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

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021
 
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to _____________

Commission file number 001-31220

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

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

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

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

Common Stock
(Title of class)

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

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

Yes  ☑
No

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

Yes  ☑
No

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

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

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

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

Yes ☐
   No ☑

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

Common stock – 17,831,479 shares outstanding at April 30, 2021



CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS

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

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 2020 for further information in this regard.


1
Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands)
 
(unaudited)
March 31
2021
   
December 31
2020
 
Assets:
           
Cash and due from banks
 
$
66,664
   
$
54,250
 
Interest bearing deposits
   
356,441
     
283,985
 
Cash and cash equivalents
   
423,105
     
338,235
 
                 
Certificates of deposit in other banks
   
245
     
245
 
Debt securities available-for-sale at fair value (amortized cost of $1,150,224 and $978,774, respectively)
   
1,155,195
     
997,261
 
Equity securities at fair value
   
2,243
     
2,471
 
Loans held for sale
   
17,748
     
23,259
 
                 
Loans
   
3,538,804
     
3,554,211
 
Allowance for credit losses
   
(45,346
)
   
(48,022
)
Net loans
   
3,493,458
     
3,506,189
 
                 
Premises and equipment, net
   
40,997
     
42,001
 
Right-of-use assets
   
12,787
     
13,215
 
Federal Home Loan Bank stock
   
9,971
     
10,048
 
Federal Reserve Bank stock
   
4,887
     
4,887
 
Goodwill
   
65,490
     
65,490
 
Bank owned life insurance
   
72,710
     
72,373
 
Mortgage servicing rights
   
5,584
     
4,068
 
Other real estate owned
   
6,224
     
7,694
 
Accrued interest receivable
   
15,188
     
15,818
 
Other assets
   
34,287
     
35,887
 
Total assets
 
$
5,360,119
   
$
5,139,141
 
                 
Liabilities and shareholders’ equity:
               
Deposits:
               
Noninterest bearing
 
$
1,283,309
   
$
1,140,925
 
Interest bearing
   
2,950,463
     
2,875,157
 
Total deposits
   
4,233,772
     
4,016,082
 
                 
Repurchase agreements
   
354,235
     
355,862
 
Federal funds purchased
   
500
     
500
 
Advances from Federal Home Loan Bank
   
390
     
395
 
Long-term debt
   
57,841
     
57,841
 
Deferred tax liability
   
530
     
4,687
 
Operating lease liability
   
12,111
     
12,531
 
Finance lease liability
   
1,438
     
1,441
 
Accrued interest payable
   
1,365
     
1,243
 
Other liabilities
   
35,868
     
33,694
 
Total liabilities
   
4,698,050
     
4,484,276
 
                 
Shareholders’ equity:
               
Preferred stock, 300,000 shares authorized and unissued
   
-
     
-
 
Common stock, $5.00 par value, shares authorized 25,000,000; shares outstanding 2021 – 17,826,076; 2020 – 17,810,401
   
89,131
     
89,052
 
Capital surplus
   
225,861
     
225,507
 
Retained earnings
   
343,511
     
326,738
 
Accumulated other comprehensive income, net of tax
   
3,566
     
13,568
 
Total shareholders’ equity
   
662,069
     
654,865
 
                 
Total liabilities and shareholders’ equity
 
$
5,360,119
   
$
5,139,141
 


See notes to condensed consolidated financial statements.

2

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

 
Three Months Ended
 
   
March 31
 
(in thousands except per share data)
 
2021
   
2020
 
Interest income:
           
Interest and fees on loans, including loans held for sale
 
$
40,689
   
$
40,465
 
Interest and dividends on securities
               
Taxable
   
2,575
     
3,046
 
Tax exempt
   
739
     
527
 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
   
124
     
140
 
Interest on Federal Reserve Bank deposits
   
76
     
496
 
Other, including interest on federal funds sold
   
8
     
25
 
Total interest income
   
44,211
     
44,699
 
                 
Interest expense:
               
Interest on deposits
   
3,387
     
6,942
 
Interest on repurchase agreements and federal funds purchased
   
304
     
1,004
 
Interest on long-term debt
   
278
     
509
 
Total interest expense
   
3,969
     
8,455
 
                 
Net interest income
   
40,242
     
36,244
 
Provision for credit losses
   
(2,499
)
   
12,707
 
Net interest income after provision for credit losses
   
42,741
     
23,537
 
                 
Noninterest income:
               
Service charges on deposit accounts
   
6,022
     
5,916
 
Gains on sales of loans, net
   
2,433
     
483
 
Trust and wealth management income
   
2,951
     
2,884
 
Loan related fees
   
2,270
     
95
 
Bank owned life insurance
   
573
     
573
 
Brokerage revenue
   
457
     
372
 
Securities gains (losses)
   
(168
)
   
249
 
Other noninterest income
   
1,039
     
949
 
Total noninterest income
   
15,577
     
11,521
 
                 
Noninterest expense:
               
Officer salaries and employee benefits
   
3,738
     
2,751
 
Other salaries and employee benefits
   
13,095
     
12,280
 
Occupancy, net
   
2,195
     
1,985
 
Equipment
   
633
     
721
 
Data processing
   
2,159
     
1,978
 
Bank franchise tax
   
360
     
1,812
 
Legal fees
   
352
     
477
 
Professional fees
   
541
     
569
 
Advertising and marketing
   
722
     
634
 
FDIC insurance
   
326
     
147
 
Other real estate owned provision and expense
   
318
     
869
 
Repossession expense
   
199
     
135
 
Amortization of limited partnership investments
   
837
     
888
 
Other noninterest expense
   
2,835
     
2,975
 
Total noninterest expense
   
28,310
     
28,221
 
                 
Income before income taxes
   
30,008
     
6,837
 
Income taxes
   
6,390
     
258
 
Net income
   
23,618
     
6,579
 
                 
Other comprehensive income (loss):
               
Unrealized holding gains (losses) on debt securities available-for-sale:
               
Unrealized holding gains (losses) arising during the period
   
(13,456
)
   
2,147
 
Less: Reclassification adjustments for realized gains on debt securities included in net income
   
60
     
481
 
Tax expense (benefit)
   
(3,514
)
   
433
 
Other comprehensive income (loss), net of tax
   
(10,002
)
   
1,233
 
Comprehensive income
 
$
13,616
   
$
7,812
 
                 
Basic earnings per share
 
$
1.33
   
$
0.37
 
Diluted earnings per share
 
$
1.33
   
$
0.37
 
                 
Weighted average shares outstanding-basic
   
17,774
     
17,752
 
Weighted average shares outstanding-diluted
   
17,787
     
17,763
 

See notes to condensed consolidated financial statements.

3

Consolidated Statements of Changes in Shareholders’ Equity
Quarterly

(in thousands except per share and share amounts)
 
Common
Shares
   
Common
Stock
   
Capital
Surplus
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
   
Total
 
Balance, January 1, 2021
   
17,810,401
   
$
89,052
   
$
225,507
   
$
326,738
   
$
13,568
   
$
654,865
 
Net income
                           
23,618
             
23,618
 
Other comprehensive income (loss), net of tax of $(3,514)
                                   
(10,002
)
   
(10,002
)
Cash dividends declared ($0.385 per share)
                           
(6,845
)
           
(6,845
)
Issuance of common stock
   
24,163
     
121
     
117
                     
238
 
Issuance of restricted stock
   
9,193
     
46
     
(46
)
                   
0
 
Vesting of restricted stock
   
(17,681
)
   
(88
)
   
88
                     
0
 
Stock-based compensation
                   
195
                     
195
 
Balance, March 31, 2021
   
17,826,076
   
$
89,131
   
$
225,861
   
$
343,511
   
$
3,566
   
$
662,069
 

(in thousands except per share and share amounts)
 
Common
Shares
   
Common
Stock
   
Capital
Surplus
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
   
Total
 
Balance, December 31, 2019
   
17,793,165
   
$
88,966
   
$
224,907
   
$
296,760
   
$
4,253
   
$
614,886
 
Implementation of ASU 2016-13
                           
(2,366
)
           
(2,366
)
Balance, January 1, 2020
   
17,793,165
     
88,966
     
224,907
     
294,394
     
4,253
     
612,520
 
Net income
                           
6,579
             
6,579
 
Other comprehensive income (loss), net of tax of $433
                                   
1,233
     
1,233
 
Cash dividends declared ($0.38 per share)
                           
(6,750
)
           
(6,750
)
Issuance of common stock
   
21,953
     
110
     
122
                     
232
 
Repurchase of common stock
   
(32,664
)
   
(164
)
   
(935
)
                   
(1,099
)
Issuance of restricted stock
   
21,544
     
108
     
(108
)
                   
0
 
Vesting of restricted stock
   
(16,724
)
   
(84
)
   
84
                     
0
 
Stock-based compensation
                   
207
                     
207
 
Balance, March 31, 2020
   
17,787,274
   
$
88,936
   
$
224,277
   
$
294,223
   
$
5,486
   
$
612,922
 

See notes to condensed consolidated financial statements.

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

 
Three Months Ended
March 31
 
(in thousands)
 
2021
   
2020
 
Cash flows from operating activities:
           
Net income
 
$
23,618
   
$
6,579
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
1,265
     
1,356
 
Deferred taxes
   
(643
)
   
(2,037
)
Stock-based compensation
   
213
     
228
 
Provision for credit losses
   
(2,499
)
   
12,707
 
Write-downs of other real estate owned and other repossessed assets
   
154
     
458
 
Gains on sale of mortgage loans held for sale
   
(2,433
)
   
(483
)
Securities gains, net
   
(60
)
   
(481
)
Change in fair market value of equity securities
   
228
     
232
 
Gains on sale of assets, net
   
(214
)
   
(3
)
Proceeds from sale of mortgage loans held for sale
   
109,014
     
23,032
 
Funding of mortgage loans held for sale
   
(101,070
)
   
(22,785
)
Amortization of securities premiums and discounts, net
   
1,893
     
1,271
 
Change in cash surrender value of bank owned life insurance
   
(337
)
   
(340
)
Payment of operating lease liabilities
   
(445
)
   
(444
)
Mortgage servicing rights:
               
Fair value adjustments
   
(780
)
   
926
 
New servicing assets created
   
(736
)
   
(144
)
Changes in:
               
Accrued interest receivable
   
630
     
156
 
Other assets
   
1,634
     
(1,173
)
Accrued interest payable
   
122
     
608
 
Other liabilities
   
2,152
     
(5,939
)
Net cash provided by operating activities
   
31,706
     
13,724
 
                 
Cash flows from investing activities:
               
Securities available-for-sale (AFS):
               
Purchase of AFS securities
   
(304,167
)
   
(126,748
)
 Proceeds from sales of AFS securities
   
1,080
     
21,746
 
 Proceeds from prepayments, calls, and maturities of AFS securities
   
129,804
     
72,243
 
Securities held-to-maturity (HTM):
               
Proceeds from maturities of HTM securities
   
0
     
517
 
Change in loans, net
   
15,747
     
(41,183
)
Purchase of premises and equipment
   
(403
)
   
(423
)
Proceeds from sale and retirement of premises and equipment
   
812
     
0
 
Purchase (redemption) of stock by Federal Home Loan Bank
   
77
     
(880
)
Proceeds from sale of other real estate owned and repossessed assets
   
762
     
116
 
Net cash used in investing activities
   
(156,288
)
   
(74,612
)
                 
Cash flows from financing activities:
               
Change in deposits, net
   
217,690
     
(10,464
)
Change in repurchase agreements and federal funds purchased, net
   
(1,627
)
   
6,992
 
Proceeds from Federal Home Loan Bank advances
   
0
     
25,000
 
Payments on advances from Federal Home Loan Bank
   
(5
)
   
(25,004
)
Payment of finance lease liabilities
   
(3
)
   
(3
)
Issuance of common stock
   
238
     
232
 
Repurchase of common stock
   
0
     
(1,099
)
Dividends paid
   
(6,841
)
   
(6,747
)
Net cash provided by (used in) financing activities
   
209,452
     
(11,093
)
Net increase (decrease) in cash and cash equivalents
   
84,870
     
(71,981
)
Cash and cash equivalents at beginning of period
   
338,235
     
264,683
 
Cash and cash equivalents at end of period
 
$
423,105
   
$
192,702
 
                 
Supplemental disclosures:
               
Income taxes paid
 
$
87
   
$
0
 
Interest paid
   
3,847
     
7,848
 
Non-cash activities:
               
Loans to facilitate the sale of other real estate owned and repossessed assets
   
381
     
718
 
Common stock dividends accrued, paid in subsequent quarter
   
242
     
224
 
Real estate acquired in settlement of loans
   
(136
)
   
1,625
 

See notes to condensed consolidated financial statements.

5

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

Note 1 - Summary of Significant Accounting Policies


In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring adjustments) necessary, to present fairly the condensed consolidated financial position as of March 31, 2021 and the results of operations, other comprehensive income, changes in shareholders’ equity, and cash flows for the three months ended March 31, 2021 and 2020.  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 and cash flows for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the full year.  The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (“CTBI”) for that period.  For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2020, included in our annual report on Form 10-K.


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


New Accounting Standards –


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


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


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


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


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


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


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


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


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

6

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


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


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


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


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

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.

7

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


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


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

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

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

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


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


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


Held-to-maturity (“HTM”) securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts.  The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics.  These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased.  At March 31, 2021, CTBI held no securities designated as held-to-maturity.


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

8

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


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


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


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


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


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

9


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


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


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


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


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


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


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

10


Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.  Any interest and penalties incurred in connection with income taxes are recorded as a component of income tax expense in the consolidated financial statements.  During the quarters ended March 31, 2021 and 2020, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.

Note 2 – Stock-Based Compensation


There was no compensation expense related to stock option grants for the three months March 31, 2021.  CTBI’s compensation expense related to stock option grants was $2 thousand for the three months ended March 31, 2020.  As of March 31, 2021, there was no unrecognized compensation expense related to unvested stock option awards, as all stock option awards have fully vested.  There were no stock options granted in the first three months of 2021 or 2020.


Restricted stock expense for the three months ended March 31, 2021 and 2020 was $213 thousand and $226 thousand, respectively, including $18 thousand and $21 thousand, respectively, in dividends paid for those periods. As of March 31, 2021, there was a total of $1.7 million of unrecognized compensation expense related to restricted stock grants that will be recognized as expense as the awards vest over a weighted average period of 2.6 years.  There were 9,193 and 21,544 shares of restricted stock granted during the three months ended March 31, 2021 and 2020, respectively.  The restricted stock was issued pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan.  The restrictions on the restricted stock will lapse ratably over four years, except for a 2,500 management retention restricted stock award granted in January 2020 which will vest at the end of five years, subject to such employee’s continued employment.  However, in the event of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of the participant, the restrictions will lapse, and in the event of the participant’s disability, the restrictions will lapse on a pro rata basis.  The Compensation Committee will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement.

Note 3 – Securities


Debt 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.  As of March 31, 2021 and December 31, 2020, CTBI had no held-to-maturity securities.


The amortized cost and fair value of debt securities at March 31, 2021 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
 
$
205,355
   
$
419
   
$
(2,155
)
 
$
203,619
 
State and political subdivisions
   
219,389
     
5,416
     
(4,688
)
   
220,117
 
U.S. government sponsored agency mortgage-backed securities
   
669,134
     
8,616
     
(2,918
)
   
674,832
 
Other debt securities
   
56,346
     
301
     
(20
)
   
56,627
 
Total available-for-sale securities
 
$
1,150,224
   
$
14,752
   
$
(9,781
)
 
$
1,155,195
 
11

The amortized cost and fair value of debt securities at December 31, 2020 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
 
$
148,507
   
$
483
   
$
(197
)
 
$
148,793
 
State and political subdivisions
   
133,287
     
7,132
     
(3
)
   
140,416
 
U.S. government sponsored agency mortgage-backed securities
   
640,537
     
11,648
     
(378
)
   
651,807
 
Other debt securities
   
56,443
     
10
     
(208
)
   
56,245
 
Total available-for-sale securities
 
$
978,774
   
$
19,273
   
$
(786
)
 
$
997,261
 



The amortized cost and fair value of debt securities at March 31, 2021 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
Available-for-Sale
 
(in thousands)
 
Amortized
Cost
   
Fair Value
 
Due in one year or less
 
$
1,330
   
$
1,334
 
Due after one through five years
   
92,173
     
92,176
 
Due after five through ten years
   
167,212
     
166,553
 
Due after ten years
   
164,029
     
163,673
 
U.S. government sponsored agency mortgage-backed securities
   
669,134
     
674,832
 
Other debt securities
   
56,346
     
56,627
 
Total debt securities
 
$
1,150,224
   
$
1,155,195
 


During the three months ended March 31, 2021, we had a net securities loss of $168 thousand, consisting of a pre-tax gain of $60 thousand realized on sales and calls of AFS securities and an unrealized loss of $228 thousand from the fair market value adjustment of equity securities. During the three months ended March 31, 2020, we had a net securities gain of $249 thousand, consisting of a pre-tax gain of $481 thousand realized on calls of AFS securities and an unrealized loss of $232 thousand from the fair market value adjustment of equity securities.

Equity Securities at Fair Value


CTBI made the election permitted by ASC 321-10-35-2 to record its Visa Class B shares at fair value.  Equity securities at fair value as of March 31, 2021 were $2.2 million, as a result of a $0.2 million decrease in the fair market value in the first quarter 2021.  The fair market value of equity securities decreased $0.2 million in the first quarter 2020.  No equity securities were sold during the three months ended March 31, 2021 and 2020.


The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $413.5 million at March 31, 2021 and $354.5 million at December 31, 2020.


The amortized cost of securities sold under agreements to repurchase amounted to $389.9 million at March 31,2021 and $386.6 million at December 31, 2020.
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CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of March 31, 2021 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related.  The percentage of total debt securities with unrealized losses as of March 31,2021 was 53.2% compared to 16.2% as of December 31, 2020.  The following table provides the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of March 31, 2021 that are not deemed to have credit losses.  As stated above, CTBI had no HTM securities as of March 31, 2021.

Available-for-Sale

(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Losses
   
Fair Value
 
Less Than 12 Months
                 
U.S. Treasury and government agencies
 
$
136,625
   
$
(2,028
)
 
$
134,597
 
State and political subdivisions
   
101,944
     
(4,660
)
   
97,284
 
U.S. government sponsored agency mortgage-backed securities
   
347,136
     
(2,905
)
   
344,231
 
Other debt securities
   
0
     
0
     
0
 
Total <12 months temporarily impaired AFS securities
   
585,705
     
(9,593
)
   
576,112
 
                         
12 Months or More
                       
U.S. Treasury and government agencies
   
28,763
     
(127
)
   
28,636
 
State and political subdivisions
   
533
     
(28
)
   
505
 
U.S. government sponsored agency mortgage-backed securities
   
2,614
     
(13
)
   
2,601
 
Other debt securities
   
6,538
     
(20
)
   
6,518
 
Total ≥12 months temporarily impaired AFS securities
   
38,448
     
(188
)
   
38,260
 
                         
Total
                       
U.S. Treasury and government agencies
   
165,388
     
(2,155
)
   
163,233
 
State and political subdivisions
   
102,477
     
(4,688
)
   
97,789
 
U.S. government sponsored agency mortgage-backed securities
   
349,750
     
(2,918
)
   
346,832
 
Other debt securities
   
6,538
     
(20
)
   
6,518
 
Total temporarily impaired AFS securities
 
$
624,153
   
$
(9,781
)
 
$
614,372
 

13

The analysis performed as of December 31, 2020 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related.  The following table provides the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2020 that are not deemed to be other-than-temporarily impaired.  As stated above, CTBI had no HTM securities as of December 31, 2020.

Available-for-Sale

(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Losses
   
Fair Value
 
Less Than 12 Months
                 
U.S. Treasury and government agencies
 
$
5,604
   
$
(7
)
 
$
5,597
 
State and political subdivisions
   
534
     
(3
)
   
531
 
U.S. government sponsored agency mortgage-backed securities
   
58,463
     
(336
)
   
58,127
 
Other debt securities
   
22,660
     
(29
)
   
22,631
 
Total <12 months temporarily impaired AFS securities
   
87,261
     
(375
)
   
86,886
 
                         
12 Months or More
                       
U.S. Treasury and government agencies
   
46,163
     
(190
)
   
45,973
 
State and political subdivisions
   
0
     
0
     
0
 
U.S. government sponsored agency mortgage-backed securities
   
2,801
     
(42
)
   
2,759
 
Other debt securities
   
26,283
     
(179
)
   
26,104
 
Total ≥12 months temporarily impaired AFS securities
   
75,247
     
(411
)
   
74,836
 
                         
Total
                       
U.S. Treasury and government agencies
   
51,767
     
(197
)
   
51,570
 
State and political subdivisions
   
534
     
(3
)
   
531
 
U.S. government sponsored agency mortgage-backed securities
   
61,264
     
(378
)
   
60,886
 
Other debt securities
   
48,943
     
(208
)
   
48,735
 
Total temporarily impaired AFS securities
 
$
162,508
   
$
(786
)
 
$
161,722
 

U.S. Treasury and Government Agencies


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

State and Political Subdivisions


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

U.S. Government Sponsored Agency Mortgage-Backed Securities


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

14
Other Debt Securities


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

Note 4 – Loans


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

(in thousands)
 
March 31
2021
   
December 31
2020
 
Hotel/motel
 
$
258,974
   
$
260,699
 
Commercial real estate residential
   
305,079
     
287,928
 
Commercial real estate nonresidential
   
732,978
     
743,238
 
Dealer floorplans
   
63,545
     
69,087
 
Commercial other
   
285,176
     
279,908
 
Commercial unsecured SBA PPP
   
254,732
     
252,667
 
Commercial loans
   
1,900,484
     
1,893,527
 
                 
Real estate mortgage
   
770,026
     
784,559
 
Home equity lines
   
101,595
     
103,770
 
Residential loans
   
871,621
     
888,329
 
                 
Consumer direct
   
149,394
     
152,304
 
Consumer indirect
   
617,305
     
620,051
 
Consumer loans
   
766,699
     
772,355
 
                 
Loans and lease financing
 
$
3,538,804
   
$
3,554,211
 


The loan portfolios presented above are net of unearned fees and unamortized premiums. Unearned fees included above totaled $9.4 million as of March 31, 2021 and $9.3 million as of December 31, 2020 while the unamortized premiums on the indirect lending portfolio totaled $23.9 million as of March 31, 2021 and $23.8 million as of December 31, 2020.


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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 7.3% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  Additionally, any hotel/motel construction loans would be included in this segment as CTBI’s construction loans are primarily completed as one loan going from construction to permanent financing.  These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.


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

15

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


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


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


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


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


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


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


Consumer 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 $17.7 million at March 31, 2021 and $23.3 million at December 31, 2020.

16

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

 
Three Months Ended
March 31, 2021
 
(in thousands)
 
Hotel/
Motel
   
Commercial
Real Estate
Residential
   
Commercial
Real Estate
Nonresidential
   
Dealer
Floorplans
   
Commercial
Other
   
Real Estate
Mortgage
   
Home
Equity
   
Consumer
Direct
   
Consumer
Indirect
   
Total
 
ACL
                                                           
Beginning balance
 
$
6,356
   
$
4,464
   
$
11,086
   
$
1,382
   
$
4,289
   
$
7,832
   
$
844
   
$
1,863
   
$
9,906
   
$
48,022
 
Provision charged to expense
   
308
     
199
     
(135
)
   
(64
)
   
269
     
(690
)
   
(93
)
   
(14
)
   
(2,279
)
   
(2,499
)
Losses charged off
   
0
     
(24
)
   
(151
)
   
0
     
(112
)
   
(8
)
   
(5
)
   
(154
)
   
(1,016
)
   
(1,470
)
Recoveries
   
0
     
2
     
13
     
0
     
125
     
9
     
4
     
116
     
1,024
     
1,293
 
Ending balance
 
$
6,664
   
$
4,641
   
$
10,813
   
$
1,318
   
$
4,571
   
$
7,143
   
$
750
   
$
1,811
   
$
7,635
   
$
45,346
 

 
Year Ended
December 31, 2020
 
(in thousands)
 
Hotel/Motel
   
Commercial
Real Estate
Residential
   
Commercial
Real Estate
Nonresidential
   
Dealer
Floorplans
   
Commercial
Other
   
Real Estate
Mortgage
   
Home
Equity
   
Consumer
Direct
   
Consumer
Indirect
   
Total
 
ACL
                                                           
Beginning balance, prior to adoption of ASC 326
 
$
3,371
   
$
3,439
   
$
8,515
   
$
802
   
$
5,556
   
$
4,604
   
$
897
   
$
1,711
   
$
6,201
   
$
35,096
 
Impact of adoption of ASC 326
   
170
     
(721
)
   
119
     
820
     
(391
)
   
1,893
     
(75
)
   
(40
)
   
1,265
     
3,040
 
Provision charged to expense
   
2,858
     
1,772
     
3,303
     
(214
)
   
2,040
     
1,584
     
16
     
609
     
4,079
     
16,047
 
Losses charged off
   
(43
)
   
(182
)
   
(941
)
   
(26
)
   
(3,339
)
   
(321
)
   
(4
)
   
(927
)
   
(4,670
)
   
(10,453
)
Recoveries
   
0
     
156
     
90
     
0
     
423
     
72
     
10
     
510
     
3,031
     
4,292
 
Ending balance
 
$
6,356
   
$
4,464
   
$
11,086
   
$
1,382
   
$
4,289
   
$
7,832
   
$
844
   
$
1,863
   
$
9,906
   
$
48,022
 
17

 
Three Months Ended
March 31, 2020
 
(in thousands)
 
Hotel/
Motel
   
Commercial
Real Estate
Residential
   
Commercial
Real Estate
Nonresidential
   
Dealer
Floorplans
   
Commercial
Other
   
Real Estate
Mortgage
   
Home
Equity
   
Consumer
Direct
   
Consumer
Indirect
   
Total
 
ACL
                                                           
Beginning balance, prior to adoption of ASC 326
 
$
3,371
   
$
3,439
   
$
8,515
   
$
802
   
$
5,556
   
$
4,604
   
$
897
   
$
1,711
   
$
6,201
   
$
35,096
 
Impact of adoption of ASC 326
   
170
     
(721
)
   
119
     
820
     
(391
)
   
1,893
     
(75
)
   
(40
)
   
1,265
     
3,040
 
Provision charged to expense
   
2,381
     
1,337
     
2,984
     
91
     
1,434
     
1,099
     
67
     
739
     
2,575
     
12,707
 
Losses charged off
   
0
     
(51
)
   
(59
)
   
0
     
(359
)
   
(60
)
   
0
     
(369
)
   
(1,517
)
   
(2,415
)
Recoveries
   
0
     
8
     
4
     
0
     
169
     
7
     
1
     
122
     
706
     
1,017
 
Ending balance
 
$
5,922
   
$
4,012
   
$
11,563
   
$
1,713
   
$
6,409
   
$
7,543
   
$
890
   
$
2,163
   
$
9,230
   
$
49,445
 



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


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


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

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

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


With the continued impact of the global COVID-19 pandemic and the fact that there is no immediate end foreseen, this has been identified as a significant specific event that could impact our customers’ ability to pay.  CTBI added a new factor during the prior year as an allocation to recognize when there are significant events occurring that could impact the loan portfolio.  Management noted that the qualitative factors for current delinquency trends and our levels of nonperforming loans were driving a reduction in the overall calculation for our ACL.  Management was concerned that these factors may have been artificially influenced by the current credit environment and the number of loans that have received payment deferrals.  Given this uncertainty, management elected to maintain this significant event qualitative factor to anticipate continued impact of COVID-19 once further deferments are no longer available and SBA Payroll Protection Programs end.

18

We recognized a recapture of allowance for credit losses with a credit to provision for credit losses of $2.5 million for the first quarter of 2021, compared to a provision for credit losses of $1.0 million for the prior quarter and $12.7 million for the first quarter of 2020.  The change in the provision for credit losses compared to the fourth quarter of 2020 was due primarily to the improvement in net charge off experience affecting our vintage loss analysis in several segments, the most significant of those being the indirect lending and residential lending segments.  The indirect lending segment experienced no net losses in the quarter, compared to the 12 quarter rolling average losses of 0.35 percent.  The residential lending segment experienced no net losses in the quarter compared to the 12 quarter rolling average of 0.07 percent.  Overall, the decrease in the allowance for credit losses attributed to historical loss factors was $2.4 million.  Our reserve coverage (allowance for credit losses to nonperforming loans) at March 31, 2021 was 215.5% compared to 180.7% at December 31, 2020 and 139.8% at March 31, 2020.  Our credit loss reserve as a percentage of total loans outstanding at March 31, 2021 was 1.28% (1.38% excluding PPP loans) compared to 1.35% at December 31, 2020 (1.46% excluding PPP loans) and 1.50% at March 31, 2020.  The PPP program began in April 2020.


Refer to Note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy.   Nonaccrual loans and loans 90 days past due and still accruing segregated by class of loans for both March 31,2021 and December 31, 2020 were as follows:

 
March 31, 2021
 
 (in thousands)
 
Nonaccrual Loans
with No ACL
   
Nonaccrual Loans
with ACL
   
90+ and Still
Accruing
   
Total
Nonperforming
Loans
 
                         
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
 
Commercial real estate residential
   
0
     
981
     
1,067
     
2,048
 
Commercial real estate nonresidential
   
3,311
     
1,400
     
3,418
     
8,129
 
Commercial other
   
0
     
743
     
335
     
1,078
 
Total commercial loans
   
3,311
     
3,124
     
4,820
     
11,255
 
                                 
Real estate mortgage
   
0
     
5,268
     
3,035
     
8,303
 
Home equity lines
   
0
     
520
     
656
     
1,176
 
Total residential loans
   
0
     
5,788
     
3,691
     
9,479
 
                                 
Consumer direct
   
0
     
0
     
31
     
31
 
Consumer indirect
   
0
     
0
     
274
     
274
 
Total consumer loans
   
0
     
0
     
305
     
305
 
                                 
Loans and lease financing
 
$
3,311
   
$
8,912
   
$
8,816
   
$
21,039
 
19

 
December 31, 2020
 
 (in thousands)
 
Nonaccrual Loans
with No ACL
   
Nonaccrual Loans
with ACL
   
90+ and Still
Accruing
   
Total
Nonperforming
Loans
 
                         
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
 
Commercial real estate residential
   
0
     
1,225
     
4,776
     
6,001
 
Commercial real estate nonresidential
   
0
     
1,424
     
7,852
     
9,276
 
Commercial other
   
0
     
867
     
269
     
1,136
 
Total commercial loans
   
0
     
3,516
     
12,897
     
16,413
 
                                 
Real estate mortgage
   
0
     
5,346
     
3,420
     
8,766
 
Home equity lines
   
0
     
582
     
392
     
974
 
Total residential loans
   
0
     
5,928
     
3,812
     
9,740
 
                                 
Consumer direct
   
0
     
0
     
71
     
71
 
Consumer indirect
   
0
     
0
     
353
     
353
 
Total consumer loans
   
0
     
0
     
424
     
424
 
                                 
Loans and lease financing
 
$
0
   
$
9,444
   
$
17,133
   
$
26,577
 


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

March 31, 2021
 
(in thousands)
 
30-59 Days
Past Due
   
60-89
Days Past
Due
   
90+ Days
Past Due
   
Total Past
Due
   
Current
   
Total
Loans
 
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
   
$
258,974
   
$
258,974
 
Commercial real estate residential
   
1,205
     
516
     
1,650
     
3,371
     
301,708
     
305,079
 
Commercial real estate nonresidential
   
1,096
     
863
     
7,566
     
9,525
     
723,453
     
732,978
 
Dealer floorplans
   
0
     
0
     
0
     
0
     
63,545
     
63,545
 
Commercial other
   
2,005
     
1,201
     
655
     
3,861
     
281,315
     
285,176
 
Commercial unsecured SBA PPP
   
0
     
0
     
0
     
0
     
254,732
     
254,732
 
Total commercial loans
   
4,306
     
2,580
     
9,871
     
16,757
     
1,883,727
     
1,900,484
 
                                                 
Real estate mortgage
   
1,843
     
3,462
     
5,393
     
10,698
     
759,328
     
770,026
 
Home equity lines
   
285
     
168
     
1,115
     
1,568
     
100,027
     
101,595
 
Total residential loans
   
2,128
     
3,630
     
6,508
     
12,266
     
859,355
     
871,621
 
                                                 
Consumer direct
   
459
     
45
     
31
     
535
     
148,859
     
149,394
 
Consumer indirect
   
1,099
     
360
     
274
     
1,733
     
615,572
     
617,305
 
Total consumer loans
   
1,558
     
405
     
305
     
2,268
     
764,431
     
766,699
 
                                                 
Loans and lease financing
 
$
7,992
   
$
6,615
   
$
16,684
   
$
31,291
   
$
3,507,513
   
$
3,538,804
 
20

December 31, 2020
 
(in thousands)
 
30-59 Days
Past Due
   
60-89
Days Past
Due
   
90+ Days
Past Due
   
Total Past
Due
   
Current
   
Total
Loans
 
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
   
$
260,699
   
$
260,699
 
Commercial real estate residential
   
722
     
413
     
5,577
     
6,712
     
281,216
     
287,928
 
Commercial real estate nonresidential
   
1,199
     
0
     
8,703
     
9,902
     
733,336
     
743,238
 
Dealer floorplans
   
0
     
0
     
0
     
0
     
69,087
     
69,087
 
Commercial other
   
658
     
136
     
835
     
1,629
     
278,279
     
279,908
 
Commercial unsecured SBA PPP
   
0
     
0
     
0
     
0
     
252,667
     
252,667
 
Total commercial loans
   
2,579
     
549
     
15,115
     
18,243
     
1,875,284
     
1,893,527
 
                                                 
Real estate mortgage
   
1,784
     
3,501
     
6,897
     
12,182
     
772,377
     
784,559
 
Home equity lines
   
509
     
305
     
919
     
1,733
     
102,037
     
103,770
 
Total residential loans
   
2,293
     
3,806
     
7,816
     
13,915
     
874,414
     
888,329
 
                                                 
Consumer direct
   
659
     
87
     
71
     
817
     
151,487
     
152,304
 
Consumer indirect
   
2,960
     
973
     
353
     
4,286
     
615,765
     
620,051
 
Total consumer loans
   
3,619
     
1,060
     
424
     
5,103
     
767,252
     
772,355
 
                                                 
Loans and lease financing
 
$
8,491
   
$
5,415
   
$
23,355
   
$
37,261
   
$
3,516,950
   
$
3,554,211
 


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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 7.3% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.  Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.


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

21

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


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


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


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


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


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

22

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

Credit Quality Indicators:


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

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

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

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

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

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

23

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

March 31, 2021
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2021
   
2020
   
2019
   
2018
   
2017
   
Prior
   
Revolving
Loans
   
Total
 
Hotel/motel
                                               
Risk rating:
                                               
Pass
 
$
14,733
   
$
11,498
   
$
54,602
   
$
27,835
   
$
38,701
   
$
25,794
   
$
50
   
$
173,213
 
Watch
   
0
     
23,865
     
5,251
     
0
     
2,730
     
24,125
     
0
     
55,971
 
OAEM
   
0
     
0
     
1,993
     
9,479
     
0
     
0
     
0
     
11,472
 
Substandard
   
0
     
0
     
0
     
3,295
     
1,113
     
13,910
     
0
     
18,318
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total hotel/motel
 
$
14,733
   
$
35,363
   
$
61,846
   
$
40,609
   
$
42,544
   
$
63,829
   
$
50
   
$
258,974
 
                                                                 
Commercial real estate residential
                                                               
Risk rating:
                                                               
Pass
 
$
37,400
   
$
80,666
   
$
37,372
   
$
27,044
   
$
16,221
   
$
60,778
   
$
9,966
   
$
269,447
 
Watch
   
205
     
1,471
     
2,074
     
2,208
     
2,851
     
8,759
     
164
     
17,732
 
OAEM
   
328
     
2,246
     
1,433
     
204
     
140
     
128
     
0
     
4,479
 
Substandard
   
3,674
     
2,900
     
585
     
1,595
     
524
     
4,118
     
25
     
13,421
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial real estate residential
 
$
41,607
   
$
87,283
   
$
41,464
   
$
31,051
   
$
19,736
   
$
73,783
   
$
10,155
   
$
305,079
 
                                                                 
Commercial real estate nonresidential
                                                               
Risk rating:
                                                               
Pass
 
$
60,781
   
$
117,993
   
$
95,141
   
$
72,884
   
$
75,415
   
$
217,747
   
$
24,882
   
$
664,843
 
Watch
   
227
     
4,526
     
3,041
     
4,516
     
5,474
     
17,591
     
557
     
35,932
 
OAEM
   
0
     
0
     
0
     
18
     
0
     
338
     
20
     
376
 
Substandard
   
1,641
     
6,726
     
5,625
     
3,453
     
2,396
     
11,644
     
309
     
31,794
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
33
     
0
     
33
 
Total commercial real estate nonresidential
 
$
62,649
   
$
129,245
   
$
103,807
   
$
80,871
   
$
83,285
   
$
247,353
   
$
25,768
   
$
732,978
 
                                                                 
Dealer floorplans
                                                               
Risk rating:
                                                               
Pass
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
63,229
   
$
63,229
 
Watch
   
0
     
0
     
0
     
0
     
0
     
0
     
316
     
316
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total dealer floorplans
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
63,545
   
$
63,545
 
                                                                 
Commercial other
                                                               
Risk rating:
                                                               
Pass
 
$
29,710
   
$
67,210
   
$
24,136
   
$
32,847
   
$
12,867
   
$
18,250
   
$
77,740
   
$
262,760
 
Watch
   
727
     
2,067
     
335
     
6,049
     
640
     
879
     
6,879
     
17,576
 
OAEM
   
0
     
0
     
0
     
5
     
0
     
314
     
0
     
319
 
Substandard
   
234
     
2,012
     
354
     
310
     
447
     
785
     
379
     
4,521
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial other
 
$
30,671
   
$
71,289
   
$
24,825
   
$
39,211
   
$
13,954
   
$
20,228
   
$
84,998
   
$
285,176
 
                                                                 
Commercial unsecured SBA PPP
                                                               
Risk rating:
                                                               
Pass
 
$
97,412
   
$
157,320
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
254,732
 
Watch
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial unsecured SBA PPP
 
$
97,412
   
$
157,320
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
254,732
 
                                                                 
Commercial loans
                                                               
Risk rating:
                                                               
Pass
 
$
240,036
   
$
434,687
   
$
211,251
   
$
160,610
   
$
143,204
   
$
322,569
   
$
175,867
   
$
1,688,224
 
Watch
   
1,159
     
31,929
     
10,701
     
12,773
     
11,695
     
51,354
     
7,916
     
127,527
 
OAEM
   
328
     
2,246
     
3,426
     
9,706
     
140
     
780
     
20
     
16,646
 
Substandard
   
5,549
     
11,638
     
6,564
     
8,653
     
4,480
     
30,457
     
713
     
68,054
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
33
     
0
     
33
 
Total commercial loans
 
$
247,072
   
$
480,500
   
$
231,942
   
$
191,742
   
$
159,519
   
$
405,193
   
$
184,516
   
$
1,900,484
 
24

December 31, 2020
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2020
   
2019
   
2018
   
2017
   
2016
   
Prior
   
Revolving
Loans
   
Total
 
Hotel/motel
                                               
Risk rating:
                                               
Pass
 
$
11,507
   
$
70,504
   
$
27,453
   
$
39,651
   
$
6,357
   
$
22,372
   
$
0
   
$
177,844
 
Watch
   
23,951
     
2,506
     
3,366
     
2,102
     
16,740
     
7,422
     
0
     
56,087
 
OAEM
   
0
     
1,993
     
9,576
     
0
     
0
     
0
     
0
     
11,569
 
Substandard
   
0
     
0
     
0
     
1,113
     
8,840
     
5,246
     
0
     
15,199
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total hotel/motel
 
$
35,458
   
$
75,003
   
$
40,395
   
$
42,866
   
$
31,937
   
$
35,040
   
$
0
   
$
260,699
 
                                                                 
Commercial real estate residential
                                                               
Risk rating:
                                                               
Pass
 
$
85,403
   
$
39,238
   
$
29,179
   
$
17,390
   
$
21,272
   
$
46,419
   
$
10,470
   
$
249,371
 
Watch
   
1,714
     
2,214
     
2,438
     
2,962
     
4,520
     
5,306
     
182
     
19,336
 
OAEM
   
1,921
     
1,361
     
323
     
142
     
129
     
0
     
0
     
3,876
 
Substandard
   
4,301
     
606
     
1,991
     
4,076
     
1,108
     
3,263
     
0
     
15,345
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial real estate residential
 
$
93,339
   
$
43,419
   
$
33,931
   
$
24,570
   
$
27,029
   
$
54,988
   
$
10,652
   
$
287,928
 
                                                                 
Commercial real estate nonresidential
                                                               
Risk rating:
                                                               
Pass
 
$
125,205
   
$
97,204
   
$
77,685
   
$
80,416
   
$
100,740
   
$
165,839
   
$
25,524
   
$
672,613
 
Watch
   
5,133
     
3,175
     
5,075
     
6,366
     
3,020
     
11,046
     
601
     
34,416
 
OAEM
   
0
     
887
     
68
     
0
     
0
     
3,382
     
115
     
4,452
 
Substandard
   
7,254
     
6,152
     
3,471
     
2,462
     
1,358
     
10,817
     
215
     
31,729
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
28
     
0
     
28
 
Total commercial real estate nonresidential
 
$
137,592
   
$
107,418
   
$
86,299
   
$
89,244
   
$
105,118
   
$
191,112
   
$
26,455
   
$
743,238
 
                                                                 
Dealer floorplans
                                                               
Risk rating:
                                                               
Pass
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
68,610
   
$
68,610
 
Watch
   
0
     
0
     
0
     
0
     
0
     
0
     
477
     
477
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total dealer floorplans
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
69,087
   
$
69,087
 
                                                                 
Commercial other
                                                               
Risk rating:
                                                               
Pass
 
$
75,014
   
$
26,385
   
$
33,825
   
$
13,975
   
$
6,225
   
$
22,733
   
$
78,547
   
$
256,704
 
Watch
   
2,888
     
378
     
1,130
     
555
     
464
     
595
     
7,030
     
13,040
 
OAEM
   
25
     
0
     
5,056
     
181
     
367
     
0
     
124
     
5,753
 
Substandard
   
2,136
     
556
     
318
     
460
     
460
     
411
     
70
     
4,411
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial other
 
$
80,063
   
$
27,319
   
$
40,329
   
$
15,171
   
$
7,516
   
$
23,739
   
$
85,771
   
$
279,908
 
                                                                 
Commercial unsecured SBA PPP
                                                               
Risk rating:
                                                               
Pass
 
$
252,667
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
252,667
 
Watch
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial unsecured SBA PPP
 
$
252,667
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
252,667
 
                                                                 
Commercial loans
                                                               
Risk rating:
                                                               
Pass
 
$
549,796
   
$
233,331
   
$
168,142
   
$
151,432
   
$
134,594
   
$
257,363
   
$
183,151
   
$
1,677,809
 
Watch
   
33,686
     
8,273
     
12,009
     
11,985
     
24,744
     
24,369
     
8,290
     
123,356
 
OAEM
   
1,946
     
4,241
     
15,023
     
323
     
496
     
3,382
     
239
     
25,650
 
Substandard
   
13,691
     
7,314
     
5,780
     
8,111
     
11,766
     
19,737
     
285
     
66,684
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
28
     
0
     
28
 
Total commercial loans
 
$
599,119
   
$
253,159
   
$
200,954
   
$
171,851
   
$
171,600
   
$
304,879
   
$
191,965
   
$
1,893,527
 

25

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

March 31, 2021
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2021
   
2020
   
2019
   
2018
   
2017
   
Prior
   
Revolving
Loans
   
Total
 
Home equity lines
                                               
Performing
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
10,454
   
$
89,965
   
$
100,419
 
Nonperforming
   
0
     
0
     
0
     
0
     
0
     
634
     
542
     
1,176
 
Total home equity lines
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
11,088
   
$
90,507
   
$
101,595
 
                                                                 
Mortgage loans
                                                               
Performing
 
$
42,225
   
$
206,775
   
$
104,572
   
$
49,852
   
$
54,276
   
$
304,023
   
$
0
   
$
761,723
 
Nonperforming
   
0
     
0
     
451
     
304
     
440
     
7,108
     
0
     
8,303
 
Total mortgage loans
 
$
42,225
   
$
206,775
   
$
105,023
   
$
50,156
   
$
54,716
   
$
311,131
   
$
0
   
$
770,026
 
                                                                 
Residential loans
                                                               
Performing
 
$
42,225
   
$
206,775
   
$
104,572
   
$
49,852
   
$
54,276
   
$
314,477
   
$
89,965
   
$
862,142
 
Nonperforming
   
0
     
0
     
451
     
304
     
440
     
7,742
     
542
     
9,479
 
Total residential loans
 
$
42,225
   
$
206,775
   
$
105,023
   
$
50,156
   
$
54,716
   
$
322,219
   
$
90,507
   
$
871,621
 
                                                                 
Consumer direct loans
                                                               
Performing
 
$
17,940
   
$
62,340
   
$
28,626
   
$
16,071
   
$
7,553
   
$
16,833
   
$
0
   
$
149,363
 
Nonperforming
   
0
     
0
     
11
     
20
     
0
     
0
     
0
     
31
 
Total consumer direct loans
 
$
17,940
   
$
62,340
   
$
28,637
   
$
16,091
   
$
7,553
   
$
16,833
   
$
0
   
$
149,394
 
                                                                 
Consumer indirect loans
                                                               
Performing
 
$
69,625
   
$
272,369
   
$
120,724
   
$
87,806
   
$
42,636
   
$
23,871
   
$
0
   
$
617,031
 
Nonperforming
   
0
     
109
     
60
     
40
     
53
     
12
     
0
     
274
 
Total consumer indirect loans
 
$
69,625
   
$
272,478
   
$
120,784
   
$
87,846
   
$
42,689
   
$
23,883
   
$
0
   
$
617,305
 
                                                                 
Consumer loans
                                                               
Performing
 
$
87,565
   
$
334,709
   
$
149,350
   
$
103,877
   
$
50,189
   
$
40,704
   
$
0
   
$
766,394
 
Nonperforming
   
0
     
109
     
71
     
60
     
53
     
12
     
0
     
305
 
Total consumer loans
 
$
87,565
   
$
334,818
   
$
149,421
   
$
103,937
   
$
50,242
   
$
40,716
   
$
0
   
$
766,699
 
26

December 31, 2020
 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
 
2020
   
2019
   
2018
   
2017
   
2016
   
Prior
   
Revolving
Loans
   
Total
 
Home equity lines
                                               
Performing
 
$
0
   
$
0
   
$
0
   
$
0
   
$
23
   
$
12,049
   
$
90,724
   
$
102,796
 
Nonperforming
   
0
     
0
     
0
     
0
     
0
     
585
     
389
     
974
 
Total home equity lines
 
$
0
   
$
0
   
$
0
   
$
0
   
$
23
   
$
12,634
   
$
91,113
   
$
103,770
 
                                                                 
Mortgage loans
                                                               
Performing
 
$
214,629
   
$
119,301
   
$
56,812
   
$
60,915
   
$
48,253
   
$
275,883
   
$
0
   
$
775,793
 
Nonperforming
   
0
     
436
     
303
     
314
     
352
     
7,361
     
0
     
8,766
 
Total mortgage loans
 
$
214,629
   
$
119,737
   
$
57,115
   
$
61,229
   
$
48,605
   
$
283,244
   
$
0
   
$
784,559
 
                                                                 
Residential loans
                                                               
Performing
 
$
214,629
   
$
119,301
   
$
56,812
   
$
60,915
   
$
48,276
   
$
287,932
   
$
90,724
   
$
878,589
 
Nonperforming
   
0
     
436
     
303
     
314
     
352
     
7,946
     
389
     
9,740
 
Total residential loans
 
$
214,629
   
$
119,737
   
$
57,115
   
$
61,229
   
$
48,628
   
$
295,878
   
$
91,113
   
$
888,329
 
                                                                 
Consumer direct loans
                                                               
Performing
 
$
72,677
   
$
32,993
   
$
18,461
   
$
9,157
   
$
6,581
   
$
12,364
   
$
0
   
$
152,233
 
Nonperforming
   
7
     
57
     
0
     
7
     
0
     
0
     
0
     
71
 
Total consumer direct loans
 
$
72,684
   
$
33,050
   
$
18,461
   
$
9,164
   
$
6,581
   
$
12,364
   
$
0
   
$
152,304
 
                                                                 
Consumer indirect loans
                                                               
Performing
 
$
301,494
   
$
135,123
   
$
100,482
   
$
50,665
   
$
23,777
   
$
8,157
   
$
0
   
$
619,698
 
Nonperforming
   
27
     
115
     
118
     
52
     
30
     
11
     
0
     
353
 
Total consumer indirect loans
 
$
301,521
   
$
135,238
   
$
100,600
   
$
50,717
   
$
23,807
   
$
8,168
   
$
0
   
$
620,051
 
                                                                 
Consumer loans
                                                               
Performing
 
$
374,171
   
$
168,116
   
$
118,943
   
$
59,822
   
$
30,358
   
$
20,521
   
$
0
   
$
771,931
 
Nonperforming
   
34
     
172
     
118
     
59
     
30
     
11
     
0
     
424
 
Total consumer loans
 
$
374,205
   
$
168,288
   
$
119,061
   
$
59,881
   
$
30,388
   
$
20,532
   
$
0
   
$
772,355
 

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


The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings began, but have been suspended, was $2.7 million at March 31, 2021.  The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings began, but had been suspended, at December 31, 2020 was $2.9 million.

27

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

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

 
December 31, 2020
 
(in thousands)
 
Number of
Loans
   
Recorded
Investment
   
Specific
Reserve
 
Hotel/motel
   
5
   
$
26,194
   
$
250
 
Commercial real estate residential
   
4
     
7,833
     
0
 
Commercial real estate nonresidential
   
12
     
24,497
     
200
 
Commercial other
   
1
     
5,050
     
0
 
Total collateral dependent loans
   
22
   
$
63,574
   
$
450
 

 
March 31, 2020
 
(in thousands)
 
Number of
Loans
   
Recorded
Investment
   
Specific
Reserve
 
Hotel/motel
   
3
   
$
14,712
   
$
250
 
Commercial real estate residential
   
7
     
5,125
     
92
 
Commercial real estate nonresidential
   
16
     
25,296
     
720
 
Commercial other
   
5
     
9,569
     
957
 
Total collateral dependent loans
   
31
   
$
54,702
   
$
2,019
 


The hotel/motel, commercial real estate residential, and commercial real estate nonresidential segments are all collateralized with real estate.  The one loan listed in the commercial other segment at March 31, 2021 is collateralized by various chattel, including surface mining equipment, preparation plant equipment, and a first mortgage on a preparation plant, real estate, and improvements.  The one loan listed in the commercial other segment at December 31, 2020 was collateralized by various chattel and real estate collateral with $5.1 million collateralized by a leasehold mortgage and assignment of lease on commercial property as well as furniture, fixtures, and equipment of the leasehold property.  The five loans listed in the commercial other segment at March 31, 2020 were collateralized by various chattel and real estate collateral with $5.1 million collateralized by a leasehold mortgage and assignment of lease on commercial property as well as furniture, fixtures, and equipment of the leasehold property, $4.1 million primarily collateralized by underground coal mining equipment and junior real estate liens, and the remaining $0.4 million collateralized by a mix of commercial real estate and liens on furniture, fixtures, and equipment.

28

Certain loans have been 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, 2021 and 2020 and the year ended December 31, 2020:

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

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

 
Year Ended
December 31, 2020
 
   
Pre-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
   
Term
Modification
   
Combination
   
Total
Modification
 
Hotel/motel
   
1
   
$
1,113
   
$
0
   
$
1,113
 
Commercial real estate residential
   
12
     
4,694
     
1,809
     
6,503
 
Commercial real estate nonresidential
   
18
     
7,295
     
782
     
8,077
 
Commercial other
   
12
     
637
     
53
     
690
 
Total commercial loans
   
43
     
13,739
     
2,644
     
16,383
 
                                 
Real estate mortgage
   
4
     
1,496
     
0
     
1,496
 
Total residential loans
   
4
     
1,496
     
0
     
1,496
 
                                 
Total troubled debt restructurings
   
47
   
$
15,235
   
$
2,644
   
$
17,879
 
29

 
Year Ended
December 31, 2020
 
   
Post-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
   
Term
Modification
   
Combination
   
Total
Modification
 
Hotel/motel
   
1
   
$
1,113
   
$
0
   
$
1,113
 
Commercial real estate residential
   
12
     
4,696
     
1,809
     
6,505
 
Commercial real estate nonresidential
   
18
     
7,349
     
782
     
8,131
 
Commercial other
   
12
     
571
     
51
     
622
 
Total commercial loans
   
43
     
13,729
     
2,642
     
16,371
 
                                 
Real estate mortgage
   
4
     
1,479
     
0
     
1,479
 
Total residential loans
   
4
     
1,479
     
0
     
1,479
 
                                 
Total troubled debt restructurings
   
47
   
$
15,208
   
$
2,642
   
$
17,850
 

 
Three Months Ended
March 31, 2020
 
         
Pre-
Modification
Outstanding
Recorded
Investment
   
Post-
Modification
Outstanding
Recorded
Investment
 
(in thousands)
 
Number of
Loans
   
Term
   
Total
Modification
   
Term
Modification
   
Total
Modification
 
New troubled debt restructurings
                             
Hotel/motel
   
0
   
$
0
   
$
0
   
$
0
   
$
0
 
Commercial real estate residential
   
8
     
4,397
     
4,397
     
4,399
     
4,399
 
Commercial real estate nonresidential
   
9
     
2,345
     
2,345
     
2,336
     
2,336
 
Commercial other
   
5
     
464
     
464
     
399
     
399
 
Total commercial loans
   
22
     
7,206
     
7,206
     
7,134
     
7,134
 
                                         
Real estate mortgage
   
1
     
388
     
388
     
388
     
388
 
Total residential loans
   
1
     
388
     
388
     
388
     
388
 
                                         
Total troubled debt restructurings
   
23
   
$
7,594
   
$
7,594
   
$
7,522
   
$
7,522
 



No charge-offs have resulted from modifications for any of the presented periods.  We had commitments to extend additional credit in the amount of $88 thousand and $85 thousand at March 31, 2021 and December 31, 2020, respectively, on loans that were considered troubled debt restructurings.

30

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 considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.  Presented below, segregated by segment, are troubled debt restructurings for which there was a payment default during the periods indicated and such default was within twelve months of the loan modification as of December 31, 2020.  There were no defaults as of March 31, 2021.

(in thousands)
 
Year Ended
December 31, 2020
 
   
Number of
Loans
   
Recorded
Balance
 
Commercial:
           
Commercial other
   
3
   
$
368
 
Total defaulted restructured loans
   
3
   
$
368
 

Note 5 – Other Real Estate Owned


Activity for other real estate owned was as follows:

 
Three Months Ended
March 31
 
(in thousands)
 
2021
   
2020
 
Beginning balance of other real estate owned
 
$
7,694
   
$
19,480
 
New assets acquired
   
(170
)
   
1,625
 
Fair value adjustments
   
(154
)
   
(458
)
Sale of assets
   
(1,146
)
   
(831
)
Ending balance of other real estate owned
 
$
6,224
   
$
19,816
 


Carrying costs and fair value adjustments associated with foreclosed properties for the three months ended March 31, 2021 and 2020 were $0.3 million and $0.9 million, respectively.  See Note 1 for a description of our accounting policies relative to foreclosed properties and other real estate owned.


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

(in thousands)
 
March 31
2021
   
December 31
2020
 
1-4 family
 
$
1,277
   
$
1,888
 
Construction/land development/other
   
616
     
1,069
 
Multifamily
   
88
     
88
 
Non-farm/non-residential
   
4,243
     
4,649
 
Total foreclosed properties
 
$
6,224
   
$
7,694
 

Note 6 – Repurchase Agreements


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

31

We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities.  The primary risk with our repurchase agreements is market risk associated with the securities securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying securities.  Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.  The carrying value of investment securities available-for-sale pledged as collateral under repurchase agreements totaled $396.2 million and $397.4 million at March 31, 2021 and December 31, 2020, respectively.


The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in the accompanying consolidated balance sheets as of March 31, 2021 and December 31, 2020 is presented in the following tables:

 
March 31, 2021
 
   
Remaining Contractual Maturity of the Agreements
 
(in thousands)
 
Overnight and
Continuous
   
Up to 30 days
   
30-90 days
   
Greater Than
90 days
   
Total
 
Repurchase agreements and repurchase-to-maturity transactions:
                             
U.S. Treasury and government agencies
 
$
3,894
   
$
22
   
$
0
   
$
38,051
   
$
41,967
 
State and political subdivisions
   
63,479
     
179
     
0
     
32,463
     
96,121
 
U.S. government sponsored agency mortgage-backed securities
   
26,952
     
1,104
     
0
     
188,091
     
216,147
 
Total
 
$
94,325
   
$
1,305
   
$
0
   
$
258,605
   
$
354,235
 

 
December 31, 2020
 
   
Remaining Contractual Maturity of the Agreements
 
(in thousands)
 
Overnight and
Continuous
   
Up to 30 days
   
30-90 days
   
Greater Than
90 days
   
Total
 
Repurchase agreements and repurchase-to-maturity transactions:
                             
U.S. Treasury and government agencies
 
$
8,777
   
$
0
   
$
2,831
   
$
31,800
   
$
43,408
 
State and political subdivisions
   
54,639
     
0
     
1,132
     
21,421
     
77,192
 
U.S. government sponsored agency mortgage-backed securities
   
33,040
     
0
     
101,037
     
101,185
     
235,262
 
Total
 
$
96,456
   
$
0
   
$
105,000
   
$
154,406
   
$
355,862
 


Note 7 – Fair Market Value of Financial Assets and Liabilities

Fair Value Measurements


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

32
Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.

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

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

Recurring Measurements


The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 and indicate the level within the fair value hierarchy of the valuation techniques.

       
Fair Value Measurements at
March 31, 2021 Using
 
(in thousands)
 
Fair Value
   
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis
                       
Available-for-sale securities:
                       
U.S. Treasury and government agencies
 
$
203,619
   
$
134,598
   
$
69,021
   
$
0
 
State and political subdivisions
   
220,117
     
0
     
220,117
     
0
 
U.S. government sponsored agency mortgage-backed securities
   
674,832
     
0
     
674,832
     
0
 
Other debt securities
   
56,627
     
0
     
56,627
     
0
 
Equity securities at fair value
   
2,243
     
0
     
0
     
2,243
 
Mortgage servicing rights
   
5,584
     
0
     
0
     
5,584
 

33

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


Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.  These valuation methodologies were applied to all of CTBI’s financial assets carried at fair value.  CTBI had no liabilities measured and recorded at fair value as of March 31, 2021 and December 31, 2020.  There have been no significant changes in the valuation techniques during the quarter ended March 31, 2021.  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.  U.S. Treasury and government agencies are classified as Level 1 of the valuation hierarchy where quoted market prices are available in the active market on which the individual securities are traded.


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


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

Equity Securities at Fair Value


As of March 31, 2021 and December 31, 2020, the only securities owned by CTBI that were valued using Level 3 criteria are Visa Class B Stock (included in equity securities at fair value).  Fair value for Visa Class B Stock is determined by an independent third party utilizing assumptions about factors such as quarterly common stock dividend payments, the conversion of the securities to the relevant Class A Stock shares subject to the prevailing conversion rate and conversion date.  We have concluded that the third party assumptions, processes, and conclusions are reasonable and appropriate in determining the fair value of this asset.  See the table below for inputs and valuation techniques used for Level 3 equity securities.

34
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.  We have reviewed the assumptions, processes, and conclusions of the third party provider.  We have determined these assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset.  See the table below for inputs and valuation techniques used for Level 3 mortgage servicing rights.

Level 3 Reconciliation


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

(in thousands)
 
Three Months Ended
March 31, 2021
   
Three Months Ended
March 31, 2020
 
   
Equity
Securities at
Fair Value
   
Mortgage
Servicing
Rights
   
Equity
Securities at
Fair Value
   
Mortgage
Servicing
Rights
 
Beginning balance
 
$
2,471
   
$
4,068
   
$
1,953
   
$
3,263
 
Total unrealized gains (losses) Included in net income
   
(228
)
   
1,030
     
(232
)
   
(818
)
Issues
   
0
     
736
     
0
     
144
 
Settlements
   
0
     
(250
)
   
0
     
(108
)
Ending balance
 
$
2,243
   
$
5,584
   
$
1,721
   
$
2,481
 
                                 
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
 
$
(228
)
 
$
1,030
   
$
(232
)
 
$
(818
)


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

Noninterest Income

 
Three Months Ended
March 31
 
(in thousands)
 
2021
   
2020
 
Total gains (losses)
 
$
552
   
$
(1,159
)

35
Nonrecurring Measurements


The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020 and indicate the level within the fair value hierarchy of the valuation techniques.

       
Fair Value Measurements at
March 31, 2021 Using
 
(in thousands)
 
Fair Value
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis
                       
Collateral dependent loans
 
$
563
   
$
0
   
$
0
   
$
563
 
Other real estate owned
   
530
     
0
     
0
     
530
 

       
Fair Value Measurements at
December 31, 2020 Using
 
(in thousands)
 
Fair Value
   
Quoted Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis
                       
Collateral-dependent loans
 
$
1,768
   
$
0
   
$
0
   
$
1,768
 
Other real estate owned
   
2,395
     
0
     
0
     
2,395
 


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

Collateral Dependent Loans


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


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


Loans considered collateral dependent are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty in accordance with ASC 326-20-35-5.  Quarter-to-date fair value adjustments on collateral- dependent loans disclosed above were $0.3 million, $0.0 million, and $0.8 million for the quarters ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

36
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 owned disclosed above were $0.2 million, $0.1 million, and $0.4 million for the quarters ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.


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

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, 2021 and December 31, 2020.

(in thousands)
Quantitative Information about Level 3 Fair Value Measurements
 
Fair Value at
March 31,
2021
Valuation Technique(s)
Unobservable Input
Range
(Weighted Average)
Equity securities at fair value
$2,243
Discount cash flows, computer pricing model
Discount rate
8.0% - 12.0%
(10.0%)
   
   
Conversion date
Dec 2023 – Dec 2027
(Dec 2025)
         
Mortgage servicing rights
$5,584
Discount cash flows, computer pricing model
Constant prepayment rate
0.0% - 36.5%
(11.0%)
   
   
Probability of default
0.0% - 100.0%
(1.8%)
   
   
Discount rate
10.0% - 11.5%
(10.1%)
         
Collateral dependent loans
$563
Market comparable properties
Marketability discount
0.0%- 55.3%
(55.3%)
         
Other real estate owned
$530
Market comparable properties
Comparability adjustments
9.1% - 58.1%
(24.9%)

37

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


Uncertainty of Fair Value Measurements


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

Equity Securities at Fair Value


Fair market value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock and the prevailing conversion rate at the conversion date.  The most recent conversion rate of 1.6228 and the most recent dividend rate of 0.5193 were used to derive the fair value estimate.  Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement.  Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate.

Mortgage Servicing Rights


Fair market value for mortgage servicing 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.

38
Fair Value of Financial Instruments


The following table presents estimated fair value of CTBI’s financial instruments as of March 31, 2021 and indicates the level within the fair value hierarchy of the valuation techniques.  In accordance with the adoption of ASU 2016-01, the fair values as of March 31, 2021 were measured using an exit price notion.

       
Fair Value Measurements
at March 31, 2021 Using
 
(in thousands)
 
Carrying
Amount
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:
                       
Cash and cash equivalents
 
$
423,105
   
$
423,105
   
$
0
   
$
0
 
Certificates of deposit in other banks
   
245
     
0
     
245
     
0
 
Debt securities available-for-sale
   
1,155,195
     
134,598
     
1,020,597
     
0
 
Equity securities at fair value
   
2,243
     
0
     
0
     
2,243
 
Loans held for sale
   
17,748
     
18,195
     
0
     
0
 
Loans, net
   
3,493,458
     
0
     
0
     
3,649,893
 
Federal Home Loan Bank stock
   
9,971
     
0
     
9,971
     
0
 
Federal Reserve Bank stock
   
4,887
     
0
     
4,887
     
0
 
Accrued interest receivable
   
15,188
     
0
     
15,188
     
0
 
Mortgage servicing rights
   
5,584
     
0
     
0
     
5,584
 
                                 
Financial liabilities:
                               
Deposits
 
$
4,233,772
   
$
1,283,309
   
$
3,002,615
   
$
0
 
Repurchase agreements
   
354,235
     
0
     
0
     
354,158
 
Federal funds purchased
   
500
     
0
     
500
     
0
 
Advances from Federal Home Loan Bank
   
390
     
0
     
427
     
0
 
Long-term debt
   
57,841
     
0
     
0
     
38,425
 
Accrued interest payable
   
1,365
     
0
     
1,365
     
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
 

39

The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 2020 and indicates the level within the fair value hierarchy of the valuation techniques.

       
Fair Value Measurements
at December 31, 2020 Using
 
(in thousands)
 
Carrying
Amount
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:
                       
Cash and cash equivalents
 
$
338,235
   
$
338,235
   
$
0
   
$
0
 
Certificates of deposit in other banks
   
245
     
0
     
245
     
0
 
Debt securities available-for-sale
   
997,261
     
74,991
     
922,270
     
0
 
Equity securities at fair value
   
2,471
     
0
     
0
     
2,471
 
Loans held for sale
   
23,259
     
23,884
     
0
     
0
 
Loans, net
   
3,506,189
     
0
     
0
     
3,658,554
 
Federal Home Loan Bank stock
   
10,048
     
0
     
10,048
     
0
 
Federal Reserve Bank stock
   
4,887
     
0
     
4,887
     
0
 
Accrued interest receivable
   
15,818
     
0
     
15,818
     
0
 
Mortgage servicing rights
   
4,068
     
0
     
0
     
4,068
 
                                 
Financial liabilities:
                               
Deposits
 
$
4,016,082
   
$
1,140,925
   
$
2,913,217
   
$
0
 
Repurchase agreements
   
355,862
     
0
     
0
     
355,918
 
Federal funds purchased
   
500
     
0
     
500
     
0
 
Advances from Federal Home Loan Bank
   
395
     
0
     
436
     
0
 
Long-term debt
   
57,841
     
0
     
0
     
40,081
 
Accrued interest payable
   
1,243
     
0
     
1,243
     
0
 
                                 
Unrecognized financial instruments:
                               
Letters of credit
 
$
0
   
$
0
   
$
0
   
$
0
 
Commitments to extend credit
   
0
     
0
     
0
     
0
 
Forward sale commitments
   
0
     
0
     
0
     
0
 

Note 8 – Revenue Recognition


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


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


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

40

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


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


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


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

Note 9 – Earnings Per Share


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

 
Three Months Ended
March 31
 
(in thousands except per share data)
 
2021
   
2020
 
Numerator:
           
Net income
 
$
23,618
   
$
6,579
 
                 
Denominator:
               
Basic earnings per share:
               
Weighted average shares
   
17,774
     
17,752
 
Diluted earnings per share:
               
Effect of dilutive stock options and restricted stock grants
   
13
     
11
 
Adjusted weighted average shares
   
17,787
     
17,763
 
                 
Earnings per share:
               
Basic earnings per share
 
$
1.33
   
$
0.37
 
Diluted earnings per share
   
1.33
     
0.37
 


There were no options to purchase common shares that were excluded from the diluted calculations above for the three months ended March 31, 2021.  Options to purchase 20,000 common shares at a weighted average price of $32.27 were excluded from the diluted calculations above for the three months ended March 31, 2020, because the exercise prices on the options were greater than the average market price for the period.  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.

41


Note 10 – Accumulated Other Comprehensive Income

Unrealized gains 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, 2021 and 2020 were:

 
Amounts Reclassified from AOCI
 
(in thousands)
 
Three Months Ended
March 31
 
   
2021
   
2020
 
Affected line item in the statements of income
           
Securities gains
 
$
60
   
$
481
 
Tax expense
   
16
     
125
 
Total reclassifications out of AOCI
 
$
44
   
$
356
 

Note 11 – COVID-19 and CARES Act Loan Activities


We continue working with our customers through the COVID-19 pandemic.  At March 31, 2021, the number of customers with CARES Act deferrals reduced to 226 for a total outstanding amount of $81.8 million.  The majority of our CARES Act deferrals have been 90 day deferrals.  Total outstanding deferrals include 73 commercial loan deferrals with a total outstanding amount of $73.8 million, 83 residential loan deferrals with a total outstanding amount of $6.5 million, and 70 consumer loan deferrals with a total outstanding amount of $1.5 million.  Included in the commercial loan deferrals are 20 four time deferrals totaling $40.5 million and 2 five time deferrals totaling $10.6 million.  In most cases, these loans have been downgraded; however, they remain within the pass category, as little to no loss is anticipated.  One of the loans was already graded substandard prior to the deferrals being granted.  These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act.  Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans.


At March 31, 2021, we had closed 2,962 Paycheck Protection Program (PPP) loans totaling $277.0 million, stemming from the CARES Act passed by Congress as a stimulus response to the potential economic impacts of COVID-19.  The initial phase of the PPP program expired on August 8, 2020, and the loan forgiveness process began shortly thereafter.  Through March 31, 2021, we have had 1,563 of our PPP loans forgiven by the SBA in a total amount of $117.2 million.  During the first quarter, $98.1 million in PPP loans were paid off or forgiven.  An additional stimulus package, included as part of the Consolidated Appropriations Act 2021, was signed into law in late December 2020 providing for an additional $284 billion in funding under the PPP, with authority to make loans under the program being extended through March 31, 2021. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law providing, among other things, additional funds for the PPP and an expansion of certain PPP eligibility requirements.  On March 30, 2021, the PPP Extension Act of 2021 was signed into law giving applicants two additional months (through May 31, 2021) to apply for PPP loans and giving the SBA until June 30, 2021 to process loan applications. As of March 31, 2021, CTBI has closed 1,857 loans totaling $99.1 million in new PPP loans stemming from the second phase of lending authorized by the Consolidated Appropriations Act 2021.

42



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

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Community Trust Bancorp, Inc., our operations, and our present business environment.  The MD&A is provided as a supplement to – and should be read in conjunction with – our condensed consolidated financial statements and the accompanying notes contained in this quarterly report.  The MD&A includes the following sections:

❖
Our Business

❖
Results of Operations and Financial Condition

❖
Dividends

❖
Liquidity and Market Risk

❖
Interest Rate Risk

❖
Capital Resources

❖
Impact of Inflation, Changing Prices, and Economic Conditions

❖
Stock Repurchase Program

❖
Critical Accounting Policies and Estimates

Our Business

Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company headquartered in Pikeville, Kentucky.  Currently, we own one commercial bank, Community Trust Bank, Inc. (“CTB”) and one trust company, Community Trust and Investment Company, Inc.  Through our subsidiaries, we have seventy-nine banking locations in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee, four trust offices across Kentucky, and one trust office in northeastern Tennessee.  At March 31, 2021, we had total consolidated assets of $5.4 billion and total consolidated deposits, including repurchase agreements, of $4.6 billion.  Total shareholders’ equity at March 31, 2021 was $662.1 million.  Trust assets under management, which are excluded from CTBI’s total consolidated assets, at March 31, 2021, were $3.0 billion.  Trust assets under management include CTB’s investment portfolio totaling $1.1 billion.

Through its subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust and wealth management activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services.  The lending activities of CTB include making commercial, construction, mortgage, and personal loans.  Lease-financing, lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available.  Our corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as paying agents for bond and stock issues, as investment agent, as depositories for securities, and as providers of full service brokerage and insurance services.  For further information, see Item 1 of our annual report on Form 10-K for the year ended December 31, 2020.

43
Results of Operations and Financial Condition

We reported record earnings for the first quarter 2021 of $23.6 million, or $1.33 per basic share, compared to $15.8 million, or $0.89 per basic share, earned during the fourth quarter 2020 and $6.6 million, or $0.37 per basic share, earned during the first quarter 2020.

Quarterly Highlights

❖
Net interest income for the quarter of $40.2 million was $1.6 million, or 4.2%, above prior quarter and $4.0 million, or 11.0%, above first quarter 2020.

❖
We recognized a recapture of our allowance for credit losses with a credit to our provision for credit losses of $2.5 million during the quarter ended March 31, 2021, as a result of improvement in our net charge-off experience affecting our vintage loss analysis in several segments, the most significant of those being the indirect lending and residential lending segments.  Provision for credit losses for the prior quarter and prior year same quarter was $1.0 million and $12.7 million, respectively.

❖
Our loan portfolio decreased $15.4 million, an annualized 1.8%, during the quarter but increased $251.3 million, or 7.6%, from March 31, 2020.

❖
CTBI experienced significant improvement in loan losses, as our net loan charge-offs for the quarter ended March 31, 2021 decreased to $0.2 million, or 0.02% of average loans annualized, compared to $0.9 million, or 0.10% annualized, experienced for the fourth quarter 2020 and $1.4 million, or 0.17% annualized, for the first quarter 2020.

❖
Asset quality has continued to improve, as our nonperforming loans, excluding troubled debt restructurings, at $21.0 million decreased $5.5 million from December 31, 2020 and $14.3 million from March 31, 2020.  Nonperforming assets at $27.3 million decreased $7.0 million from December 31, 2020 and $27.9 million from March 31, 2020.

❖
Deposits, including repurchase agreements, increased $216.1 million, an annualized 20.0%, during the quarter and $956.0 million, or 26.3%, from March 31, 2020.

❖
Noninterest income for the quarter ended March 31, 2021 of $15.6 million was a $0.3 million, or 2.1%, increase from prior quarter and a $4.1 million, or 35.2%, increase from prior year same quarter.

❖
Noninterest expense for the quarter ended March 31, 2021 of $28.3 million decreased $5.3 million, or 15.8%, from prior quarter, but increased slightly by $0.1 million, or 0.3%, from prior year same quarter.

COVID-19

We continue working with our customers through the COVID-19 pandemic.  At March 31, 2021, the number of customers with deferrals permitted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) reduced to 226 for a total outstanding amount of $81.8 million.  The majority of our CARES Act deferrals have been 90 day deferrals.  Total outstanding deferrals include 73 commercial loan deferrals with a total outstanding amount of $73.8 million, 83 residential loan deferrals with a total outstanding amount of $6.5 million, and 70 consumer loan deferrals with a total outstanding amount of $1.5 million.  Included in the commercial loan deferrals are 20 four time deferrals totaling $40.5 million and 2 five time deferrals totaling $10.6 million.  In most cases, these loans have been downgraded; however, they remain within the pass category, as little to no loss is anticipated.  One of the loans was already graded substandard prior to the deferrals being granted.  These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act.  Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans disclosed below.

44
At March 31, 2021, we had closed 2,962 Paycheck Protection Program (PPP) loans totaling $277.0 million, stemming from the CARES Act passed by Congress as a stimulus response to the potential economic impacts of COVID-19.  The initial phase of the PPP program expired on August 8, 2020, and the loan forgiveness process began shortly thereafter.  Through March 31, 2021, we have had 1,563 of our PPP loans forgiven by the SBA in a total amount of $117.2 million, including $98.1 million during the first quarter 2021.  An additional stimulus package, included as part of the Consolidated Appropriations Act 2021, was signed into law in late December 2020 providing for an additional $284 billion in funding under the PPP, with authority to make loans under the program being extended through March 31, 2021.  On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law providing, among other things, additional funds for the PPP and an expansion of certain PPP eligibility requirements.  On March 30, 2021, the PPP Extension Act of 2021 was signed into law giving applicants two additional months (through May 31, 2021) to apply for PPP loans and giving the SBA until June 30, 2021 to process loan applications.  As of March 31, 2021, CTBI has closed 1,857 loans totaling $99.1 million in new PPP loans stemming from the second phase of lending authorized by the Consolidated Appropriations Act 2021.  CTBI intends to continue its participation in the PPP.

Income Statement Review

(dollars in thousands)
             
Change 2021 vs. 2020
 
Three Months Ended March 31
 
2021
   
2020
   
Amount
   
Percent
 
Net interest income
 
$
40,242
   
$
36,244
   
$
3,998
     
11.0
%
Provision for credit losses
   
(2,499
)
   
12,707
     
(15,206
)
   
(119.7
)%
Noninterest income
   
15,577
     
11,521
     
4,056
     
35.2
 
Noninterest expense
   
28,310
     
28,221
     
89
     
0.3
 
Income taxes
   
6,390
     
258
     
6,132
     
2,376.7
 
Net income
 
$
23,618
   
$
6,579
   
$
17,039
     
259.0
%
                                 
Average earning assets
 
$
4,957,636
   
$
4,093,833
   
$
863,803
     
21.1
%
                                 
Yield on average earning assets, tax equivalent*
   
3.63
%
   
4.41
%
   
(0.78
)%
   
(17.7
)%
Cost of interest bearing funds
   
0.48
%
   
1.19
%
   
(0.71
)%
   
(59.7
)%
Net interest margin, tax equivalent*
   
3.31
%
   
3.58
%
   
(0.27
)%
   
(7.5
)%

*Yield on average earning assets and net interest margin were computed on a tax equivalent basis using a 21% tax rate.

Net Interest Income

Net interest income for the quarter of $40.2 million was an increase of $1.6 million, or 4.2%, from fourth quarter 2020 and $4.0 million, or 11.0%, from first quarter 2020.  Our net interest margin at 3.31% increased 11 basis points from prior quarter but decreased 27 basis points from prior year same quarter, while our average earning assets increased $136.4 million and $863.8 million, respectively, during those same periods.  Our yield on average earning assets increased 5 basis points from prior quarter but decreased 78 basis points from prior year same quarter, and our cost of funds decreased 7 basis points from prior quarter and 71 basis points from prior year same quarter.  The PPP loan portfolio had an annualized yield for the quarter of 6.03%.  Interest income on the portfolio was $0.7 million, while the amortization of loan origination fees from current outstanding loans and recognition of net fee income from paid and forgiven loans was $3.3 million.  These fees are amortized over the life of the loan with any unamortized balance fully recognized at the time of loan forgiveness.  The impact to the net interest margin of the $3.3 million in fee income recognized was 27 basis points.

45
Our ratio of average loans to deposits, including repurchase agreements, was 79.9% for the quarter ended March 31, 2021 compared to 82.3% for the quarter ended December 31, 2020 and 89.9% for the quarter ended March 31, 2020.

Provision for Credit Losses

We recognized a recapture of allowance for credit losses with a credit to provision for credit losses of $2.5 million for the first quarter of 2021, compared to a provision for credit losses of $1.0 million for the prior quarter and $12.7 million for the first quarter of 2020.  The change in the provision for credit losses compared to the fourth quarter of 2020 was due primarily to the improvement in net charge off experience affecting our vintage loss analysis in several segments, the most significant of those being the indirect lending and residential lending segments.  The indirect lending segment experienced no net losses in the quarter, compared to the 12 quarter rolling average losses of 0.35 percent.  The residential lending segment experienced no net losses in the quarter compared to the 12 quarter rolling average of 0.07 percent.  Overall, the decrease in the allowance for credit losses attributed to historical loss factors was $2.4 million.

Noninterest Income

Noninterest income for the quarter ended March 31, 2021 of $15.6 million was a $0.3 million, or 2.1%, increase from prior quarter and a $4.1 million, or 35.2%, increase from prior year same quarter.  The increase in noninterest income from prior quarter was primarily the result of increases in loan related fees ($0.5 million), net gains on other real estate owned ($0.5 million), and trust revenue ($0.2 million), partially offset by a decline in securities gains ($0.6 million) and deposit related fees ($0.3 million).  The increase from prior year same quarter resulted from increases in loan related fees ($2.2 million) and net gains on loans ($2.0 million), partially offset by a decline in securities gains ($0.4 million).  The increase in loan related fees was primarily the result of a $1.0 million positive adjustment to the fair market value of our mortgage servicing rights.

Noninterest Expense

Noninterest expense for the quarter ended March 31, 2021 of $28.3 million decreased $5.3 million, or 15.8%, from prior quarter, but increased slightly by $0.1 million, or 0.3%, from prior year same quarter.  The decrease in noninterest expense quarter over quarter included decreases in personnel expense ($3.3 million), taxes other than property and payroll ($1.5 million), and net other real estate owned expense ($0.4 million).  The decrease in personnel expense from prior quarter was primarily the result of a $2.4 million charge in the fourth quarter 2020 to post retirement benefits related to our bank owned life insurance and a $1.3 million increase in our accruals during the fourth quarter 2020 for special payments to employees.  Noninterest expense year over year was impacted by increases in personnel expense ($1.8 million primarily as a result of resumed normal accruals for our incentive program) and data processing expense ($0.2 million), offset by decreases in taxes other than property and payroll ($1.5 million) and net other real estate owned expense ($0.6 million).  In March 2019, Kentucky enacted legislation requiring financial institutions to transition from a bank franchise tax to the Kentucky corporate income tax beginning in 2021.  As a result, we have experienced a decline in taxes other than property and payroll and a corresponding increase in income taxes.

Balance Sheet Review

CTBI’s total assets at $5.4 billion increased $221.0 million, or 17.4% annualized, from December 31, 2020 and $1.0 billion, or 23.1%, from March 31, 2020.  Loans outstanding at March 31, 2021 were $3.5 billion, a decrease of $15.4 million, an annualized 1.8%, from December 31, 2020 but an increase of $251.3 million, or 7.6%, from March 31, 2020.  Loans, excluding PPP loans, declined $17.5 million during the quarter as we experienced the payoff of a $30 million credit and continuing soft loan demand.  We experienced an increase in the commercial loan portfolio during the quarter of $7.0 million (including $2.1 million in PPP loans), offset by decreases of $16.7 million in the residential loan portfolio as customers continued to refinance into the secondary market with low fixed rate mortgages, $2.9 million in the direct consumer loan portfolio, and $2.8 million in the indirect consumer loan portfolio.  CTBI’s investment portfolio increased $157.7 million, or an annualized 64.0%, from December 31, 2020 and $522.2 million, or 82.2%, from March 31, 2020 as we continued to deploy our increased liquidity in investments due to continued soft loan demand.  Deposits in other banks increased $72.5 million from prior quarter and $231.5 million from prior year same quarter.  Deposits, including repurchase agreements, at $4.6 billion increased $216.1 million, or an annualized 20.0%, from December 31, 2020 and $956.0 million, or 26.3%, from March 31, 2020.

46
Shareholders’ equity at March 31, 2021 was $662.1 million, a $7.2 million increase from the $654.9 million at December 31, 2020, and a $49.1 million increase from the $612.9 million at March 31, 2020.  Our tangible common equity/tangible assets ratio at March 31, 2021 was 11.27%.

Loans

(in thousands)
 
March 31, 2021
 
Loan Category
 
Balance
   
Variance
from Prior
Year-End
   
YTD
Net Charge-
Offs
   
Nonperforming
   
ACL
 
Commercial:
                             
Hotel/motel
 
$
258,974
     
(0.7
)%
 
$
0
   
$
0
   
$
6,664
 
Commercial real estate residential
   
305,079
     
6.0
     
(22
)
   
2,048
     
4,641
 
Commercial real estate nonresidential
   
732,978
     
(1.4
)
   
(138
)
   
8,129
     
10,813
 
Dealer floorplans
   
63,545
     
(8.0
)
   
0
     
0
     
1,318
 
Commercial other
   
285,176
     
1.9
     
13
     
1,078
     
4,571
 
Commercial unsecured SBA PPP
   
254,732
     
0.8
     
0
     
0
     
0
 
Total commercial
   
1,900,484
     
0.4
     
(147
)
   
11,255
     
28,007
 
                                         
Residential:
                                       
Real estate mortgage
   
770,026
     
(1.9
)
   
1
     
8,303
     
7,143
 
Home equity
   
101,595
     
(2.1
)
   
(1
)
   
1,176
     
750
 
Total residential
   
871,621
     
(1.9
)
   
0
     
9,479
     
7,893
 
                                         
Consumer:
                                       
Consumer direct
   
149,394
     
(1.9
)
   
(38
)
   
31
     
1,811
 
Consumer indirect
   
617,305
     
(0.4
)
   
8
     
274
     
7,635
 
Total consumer
   
766,699
     
(0.7
)
   
(30
)
   
305
     
9,446
 
                                         
Total loans
 
$
3,538,804
     
(0.4
)%
 
$
(177
)
 
$
21,039
   
$
45,346
 

Asset Quality

CTBI’s total nonperforming loans, not including performing troubled debt restructurings, were $21.0 million, or 0.59% of total loans, at March 31, 2021 compared to $26.6 million, or 0.75% of total loans, at December 31, 2020 and $35.4 million, or 1.08% of total loans, at March 31, 2020.  Accruing loans 90+ days past due decreased $8.3 million from prior quarter and $9.2 million from March 31, 2020.  Nonaccrual loans increased $2.8 million during the quarter but decreased $5.1 million from March 31, 2020.  Accruing loans 30-89 days past due at $13.2 million increased $0.7 million from prior quarter but decreased $10.9 million from March 31, 2020.  Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.  Our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due.  Any activity regarding a criticized/classified loan (i.e. problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee).  CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of $100,000 or greater.  CTB’s Loan Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio.  We also have a Loan Review Department that reviews every market within CTB annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, troubled debt restructuring, nonaccrual status, and adequate loan loss reserves.  CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.

47
For further information regarding nonperforming loans, see Note 4 to the condensed consolidated financial statements.

Our reserve coverage (allowance for credit losses to nonperforming loans) at March 31, 2021 was 215.5% compared to 180.7% at December 31, 2020 and 139.8% at March 31, 2020.  Our credit loss reserve as a percentage of total loans outstanding at March 31, 2021 was 1.28% (1.38% excluding PPP loans) compared to 1.35% at December 31, 2020 (1.46% excluding PPP loans) and 1.50% at March 31, 2020.  The PPP program began in April 2020.

Our level of foreclosed properties at $6.2 million at March 31, 2021 was a $1.5 million decrease from the $7.7 million at December 31, 2020 and a $13.6 million decrease from the $19.8 million at March 31, 2020.  Sales of foreclosed properties for the quarter ended March 31, 2021 totaled $1.1 million.  No significant new foreclosed properties were booked during the first quarter 2021.  At March 31, 2021, the book value of properties under contracts to sell was $0.9 million; however, the closings had not occurred at quarter-end.

When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current market value less expected sales costs.  Additionally, periodic updated appraisals are obtained on unsold foreclosed properties.  When an updated appraisal reflects a fair market value below the current book value, a charge is booked to current earnings to reduce the property to its new market value less expected sales costs.  Charges to earnings in the first quarter 2021 to reflect the decrease in current market values of foreclosed properties totaled $0.2 million.  There were 7 properties reappraised during the first quarter 2021.  Of these, 4 properties were written down by a total of $0.1 million.  Charges to earnings during the quarters ended December 31, 2020 and March 31, 2020 were $0.4 million and $0.5 million, respectively.  Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months.  Approximately 87% of our OREO properties and approximately 84% of the book value of our OREO properties have appraisals dated within the past 18 months.

The appraisal aging analysis of foreclosed properties, as well as the holding period, at March 31, 2021 is shown below:

(in thousands)
   
Appraisal Aging Analysis
 
Holding Period Analysis
Days Since Last
Appraisal
Number of
Properties
Current Book
Value
 
Holding Period
Current Book
Value
Up to 3 months
5
$457
 
Less than one year
$1,959
3 to 6 months
19
1,952
 
1 year
985
6 to 9 months
5
1,431
 
2 years
257
9 to 12 months
2
87
 
3 years
798
12 to 18 months
23
1,281
 
4 years
212
18 to 24 months
4
733
 
5 years
348
Over 24 months
4
283
 
6 years
839
Total
62
$6,224
 
7 years
50
       
8 years
748
       
9 years
28
       
Total
$6,224

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 Regulatory approval is required and has been obtained to hold foreclosed properties beyond the initial period of 5 years.  Additionally, CTBI is required to dispose of any foreclosed property that has not been sold within 10 years.  As of March 31, 2021, one foreclosed property with a total book value of $28 thousand had been held by us for at least nine years.

Net loan charge-offs for the quarter ended March 31, 2021 were $0.2 million, or 0.02% of average loans annualized, compared to $0.9 million, or 0.10%, experienced for the fourth quarter 2020 and $1.4 million, or 0.17%, for the first quarter 2020.  Loan charge-offs for the quarter were primarily in the commercial loan portfolio.

Dividends

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

Pay Date
Record Date
 
Amount Per Share
 
April 1, 2021
March 15, 2021
 
$
0.385
 
January 1, 2021
December 15, 2020
 
$
0.385
 
October 1, 2020
September 15, 2020
 
$
0.385
 
July 1, 2020
June 15, 2020
 
$
0.380
 
April 1, 2020
March 15, 2020
 
$
0.380
 
January 1, 2020
December 15, 2019
 
$
0.380
 

Liquidity and Market Risk

The objective of CTBI’s Asset/Liability management function is to maintain consistent growth in net interest income within our policy limits.  This objective is accomplished through management of our consolidated balance sheet composition, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates, and customer preferences.  The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or deposit withdrawals.  This is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities, sufficient unused borrowing capacity, and growth in core deposits.  As of March 31, 2021, we had approximately $423.1 million in cash and cash equivalents and approximately $1.2 billion in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $338.2 million and $997.3 million at December 31, 2020.  Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans.  In addition to core deposit funding, we also have a variety of other short-term and long-term funding sources available.  We also rely on Federal Home Loan Bank advances for both liquidity and management of our asset/liability position.  Federal Home Loan Bank advances were $0.4 million at each of March 31, 2021 and December 31, 2020.  As of March 31, 2021, we had a $509.9 million available borrowing position with the Federal Home Loan Bank compared to $477.2 million at December 31, 2020.  We generally rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash for our investing activities.  As is typical of many financial institutions, significant financing activities include deposit gathering, use of short-term borrowing facilities such as repurchase agreements and federal funds purchased, and issuance of long-term debt.  At each of March 31, 2021 and December 31, 2020, we had $75 million in lines of credit with various correspondent banks available to meet any future cash needs.  Our primary investing activities include purchases of securities and loan originations.  We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs.  Included in our cash and cash equivalents at March 31, 2021 were deposits with the Federal Reserve of $353.0 million compared to $280.7 million at December 31, 2020.  Additionally, we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days.

The investment portfolio consists of investment grade short-term issues suitable for bank investments.  The majority of the investment portfolio is in U.S. government and government sponsored agency issuances.  At March 31, 2021, available-for-sale (“AFS”) securities comprised all of the total investment portfolio, and the AFS portfolio was approximately 174% of equity capital.  Seventy-seven percent of the pledge eligible portfolio was pledged.

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Interest Rate Risk

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

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

Capital Resources

We continue to grow our shareholders’ equity while also providing an annualized dividend yield to shareholders which, as of March 31, 2021, was 3.50%.  Shareholders’ equity at March 31, 2021 was $662.1 million, a $7.2 million increase from the $654.9 million at March 31, 2020.  Cash dividends were $0.385 per share and $0.380 per share for the three months ended March 31, 2021 and 2020, respectively.  CTBI’s annualized dividend yield to shareholders as of March 31, 2021 was 3.50%.  Our primary source of capital growth is the retention of earnings.  We retained 71.1% of our earnings for the first three months of 2021.

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

In April 2020, as directed by Section 4012 of the CARES Act, the regulatory agencies introduced temporary changes to the CBLR.  These changes, which subsequently were adopted as a final rule, temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020.  Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calendar year before returning to 9% in calendar year 2022.  The final rule also provides for a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.  Management elected to use the CBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of March 31, 2021 was 12.70%.  CTB’s CBLR ratio as of March 31, 2021 was 12.12%.  Under either framework, CTBI and CTB would be considered well-capitalized under the applicable guidelines.

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As of March 31, 2021, we are not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse impact on our liquidity, capital resources, or operations.

Impact of Inflation, Changing Prices, and Economic Conditions

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

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

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

Stock Repurchase Program

CTBI’s stock repurchase program began in December 1998 with the authorization to acquire up to 500,000 shares and was increased by an additional 1,000,000 shares in July 2000, May 2003, and March 2020.  CTBI repurchased 32,664 shares of its common stock during the first quarter 2020, leaving 1,034,706 shares remaining under our current repurchase authorization.  As of March 31, 2021, a total of 2,465,294 shares have been repurchased through this program.

Critical Accounting Policies and Estimates

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

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.

51
We have identified the following critical accounting policies:

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

a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturity securities) shall be classified as available-for-sale securities.

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

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

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

Held-to-maturity (“HTM”) securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts.  The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics.  These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased.  At March 31, 2021, CTBI held no securities designated as held-to-maturity.

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

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

52
Loans – Loans with the ability and the intent to be held until maturity and/or payoff are reported at the carrying value of unpaid principal reduced by unearned interest, an allowance for credit losses, and unamortized deferred fees or costs and premiums.  Income is recorded on the level yield basis.  Interest accrual is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful.  Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest.  Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured.  Loans are not reclassified as accruing until principal and interest payments remain current for a period of time, generally six months, and future payments appear reasonably certain.  A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.

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

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

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

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

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

53
We utilize an internal risk grading system for commercial credits.  Those credits that meet the following criteria are subject to individual evaluation:  the loan has an outstanding bank share balance of $1 million or greater and (i) has a criticized risk rating, (ii) is in nonaccrual status, (iii) is a TDR, or (iv) is 90 days or more past due.  The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated.  We evaluate the collectability of both principal and interest when assessing the need for loss provision.  Historical loss rates are analyzed and applied to other commercial loan segments not subject to individual evaluation.

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

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

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

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

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

54
Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.  Any interest and penalties incurred in connection with income taxes are recorded as a component of income tax expense in the consolidated financial statements.  During the quarters ended March 31, 2021 and 2020, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits.  CTBI uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates.  Given a 200 basis point increase to the yield curve used in the simulation model, it is estimated net interest income for CTBI would increase by 5.58 percent over one year and 9.42 percent over two years.  A 25 basis point decrease in the yield curve would decrease net interest income by an estimated 0.69 percent over one year and 1.58 percent over two years.  For further discussion of CTBI’s market risk, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Market Risk included in the annual report on Form 10-K for the year ended December 31, 2020.

Item 4.  Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

CTBI’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  As of the end of the period covered by this report, an evaluation was carried out by CTBI’s management, with the participation of our Chief Executive Officer and the Executive Vice President, Chief Financial Officer, and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, management concluded that disclosure controls and procedures as of March 31, 2021 were effective in ensuring material information required to be disclosed in this quarterly report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in CTBI’s internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, CTBI’s internal control over financial reporting.


55
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
 
None
 
 
 
 
Item 1A.
Risk Factors
 
None
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
None
 
 
 
 
Item 3.
Defaults Upon Senior Securities
 
None
 
 
 
 
Item 4.
Mine Safety Disclosure
 
Not applicable
 
 
 
 
Item 5.
Other Information:
 
 
 
CTBI’s Principal Executive Officer and Principal Financial Officer have furnished to the SEC the certifications with respect to this Form 10-Q that are required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
Item 6.
Exhibits:
 
 
 
(1)
Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
(2)
Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
(3)
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
 
Exhibit 101.INS
 
(4)
XBRL Taxonomy Extension Schema Document
 
Exhibit 101.SCH
 
(5)
XBRL Taxonomy Extension Calculation Linkbase
 
Exhibit 101.CAL
 
(6)
XBRL Taxonomy Extension Definition Linkbase
 
Exhibit 101.DEF
 
(7)
XBRL Taxonomy Extension Label Linkbase
 
Exhibit 101.LAB
 
(8)
XBRL Taxonomy Extension Presentation Linkbase
 
Exhibit 101.PRE
 
(9)
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
 
Exhibit 104

SIGNATURES

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

 
COMMUNITY TRUST BANCORP, INC.
   
Date:  May 7, 2021
By:
   
 
/s/ Jean R. Hale
 
Jean R. Hale
 
Chairman, President, and Chief Executive Officer
   
 
/s/ Kevin J. Stumbo
 
Kevin J. Stumbo
 
Executive Vice President, Chief Financial Officer,
 
and Treasurer



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