24,427
|
|
|
|
0
|
|
|
|
0
|
|
Total securities
|
|
$
|
656,335
|
|
|
$
|
650,127
|
|
|
$
|
1,662
|
|
|
$
|
1,619
|
|
As of March 31, 2014, there was a combined loss of $60 thousand. A pre-tax gain of $1.8 million and a pre-tax loss of $1.9 million were realized during the year. There were no sales or calls of securities and no gains or losses realized as of March 31, 2013.
The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $236.0 million at March 31, 2014 and $257.5 million at December 31, 2013.
The amortized cost of securities sold under agreements to repurchase amounted to $254.6 million at March 31, 2014 and $255.4 million at December 31, 2013.
Certain investments in debt and marketable equity securities are reported in the financial statements at amounts less than their historical costs. CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of March 31, 2014 indicates that all impairment is considered temporary, market driven, and not credit-related. The percentage of total investments with unrealized losses as of March 31, 2014 was 65.7% compared to 67.8% as of December 31, 2013. The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of March 31, 2014 that are not deemed to be other-than-temporarily impaired.
Available-for-Sale
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
Less Than 12 Months
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
66,121
|
|
|
$
|
(1,364
|
)
|
|
$
|
64,757
|
|
State and political subdivisions
|
|
|
46,229
|
|
|
|
(1,518
|
)
|
|
|
44,711
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
257,459
|
|
|
|
(5,762
|
)
|
|
|
251,697
|
|
Total debt securities
|
|
|
369,809
|
|
|
|
(8,644
|
)
|
|
|
361,165
|
|
Marketable equity securities
|
|
|
25,000
|
|
|
|
(573
|
)
|
|
|
24,427
|
|
Total <12 months temporarily impaired AFS securities
|
|
|
394,809
|
|
|
|
(9,217
|
)
|
|
|
385,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or More
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
|
35,750
|
|
|
|
(2,419
|
)
|
|
|
33,331
|
|
State and political subdivisions
|
|
|
9,292
|
|
|
|
(367
|
)
|
|
|
8,925
|
|
Total ≥12 months temporarily impaired AFS securities
|
|
|
45,042
|
|
|
|
(2,786
|
)
|
|
|
42,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
|
101,871
|
|
|
|
(3,783
|
)
|
|
|
98,088
|
|
State and political subdivisions
|
|
|
55,521
|
|
|
|
(1,885
|
)
|
|
|
53,636
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
257,459
|
|
|
|
(5,762
|
)
|
|
|
251,697
|
|
Total debt securities
|
|
|
414,851
|
|
|
|
(11,430
|
)
|
|
|
403,421
|
|
Marketable equity securities
|
|
|
25,000
|
|
|
|
(573
|
)
|
|
|
24,427
|
|
Total temporarily impaired AFS securities
|
|
$
|
439,851
|
|
|
$
|
(12,003
|
)
|
|
$
|
427,848
|
|
Held-to-Maturity
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
12 Months or More
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
480
|
|
|
$
|
(44
|
)
|
|
$
|
436
|
|
Total temporarily impaired HTM securities
|
|
$
|
480
|
|
|
$
|
(44
|
)
|
|
$
|
436
|
|
U.S. Treasury and Government Agencies
The unrealized losses in U.S. Treasury and government agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than amortized cost. Because CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost, which may be maturity, CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2014.
State and Political Subdivisions
The unrealized losses in securities of state and political subdivisions were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than amortized cost. Because CTBI does not intend to sell the investments before recovery of their amortized cost, which may be maturity, CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2014.
U.S. Government Sponsored Agency Mortgage-Backed Securities
The unrealized losses in U.S. government sponsored agency mortgage-backed securities were caused by interest rate increases. CTBI expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because CTBI does not intend to sell the investments and it is not more likely than not we will be required to sell the investments before recovery of their amortized cost, which may be maturity, CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2014.
Marketable Equity Securities
CTBI’s investments in marketable equity securities consist of investments in fixed income mutual funds ($24.4 million of the total fair value and $573 thousand of the total unrealized losses in common stock investments). The severity of the impairment (fair value is approximately 2.3% less than cost) and the duration of the impairment (less than twelve months) correlates with the rise in interest rates during the latter half of 2013. CTBI evaluated the near-term prospects of these funds in relation to the severity and duration of the impairment. Based on that evaluation, CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2014.
The analysis performed as of December 31, 2013 indicated that all impairment was considered temporary, market driven, and not credit-related. The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2013 that are not deemed to be other-than-temporarily impaired.
Available-for-Sale
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
Less Than 12 Months
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
21,750
|
|
|
$
|
(1,617
|
)
|
|
$
|
20,133
|
|
State and political subdivisions
|
|
|
57,165
|
|
|
|
(2,789
|
)
|
|
|
54,376
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
248,705
|
|
|
|
(8,182
|
)
|
|
|
240,523
|
|
Total debt securities
|
|
|
327,620
|
|
|
|
(12,588
|
)
|
|
|
315,032
|
|
Marketable equity securities
|
|
|
55,000
|
|
|
|
(2,218
|
)
|
|
|
52,782
|
|
Total <12 months temporarily impaired AFS securities
|
|
|
382,620
|
|
|
|
(14,806
|
)
|
|
|
367,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or More
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
|
35,750
|
|
|
|
(3,522
|
)
|
|
|
32,228
|
|
State and political subdivisions
|
|
|
7,639
|
|
|
|
(470
|
)
|
|
|
7,169
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
6,579
|
|
|
|
(7
|
)
|
|
|
6,572
|
|
Total ≥12 months temporarily impaired AFS securities
|
|
|
49,968
|
|
|
|
(3,999
|
)
|
|
|
45,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
|
57,500
|
|
|
|
(5,139
|
)
|
|
|
52,361
|
|
State and political subdivisions
|
|
|
64,804
|
|
|
|
(3,259
|
)
|
|
|
61,545
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
255,284
|
|
|
|
(8,189
|
)
|
|
|
247,095
|
|
Total debt securities
|
|
|
377,588
|
|
|
|
(16,587
|
)
|
|
|
361,001
|
|
Marketable equity securities
|
|
|
55,000
|
|
|
|
(2,218
|
)
|
|
|
52,782
|
|
Total temporarily impaired AFS securities
|
|
$
|
432,588
|
|
|
$
|
(18,805
|
)
|
|
$
|
413,783
|
|
Held-to-Maturity
(in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
12 Months or More
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
480
|
|
|
$
|
(62
|
)
|
|
$
|
418
|
|
Total temporarily impaired HTM securities
|
|
$
|
480
|
|
|
$
|
(62
|
)
|
|
$
|
418
|
|
Note 4 – Loans
Major classifications of loans, net of unearned income, deferred loan origination costs, and net premiums on acquired loans, are summarized as follows:
(in thousands)
|
|
March 31
2014
|
|
|
December 31
2013
|
|
Commercial construction
|
|
$
|
111,272
|
|
|
$
|
110,779
|
|
Commercial secured by real estate
|
|
|
874,437
|
|
|
|
872,542
|
|
Equipment lease financing
|
|
|
8,122
|
|
|
|
8,840
|
|
Commercial other
|
|
|
351,648
|
|
|
|
374,881
|
|
Real estate construction
|
|
|
59,730
|
|
|
|
56,075
|
|
Real estate mortgage
|
|
|
695,514
|
|
|
|
697,601
|
|
Home equity
|
|
|
84,694
|
|
|
|
84,880
|
|
Consumer direct
|
|
|
117,497
|
|
|
|
122,215
|
|
Consumer indirect
|
|
|
282,594
|
|
|
|
287,541
|
|
Total loans
|
|
$
|
2,585,508
|
|
|
$
|
2,615,354
|
|
CTBI has segregated and evaluates its loan portfolio through nine portfolio segments. CTBI serves customers in small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. Therefore, CTBI’s exposure to credit risk is significantly affected by changes in these communities.
Commercial construction loans are for the purpose of erecting or rehabilitating buildings or other structures for commercial purposes, including any infrastructure necessary for development. Included in this category are improved property, land development, and tract development loans. The terms of these loans are generally short-term with permanent financing upon completion.
Commercial real estate loans include loans secured by nonfarm, nonresidential properties, 1-4 family/ multi-family properties, farmland, and other commercial real estate. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.
Equipment lease financing loans are fixed, variable, and tax exempt leases for commercial purposes.
Commercial other loans consist of commercial check loans, agricultural loans, receivable financing, floorplans, loans to financial institutions, loans for purchasing or carrying securities, and other commercial purpose loans. Commercial loans are underwritten based on the borrower’s ability to service debt from the business’s underlying cash flows. As a general practice, we obtain collateral such as real estate, equipment, or other assets, although such loans may be uncollateralized but guaranteed.
Real estate construction loans are typically for owner-occupied properties. The terms of these loans are generally short-term with permanent financing upon completion.
Residential real estate loans are a mixture of fixed rate and adjustable rate first and second lien residential mortgage loans. 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 revolving adjustable rate credit lines secured by real property.
Consumer direct loans are fixed rate products comprised of unsecured loans, consumer revolving credit lines, deposit secured loans, and all other consumer purpose loans.
Consumer indirect loans are fixed rate loans secured by automobiles, trucks, vans, and recreational vehicles originated at the selling dealership underwritten and purchased by CTBI’s indirect lending department. Both new and used products are financed. Only dealers who have executed dealer agreements with CTBI participate in the indirect lending program.
Not included in the loan balances above were loans held for sale in the amount of $1.6 million at March 31, 2014 and $0.8 million at December 31, 2013, respectively. The amount of capitalized fees and costs under ASC 310-20
,
included in the above loan totals were ($6) thousand and $3 thousand at March 31, 2014 and December 31, 2013, respectively.
Refer to note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy. Nonaccrual loans segregated by class of loans were as follows:
(in thousands)
|
|
March 31
2014
|
|
|
December 31
2013
|
|
Commercial:
|
|
|
|
|
|
|
Commercial construction
|
|
$
|
4,767
|
|
|
$
|
4,519
|
|
Commercial secured by real estate
|
|
|
13,252
|
|
|
|
6,576
|
|
Commercial other
|
|
|
2,629
|
|
|
|
2,801
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
481
|
|
|
|
481
|
|
Real estate mortgage
|
|
|
5,406
|
|
|
|
5,152
|
|
Home equity
|
|
|
349
|
|
|
|
429
|
|
Total nonaccrual loans
|
|
$
|
26,884
|
|
|
$
|
19,958
|
|
The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of March 31, 2014 and December 31, 2013:
|
|
March 31, 2014
|
|
(in thousands)
|
|
30-59 Days Past Due
|
|
|
60-89 Days Past Due
|
|
|
90+ Days Past Due
|
|
|
Total Past Due
|
|
|
Current
|
|
|
Total Loans
|
|
|
90+ and Accruing*
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
$
|
386
|
|
|
$
|
52
|
|
|
$
|
6,209
|
|
|
$
|
6,647
|
|
|
$
|
104,625
|
|
|
$
|
111,272
|
|
|
$
|
1,456
|
|
Commercial secured by real estate
|
|
|
4,975
|
|
|
|
1,900
|
|
|
|
15,937
|
|
|
|
22,812
|
|
|
|
851,625
|
|
|
|
874,437
|
|
|
|
4,728
|
|
Equipment lease financing
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,122
|
|
|
|
8,122
|
|
|
|
0
|
|
Commercial other
|
|
|
578
|
|
|
|
8,182
|
|
|
|
5,595
|
|
|
|
14,355
|
|
|
|
337,293
|
|
|
|
351,648
|
|
|
|
3,323
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
439
|
|
|
|
31
|
|
|
|
752
|
|
|
|
1,222
|
|
|
|
58,508
|
|
|
|
59,730
|
|
|
|
271
|
|
Real estate mortgage
|
|
|
1,510
|
|
|
|
3,846
|
|
|
|
9,929
|
|
|
|
15,285
|
|
|
|
680,229
|
|
|
|
695,514
|
|
|
|
5,189
|
|
Home equity
|
|
|
843
|
|
|
|
240
|
|
|
|
648
|
|
|
|
1,731
|
|
|
|
82,963
|
|
|
|
84,694
|
|
|
|
319
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer direct
|
|
|
803
|
|
|
|
168
|
|
|
|
58
|
|
|
|
1,029
|
|
|
|
116,468
|
|
|
|
117,497
|
|
|
|
202
|
|
Consumer indirect
|
|
|
1,525
|
|
|
|
531
|
|
|
|
202
|
|
|
|
2,258
|
|
|
|
280,336
|
|
|
|
282,594
|
|
|
|
58
|
|
Total
|
|
$
|
11,059
|
|
|
$
|
14,950
|
|
|
$
|
39,330
|
|
|
$
|
65,339
|
|
|
$
|
2,520,169
|
|
|
$
|
2,585,508
|
|
|
$
|
15,546
|
|
|
|
December 31, 2013
|
|
(in thousands)
|
|
30-59 Days Past Due
|
|
|
60-89 Days Past Due
|
|
|
90+ Days Past Due
|
|
|
Total Past Due
|
|
|
Current
|
|
|
Total Loans
|
|
|
90+ and Accruing*
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
$
|
250
|
|
|
$
|
166
|
|
|
$
|
6,012
|
|
|
$
|
6,428
|
|
|
$
|
104,351
|
|
|
$
|
110,779
|
|
|
$
|
1,673
|
|
Commercial secured by real estate
|
|
|
3,703
|
|
|
|
1,982
|
|
|
|
16,660
|
|
|
|
22,345
|
|
|
|
850,197
|
|
|
|
872,542
|
|
|
|
12,403
|
|
Equipment lease financing
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,840
|
|
|
|
8,840
|
|
|
|
0
|
|
Commercial other
|
|
|
344
|
|
|
|
422
|
|
|
|
6,156
|
|
|
|
6,922
|
|
|
|
367,959
|
|
|
|
374,881
|
|
|
|
3,723
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
81
|
|
|
|
383
|
|
|
|
694
|
|
|
|
1,158
|
|
|
|
54,917
|
|
|
|
56,075
|
|
|
|
213
|
|
Real estate mortgage
|
|
|
1,274
|
|
|
|
4,419
|
|
|
|
9,346
|
|
|
|
15,039
|
|
|
|
682,562
|
|
|
|
697,601
|
|
|
|
4,847
|
|
Home equity
|
|
|
786
|
|
|
|
330
|
|
|
|
737
|
|
|
|
1,853
|
|
|
|
83,027
|
|
|
|
84,880
|
|
|
|
324
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer direct
|
|
|
1,063
|
|
|
|
291
|
|
|
|
119
|
|
|
|
1,473
|
|
|
|
120,742
|
|
|
|
122,215
|
|
|
|
119
|
|
Consumer indirect
|
|
|
2,750
|
|
|
|
668
|
|
|
|
297
|
|
|
|
3,715
|
|
|
|
283,826
|
|
|
|
287,541
|
|
|
|
297
|
|
Total
|
|
$
|
10,251
|
|
|
$
|
8,661
|
|
|
$
|
40,021
|
|
|
$
|
58,933
|
|
|
$
|
2,556,421
|
|
|
$
|
2,615,354
|
|
|
$
|
23,599
|
|
*90+ and Accruing are also included in 90+ Days Past Due column.
The risk characteristics of CTBI’s material portfolio segments are as follows:
Commercial construction loans generally are made to customers for the purpose of building income-producing properties. Personal guarantees of the principals are generally required. Such loans are made on a projected cash flow basis and are secured by the project being constructed. Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements. Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source. If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow. Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested. Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria.
Equipment lease financing is underwritten by our commercial lenders using the same underwriting standards as would be applied to a secured commercial loan requesting 100% financing. The pricing for equipment lease financing is comparable to that of borrowers with similar quality commercial credits with similar collateral. Maximum terms of equipment leasing are determined by the type and expected life of the equipment to be leased. Residual values are determined by appraisals or opinion letters from industry experts. Leases must be in conformity with our consolidated annual tax plan. As we underwrite our equipment lease financing in a manner similar to our commercial loan portfolio described below, the risk characteristics for this portfolio mirror that of the commercial loan portfolio.
Commercial 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.
With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, CTBI generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences. Residential construction loans are handled through the home mortgage area of the bank. The repayment ability of the borrower and the maximum loan-to-value ratio are calculated using the normal mortgage lending criteria. Draws are processed based on percentage of completion stages including normal inspection procedures. Such loans generally convert to term loans after the completion of construction.
Consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Our determination of a borrower’s ability to repay these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
The indirect lending area of the bank generally deals with purchasing/funding consumer contracts with new and used automobile dealers. The dealers generate consumer loan applications which are forwarded to the indirect loan processing area for approval or denial. Loan approvals or denials are based on the creditworthiness and repayment ability of the borrower, and on the collateral value. The dealers may have recourse agreements with the Bank.
Credit Quality Indicators:
CTBI categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. CTBI also considers the fair value of the underlying collateral and the strength and willingness of the guarantor(s). CTBI analyzes commercial loans individually by classifying the loans as to credit risk. Loans classified as loss, doubtful, substandard, or special mention are reviewed quarterly by CTBI for further deterioration or improvement to determine if appropriately classified and valued if deemed impaired. All other commercial loan reviews are completed every 12 to 18 months. In addition, during the renewal process of any loan, as well as if a loan becomes past due or if other information becomes available, CTBI will evaluate the loan grade. CTBI uses the following definitions for risk ratings:
Ø
|
Pass
grades include investment grade, low risk, moderate risk, and acceptable risk loans. The loans range from loans that have no chance of resulting in a loss to loans that have a limited chance of resulting in a loss. Customers in this grade have excellent to fair credit ratings. The cash flows are adequate to meet required debt repayments.
|
Ø
|
Watch
graded loans are loans that warrant extra management attention but are not currently criticized. Loans on the watch list may be potential troubled credits or may warrant “watch” status for a reason not directly related to the asset quality of the credit. The watch grade is a management tool to identify credits which may be candidates for future classification or may temporarily warrant extra management monitoring.
|
Ø
|
Other assets especially mentioned (OAEM)
reflects loans that are currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of circumstances surrounding a specific asset. Loans in this grade display potential weaknesses which may, if unchecked or uncorrected, inadequately protect CTBI’s credit position at some future date. The loans may be adversely affected by economic or market conditions.
|
Ø
|
Substandard
grading indicates that the loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. These loans have a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt with the distinct possibility that CTBI will sustain some loss if the deficiencies are not corrected.
|
Ø
|
Doubtful
graded loans have the weaknesses inherent in the substandard grading with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The probability of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to CTBI’s advantage or strengthen the asset(s), its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.
|
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, as of March 31, 2014 and December 31, 2013:
(in thousands)
|
|
Commercial Construction
|
|
|
Commercial Secured by Real Estate
|
|
|
Equipment Leases
|
|
|
Commercial Other
|
|
|
Total
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
90,787
|
|
|
$
|
747,805
|
|
|
$
|
8,122
|
|
|
$
|
299,605
|
|
|
$
|
1,146,319
|
|
Watch
|
|
|
9,141
|
|
|
|
75,684
|
|
|
|
0
|
|
|
|
32,277
|
|
|
|
117,102
|
|
OAEM
|
|
|
1,094
|
|
|
|
9,611
|
|
|
|
0
|
|
|
|
6,005
|
|
|
|
16,710
|
|
Substandard
|
|
|
5,649
|
|
|
|
28,986
|
|
|
|
0
|
|
|
|
11,552
|
|
|
|
46,187
|
|
Doubtful
|
|
|
4,601
|
|
|
|
12,351
|
|
|
|
0
|
|
|
|
2,209
|
|
|
|
19,161
|
|
Total
|
|
$
|
111,272
|
|
|
$
|
874,437
|
|
|
$
|
8,122
|
|
|
$
|
351,648
|
|
|
$
|
1,345,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
85,699
|
|
|
$
|
746,202
|
|
|
$
|
8,840
|
|
|
$
|
321,819
|
|
|
$
|
1,162,559
|
|
Watch
|
|
|
13,519
|
|
|
|
77,561
|
|
|
|
0
|
|
|
|
32,800
|
|
|
|
123,880
|
|
OAEM
|
|
|
0
|
|
|
|
6,639
|
|
|
|
0
|
|
|
|
6,200
|
|
|
|
12,839
|
|
Substandard
|
|
|
7,208
|
|
|
|
37,334
|
|
|
|
0
|
|
|
|
11,772
|
|
|
|
56,314
|
|
Doubtful
|
|
|
4,353
|
|
|
|
4,806
|
|
|
|
0
|
|
|
|
2,291
|
|
|
|
11,450
|
|
Total
|
|
$
|
110,779
|
|
|
$
|
872,542
|
|
|
$
|
8,840
|
|
|
$
|
374,881
|
|
|
$
|
1,367,042
|
|
The following tables present the credit risk profile of the CTBI’s residential real estate and consumer loan portfolios based on performing or nonperforming status, segregated by class, as of March 31, 2014 and December 31, 2013:
(in thousands)
|
|
Real Estate Construction
|
|
|
Real Estate Mortgage
|
|
|
Home Equity
|
|
|
Consumer Direct
|
|
|
Consumer
Indirect
|
|
|
Total
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
58,978
|
|
|
$
|
684,919
|
|
|
$
|
84,026
|
|
|
$
|
117,295
|
|
|
$
|
282,536
|
|
|
$
|
1,227,754
|
|
Nonperforming (1)
|
|
|
752
|
|
|
|
10,595
|
|
|
|
668
|
|
|
|
202
|
|
|
|
58
|
|
|
|
12,275
|
|
Total
|
|
$
|
59,730
|
|
|
$
|
695,514
|
|
|
$
|
84,694
|
|
|
$
|
117,497
|
|
|
$
|
282,594
|
|
|
$
|
1,240,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
55,381
|
|
|
$
|
687,602
|
|
|
$
|
84,127
|
|
|
$
|
122,096
|
|
|
$
|
287,244
|
|
|
$
|
1,236,450
|
|
Nonperforming (1)
|
|
|
694
|
|
|
|
9,999
|
|
|
|
753
|
|
|
|
119
|
|
|
|
297
|
|
|
|
11,862
|
|
Total
|
|
$
|
56,075
|
|
|
$
|
697,601
|
|
|
$
|
84,880
|
|
|
$
|
122,215
|
|
|
$
|
287,541
|
|
|
$
|
1,248,312
|
|
(1) A loan is considered nonperforming if it is 90 days or more past due and/or on nonaccrual.
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable CTBI will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection.
The following table presents impaired loans, the average investment in impaired loans, and interest income recognized on impaired loans for the periods ended March 31, 2014, December 31, 2013, and March 31, 2013:
|
|
March 31, 2014
|
|
(in thousands)
|
|
Recorded Balance
|
|
|
Unpaid Contractual Principal Balance
|
|
|
Specific Allowance
|
|
|
Average Investment in Impaired Loans
|
|
|
*Interest Income Recognized
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
$
|
5,430
|
|
|
$
|
5,431
|
|
|
$
|
0
|
|
|
$
|
5,441
|
|
|
$
|
50
|
|
Commercial secured by real estate
|
|
|
35,719
|
|
|
|
36,618
|
|
|
|
0
|
|
|
|
36,416
|
|
|
|
265
|
|
Commercial other
|
|
|
14,191
|
|
|
|
15,726
|
|
|
|
0
|
|
|
|
14,324
|
|
|
|
114
|
|
Real estate mortgage
|
|
|
1,021
|
|
|
|
1,021
|
|
|
|
0
|
|
|
|
1,022
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
4,278
|
|
|
|
4,284
|
|
|
|
939
|
|
|
|
4,312
|
|
|
|
0
|
|
Commercial secured by real estate
|
|
|
4,234
|
|
|
|
4,611
|
|
|
|
1,084
|
|
|
|
4,686
|
|
|
|
4
|
|
Commercial other
|
|
|
413
|
|
|
|
536
|
|
|
|
112
|
|
|
|
439
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
9,708
|
|
|
|
9,715
|
|
|
|
939
|
|
|
|
9,753
|
|
|
|
50
|
|
Commercial secured by real estate
|
|
|
39,953
|
|
|
|
41,229
|
|
|
|
1,084
|
|
|
|
41,102
|
|
|
|
269
|
|
Commercial other
|
|
|
14,604
|
|
|
|
16,262
|
|
|
|
112
|
|
|
|
14,763
|
|
|
|
114
|
|
Real estate mortgage
|
|
|
1,021
|
|
|
|
1,021
|
|
|
|
0
|
|
|
|
1,022
|
|
|
|
10
|
|
Total
|
|
$
|
65,286
|
|
|
$
|
68,227
|
|
|
$
|
2,135
|
|
|
$
|
66,640
|
|
|
$
|
443
|
|
|
|
December 31, 2013
|
|
(in thousands)
|
|
Recorded Balance
|
|
|
Unpaid Contractual Principal Balance
|
|
|
Specific Allowance
|
|
|
Average Investment in Impaired Loans
|
|
|
*Interest Income Recognized
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
$
|
5,457
|
|
|
$
|
5,458
|
|
|
$
|
0
|
|
|
$
|
5,595
|
|
|
$
|
240
|
|
Commercial secured by real estate
|
|
|
35,258
|
|
|
|
36,173
|
|
|
|
0
|
|
|
|
32,472
|
|
|
|
1,231
|
|
Commercial other
|
|
|
14,839
|
|
|
|
16,435
|
|
|
|
0
|
|
|
|
15,396
|
|
|
|
568
|
|
Real estate mortgage
|
|
|
1,024
|
|
|
|
1,024
|
|
|
|
0
|
|
|
|
934
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
4,353
|
|
|
|
4,359
|
|
|
|
1,189
|
|
|
|
4,935
|
|
|
|
0
|
|
Commercial secured by real estate
|
|
|
4,039
|
|
|
|
4,326
|
|
|
|
1,005
|
|
|
|
5,033
|
|
|
|
1
|
|
Commercial other
|
|
|
330
|
|
|
|
453
|
|
|
|
102
|
|
|
|
525
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
9,810
|
|
|
|
9,817
|
|
|
|
1,189
|
|
|
|
10,530
|
|
|
|
240
|
|
Commercial secured by real estate
|
|
|
39,297
|
|
|
|
40,499
|
|
|
|
1,005
|
|
|
|
37,505
|
|
|
|
1,232
|
|
Commercial other
|
|
|
15,169
|
|
|
|
16,888
|
|
|
|
102
|
|
|
|
15,921
|
|
|
|
568
|
|
Real estate mortgage
|
|
|
1,024
|
|
|
|
1,024
|
|
|
|
0
|
|
|
|
934
|
|
|
|
43
|
|
Total
|
|
$
|
65,300
|
|
|
$
|
68,228
|
|
|
$
|
2,296
|
|
|
$
|
64,890
|
|
|
$
|
2,083
|
|
|
|
March 31, 2013
|
|
(in thousands)
|
|
Recorded Balance
|
|
|
Unpaid Contractual Principal Balance
|
|
|
Specific Allowance
|
|
|
Average Investment in Impaired Loans
|
|
|
*Interest Income Recognized
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
$
|
5,155
|
|
|
$
|
5,609
|
|
|
$
|
0
|
|
|
$
|
5,225
|
|
|
$
|
74
|
|
Commercial secured by real estate
|
|
|
33,765
|
|
|
|
34,586
|
|
|
|
0
|
|
|
|
33,908
|
|
|
|
297
|
|
Commercial other
|
|
|
15,779
|
|
|
|
17,920
|
|
|
|
0
|
|
|
|
15,435
|
|
|
|
154
|
|
Real estate mortgage
|
|
|
657
|
|
|
|
657
|
|
|
|
0
|
|
|
|
658
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
6,073
|
|
|
|
7,303
|
|
|
|
1,911
|
|
|
|
6,075
|
|
|
|
0
|
|
Commercial secured by real estate
|
|
|
4,158
|
|
|
|
4,276
|
|
|
|
1,192
|
|
|
|
4,166
|
|
|
|
0
|
|
Commercial other
|
|
|
867
|
|
|
|
2,188
|
|
|
|
322
|
|
|
|
868
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
11,228
|
|
|
|
12,912
|
|
|
|
1,911
|
|
|
|
11,300
|
|
|
|
74
|
|
Commercial secured by real estate
|
|
|
37,923
|
|
|
|
38,862
|
|
|
|
1,192
|
|
|
|
38,074
|
|
|
|
297
|
|
Commercial other
|
|
|
16,646
|
|
|
|
20,108
|
|
|
|
322
|
|
|
|
16,303
|
|
|
|
154
|
|
Real estate mortgage
|
|
|
657
|
|
|
|
657
|
|
|
|
0
|
|
|
|
658
|
|
|
|
7
|
|
Total
|
|
$
|
66,454
|
|
|
$
|
72,539
|
|
|
$
|
3,425
|
|
|
$
|
66,335
|
|
|
$
|
532
|
|
*Cash basis interest is substantially the same as interest income recognized.
Included in certain loan categories of impaired loans are certain loans and leases that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Modifications of terms for our loans and their inclusion as troubled debt restructurings are based on individual facts and circumstances. Loan modifications that are included as troubled debt restructurings may involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal and/or interest payments, regardless of the period of the modification. All of the loans identified as troubled debt restructuring were modified due to financial stress of the borrower. In order to determine if a borrower is experiencing financial difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under CTBI’s internal underwriting policy.
When we modify loans and leases in a troubled debt restructuring, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, or use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determined that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, we evaluate all troubled debt restructuring, including those that have payment defaults, for possible impairment and recognize impairment through the allowance.
During 2014, certain loans were modified in troubled debt restructurings, where economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances. Presented below, segregated by class of loans, are troubled debt restructurings that occurred during the three months ended March 31, 2014 and 2013 and the year ended December 31, 2013:
|
|
Three Months Ended
March 31, 2014
|
|
(in thousands)
|
|
Number of Loans
|
|
|
Term Modification
|
|
|
Rate Modification
|
|
|
Combination
|
|
|
Post-Modification Outstanding Balance
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate
|
|
|
2
|
|
|
$
|
126
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
126
|
|
Commercial other
|
|
|
2
|
|
|
|
41
|
|
|
|
0
|
|
|
|
0
|
|
|
|
41
|
|
Total troubled debt restructurings
|
|
|
4
|
|
|
$
|
167
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
167
|
|
|
|
Year Ended
December 31, 2013
|
|
(in thousands)
|
|
Number of Loans
|
|
|
Term Modification
|
|
|
Rate Modification
|
|
|
Combination
|
|
|
Post-Modification Outstanding Balance
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
6
|
|
|
$
|
2,603
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,603
|
|
Commercial secured by real estate
|
|
|
27
|
|
|
|
2,568
|
|
|
|
0
|
|
|
|
2,920
|
|
|
|
5,488
|
|
Commercial other
|
|
|
30
|
|
|
|
6,471
|
|
|
|
0
|
|
|
|
152
|
|
|
|
6,623
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
|
|
1
|
|
|
|
373
|
|
|
|
0
|
|
|
|
0
|
|
|
|
373
|
|
Total troubled debt restructurings
|
|
|
64
|
|
|
$
|
12,015
|
|
|
$
|
0
|
|
|
$
|
3,072
|
|
|
$
|
15,087
|
|
|
|
Three Months Ended
March 31, 2013
|
|
(in thousands)
|
|
Number of Loans
|
|
|
Term Modification
|
|
|
Rate Modification
|
|
|
Combination
|
|
|
Post-Modification Outstanding Balance
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
3
|
|
|
$
|
2,110
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,110
|
|
Commercial secured by real estate
|
|
|
5
|
|
|
|
605
|
|
|
|
0
|
|
|
|
0
|
|
|
|
605
|
|
Commercial other
|
|
|
9
|
|
|
|
5,493
|
|
|
|
0
|
|
|
|
92
|
|
|
|
5,585
|
|
Total troubled debt restructurings
|
|
|
17
|
|
|
$
|
8,208
|
|
|
$
|
0
|
|
|
$
|
92
|
|
|
$
|
8,300
|
|
No charge-offs have resulted from modifications for any of the presented periods.
Loans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual. Commercial and consumer loans modified in a troubled debt restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a troubled debt restructuring subsequently default, CTBI evaluates the loan for possible further impairment. The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. Presented below, segregated by class of loans, are loans that were modified as troubled debt restructurings within the past twelve months which have subsequently defaulted. CTBI generally considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.
(in thousands)
|
|
Three Months Ended
March 31, 2014
|
|
|
|
Number of Loans
|
|
|
Recorded Balance
|
|
Commercial:
|
|
|
|
|
|
|
Commercial construction
|
|
|
0
|
|
|
$
|
0
|
|
Commercial secured by real estate
|
|
|
0
|
|
|
|
0
|
|
Commercial other
|
|
|
2
|
|
|
|
34
|
|
Total defaulted restructured loans
|
|
|
2
|
|
|
$
|
34
|
|
(in thousands)
|
|
Three Months Ended
March 31, 2013
|
|
|
|
Number of Loans
|
|
|
Recorded Balance
|
|
Commercial:
|
|
|
|
|
|
|
Commercial construction
|
|
|
2
|
|
|
$
|
328
|
|
Commercial secured by real estate
|
|
|
2
|
|
|
|
662
|
|
Commercial other
|
|
|
1
|
|
|
|
12
|
|
Total defaulted restructured loans
|
|
|
5
|
|
|
$
|
1,002
|
|
Note 5 – Allowance for Loan and Lease Losses
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2014, December 31, 2013 and March 31, 2013:
|
|
March 31, 2014
|
|
(in thousands)
|
|
Commercial Construction
|
|
|
Commercial Secured by Real Estate
|
|
|
Equipment Lease Financing
|
|
|
Commercial Other
|
|
|
Real Estate Construction
|
|
|
Real Estate Mortgage
|
|
|
Home
Equity
|
|
|
Consumer Direct
|
|
|
Consumer Indirect
|
|
|
Total
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,396
|
|
|
$
|
14,535
|
|
|
$
|
121
|
|
|
$
|
5,238
|
|
|
$
|
397
|
|
|
$
|
4,939
|
|
|
$
|
601
|
|
|
$
|
1,127
|
|
|
$
|
3,654
|
|
|
$
|
34,008
|
|
Provision charged to expense
|
|
|
(296
|
)
|
|
|
(106
|
)
|
|
|
(14
|
)
|
|
|
(13
|
)
|
|
|
44
|
|
|
|
356
|
|
|
|
51
|
|
|
|
753
|
|
|
|
570
|
|
|
|
1,345
|
|
Losses charged off
|
|
|
0
|
|
|
|
322
|
|
|
|
0
|
|
|
|
633
|
|
|
|
0
|
|
|
|
164
|
|
|
|
27
|
|
|
|
453
|
|
|
|
946
|
|
|
|
2,545
|
|
Recoveries
|
|
|
7
|
|
|
|
76
|
|
|
|
0
|
|
|
|
162
|
|
|
|
1
|
|
|
|
12
|
|
|
|
1
|
|
|
|
146
|
|
|
|
402
|
|
|
|
807
|
|
Ending balance
|
|
$
|
3,107
|
|
|
$
|
14,183
|
|
|
$
|
107
|
|
|
$
|
4,754
|
|
|
$
|
442
|
|
|
$
|
5,143
|
|
|
$
|
626
|
|
|
$
|
1,573
|
|
|
$
|
3,680
|
|
|
$
|
33,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
939
|
|
|
$
|
1,084
|
|
|
$
|
0
|
|
|
$
|
112
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,135
|
|
Collectively evaluated for impairment
|
|
$
|
2,168
|
|
|
$
|
13,099
|
|
|
$
|
107
|
|
|
$
|
4,642
|
|
|
$
|
442
|
|
|
$
|
5,143
|
|
|
$
|
626
|
|
|
$
|
1,573
|
|
|
$
|
3,680
|
|
|
$
|
31,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
9,708
|
|
|
$
|
39,953
|
|
|
$
|
0
|
|
|
$
|
14,604
|
|
|
$
|
0
|
|
|
$
|
1,021
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
65,286
|
|
Collectively evaluated for impairment
|
|
$
|
101,564
|
|
|
$
|
834,484
|
|
|
$
|
8,122
|
|
|
$
|
337,044
|
|
|
$
|
59,730
|
|
|
$
|
694,493
|
|
|
$
|
84,694
|
|
|
$
|
117,497
|
|
|
$
|
282,594
|
|
|
$
|
2,520,222
|
|
|
|
December 31, 2013
|
|
(in thousands)
|
|
Commercial Construction
|
|
|
Commercial Secured by Real Estate
|
|
|
Equipment Lease Financing
|
|
|
Commercial Other
|
|
|
Real Estate Construction
|
|
|
Real Estate Mortgage
|
|
|
Home
Equity
|
|
|
Consumer Direct
|
|
|
Consumer Indirect
|
|
|
Total
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,033
|
|
|
$
|
13,541
|
|
|
$
|
126
|
|
|
$
|
5,469
|
|
|
$
|
376
|
|
|
$
|
4,767
|
|
|
$
|
563
|
|
|
$
|
1,102
|
|
|
$
|
3,268
|
|
|
$
|
33,245
|
|
Provision charged to expense
|
|
|
189
|
|
|
|
2,438
|
|
|
|
(5
|
)
|
|
|
1,477
|
|
|
|
106
|
|
|
|
860
|
|
|
|
268
|
|
|
|
696
|
|
|
|
2,539
|
|
|
|
8,568
|
|
Losses charged off
|
|
|
1,135
|
|
|
|
1,607
|
|
|
|
0
|
|
|
|
2,265
|
|
|
|
89
|
|
|
|
744
|
|
|
|
241
|
|
|
|
1,166
|
|
|
|
3,802
|
|
|
|
11,049
|
|
Recoveries
|
|
|
309
|
|
|
|
163
|
|
|
|
0
|
|
|
|
557
|
|
|
|
4
|
|
|
|
56
|
|
|
|
11
|
|
|
|
495
|
|
|
|
1,649
|
|
|
|
3,244
|
|
Ending balance
|
|
$
|
3,396
|
|
|
$
|
14,535
|
|
|
$
|
121
|
|
|
$
|
5,238
|
|
|
$
|
397
|
|
|
$
|
4,939
|
|
|
$
|
601
|
|
|
$
|
1,127
|
|
|
$
|
3,654
|
|
|
$
|
34,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,189
|
|
|
$
|
1,005
|
|
|
$
|
0
|
|
|
$
|
102
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,296
|
|
Collectively evaluated for impairment
|
|
$
|
2,207
|
|
|
$
|
13,530
|
|
|
$
|
121
|
|
|
$
|
5,136
|
|
|
$
|
397
|
|
|
$
|
4,939
|
|
|
$
|
601
|
|
|
$
|
1,127
|
|
|
$
|
3,654
|
|
|
$
|
31,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
9,810
|
|
|
$
|
39,297
|
|
|
$
|
0
|
|
|
$
|
15,169
|
|
|
$
|
0
|
|
|
$
|
1,024
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
65,300
|
|
Collectively evaluated for impairment
|
|
$
|
100,969
|
|
|
$
|
833,245
|
|
|
$
|
8,840
|
|
|
$
|
359,712
|
|
|
$
|
56,075
|
|
|
$
|
696,577
|
|
|
$
|
84,880
|
|
|
$
|
122,215
|
|
|
$
|
287,541
|
|
|
$
|
2,550,054
|
|
|
|
March 31, 2013
|
|
(in thousands)
|
|
Commercial Construction
|
|
|
Commercial Secured by Real Estate
|
|
|
Equipment Lease Financing
|
|
|
Commercial Other
|
|
|
Real Estate Construction
|
|
|
Real Estate Mortgage
|
|
|
Home
Equity
|
|
|
Consumer Direct
|
|
|
Consumer Indirect
|
|
|
Total
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,033
|
|
|
$
|
13,541
|
|
|
$
|
126
|
|
|
$
|
5,469
|
|
|
$
|
376
|
|
|
$
|
4,767
|
|
|
$
|
563
|
|
|
$
|
1,102
|
|
|
$
|
3,268
|
|
|
$
|
33,245
|
|
Provision charged to expense
|
|
|
(212
|
)
|
|
|
484
|
|
|
|
2
|
|
|
|
(155
|
)
|
|
|
(4
|
)
|
|
|
334
|
|
|
|
50
|
|
|
|
165
|
|
|
|
895
|
|
|
|
1,559
|
|
Losses charged off
|
|
|
0
|
|
|
|
365
|
|
|
|
0
|
|
|
|
332
|
|
|
|
0
|
|
|
|
131
|
|
|
|
47
|
|
|
|
314
|
|
|
|
999
|
|
|
|
2,188
|
|
Recoveries
|
|
|
6
|
|
|
|
22
|
|
|
|
0
|
|
|
|
169
|
|
|
|
0
|
|
|
|
10
|
|
|
|
5
|
|
|
|
145
|
|
|
|
420
|
|
|
|
777
|
|
Ending balance
|
|
$
|
3,827
|
|
|
$
|
13,682
|
|
|
$
|
128
|
|
|
$
|
5,151
|
|
|
$
|
372
|
|
|
$
|
4,980
|
|
|
$
|
571
|
|
|
$
|
1,098
|
|
|
$
|
3,584
|
|
|
$
|
33,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,911
|
|
|
$
|
1,192
|
|
|
$
|
0
|
|
|
$
|
322
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,425
|
|
Collectively evaluated for impairment
|
|
$
|
1,916
|
|
|
$
|
12,490
|
|
|
$
|
128
|
|
|
$
|
4,829
|
|
|
$
|
372
|
|
|
$
|
4,980
|
|
|
$
|
571
|
|
|
$
|
1,098
|
|
|
$
|
3,584
|
|
|
$
|
29,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
11,228
|
|
|
$
|
37,923
|
|
|
$
|
0
|
|
|
$
|
16,646
|
|
|
$
|
0
|
|
|
$
|
657
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
66,454
|
|
Collectively evaluated for impairment
|
|
$
|
91,075
|
|
|
$
|
809,884
|
|
|
$
|
9,944
|
|
|
$
|
358,763
|
|
|
$
|
51,978
|
|
|
$
|
695,664
|
|
|
$
|
79,899
|
|
|
$
|
119,191
|
|
|
$
|
280,462
|
|
|
$
|
2,496,860
|
|
Note 6 – Other Real Estate Owned
Activity for other real estate owned was as follows:
(in thousands)
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
Beginning balance of other real estate owned
|
|
$
|
39,188
|
|
|
$
|
47,537
|
|
New assets acquired
|
|
|
1,268
|
|
|
|
2,047
|
|
Capitalized costs
|
|
|
0
|
|
|
|
0
|
|
Fair value adjustments
|
|
|
(874
|
)
|
|
|
(1,146
|
)
|
Sale of assets
|
|
|
(3,283
|
)
|
|
|
(2,718
|
)
|
Ending balance of other real estate owned
|
|
$
|
36,299
|
|
|
$
|
45,720
|
|
Foreclosed properties at March 31, 2014 and 2013 were $36.3 million and $45.2 million, respectively. At March 31, 2013, included in other real estate owned were two properties totaling $0.5 million which were not acquired through foreclosure. Carrying costs and fair value adjustments associated with foreclosed properties at March 31, 2014 and 2013 were $1.5 million and $1.8 million, respectively.
Note 7 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
(in thousands except per share data)
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
|
$
|
10,140
|
|
|
$
|
11,820
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
15,735
|
|
|
|
15,539
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options and restricted stock grants
|
|
|
86
|
|
|
|
53
|
|
Adjusted weighted average shares
|
|
|
15,821
|
|
|
|
15,592
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.64
|
|
|
$
|
0.76
|
|
Diluted earnings per share
|
|
|
0.64
|
|
|
|
0.76
|
|
There were no options to purchase common shares that were excluded from the diluted calculations above for the three months ended March 31, 2014. 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. Options to purchase 88,246 common shares at a weighted average price of $38.95 were excluded from the diluted calculations above for the three months ended March 31, 2013, because the exercises prices on the options were greater than the average market price for the period.
Note 8 – Fair Market Value of Financial Assets and Liabilities
Fair Value Measurements
ASC 820,
Fair Value Measurements
, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Recurring Measurements
The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands)
|
|
|
|
|
Fair Value Measurements at
March 31, 2014 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
|
|
$
|
136,479
|
|
|
$
|
0
|
|
|
$
|
136,479
|
|
|
$
|
0
|
|
State and political subdivisions
|
|
|
130,570
|
|
|
|
0
|
|
|
|
130,570
|
|
|
|
0
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
358,651
|
|
|
|
0
|
|
|
|
358,651
|
|
|
|
0
|
|
Marketable equity securities
|
|
|
24,427
|
|
|
|
24,427
|
|
|
|
0
|
|
|
|
0
|
|
Mortgage servicing rights
|
|
|
3,258
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,258
|
|
(in thousands)
|
|
|
|
|
Fair Value Measurements at
December 31, 2013 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
|
|
$
|
60,610
|
|
|
$
|
0
|
|
|
$
|
60,610
|
|
|
$
|
0
|
|
State and political subdivisions
|
|
|
116,703
|
|
|
|
0
|
|
|
|
116,703
|
|
|
|
0
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
379,310
|
|
|
|
0
|
|
|
|
379,310
|
|
|
|
0
|
|
Marketable equity securities
|
|
|
52,782
|
|
|
|
52,782
|
|
|
|
0
|
|
|
|
0
|
|
Mortgage servicing rights
|
|
|
3,424
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,424
|
|
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 at fair value as of March 31, 2014 and December 31, 2013. There have been no significant changes in the valuation techniques during the quarter ended March 31, 2014. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Available-for-Sale Securities
Securities classified as available-for-sale are reported at fair value on a recurring basis. CTBI’s CRA investment funds (included in marketable equity securities) are classified as Level 1 of the valuation hierarchy where quoted market prices are available in the active market on which the individual securities are traded.
If quoted market prices are not available, CTBI obtains fair value measurements from an independent pricing service, such as Interactive Data, which utilizes pricing models to determine fair value measurement. CTBI reviews the pricing quarterly to verify the reasonableness of the pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other factors. U.S. Treasury and government agencies, state and political subdivisions, and U.S. government sponsored agency mortgage-backed securities 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. As of March 31, 2014, CTBI does not own any securities classified as Level 3 inputs.
Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active, open market with readily observable prices. CTBI reports mortgage servicing rights at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value.
In determining fair value, CTBI utilizes the expertise of an independent third party. Accordingly, fair value is determined by the independent third party by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements of mortgage servicing rights are tested for impairment on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States. See the table below for inputs and valuation techniques used for Level 3 mortgage servicing rights.
Transfers between Levels
There were no transfers between Levels 1, 2, and 3 as of March 31, 2014.
Level 3 Reconciliation
Following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs for the three months ended March 31, 2014 and 2013:
(in thousands)
|
|
Three Months Ended
March 31, 2014
|
|
|
|
Mortgage Servicing Rights
|
|
Beginning balance
|
|
$
|
3,424
|
|
Total recognized gains (losses)
|
|
|
|
|
Included in net income
|
|
|
(126
|
)
|
Issues
|
|
|
63
|
|
Settlements
|
|
|
(103
|
)
|
Ending balance
|
|
$
|
3,258
|
|
|
|
|
|
|
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
|
|
$
|
(126
|
)
|
(in thousands)
|
|
Three Months Ended
March 31, 2013
|
|
|
|
Mortgage Servicing Rights
|
|
Beginning balance
|
|
$
|
2,364
|
|
Total recognized gains (losses)
|
|
|
|
|
Included in net income
|
|
|
117
|
|
Issues
|
|
|
357
|
|
Settlements
|
|
|
(186
|
)
|
Ending balance
|
|
$
|
2,652
|
|
|
|
|
|
|
Total gains 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
|
|
$
|
117
|
|
Realized and unrealized gains and losses for items reflected in the tables above are included in net income in the consolidated statements of income as follows:
(in thousands)
|
|
Three Months Ended
March 31, 2014
|
|
|
|
Noninterest Income
|
|
|
Noninterest Expense
|
|
Total gains
|
|
$
|
(289
|
)
|
|
$
|
0
|
|
(in thousands)
|
|
Three Months Ended
March 31, 2013
|
|
|
|
Noninterest Income
|
|
|
Noninterest Expense
|
|
Total gains
|
|
$
|
(69
|
)
|
|
$
|
0
|
|
Nonrecurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of March 31, 2014 and December 31, 2013 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands)
|
|
|
|
|
Fair Value Measurements at
March 31, 2014 Using
|
|
|
|
Fair Value
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Assets measured – nonrecurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (collateral dependent)
|
|
$
|
4,020
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,020
|
|
Other real estate/assets owned
|
|
|
4,440
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,440
|
|
(in thousands)
|
|
|
|
|
Fair Value Measurements at
December 31, 2013 Using
|
|
|
|
Fair Value
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Assets measured – nonrecurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (collateral dependent)
|
|
$
|
6,830
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
6,830
|
|
Other real estate/assets owned
|
|
|
11,111
|
|
|
|
0
|
|
|
|
0
|
|
|
|
11,111
|
|
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.
Impaired Loans (Collateral Dependent)
The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
CTBI considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the Chief Credit Officer. Appraisals are reviewed for accuracy and consistency by the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Chief Credit Officer by comparison to historical results.
Loans considered impaired under ASC 310-35,
Impairment of a Loan,
are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect subsequent (1) partial write-downs that are based on the observable market price or current appraised value of the collateral or (2) the full charge-off of the loan carrying value. Quarter-to-date fair value adjustments on impaired loans were $0.2 million, $(1.0) million, and $0.5 million for the quarters ended March 31, 2014, December 31, 2013 and March 31, 2013, respectively.
Other Real Estate Owned
In accordance with the provisions of ASC 360,
Property, Plant, and Equipment,
other real estate owned (OREO) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral. Quarter-to-date fair value adjustments on other real estate/assets owned were $0.8 million, $0.5 million, and $1.1 million for the quarters ended March 31, 2014, December 31, 2013, and March 31, 2013, respectively.
Appraisals of OREO are obtained when the real estate is acquired and subsequently as deemed necessary by the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management.
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at March 31, 2014 and December 31, 2013.
(in thousands)
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
|
Fair Value at March 31, 2014
|
|
Valuation Technique(s)
|
Unobservable Input
|
|
Range (Weighted Average)
|
|
Mortgage servicing rights
|
|
$
|
3,258
|
|
Discount cash flows, computer pricing model
|
Constant prepayment rate
|
|
|
7.1% - 24.6%
|
|
|
|
|
|
|
|
|
|
|
(10.6%)
|
|
|
|
|
|
|
|
Probability of default
|
|
|
0.00% - 10.67%
|
|
|
|
|
|
|
|
|
|
(2.99%)
|
|
|
|
|
|
|
|
Discount rate
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
(10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (collateral-dependent)
|
|
$
|
4,020
|
|
Market comparable properties
|
Marketability discount
|
|
|
5.0% - 10.0%
|
|
|
|
|
|
|
|
|
|
|
(7.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate/assets owned
|
|
$
|
4,440
|
|
Market comparable properties
|
Comparability adjustments (%)
|
|
|
5.0% - 46.0%
|
|
|
|
|
|
|
|
|
|
|
(21.0%)
|
|
(in thousands)
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
|
Fair Value at December 31, 2013
|
|
Valuation Technique(s)
|
Unobservable Input
|
|
Range (Weighted Average)
|
|
Mortgage servicing rights
|
|
$
|
3,424
|
|
Discount cash flows, computer pricing model
|
Constant prepayment rate
|
|
|
4.3% - 23.6%
|
|
|
|
|
|
|
|
|
|
|
(9.7%)
|
|
|
|
|
|
|
|
Probability of default
|
|
|
0.00% - 33.33%
|
|
|
|
|
|
|
|
|
|
(3.36%)
|
|
|
|
|
|
|
|
Discount rate
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
(10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (collateral-dependent)
|
|
$
|
6,830
|
|
Market comparable properties
|
Marketability discount
|
|
|
5.0% - 10.0%
|
|
|
|
|
|
|
|
|
|
|
(7.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate/assets owned
|
|
$
|
11,111
|
|
Market comparable properties
|
Comparability adjustments (%)
|
|
|
5.0% - 38.0%
|
|
|
|
|
|
|
|
|
|
|
(9.0%)
|
|
Sensitivity of Significant Unobservable Inputs
The following is a discussion of the sensitivity of significant unobservable inputs, 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.
Mortgage Servicing Rights
Market value for mortgage servicing rights is derived based on unobservable inputs, such as prepayment speeds of the underlying loans generated using the Andrew Davidson Prepayment Model, FHLMC/FNMA guidelines, the weighted-average life of the loan, the discount rate, the weighted average coupon, and the weighted average default rate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for prepayment speeds is accompanied by a directionally opposite change in the assumption for interest rates.
Fair Value of Financial Instruments
The following table presents estimated fair value of CTBI’s financial instruments as of March 31, 2014 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands)
|
|
|
|
|
Fair Value Measurements
at March 31, 2014 Using
|
|
|
|
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
|
|
$
|
193,689
|
|
|
$
|
193,689
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Certificates of deposit in other banks
|
|
|
9,568
|
|
|
|
0
|
|
|
|
9,605
|
|
|
|
0
|
|
Securities available-for-sale
|
|
|
650,127
|
|
|
|
24,427
|
|
|
|
625,700
|
|
|
|
0
|
|
Securities held-to-maturity
|
|
|
1,662
|
|
|
|
0
|
|
|
|
1,619
|
|
|
|
0
|
|
Loans held for sale
|
|
|
1,610
|
|
|
|
1,645
|
|
|
|
0
|
|
|
|
0
|
|
Loans, net
|
|
|
2,551,893
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,563,294
|
|
Federal Home Loan Bank stock
|
|
|
17,927
|
|
|
|
0
|
|
|
|
17,927
|
|
|
|
0
|
|
Federal Reserve Bank stock
|
|
|
4,887
|
|
|
|
0
|
|
|
|
4,887
|
|
|
|
0
|
|
Accrued interest receivable
|
|
|
12,924
|
|
|
|
0
|
|
|
|
12,924
|
|
|
|
0
|
|
Mortgage servicing rights
|
|
|
3,258
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,924,189
|
|
|
$
|
652,170
|
|
|
$
|
2,267,890
|
|
|
$
|
0
|
|
Repurchase agreements
|
|
|
217,656
|
|
|
|
0
|
|
|
|
0
|
|
|
|
217,630
|
|
Federal funds purchased
|
|
|
8,723
|
|
|
|
0
|
|
|
|
8,723
|
|
|
|
0
|
|
Advances from Federal Home Loan Bank
|
|
|
1,257
|
|
|
|
0
|
|
|
|
1,500
|
|
|
|
0
|
|
Long-term debt
|
|
|
61,341
|
|
|
|
0
|
|
|
|
0
|
|
|
|
35,244
|
|
Accrued interest payable
|
|
|
1,181
|
|
|
|
0
|
|
|
|
1,181
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Commitments to extend credit
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Forward sale commitments
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 2013 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands)
|
|
|
|
|
Fair Value Measurements
at December 31, 2013 Using
|
|
|
|
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
|
|
$
|
106,641
|
|
|
$
|
106,641
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Certificates of deposit in other banks
|
|
|
9,568
|
|
|
|
0
|
|
|
|
9,582
|
|
|
|
0
|
|
Securities available-for-sale
|
|
|
609,405
|
|
|
|
52,782
|
|
|
|
556,623
|
|
|
|
0
|
|
Securities held-to-maturity
|
|
|
1,662
|
|
|
|
0
|
|
|
|
1,601
|
|
|
|
0
|
|
Loans held for sale
|
|
|
828
|
|
|
|
845
|
|
|
|
0
|
|
|
|
0
|
|
Loans, net
|
|
|
2,581,346
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,589,811
|
|
Federal Home Loan Bank stock
|
|
|
25,673
|
|
|
|
0
|
|
|
|
25,673
|
|
|
|
0
|
|
Federal Reserve Bank stock
|
|
|
4,886
|
|
|
|
0
|
|
|
|
4,886
|
|
|
|
0
|
|
Accrued interest receivable
|
|
|
12,886
|
|
|
|
0
|
|
|
|
12,886
|
|
|
|
0
|
|
Mortgage servicing rights
|
|
|
3,424
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,855,074
|
|
|
$
|
621,321
|
|
|
$
|
2,230,608
|
|
|
$
|
0
|
|
Repurchase agreements
|
|
|
208,067
|
|
|
|
0
|
|
|
|
0
|
|
|
|
207,992
|
|
Federal funds purchased
|
|
|
12,465
|
|
|
|
0
|
|
|
|
12,465
|
|
|
|
0
|
|
Advances from Federal Home Loan Bank
|
|
|
1,286
|
|
|
|
0
|
|
|
|
1,531
|
|
|
|
0
|
|
Long-term debt
|
|
|
61,341
|
|
|
|
0
|
|
|
|
0
|
|
|
|
31,362
|
|
Accrued interest payable
|
|
|
1,032
|
|
|
|
0
|
|
|
|
1,032
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Commitments to extend credit
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Forward sale commitments
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents – The carrying amount approximates fair value.
Certificates of deposit in other banks – Fair values are based on quoted market prices or dealer quotes for similar instruments.
Securities held-to-maturity – Fair values are based on quoted market prices, if available. If a quoted price is not available, fair value is estimated using quoted prices for similar securities. The fair value estimate is provided to management from a third party using modeling assumptions specific to each type of security that are reviewed and approved by management. Quarterly sampling of fair values provided by additional third parties supplement the fair value review process.
Loans held for sale – The fair value is predetermined at origination based on sale price.
Loans (net of the allowance for loan and lease losses) – The fair value of fixed rate loans and variable rate mortgage loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. For other variable rate loans, the carrying amount approximates fair value.
Federal Home Loan Bank stock – The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.
Federal Reserve Bank stock – The carrying value of Federal Reserve Bank stock approximates fair value based on the redemption provisions of the Federal Reserve Bank.
Accrued interest receivable – The carrying amount approximates fair value.
Deposits – The fair value of fixed maturity time deposits is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. For deposits including demand deposits, savings accounts, NOW accounts, and certain money market accounts, the carrying value approximates fair value.
Repurchase agreements – The fair value is estimated by discounting future cash flows using current rates.
Federal funds purchased – The carrying amount approximates fair value.
Advances from Federal Home Loan Bank – The fair value of these fixed-maturity advances is estimated by discounting future cash flows using rates currently offered for advances of similar remaining maturities.
Long-term debt – The fair value is estimated by discounting future cash flows using current rates.
Accrued interest payable – The carrying amount approximates fair value.
Commitments to originate loans, forward sale commitments, letters of credit, and lines of credit – The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair values of these commitments are not material.
Note 9 – Accumulated Other Comprehensive Income
Unrealized gains (losses) on AFS securities
Amounts reclassified from accumulated other comprehensive income (AOCI) and the affected line items in the statements of income during the three months ended March 31, 2014 and 2013 were:
|
|
Amounts Reclassified from AOCI
|
|
Three Months Ended March 31
(in thousands)
|
|
2014
|
|
|
2013
|
|
Affected line item in the statements of income
|
|
|
|
|
|
|
Securities gains (losses)
|
|
$
|
(60
|
)
|
|
$
|
0
|
|
Tax (benefit) expense
|
|
|
(21
|
)
|
|
|
0
|
|
Total reclassifications out of AOCI
|
|
$
|
(39
|
)
|
|
$
|
0
|
|