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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 2023
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
The NASDAQ Global Select Market
(Trading symbol)
(Name of exchange on which registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐
No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐
No ☑

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 the 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Yes ☑
No ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).  ☐

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

Yes ☐
No ☑

Based upon the closing price of the Common Shares of the Registrant on The NASDAQ Global Select Market, the aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2023 was $612.5 million.  For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates.  The number of shares outstanding of the Registrant’s Common Stock as of January 31, 2024 was 18,020,849.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 2024.





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CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS

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

PART I

Item 1.
Business

Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company registered with the Board of Governors of the Federal Reserve System pursuant to Section 5(a) of the Bank Holding Company Act of 1956, as amended.  CTBI was incorporated August 12, 1980, under the laws of the Commonwealth of Kentucky for the purpose of becoming a bank holding company.  Currently, CTBI owns all the capital stock of one commercial bank and one trust company, serving small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.  The commercial bank is Community Trust Bank, Inc., Pikeville, Kentucky (“CTB”) and the trust company is Community Trust and Investment Company, Lexington, Kentucky (“CTIC”).

At December 31, 2023, CTBI had total consolidated assets of $5.8 billion and total consolidated deposits, including repurchase agreements, of $4.9 billion.  Total shareholders’ equity at December 31, 2023 was $702.2 million.  Trust assets under management at December 31, 2023 were $3.4 billion, including CTB’s investment portfolio totaling $1.2 billion.

Through our 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.  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.

CTBI has supported numerous community organizations through financing projects for affordable housing, economic development, and revitalization of distressed and underserved areas.  CTB’s community development lending totaled over $43 million for the year 2023.  Also, during 2023, CTBI made contributions totaling over $807 thousand to aid low and moderate income families and communities and encourage economic development.  Our employees served over 1,500 hours throughout the year with organizations that provide affordable housing and other services to low and moderate income families and encourage economic development for small businesses and farms.

COMPETITION

CTBI’s subsidiaries face substantial competition for deposit, credit, trust, wealth management, and brokerage relationships in the communities we serve.  Competing providers include state banks, national banks, thrifts, trust companies, insurance companies, mortgage banking operations, credit unions, finance companies, brokerage companies, and other financial and non-financial companies which may offer products functionally equivalent to those offered by our subsidiaries.  As financial services become increasingly dependent on technology, permitting transactions to be conducted by telephone, mobile banking, and the internet, non-bank institutions are able to attract funds and provide lending and other financial services without offices located in our market areas.  Many of our nonbank competitors have fewer regulatory constraints, broader geographic service areas, greater capital, and, in some cases, lower cost structures.  In addition, competition for quality customers has intensified as a result of changes in regulation, consolidation among financial service providers, and advances in technology and product delivery systems.  Many of these providers offer services within and outside the market areas served by our subsidiaries.  We strive to offer competitively priced products along with quality customer service to build customer relationships in the communities we serve.

The United States and global markets, as well as general economic conditions, have been volatile.  Larger financial institutions could strengthen their competitive position as a result of ongoing consolidation within the financial services industry.

Banking legislation in Kentucky places no limits on the number of banks or bank holding companies that a bank holding company may acquire.  Interstate acquisitions are allowed where reciprocity exists between the laws of Kentucky and the home state of the bank or bank holding company to be acquired.  Bank holding companies continue to be limited to control of less than 15% of deposits held by federally insured depository institutions in Kentucky (exclusive of inter-bank and foreign deposits).  Competition for deposits may be increasing as a consequence of Federal Deposit Insurance Corporation (“FDIC”) assessments shifting from deposits to an asset-based formula, as larger banks may move away from non-deposit funding sources.

No material portion of our business is seasonal.  We are not dependent upon any one customer or a few customers, and the loss of any one or a few customers would not have a material adverse effect on us.  See note 18 to the consolidated financial statements contained herein for additional information regarding concentrations of credit.

We do not engage in any operations in foreign countries.

HUMAN CAPITAL

We recognize the long-term value of a highly skilled, dedicated workforce, with an average tenure of over 10 years, and are committed to providing our employees with opportunities for personal and professional growth, whether it is by providing reimbursement of educational expenses, encouraging attendance at seminars and in-house training programs, or sponsoring memberships in local civic organizations.

Our employees recognize the long-term benefit of working with our organization as evidenced by the 20% of our employees who have more than 20 years of service.  Our employees participate in numerous coaching, training, and educational programs, including required periodic training on topics such as ethics, privacy regulations, anti-money laundering, and UDAAP (Unfair, Deceptive, or Abusive Acts or Practices).  Additionally, CTBI makes online training available to employees.  Employees also have the opportunity to utilize programs that provide skill development online with over 8,000 varied courses, including topics in banking, finance, computers, customer service, sales, management, and personal skills such as time management, project management, and communication skills.

In addition to classes provided by our training department, employees also have the opportunity to work on their skill development through attending secondary education courses.  These are funded through our Educational Assistance Program.

As of December 31, 2023, CTBI and our subsidiaries had 967 full-time equivalent employees.  Females comprise 76% of our workforce, and 60% of our managerial positions (supervisor or above) are held by females.  This includes 65% of our branch managers, 29% of our market presidents, and 32% of our senior vice presidents.  At the time of this filing, our Board of Directors is 25% female.

CTBI offers our employees competitive compensation, as well as a highly competitive benefits package.  A retirement plan, an employee stock ownership plan, group life insurance, major medical insurance, a cafeteria plan, education reimbursement, and management and employee incentive compensation plans are available to all eligible personnel.

Employees are also offered the opportunity to complete periodic employee satisfaction surveys anonymously.

We have actively supported our employees with a wellness program for the past 20 years.  Since beginning the program in 2004, participating employees have experienced improvements in preventing cardiovascular disease, cancer, and diabetes.  Many of our employees have experienced decreases in elevated medical risk factors, including alcohol consumption, tobacco usage, physical inactivity, high stress, high cholesterol, and high blood pressure.

SUPERVISION AND REGULATION

General

As a registered bank holding company, we are restricted to those activities permissible under the Bank Holding Company Act of 1956, as amended, and are subject to actions of the Board of Governors of the Federal Reserve System thereunder.  We are required to file an annual report with the Federal Reserve Board and are subject to an annual examination by the Board.

Community Trust Bank, Inc. is a state-chartered bank subject to state and federal banking laws and regulations and periodic examination by the Kentucky Department of Financial Institutions and the restrictions, including dividend restrictions, thereunder.  CTB is also a member of the Federal Reserve System and is subject to certain restrictions imposed by and to examination and supervision under the Federal Reserve Act.  Community Trust and Investment Company is also regulated by the Kentucky Department of Financial Institutions and the Federal Reserve.

Deposits of CTB are insured up to applicable limits by the FDIC, which subjects banks to regulation and examination under the provisions of the Federal Deposit Insurance Act.

The operations of CTBI and our subsidiaries are also affected by other banking legislation and policies and practices of various regulatory authorities.  Such legislation and policies include statutory maximum rates on some loans, reserve requirements, domestic monetary and fiscal policy, and limitations on the kinds of services that may be offered.

CTBI’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our website at www.ctbi.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission.  CTBI’s Code of Business Conduct and Ethics and other corporate governance documents are also available on our website.  Copies of our annual report will be made available free of charge upon written request to:

Community Trust Bancorp, Inc.
Mark A. Gooch
Vice Chairman, President, and CEO
P.O. Box 2947
Pikeville, KY  41502-2947

The Securities and Exchange Commission (“SEC”) maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding CTBI and other issuers that file electronically with the SEC.

Capital Requirements

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.

In April 2020, as directed by Section 4012 of the Coronavirus Aid, Relief, and Economic Security Act (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.  Management elected to use the CBLR framework for CTBI and CTB. CTBI’s CBLR ratio as of December 31, 2023 was 13.69%.  CTB’s CBLR ratio as of December 31, 2023 was 13.22%.

Item 1A.
Risk Factors

An investment in our common stock is subject to risks inherent to our business.  The material risks and uncertainties that management believes affect us are described below.  Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein.  The risks and uncertainties described below are not the only ones facing us.  Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations.  This report is qualified in its entirety by these risk factors.  See also, “Cautionary Statement Regarding Forward-Looking Statements.”  If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected.  If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

Economic Environment Risks

Economic Risk
CTBI may continue to be adversely affected by economic and market conditions.

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

Economy of Our Markets
Our business may continue to be adversely affected by ongoing weaknesses in the local economies on which we depend.

Our loan portfolio is concentrated primarily in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.  Our profits depend on providing products and services to clients in these local regions.  Although unemployment rates in many of our markets have decreased, they remain above the national average.  Increases in unemployment, decreases in real estate values, or increases in interest rates could weaken the local economies in which we operate.  These economic indicators typically affect certain industries, such as real estate and financial services, more significantly.  Also, our growth within certain of our markets may be adversely affected by inconsistent access to high speed internet and the lack of population and business growth in such markets in recent years.  Weakness in our market area could depress our earnings and consequently our financial condition because:
 
Clients may not want, need, or qualify for our products and services;
 
Borrowers may not be able to repay their loans;
 
The value of the collateral securing our loans to borrowers may decline; and
 
The quality of our loan portfolio may decline.

Climate Change Risk
Our business may be adversely impacted by climate change and related initiatives.

Climate change and other emissions-related laws, regulations, and agreements have been proposed and, in some cases adopted, on the international, federal, state, and local levels.  These final and proposed initiatives take the form of restrictions, caps, taxes, or other controls on emissions.  Our markets include areas where the coal industry was historically a significant part of the local economy.  The importance of the coal industry to such areas has, however, continued to decline substantially and the economies of our markets have become more diversified.  Nevertheless, to the extent that existing or new climate change laws, regulations, or agreements further impact production, purchase, or use of coal, the economies of certain areas within our markets, the demand for financing, the value of collateral securing our coal-related loans, and our financial condition and results of operations may be adversely affected.

We, like all businesses, as well as our market areas, borrowers, and customers, may be adversely impacted to the extent that weather-related events cause damage or disruption to properties or businesses.

Risk from COVID-19 and Other Infectious Disease Outbreaks Generally
Our business, results of operations and financial condition may be adversely affected by epidemics and pandemics, such as the COVID-19 outbreak, or other infectious disease outbreaks.

We may face risks related to epidemics, pandemics or other infectious disease outbreaks, which could result in a widespread health crisis that adversely affects general commercial activity, the global economy (including the states and local economies in which we operate), and financial markets.  For example, the spread of COVID-19, which was identified as a pandemic by the World Health Organization and declared a national emergency in the United States, created a global public-health crisis that resulted in significant economic uncertainty, and has impacted household, business, economic, and market conditions, including in the states and local economies in which we conduct nearly all of our business.

The resurgence of the COVID-19 pandemic, or a new epidemic, pandemic or infectious disease outbreak, may result in us having to close certain offices and may require us to limit how customers conduct business through our branch network.  If our employees are required to work remotely, we may be exposed to increased cybersecurity risks such as phishing, malware, and other cybersecurity attacks, all of which could expose us to liability and could seriously disrupt our business operations.  Furthermore, our business operations may be disrupted due to vendors and third-party service providers being unable to work or provide services effectively during such a health crisis, including because of illness, quarantines, or other government actions.

In addition, an epidemic, a pandemic or another infectious disease outbreak, or the resurgence of the COVID-19 pandemic, could again significantly impact households and businesses, or cause limitations on commercial activity, increased unemployment, and general economic and financial instability.  An economic slow-down, or the reversal of the economic recovery, in the regions in which we conduct our business could result in declines in loan demand and collateral values.  Furthermore, negative impacts on our customers caused by such a health crisis, including the resurgence of COVID-19, could result in increased risk of delinquencies, defaults, foreclosures, and losses on our loans.  Moreover, governmental and regulatory actions taken in response to an epidemic, a pandemic, or another infectious disease outbreak may include decreased interest rates, which could adversely impact our interest margins and may lead to decreases in our net interest income.

The extent to which a widespread health crisis  may impact our business, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and severity of the crisis, the potential for seasonal or other resurgences, actions taken by governmental authorities and other third parties to contain and treat such an epidemic, a pandemic or another infections disease outbreak, and how quickly and to what extent normal economic and operating conditions can resume.  Moreover, the effects of a widespread health crisis may heighten many of the other risks described in this “Risk Factors” section.  As a result, the negative effects on our business, results of operations, and financial condition from an epidemic, a pandemic, or another infectious disease outbreak, including the resurgence of the COVID-19 pandemic, could be material.

Operational Risks

Interest Rate Risk
Changes in interest rates could adversely affect our earnings and financial condition.

Our earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings.  The narrowing of interest-rate spreads, meaning the difference between the interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect our earnings and financial condition.  Interest rates are highly sensitive to many factors, including:
 
The rate of inflation;
 
The rate of economic growth;
 
Employment levels;
 
Monetary policies; and
 
Instability in domestic and foreign financial markets.

Changes in market interest rates will also affect the level of voluntary prepayments on our loans and the receipt of payments on our mortgage-backed securities resulting in the receipt of proceeds that may be reinvested at a lower rate than the loan or mortgage-backed security being prepaid.

We originate residential loans for sale and for our portfolio. The origination of loans for sale is designed to meet client financing needs and earn fee income. The origination of loans for sale is highly dependent upon the local real estate market and the level and trend of interest rates.  Increasing interest rates may reduce the origination of loans for sale and consequently the fee income we earn.  While our commercial banking, construction, and income property loan portfolios remain a significant portion of our activities, high interest rates may reduce our mortgage-banking activities and thereby our income.  In contrast, decreasing interest rates have the effect of causing clients to refinance mortgage loans faster than anticipated.  This causes the value of assets related to the servicing rights on loans sold to be lower than originally anticipated.  If this happens, we may need to write down our servicing assets faster, which would accelerate our expense and lower our earnings.

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 financial 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.

Credit Risk
Our earnings and reputation may be adversely affected if we fail to effectively manage our credit risk.

Originating and underwriting loans are integral to the success of our business.  This business requires us to take “credit risk,” which is the risk of losing principal and interest income because borrowers fail to repay loans.  Collateral values and the ability of borrowers to repay their loans may be affected at any time by factors such as:
 
The length and severity of downturns in the local economies in which we operate or the national economy;
 
The length and severity of downturns in one or more of the business sectors in which our customers operate, particularly the automobile, hotel/motel, and residential development industries; or
 
A rapid increase in interest rates.

Our loan portfolio includes loans with a higher risk of loss.

We originate commercial real estate residential loans, commercial real estate nonresidential loans, hotel/motel loans, other commercial loans, consumer loans, and residential mortgage loans, primarily within our market area.  Commercial real estate residential, commercial real estate nonresidential, hotel/motel, and other commercial loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are most susceptible to a risk of loss during a downturn in the business cycle.  These loans also have historically had a greater credit risk than other loans for the following reasons:

 
Commercial Real Estate Residential.  Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.  As of December 31, 2023, commercial real estate residential loans comprised approximately 10% of our total loan portfolio.

 
Commercial Real Estate Nonresidential.  Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.  As of December 31, 2023, commercial real estate nonresidential loans comprised approximately 19% of our total loan portfolio.

 
Hotel/Motel.  The hotel and motel industry is highly susceptible to changes in the domestic and global economic environments, which has caused the industry to experience substantial volatility due to the recent global pandemic.  As of December 31, 2023, hotel/motel loans comprised approximately 10% of our total loan portfolio.

 
Other Commercial Loans.  Repayment is generally dependent upon the successful operation of the borrower’s business.  In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business.  As of December 31, 2023, other commercial loans comprised approximately 10% of our total loan portfolio.

Consumer loans may carry a higher degree of repayment risk than residential mortgage loans, particularly when the consumer loan is unsecured.  Repayment of a consumer loan typically depends on the borrower’s financial stability, and it is more likely to be affected adversely by job loss, illness, or personal bankruptcy.  In addition, federal and state bankruptcy, insolvency, and other laws may limit the amount we can recover when a consumer client defaults.  As of December 31, 2023, consumer loans comprised approximately 24% of our total loan portfolio. As of December 31, 2023, approximately 84% of our consumer loans and 20% of our total loan portfolio were consumer indirect loans.  Consumer indirect loans are fixed rate loans secured by new and used automobiles, trucks, vans, and recreational vehicles originated at selling dealerships which are purchased by us following our review and approval of such loans.  These loans generally have a greater risk of loss in the event of default than, for example, one-to-four family residential mortgage loans due to the rapid depreciation of vehicles securing the loans.  We face the risk that the collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance.  We also assume the risk that the dealership administering the lending process does not comply with applicable consumer protection law and regulations.

A significant part of our lending business is focused on small to medium-sized business which may be impacted more severely during periods of economic weakness.

A significant portion of our commercial loan portfolio is tied to small to medium-sized businesses in our markets.  During periods of economic weakness, small to medium-sized businesses may be impacted more severely than larger businesses.  As a result, the ability of smaller businesses to repay their loans may deteriorate, particularly if economic challenges persist over a period of time, and such deterioration would adversely impact our results of operations and financial condition.

A large percentage of our loan portfolio is secured by real estate, in particular commercial real estate.  Weakness in the real estate market or other segments of our loan portfolio would lead to additional losses, which could have a material adverse effect on our business, financial condition, and results of operations.

As of December 31, 2023, approximately 66% of our loan portfolio was secured by real estate, with approximately 39% of the portfolio consisting of commercial real estate.  High levels of commercial and consumer delinquencies or declines in real estate market values could require increased net charge-offs and increases in the allowance for credit losses, which could have a material adverse effect on our business, financial condition, and results of operations and prospects.

Competition
Strong competition within our market area may reduce our ability to attract and retain deposits and originate loans.

We face competition both in originating loans and in attracting deposits. Competition in the financial services industry is intense.  We compete for clients by offering excellent service and competitive rates on our loans and deposit products.  The type of institutions we compete with include commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms.  Competition arises from institutions located within and outside our market areas.  As financial services become increasingly dependent on technology, permitting transactions to be conducted by telephone, mobile banking, and the internet, non-bank institutions are able to attract funds and provide lending and other financial services without offices located in our market areas.  As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer.  With the increased consolidation in the financial industry, larger financial institutions may strengthen their competitive positions.  In addition, to stay competitive in our markets we may need to adjust the interest rates on our products to match the rates offered by our competitors, which could adversely affect our net interest margin.  As a result, our profitability depends upon our continued ability to successfully compete in our market areas while achieving our investment objectives.

Technology and other changes are allowing consumers to complete financial transactions through alternative methods to those which historically involved banks.  For example, consumers can now hold funds that would have been held as bank deposits in mutual funds, brokerage accounts, general purpose reloadable prepaid cards, or cyber currency.  In addition, consumers can complete transactions, such as paying bills or transferring funds, directly without utilizing the services of a bank.  The process of eliminating banks as intermediaries (known as disintermediation) could result in the loss of fee income, as well as the loss of deposits and the income that might be generated from those deposits.  The related revenue reduction could adversely affect our financial condition, cash flows, and results of operations.

Operational Risk
An extended disruption of vital infrastructure or a security breach could negatively impact our business, results of operations, and financial condition.

Our operations depend upon, among other things, our infrastructure, including equipment and facilities.  Extended disruption of vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking or viruses, terrorist activity or the domestic and foreign response to such activity, or other events outside of our control could have a material adverse impact on the financial services industry as a whole and on our business, results of operations, cash flows, and financial condition in particular.  Our business recovery plan may not work as intended or may not prevent significant interruption of our operations.  The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in the loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have an adverse effect on our financial condition and results of operation.

Our information technology systems and networks may experience interruptions, delays, or cessations of service or produce errors due to regular maintenance efforts, such as systems integration or migration work that takes place from time to time.  We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time-consuming, disruptive, and resource intensive.  Such disruptions could damage our reputation and otherwise adversely impact our business and results of operations.

Third party vendors provide key components of our business infrastructure, such as processing, internet connections, and network access.  While CTBI selected these third party vendors carefully through our vendor management process, we do not control their actions and generally are not able to obtain satisfactory indemnification provisions in our third party vendor written contracts.  Any problems caused by third parties or arising from their services, such as disruption in service, negligence in the performance of services or a breach of customer data security with regard to the third parties’ systems, could adversely affect our ability to deliver services, negatively impact our business reputation, cause a loss of customers, or result in increased expenses, regulatory fines and sanctions, or litigation.

Claims and litigation may arise pertaining to fiduciary responsibility.

Customers may, from time to time, make a claim and take legal action pertaining to our performance of fiduciary responsibilities.  Whether customer claims and legal action related to our performance of fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability, adversely affect the market perception of us and our products and services, and impact customer demand for those products and services.  Any such financial liability or reputational damage could have an adverse effect on our business, financial condition, and results of operations.

Significant legal actions could subject us to uninsured liabilities.

From time to time, we may be subject to claims related to our operations.  These claims and legal actions, including supervisory actions by our regulators, could involve significant amounts.  We maintain insurance coverage in amounts and with deductibles we believe are appropriate for our operations.  However, our insurance coverage may not cover all claims against us and related costs, and further insurance coverage may not continue to be available at a reasonable cost.  As a result, CTBI could be exposed to uninsured liabilities, which could adversely affect CTBI’s business, financial condition, or results of operations.

Technology Risk
CTBI continually encounters technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.  The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.  Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.  Many of our competitors have substantially greater resources to invest in technological improvements.  We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.  Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

Cyber Risk
A breach in the security of our systems could disrupt our business, result in the disclosure of confidential information, damage our reputation, and create significant financial and legal exposure for us.

Our businesses are dependent on our ability and the ability of our third party service providers to process, record, and monitor a large number of transactions.  If the financial, accounting, data processing, or other operating systems and facilities fail to operate properly, become disabled, experience security breaches, or have other significant shortcomings, our results of operations could be materially adversely affected.

Management is responsible for the day-to-day management of information security risk, while the Risk and Compliance Committee of our Board of Directors is responsible for the oversight of information security risk.  The Risk and Compliance Committee has the responsibility to satisfy itself that the processes designed and implemented by management are adequate and functioning as designed.  The Chairman of this Committee makes a quarterly report to the Board covering key risk areas.  We have an annual third-party information technology review conducted by information security professionals following industry-standard testing procedures.  All employees go through information security training annually, in addition to random quarterly phishing testing.  In the event of an information security breach, we have an insurance policy in place.

Although we and our third party service providers devote significant resources to maintain and upgrade our systems and processes that are designed to protect the security of computer systems, software, networks, and other technology assets and the confidentiality, integrity, and availability of information belonging to us and our customers, there is no assurance that our security systems and those of our third party service providers will provide absolute security.  Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks, and other means.  Despite our efforts and those of our third party service providers to ensure the integrity of these systems, it is possible that we or our third party service providers may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because techniques used change frequently or are not recognized until launched, and because security attacks can originate from a wide variety of sources.

A successful breach of the security of our systems or those of our third party service providers could cause serious negative consequences to us, including significant disruption of our operations, misappropriation of our confidential information or the confidential information of our customers, or damage to our computers or operating systems, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss in confidence in our security measures, customer dissatisfaction, litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us.  While we maintain insurance coverage that should, subject to policy terms and conditions, cover certain aspects of our cyber risks, this insurance coverage may be insufficient to cover all losses we could experience resulting from a cyber-security breach.  Moreover, the cost of insurance sufficient to cover substantially all, or a reasonable portion, of losses related to cyber security breaches is expected to increase and such increases are likely to be material.

CTBI has not experienced any data breaches; however, one of our third party vendors did experience a data breach during 2023 as disclosed in note 19 to our consolidated financial statements.  The incident did not impact the ongoing operations of CTBI, and we expect our insurance policy to cover many of the costs related to the incident.

Banking customers and employees have been, and will likely continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, account information, or other personal information, or to introduce viruses or other malware to bank information systems or customers’ computers.  Though we endeavor to lessen the success of such threats through the use of authentication technology and employee education, such cyber-attacks remain a serious issue.  Publicity concerning security and cyber-related problems could inhibit the use or growth of electronic or web-based applications as a means of conducting banking and other commercial transactions.

We could incur increased costs or reductions in revenue or suffer reputational damage in the event of misuse of information.

Our operations rely on the secure processing, transmission, and storage of confidential information in our computer systems and networks regarding our customers and their accounts.  To provide these products and services, we use information systems and infrastructure that we and third party service providers operate.  As a financial institution, we also are subject to and examined for compliance with an array of data protection laws, regulations, and guidance, as well as to our own internal privacy and information security policies and programs.

Information security risks for financial institutions like us have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, and other external parties.  Our technologies and systems may become the target of cyber-attacks or other attacks that could result in the misuse or destruction of our or our customers’ confidential, proprietary, or other information or that could result in disruptions to the business operations of us or our customers or other third parties.  Also, our customers, in order to access some of our products and services, may use personal computers, smart mobile phones, tablet PCs, and other devices that are beyond our controls and security systems.  Further, a breach or attack affecting one of our third-party service providers or partners could impact us through no fault of our own.  In addition, because the methods and techniques employed by perpetrators of fraud and others to attack systems and applications change frequently and often are not fully recognized or understood until after they have been launched, we and our third-party service providers and partners may be unable to anticipate certain attack methods in order to implement effective preventative measures.

While we have policies and procedures designed to prevent or limit the effect of the possible security breach of our information systems, if unauthorized persons were somehow to get access to confidential or proprietary information in our possession or to our proprietary information, it could result in litigation and regulatory investigations, significant legal and financial exposure, damage to our reputation, or a loss of confidence in the security of our systems that could materially adversely affect our results of operation.

Counterparty Risk
The soundness of other financial institutions could adversely affect CTBI.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.  Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships.  We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional counterparties.  As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.  Many of these transactions expose us to credit risk in the event of default of our counterparty or client.  In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan due us.  There is no assurance that any such losses would not materially and adversely affect our businesses, financial condition, or results of operations.

Acquisition Risks

Acquisition Risk
We may have difficulty in the future continuing to grow through acquisitions.

We may experience difficulty in making acquisitions on acceptable terms due to the decreasing number of suitable acquisition targets, competition for attractive acquisitions, regulatory impediments, and certain limitations on interstate acquisitions.

Any future acquisitions or mergers by CTBI or our banking subsidiary are subject to approval by the appropriate federal and state banking regulators.  The banking regulators evaluate a number of criteria in making their approval decisions, such as:
 
Safety and soundness guidelines;
 
Compliance with all laws including the USA PATRIOT Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act, the Sarbanes-Oxley Act and the related rules and regulations promulgated under such Act or the Exchange Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, and all other applicable fair lending and consumer protection laws and other laws relating to discriminatory business practices; and
 
Anti-competitive concerns with the proposed transaction.

If the banking regulators or a commenter on our regulatory application raise concerns about any of these criteria at the time a regulatory application is filed, the banking regulators may deny, delay, or condition their approval of a proposed transaction.  We have grown, and, subject to regulatory approval, intend to continue to grow, through acquisitions of banks and other financial institutions.  After these acquisitions, we may experience adverse changes in results of operations of acquired entities, unforeseen liabilities, asset quality problems of acquired entities, loss of key personnel, loss of clients because of change of identity, difficulties in integrating data processing and operational procedures, and deterioration in local economic conditions.  These various acquisition risks can be heightened in larger transactions.

Integration Risk
We may not be able to achieve the expected integration and cost savings from our bank acquisition activities.

We have a long history of acquiring financial institutions and, subject to regulatory approval, we expect this acquisition activity to resume in the future.  Difficulties may arise in the integration of the business and operations of the financial institutions that agree to merge with and into CTBI and, as a result, we may not be able to achieve the cost savings and synergies that we expect will result from the merger activities.  Achieving cost savings is dependent on consolidating certain operational and functional areas, eliminating duplicative positions and terminating certain agreements for outside services.  Additional operational savings are dependent upon the integration of the banking businesses of the acquired financial institution with that of CTBI, including the conversion of the acquired entity’s core operating systems, data systems, and products to those of CTBI and the standardization of business practices.  Complications or difficulties in the conversion of the core operating systems, data systems, and products of these other banks to those of CTBI may result in the loss of clients, damage to our reputation within the financial services industry, operational problems, one-time costs currently not anticipated by us, and/or reduced cost savings resulting from the merger activities.

Market and Liquidity Risks

Market Risk
CTBI’s stock price is volatile.

Our stock price has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future.  These factors include:
 
Actual or anticipated variations in earnings;
 
Changes in analysts’ recommendations or projections;
 
CTBI’s announcements of developments related to our businesses;
 
Operating and stock performance of other companies deemed to be peers;
 
New technology used or services offered by traditional and non-traditional competitors;
 
News reports of trends, concerns, and other issues related to the financial services industry; and
 
Additional governmental policies and enforcement of current laws.

Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to CTBI’s performance.  Investor confidence in financial institutions has declined as a result of the bank failures that occurred in 2023.  General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

Liquidity Risk
CTBI is subject to liquidity risk.

CTBI requires liquidity to meet our deposit and debt obligations as they come due and to fund loan demands.  CTBI’s access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general.  Factors that could reduce our access to liquidity sources include a downturn in the market, difficult credit markets, or adverse regulatory actions against CTBI.  CTBI’s access to deposits may also be affected by the liquidity needs of our depositors.  In particular, a substantial majority of CTBI’s liabilities are demand, savings, interest checking, and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of our assets are loans, which cannot be called or sold in the same time frame.  To the extent that consumer confidence in other investment vehicles, such as the stock market, increases, customers may move funds from bank deposits and products into such other investment vehicles.  In addition, given the adoption of electronic banking, these transfers could occur more quickly than they have historically.  Although CTBI historically has been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason.  A failure to maintain adequate liquidity could have a material adverse effect on our financial condition and results of operations.

Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on our operations.

Recent events relating to the failures of Silicon Valley Bank and Signature Bank in March 2023 have caused general uncertainty and concerns regarding the adequacy of liquidity in the banking sector as a whole.  A financial institution’s liquidity reflects its ability to meet customer demand for loans, accommodating possible outflows in deposits, and accessing alternative sources of funds when needed, while at the same time taking advantage of interest rate market opportunities.  The ability to manage liquidity is fundamental to a financial institution’s business and success.  The bank failures in March 2023 highlight the potential results of an insured depository institution unexpectedly having to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institutions ability to satisfy its obligations to depositors.  Current market uncertainties and other external factors may impact the competitive landscape for deposits in the banking industry in an unpredictable manner.  In addition, the rising interest rate environment has continued to increase competition for liquidity and the premium at which liquidity is available to meet funding needs.  These possible impacts may adversely affect our future operating results, including net income, and negatively impact capital.

Legal, Legislation, and Regulation Risks

Risks Related to Regulatory Policies and Oversight
The banking industry is heavily regulated, and our business may be adversely affected by legislation or changes in regulatory policies and oversight.

The earnings of banks and bank holding companies such as ours are affected by the policies of regulatory authorities, including the Federal Reserve Board, which regulates the money supply.  Among the methods employed by the Federal Reserve Board are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits.  These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect interest rates charged on loans or paid on deposits.  The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial and savings banks in the past and are expected to continue to do so in the future.

In recent years, federal banking regulators have increased regulatory scrutiny, and additional limitations on financial institutions have been proposed or adopted by regulators and by Congress.  Moreover, banking regulatory agencies have increasingly over the last few years used authority under Section 5 of the Federal Trade Commission Act to take supervisory or enforcement action with respect to alleged unfair or deceptive acts or practices by banks to address practices that may not necessarily fall within the scope of a specific banking or consumer finance law.  The banking industry is highly regulated and changes in federal and state banking regulations as well as policies and administration guidelines may affect our practices, growth prospects, and earnings.  In particular, there is no assurance that governmental actions designed to stabilize the economy and banking system will not adversely affect our financial position or results of operations.

From time to time, CTBI and/or our subsidiaries may be involved in information requests, reviews, investigations, and proceedings (both formal and informal) by various governmental agencies and law enforcement authorities regarding our respective businesses.  Any of these matters may result in material adverse consequences to CTBI and our subsidiaries, including adverse judgements, findings, limitations on merger and acquisition activity, settlements, fines, penalties, orders, injunctions, and other actions.  Such adverse consequences may be material to the financial position of CTBI or our results of operations.

In particular, consumer products and services are subject to increasing regulatory oversight and scrutiny with respect to compliance with consumer laws and regulations.  We may face a greater number or wider scope of investigations, enforcement actions, and litigation in the future related to consumer practices.  In addition, any required changes to our business operations resulting from these developments could result in a significant loss of revenue, require remuneration to customers, trigger fines or penalties, limit the products or services we offer, require us to increase certain prices and therefore reduce demand for our products, impose additional compliance costs on us, cause harm to our reputation, or otherwise adversely affect our consumer business.

The financial services industry has experienced leadership changes at federal banking agencies, which may impact regulations and government policy applicable to us.  New appointments to the Board of Governors of the Federal Reserve could affect monetary policy and interest rates.

We are required to maintain certain minimum amounts and types of capital and may be subject to more stringent capital requirements in the future. A failure to meet applicable capital requirements could have a material adverse effect on our financial condition and results of operations.

We are subject to regulatory requirements specifying minimum amounts and types of capital that we must maintain.  From time to time, banking regulators change these regulatory capital adequacy guidelines.  See Item 1 above for additional information regarding current capital requirements.  A failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material adverse effect on our financial condition and results of operations.

Environmental Liability Risk
We are subject to environmental liability risk associated with lending activity.

A significant portion of our loan portfolio is secured by real property.  During the ordinary course of business, we may foreclose on and take title to properties securing loans.  In doing so, there is a risk that hazardous or toxic substances could be found on these properties.  If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage.  Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.  Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards.  The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Item1B.
Unresolved Staff Comments

None.

Item1C.
Cybersecurity

As referenced in the Operational Risks/Cyber Risks section of Item 1A. Risk Factors included in this Form 10-K, our organization may be materially affected by cybersecurity threats and incidents that target its internally managed information technology systems or our critical vendor systems. 
 
Our institution utilizes industry standard and regulatory approved assessment tools to identify cybersecurity risks and measure preparedness.  The tools provide a repeatable and measurable framework for our organization to measure its cybersecurity preparedness over time.
 
The assessment process spans over five domains of interest: (1) cyber risk management and oversight, (2) threat intelligence and collaboration, (3) cybersecurity controls, (4) external dependencies, and (5) cyber incident management and resilience.  All domains are currently assessed at an evolving maturity level which is in line with our organizations inherent risk assessment score. 
 
Our institution has purchased and is using best of breed tools in the areas of endpoint security, Security Information Event Management (“SIEM”), Privileged Access Management (“PAM”), email and web browsing filtering and management, and user analytics.  We also use a comprehensive third party 24-by-7 Security Operations Center (“SOC”) that monitors, detects, and remediates cybersecurity threats adhering to strict service response levels.

The internal assessment process and internal tools and SOC related key indicators are reported on a quarterly basis to the Security and Information Security Committee and the Enterprise-wide Risk Management Committee and annually to the Board of Directors.

The assessment process, internal tools, and corresponding SOC related services are also reviewed when new threats arise or when considering changes to the business strategy, such as expanding operations, offering new products and services, or entering into new third-party relationships that support critical activities.  Consequently, management shall determine whether additional risk management practices or controls are needed to maintain or augment the institution’s cybersecurity maturity. 

A comprehensive and layered auditing approach including people, processes and technology components is executed by our internal audit program in order to evaluate the effectiveness of existing controls and ensure that cybersecurity risk has been adequately mitigated within our institution.  Periodic phishing tests, network and application security reviews, third-party vulnerability assessments and penetration testing are used to gauge the overall effectiveness of our cybersecurity defenses.

In an effort to continually share threat intelligence and increase awareness of cybersecurity threats, routine communication to employees is conducted to highlight internal control requirements, common cybersecurity threats and schemes. Our incident response team members also participate in the annual Financial Services Information Sharing and Analysis Center tabletop cybersecurity tabletop exercises.

Our comprehensive vendor management program and processes assess all new vendors and segments them into criticality tiers.  Our most critical vendors (tiers 1 and 2) are evaluated annually based on requested vendor documents, such as Statements on Standards Attestation Engagements No. 18 (SSAE 18), financial statements, insurance, and due diligence questionnaires.  The vendor management team also monitors all news alerts related to all critical vendors.

As of the date of this report, we are not aware of any cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect CTBI.  However, future incidents could have a material impact on CTBI’s business strategy, results of operations, or financial condition.  For additional discussion of the risks posed by cybersecurity threats, see the Operational Risks/Cyber Risks section of Item 1A. Risk Factors included in this Form 10-K.

Management receives information on cyber activities, incidents, and risk assessments quarterly from the VP/Corporate Information Security, Resilience and Data Officer (CISRDO), the SVP/Manager Application Systems, and the EVP/Operations during the Security and Information Security Committee and the Information Technology Steering Committee meetings.  This information is also shared and discussed quarterly with the Enterprise-wide Risk Management Committee.  Various key risk measures related to cyber risk are tracked and reported quarterly to the Enterprise-wide Risk Management Committee.  Our VP/CISRDO has been with CTBI for five years and has extensive 30+ years of experience in information technology management roles in various industries.  Our SVP/Manager Application Systems has been with CTBI for 32 years and has held various information technology leadership roles.  Our EVP/Operations has been with the company for 30 years, leading and guiding our technology teams.

The Board of Directors monitors cyber risk through quarterly reports from the Board’s Risk and Compliance Committee.  This Board committee meets quarterly and receives information concerning cyber risk activities, including cyber risk assessments and incident reporting.  The Board also receives an annual report covering cyber risk from the Chief Information Technology Officer.  Controls over cyber risk are reviewed throughout the year by internal audit activities and third-party assessments whose reports are reviewed by the Board’s Audit Committee.

Item 2.
Properties

Our main office, which is owned by Community Trust Bank, Inc., is located at 346 North Mayo Trail, Pikeville, Kentucky 41501.  Following is a schedule of properties owned and leased by CTBI and our subsidiaries as of December 31, 2023:

Location
 
Owned
   
Leased
   
Total
 
Banking locations:
                 
Community Trust Bank, Inc.
                 
* Pikeville Market (lease land at 3 owned locations)
   
9
     
1
     
10
 
10 locations in Pike County, Kentucky
                       
Floyd/Knott/Johnson Market (lease land at 1 owned location)
   
3
     
1
     
4
 
2 locations in Floyd County, Kentucky, 1 location in Knott County, Kentucky, and 1 location in Johnson County, Kentucky
                       
Tug Valley Market (lease land at 1 owned location)
   
2
     
0
     
2
 
1 location in Pike County, Kentucky, 1 location in Mingo County, West Virginia
                       
Whitesburg Market (lease land at 1 owned location)
   
4
     
1
     
5
 
5 locations in Letcher County, Kentucky
                       
Hazard Market (lease land at 2 owned locations)
   
3
     
0
     
3
 
3 locations in Perry County, Kentucky
                       
* Lexington Market (lease land at 3 owned locations)
   
4
     
2
     
6
 
6 locations in Fayette County, Kentucky
                       
Winchester Market
   
2
     
0
     
2
 
2 locations in Clark County, Kentucky
                       
Richmond Market (lease land at 1 owned location)
   
3
     
0
     
3
 
3 locations in Madison County, Kentucky
                       
Mt. Sterling Market
   
2
     
0
     
2
 
2 locations in Montgomery County, Kentucky
                       
Versailles Market (lease land at 2 owned locations)
   
3
     
2
     
5
 
1 location in Woodford County, Kentucky, 2 locations in Franklin County, Kentucky, and 2 locations in Scott County, Kentucky
                       
* Danville Market (lease land at 1 owned location)
   
3
     
0
     
3
 
2 locations in Boyle County, Kentucky and 1 location in Mercer County, Kentucky
                       
* Ashland Market (lease land at 1 owned location)
   
5
     
0
     
5
 
4 locations in Boyd County, Kentucky and 1 location in Greenup County, Kentucky
                       
Flemingsburg Market
   
3
     
0
     
3
 
3 locations in Fleming County, Kentucky
                       
Advantage Valley Market
   
3
     
1
     
4
 
2 locations in Lincoln County, West Virginia, 1 location in Wayne County, West Virginia, and 1 location in Cabell County, West Virginia
                       
Summersville Market
   
1
     
0
     
1
 
1 location in Nicholas County, West Virginia
                       
Middlesboro Market (lease land at 1 owned location)
   
3
     
0
     
3
 
3 locations in Bell County, Kentucky
                       
Williamsburg Market
   
5
     
0
     
5
 
2 locations in Whitley County, Kentucky and 3 locations in Laurel County, Kentucky
                       
Campbellsville Market (lease land at 2 owned locations)
   
8
     
0
     
8
 
2 locations in Taylor County, Kentucky, 2 locations in Pulaski County, Kentucky, 1 location in Adair County, Kentucky, 1 location in Green County, Kentucky, 1 location in Russell County, Kentucky, and 1 location in Marion County, Kentucky
                       
Mt. Vernon Market
   
2
     
0
     
2
 
2 locations in Rockcastle County, Kentucky
                       
* LaFollette Market
   
3
     
0
     
3
 
2 locations in Campbell County, Tennessee and 1 location in Anderson County, Tennessee
                       
Total banking locations
   
71
     
8
     
79
 
Operational locations:
                       
Community Trust Bank, Inc.
                       
Pikeville (Pike County, Kentucky) (lease land at 1 owned location)
   
1
     
0
     
1
 
Total operational locations
   
1
     
0
     
1
 
                         
Total locations
   
72
     
8
     
80
 

*Community Trust and Investment Company has leased offices in the main office locations in these markets.

See notes 7 and 15 to the consolidated financial statements contained herein for the year ended December 31, 2023, for additional information relating to lease commitments and amounts invested in premises and equipment.

A new Lexington Market location opened in January 2024 in Boone County, Kentucky, and a new Campbellsville Market location will open in 2024 in Hardin County, Kentucky.  We owned the land for both of these locations at December 31, 2023.

Item 3.
Legal Proceedings

CTBI and subsidiaries, and from time to time, our officers, are named defendants in legal actions arising from ordinary business activities.  Management, after consultation with legal counsel, believes any pending actions are without merit or that the ultimate liability, if any, will not materially affect our consolidated financial position or results of operations.

Item 4.
Mine Safety Disclosures

Not applicable.

Information about our Executive Officers

Set forth below are the executive officers of CTBI, their positions with CTBI, and the year in which they first became an executive officer.

Name and Age (1)
Positions and Offices
Currently Held
Date First Became
Executive Officer
 
Principal Occupation
Mark A. Gooch; 65
Vice Chairman, President, and Chief Executive Officer
1997
(2)

Vice Chairman, President, and CEO of CTBI
               
Kevin J. Stumbo; 63
Executive Vice President, Chief Financial Officer, and Treasurer
2002
   
Executive Vice President/Chief Financial Officer of CTBI
               
Richard W. Newsom; 69
Executive Vice President
2002
(3)

Executive Vice President/President of CTB
               
Andy D. Waters; 58
Executive Vice President
2011
   
President and CEO of CTIC
               
C. Wayne Hancock; 49
Executive Vice President and Secretary
2014
(4)

Executive Vice President/Chief Legal Officer of CTB
               
James B. Draughn; 64
Executive Vice President
2001
   
Executive Vice President/Operations of CTB
               
Steven E. Jameson; 67
Executive Vice President
2004
(5)

Executive Vice President/Chief Internal Audit & Risk Officer of CTB
               
Ricky D. Sparkman; 61
Executive Vice President
2002
   
Executive Vice President/South Central Region President of CTB
               
D. Andrew Jones; 61
Executive Vice President
2010
   
Executive Vice President/Northeastern Region President of CTB
               
David Tackett; 58
Executive Vice President
2022
(6)

Executive Vice President/Eastern Region President of CTB
               
Billie J. Dollins; 63
Executive Vice President
2023
(7)

Executive Vice President/Central Kentucky Region President of CTB
               
Mark E. Smith; 53
Executive Vice President
2024
(8)

Executive Vice President/Chief Credit Officer of CTB

(1)
The ages listed for CTBI’s executive officers are as of February 28, 2024.

(2)
Mr. Gooch became President of CTBI on July 27, 2021 and assumed the additional positions of Vice Chairman and Chief Executive Officer of CTBI effective February 7, 2022, upon the retirement of Jean R. Hale.  Mr. Gooch retained his previous position as Chief Executive Officer of CTB and assumed the additional roles of Chairman of CTB and Chairman of CTIC also effective with Ms. Hale’s retirement on February 7, 2022.

(3)
Mr. Newsom became President of CTB on February 7, 2022.  He previously served as President of the Eastern Region of CTB.

(4)
Mr. Hancock became Secretary of CTBI on February 7, 2022.

(5)
Mr. Jameson is a non-voting member of the Executive Committee.

(6)
Mr. Tackett became Executive Vice President of CTBI and President of the Eastern Region of CTB on February 7, 2022.  He previously held the position of President of the Floyd, Knott, and Johnson Market of CTB.

(7)
Ms. Dollins became Executive Vice President of CTBI and President of the Central Kentucky Region of CTB on January 3, 2023, following the retirement of Larry W. Jones.  She previously held the position of President of the Versailles Market of CTB.

(8)
James J. Gartner, former Executive Vice President of CTBI and Executive Vice President/Chief Credit Officer of CTB, retired effective December 29, 2023.  Mr. Smith was named Executive Vice President of CTBI and Executive Vice President/Chief Credit Officer of CTB effective January 2, 2024.

PART II

Item 5.
Market for the Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities

Our common stock is listed on The NASDAQ Global Select Market under the symbol CTBI.  As of January 31, 2024, there were approximately 8,400 holders of record of our outstanding common shares.

Dividends

The annual dividend paid to our stockholders was increased from $1.68 per share to $1.80 per share during 2023.  We have adopted a conservative policy of cash dividends by generally maintaining an average annual cash dividend ratio of approximately 45%, with periodic stock dividends.  The current year cash dividend ratio was 41.3%, and the 10-year average dividend payout ratio has been 42.2%.  Dividends are typically paid on a quarterly basis.  Future dividends are subject to the discretion of CTBI’s Board of Directors, cash needs, general business conditions, dividends from our subsidiaries, and applicable governmental regulations and policies.  For information concerning restrictions on dividends from the subsidiary bank to CTBI, see note 20 to the consolidated financial statements contained herein for the year ended December 31, 2023.

Stock Repurchases

CTBI did not acquire any shares of stock through the stock repurchase program during the year 2023.  There are 1,034,706 shares remaining under CTBI's current repurchase authorization.  For further information, see the Stock Repurchase Program section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Securities Authorized for Issuance Under Equity Compensation Plans

For information concerning securities authorized for issuance under CTBI’s equity compensation plans, see Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
 
Common Stock Performance

The following graph shows the cumulative total return experienced by CTBI’s shareholders during the last five years compared to the NASDAQ Stock Market (U.S.) and the NASDAQ Bank Stock Index.  The graph assumes the investment of $100 on December 31, 2018 in CTBI’s common stock and in each index and the reinvestment of all dividends paid during the five-year period.

Comparison of 5 Year Cumulative Total Return
among Community Trust Bancorp, Inc., NASDAQ Stock Market (U.S.),
and NASDAQ Bank Stocks

graphic

Fiscal Year Ending December 31 ($)
         
 
2018
2019
2020
2021
2022
2023
Community Trust Bancorp, Inc.
100.00
121.48
100.49
122.54
133.78
132.99
NASDAQ Stock Market (U.S.)
100.00
131.17
159.07
200.26
160.75
203.23
NASDAQ Bank Stocks
100.00
137.18
119.62
164.26
135.89
149.56

Item 6.
[Reserved]

Item 7.
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 consolidated financial statements and the accompanying notes thereto contained in Item 8 of this annual report.  The MD&A includes the following sections:

Our Business

Financial Goals and Performance

Results of Operations and Financial Condition

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.  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 December 31, 2023, we had total consolidated assets of $5.8 billion and total consolidated deposits, including repurchase agreements, of $4.9 billion.  Total shareholders’ equity at December 31, 2023 was $702.2 million.  Trust assets under management at December 31, 2023 were $3.4 billion, including CTB’s investment portfolio totaling $1.2 billion.

Through our 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.  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 this annual report.

Financial Goals and Performance

The following table shows the primary measurements used by management to assess annual performance.  The goals in the table below should not be viewed as a forecast of our performance for 2024.  Rather, the goals represent a range of target performance for 2024.  There is no assurance that any or all of these goals will be achieved.  See “Cautionary Statement Regarding Forward Looking Statements.”

 
2023 Goals
2023 Performance
2024 Goals
Basic earnings per share
$4.57 - $4.75
$4.36
$4.31 - $4.49
Net income
$82.0 - $85.4 million
$78.0 million
$77.7 - $80.8 million
ROAA
1.50% - 1.56%
1.40%
1.33% - 1.39%
ROAE
12.26% - 12.76%
11.75%
10.99% - 11.44%
Revenues
$237.9 - $247.6 million
$230.8 million
 $236.8 - $246.5 million
Noninterest revenue as % of total revenue
24.00% - 26.00%
25.00%
23.50% - 25.50%
Assets
$5.38 - $5.72 billion
$5.77 billion
$5.74 - $6.10 billion
Loans
$3.77 - $3.92 billion
$4.05 billion
$4.18 - $4.35 billion
Deposits, including repurchase agreements 
$4.64 - $4.83 billion
$4.95 billion
$4.97 - $5.17 billion
Shareholders’ equity
$686.5 - $714.5 million
$702.2 million
$711.2 - $740.3 million

Results of Operations and Financial Condition

We reported earnings of $78.0 million, or $4.36 per basic share, for the year ended December 31, 2023 compared to $81.8 million, or $4.59 per basic share, for the year ended December 31, 2022.  Year over year earnings were impacted by increases in provision for loan losses and noninterest expense and a decrease in noninterest income.  Total revenue for 2023 was $3.8 million above prior year, as net interest revenue increased $4.0 million and noninterest income decreased $0.3 million compared to prior year.

2023 Highlights

Net interest income for the year ended December 31, 2023 increased $4.0 million, or 2.4%, from December 31, 2022 with a $114.8 million increase in average earning assets.

Provision for credit losses was $6.8 million for the year ended December 31, 2023 compared to $4.9 million for the year ended December 31, 2022.

Our loan portfolio increased $341.6 million, or 9.2%, from December 31, 2022 to December 31, 2023.

Net loan charge-offs were $3.2 million, or 0.08% of average loans annualized, for the year ended December 31, 2023 compared to $0.7 million, or 0.02% of average loans annualized, for the year ended December 31, 2022.

Our total nonperforming loans at $14.0 million at December 31, 2023 decreased $1.3 million, or 8.8%, from December 31, 2022.  Nonperforming assets at $15.6 million decreased $3.4 million, or 17.9%, from December 31, 2022.

Deposits, including repurchase agreements, at December 31, 2023 increased $308.3 million, or 6.6%, from December 31, 2022.

Noninterest income for the year ended December 31, 2023 of $57.7 million decreased $0.3 million, or 0.4%, compared to the year ended December 31, 2022.

Noninterest expense for the year ended December 31, 2023 of $125.4 million increased $4.3 million, or 3.6%, compared to the year ended December 31, 2022.

Income Statement Review

(dollars in thousands)
             
Change 2023 vs. 2022
 
Year Ended December 31
 
2023
   
2022
   
Amount
   
Percent
 
Net interest income
 
$
173,110
   
$
169,102
   
$
4,008
     
2.4
%
Provision for credit losses (recovery)
   
6,811
     
4,905
     
1,906
     
38.9
 
Noninterest income
   
57,659
     
57,916
     
(257
)
   
(0.4
)
Noninterest expense
   
125,390
     
121,071
     
4,319
     
3.6
 
Income taxes
   
20,564
     
19,228
     
1,336
     
6.9
 
Net income
 
$
78,004
   
$
81,814
   
$
(3,810
)
   
(4.7
)%
                                 
Average earning assets
 
$
5,244,128
   
$
5,129,345
   
$
114,783
     
2.2
%
                                 
Yield on average earnings assets, tax equivalent*
   
5.15
%
   
3.87
%
   
1.28
%
   
33.1
%
Cost of interest bearing funds
   
2.72
%
   
0.85
%
   
1.87
%
   
220.0
%
                                 
Net interest margin, tax equivalent*
   
3.32
%
   
3.32
%
   
0.0
%
   
0.0
%

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

Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates

   
2023
   
2022
 
(in thousands)
 
Average
Balances
   
Interest
   
Average
Rate
   
Average
Balances
   
Interest
   
Average
Rate
 
Earning assets:
                                   
                                     
Loans (1)(2)(3)
 
$
3,888,585
   
$
231,114
     
5.94
%
 
$
3,552,941
   
$
169,950
     
4.78
%
Loans held for sale
   
228
     
31
     
13.60
     
893
     
94
     
10.53
 
Securities:
                                               
U.S. Treasury and agencies
   
855,300
     
17,369
     
2.03
     
1,022,511
     
14,699
     
1.44
 
Tax exempt state and political subdivisions (3)
   
105,158
     
3,568
     
3.39
     
119,118
     
3,795
     
3.19
 
Other securities
   
243,012
     
9,894
     
4.07
     
260,423
     
6,996
     
2.69
 
Federal Reserve Bank and Federal Home Loan Bank stock
   
10,841
     
759
     
7.00
     
12,388
     
603
     
4.87
 
Federal funds sold
   
256
     
9
     
3.52
     
414
     
15
     
3.62
 
Interest bearing deposits
   
138,646
     
6,968
     
5.03
     
158,563
     
2,484
     
1.57
 
Other investments
   
245
     
0
     
0.00
     
245
     
0
     
0.00
 
Investment in unconsolidated subsidiaries
   
1,857
     
129
     
6.95
     
1,849
     
62
     
3.35
 
Total earning assets
 
$
5,244,128
   
$
269,841
     
5.15
%
 
$
5,129,345
   
$
198,698
     
3.87
%
Allowance for credit losses
   
(47,606
)
                   
(43,081
)
               
     
5,196,522
                     
5,086,264
                 
Nonearning assets:
                                               
Cash and due from banks
   
61,184
                     
59,645
                 
Premises and equipment and right of use assets, net
   
60,232
                     
53,928
                 
Other assets
   
254,203
                     
238,859
                 
Total assets
 
$
5,572,141
                   
$
5,438,696
                 
                                                 
Interest bearing liabilities:
                                               
Deposits:
                                               
Savings and demand deposits
 
$
2,136,653
   
$
52,336
     
2.45
%
 
$
2,020,065
   
$
16,526
     
0.82
%
Time deposits
   
1,071,584
     
28,831
     
2.69
     
1,027,726
     
7,542
     
0.73
 
Repurchase agreements and federal funds purchased
   
219,591
     
8,994
     
4.10
     
243,102
     
2,540
     
1.04
 
Advances from Federal Home Loan Bank
   
18,494
     
1,004
     
5.43
     
898
     
20
     
2.23
 
Long-term debt
   
64,351
     
4,257
     
6.62
     
57,841
     
1,943
     
3.36
 
Finance lease liability
   
3,469
     
118
     
3.40
     
1,589
     
69
     
4.34
 
Total interest bearing liabilities
 
$
3,514,142
   
$
95,540
     
2.72
%
 
$
3,351,221
   
$
28,640
     
0.85
%
                                                 
Noninterest bearing liabilities:
                                               
Demand deposits
   
1,343,917
                     
1,398,778
                 
Other liabilities
   
50,418
                     
46,274
                 
Total liabilities
   
4,908,477
                     
4,796,273
                 
                                                 
Shareholders’ equity
   
663,664
                     
642,423
                 
Total liabilities and shareholders’ equity
 
$
5,572,141
                   
$
5,438,696
                 
                                                 
Net interest income, tax equivalent
         
$
174,301
                   
$
170,058
         
Less tax equivalent interest income
           
1,191
                     
956
         
Net interest income
         
$
173,110
                   
$
169,102
         
Net interest spread
                   
2.43
%
                   
3.02
%
Benefit of interest free funding
                   
0.89
                     
0.30
 
Net interest margin
                   
3.32
%
                   
3.32
%

(1) Interest includes fees on loans of $1,770 and $1,723 in 2023 and 2022, respectively.
(2) Loan balances include deferred loan origination costs and principal balances on nonaccrual loans.
(3) Tax exempt income on securities and loans is reported on a fully taxable equivalent basis using a 24.95% rate.

Net Interest Differential

The following table illustrates the approximate effect of volume and rate changes on net interest differentials between 2023 and 2022.

   
Total
Change
   
Change Due to
 
(in thousands)
   
2023/2022
   
Volume
   
Rate
 
Interest income:
                   
Loans
 
$
61,164
   
$
17,147
   
$
44,017
 
Loans held for sale
   
(63
)
   
(55
)
   
(8
)
U.S. Treasury and agencies
   
2,670
     
(2,122
)
   
4,792
 
Tax exempt state and political subdivisions
   
(227
)
   
(426
)
   
199
 
Other securities
   
2,898
     
(440
)
   
3,338
 
Federal Reserve Bank and Federal Home Loan Bank stock
   
156
     
(68
)
   
224
 
Federal funds sold
   
(6
)
   
(6
)
   
0
 
Interest bearing deposits
   
4,484
     
(275
)
   
4,759
 
Other investments
   
0
     
0
     
0
 
Investment in unconsolidated subsidiaries
   
67
     
0
     
67
 
Total interest income
   
71,143
     
13,755
     
57,388
 
                         
Interest expense:
                       
Savings and demand deposits
   
35,810
     
1,007
     
34,803
 
Time deposits
   
21,289
     
335
     
20,954
 
Repurchase agreements and federal funds purchased
   
6,454
     
(223
)
   
6,677
 
Advances from Federal Home Loan Bank
   
984
     
917
     
67
 
Long-term debt
   
2,314
     
241
     
2,073
 
Finance lease liability
   
49
     
67
     
(18
)
Total interest expense
   
66,900
     
2,344
     
64,556
 
                         
Net interest income
 
$
4,243
   
$
11,411
   
$
(7,168
)

For purposes of the above table, changes which are due to both rate and volume are allocated based on a percentage basis, using the absolute values of rate and volume variance as a basis for percentages.  Income is stated at a fully taxable equivalent basis, using a 24.95% tax rate.

Net Interest Income

(dollars in thousands)
Year Ended December 31
 
2023
   
2022
   
Percent Change
 
Components of net interest income:
                 
Income on earning assets
 
$
268,650
   
$
197,742
     
35.9
%
Expense on interest bearing liabilities
   
95,540
     
28,640
     
233.6
%
Net interest income
   
173,110
     
169,102
     
2.4
%
TEQ
   
1,191
     
956
     
24.6
%
Net interest income, tax equivalent
 
$
174,301
   
$
170,058
     
2.5
%
                         
Average yield and rates paid:
                       
Earning assets yield
   
5.15
%
   
3.87
%
   
33.1
%
Rate paid on interest bearing liabilities
   
2.72
%
   
0.85
%
   
220.0
%
Gross interest margin
   
2.43
%
   
3.02
%
   
(19.6
)%
Net interest margin
   
3.32
%
   
3.32
%
   
0.0
%
                         
Average balances:
                       
Investment securities
 
$
1,203,470
   
$
1,402,052
     
(14.2
)%
Loans
 
$
3,888,585
   
$
3,552,941
     
9.4
%
Earning assets
 
$
5,244,128
   
$
5,129,345
     
2.2
%
Interest-bearing liabilities
 
$
3,514,142
   
$
3,351,221
     
4.9
%

Net interest income for the year ended December 31, 2023 of $173.1 million increased $4.0 million, or 2.4%, from prior year with an increase in average earning assets for the year 2023 of $114.8 million, or 2.2%.  Our yield on average earning assets for the year 2023 increased 128 basis points from prior year, and our cost of interest bearing funds increased 187 basis points during the same time period.  Our net interest margin, on a fully tax equivalent basis, for the year 2023 remained at 3.32% from the year ended December 31, 2022.  Noninterest bearing deposits decreased $134.2 million over prior year.  Average loans to deposits, including repurchase agreements, for the year ended December 31, 2023 were 81.5% compared to 75.8% for the year ended December 31, 2022.

Provision for Credit Losses

Provision for credit losses for the year 2023 was $6.8 million compared to $4.9 million during the year 2022.  See below for discussion of our allowance for credit losses.

Noninterest Income

(dollars in thousands)
Year Ended December 31
 
2023
   
2022
   
Percent
Change
 
Deposit service charges
 
$
29,935
   
$
29,049
     
3.0
%
Trust revenue
   
13,025
     
12,394
     
5.1
%
Gains on sales of loans
   
395
     
1,525
     
(74.1
)%
Loan related fees
   
3,792
     
6,185
     
(38.7
)%
Bank owned life insurance revenue
   
3,517
     
2,708
     
29.8
%
Brokerage revenue
   
1,473
     
1,846
     
(20.2
)%
Other
   
5,522
     
4,209
     
31.2
%
Total noninterest income
 
$
57,659
   
$
57,916
     
(0.4
)%

Noninterest income for the year 2023 was $57.7 million compared to $57.9 million for the year 2022.  Noninterest income was impacted year over year by a $2.4 million decline in loan related fees, a $1.1 million decline in gains on sales of loans, and a $0.4 million decline in brokerage revenue, offset by increases of $0.9 million in deposit related fees, $0.6 million in trust revenue, $1.2 million in securities gains, and $0.8 million in bank owned life insurance revenue.

Noninterest Expense

(dollars in thousands)
Year Ended December 31
 
2023
   
2022
   
Percent
Change
 
Salaries
 
$
51,283
   
$
48,934
     
4.8
%
Employee benefits
   
22,428
     
23,556
     
(4.8
)%
Net occupancy and equipment
   
11,843
     
11,083
     
6.9
%
Data processing
   
9,726
     
8,910
     
9.2
%
Legal and professional fees
   
3,350
     
3,434
     
(2.4
)%
Advertising and marketing
   
3,214
     
3,005
     
7.0
%
Taxes other than property and payroll
   
1,706
     
1,570
     
8.7
%
Net other real estate owned expense
   
350
     
456
     
(23.4
)%
Other
   
21,490
     
20,123
     
6.8
%
Total noninterest expense
 
$
125,390
   
$
121,071
     
3.6
%

Noninterest expense for the year 2023 was $125.4 million compared to $121.1 million for the year 2022 with increases of $1.2 million in personnel expense, $0.8 million in occupancy and equipment, $0.8 million in data processing expense, $1.0 million in FDIC insurance premiums, and $0.4 million in telephone expense.
 
In recognition of our employees’ significant efforts, the Compensation Committee of the Board of Directors authorized a discretionary gift/payment to all full-time employees hired prior to July 1, 2023 of $1000 and all full-time employees hired after June 30, 2023 of $500.  The Committee also authorized a discretionary gift/payment to our Executive Committee and other members of senior management.  This discretionary gift/payment was paid on January 19, 2024 to all eligible employees.  This payment was accrued as of December 31, 2023 in the amount of $1.2 million.

* Please refer to our annual report on Form 10-K for the year ended December 31, 2022 for detailed income discussion related to the year 2021.

Balance Sheet Review

CTBI’s total assets at $5.8 billion increased $389.4 million, or 7.2%, from December 31, 2022.  Loans outstanding at December 31, 2023 were $4.1 billion, increasing $341.6 million, or 9.2%, year over year.  The increase in loans from prior year included a $114.9 million increase in the commercial loan portfolio, a $139.0 million increase in the residential loan portfolio, an $86.1 million increase in the indirect loan portfolio, and a $1.6 million increase in the consumer direct loan portfolio.  Our commercial real estate (“CRE”) non-residential portfolio consisted of 1,763 loans with a total balance of $783.5 million as of December 31, 2023.  Our CRE office portfolio as of December 31, 2023 consisted of 176 loans with a total balance of $87.3 million, or 10.0% of the total number of CRE non-residential loans and 11.14% of CRE non-residential total dollars outstanding.  CTBI’s investment portfolio decreased $91.5 million, or 7.3%, from December 31, 2022.  Deposits in other banks increased $135.2 million from December 31, 2022.  Deposits, including repurchase agreements, at $4.9 billion increased $308.3 million, or 6.6%, from December 31, 2022.

Shareholders’ equity at December 31, 2023 of $702.2 million was a $74.2 million, or 11.8%, increase from the $628.0 million at December 31, 2022.  Net unrealized losses on securities, net of tax, were $103.3 million at December 31, 2023, compared to $129.2 million at December 31, 2022.  Management has the ability and intent to hold these securities to recovery or maturity.  CTBI’s annualized dividend yield to shareholders as of December 31, 2023 was 4.20%.

Loans

(dollars in thousands)
 
December 31, 2023
 
Loan Category
 
Balance
   
Variance from Prior Year
   
Net (Charge-Offs)/ Recoveries
   
Nonperforming
   
ACL
 
Commercial:
                             
Hotel/motel
 
$
395,765
     
15.2
%
 
$
0
   
$
0
   
$
4,592
 
Commercial real estate residential
   
417,943
     
12.1
     
97
     
1,557
     
4,285
 
Commercial real estate nonresidential
   
778,637
     
2.1
     
393
     
2,950
     
7,560
 
Dealer floorplans
   
70,308
     
(9.3
)
   
0
     
0
     
659
 
Commercial other
   
321,082
     
2.8
     
(1,434
)
   
850
     
3,760
 
Total commercial
   
1,983,735
     
6.1
     
(944
)
   
5,357
     
20,856
 
                                         
Residential:
                                       
Real estate mortgage
   
937,524
     
13.6
     
(99
)
   
7,298
     
10,197
 
Home equity
   
147,036
     
22.0
     
(17
)
   
743
     
1,367
 
Total residential
   
1,084,560
     
14.7
     
(116
)
   
8,041
     
11,564
 
                                         
Consumer:
                                       
Consumer direct
   
159,106
     
1.0
     
(237
)
   
15
     
3,261
 
Consumer indirect
   
823,505
     
11.7
     
(1,952
)
   
555
     
13,862
 
Total consumer
   
982,611
     
9.8
     
(2,189
)
   
570
     
17,123
 
                                         
Total loans
 
$
4,050,906
     
9.2
%
 
$
(3,249
)
 
$
13,968
   
$
49,543
 

Total Deposits and Repurchase Agreements

(dollars in thousands)
 
2023
   
2022
   
Percent
Change
 
Noninterest bearing deposits
 
$
1,260,690
   
$
1,394,915
     
(9.6
)%
Interest bearing deposits
                       
Interest checking
   
123,927
     
112,265
     
10.4
%
Money market savings
   
1,525,537
     
1,348,809
     
13.1
%
Savings accounts
   
535,063
     
654,380
     
(18.2
)%
Time deposits
   
1,279,405
     
915,774
     
39.7
%
Repurchase agreements
   
225,245
     
215,431
     
4.6
%
Total interest bearing deposits and repurchase agreements
   
3,689,177
     
3,246,659
     
13.6
%
Total deposits and repurchase agreements
 
$
4,949,867
   
$
4,641,574
     
6.6
%

Average Deposits and Other Borrowed Funds

(in thousands)
 
2023
   
2022
 
Deposits:
           
Noninterest bearing deposits
 
$
1,343,917
   
$
1,398,778
 
Interest bearing deposits
   
128,061
     
104,631
 
Money market accounts
   
1,407,611
     
1,248,067
 
Savings accounts
   
600,981
     
667,367
 
Certificates of deposit of $100,000 or more
   
572,959
     
556,849
 
Certificates of deposit < $100,000 and other time deposits
   
498,625
     
470,877
 
Total deposits
   
4,552,154
     
4,446,569
 
                 
Other borrowed funds:
               
Repurchase agreements and federal funds purchased
   
219,591
     
243,102
 
Advances from Federal Home Loan Bank
   
18,494
     
898
 
Long-term debt
   
64,351
     
57,841
 
Finance lease liability
   
3,469
     
1,589
 
Total other borrowed funds
   
305,905
     
303,430
 
Total deposits and other borrowed funds
 
$
4,858,059
   
$
4,749,999
 

The maximum balance for federal funds purchased and repurchase agreements at any month-end during 2023 occurred at October 31, 2023, with a month-end balance of $235.0 million.  The maximum balance for federal funds purchased and repurchase agreements at any month-end during 2022 occurred at February 28, 2022, with a month-end balance of $277.9 million.

Asset Quality

CTBI’s total nonperforming loans were $14.0 million, or 0.34% of total loans, at December 31, 2023 compared to $15.3 million, or 0.41% of total loans, at December 31, 2022.  Prior year nonperforming loans, as previously reported, exclude troubled debt restructurings (“TDRs”) which have been eliminated in the current period due to implementation of Accounting Standard Update 2022-02.  Accruing loans 90+ days past due increased $1.4 million from December 31, 2022, while nonaccrual loans decreased $2.8 million from December 31, 2022.  Accruing loans 30-89 days past due at $15.3 million were relatively flat to December 31, 2022.  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, TDR, nonaccrual status, and adequate loan loss reserves.  The Loan Review Department has annually reviewed on average 97% of the outstanding commercial loan portfolio for the past three years.  The average annual review percentage of the consumer and residential loan portfolio for the past three years was 83% based on the loan production during the number of months included in the review scope.  The review scope is generally four to six months of production.  CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.

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

          Our level of foreclosed properties at $1.6 million at December 31, 2023 was a decrease of $2.1 million from the $3.7 million at December 31, 2022.  Sales of foreclosed properties for the year ended December 31, 2023 totaled $2.5 million while new foreclosed properties totaled $0.7 million.  Nonperforming assets to loans and foreclosed properties at December 31, 2023 were 0.4% compared to 0.5% at December 31, 2022.

Net loan charge-offs were $3.2 million, 0.08% of average loans annualized, for the year ended December 31, 2023, compared to $0.7 million, 0.02% of average loans annualized, for the year ended December 31, 2022.

Allowance for Credit Losses

Our reserve coverage (allowance for credit losses to nonperforming loans) at December 31, 2023 was 354.7% compared to 300.4% at December 31, 2022.  Nonaccrual loans to total loans at December 31, 2023 was 0.1% compared to 0.2% at December 31, 2022.  Our allowance for credit losses to nonaccrual loans at December 31, 2023 was 1,223.9% compared to 674.9% at December 31, 2022.  Our credit loss reserve as a percentage of total loans outstanding at December 31, 2023 was 1.22%, a decrease from the 1.24% at December 31, 2022.

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 December 31, 2023, we had approximately $271.4 million in cash and cash equivalents and approximately $157.5 million in unpledged securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $128.7 million and $309.2 million at December 31, 2022.  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 $0.3 million at December 31, 2023 compared to $0.4 million at December 31, 2022.  As of December 31, 2023, we had a $476.2 million available borrowing position with the Federal Home Loan Bank.  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 December 31, 2023, we had $50 million in lines of credit with various correspondent banks available to meet any future cash needs compared to $75 million at December 31, 2022.  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 December 31, 2023 were deposits with the Federal Reserve of $207.6 million, compared to $72.6 million at December 31, 2022.  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 December 31, 2023, available-for-sale (“AFS”) securities comprised all of the total investment portfolio, and the AFS portfolio was approximately 166% of equity capital.  Eighty-eight percent of the pledge-eligible portfolio was pledged.

Contractual Commitments

Our significant contractual obligations and commitments as of December 31, 2023 include debt, lease, and purchase obligations.  As disclosed in the notes to the consolidated financial statements, we have certain obligations and commitments to make future payments under contracts.

As of December 31, 2023, our outstanding balance on long-term debt was $64.2 million, which includes junior subordinated debentures of $57.8 million and loan related borrowings of $6.4 million.  The interest payments on long-term debt due in one year or less is $4.1 million, and interest payments on long-term debt due in more than one year is $28.1 million.  The interest on $57.8 million in junior subordinated debentures is calculated based on the three-month CME Term SOFR plus a tenor spread adjustment of 0.26161% plus 1.59% until its maturity of June 1, 2037.  The three-month CME Term SOFR rate is projected using the most likely rate forecast from assumptions incorporated in the interest rate risk model and is determined two business days prior to the interest payment date.  The interest on the $6.4 million in loan related borrowings is based on a fixed rate of 3.25%.  Repayment of the liability will be provided by the loan payments made by the loan customer.  This principal amount is also guaranteed by the Small Business Administration.  Interest on long-term debt assumes the liability will not be prepaid and interest is calculated to maturity.  These assumptions are uncertain, and as a result, the actual payments will differ from the projection due to changes in economic conditions. Refer to note 10 to the consolidated financial statements contained herein for additional information regarding long-term debt.

On March 5, 2021, LIBOR’s administrator, ICE Benchmarks Administration, announced that LIBOR would no longer be provided (i) for the one-week and two-month U.S. dollar settings after December 31, 2021 and (ii) for the remaining U.S. dollar settings after June 30, 2023. The U.S. federal banking agencies issued supervisory guidance encouraging banks to stop entering into new contracts that use LIBOR as a reference rate after December 31, 2021.  In addition, on March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law.  The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a clearly defined replacement benchmark rate.  As directed by the LIBOR Act, on December 16, 2022, the Federal Reserve Board issued a final rule setting forth regulations to implement the LIBOR Act, including establishing benchmark replacements based on the Secured Overnight Funding Rate for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR (the overnight and one-, three-, six-, and twelve-month tenors) and that do not have terms that provide for the use of a clearly defined and predictable replacement benchmark rate (“fallback provisions”) following the first London banking day after June 30, 2023.  We have analyzed our financial exposure related to the discontinuation of LIBOR and consider our exposure to be insignificant.

As of December 31, 2023, our remaining contractual commitment for operating and finance leases due in one year or less is $2.0 million and operating leases due in more than one year is $21.4 million.  Refer to note 15 to the consolidated financial statements contained herein for additional information regarding leases.

Commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.   As of December 31, 2023, the commitments due in one year or less for other commitments is $730.4 million and commitments due in more than one year is $305.6 million.  Refer to note 17 to the consolidated financial statements contained herein for additional information regarding other commitments.

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.  As of December 31, 2023, the value of our non-cancellable unconditional purchase obligations was $9.8 million.

These contractual obligations impact our liquidity and capital resource needs.  We believe our liquidity sources as mentioned in the liquidity discussion are adequate to meet our future cash requirements.

Investment Maturities

   
Estimated Maturity at December 31, 2023
 
   
Within 1 Year
   
1-5 Years
   
5-10 Years
   
After 10 Years
   
Total Fair Value
   
Amortized Cost
 
(in thousands)
 
Amount
   
Yield
   
Amount
   
Yield
   
Amount
   
Yield
   
Amount
   
Yield
   
Amount
   
Yield
   
Amount
 
U.S. Treasury, government agencies, and government sponsored agency mortgage-backed securities
 
$
25,996
     
2.66
%
 
$
336,805
     
1.31
%
 
$
61,380
     
4.11
%
 
$
387,372
     
2.25
%
 
$
811,553
     
2.01
%
 
$
900,104
 
State and political subdivisions
   
3,782
     
3.66
     
22,458
     
2.90
     
100,655
     
2.12
     
138,050
     
2.49
     
264,945
     
2.40
     
313,147
 
Asset-backed securities
   
0
     
0.00
     
0
     
0.00
     
68,053
     
7.01
     
19,173
     
6.39
     
87,226
     
6.88
     
87,993
 
Total
 
$
29,778
     
2.79
%
 
$
359,263
     
1.41
%
 
$
230,088
     
4.10
%
 
$
544,595
     
2.46
%
 
$
1,163,724
     
2.47
%
 
$
1,301,244
 

The calculations of the weighted average yields for each maturity category are based upon yield weighted by the respective costs of the securities.  The weighted average rates on state and political subdivisions are computed on a taxable equivalent basis using a 24.95% tax rate.

Loan Maturities

The following table shows the amounts of loans (excluding residential mortgages of 1-4 family residences, consumer loans, and lease financing) which, based on the remaining scheduled repayments of principal are due in the periods indicated.  Also, the amounts are classified according to sensitivity to changes in interest rates (fixed, variable).

CTB has changed the origination process on commercial and residential construction loans to be almost exclusively construction to permanent financing with only one note.  This change is resulting in a greater number of loans showing in the after five year maturity for construction loans, even though those loans will be converted from construction loans to permanent financing by a change in the internal coding on the loans while the maturity date remains the same.

   
Maturity at December 31, 2023
 
(in thousands)
 
Within
one year
   
After one
but within
five years
   
After
five years
   
Total
 
Commercial secured by real estate and commercial other
 
$
225,512
   
$
163,087
   
$
1,423,460
   
$
1,812,059
 
Commercial and real estate construction
   
70,070
     
23,270
     
193,066
     
286,406
 
   
$
295,582
   
$
186,357
   
$
1,616,526
   
$
2,098,465
 
                                 
Rate sensitivity:
                               
Predetermined rate
 
$
52,585
   
$
86,552
   
$
73,797
   
$
212,934
 
Adjustable rate
   
242,997
     
99,805
     
1,542,729
     
1,885,531
 
   
$
295,582
   
$
186,357
   
$
1,616,526
   
$
2,098,465
 

Deposit Maturities

Maturities and/or repricing of time deposits of $100,000 or more outstanding at December 31, 2023 are summarized as follows:

(in thousands)
 
Certificates of Deposit
   
Other Time Deposits
   
Total
 
Three months or less
 
$
165,959
   
$
7,721
   
$
173,680
 
Over three through six months
   
246,052
     
24,859
     
270,911
 
Over six through twelve months
   
241,584
     
18,360
     
259,944
 
Over twelve through sixty months
   
50,627
     
11,529
     
62,156
 
Over sixty
   
0
     
0
     
0
 
   
$
704,222
   
$
62,469
   
$
766,691
 

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.

The following table shows our estimated earnings sensitivity profile as of December 31, 2023:

Change in Interest Rates
(basis points)
Percentage Change in Net Interest Income
(12 Months)
+400
11.50%
+300
8.89%
+200
6.29%
+100
3.65%
-100
(0.67)%
-200
(2.41)%
-300
(4.06)%
-400
(5.68)%

The following table shows our estimated earnings sensitivity profile as of December 31, 2022:

Change in Interest Rates
(basis points)
Percentage Change in Net Interest Income
(12 Months)
+400
9.98%
+300
7.26%
+200
4.60%
+100
1.94%
-100
(1.95)%
-200
(3.92)%
-300
(5.96)%
-400
(7.91)%

The simulation model used the yield curve spread evenly over a twelve-month period.  The measurement at December 31, 2023 estimates that our net interest income in an up-rate environment would increase by 11.50% at a 400 basis point change, increase by 8.89% at a 300 basis point change, increase by 6.29% at a 200 basis point change, and increase by 3.65% at a 100 basis point change.  In a down-rate environment, net interest income would decrease 0.67% at a 100 basis point change, decrease by 2.41% at a 200 basis point change, decrease by 4.06% at a 300 basis point change, and decrease by 5.68% at a 400 basis point change over one year.  We actively manage our balance sheet and limit our exposure to long-term fixed rate financial instruments, including loans.  In order to reduce the exposure to interest rate fluctuations and to manage liquidity, we have developed sale procedures for several types of interest-sensitive assets.  Primarily all long-term, fixed rate single family residential mortgage loans underwritten according to Federal Home Loan Mortgage Corporation guidelines are sold for cash upon origination or originated under terms where they could be sold.  Periodically, additional assets such as commercial loans are also sold.  In 2023 and 2022, proceeds of $15.2 million and $66.0 million, respectively, were realized on the sale of fixed rate residential mortgages.  We focus our efforts on consistent net interest revenue and net interest margin growth through each of the retail and wholesale business lines.  We do not currently engage in trading activities.

The preceding analysis was prepared using a rate ramp analysis which attempts to spread changes evenly over a specified time period as opposed to a rate shock which measures the impact of an immediate change.  Had these measurements been prepared using the rate shock method, the results would vary.

Capital Resources

We continue to grow our shareholders’ equity while also providing an annual dividend yield for the year 2023 of 4.10% to shareholders.  Shareholders’ equity increased 11.8% from December 31, 2022 to $702.2 million at December 31, 2023.  Our primary source of capital growth is the retention of earnings.  Cash dividends were $1.80 per share for 2023 compared to $1.68 per share for 2022.  We retained 58.7% of our earnings in 2023 compared to 63.4% in 2022.

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.  Management elected to use the CBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of December 31, 2023 was 13.69%.  CTB’s CBLR ratio as of December 31, 2023 was 13.22%.

As of December 31, 2023, 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.

Stock Repurchase Program

CTBI’s stock repurchase program began in December 1998 with the authorization to acquire up to 500,000 shares and was increased by an additional 1,000,000 shares in each of July 2000, May 2003, and March 2020.  As of December 31, 2023, a total of 2,465,294 shares have been repurchased through this program, leaving 1,034,706 shares remaining under our current repurchase authorization.  The following table shows Board authorizations and repurchases made through the stock repurchase program for the years 1998 through 2023:

 
Board Authorizations
Repurchases*
Shares Available for
Repurchase
 
Average Price ($)
# of Shares
1998
500,000
-
0
 
1999
0
14.45
144,669
 
2000
1,000,000
10.25
763,470
 
2001
0
13.35
489,440
 
2002
0
17.71
396,316
 
2003
1,000,000
19.62
259,235
 
2004
0
23.14
60,500
 
2005
0
-
0
 
2006
0
-
0
 
2007
0
28.56
216,150
 
2008
0
25.53
102,850
 
2009-2019
0
-
0
 
2020
1,000,000
33.64
32,664
 
2021
0
-
0
 
2022
0
-
0
 
2023
0
-
0
 
Total
3,500,000
16.17
2,465,294
1,034,706

*Repurchased shares and average prices have been restated to reflect stock dividends that have occurred; however, board authorized shares have not been adjusted.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted.  Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations like CTBI.  With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

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.

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

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

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

CTBI maintains the ACL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans.  Effective January 1, 2023, CTBI implemented ASU 2022-02, Financial Instruments-Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, an amendment to ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The amendments in this ASU eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty along with requiring that disclosures be added by year of origination for gross charge-off information for financing receivables.  Accrued interest receivable on loans is presented in the consolidated financial statements as a component of other assets.  When accrued interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed.  In the event that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest in a timely manner.  Therefore, CTBI elected ASU 2019-04 which allows that accrued interest would continue to be presented separately and not part of the amortized cost of the loan.  For additional information on CTBI’s accounting policies related to nonaccrual loans, refer to note 1 to the consolidated financial statements contained herein.

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

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

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

Expected credit losses are estimated on a collective basis for loans that are not individually evaluated.  These include commercial loans that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and consumer portfolio segments.  CTBI uses a third party ACL software to calculate reserve estimates.  Discounted cash flow (“DCF”) modeling was used for all loan segments.  The primary reasons that contributed to this decision were: DCF models allow for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner; the analysis aligns well with other calculations outside of the ACL estimation which will mitigate model risk in other areas; and peer data is available for certain inputs if first party data is not available or meaningful.  Expected credit losses are estimated on a collective basis for loans that are not individually evaluated.  These include commercial loans that do not meet the criteria for individual evaluation as well as homogeneous loans in the residential mortgage and consumer portfolio segments.   See note 4 to the consolidated financial statements contained herein for information on CTBI’s risk rating system.

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

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

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

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

Goodwill – Business combinations entered into by CTBI typically include the recognition of goodwill.  U.S. generally accepted accounting principles (“GAAP”) require goodwill to be tested for impairment on an annual basis, which for CTBI is October 1, and more frequently if events or circumstances indicate that there may be impairment.  Refer to note 1 to the consolidated financial statements contained herein for a discussion on the methodology used by CTBI to assess goodwill for impairment.

Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value.  In testing goodwill for impairment, U.S. GAAP permits companies to first assess qualitative factors to determine whether it is more likely than not that its fair value is less than its carrying amount.  In this qualitative assessment, CTBI evaluates events and circumstances which may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of CTBI, and the performance of CTBI’s common stock, to determine if it is not more likely than not that the fair value is less than its carrying amount.  If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, CTBI performs the goodwill impairment test by comparing its fair value with its carrying amount, including goodwill.  If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill recorded.  A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers.

The fair value of CTBI is the price that would be received to sell the company as a whole in an orderly transaction between market participants at the measurement date.  The determination of the fair value is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium.  CTBI employs an income-based approach, utilizing forecasted cash flows and the estimated cost of equity as the discount rate.  Significant management judgment is necessary in the preparation of the forecasted cash flows surrounding expectations for earnings projections, growth and credit loss expectations, and actual results may differ from forecasted results.

Fair Value Measurements – As a financial services company, the carrying value of certain financial assets and liabilities is impacted by the application of fair value measurements, either directly or indirectly.  In certain cases, an asset or liability is measured and reported at fair value on a recurring basis, such as available-for-sale investment securities.  In other cases, management must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment write-down or whether a valuation reserve should be established.  Given the inherent volatility, the use of fair value measurements may have a significant impact on the carrying value of assets or liabilities or result in material changes to the consolidated financial statements from period to period.  Detailed information regarding fair value measurements can be found in note 16 to the consolidated financial statements contained herein.

Item 7A.
Quantitative and Qualitative Disclosures about Market Risk

CTBI currently does not engage in any hedging activity or any derivative activity which management considers material.  Analysis of CTBI’s interest rate sensitivity can be found in the Interest Rate Risk section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 8.
Financial Statements and Supplementary Data

Community Trust Bancorp, Inc.
Consolidated Balance Sheets

(dollars in thousands)
December 31
 
2023
   
2022
 
Assets:
           
Cash and due from banks
 
$
58,833
   
$
51,306
 
Interest bearing deposits
   
212,567
     
77,380
 
Cash and cash equivalents
   
271,400
     
128,686
 
                 
Certificates of deposit in other banks
   
245
     
245
 
Debt securities available-for-sale at fair value (amortized cost of $1,301,244 and $1,430,605, respectively)
   
1,163,724
     
1,256,226
 
Equity securities at fair value
   
3,158
     
2,166
 
Loans held for sale
   
152
     
109
 
                 
Loans
   
4,050,906
     
3,709,290
 
Allowance for credit losses    
(49,543
)
   
(45,981
)
Net loans
   
4,001,363
     
3,663,309
 
                 
Premises and equipment, net
   
45,311
     
42,633
 
Operating right-of-use assets
   
12,607
     
13,809
 
Finance right-of-use assets
    3,096       3,262  
Federal Home Loan Bank stock
   
4,712
     
6,676
 
Federal Reserve Bank stock
   
4,887
     
4,887
 
Goodwill
   
65,490
     
65,490
 
Bank owned life insurance
   
101,461
     
92,746
 
Mortgage servicing rights
   
7,665
     
8,468
 
Other real estate owned
   
1,616
     
3,671
 
Deferred tax asset
    28,141       39,878  
Accrued interest receivable
   
23,575
     
19,592
 
Other assets
   
31,093
     
28,463
 
Total assets
 
$
5,769,696
   
$
5,380,316
 
                 
Liabilities and shareholders’ equity:
               
Deposits:
               
Noninterest bearing
 
$
1,260,690
   
$
1,394,915
 
Interest bearing
   
3,463,932
     
3,031,228
 
Total deposits
   
4,724,622
     
4,426,143
 
                 
Repurchase agreements
   
225,245
     
215,431
 
Federal funds purchased
   
500
     
500
 
Advances from Federal Home Loan Bank
   
334
     
355
 
Long-term debt
   
64,241
     
57,841
 
Operating lease liability
   
12,958
     
14,160
 
Finance lease liability
   
3,435
     
3,468
 
Accrued interest payable
   
7,389
     
2,237
 
Other liabilities
   
28,764
     
32,134
 
Total liabilities
   
5,067,488
     
4,752,269
 
                 
Commitments and contingencies (notes 17 and 19)
    -
      -
 
                 
Shareholders’ equity:
               
Preferred stock, 300,000 shares authorized and unissued
   
-
     
-
 
Common stock, $5.00 par value, shares authorized 25,000,000; shares outstanding 2023 – 17,999,840; 2022 – 17,918,280
   
89,999
     
89,591
 
Capital surplus
   
231,130
     
229,012
 
Retained earnings
   
484,400
     
438,596
 
Accumulated other comprehensive loss, net of tax
   
(103,321
)
   
(129,152
)
Total shareholders’ equity
   
702,208
     
628,047
 
                 
Total liabilities and shareholders’ equity
 
$
5,769,696
   
$
5,380,316
 

See notes to consolidated financial statements.
Consolidated Statements of Income and Comprehensive Income (Loss)

(in thousands except per share data)
Year Ended December 31
 
2023
   
2022
   
2021
 
Interest income:
                 
Interest and fees on loans, including loans held for sale
 
$
230,844
   
$
169,885
   
$
160,198
 
Interest and dividends on securities:
                       
Taxable
   
27,263
     
21,695
     
13,981
 
Tax exempt
   
2,678
     
2,998
     
3,098
 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
   
759
     
603
     
486
 
Interest on Federal Reserve Bank deposits
   
6,831
     
2,439
     
372
 
Other, including interest on federal funds sold
   
275
     
122
     
34
 
Total interest income
   
268,650
     
197,742
     
178,169
 
                         
Interest expense:
                       
Interest on deposits
   
81,167
     
24,068
     
12,753
 
Interest on repurchase agreements and federal funds purchased
   
8,994
     
2,540
     
1,254
 
Interest on advances from Federal Home Loan Bank
   
1,004
     
20
     
0
 
Interest on long-term debt
   
4,375
     
2,012
     
1,083
 
Total interest expense
   
95,540
     
28,640
     
15,090
 
                         
Net interest income
   
173,110
     
169,102
     
163,079
 
Provision for credit losses (recovery)    
6,811
     
4,905
     
(6,386
)
Net interest income after provision for credit losses (recovery)    
166,299
     
164,197
     
169,465
 
                         
Noninterest income:
                       
Deposit related fees
   
29,935
     
29,049
     
26,529
 
Gains on sales of loans, net
   
395
     
1,525
     
6,820
 
Trust and wealth management income
   
13,025
     
12,394
     
12,644
 
Loan related fees
   
3,792
     
6,185
     
5,578
 
Bank owned life insurance
   
3,517
     
2,708
     
2,844
 
Brokerage revenue
   
1,473
     
1,846
     
1,962
 
Securities gains (losses)
   
996
     
(168
)
   
(158
)
Other noninterest income
   
4,526
     
4,377
     
4,244
 
Total noninterest income
   
57,659
     
57,916
     
60,463
 
                         
Noninterest expense:
                       
Officer salaries and employee benefits
   
15,206
     
15,922
     
19,713
 
Other salaries and employee benefits
   
58,505
     
56,568
     
54,401
 
Occupancy, net
   
8,900
     
8,380
     
8,306
 
Equipment
   
2,943
     
2,703
     
2,548
 
Data processing
   
9,726
     
8,910
     
8,039
 
Bank franchise tax
   
1,649
     
1,528
     
1,705
 
Legal fees
   
1,131
     
1,159
     
1,160
 
Professional fees
   
2,219
     
2,275
     
2,039
 
Advertising and marketing
   
3,214
     
3,005
     
2,928
 
FDIC insurance
   
2,483
     
1,447
     
1,381
 
Other real estate owned provision and expense
   
350
     
456
     
1,401
 
Repossession expense
   
531
     
546
     
344
 
Amortization of limited partnership investments
   
2,638
     
2,853
     
3,352
 
Other noninterest expense
   
15,895
     
15,319
     
11,968
 
Total noninterest expense
   
125,390
     
121,071
     
119,285
 
                         
Income before income taxes
   
98,568
     
101,042
     
110,643
 
Income taxes
   
20,564
     
19,228
     
22,704
 
Net income
 
$
78,004
   
$
81,814
   
$
87,939
 
                         
Other comprehensive income (loss):
                       
Unrealized holding gains (losses) on debt securities available-for-sale:
                       
Unrealized holding gains (losses) arising during the period
   
36,863
     
(168,060
)
   
(24,827
)
Less: Reclassification adjustments for realized gains (losses) included in net income
   
4
     
(81
)
   
60
 
Tax expense (benefit)
   
11,028
     
(43,675
)
   
(6,471
)
Other comprehensive income (loss), net of tax
   
25,831
     
(124,304
)
   
(18,416
)
Comprehensive income (loss)
 
$
103,835
   
$
(42,490
)
 
$
69,523
 
                         
Basic earnings per share
 
$
4.36
   
$
4.59
   
$
4.94
 
Diluted earnings per share
 
$
4.36
   
$
4.58
   
$
4.94
 
                         
Weighted average shares outstanding-basic
   
17,887
     
17,836
     
17,786
 
Weighted average shares outstanding-diluted
   
17,900
     
17,851
     
17,804
 

See notes to consolidated financial statements.

Consolidated Statements of Changes in Shareholders’ Equity

(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, 2020
   
17,810,401
   
$
89,052
   
$
225,507
   
$
326,738
   
$
13,568
   
$
654,865
 
Net income
                           
87,939
             
87,939
 
Other comprehensive income (loss)
                                   
(18,416
)
   
(18,416
)
Cash dividends declared ($1.57 per share)
                           
(27,927
)
           
(27,927
)
Issuance of common stock
   
41,168
     
205
     
760
                     
965
 
Issuance of restricted stock
   
9,193
     
46
     
(46
)
                   
0
 
Vesting of restricted stock
   
(17,681
)
   
(88
)
   
88
                     
0
 
Stock-based compensation
                   
776
                     
776
 
Balance, December 31, 2021
   
17,843,081
     
89,215
     
227,085
     
386,750
     
(4,848
)
   
698,202
 
Net income
                           
81,814
             
81,814
 
Other comprehensive income (loss)
                                   
(124,304
)
   
(124,304
)
Cash dividends declared ($1.68 per share)
                           
(29,968
)
           
(29,968
)
Issuance of common stock
   
54,125
     
271
     
770
                     
1,041
 
Issuance of restricted stock
   
50,438
     
252
     
(252
)
                   
0
 
Vesting of restricted stock
    (29,364 )     (147 )     147                       0  
Stock-based compensation
                   
1,262
                     
1,262
 
Balance, December 31, 2022
   
17,918,280
     
89,591
     
229,012
     
438,596
     
(129,152
)
   
628,047
 
Net income
                            78,004               78,004  
Other comprehensive income (loss)
                                    25,831       25,831  
Cash dividends declared ($1.80 per share)
                            (32,200 )             (32,200 )
Issuance of common stock
    52,857       265       864                       1,129  
Issuance of restricted stock
    52,865       264       (264 )                     0  
Vesting of restricted stock
    (23,372 )     (117 )     117                       0  
Forfeiture of restricted stock
    (790 )     (4 )     4                          
Stock-based compensation
                    1,397                       1,397  
Balance, December 31, 2023     17,999,840     $ 89,999     $ 231,130     $ 484,400     $ (103,321 )   $ 702,208  

See notes to consolidated financial statements.

Consolidated Statements of Cash Flows

(in thousands)
Year Ended December 31
 
2023
   
2022
   
2021
 
Cash flows from operating activities:
                 
Net income
 
$
78,004
   
$
81,814
   
$
87,939
 
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
   
5,351
     
5,219
     
5,033
 
Deferred taxes
   
709
     
3,250
     
2,330
 
Stock-based compensation
   
1,576
     
1,366
     
850
 
Provision for credit losses (recovery)    
6,811
     
4,905
     
(6,386
)
Write-downs of other real estate owned and other repossessed assets
   
211
     
285
     
864
 
Gains on sale of loans held for sale
   
(395
)
   
(1,525
)
   
(6,820
)
Securities gains (losses)    
(4
)
   
81
     
(60
)
Fair value adjustment in equity securities
   
(992
)
   
87
     
218
 
Gains on sale of assets, net
   
(408
)
   
(354
)
   
(165
)
Proceeds from sale of mortgage loans held for sale
   
15,203
     
65,974
     
307,843
 
Funding of mortgage loans held for sale
   
(14,851
)
   
(61,926
)
   
(280,396
)
Amortization of securities premiums and discounts, net
   
2,658
     
5,466
     
8,010
 
Change in cash surrender value of bank owned life insurance
   
(2,361
)
   
(1,650
)
   
(1,873
)
Payment of operating lease liabilities
   
(1,560
)
   
(1,773
)
   
(1,693
)
Mortgage servicing rights:
                       
Fair value adjustments
   
965
     
(1,069
)
   
(428
)
New servicing assets created
   
(162
)
   
(625
)
   
(2,278
)
Changes in:
                       
Accrued interest receivable
   
(3,983
)
   
(4,177
)
   
403
 
Other assets
   
(2,630
)
   
2,507
     
4,918
 
Accrued interest payable
   
5,152
     
1,221
     
(227
)
Other liabilities
   
(3,562
)
   
608
     
(2,387
)
Net cash provided by operating activities
   
85,732
     
99,684
     
115,695
 
                         
Cash flows from investing activities:
                       
Certificates of deposit in other banks:
                       
Purchase of certificates of deposit
   
(245
)
   
0
     
0
 
Maturity of certificates of deposit
   
245
     
0
     
0
 
Securities available-for-sale (AFS):
                       
Purchase of AFS securities
   
(19,478
)
   
(179,627
)
   
(797,445
)
Proceeds from sales of AFS securities
   
21,529
     
11,462
     
1,080
 
Proceeds from prepayments, calls, and maturities of AFS securities
   
124,656
     
193,843
     
305,361
 
Change in loans, net
   
(344,217
)
   
(302,466
)
   
146,050
 
Purchase of premises and equipment
   
(6,322
)
   
(6,218
)
   
(2,373
)
Proceeds from sale and retirement of premises and equipment
   
375
     
620
     
830
 
Redemption of stock by Federal Home Loan Bank
   
1,964
     
1,463
     
1,909
 
Proceeds from sale of other real estate owned and repossessed assets
   
1,295
     
988
     
2,819
 
Additional investment in other real estate owned and repossessed assets
    (47 )     (73 )     0
 
Additional investment in bank owned life insurance
   
(6,690
)
   
0
     
(17,181
)
Proceeds from settlement of bank owned life insurance
   
336
     
1
     
330
 
Net cash used in investing activities
   
(226,599
)
   
(280,007
)
   
(358,620
)
                         
Cash flows from financing activities:
                       
Change in deposits, net
   
298,479
     
81,851
     
328,210
 
Change in repurchase agreements and federal funds purchased, net
   
9,814
     
(55,657
)
   
(84,774
)
Advances from Federal Home Loan Bank
   
225,000
     
45,000
     
0
 
Payments on advances from Federal Home Loan Bank
   
(225,021
)
   
(45,020
)
   
(20
)
Payment of finance lease liabilities
   
(33
)
   
(24
)
   
(19
)
Proceeds from long-term debt/other borrowings
    6,563       0       0  
Repayment of long-term debt/other borrowings
   
(163
)
   
0
     
0
 
Issuance of common stock
   
1,129
     
1,041
     
965
 
Dividends paid
   
(32,187
)
   
(29,938
)
   
(27,916
)
Net cash provided by (used in) financing activities
   
283,581
     
(2,747
)
   
216,446
 
Net increase (decrease) in cash and cash equivalents
   
142,714
     
(183,070
)
   
(26,479
)
Cash and cash equivalents at beginning of year
   
128,686
     
311,756
     
338,235
 
Cash and cash equivalents at end of year
 
$
271,400
   
$
128,686
   
$
311,756
 
                         
Supplemental disclosures:
                       
Income taxes paid
 
$
20,728
   
$
16,293
   
$
19,485
 
Interest paid
   
90,388
     
27,419
     
15,316
 
Non-cash activities:
                       
Loans to facilitate the sale of other real estate owned and repossessed assets
   
1,306
     
1,124
     
1,733
 
Common stock dividends accrued, paid in subsequent quarter
   
291
     
278
     
248
 
Real estate and assets acquired in settlement of loans
   
658
     
2,433
     
1,200
 
Right-of-use assets obtained in exchange for new operating/finance lease liabilities
    358
      5,539
      0
 

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

1.  Accounting Policies


Basis of Presentation – The consolidated financial statements include Community Trust Bancorp, Inc. (“CTBI”) and our subsidiaries, including our principal subsidiary, Community Trust Bank, Inc. (“CTB”).  Intercompany transactions and accounts have been eliminated in consolidation.


Nature of Operations – Substantially all assets, liabilities, revenues, and expenses are related to banking operations, including lending, investing of funds, obtaining of deposits, trust and wealth management operations, full service brokerage operations, and other financing activities.  All of our business offices and the majority of our business are located in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.


Use of Estimates – In preparing the consolidated financial statements, management must make certain estimates and assumptions.  These estimates and assumptions affect the amounts reported for assets, liabilities, revenues, and expenses, as well as affecting the disclosures provided.  Future results could differ from the current estimates.  Such estimates include, but are not limited to, the allowance for credit losses (“ACL”), goodwill, and the valuation of financial instruments.


The accompanying financial statements have been prepared using values and information currently available to CTBI.


Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the ACL, and capital.


Cash and Cash Equivalents – CTBI considers all liquid investments with original maturities of three months or less to be cash equivalents.  Cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits in other financial institutions, and federal funds sold.  Generally, federal funds are sold for one-day periods.


Certificates of Deposit in Other Banks – Certificates of deposit in other banks generally mature within 18 months and are carried at cost.


Investments – Management determines the classification of securities at purchase.  We classify debt securities into held-to-maturity, trading, or available-for-sale categories.  Held-to-maturity (“HTM”) securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost.  In accordance with Financial Accounting Standards Board (“FASB”) 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 HTM securities) shall be classified as available-for-sale (“AFS”) securities.


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



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



In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, we consider the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.  There were no credit related factors underlying unrealized losses on AFS debt securities at December 31, 2023 and 2022, therefore, no ACL for AFS securities was recorded.



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


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


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 December 31, 2023 and 2022, CTBI held no securities designated as HTM.


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


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


Leases – CTBI accounts for leases under ASC 842, recording a right-of-use asset and a lease liability for all leases with terms longer than 12 months.  The right-of-use asset represents the right to use the asset under lease for the lease term, and the lease liability represents the contractual obligation to make lease payments.  The right-of-use asset is tested for impairment whenever events or changes in circumstances indicate the carrying value might not be recoverable.  Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated income statement.  A lease is treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor does not convey risks and rewards or control, an operating lease results.  Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate, on a collateralized basis, over a similar term at the lease commencement date and may be re-measured for certain modifications or the company’s exercise of options (renewal, extension, or termination) under the lease.  Right-of-use assets are further adjusted for prepaid rent, lease incentives, and initial direct costs, if any.  Expenses are recognized through occupancy expense.


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



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



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


We utilize an internal risk grading system for commercial credits.  Those credits that meet the following criteria are subject to individual evaluation:  the loan has an outstanding bank share balance of $1 million or greater and meets one of the following criteria: (i) has a criticized risk rating, (ii) is in nonaccrual status, (iii) the borrower is experiencing financial difficulty with significant payment delay, or (iv) is 90 days or more past due. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. 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 that are categorized as individually evaluated based on the criteria listed above, 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 (five monthly payments) delinquent.  If a loan is considered uncollectable, it is charged off earlier than 120 days delinquent. For conventional 1-4 family residential loans and installment and revolving loans secured by real estate, when a loan is 90 days past due, a current assessment of the value of the real estate is made. If the balance of the loan exceeds the fair value of the property, the loan is placed on nonaccrual. Foreclosure proceedings are normally initiated after 120 days. When the foreclosed property has been legally assigned to CTBI, the fair value less estimated costs to sell is transferred to other real estate owned and the remaining balance is taken as a charge-off.


Prior to June 30, 2023, loss rate methodologies were used by CTBI.  Weighted average life 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, and static pool modeling was used to determine the life of loan losses for commercial loan segments.  Historical loss rates for loans were adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition.  Forecasting factors including unemployment rates and industry specific forecasts for industries in which our total exposure is 5% of capital or greater were also included as factors in the ACL model.



During the quarter ended June 30, 2023, CTBI implemented third party software and the determination was made to utilize discounted cash flow loss rate methodologies for all loan segments.  Within the discount cash flow calculation, an effective yield of the instrument is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows.   The expected cash flows were modeled considering probability of default and segment-specific loss given default (“LGD”) risk factors, utilizing the software’s proprietary database of financial institutions’ filings, evaluated first by geography and asset size and then with the utilization of standard deviations, to assure relevance to CTBI’s loan segments along with CTBI’s own loss history.  Cash flows are then discounted at that effective yield to produce an instrument-level net present value (“NPV”) of expected cash flows.  An ACL is established for the difference between the instrument’s NPV and amortized cost basis.  Any changes in NPV between periods is recorded as provision for credit losses.  The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions.  Management incorporates qualitative factors to loss estimates used to derive CTBI’s total ACL including delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, and underwriting exceptions.  Forecast factors were expanded to include gross domestic product, retail and food service sales, and S&P/Case-Shiller US National Home Price Index, while industry concentrations was added as a qualitative factor.  Management continually reevaluates the other subjective factors included in our ACL analysis.


Loans Held for Sale – Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses, if any, are recognized by charges to income. Gains and losses on loan sales are recorded in noninterest income.


Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization. Premises and equipment are evaluated for impairment on a quarterly basis.


Depreciation and amortization are computed primarily using the straight-line method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years for furniture, fixtures, and equipment, and up to the lease term for leasehold improvements.


Federal Home Loan Bank and Federal Reserve Stock – CTB is a member of the Federal Home Loan Bank (“FHLB”) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery par value.  Both cash and stock dividends are reported as income.


CTB is also a member of its regional Federal Reserve Bank. Federal Reserve Bank stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery par value.  Both cash and stock dividends are reported as income.


Troubled Debt Restructurings – With the implementation of ASU 2022-02 described below in the New Accountings Standards, troubled debt restructurings (“TDRs”) have been eliminated while enhanced disclosure requirements have been implemented for certain loan modifications when a borrower is experiencing financial difficulty.  Prior to the implementation of this ASU as of January 1, 2023, TDRs were certain loans that had been modified where economic concessions had been granted to borrowers who had experienced financial difficulties.  These concessions typically resulted from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.  Modifications of terms for our loans and their inclusion as TDRs were based on individual facts and circumstances.  Loan modifications that were included as TDRs involved either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal and/or interest payments, regardless of the period of the modification.  All of the loans identified as TDR were modified due to financial stress of the borrower.  In order to determine if a borrower was experiencing financial difficulty, an evaluation was performed to determine the probability that the borrower would be in payment default on any of its debt in the foreseeable future without the modification.  This evaluation was performed under CTBI’s internal underwriting policy.


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


Other Real Estate Owned – When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current fair value less expected sales costs. Additionally, periodic updated appraisals are obtained on unsold foreclosed properties. When an updated appraisal reflects a fair value below the current book value, a charge is booked to current earnings to reduce the property to its new fair 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.


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


The balance of goodwill, at $65.5 million, has not changed since January 1, 2015. Our core deposit intangible has been fully amortized since December 31, 2017.


Transfers of Financial Assets – Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from CTBI—put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) CTBI does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.


Revenue Recognition – The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, and investment securities, as well as revenue related to our mortgage banking activities, as these activities are subject to other generally accepted accounting principles (“GAAP”) discussed elsewhere within our disclosures.  Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows:


Service charges on deposit accounts represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue, or some other individual attribute-based revenue.  Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed.  Payment for such performance obligations is generally received at the time the performance obligations are satisfied.


Trust and wealth management income represents monthly or quarterly fees due from wealth management customers as consideration for managing the customers’ assets. Wealth management and trust services include custody of assets, investment management, escrow services, fees for trust services, and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month or quarter, which is generally the time that payment is received.


Brokerage revenue is either fee based and collected upon the settlement of the transaction or commission based and recognized when our performance obligation is completed each month or quarter, which is generally the time that payment is received. Other sales, such as life insurance, generate commissions from other third parties. These fees are generally collected monthly.


Other noninterest income primarily includes items such as letter of credit fees, gains on sale of loans held for sale, and servicing fees related to mortgage and commercial loans, none of which are subject to the requirements of ASC 606.


Advertising Expense – It is CTBI’s policy to expense advertising costs in the period in which they are incurred.



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 our consolidated financial statements.  During the years ended December 31, 2023, 2022, and 2021, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.


Earnings Per Share (“EPS”) – Basic EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding, excluding restricted shares.


Diluted EPS adjusts the number of weighted average shares of common stock outstanding by the dilutive effect of stock options, including restricted shares, as prescribed in ASC 718, Share-Based Payment.


Segments – Management analyzes the operation of CTBI assuming one operating segment, community banking services.  CTBI, through our operating subsidiaries, offers a wide range of consumer and commercial community banking services.  These services include: (i) residential and commercial real estate loans; (ii) checking accounts; (iii) regular and term savings accounts and savings certificates; (iv) full service securities brokerage services; (v) consumer loans; (vi) debit cards; (vii) annuity and life insurance products; (viii) Individual Retirement Accounts and Keogh plans; (ix) commercial loans; (x) trust and wealth management services; (xi) commercial demand deposit accounts; and (xii) repurchase agreements.


Bank Owned Life Insurance – CTBI’s bank owned life insurance policies are carried at their cash surrender value. We recognize tax-free income from the periodic increases in cash surrender value of these policies and from death benefits.


Mortgage Servicing Rights – Mortgage servicing rights (“MSRs”) are carried at fair value following the accounting guidance in ASC 860-50, Servicing Assets and Liabilities.  MSRs are valued using Level 3 inputs as defined in ASC 820, Fair Value Measurements. The fair value is determined quarterly based on an independent third-party valuation using a discounted cash flow analysis and calculated using a computer pricing model. The system used in this evaluation, Compass Point, attempts to quantify loan level idiosyncratic risk by calculating a risk derived value. As a result, each loan’s unique characteristics determine the valuation assumptions ascribed to that loan.  Additionally, the computer valuation is based on key economic assumptions including the 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, as applicable. Along with the gains received from the sale of loans, fees are received for servicing loans. These fees include late fees, which are recorded in interest income, and ancillary fees and monthly servicing fees, which are recorded in noninterest income.  Costs of servicing loans are charged to expense as incurred. Changes in fair value of the MSRs are reported as an increase or decrease to loan related fees.


Share-Based Compensation – CTBI has a share-based employee compensation plan, which is described more fully in note 14 below. CTBI accounts for this plan under the recognition and measurement principles of ASC 718, Share-Based Payment. Share-based compensation restricted and performance-based stock units/awards are classified as equity awards and accounted for under the treasury stock method. Compensation expense for non-vested stock units/awards is based on the fair value of the award on the measurement date, which, for CTBI, is the date of the grant and is recognized ratably over the vesting or performance period of the award. The fair value of non-vested stock units/awards is generally the market price of CTBI’s stock on the date of grant. CTBI accounts for forfeitures on an actual basis.


Comprehensive Income – Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes.  Other comprehensive income includes unrealized appreciation (depreciation) on AFS securities and unrealized appreciation (depreciation) on AFS securities for which a portion of an other than temporary impairment has been recognized in income.


Transfers between Fair Value Hierarchy Levels – Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs), and Level 3 (significant unobservable inputs) are recognized on the period ending date.


New Accounting Standards –


➢          Facilitation of the Effects of Reference Rate Reform on Financial Reporting – In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time preparers can utilize the reference rate reform relief guidance.  The amendments in ASU No. 2022-06 are effective for all entities upon issuance.  In 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published.  The amendments in ASU No. 2020-04 provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and provide optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  This ASU applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be 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.  In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU No. 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.



On January 27, 2023, CTBI received notice from the trustee of the trust subsidiary, that based on their review of the TRUPS Documents, after application of the LIBOR Act and the Final Regulations, the TRUPS Documents issued by the trust subsidiary do not provide a replacement rate for Applicable LIBOR (a “Replacement Rate”) or include other fallback provisions which would apply on the LIBOR Replacement Date.  Absent an amendment to the TRUPS Documents, some other change in applicable law, rule, regulation, or some other development, the LIBOR Act as implemented by the Final Regulations provides that (i) on and after the LIBOR Replacement Date, 3-month CME Term SOFR or 6-month CME Term SOFR (as defined in the Final Regulations) as adjusted by the relevant spread adjustment, which is 0.26161 percent or 0.42826 percent, shall be the benchmark replacement for the Applicable LIBOR in the TRUPS Documents and (ii) all applicable benchmark replacement conforming changes (as specified in the Final Regulations) will become an integral part of the TRUPS Documents, without any action by any party.



➢          Troubled Debt Restructurings and Vintage Disclosures – In February 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  The amendments in this ASU eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.  Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan.   Additionally, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, in the vintage disclosures required by paragraph 326-20-50-6.  The amendments in the ASU have been implemented and did not have a significant impact to our consolidated financial statements.


➢          Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions – In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.  The FASB issued this ASU to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.  The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.  The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.  The amendments in this ASU also require the following disclosures for equity securities subject to contractual sale restrictions: (1) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; (2) the nature and remaining duration of the restriction(s); and (3) the circumstances that could cause a lapse in the restriction(s).  For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.  Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.  We do not anticipate a significant impact to our consolidated financial statements.



➢          FASB Improves the Accounting for Investments in Tax Credit Structures – The FASB issued ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which is intended to improve the accounting and disclosures for investments in tax credit structures.  This ASU is a consensus of the FASB’s Emerging Issues Task Force (EITF).  This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.  This ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits.  Reporting entities were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low-income housing tax credit (“LIHTC”) structures.  In recent years, stakeholders asked the FASB to extend the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs, which resulted in the EITF addressing this issue.  For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years.  Early adoption is permitted for all entities in any interim period; however, we do not plan to early adopt.  We do not anticipate a significant impact to our consolidated financial statements.



➢          FASB Issues Disclosure Improvements in Response to the SEC’s Disclosure Update and Simplification Initiative – In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification.  The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosure requirements with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.  For entities subject to the SEC’s existing disclosure requirements, such as CTBI, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules.  This ASU has no impact on our consolidated financial statements as we have already incorporated the disclosure requirements as required by the SEC.



➢          FASB Issues Standard that Enhance Income Tax Disclosures – In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which addresses requests for improved income tax disclosures from investors, lenders, creditors, and other allocators of capital that use the financial statements to make capital allocation decisions.  The new update is effective for public business entities for annual periods beginning after December 15, 2024.  Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.  The ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.  It also includes certain other amendments intended to improve the effectiveness of income tax disclosures.  CTBI does not intend to early adopt.  We do not anticipate a significant impact to our consolidated financial statements.

2.  Cash and Due from Banks and Interest Bearing Deposits


At December 31, 2023, CTBI had cash accounts which exceeded federally insured limits, and therefore were not subject to FDIC insurance, with $207.6 million in deposits with the Federal Reserve, $32.8 million in deposits with U.S. Bank, $1.7 million in deposits with Fifth Third Bank, $5.0 million in deposits with the Federal Home Loan Bank, and $4.5 million in deposits with Raymond James.

3.  Securities


The amortized cost and fair value of debt securities at December 31, 2023 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
 
$
381,268
   
$
121
   
$
(26,572
)
 
$
354,817
 
State and political subdivisions
   
313,147
     
88
     
(48,290
)
   
264,945
 
U.S. government sponsored agency mortgage-backed securities
   
518,836
     
36
     
(62,136
)
   
456,736
 
Asset-backed securities
   
87,993
     
0
     
(767
)
   
87,226
 
Total available-for-sale securities
 
$
1,301,244
   
$
245
   
$
(137,765
)
 
$
1,163,724
 


The amortized cost and fair value of debt securities at December 31, 2022 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
 
$
418,579
   
$
212
   
$
(36,859
)
 
$
381,932
 
State and political subdivisions
   
326,746
     
32
     
(61,676
)
   
265,102
 
U.S. government sponsored agency mortgage-backed securities
   
593,917
     
1
     
(73,833
)
   
520,085
 
Asset-backed securities
   
91,363
     
0
     
(2,256
)
   
89,107
 
Total available-for-sale securities
 
$
1,430,605
   
$
245
   
$
(174,624
)
 
$
1,256,226
 


The amortized cost and fair value of debt securities at December 31, 2023 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
 
$
20,103
   
$
20,052
 
Due after one through five years
   
372,903
     
345,658
 
Due after five through ten years
   
133,727
     
116,001
 
Due after ten years
   
167,682
     
138,051
 
U.S. government sponsored agency mortgage-backed securities
   
518,836
     
456,736
 
Asset-backed securities
   
87,993
     
87,226
 
Total debt securities
 
$
1,301,244
   
$
1,163,724
 


In 2023, we had a net securities gain of $996 thousand.  There was a net gain of $4 thousand realized on sales and calls of AFS securities, and an unrealized gain of $992 thousand from the fair value adjustment of equity securities.  There was a net loss of $168 thousand realized in 2022 and a net loss of $158 thousand realized in 2021.

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 December 31, 2023 were $3.2 million, as a result of a $992 thousand increase in the fair value in 2023.  The fair value of equity securities decreased $87 thousand in 2022.  No equity securities were sold during 2023 or 2022.


The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $761.5 million at December 31, 2023 and $725.0 million at December 31, 2022.


The amortized cost of securities sold under agreements to repurchase amounted to $333.6 million at December 31, 2023 and $316.9 million at December 31, 2022.


CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of December 31, 2023 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 December 31, 2023 was 97.3% compared to 97.4% as of December 31, 2022.  The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2023 that are not deemed to have credit losses.

Available-for-Sale

(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Losses
   
Fair Value
 
Less Than 12 Months
                 
U.S. Treasury and government agencies
 
$
3,761
   
$
(5
)
 
$
3,756
 
State and political subdivisions
   
16,154
     
(1,250
)
   
14,904
 
U.S. government sponsored agency mortgage-backed securities
   
16,056
     
(289
)
   
15,767
 
Asset-backed securities
   
0
     
0
   
0
 
Total <12 months temporarily impaired AFS securities
   
35,971
     
(1,544
)
   
34,427
 
                         
12 Months or More
                       
U.S. Treasury and government agencies
   
361,038
     
(26,567
)
   
334,471
 
State and political subdivisions
   
284,397
     
(47,040
)
   
237,357
 
U.S. government sponsored agency mortgage-backed securities
   
500,763
     
(61,847
)
   
438,916
 
Asset-backed securities
   
87,993
     
(767
)
   
87,226
 
Total ≥12 months temporarily impaired AFS securities
   
1,234,191
     
(136,221
)
   
1,097,970
 
                         
Total
                       
U.S. Treasury and government agencies
   
364,799
     
(26,572
)
   
338,227
 
State and political subdivisions
   
300,551
     
(48,290
)
   
252,261
 
U.S. government sponsored agency mortgage-backed securities
   
516,819
     
(62,136
)
   
454,683
 
Asset-backed securities
   
87,993
     
(767
)
   
87,226
 
Total temporarily impaired AFS securities
 
$
1,270,162
   
$
(137,765
)
 
$
1,132,397
 


The analysis performed as of December 31, 2022 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related.  The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2022 that are not deemed to be other-than-temporarily impaired.

Available-for-Sale

(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Losses
   
Fair Value
 
Less Than 12 Months
                 
U.S. Treasury and government agencies
 
$
144,305
   
$
(6,953
)
 
$
137,352
 
State and political subdivisions
   
94,277
     
(6,257
)
   
88,020
 
U.S. government sponsored agency mortgage-backed securities
   
139,314
     
(6,883
)
   
132,431
 
Asset-backed securities
   
38,882
     
(1,231
)
   
37,651
 
Total <12 months temporarily impaired AFS securities
   
416,778
     
(21,324
)
   
395,454
 
                         
12 Months or More
                       
U.S. Treasury and government agencies
   
249,424
     
(29,906
)
   
219,518
 
State and political subdivisions
   
225,019
     
(55,419
)
   
169,600
 
U.S. government sponsored agency mortgage-backed securities
   
454,357
     
(66,950
)
   
387,407
 
Asset-backed securities
   
52,480
     
(1,025
)
   
51,455
 
Total ≥12 months temporarily impaired AFS securities
   
981,280
     
(153,300
)
   
827,980
 
                         
Total
                       
U.S. Treasury and government agencies
   
393,729
     
(36,859
)
   
356,870
 
State and political subdivisions
   
319,296
     
(61,676
)
   
257,620
 
U.S. government sponsored agency mortgage-backed securities
   
593,671
     
(73,833
)
   
519,838
 
Asset-backed securities
   
91,362
     
(2,256
)
   
89,106
 
Total temporarily impaired AFS securities
 
$
1,398,058
   
$
(174,624
)
 
$
1,223,434
 

U.S. Treasury and Government Agencies


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

State and Political Subdivisions


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

U.S. Government Sponsored Agency Mortgage-Backed Securities


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

Asset-Backed Securities


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

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)
 
December 31
2023
   
December 31
2022
 
Hotel/motel
 
$
395,765
   
$
343,640
 
Commercial real estate residential
   
417,943
     
372,914
 
Commercial real estate nonresidential
   
778,637
     
762,349
 
Dealer floorplans
   
70,308
     
77,533
 
Commercial other
   
321,082
     
312,422
 
Commercial loans
   
1,983,735
     
1,868,858
 
                 
Real estate mortgage
   
937,524
     
824,996
 
Home equity lines
   
147,036
     
120,540
 
Residential loans
   
1,084,560
     
945,536
 
                 
Consumer direct
   
159,106
     
157,504
 
Consumer indirect
   
823,505
     
737,392
 
Consumer loans
   
982,611
     
894,896
 
                 
Loans and lease financing
 
$
4,050,906
   
$
3,709,290
 


The loan portfolios presented above are net of unearned fees and unamortized premiums.  Unearned fees included above totaled $0.8 million as of December 31, 2023 and $1.0 million as of December 31, 2022, while the unamortized premiums on the indirect lending portfolio totaled $31.4 million as of December 31, 2023 and $28.5 million as of December 31, 2022.


CTBI has segregated and evaluates our loan portfolio through nine 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 9.8% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  Additionally, any hotel/motel construction loans would be included in this segment as CTBI’s construction loans are 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.



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.


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 our 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.


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


Not included in the loan balances above were loans held for sale in the amount of $0.2 million at December 31, 2023 and $0.1 million at December 31, 2022.


For the year ended December 31, 2022 and the three months ended March 31, 2023, CTBI derived our 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 were 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 determined that twelve months represented a reasonable and supportable forecast period and reverted back to a historical loss rate immediately.  CTBI leveraged 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 were also considered by CTBI when developing the forecast metrics.  CTBI also had an inherent model risk allocation included in our ACL calculation to allow for certain known model limitations as well as other potential risks not quantified elsewhere.  One limitation was the inability to completely identify revolving line of credit within the commercial other segment.


During the quarter ended June 30, 2023, CTBI implemented third party software for its ACL calculations.  During the implementation process, discounted cash flow (“DCF”) modeling was chosen for all loan segments.  The primary reasons that contributed to this decision were:  DCF models allow for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner; the analysis aligns well with other calculations outside of the ACL estimation which will mitigate model risk in other areas; and peer data is available for certain inputs if first -party data is not available or meaningful.  This change in modeling resulted in a shift in our reserve estimates as of June 30, 2023 as presented below:
 
(in thousands)
 
ACL Software
June 30, 2023
   
CTBI Internal
ACL Model
June 30, 2023
   
Change in Allocation
 
                   
Hotel/motel
 
$
5,192
   
$
6,038
   
$
(846
)
Commercial real estate residential
   
3,749
     
4,669
     
(920
)
Commercial real estate nonresidential
   
7,797
     
8,794
     
(997
)
Dealer floorplans
   
1,157
     
1,719
     
(562
)
Commercial other
   
6,176
     
4,547
     
1,629
 
Commercial loans reserve allocation
   
24,071
     
25,767
     
(1,696
)
                         
Real estate mortgage
   
7,884
     
8,443
     
(559
)
Home equity lines
   
1,108
     
1,065
     
43
 
Residential loans reserve allocation
   
8,992
     
9,508
     
(516
)
                         
Consumer direct
   
2,563
     
1,673
     
890
 
Consumer indirect
   
12,392
     
10,959
     
1,433
 
Consumer loans reserve allocation
   
14,955
     
12,632
     
2,323
 
                         
Loans and lease financing allowance for credit loss
 
$
48,018
     
47,907
   
$
111
 


This change in reserve estimates is related to life of loan and how it functions in a cash flow methodology versus the loss rate methodology previously used as consumer loans generally have longer lives than commercial loans.  Although commercial loans may estimate a higher probability of default/loss given default compared to consumer loans, their shorter exposures will yield lower reserves.  Additionally, there was a change in how some of the qualitative factors were applied using the new software with a switch from a geographical approach to a loan segment approach.


The following tables present the balance in the ACL for the years ended December 31, 2023 and December 31, 2022.

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

   
Year Ended
December 31, 2022
 
(in thousands)
 
Beginning Balance
   
Provision Charged to Expense
   
Losses
Charged Off
   
Recoveries
   
Ending Balance
 
ACL
                             
Hotel/motel
 
$
5,080
   
$
307
   
$
(216
)
 
$
0
   
$
5,171
 
Commercial real estate residential
   
3,986
     
951
     
(92
)
   
49
     
4,894
 
Commercial real estate nonresidential
   
8,884
     
(154
)
   
(46
)
   
735
     
9,419
 
Dealer floorplans
   
1,436
     
340
     
0
     
0
     
1,776
 
Commercial other
   
4,422
     
947
     
(1,082
)
   
998
     
5,285
 
Real estate mortgage
   
7,637
     
466
     
(223
)
   
52
     
7,932
 
Home equity
   
866
     
257
     
(37
)
   
20
     
1,106
 
Consumer direct
   
1,951
     
(210
)
   
(609
)
   
562
     
1,694
 
Consumer indirect
   
7,494
     
2,001
     
(3,041
)
   
2,250
     
8,704
 
Total
 
$
41,756
   
$
4,905
   
$
(5,346
)
 
$
4,666
   
$
45,981
 


Using the ACL software, forecasts were expanded to include gross domestic product (GDP), retail sales and housing price index considerations.  CTBI leverages economic projections from the Federal Open Market Committee to obtain various forecasts for unemployment rate and gross domestic product, the PNC forecast for the Case-Shiller National Home Price Index, and the Wells Fargo forecast for the Advanced Retail Sales.  CTBI has elected to forecast the first four quarters of the credit loss estimate and revert to a long-run average of each considered economic factor, as permitted in ASC 326-20-30-9, over four quarters.


All periods during the reasonable and supportable forecast period are utilizing a forecasted probability of default.  During the ACL software implementation, loss driver analysis was performed during which regression models were built relating default rates of the various segments to the economic factors noted above.  Historical loss data for both CTBI and segment-specific selected peers was incorporated from Federal Financial Institutions Examination Council call report data.  For loss given default, the Frye-Jacobs LGD estimation technique was utilized in the ACL software provided a risk curve that most approximates the asset class under consideration.  Management elected to evaluate internal prepayment experience over a trailing timeframe to determine the appropriate prepayment and curtailment rates to be used in the credit loss estimate.
 

CTBI continues to use management judgement for qualitative loss factors such as delinquency trends, supervision and administration, quality control exceptions, collateral values, and industry concentrations, although these factors are applied differently in the ACL software.  The software allows management to approve a “worst case” scenario or a maximum loss rate for each segment.  Qualitative dollars available for allocation then become the difference between the worst case and the ACL quantitative reserve estimate.  Each factor is then given a risk weighting that is applied to determine a basis point allocation.  The previous model only allowed for a specific basis point allocation determined by management.  In addition to these factors, management has added risk factors related to changes in the nature and volume of the portfolio and terms of loans and changes in the experience, depth, and ability of lending management.  The previous significant event factor has been expanded to reflect changes in international, national, regional and local conditions, as well as the effect of other external factors as noted below.  The previous factors for inherent model risk and levels of nonperforming loans were not incorporated into the ACL software as separate qualitative factors.   The revised qualitative loss factors are as follows:


Changes in delinquency trends by loan segment

Changes in international, national, regional, and local conditions

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

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

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

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

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

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



Provision for credit losses for the year ended December 31, 2023 of $6.8 million increased $1.9 million from $4.9 million for the year ended December 31, 2022.  Our reserve coverage (allowance for credit losses to nonperforming loans) at December 31, 2023 was 354.7%, compared to 300.4% at December 31, 2022.  Our credit loss reserve as a percentage of total loans outstanding at December 31, 2023 was 1.22%, down from the 1.24% at December 31, 2022.



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



Refer to note 1 to the 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 December 31, 2023 and December 31, 2022 were as follows:


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

   
December 31, 2022
 
 (in thousands)
 
Nonaccrual Loans
with No ACL
   
Nonaccrual Loans
with ACL
   
90+ and Still
Accruing
   
Total
Nonperforming
Loans
 
                         
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
 
Commercial real estate residential
   
0
     
355
     
258
     
613
 
Commercial real estate nonresidential
   
0
     
1,116
     
1,947
     
3,063
 
Dealer floorplans     0       0       0       0  
Commercial other
   
0
     
982
     
369
     
1,351
 
Total commercial loans
   
0
     
2,453
     
2,574
     
5,027
 
                                 
Real estate mortgage
   
0
     
4,069
     
4,929
     
8,998
 
Home equity lines
   
0
     
291
     
487
     
778
 
Total residential loans
   
0
     
4,360
     
5,416
     
9,776
 
                                 
Consumer direct
   
0
     
0
     
41
     
41
 
Consumer indirect
   
0
     
0
     
465
     
465
 
Total consumer loans
   
0
     
0
     
506
     
506
 
                                 
Loans and lease financing
 
$
0
   
$
6,813
   
$
8,496
   
$
15,309
 


CTBI recognized $43 thousand in interest income on the above nonaccrual loans for the year ended December 31, 2023 compared to $44 thousand for the year ended December 31, 2022.

Discussion of the Nonaccrual Policy


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



The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of December 31, 2023 and December 31, 2022 (includes loans 90 days past due and still accruing as well):


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

   
December 31, 2022
 
(in thousands)
 
30-59 Days
Past Due
   
60-89
Days Past
Due
   
90+ Days
Past Due
   
Total
Past Due
   
Current
   
Total Loans
 
Hotel/motel
 
$
0
   
$
0
   
$
0
   
$
0
   
$
343,640
   
$
343,640
 
Commercial real estate residential
   
602
     
225
     
574
     
1,401
     
371,513
     
372,914
 
Commercial real estate nonresidential
   
2,549
     
395
     
2,611
     
5,555
     
756,794
     
762,349
 
Dealer floorplans
   
0
     
0
     
0
     
0
     
77,533
     
77,533
 
Commercial other
   
1,029
     
850
     
496
     
2,375
     
310,047
     
312,422
 
Total commercial loans
   
4,180
     
1,470
     
3,681
     
9,331
     
1,859,527
     
1,868,858
 
                                                 
Real estate mortgage
   
869
     
3,402
     
7,067
     
11,338
     
813,658
     
824,996
 
Home equity lines
   
786
     
44
     
740
     
1,570
     
118,970
     
120,540
 
Total residential loans
   
1,655
     
3,446
     
7,807
     
12,908
     
932,628
     
945,536
 
                                                 
Consumer direct
   
555
     
126
     
41
     
722
     
156,782
     
157,504
 
Consumer indirect
   
4,407
     
764
     
465
     
5,636
     
731,756
     
737,392
 
Total consumer loans
   
4,962
     
890
     
506
     
6,358
     
888,538
     
894,896
 
                                                 
Loans and lease financing
 
$
10,797
   
$
5,806
   
$
11,994
   
$
28,597
   
$
3,680,693
   
$
3,709,290
 



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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.8% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.  


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.  


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.  


Dealer floorplans are segmented separately as they are a unique product with unique risk factors.  CTBI maintains strict processing procedures over our 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 our 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 had previously resulted in a new loan segment of unsecured commercial other loans that are 100% guaranteed by the U.S. Small Business Administration (“SBA”).  As the balances are now less than $1.0 million, these loans have been collapsed into the commercial other segment.  These loans have maturities of either two or three to five years, depending on when the loans were made.  These loans currently have no ACL.


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


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


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

Credit Quality Indicators


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


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.


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:


 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
December 31
 
2023
   
2022
   
2021
   
2020
   
2019
   
Prior
   
Revolving
Loans
   
Total
 
Hotel/motel
                                               
Risk rating:
                                               
Pass
 
$
79,651
   
$
144,826
   
$
28,011
   
$
17,664
   
$
40,873
   
$
42,030
   
$
4,042
   
$
357,097
 
Watch
   
11,569
     
2,826
     
6,835
     
4,623
     
3,361
     
1,648
      0      
30,862
 
OAEM
   
0
     
3,982
     
0
     
0
     
0
     
1,954
     
0
     
5,936
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
1,118
     
0
     
1,118
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
752
     
0
     
752
 
Total hotel/motel
   
91,220
     
151,634
     
34,846
     
22,287
     
44,234
     
47,502
     
4,042
     
395,765
 
                                                                 
Commercial real estate residential
                                                               
Risk rating:
                                                               
Pass
   
109,304
     
89,119
     
98,896
     
30,972
     
11,908
     
36,964
     
14,700
     
391,863
 
Watch
   
2,317
     
2,131
     
473
     
1,395
     
721
     
6,359
     
124
     
13,520
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
63
     
0
     
63
 
Substandard
   
760
     
854
     
4,532
     
834
     
285
     
5,232
     
0
     
12,497
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial real estate residential
   
112,381
     
92,104
     
103,901
     
33,201
     
12,914
     
48,618
     
14,824
     
417,943
 
                                                                 
Commercial real estate residential current period gross charge-offs
    0       0       (28 )     0       0       0       0       (28 )
                                                                 
Commercial real estate nonresidential
                                                               
Risk rating:
                                                               
Pass
   
149,633
     
142,580
     
136,090
     
68,240
     
55,850
     
140,074
     
31,536
     
724,003
 
Watch
   
552
     
3,664
     
6,305
     
2,347
     
1,938
     
6,003
     
354
     
21,163
 
OAEM
   
2,375
     
15
     
0
     
7,255
     
0
     
1,486
     
0
     
11,131
 
Substandard
   
2,520
     
1,598
     
2,538
     
4,472
     
2,000
     
9,199
     
0
     
22,327
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
13
     
0
     
13
 
Total commercial real estate nonresidential
   
155,080
     
147,857
     
144,933
     
82,314
     
59,788
     
156,775
     
31,890
     
778,637
 
                                                                 
Commercial real estate nonresidential current period gross charge-offs
    0       0       (7 )     0       0       (287 )     0       (294 )
                                                                 
Dealer floorplans
                                                               
Risk rating:
                                                               
Pass
   
0
     
0
     
0
     
0
     
0
     
0
     
70,308
     
70,308
 
Watch
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total dealer floorplans
   
0
     
0
     
0
     
0
     
0
     
0
     
70,308
     
70,308
 
                                                                 
Commercial other
                                                               
Risk rating:
                                                               
Pass
   
73,115
     
47,575
     
40,448
     
30,033
     
4,780
     
22,588
     
81,791
     
300,330
 
Watch
   
1,138
     
1,109
     
569
     
126
     
239
     
635
     
5,877
     
9,693
 
OAEM
   
29
     
0
     
0
     
0
     
0
     
0
     
30
     
59
 
Substandard
   
4,921
     
3,581
     
381
     
890
     
211
     
403
     
613
     
11,000
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial other
   
79,203
     
52,265
     
41,398
     
31,049
     
5,230
     
23,626
     
88,311
     
321,082
 
                                                                 
Commercial other current period gross charge-offs
    (725 )     (710 )     (302 )     (27 )     (90 )     (46 )     0       (1,900 )
                                                                 
Commercial loans                                                                
 Risk rating:                                                                
Pass
   
411,703
     
424,100
     
303,445
     
146,909
     
113,411
     
241,655
     
202,377
     
1,843,600
 
Watch
   
15,576
     
9,730
     
14,182
     
8,491
     
6,259
     
14,645
     
6,355
     
75,238
 
OAEM
   
2,404
     
3,997
     
0
     
7,255
     
0
     
3,503
     
30
     
17,189
 
Substandard
   
8,201
     
6,033
     
7,451
     
6,196
     
2,496
     
15,952
     
613
     
46,942
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
766
     
0
     
766
 
Total commercial loans
 
$
437,884
   
$
443,860
   
$
325,078
   
$
168,851
   
$
122,166
   
$
276,521
   
$
209,375
   
$
1,983,735
 
                                                                 
Total commercial loans current period gross charge-offs
  $
(725 )   $ (710 )   $
(337 )   $ (27 )   $
(90 )   $ (333 )   $
0      $ (2,222 )


 
Term Loans Amortized Cost Basis by Origination Year
 
(in thousands)
December 31
  2022
    2021    
 
2020
     2019      2018      Prior      Revolving Loans     Total  
Hotel/motel
                                               
 Risk rating:
                                               
Pass
 
$
145,262
   
$
36,002
   
$
17,742
   
$
54,328
   
$
13,178
   
$
35,179
   
$
545
   
$
302,236
 
Watch
   
7,921
     
8,996
     
5,523
     
3,453
     
0
     
13,555
      0      
39,448
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
1,956
     
0
     
1,956
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total hotel/motel
 

153,183
   

44,998
   

23,265
   

57,781
   

13,178
   

50,690
   

545
   

343,640
 
                                                                 
Commercial real estate residential
                                                               
 Risk rating:
                                                               
Pass
 

119,826
   

110,963
   

38,423
   

15,467
   

10,492
   

36,307
   

14,297
   

345,775
 
Watch
   
1,474
     
898
     
1,675
     
848
     
2,136
     
7,015
     
152
     
14,198
 
OAEM
   
0
     
0
     
0
     
39
     
0
     
0
     
29
     
68
 
Substandard
   
182
     
4,289
     
1,878
     
346
     
3,639
     
2,539
     
0
     
12,873
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total commercial real estate residential
 

121,482
   

116,150
   

41,976
   

16,700
   

16,267
   

45,861
   

14,478
   

372,914
 
                                                                 
Commercial real estate nonresidential
                                                               
 Risk rating:
                                                               
Pass
 

175,220
   

171,311
   

80,932
   

70,848
   

44,099
   

137,575
   

23,166
   

703,151
 
Watch
   
3,331
     
5,765
     
10,090
     
2,178
     
1,962
     
10,022
     
1,550
     
34,898
 
OAEM
   
19
     
0
     
0
     
0
     
0
     
90
     
0
     
109
 
Substandard
   
1,939
     
2,537
     
4,877
     
3,135
     
508
     
10,865
     
25
     
23,886
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
305
     
0
     
305
 
Total commercial real estate nonresidential
 

180,509
   

179,613
   

95,899
   

76,161
   

46,569
   

158,857
   

24,741
   

762,349
 
                                                                 
Dealer floorplans                                                                
 Risk rating:                                                                
Pass
   
0
     
0
     
0
     
0
     
0
     
0
     
77,153
     
77,153
 
Watch
   
0
     
0
     
0
     
0
     
0
     
0
     
380
     
380
 
OAEM
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Substandard
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Doubtful
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Total dealer floorplans
   
0
     
0
     
0
     
0
     
0
     
0
     
77,533
     
77,533
 
                                                                 
Commercial other
                                                               
 Risk rating:
                                                               
Pass
   
78,846
     
60,550
     
34,841
     
8,922
     
2,333
     
23,961
     
77,355
     
286,808
 
Watch
   
1,622
     
393
     
604
     
217
     
159
     
780
     
6,402
     
10,177
 
OAEM
   
30
     
0
     
0
     
0
     
0
     
0
     
30
     
60
 
Substandard
   
6,090
     
5,489
     
885
     
356
     
143
     
758
     
952
     
14,673
 
Doubtful
   
466
     
129
     
0
     
109
     
0
     
0
     
0
     
704
 
Total commercial other
   
87,054
     
66,561
     
36,330
     
9,604
     
2,635
     
25,499
     
84,739
     
312,422
 
                                                                 
Commercial loans
                                                               
 Risk rating:
                                                               
Pass
   
519,154
     
378,826
     
171,938
     
149,565
     
70,102
     
233,022
     
192,516
     
1,715,123
 
Watch
   
14,348
     
16,052
     
17,892
     
6,696
     
4,257
     
31,372
     
8,484
     
99,101
 
OAEM
   
49
     
0
     
0
     
39
     
0
     
2,046
     
59
     
2,193
 
Substandard
   
8,211
     
12,315
     
7,640
     
3,837
     
4,290
     
14,162
     
977
     
51,432
 
Doubtful
   
466
     
129
     
0
     
109
     
0
     
305
     
0
     
1,009
 
Total commercial loans
 
$
542,228
   
$
407,322
   
$
197,470
   
$
160,246
   
$
78,649
   
$
280,907
   
$
202,036
   
$
1,868,858
 


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:

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

(in thousands)
 
Term Loans Amortized Cost Basis by Origination Year
 
December 31
 
2022
   
2021
   
2020
   
2019
   
2018
   
Prior
   
Revolving Loans
   
Total
 
Home equity lines
                                               
Performing
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
10,195
   
$
109,567
   
$
119,762
 
Nonperforming
 
0
   
0
   
0
   
0
   
0
   
502
   
276
   
778
 
Total home equity lines
 
0
   
0
   
0
   
0
   
0
   
10,697
   
109,843
   
120,540
 
   
     
     
     
     
     
     
     
   
Mortgage loans
 
     
     
     
     
     
     
     
   
Performing
 
176,736
   
177,469
   
132,795
   
62,415
   
30,473
   
236,110
   
0
   
815,998
 
Nonperforming
 
0
   
282
   
98
   
791
   
422
   
7,405
   
0
   
8,998
 
Total mortgage loans
 
176,736
   
177,751
   
132,893
   
63,206
   
30,895
   
243,515
   
0
   
824,996
 
   
     
     
     
     
     
     
     
   
Residential loans
 
     
     
     
     
     
     
     
   
Performing
 
176,736
   
177,469
   
132,795
   
62,415
   
30,473
   
246,305
   
109,567
   
935,760
 
Nonperforming
 
0
   
282
   
98
   
791
   
422
   
7,907
   
276
   
9,776
 
Total residential loans
  $
176,736
    $
177,751
    $
132,893
    $
63,206
    $
30,895
    $
254,212
    $
109,843
    $
945,536
 
   
     
     
     
     
     
     
     
   
Consumer direct loans
 
     
     
     
     
     
     
     
   
Performing
  $
62,239
    $
42,014
    $
23,921
    $
11,166
    $
6,766
    $
11,357
    $
0
    $
157,463
 
Nonperforming
 
25
   
11
   
5
   
0
   
0
   
0
   
0
   
41
 
Total consumer direct loans
 
62,264
   
42,025
   
23,926
   
11,166
   
6,766
   
11,357
   
0
   
157,504
 
   
     
     
     
     
     
     
     
   
Consumer indirect loans
 
     
     
     
     
     
     
     
   
Performing
 
371,079
   
168,513
   
116,267
   
45,748
   
26,247
   
9,073
   
0
   
736,927
 
Nonperforming
 
65
   
251
   
96
   
30
   
1
   
22
   
0
   
465
 
Total consumer indirect loans
 
371,144
   
168,764
   
116,363
   
45,778
   
26,248
   
9,095
   
0
   
737,392
 
   
     
     
     
     
     
     
     
   
Consumer loans
 
     
     
     
     
     
     
     
   
Performing
 
433,318
   
210,527
   
140,188
   
56,914
   
33,013
   
20,430
   
0
   
894,390
 
Nonperforming
 
90
   
262
   
101
   
30
   
1
   
22
   
0
   
506
 
Total consumer loans
 
$
433,408
   
$
210,789
   
$
140,289
   
$
56,944
   
$
33,014
   
$
20,452
   
$
0
   
$
894,896
 


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


The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings have resumed was $3.5 million at December 31, 2023.  The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings had resumed with restricted parameters was $3.3 million at December 31, 2022.


In accordance with ASC 326-20-30-2, if a loan does not share risk characteristics with other pooled loans in determining the ACL, 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:


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

   
December 31, 2022
 
(in thousands)
 
Number of
Loans
   
Recorded
Investment
   
Specific
Reserve
 
Hotel/motel
   
1
   
$
1,168
   
$
0
 
Commercial real estate residential
   
4
     
7,786
     
0
 
Commercial real estate nonresidential
   
8
     
14,718
     
200
 
Commercial other
   
2
     
8,926
     
1,000
 
Total collateral dependent loans
   
15
   
$
32,598
   
$
1,200



The hotel/motel, commercial real estate residential, and commercial real estate nonresidential segments are all collateralized with real estate.  The two loans listed in the commercial other segment at December 31, 2023 are collateralized by inventory, equipment, and accounts receivable.  The decrease in the specific reserve for the commercial other category was due to both principal pay downs during 2023 and additional collateral.



Certain loans have been modified where the customer is facing financial difficulty and economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances.  These loans, segregated by class of loans and concession granted, are presented below for the year ended December 31, 2023:

   
Interest Rate Reduction
   
Term Extension
 
(in thousands)
 
Amortized Cost at
December 31, 2023
   
% of total
   
Amortized Cost at
December 31, 2023
   
% of total
 
Hotel/motel
 
$
0
     
0.00
%
 
$
0
     
0.00
%
Commercial real estate residential
   
534
     
0.13

   
1,788
     
0.43

Commercial real estate nonresidential
   
4,504
      0.58
   
5,342
     
0.69

Dealer floorplans
   
0
     
0.00

   
0
     
0.00

Commercial other
   
0
     
0.00

   
6,025
     
1.88

Commercial loans
   
5,038
     
0.25

   
13,155
     
0.66

                                 
Real estate mortgage
   
581
     
0.06

   
5,431
     
0.58

Home equity lines
   
0
     
0.00

   
246
     
0.17

Residential loans
   
581
     
0.05

   
5,677
     
0.52

                                 
Consumer direct
   
0
     
0.00

   
165
     
0.10

Consumer indirect
   
0
     
0.00

   
334
     
0.04

Consumer loans
   
0
     
0.00

   
499
     
0.05

                                 
Loans and lease financing
 
$
5,619
     
0.14
%
 
$
19,331
      0.48 %

   
Combination – Term Extension
and Interest Rate Reduction
   
Payment Change
 
(in thousands)
 
Amortized Cost at
December 31, 2023
   
% of total
   
Amortized Cost at
December 31, 2023
   
% of total
 
Hotel/motel
 
$
0
     
0.00
%
 
$
1,955
     
0.49
%
Commercial real estate residential
   
0
     
0.00

   
218
     
0.05

Commercial real estate nonresidential
   
0
     
0.00

   
0
     
0.00

Dealer floorplans
   
0
     
0.00

   
0
     
0.00

Commercial other
   
29
     
0.01

   
288
     
0.09

Commercial loans
   
29
     
0.00

   
2,461
     
0.01

                                 
Real estate mortgage
   
1,101
     
0.12

   
0
     
0.00

Home equity lines
   
125
     
0.09

   
42
     
0.03

Residential loans
   
1,226
     
0.11

   
42
     
0.00

                                 
Consumer direct
   
0
     
0.00

   
18
     
0.01

Consumer indirect
   
0
     
0.00

   
0
     
0.00

Consumer loans
   
0
     
0.00

   
18
     
0.00

                                 
Loans and lease financing
 
$
1,255
     
0.03
%
 
$
2,521
     
0.06
%


The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the year ended December 31, 2023:

Loan Type
 
Interest Rate Reduction
Financial Impact
 
Term Extension
Financial Impact
         
Hotel/motel
          
         
Commercial real estate residential
 
Reduced weighted-average contractual interest rate from 9.5% to 7.8%
 
Added a weighted-average 0.5 years to life of the loans
         
Commercial real estate nonresidential
 
Reduced weighted-average contractual interest rate from 9.5% to 7.5%
 
Added a weighted-average 0.1 years to life of the loans
         
Dealer floorplans
          
         
Commercial other
     
Added a weighted-average 3.0 years to life of the loans
               
Real estate mortgage
 
Reduced weighted-average contractual interest rate from 7.0% to 4.4%
 
Added a weighted-average 2.8 years to life of the loans
         
Home equity lines
 
 
Added a weighted-average 6.1 years to life of the loans
               
Consumer direct
     
Removed a weighted-average 0.8 years to life of the loans
         
Consumer indirect
     
Added a weighted-average 0.3 years to life of the loans

Loan Type
 
Combination – Term Extension and
 Interest Rate Reduction
Financial Impact
 
Payment Changes
Financial Impact
         
Hotel/motel
      Provided payment changes that will be added to the end of the original loan term
         
Commercial real estate residential
 

  Provided payment changes that will be added to the end of the original loan term
         
Commercial real estate nonresidential
          
         
Dealer floorplans
          
         
Commercial other
  Reduced weighted-average contractual interest rate from 12.8% to 11.3% and increased the weighted-average life by 2.9 years
 
Provided payment changes that will be added to the end of the original loan term
               
Real estate mortgage
 
Reduced weighted-average contractual interest rate from 6.3% to 5.8% and increased the weighted-average life by 12.2 years
   
         
Home equity lines
 
Reduced weighted-average contractual interest rate from 9.4% to 8.1% and increased the weighted-average life by 9.3 years
 
Provided payment changes that will be added to the end of the original loan term
               
Consumer direct
     
Provided payment changes that will be added to the end of the original loan term
         
Consumer indirect
       


Presented below, segregated by class of loans, are TDRs that occurred during the year ended December 31, 2022:

       
Year Ended
December 31, 2022
 
       
Pre-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
   
Term
Modification
   
Combination
   
Other
   
Total
Modification
 
Commercial real estate residential
   
6
   
$
659
   
$
0
   
$
66
   
$
725
 
Commercial real estate nonresidential
   
8
     
1,206
     
0
     
118
     
1,324
 
Hotel/motel
   
0
     
0
     
0
     
0
     
0
 
Commercial other
   
22
     
12,812
     
0
     
66
     
12,878
 
Total commercial loans
   
36
     
14,677
     
0
     
250
     
14,927
 
                                         
Real estate mortgage
   
5
     
593
     
1,309
     
0
     
1,902
 
Total residential loans
   
5
     
593
     
1,309
     
0
     
1,902
 
                                         
Total troubled debt restructurings
   
41
   
$
15,270
   
$
1,309
   
$
250
   
$
16,829
 

       
Year Ended
December 31, 2022
 
       
Post-Modification Outstanding Balance
 
(in thousands)
 
Number of
Loans
   
Term
Modification
   
Combination
   
Other
   
Total
Modification
 
Commercial real estate residential
   
6
   
$
659
   
$
0
   
$
66
   
$
725
 
Commercial real estate nonresidential
   
8
     
1,342
     
0
     
118
     
1,460
 
Hotel/motel
   
0
     
0
     
0
     
0
     
0
 
Commercial other
   
22
     
12,811
     
0
     
66
     
12,877
 
Total commercial loans
   
36
     
14,812
     
0
     
250
     
15,062
 
                                         
Real estate mortgage
   
5
     
593
     
1,309
     
0
     
1,902
 
Total residential loans
   
5
     
593
     
1,309
     
0
     
1,902
 
                                         
Total troubled debt restructurings
   
41
   
$
15,405
   
$
1,309
   
$
250
   
$
16,964
 


No charge-offs have resulted from modifications for any of the presented periods.  We had commitments to extend additional credit in the amount of $16 thousand and $40 thousand at December 31, 2023 and 2022, respectively, on loans that were considered TDRs.



Loans retain their accrual status at the time of their modification.  As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual.  Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.  If a loan modified in a TDR subsequently defaults, CTBI evaluates the loan for possible further impairment.  The table below represents the payment status of modified loans to borrowers experiencing financial difficulty as of December 31, 2023.


   
Past Due Status (Amortized Cost Basis)
 
   
Current
   
30-89 Days
   
90+ Days
   
Nonaccrual
 
Hotel/motel
 
$
1,955
   
$
0
   
$
0
   
$
0
 
Commercial real estate residential
   
2,128
     
412
     
0
     
0
 
Commercial real estate nonresidential
   
9,846
     
0
     
0
     
0
 
Dealer floorplans
   
0
     
0
     
0
     
0
 
Commercial other
   
5,683
     
371
     
0
     
287
 
Real estate mortgage
   
6,382
     
0
     
361
     
370
 
Home equity lines
   
361
     
0
     
32
     
21
 
Consumer direct
   
159
     
24
     
0
     
0
 
Consumer indirect
   
303
     
31
     
0
     
0
 
Total
 
$
26,817
   
$
838
   
$
393
   
$
678
 


The allowance for credit 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 TDRs during the year ended December 31, 2022 that subsequently defaulted.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.

 (in thousands)
 
Year Ended
December 31, 2022
 
   
Number of Loans
   
Recorded Balance
 
Residential:
               
Real estate mortgage
   
2
    $
751
 
Total defaulted restructured loans
   
2
   
$
751
 


Financial instrument credit losses apply to off-balance sheet credit exposures such as unfunded loan commitments and standby letters of credit.  A liability for expected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancellable by the entity.  Changes in this allowance are reflected in other operating expenses within the non-interest expense category.  As of December 31, 2023 and December 31, 2022, the total unfunded commitment off-balance sheet credit exposure was $1.5 million and $0.7 million, respectively.

5. Mortgage Banking and Servicing Rights


Mortgage banking activities primarily include residential mortgage originations and servicing.  As discussed in note 1 above, MSRs are carried at fair market value.  The following table presents the components of mortgage banking income:

(in thousands)
Year Ended December 31
 
2023
   
2022
   
2021
 
Net gain on sale of mortgage loans held for sale
 
$
395
   
$
1,525
   
$
6,820
 
Net loan servicing income:
                       
Servicing fees
   
2,080
     
2,226
     
2,058
 
Late fees
   
81
     
78
     
67
 
Ancillary fees
   
36
     
94
     
848
 
Fair value adjustments
   
(965
)
   
1,069
     
428
 
Net loan servicing income
   
1,232
     
3,467
     
3,401
 
Mortgage banking income
 
$
1,627
   
$
4,992
   
$
10,221
 


Mortgage loans serviced for others are not included in the accompanying balance sheets.  Loans serviced for the benefit of others (primarily FHLMC) totaled $725 million, $783 million, and $807 million at December 31, 2023, 2022, and 2021, respectively.  Servicing loans for others generally consist of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and processing foreclosures.  Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were approximately $2.5 million, $3.0 million, and $2.6 million at December 31, 2023, 2022, and 2021, respectively.


Activity for capitalized MSRs using the fair value method is as follows:

(in thousands)
 
2023
   
2022
   
2021
 
Fair value of MSRs, beginning of year
 
$
8,468
   
$
6,774
   
$
4,068
 
New servicing assets created
   
162
     
625
     
2,278
 
Change in fair value during the year due to:
                       
Time decay (1)
   
(430
)
   
(450
)
   
(259
)
Payoffs (2)
   
(347
)
   
(429
)
   
(587
)
Changes in valuation inputs or assumptions (3)
   
(188
)
   
1,948
     
1,274
 
Fair value of MSRs, end of year
 
$
7,665
   
$
8,468
   
$
6,774
 

(1)
Represents decrease in value due to regularly scheduled loan principal payments and partial loan paydowns.
(2)
Represents decrease in value due to loans that paid off during the period.
(3)
Represents change in value resulting from market-driven changes in interest rates.


The fair values of capitalized MSRs were $7.7 million, $8.5 million, and $6.8 million at December 31, 2023, 2022, and 2021, respectively.  Fair values for the years ended December 31, 2023, 2022, and 2021 were determined by third-party valuations with a resulting 10.0% average discount rate in each of the years 2023 and 2022 compared to the 10.1% average discount rate in 2021 and weighted average default rates of 0.95%, 1.24%, and 1.39%, respectively.  Prepayment speeds generated using the Andrew Davidson Prepayment Model averaged 7.5%, 7.1%, and 10.0% at December 31, 2023, 2022, and 2021, respectively.  MSR values are very sensitive to movement in interest rates as expected future net servicing income depends on the projected balance of the underlying loans, which can be greatly impacted by the level of prepayments.  CTBI does not currently hedge against changes in the fair value of our MSR portfolio.

6. Related Party Transactions


In the ordinary course of business, CTB has made extensions of credit and had transactions with certain directors and executive officers of CTBI or our subsidiaries, including their associates (as defined by the Securities and Exchange Commission).  We believe such extensions of credit and transactions were made on substantially the same terms, including interest rate and collateral, as those prevailing at the same time for comparable transactions with other persons.


Activity for related party extensions of credit during 2023 and 2022 is as follows:

(in thousands)
 
2023
   
2022
 
Related party extensions of credit, beginning of year
 
$
42,067
   
$
45,022
 
New loans and advances on lines of credit
   
980
     
1,813
 
Repayments
   
(7,502
)
   
(4,749
)
Decrease due to changes in related parties
   
(230
)
   
(19
)
Related party extensions of credit, end of year
 
$
35,315
   
$
42,067
 


The aggregate balances of related party deposits at December 31, 2023 and 2022 were $28.3 million and $27.9 million, respectively.


A director of CTBI is a shareholder in a law firm that provided services to CTBI and our subsidiaries during the years 2023, 2022, and 2021.  Approximately $0.4 million in legal fees and $0.1 million in expenses paid on behalf of CTBI, $0.5 million total, were paid to this law firm during each of the years 2023, 2022, and 2021.

7.  Premises and Equipment


Premises and equipment are summarized as follows:

(in thousands)
December 31
 
2023
   
2022
 
Land and buildings
 
$
82,929
   
$
81,345
 
Leasehold improvements
   
4,858
     
4,797
 
Furniture, fixtures, and equipment
   
39,695
     
43,531
 
Construction in progress
   
2,790
     
589
 
Total premises and equipment
   
130,272
     
130,262
 
Less accumulated depreciation and amortization
   
(84,961
)
   
(87,629
)
Premises and equipment, net
 
$
45,311
   
$
42,633
 


Depreciation and amortization of premises and equipment for 2023, 2022, and 2021 was $3.6 million, $3.3 million, and $3.2 million, respectively.

8.  Other Real Estate Owned


Activity for other real estate owned was as follows:

(in thousands)
 
2023
   
2022
 
Beginning balance of other real estate owned
 
$
3,671
   
$
3,486
 
New assets acquired
   
658
     
2,433
 
Capitalized costs
    47       73  
Fair value adjustments
   
(211
)
   
(285
)
Sale of assets
   
(2,549
)
   
(2,036
)
Ending balance of other real estate owned
 
$
1,616
   
$
3,671
 


Carrying costs and fair value adjustments associated with foreclosed properties were $0.3 million, $0.5 million, and $1.4 million for 2023, 2022, and 2021, 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)
December 31
 
2023
   
2022
 
1-4 family
 
$
827
   
$
859
 
Construction/land development/other
   
383
     
867
 
Multifamily
   
0
     
0
 
Non-farm/non-residential
   
406
     
1,945
 
Total foreclosed properties
 
$
1,616
   
$
3,671
 

9.  Deposits


Major classifications of deposits are categorized as follows:

(in thousands)
December 31
 
2023
   
2022
 
Noninterest bearing deposits
 
$
1,260,690
   
$
1,394,915
 
Interest bearing demand deposits
   
123,927
     
112,265
 
Money market deposits
   
1,525,537
     
1,348,809
 
Savings
   
535,063
     
654,380
 
Certificates of deposit and other time deposits of $100,000 or more
   
766,691
     
531,424
 
Certificates of deposit and other time deposits less than $100,000
   
512,714
     
384,350
 
Total deposits
 
$
4,724,622
   
$
4,426,143
 


Certificates of deposit and other time deposits of $250,000 or more at December 31, 2023 and 2022 were $318.0 million and $203.7 million, respectively.


Maturities of certificates of deposits and other time deposits are presented below:

 
Maturities by Period at December 31, 2023
 
(in thousands)
 
Total
   
Within 1 Year
   
2 Years
   
3 Years
   
4 Years
   
5 Years
   
After 5 Years
 
Certificates of deposit and other time deposits of $100,000 or more
 
$
766,691
   
$
704,535
   
$
39,134
   
$
5,503
   
$
4,022
   
$
13,497
   
$
0
 
Certificates of deposit and other time deposits less than $100,000
   
512,714
     
460,426
     
28,547
     
9,474
     
7,994
     
5,924
     
349
 
Total maturities
 
$
1,279,405
   
$
1,164,961
   
$
67,681
   
$
14,977
   
$
12,016
   
$
19,421
   
$
349
 

10.  Borrowings


Short-term debt is categorized as follows:

(in thousands)
December 31
 
2023
   
2022
 
Repurchase agreements
 
$
225,245
   
$
215,431
 
Federal funds purchased
   
500
     
500
 
Total short-term debt
 
$
225,745
   
$
215,931
 


All federal funds purchased mature and reprice daily.  See note 11 for information regarding the maturities of our repurchase agreements.  The average rates paid for federal funds purchased and repurchase agreements on December 31, 2023 were 5.30% and 4.52%, respectively.


The maximum balance for repurchase agreements at any month-end during 2023 occurred at October 31, 2023, with a month-end balance of $234.3 million.  The average balance of repurchase agreements for the year was $219.0 million.


Long-term debt is categorized as follows:

(in thousands)
December 31
 
2023
   
2022
 
Junior subordinated debentures, 7.23%, due 6/1/37
 
$
57,841
   
$
57,841
 
Loan related borrowings, 3.25%, due 9/17/44
    6,400       0  
Total long-term debt
  $ 64,241     $ 57,841  


On March 30, 2007, CTBI issued $61.3 million in junior subordinated debentures to a newly formed unconsolidated Delaware statutory trust subsidiary which in turn issued $59.5 million of capital securities in a private placement to institutional investors.  The debentures, which mature in 30 years but are redeemable at par at CTBI’s option after five years, were issued at a rate of 6.52% until June 1, 2012, and thereafter at a floating rate based on the three-month LIBOR plus 1.59%.  The underlying capital securities were issued at the equivalent rates and terms.  The proceeds of the debentures were used to fund the redemption on April 2, 2007 of all CTBI’s outstanding 9.0% and 8.25% junior subordinated debentures in the total amount of $61.3 million.  In May 2017, CTBI was able to purchase $2.0 million of the junior subordinated debentures in the open market at a purchase price of $1.4 million, resulting in a gain of $0.6 million. In August 2019, an additional $1.5 million was purchased in the open market at a price of $1.3 million, resulting in a gain of $0.2 million. The junior subordinated debentures will be retained by CTBI until maturity, and CTBI will continue to report the junior subordinated debentures at the net amount outstanding of $57.8 million.



On March 15, 2022, the President of the United States of America signed into law the Adjustable Interest Rate (LIBOR) Act (as implemented by the Final Regulations (defined below), the “LIBOR Act”).  Under the LIBOR Act, on the first London banking day after June 30, 2023 (the “LIBOR Replacement Date”), a benchmark replacement recommended by the Board of Governors of the Federal Reserve System (the “Board”) will replace LIBOR in certain contracts.  These contracts are those which, after giving effect to other parts of the LIBOR Act, (i) contain no fallback provisions (including contracts which contain no fallback provisions after giving effect to certain parts of the LIBOR Act) or (ii) contain fallback provisions that identify neither a specific non-LIBOR based benchmark replacement nor a person with the authority, right or obligation to determine a benchmark replacement.  Other parts of the LIBOR Act require that fallback provisions which (i) are based in any way on any LIBOR value, except to account for the difference between LIBOR and the benchmark replacement or (ii) require that a person (other than a benchmark administrator) conduct a poll, survey or inquiries for quotes or information concerning interbank lending or deposit rates be disregarded and deemed null and void.  The Board-recommended benchmark replacement is based on the Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York, including any recommended spread adjustment and benchmark replacement conforming changes.  In addition, the LIBOR Act creates a safe harbor protecting from liability any person (including any person with the authority to determine a benchmark replacement under the junior subordinated debentures and the related trust preferred securities (the “TRUPS Documents”)) for the selection or use of the Board-recommended benchmark replacement or the implementation of certain technical, administrative or operational changes relating to the implementation, administration and calculation of the Board-recommended benchmark replacement.



Under the LIBOR Act, the Board was required to promulgate regulations implementing the LIBOR Act.  On December 16, 2022, the Board issued its final regulations (the “Final Regulations”) implementing the LIBOR Act.  The Final Regulations: (i) address the applicability of the LIBOR Act to various LIBOR contracts, (ii) identify the Board-selected benchmark replacements for various types of LIBOR contracts, (iii) include certain benchmark replacement conforming changes, (iv) address the issue of preemption and (v) provide other clarifications, definitions and information.


As mentioned above, CTBI received notice from the trustee of the trust subsidiary that the TRUPS Documents issued by the trust subsidiary do not provide a Replacement Rate or include other fallback provisions which would apply on the LIBOR Replacement Date.  Therefore, the 3-month CME Term SOFR or 6-month CME Term SOFR as adjusted by the relevant spread adjustment, which is 0.26161 percent or 0.42826 percent, shall be the benchmark replacement for the Applicable LIBOR in the TRUPS Documents.



On November 29, 2023, the coupon rate was set at 7.2287% for the March 1, 2024 distribution date, which was based on the 3-month CME Term SOFR rate as of November 29, 2023 of 5.37709% plus 0.26161% spread adjustment plus 1.59%.



CTB sold the guaranteed portion of a loan in a transaction that did not meet the accounting requirements to qualify for recognition as a sold loan.  The gross amount of the loan is recognized in the loan portfolio as an earning asset and the sold portion is recognized as a loan related borrowing.  Repayment of the liability will be provided by the loan payments made by the loan customer.  The principal amount is also guaranteed by the SBA.

11.  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.


We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities.  The primary risk with our repurchase agreements is market risk associated with the securities securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying securities.  Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.  The carrying value of investment securities available-for-sale pledged as collateral under repurchase agreements totaled $296.6 million and $273.8 million at December 31, 2023 and December 31, 2022, 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 December 31, 2023 and December 31, 2022 is presented in the following tables:

 
December 31, 2023
 
   
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
 
$
21,156
   
$
19
   
$
1,817
   
$
23,640
   
$
46,632
 
State and political subdivisions
   
98,053
     
481
     
5,962
     
3,219
     
107,715
 
U.S. government sponsored agency mortgage-backed securities
   
17,538
     
0
     
41,521
     
9,269
     
68,328
 
Asset-backed securities
    2,570       0       0       0       2,570  
Total
 
$
139,317
   
$
500
   
$
49,300
   
$
36,128
   
$
225,245
 

 
December 31, 2022
 
   
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
 
$
21,679
   
$
34
   
$
2,979
   
$
1,832
   
$
26,524
 
State and political subdivisions
   
96,627
     
466
     
9,634
     
2,140
     
108,867
 
U.S. government sponsored agency mortgage-backed securities
   
17,964
     
0
     
52,387
     
9,385
     
79,736
 
Asset-backed securities
    304       0       0       0       304  
Total
 
$
136,574
   
$
500
   
$
65,000
   
$
13,357
   
$
215,431
 

12.  Advances from Federal Home Loan Bank


Federal Home Loan Bank (“FHLB”) advances consisted of the following monthly amortizing borrowings at December 31:

(in thousands)
 
2023
   
2022
 
Monthly amortizing
 
$
334
   
$
355
 
Total FHLB advances
 
$
334
   
$
355
 


The advances from the FHLB that require monthly principal payments were due for repayment as follows:

 
Principal Payments Due by Period at December 31, 2023
 
(in thousands)
 
Total
   
Within 1 Year
   
2 Years
   
3 Years
   
4 Years
   
5 Years
   
After 5 Years
 
Outstanding advances, weighted average interest rate – 0.05%
 
$
334
   
$
22
   
$
20
   
$
21
   
$
20
   
$
21
   
$
230
 



At December 31, 2023, CTBI had monthly amortizing FHLB advances totaling $0.3 million at a weighted average interest rate of 0.05%.


Advances totaling $0.3 million at December 31, 2023 were collateralized by FHLB stock of $4.7 million and a blanket lien on qualifying 1-4 family first mortgage loans.  As of December 31, 2023, CTBI had a $493.2 million FHLB borrowing capacity with $0.3 million in advances and $16.7 million in letters of credit used for public fund pledging leaving $476.2 million available for additional advances.  The advances had fixed interest rates of 0.00% and 2.00% with a weighted average rate of 0.05%.  The advances are subject to restrictions or penalties in the event of prepayment.

13.  Income Taxes


The components of the provision for income taxes, exclusive of tax effect of unrealized AFS securities gains and losses, are as follows:

(in thousands)
 
2023
   
2022
   
2021
 
Current federal income tax expense
 
$
14,954
   
$
14,882
   
$
16,160
 
Current state income tax expense
   
4,901
     
1,096
     
4,214
 
Deferred federal income tax expense
   
382
     
194
     
1,138
 
Deferred state income tax expense
    327       3,056       1,192  
Total income tax expense
 
$
20,564
   
$
19,228
   
$
22,704
 


A reconciliation of income tax expense at the statutory rate to our actual income tax expense is shown below:

(in thousands)
 
2023
   
2022
   
2021
 
Computed at the statutory rate
 
$
20,699
     
21.00
%
 
$
21,219
     
21.00
%
 
$
23,235
     
21.00
%
Adjustments resulting from:
                                               
Tax-exempt interest
   
(637
)
   
(0.65
)
   
(717
)
   
(0.70
)
   
(690
)
   
(0.62
)
Housing and new markets credits
   
(3,205
)
   
(3.25
)
   
(3,105
)
   
(3.07
)
   
(3,939
)
   
(3.56
)
Bank owned life insurance
   
(496
)
   
(0.50
)
   
(367
)
   
(0.36
)
   
(382
)
   
(0.35
)
ESOP dividend deduction
   
(259
)
   
(0.26
)
   
(240
)
   
(0.24
)
   
(233
)
   
(0.21
)
Stock option exercises and restricted stock vesting
   
(8
)
   
(0.01
)
   
(1
)
   
0.00
     
25
     
0.02
 
State income taxes
   
4,131
     
4.19
     
3,281
     
3.25
     
4,270
     
3.86
 
Split dollar life insurance
   
126
     
0.13
     
(184
)
   
(0.19
)
   
212
     
0.19
 
Other
   
213
     
0.21
     
(658
)
   
(0.66
)
   
206
     
0.19
 
Total
 
$
20,564
     
20.86
%
 
$
19,228
     
19.03
%
 
$
22,704
     
20.52
%


The components of the net deferred tax asset as of December 31 are as follows:

(in thousands)
 
2023
   
2022
 
Deferred tax assets:
           
Allowance for credit losses
 
$
12,361
   
$
11,472
 
Interest on nonaccrual loans
   
277
     
362
 
Accrued expenses
   
1,633
     
2,969
 
Unrealized losses on AFS securities
    34,311       45,339  
Allowance for other real estate owned
   
49
     
223
 
Lease liabilities
   
4,090
     
4,398
 
Other
   
790
     
485
 
Total deferred tax assets
   
53,511
     
65,248
 
                 
Deferred tax liabilities:
               
Depreciation and amortization
   
(14,927
)
   
(14,859
)
FHLB stock dividends
   
(341
)
   
(827
)
Loan fee income
   
(1,519
)
   
(1,136
)
Mortgage servicing rights
   
(1,912
)
   
(2,113
)
Limited partnership investments
   
(843
)
   
(710
)
Right of use assets
   
(3,918
)
   
(4,259
)
Other
   
(1,910
)
   
(1,466
)
Total deferred tax liabilities
   
(25,370
)
   
(25,370
)
                 
Net deferred tax asset
 
$
28,141
 
$
39,878



CTBI accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes).  The income tax accounting guidance results in two components of income tax expense:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  CTBI determines deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.  Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.


Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.


With a few exceptions, CTBI is no longer subject to U.S. federal tax examinations by tax authorities for years before 2020, and state and local income tax examinations by tax authorities for years before 2019.  For federal tax purposes, CTBI recognizes interest and penalties on income taxes as a component of income tax expense. CTBI files consolidated income tax returns with our subsidiaries.

14.  Employee Benefits


CTBI maintains two separate retirement savings plans, a 401(k) Plan and an Employee Stock Ownership Plan (“ESOP”).


The 401(k) Plan is available for participant contributions to all employees (age 21 and over) who are credited with 90 days of service and for employer matching as described below at one year of service (12 consecutive month period with at least 1,000 hours).  The company match will continue to begin with one year of credited service.  Participants in the plan have the option to contribute from 1% to 20% of their annual compensation.  CTBI matches 50% of participant contributions up to 8% of gross pay.  CTBI may, at our discretion, contribute an additional percentage of covered employees’ compensation.  CTBI’s matching contributions were $1.2 million, $1.2 million, and $1.1 million for the three years ended December 31, 2023, 2022, and 2021, respectively.  The 401(k) Plan owned 367,106, 348,859, and 445,562 shares of CTBI’s common stock at December 31, 2023, 2022, and 2021, respectively.  Substantially all shares owned by the 401(k) Plan were allocated to employee accounts on those dates.  The market price of the shares at the date of allocation is essentially the same as the market price at the date of purchase.


The ESOP is available to all employees (age 21 and over) who are credited with one year of service (12 consecutive month period with at least 1,000 hours).  CTBI currently contributes 4% of covered employees’ compensation to the ESOP.  The ESOP uses the contributions to acquire shares of CTBI’s common stock.  CTBI’s contributions to the ESOP were $1.8 million, $1.7 million, and $1.8 million for the three years ended December 31, 2023, 2022, and 2021, respectively.  The ESOP owned 772,351, 734,677, and 774,562 shares of CTBI’s common stock at December 31, 2023, 2022, and 2021, respectively.  Substantially all shares owned by the ESOP were allocated to employee accounts on those dates.  The market price of the shares at the date of allocation is essentially the same as the market price at the date of purchase.

Stock-Based Compensation:


As of December 31, 2023, CTBI maintained one active and one inactive incentive stock ownership plan covering key employees.  The 2015 Stock Ownership Incentive Plan (“2015 Plan”) was approved by the Board of Directors and the Shareholders in 2015.  The 2006 Stock Ownership Incentive Plan (“2006 Plan”) was approved by the Board of Directors and the Shareholders in 2006.  The 2006 Plan was rendered inactive as of April 28, 2015.  The 2015 Plan has 550,000 shares authorized, 348,146 of which were available at December 31, 2023.  Shares issuable pursuant to awards which were granted under the prior plans on or before their respective expiration or termination dates will be issued from the remaining shares reserved for issuance under the prior plans.  The shares of common stock reserved for issuance under the prior plans in excess of the number of shares as to which options or other benefits are awarded thereunder, and any shares as to which options or other benefits granted under the prior plans may lapse, expire, terminate, or be canceled, will not be reserved and available for issuance or reissuance under the 2015 Plan.  The following table provides detail of the number of shares to be issued upon exercise of outstanding stock-based awards and remaining shares available for future issuance under all of CTBI’s equity compensation plans as of December 31, 2023:

Plan Category (shares in thousands)
 
Number of
Shares to Be
Issued Upon
Exercise
   
Weighted
Average Price
   
Shares
Available for
Future Issuance
 
Equity compensation plans approved by shareholders:
                 
Stock options
   
20
   
$
32.27
     
348
(a)
Restricted stock
 
(c)
   
(b)
   
(a)
 
Performance units
 
(d)
   
(b)
   
(a)
 
Stock appreciation rights (“SARs”)
 
(e)
   
(b)
   
(a)
 
Total
                   
348
 

(a)
Under the 2015 Plan, 550,000 shares are authorized for issuance; 206,949 have been issued as of December 31, 2023.  In January of 2016, 18,069 restricted stock shares were issued under the terms of the 2015 Plan pursuant to awards granted under the 2006 Plan.  Additional shares will not be issued pursuant to awards granted from prior plans.
(b)
Not applicable.
(c)
The maximum number of shares of restricted stock that may be granted is 550,000 shares, and the maximum that may be granted to a participant during any calendar year is 75,000 shares.
(d)
No performance units payable in stock had been issued as of December 31, 2023.  The maximum payment that can be made pursuant to performance units granted to any one participant in any calendar year is $1,000,000.
(e)
No SARS have been issued.  The maximum number of shares with respect to which SARs may be granted to a participant during any calendar year is 100,000 shares.


The following table details the shares available for future issuance under the 2015 Plan at December 31, 2023.

Plan Category
 
Shares Available
for Future
Issuance
 
Shares available at January 1, 2023
   
400,221
 
Stock option grants
   
0
 
Restricted stock grants
   
(52,865
)
Forfeitures
   
790
 
Shares available for future issuance at December 31, 2023
   
348,146
 


There were no stock options granted in 2023, 2022, or 2021.

The 2015 Plan:


There was no stock option activity for the 2015 Plan for the years ended December 31, 2023, 2022, and 2021.


The following table shows restricted stock activity for the 2015 Plan for the years ended December 31, 2023, 2022, and 2021:

December 31
 
2023
   
2022
   
2021
 
   
Grants
   
Weighted
Average
Fair
Value at
Grant
   
Grants
   
Weighted
Average
Fair
Value at
Grant
   
Grants
   
Weighted
Average
Fair
Value at
Grant
 
Outstanding at beginning of year
   
68,137
   
$
44.13
     
47,063
   
$
42.90
     
55,551
   
$
44.04
 
Granted
   
52,865
     
43.10
     
50,438
     
45.15
     
9,193
     
38.70
 
Vested
   
(23,372
)
   
43.32
     
(29,364
)
   
43.92
     
(17,681
)
   
44.31
 
Forfeited
   
(790
)
   
44.87
     
0
     
-
     
0
     
-
 
Outstanding at end of year
   
96,840
   
$
43.75
     
68,137
   
$
44.13
     
47,063
   
$
42.90
 

The 2006 Plan:


CTBI’s stock option activity for the 2006 Plan for the years ended December 31, 2023, 2022, and 2021 is summarized as follows:

December 31
 
2023
   
2022
   
2021
 
   
Options
   
Weighted
Average
Exercise
Price
   
Options
   
Weighted
Average
Exercise
Price
   
Options
   
Weighted
Average
Exercise
Price
 
Outstanding at beginning of year
   
20,000
   
$
32.27
     
20,000
   
$
32.27
     
20,000
   
$
32.27
 
Granted
   
0
     
0
     
0
     
0
     
0
     
0
 
Exercised
   
0
   
0
     
0
   
0
     
0
   
0
 
Forfeited/expired
   
0
     
0
     
0
     
0
     
0
   
0
 
Outstanding at end of year
   
20,000
   
$
32.27
     
20,000
   
$
32.27
     
20,000
   
$
32.27
 
                                                 
Exercisable at end of year
   
20,000
   
$
32.27
     
20,000
   
$
32.27
     
20,000
   
$
32.27
 


There were no nonvested options at December 31, 2023. Incentive stock options are exercisable four years from grant date, and management retention stock options are exercisable five years from grant date.  All outstanding options as of December 31, 2023 are management retention stock options.  Stock options expire 10 years from the grant date if not exercised within that timeframe.


The weighted average remaining contractual term in years of the options outstanding at December 31, 2023 was 1.1 years.


There were no options granted from the 2006 Plan during the years 2023, 2022, and 2021.


The following table shows the intrinsic values of options exercised, exercisable, and outstanding for the 2006 Plan for the years ended December 31, 2023, 2022, and 2021:

(in thousands)
 
2023
   
2022
   
2021
 
Options exercised
 
$
0
   
$
0
   
$
0
 
Options exercisable
   
232
     
273
     
227
 
Outstanding options
   
232
     
273
     
227
 


There was no restricted stock activity for the 2006 Plan for the years ended December 31, 2023, 2022, and 2021.


The following table shows the unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans at December 31, 2023, 2022, and 2021 and the total grant-date fair value of shares vested, cash received from option exercises under all share-based payment arrangements, and the actual tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements for the years ended December 31, 2023, 2022, and 2021.

(in thousands)
 
2023
   
2022
   
2021
 
Unrecognized compensation cost of nonvested share-based compensation arrangements granted under the plan at year-end
 
$
2,954
   
$
2,108
   
$
1,093
 
Total fair value of shares vested for the year
   
974
     
1,306
     
664
 
Cash received from option exercises under all share-based payment arrangements for the year
   
0
     
0
     
0
 
Tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements for the year
   
0
     
0
     
0
 


The unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans at December 31, 2023 is expected to be recognized over a weighted-average period of 3.0 years.

15.  Leases


CTBI has one finance lease for property but no material sublease or leasing arrangements for which it is the lessor of property or equipment. CTBI has operating leases for banking and ATM locations. These leases have original remaining lease terms of 1 year to 45 years, some of which include options to renew the leases for up to 5 years. These options, some of which include variable costs related to rent escalations based on recent financial indices, such as the Consumer Price Index, where CTBI estimates future rent increases, are included in the calculation of the lease liability and right-of-use asset when management determines it is reasonably certain the option will be exercised. CTBI determines this on each lease by considering all relevant contract-based, asset-based, market-based, and entity-based economic factors.



The components of lease expense for the years ended December 31, 2023 and 2022 were as follows:

(in thousands)
 
Year Ended
December 31, 2023
   
Year Ended
December 31, 2022
 
Finance lease cost:
           
Amortization of right-of-use assets – finance leases
 
$
166
   
$
64
 
Interest on lease liabilities – finance leases
   
118
     
70
 
Total finance lease cost
   
284
     
134
 
                 
Short-term lease cost
   
92
     
85
 
                 
Operating lease cost
   
1,888
     
1,838
 
                 
Total lease cost
    2,264       2,057  
                 
Sublease income
   
(273
)
   
(249
)
                 
Net lease cost
 
$
1,991
   
$
1,808
 


Supplemental cash flow information related to CTBI’s operating and finance leases for the years ended December 31, 2023 and 2022 was as follows:

(in thousands)
 
Year Ended
December 31, 2023
   
Year Ended
December 31, 2022
 
Finance lease – operating cash flows
 
$
128
   
$
67
 
Finance lease – financing cash flows
 
$
33
   
$
24
 
Operating lease – operating cash flows (fixed payments)
 
$
1,889
   
$
1,760
 
Operating lease – operating cash flows (liability reduction)
 
$
1,455
   
$
1,424
 
New right-of-use assets – operating leases
 
$
358
   
$
3,469
 
New right-of-use assets – finance leases
  $ 0     $ 2,070  
                 
Weighted average lease term – financing leases
 
26.12 years
   
27.10 years
 
Weighted average lease term – operating leases
 
13.20 years
   
13.84 years
 
Weighted average discount rate – financing leases
   
4.90
%
   
4.90
%
Weighted average discount rate – operating leases
   
3.56
%
   
3.55
%


Maturities of lease liabilities as of December 31, 2023 are as follows:

(in thousands)
 
Operating Leases
   
Finance Leases
 
2024
 
$
1,877
   
$
154
 
2025
   
1,782
     
159
 
2026
   
1,774
     
170
 
2027
   
1,656
     
174
 
2028
   
1,257
     
179
 
Thereafter
   
8,137
     
6,070
 
Total lease payments
   
16,483
     
6,906
 
Less imputed interest
   
(3,525
)
   
(3,471
)
Total
 
$
12,958
   
$
3,435
 



Maturities of lease liabilities as of December 31, 2022 are as follows:

(in thousands)
 
Operating Leases
   
Finance Leases
 
2023
 
$
1,878
   
$
151
 
2024
   
1,853
     
155
 
2025
   
1,748
     
160
 
2026
   
1,731
     
171
 
2027
   
1,620
     
175
 
Thereafter
   
9,393
     
6,362
 
Total lease payments
   
18,223
     
7,174
 
Less imputed interest
   
(4,063
)
   
(3,706
)
Total
 
$
14,160
   
$
3,468
 

16.  Fair 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 GAAP 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:

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 December 31, 2023 and December 31, 2022 and indicate the level within the fair value hierarchy of the valuation techniques.

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

(in thousands)
       
Fair Value Measurements at
December 31, 2022 Using
 
   
Fair Value
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – recurring basis
                       
Available-for-sale securities:
                       
U.S. Treasury and government agencies
 
$
381,932
   
$
346,265
   
$
35,667
   
$
0
 
State and political subdivisions
   
265,102
     
0
     
265,102
     
0
 
U.S. government sponsored agency mortgage-backed securities
   
520,085
     
0
     
520,085
     
0
 
Asset-backed securities
   
89,107
     
0
     
89,107
     
0
 
Equity securities at fair value
   
2,166
     
0
     
0
     
2,166
 
Mortgage servicing rights
   
8,468
     
0
     
0
     
8,468
 


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 December 31, 2023 and December 31, 2022.  There have been no significant changes in the valuation techniques during the year ended December 31, 2023.  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 AFS are reported at fair value on a recurring basis.  U.S. Treasury and government agencies are classified as Level 1 of the valuation hierarchy where quoted market prices are available in the active market on which the individual securities are traded.


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


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

Equity Securities at Fair Value


As of December 31, 2023 and December 31, 2022, 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 the third party assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset.  See the table below for inputs and valuation techniques used for Level 3 equity securities.

Mortgage Servicing Rights


Mortgage servicing rights (“MSRs”) do not trade in an active, open market with readily observable prices.  CTBI reports MSRs 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, MSRs are classified within Level 3 of the hierarchy.  Fair value determinations for Level 3 measurements of MSRs 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 MSRs.

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)
 
2023
   
2022
 
   
Equity
Securities
at Fair
Value
   
Mortgage
Servicing
Rights
   
Equity
Securities
at Fair
Value
   
Mortgage
Servicing
Rights
 
Beginning balance
 
$
2,166
   
$
8,468
   
$
2,253
   
$
6,774
 
Total unrealized gains (losses)
                               
Included in net income
   
992
     
(188
)
   
(87
)
   
1,948
 
Issues
   
0
     
162
     
0
     
625
 
Settlements
   
0
     
(777
)
   
0
     
(879
)
Ending balance
 
$
3,158
   
$
7,665
   
$
2,166
   
$
8,468
 
                                 
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
 
$
992
   
$
(188
)
 
$
(87
)
 
$
1,948
 


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
           
             
(in thousands)
 
2023
   
2022
 
Total gains (losses)
 
$
27
 
$
982

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 December 31, 2023 and December 31, 2022 and indicate the level within the fair value hierarchy of the valuation techniques.

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

(in thousands)
       
Fair Value Measurements at
December 31, 2022 Using
 
   
Fair Value
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets measured – nonrecurring basis
                       
Collateral dependent loans
 
$
2,703
   
$
0
   
$
0
   
$
2,703
 
Other real estate owned
   
570
     
0
     
0
     
570
 


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.  Fair value adjustments on collateral-dependent loans disclosed above were $0.3 million and $1.0 million for the years ended December 31, 2023 and December 31, 2022, respectively.

Other Real Estate Owned


In accordance with the provisions of ASC 360, Property, Plant, and Equipment, other real estate owned (“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired.  Estimated fair value of OREO is based on appraisals or evaluations.  OREO is classified within Level 3 of the fair value hierarchy.  Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral.  Fair value adjustments on OREO disclosed above were $0.1 million and $0.2 million for the years ended December 31, 2023 and December 31, 2022, 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 December 31, 2023 and December 31, 2022.

(in thousands)
 
Quantitative Information about Level 3 Fair Value Measurements
   
Fair Value at
December 31,
2023
 
Valuation
Technique(s)
Unobservable Input
 
Range (Weighted
Average)
Equity securities at fair value
 
$
3,158
 
Discount cash flows, computer pricing model
Discount rate
   
15.0% - 25.0%
(20.0%)
                   
Conversion date
 
Dec 2028 – Dec 2032
(Dec 2030)
                   
Mortgage servicing rights
 
$
7,665
 
Discount cash flows, computer pricing model
Constant prepayment rate
   
0.0% - 77.6%
(7.5%)
                   
Probability of default
   
0.0% - 66.7%
(1.0%)
                   
Discount rate
   
9.5% - 12.0%
(10.0%)
                   
Collateral-dependent loans
 
$
8,397
 
Market comparable properties
Marketability discount
   
10.9% - 19.6%
(12.2%)
                   
Other real estate owned
 
$
205
 
Market comparable properties
Comparability adjustments
   
10.0% - 23.9%
(17.5%)

(in thousands)
 
Quantitative Information about Level 3 Fair Value Measurements
   
Fair Value at
December 31,
2022
 
Valuation
Technique(s)
Unobservable Input
 
Range (Weighted
Average)
Equity securities at fair value
 
$
2,166
 
Discount cash flows, computer pricing model
Discount rate
   
8.0% - 12.0%
(10.0%)
                                                          
Conversion date
 
Dec 2025 - Dec 2029
(Dec 2027)
                   
Mortgage servicing rights
 
$
8,468
 
Discount cash flows, computer pricing model
Constant prepayment rate
   
6.5% - 28.0%
(7.1%)
                                                          
Probability of default
   
0.0% - 100.0%
(1.2%)
                                                          
Discount rate
   
9.5% - 12.0%
(10.0%)
                   
Collateral-dependent loans
 
$
2,703
 
Market comparable properties
Marketability discount
   
52.0% - 52.0%
(52.0%)
                   
Other real estate owned
 
$
570
 
Market comparable properties
Comparability adjustments
   
10.0% - 30.6%
(10.9%)

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 how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

Equity Securities at Fair Value


Fair value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock, and the prevailing conversion rate at the conversion date.  The most recent conversion rate of 1.5875 and the most recent dividend rate of 0.8255 were used to derive the fair value estimate.  Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement.  Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate.

Mortgage Servicing Rights


Fair value for MSRs is derived based on unobservable inputs, such as prepayment speeds of the underlying loans generated using the Andrew Davidson Prepayment Model, FHLMC/FNMA guidelines, the weighted average life of the loan, the discount rate, the weighted average coupon, and the weighted average default rate.  Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement.  Generally, a change in the assumption used for prepayment speeds is accompanied by a directionally opposite change in the assumption for interest rates.

Fair Value of Financial Instruments


The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 2023 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 December 31, 2023 were measured using an exit price notion.

(in thousands)
       
Fair Value Measurements
at December 31, 2023 Using
 
   
Carrying
Amount
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:
                       
Cash and cash equivalents
 
$
271,400
   
$
271,400
   
$
0
   
$
0
 
Certificates of deposit in other banks
   
245
     
0
     
245
     
0
 
Debt securities available-for-sale
   
1,163,724
     
336,285
     
827,439
     
0
 
Equity securities at fair value
   
3,158
     
0
     
0
     
3,158
 
Loans held for sale
   
152
     
154
     
0
     
0
 
Loans, net
   
4,001,363
     
0
     
0
     
3,745,477
 
Federal Home Loan Bank stock
   
4,712
     
0
     
4,712
     
0
 
Federal Reserve Bank stock
   
4,887
     
0
     
4,887
     
0
 
Accrued interest receivable
   
23,575
     
0
     
23,575
     
0
 
                                 
Financial liabilities:
                               
Deposits
 
$
4,724,622
   
$
1,260,690
   
$
3,480,806
   
$
0
 
Repurchase agreements
   
225,245
     
0
     
0
     
225,187
 
Federal funds purchased
   
500
     
0
     
500
     
0
 
Advances from Federal Home Loan Bank
   
334
     
0
     
349
     
0
 
Long-term debt
   
64,241
     
0
     
0
     
50,326
 
Accrued interest payable
   
7,389
     
0
     
7,389
     
0
 
                                 
Unrecognized financial instruments:
                               
Letters of credit
 
$
0
   
$
0
   
$
0
   
$
0
 
Commitments to extend credit
   
0
     
0
     
0
     
0
 
Forward sale commitments
   
0
     
0
     
0
     
0
 


The following table presents estimated fair value of CTBI’s financial instruments as of December 31, 2022 and indicates the level within the fair value hierarchy of the valuation techniques.

(in thousands)
       
Fair Value Measurements
at December 31, 2022 Using
 
   
Carrying
Amount
   
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets:
                       
Cash and cash equivalents
 
$
128,686
   
$
128,686
   
$
0
   
$
0
 
Certificates of deposit in other banks
   
245
     
0
     
245
     
0
 
Debt securities available-for-sale
   
1,256,226
     
346,265
     
909,961
     
0
 
Equity securities at fair value
   
2,166
     
0
     
0
     
2,166
 
Loans held for sale
   
109
     
112
     
0
     
0
 
Loans, net
   
3,663,309
     
0
     
0
     
3,511,810
 
Federal Home Loan Bank stock
   
6,676
     
0
     
6,676
     
0
 
Federal Reserve Bank stock
   
4,887
     
0
     
4,887
     
0
 
Accrued interest receivable
   
19,592
     
0
     
19,592
     
0
 
                                 
Financial liabilities:
                               
Deposits
 
$
4,426,143
   
$
1,394,915
   
$
3,050,144
   
$
0
 
Repurchase agreements
   
215,431
     
0
     
0
     
215,542
 
Federal funds purchased
   
500
     
0
     
500
     
0
 
Advances from Federal Home Loan Bank
   
355
     
0
     
380
     
0
 
Long-term debt
   
57,841
     
0
     
0
     
55,860
 
Accrued interest payable
   
2,237
     
0
     
2,237
     
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
 

17.  Off-Balance Sheet Transactions and Guarantees


CTBI is a party to transactions with off-balance sheet risk in the normal course of business to meet the financing needs of our customers.  These financial instruments include standby letters of credit and commitments to extend credit in the form of unused lines of credit.  CTBI uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.


At December 31, 2023 and 2022, CTBI had the following off-balance sheet financial instruments, whose approximate contract amounts represent additional credit risk to CTBI:

(in thousands)
 
2023
   
2022
 
Standby letters of credit
 
$
38,861
   
$
34,721
 
Commitments to extend credit
   
997,158
     
839,549
 
Total off-balance sheet financial instruments
 
$
1,036,019
   
$
874,270
 


Standby letters of credit represent conditional commitments to guarantee the performance of a third party.  The credit risk involved is essentially the same as the risk involved in making loans.  At December 31, 2023, we maintained a credit loss reserve recorded in other liabilities of approximately $0.2 million relating to these financial standby letters of credit.  The reserve coverage calculation was determined using essentially the same methodology as used for the ACL.  Approximately 71% of the total standby letters of credit are secured, with $22.4 million of the total $27.5 million secured by cash.  Collateral for the remaining secured standby letters of credit varies but is comprised primarily of accounts receivable, inventory, property, equipment, and income-producing properties.


Commitments to extend credit are agreements to originate loans to customers as long as there is no violation of any condition of the contract.  At December 31, 2023, a credit loss reserve recorded in other liabilities of $1.5 million was maintained relating to these commitments.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Each customer’s creditworthiness is evaluated on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty.  Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate.  A portion of the commitments is to extend credit at fixed rates.  Fixed rate loan commitments at December 31, 2023 of $176.4 million had interest rates ranging predominantly from 4.0% to 8.75% and terms of predominantly one year or less.  These credit commitments were based on prevailing rates, terms, and conditions applicable to other loans being made at December 31, 2023.


Included in our commitments to extend credit are mortgage loans in the process of origination which are intended for sale to investors in the secondary market.  These forward sale commitments are on an individual loan basis that CTBI originates as part of our mortgage banking activities.  CTBI commits to sell the loans at specified prices in a future period, typically within 60 days.  These commitments are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale since CTBI is exposed to interest rate risk during the period between issuing a loan commitment and the sale of the loan into the secondary market.  Total mortgage loans in the process of origination amounted to $0.4 million and $1.8 million at December 31, 2023 and 2022, respectively, and mortgage loans held for sale amounted to $0.2 million and $0.1 million for the years ended December 31, 2023 and 2022, respectively.

18.  Concentrations of Credit Risk


CTBI’s banking activities include granting commercial, residential, and consumer loans to customers primarily located in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. CTBI is continuing to manage all components of our portfolio mix in a manner to reduce risk from changes in economic conditions. Concentrations of credit, as defined for regulatory purposes, are reviewed quarterly by management to ensure that internally established limits based on Tier 1 Capital plus the ACL are not exceeded.  At December 31, 2023 and 2022, our concentrations of hospitality industry credits were 62% and 60% of Tier 1 Capital plus the ACL, respectively.  Lessors of residential buildings and dwellings were 46% and 41% for each period end, respectively, and lessors of non-residential buildings credits were 35% for each period end.  These percentages are within our internally established limits regarding concentrations of credit.

19.  Commitments and Contingencies


CTBI and our subsidiaries, and from time to time, our officers, are named defendants in legal actions arising from ordinary business activities.  Management, after consultation with legal counsel, believes any pending actions at December 31, 2023 are without merit or that the ultimate liability, if any, will not materially affect our consolidated financial position or results of operations.


On May 31, 2023, Progress Software Corporation published information related to a vulnerability in its software tool MOVEit Transfer (“MOVEit”).  CTBI does not use MOVEit on its internal networks.  However, on Wednesday, August 9, 2023, CTBI received written notice from a third party prominent financial institution vendor that certain of CTBI’s customer data was potentially accessed due to the vendor’s utilization of MOVEit in its service offering to CTBI.  Based on the investigation to date, including information provided from the vendor, CTBI’s customers could have had personal information copied through the cyberattack.  The vendor confirmed that it implemented the recommended patches released by Progress Software Corporation for the MOVEit platform.  CTBI worked with the vendor to determine the potentially impacted customers and the extent of information potentially exposed, and CTBI is notifying potentially affected customers appropriately.  The incident did not impact the ongoing operations of CTBI, and CTBI carries cyber insurance which it expects to cover many of the costs related to the incident.

20.  Regulatory Matters


CTBI’s principal source of funds is dividends received from our banking subsidiary, CTB.  Regulations limit the amount of dividends that may be paid by CTB without prior approval.  During 2024, approximately $105.7 million plus any 2024 net profits can be paid by CTB without prior regulatory approval.


CTBI and CTB are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material adverse effect on CTBI’s financial statements.  Under regulatory capital adequacy guidelines, CTBI and CTB must meet specific capital guidelines that involve quantitative measures of CTBI’s and CTB’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  Additionally, CTB must meet specific capital guidelines to be considered well capitalized per the regulatory framework for prompt corrective action. CTBI’s and CTB’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.


CTBI and CTB must maintain certain minimum capital ratios as set forth in the table below for capital adequacy purposes.  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. Management elected to use the CBLR framework for CTBI and CTB.


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 was increased to 8.5% for the calendar year before returning to 9% in calendar year 2022. CTBI’s and CTB’s CBLR ratios as of December 31, 2023 and 2022 are disclosed below.


Consolidated Capital Ratios

 
Actual
   
For Capital Adequacy
Purposes
 
(in thousands)
 
Amount
   
Ratio
   
Amount
   
Ratio
 
As of December 31, 2023:
                       
CBLR
 
$
797,672
     
13.69
%
 
$
524,234
     
9.00
%

As of December 31, 2022:
                       
CBLR
 
$
750,159
     
13.55
%
 
$
498,148
     
9.00
%

Community Trust Bank, Inc.’s Capital Ratios

 
Actual
   
For Capital Adequacy
Purposes
 
(in thousands)
 
Amount
   
Ratio
   
Amount
   
Ratio
 
As of December 31, 2023:
                       
CBLR
 
$
766,180
     
13.22
%
 
$
521,612
     
9.00
%

As of December 31, 2022:
                       
CBLR
 
$
714,727
     
12.98
%
 
$
495,727
     
9.00
%

21.  Parent Company Financial Statements

Condensed Balance Sheets

(in thousands)
December 31
 
2023
   
2022
 
Assets:
           
Cash on deposit
 
$
3,183
   
$
2,933
 
Investment in and advances to subsidiaries
   
759,048
     
679,425
 
Goodwill
   
4,973
     
4,973
 
Premises and equipment, net
   
237
     
133
 
Deferred tax asset
   
434
     
260
 
Other assets
   
49
     
4,808
 
Total assets
 
$
767,924
   
$
692,532
 
                 
Liabilities and shareholders’ equity:
               
Long-term debt
 
$
61,341
   
$
61,341
 
Other liabilities
   
4,375
     
3,144
 
Total liabilities
   
65,716
     
64,485
 
                 
Shareholders’ equity
   
702,208
     
628,047
 
                 
Total liabilities and shareholders’ equity
 
$
767,924
   
$
692,532
 

Condensed Statements of Income and Comprehensive Income (Loss)

(in thousands)
Year Ended December 31
 
2023
   
2022
   
2021
 
Income:
                 
Dividends from subsidiaries
 
$
29,931
   
$
31,544
   
$
33,319
 
Other income
   
1,400
     
710
     
482
 
Total income
   
31,331
     
32,254
     
33,801
 
                         
Expenses:
                       
Interest expense
   
4,287
     
2,060
     
1,090
 
Depreciation expense
   
125
     
75
     
70
 
Other expenses
   
4,718
     
4,833
     
5,878
 
Total expenses
   
9,130
     
6,968
     
7,038
 
                         
Income before income taxes and equity in undistributed income of subsidiaries
   
22,201
     
25,286
     
26,763
 
Income tax benefit
   
(2,012
)
   
(1,808
)
   
(1,700
)
Income before equity in undistributed income of subsidiaries
   
24,213
     
27,094
     
28,463
 
Equity in undistributed income of subsidiaries
   
53,791
     
54,720
     
59,476
 
                         
Net income
 
$
78,004
   
$
81,814
   
$
87,939
 
                         
Other comprehensive income (loss):
                       
Unrealized holding gains (losses) on debt securities available-for-sale:
                       
Unrealized holding gains (losses) arising during the period
   
36,863
     
(168,060
)
   
(24,827
)
Less: Reclassification adjustments for realized gains (losses) included in net income
   
4
     
(81
)
   
60
 
Tax expense (benefit)
   
11,028
     
(43,675
)
   
(6,471
)
Other comprehensive income (loss), net of tax
   
25,831
     
(124,304
)
   
(18,416
)
Comprehensive income (loss)
 
$
103,835
   
$
(42,490
)
 
$
69,523
 

Condensed Statements of Cash Flows

(in thousands)
Year Ended December 31
 
2023
   
2022
   
2021
 
Cash flows from operating activities:
                 
Net income
 
$
78,004
   
$
81,814
   
$
87,939
 
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation
   
125
     
76
     
69
 
Equity in undistributed earnings of subsidiaries
   
(53,791
)
   
(54,720
)
   
(59,476
)
Deferred taxes
   
(174
)
   
630
     
3,759
 
Stock-based compensation
   
1,576
     
1,366
     
850
 
Gains on sale of assets, net
    (48 )     0       0  
Changes in:
                       
Other assets
   
4,758
     
611
     
(5,403
)
Other liabilities
   
1,039
     
(1,115
)
   
1,037
 
Net cash provided by operating activities
   
31,489
     
28,662
     
28,775
 
                         
Cash flows from investing activities:
                       
Net purchases of premises and equipment
   
(229
)
   
(95
)
   
(66
)
Proceeds from sale and retirement of premises and equipment
    48       0       0  
Net cash used in investing activities
   
(181
)
   
(95
)
   
(66
)
                         
Cash flows from financing activities:
                       
Issuance of common stock
   
1,129
     
1,041
     
965
 
Dividends paid
   
(32,187
)
   
(29,938
)
   
(27,916
)
Net cash used in financing activities
   
(31,058
)
   
(28,897
)
   
(26,951
)
                         
Net increase (decrease) in cash and cash equivalents
   
250
     
(330
)
   
1,758
 
Cash and cash equivalents at beginning of year
   
2,933
     
3,263
     
1,505
 
Cash and cash equivalents at end of year
 
$
3,183
   
$
2,933
   
$
3,263
 

22.  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.


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 Consolidated Statements of Income and Comprehensive Income above.

23.  Earnings Per Share


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

Year Ended December 31
(in thousands except per share data)
 
2023
   
2022
   
2021
 
Numerator:
                 
Net income
 
$
78,004
   
$
81,814
   
$
87,939
 
                         
Denominator:
                       
Basic earnings per share:
                       
Weighted average shares
   
17,887
     
17,836
     
17,786
 
Diluted earnings per share:
                       
Dilutive effect of equity grants
   
13
     
15
     
18
 
Adjusted weighted average shares
   
17,900
     
17,851
     
17,804
 
                         
Earnings per share:
                       
Basic earnings per share
 
$
4.36
   
$
4.59
   
$
4.94
 
Diluted earnings per share
   
4.36
     
4.58
     
4.94
 


There were no options to purchase common shares that were excluded from the diluted calculations above for the years ended December 31, 2023, 2022, and 2021.  In addition to in-the-money stock options, unvested restricted stock grants were also used in the calculation of diluted earnings per share based on the treasury method.

24.  Accumulated Other Comprehensive Income (Loss)

Unrealized gains (losses) on AFS securities


Amounts reclassified from accumulated other comprehensive income (loss) (“AOCI”) and the affected line items in the statements of income during the years ended December 31, 2023, 2022, and 2021 were:

 
Amounts Reclassified from AOCI
 
Year Ended December 31
(in thousands)
 
2023
   
2022
   
2021
 
Affected line item in the statements of income
                 
Securities gains (losses)
 
$
4
   
$
(81
)
 
$
60
 
Tax expense (benefit)
   
1
     
(21
)
   
16
 
Total reclassifications out of AOCI
 
$
3
   
$
(60
)
 
$
44
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders, Board of Directors, and Audit Committee
Community Trust Bancorp, Inc.
Pikeville, Kentucky

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Community Trust Bancorp, Inc. (Company) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control––Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.  The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

The Company’s loan portfolio totaled $4.1 billion as of December 31, 2023 and the associated allowance for credit losses (“ACL”) was $49.5 million.  As more fully described in Notes 1 and 4 to the consolidated financial statements, the Company estimates the 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.  Expected credit losses are measured on a collective (pool) basis using a discounted cash flow method when the financial assets share similar risk characteristics.  Loans that do not share similar risk characteristics are evaluated on an individual basis.  Historical loss rates reflecting estimated life of loan losses are analyzed and applied to their respective loan segments comprised of loans not subject to individual evaluation.  The Company uses discounted cash flow loss rate methodologies for all loan segments.  The expected cash flows are modeled considering probability of default and segment-specific loss given default (“LGD”) risk factors.  Cash flows are then discounted at that effective yield to produce an instrument-level net present value (“NPV”) of expected cash flows.  An ACL is established for the difference between the instrument’s NPV and amortized cost basis.  The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions.  Management incorporates qualitative factors to loss estimates used to derive the Company’s total ACL including delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, and underwriting exceptions.

We identified the valuation of the ACL as a critical audit matter.  The principal considerations for that determination included the high degree of judgment and subjectivity involved in evaluating management’s estimates, particularly as it related to evaluating management’s assessment of the qualitative factors. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s significant estimates and assumptions.

Our audit procedures related to the estimated ACL included the following procedures, among others.


Obtained an understanding of the Company’s process for establishing the ACL, including the qualitative and forecast factor adjustments of the ACL


Evaluated the design and tested the operating effectiveness of internal controls relating to management’s determination of the ACL, including controls over:


o
Management’s process for identification, basis for development and related adjustments; including reasonableness, of the qualitative factor components of the ACL

o
Management’s review of reliability and accuracy of data used to calculate and estimate the various components of the ACL, including accuracy of the calculation


Evaluated the reasonableness of management’s application of qualitative factor adjustments to historical loss rates in the ACL, including:

o
Evaluated completeness and accuracy of the information utilized as a basis for the qualitative factors to third party or internal sources

o
Evaluated the relevance of inputs in the calculation utilized as a basis for the qualitative factors

o
Inspected overall trends in credit quality by comparing the Company’s year-over-year changes in qualitative factors and the ACL


Evaluated the mathematical accuracy of formulas used in setting qualitative factors and application of the factors to loan segments

/s/ FORVIS, LLP

We have served as Community Trust Bancorp, Inc.’s auditor since 2006.

Louisville, Kentucky
February 28, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders, Board of Directors, and Audit Committee
Community Trust Bancorp, Inc.
Pikeville, Kentucky

Opinion on the Internal Control over Financial Reporting

We have audited Community Trust Bancorp, Inc.’s (Company) internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control––Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control––Integrated Framework: (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023, and our report dated February 28, 2024 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report on internal control.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

/s/ FORVIS, LLP

Louisville, Kentucky
February 28, 2024

Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.
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) of the Securities Exchange Act of 1934.  As of December 31, 2023, an evaluation was carried out by CTBI’s management, with the participation of our Chief Executive Officer and our Chief Financial Officer 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 December 31, 2023 were effective in ensuring material information required to be disclosed in this annual report on Form 10-K was recorded, processed, summarized, and reported on a timely basis.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Management has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the control criteria in the 2013 COSO Framework issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission.  Based on such evaluation, we have concluded that CTBI’s internal control over financial reporting is effective as of December 31, 2023.

There were no changes in CTBI’s internal control over financial reporting that occurred during the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, CTBI’s internal control over financial reporting.

MANAGEMENT REPORT ON INTERNAL CONTROL

We, as management of Community Trust Bancorp, Inc. and its subsidiaries (“CTBI”), are responsible for establishing and maintaining adequate internal control over financial reporting.  Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls.  Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation.  Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Because of the inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected.  Also, projections of the effectiveness to future periods are subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.

Management has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the control criteria in the 2013 COSO Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on such evaluation, we have concluded that CTBI’s internal control over financial reporting is effective as of December 31, 2023.

The effectiveness of CTBI’s internal control over financial reporting as of December 31, 2023 has been audited by FORVIS, LLP (formerly BKD, LLP), an independent registered public accounting firm that audited CTBI’s consolidated financial statements included in this annual report.

February 28, 2024
/s/ Mark A. Gooch
 
 
Mark A. Gooch
 
Vice Chairman, President, and Chief Executive Officer
   
 
/s/ Kevin J. Stumbo
 
 
Kevin J. Stumbo
 
Executive Vice President, Chief Financial Officer,
and Treasurer

Item 9B.
Other Information

None.
PART III

Item 10.
Directors, Executive Officers, and Corporate Governance

The information required by this item (other than disclosure of our executive officers, which is included in Part I, Item 1 of this report) is omitted, because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information.  The required information contained in CTBI’s proxy statement is incorporated herein by reference.

Item 11.
Executive Compensation

The information required by this item is omitted because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information.  The required information contained in CTBI’s proxy statement is incorporated herein by reference.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this item other than the information provided below is omitted, because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information.  The required information contained in CTBI’s proxy statement is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information as of December 31, 2023, with respect to compensation plans under which common shares of CTBI are authorized for issuance to officers or employees in exchange for consideration in the form of services provided to CTBI and/or our subsidiaries.  At December 31, 2023, we maintained one active and one inactive incentive stock option plan covering key employees.  The 2015 Stock Ownership Incentive Plan (“2015 Plan”) was approved by the Board of Directors and the Shareholders in 2015.  The 2006 Stock Ownership Incentive Plan (“2006 Plan”) was approved by the Board of Directors and the Shareholders in 2006.  The 2006 Plan was rendered inactive as of April 28, 2015.  The 2015 Plan has 550,000 shares authorized, 348,146 of which were available at December 31, 2023.  Shares issuable pursuant to awards which were granted under the prior plans on or before their respective expiration or termination dates will be issued from the remaining shares reserved for issuance under the prior plans. The shares of common stock reserved for issuance under the prior plans in excess of the number of shares as to which options or other benefits are awarded thereunder, and any shares as to which options or other benefits granted under the prior plans may lapse, expire, terminate, or be canceled, will not be reserved and available for issuance or reissuance under the 2015 Plan.

     A

   B

   C

Plan Category
(shares in thousands)
 
Number of Common
Shares to be Issued
Upon Exercise
   
Weighted Average Price
   
Number of Securities
Available for Future
Issuance Under Equity
Compensation Plans
(excluding securities
reflected in Column A)
 
Equity compensation plans approved by shareholders:
   
20
   
$
32.27
     
348
 
Stock options
                       
Equity compensation plans not approved by shareholders
   
0
     
--
     
0
 
                         
Total
                   
348
 

Additional information regarding CTBI’s stock option plans can be found in notes 1 and 14 to the consolidated financial statements contained herein.

Item 13.
Certain Relationships, Related Transactions, and Director Independence

The information required by this item is omitted, because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information.  The required information contained in CTBI’s proxy statement is incorporated herein by reference.

Item 14.
Principal Accountant Fees and Services

The information required by this item is omitted, because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information.  The required information contained in CTBI’s proxy statement is incorporated herein by reference.

PART IV

Item 15.
Exhibits and Financial Statement Schedules

(a)  1.  Financial Statements

The following financial statements of CTBI and the auditor’s report thereon are filed as part of this Form 10-K under Item 8. Financial Statements and Supplementary Data:

Consolidated Balance Sheets
Consolidated Statements of Income and Other Comprehensive Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (FORVIS, LLP, Louisville, Kentucky, PCAOB ID 686)

2.    Financial Statement Schedules

All required financial statement schedules for CTBI have been included in this Form 10-K in the consolidated financial statements or the related footnotes.

3.    Exhibits

Exhibit No.
Description of Exhibits
3.1
Articles of Incorporation and all amendments thereto {incorporated by reference to registration statement no. 33-35138}
   
By-laws of CTBI as amended July 25, 1995 {incorporated by reference to registration statement no. 33-61891}
   
By-laws of CTBI as amended January 29, 2008 {incorporated by reference to current report on Form 8-K filed January 30, 2008}
   
Description of CTBI’s Securities Registered under Section 12 of the Securities Exchange Act of 1934 {incorporated herein by reference to Exhibit 4.1 of Form 10-K for the fiscal year ended December 31, 2021 under SEC file no. 000-111-29}
   
Community Trust Bancorp, Inc. Employee Stock Ownership Plan (effective January 1, 2007) {incorporated herein by reference to Exhibit 10.1 of Form 10-K for the fiscal year ended December 31, 2006 under SEC file no. 000-111-29}
   
Community Trust Bancorp, Inc. Savings and Employee Stock Ownership Plan (Amendment Number One effective January 1, 2002, Amendment Number Two effective January 1, 2004, Amendment Number Three effective March 28, 2005, and Amendment Number Four effective January 1, 2006) {incorporated herein by reference to Exhibit 10.2 of Form 10-K for the fiscal year ended December 31, 2006 under SEC file no. 000-111-29}
   
Community Trust Bancorp, Inc. 1998 Stock Option Plan {incorporated by reference to registration statement no. 333-74217}
   
Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated by reference to Proxy Statement dated March 24, 2006}

Form of Severance Agreement between Community Trust Bancorp, Inc. and executive officers (currently in effect with respect to twelve executive officers) {incorporated herein by reference to Exhibit 10.4 of Form 10-K for the fiscal year ended December 31, 2001 under SEC file no. 000-111-29}
   
Senior Management Incentive Compensation Plan (2024) {incorporated herein by reference to Exhibit 10.7 of current report on Form 8-K dated January 23, 2024}
   
Restricted Stock Agreement {incorporated herein by reference to Exhibit 10.8 of Form 10-K for the fiscal year ended December 31, 2011 under SEC file no. 000-111-29}
   
Employee Incentive Compensation Plan (2024) {incorporated herein by reference to Exhibit 10.9 of current report on Form 8-K dated January 23, 2024}
   
Amendment to the Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated herein by reference to Exhibit 10.10 of current report on Form 8-K dated January 24, 2012}
   
Community Trust Bancorp, Inc. 2015 Stock Ownership Incentive Plan {incorporated herein by reference to registration statement no. 333-208053}
   
Community Trust Bancorp, Inc. 2022 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to Exhibit 10.22 of current report on Form 8-K dated January 25, 2022}
   
Amendment to Community Trust Bancorp, Inc. 2022 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to Exhibit 10.23 of current report on Form 8-K dated February 3, 2022}
   
Community Trust Bancorp, Inc. 2023 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to Exhibit 10.24 of current report on Form 8-K dated January 24, 2023}
   
Community Trust Bancorp, Inc. 2024 Executive Committee Long-Term Incentive Compensation Plan {incorporated herein by reference to Exhibit 10.21 of current report on Form 8-K dated January 23, 2024}
   
Subsidiaries of the Registrant
   
Consent of FORVIS, LLP, Independent Registered Public Accounting Firm
   
Certification of Principal Executive Officer (Mark A. Gooch, Vice Chairman, President, and Chief Executive Officer)
   
Certification of Principal Financial Officer (Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer)
   
Certification of Mark A. Gooch, Vice Chairman, President, and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
Community Trust Bancorp, Inc. Policy for the Recovery of Erroneously Awarded Compensation
   
Community Trust Bancorp, Inc. Dividend Reinvestment Plan, as amended December 20, 2013 {incorporated by reference to registration statement no. 333-193011}
   
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
   
101.SCH
Inline XBRL Taxonomy Extension Schema
   
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
   
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
   
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
   
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report.

+ Furnished with this report.

(b)  Exhibits

The response to this portion of Item 15 is submitted in (a) 3. above.

(c)  Financial Statement Schedules

None


Item 16.
Form 10-K Summary

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


COMMUNITY TRUST BANCORP, INC.
       
February 28, 2024
By:
/s/ Mark A. Gooch
 
   
Mark A. Gooch
   
Vice Chairman, President, and Chief Executive Officer
     
   
/s/ Kevin J. Stumbo
 
   
Kevin J. Stumbo
   
Executive Vice President, Chief Financial Officer, and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

February 28, 2024
/s/ M. Lynn Parrish
Chairman of the Board
 
M. Lynn Parrish
 
     
February 28, 2024
/s/ Mark A. Gooch
Vice Chairman, President, and Chief Executive Officer
 
Mark A. Gooch
 
     
February 28, 2024
/s/ Kevin J. Stumbo
Executive Vice President, Chief Financial Officer, and Treasurer
 
Kevin J. Stumbo
 
     
February 28, 2024
/s/ Charles J. Baird
Director
 
Charles J. Baird
 
     
February 28, 2024
/s/ Franklin H. Farris, Jr.
Director
 
Franklin H. Farris, Jr.
 

February 28, 2024
/s/ Eugenia “Crit” Luallen
Director
 
Eugenia “Crit” Luallen
 
     
February 28, 2024
/s/ Ina Michelle Matthews
Director
 
Ina Michelle Matthews
 
     
February 28, 2024
/s/ James E. McGhee, II
Director
 
James E. McGhee II
 
     
February 28, 2024
/s/ Franky Minnifield
Director
 
Franky Minnifield
 
     
February 28, 2024
/s/ Jefferson F. Sandlin
Director
 
Jefferson F. Sandlin
 
     
February 28, 2024
/s/ Anthony W. St. Charles
Director
 
Anthony W. St. Charles
 
     
February 28, 2024
/s/ Chad C. Street
Director
 
Chad C. Street
 
     
February 28, 2024
/s/ Lillian (Kay) Webb
Director
 
Lillian (Kay) Webb
 


106
EX-21 2 ef20015332_ex21.htm EXHIBIT 21

Exhibit 21

Subsidiaries of the Registrant

Community Trust Bancorp, Inc. had four subsidiaries as of January 1, 2024.

 
Jurisdiction of
Organization
Shares Owned by
CTBI
Percent Voting
Stock Held by
CTBI
Community Trust Bank, Inc., Pikeville, Kentucky
Kentucky
285,000 Common
100%
       
Community Trust and Investment Company, Lexington, Kentucky
Kentucky
500 Common
100%
       
CTBI Preferred Capital Trust III
Delaware
1,841 Common Trust Securities
100%
       
Community Trust Asset Management
Kentucky
2,000 Common
100%



EX-23.1 3 ef20015332_ex23-1.htm EXHIBIT 23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements on Form S-3 (No. 333-193011) and Form S-8 (No. 333-208053) of Community Trust Bancorp, Inc. of our reports dated February 28, 2024, on our audits of the consolidated financial statements of Community Trust Bancorp, Inc. as of December 31, 2023 and 2022, and for each of the years in the three-year period ended December 31, 2023, which report is included in this annual report on Form 10-K.  We also consent to the incorporation by reference of our report dated February 28, 2024, on our audit of the internal control over financial reporting of Community Trust Bancorp, Inc. as of December 31, 2023, which report is included in this annual report on Form 10-K.

/s/ FORVIS, LLP

Louisville, Kentucky
February 28, 2024



EX-31.1 4 ef20015332_ex31-1.htm EXHIBIT 31.1

Exhibit 31.1

Certification of Principal Executive Officer

I, Mark A. Gooch, Vice Chairman, President, and Chief Executive Officer of Community Trust Bancorp, Inc. (“CTBI”), certify that:

(1)
I have reviewed this annual report on Form 10-K of Community Trust Bancorp, Inc.;

(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of CTBI as of, and for, the periods presented in this report;

(4)
CTBI’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for CTBI and have:


(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to CTBI, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)
evaluated the effectiveness of CTBI’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)
disclosed in this report any change in CTBI’s internal control over financial reporting that occurred during CTBI’s most recent fiscal quarter (CTBI’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, CTBI’s internal control over financial reporting; and

(5)
CTBI’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to CTBI’s auditors and the audit committee of CTBI’s board of directors (or persons performing the equivalent functions):


(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect CTBI’s ability to record, process, summarize and report financial information and


(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in CTBI’s internal control over financial reporting.

/s/ Mark A. Gooch
 
Mark A. Gooch
 
Vice Chairman, President, and Chief Executive Officer
 
February 28, 2024
 



EX-31.2 5 ef20015332_ex31-2.htm EXHIBIT 31.2

Exhibit 31.2

Certification of Principal Financial Officer

I, Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer of Community Trust Bancorp, Inc. (“CTBI”), certify that:

(1)
I have reviewed this annual report on Form 10-K of Community Trust Bancorp, Inc.;

(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of CTBI as of, and for, the periods presented in this report;

(4)
CTBI’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for CTBI and have:


(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to CTBI, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)
evaluated the effectiveness of CTBI’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)
disclosed in this report any change in CTBI’s internal control over financial reporting that occurred during CTBI’s most recent fiscal quarter (CTBI’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, CTBI’s internal control over financial reporting; and

(5)
CTBI’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to CTBI’s auditors and the audit committee of CTBI’s board of directors (or persons performing the equivalent functions):


(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect CTBI’s ability to record, process, summarize and report financial information and


(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in CTBI’s internal control over financial reporting.

/s/ Kevin J. Stumbo
 
Kevin J. Stumbo
 
Executive Vice President, Chief Financial Officer, and Treasurer
 
February 28, 2024
 



EX-32.1 6 ef20015332_ex32-1.htm EXHIBIT 32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Community Trust Bancorp, Inc. (“CTBI”) on Form 10-K for the period ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark A. Gooch, Vice Chairman, President, and Chief Executive Officer of CTBI, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CTBI.

/s/ Mark A. Gooch
 
Mark A. Gooch
 
Vice Chairman, President, and Chief Executive Officer
 
February 28, 2024
 



EX-32.2 7 ef20015332_ex32-2.htm EXHIBIT 32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Community Trust Bancorp, Inc. (“CTBI”) on Form 10-K for the period ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer of CTBI, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CTBI.

/s/ Kevin J. Stumbo
 
Kevin J. Stumbo
 
Executive Vice President, Chief Financial Officer, and Treasurer
 
February 28, 2024
 



EX-97 8 ef20015332_ex97.htm EXHIBIT 97

Exhibit 97
 
Community Trust Bancorp, Inc.

POLICY FOR THE
RECOVERY OF ERRONEOUSLY AWARDED
COMPENSATION




A.
OVERVIEW
 
In accordance with the applicable rules of The Nasdaq Stock Market (the “Nasdaq Rules”), Section 10D and Rule 10D-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Rule 10D-1”), the Board of Directors (the “Board”) of Community Trust Bancorp, Inc. (the “Company”) has adopted this Policy (the “Policy”) to provide for the recovery of erroneously awarded Incentive-based Compensation from Executive Officers. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in Section H, below.
 
B.
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
 
(1)
In the event of an Accounting Restatement, the Company will reasonably promptly recover the Erroneously Awarded Compensation Received in accordance with Nasdaq Rules and Rule 10D-1 as follows:
 
(i)
After an Accounting Restatement, the Compensation Committee (if composed entirely of independent directors, or in the absence of such a committee, a majority of independent directors serving on the Board) (the “Committee”) shall determine the amount of any Erroneously Awarded Compensation Received by each Executive Officer and shall promptly notify each Executive Officer with a written notice containing the amount of any Erroneously Awarded Compensation and a demand for repayment or return of such compensation, as applicable.
 
a.
For Incentive-based Compensation based on (or derived from) the Company’s stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement:
i.
The amount to be repaid or returned shall be determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the Company’s stock price or total shareholder return upon which the Incentive-based Compensation was Received; and
ii.
The Company shall maintain documentation of the determination of such reasonable estimate and provide the relevant documentation as required to the Nasdaq.

(ii)
The Committee shall have discretion to determine the appropriate means of recovering Erroneously Awarded Compensation based on the particular facts and circumstances.8 Notwithstanding the foregoing, except as set forth in Section B(2) below, in no event may the Company accept an amount that is less than the amount of Erroneously Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder.


(iii)
To the extent that the Executive Officer has already reimbursed the Company for any Erroneously Awarded Compensation Received under any duplicative recovery obligations established by the Company or applicable law, it shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded Compensation that is subject to recovery under this Policy. To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company when due, the Company shall take all actions reasonable and appropriate to recover such Erroneously Awarded Compensation from the applicable Executive Officer. The applicable Executive Officer shall be required to reimburse the Company for any and all expenses reasonably incurred (including legal fees) by the Company in recovering such Erroneously Awarded Compensation in accordance with the immediately preceding sentence.

(2)
Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by Section B(1) above if the Committee (which, as specified above, is composed entirely of independent directors or in the absence of such a committee, a majority of the independent directors serving on the Board) determines that recovery would be impracticable and either of the following conditions are met:
 
(i)
The Committee has determined that the direct expenses paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered. Before making this determination, the Company must make a reasonable attempt to recover the Erroneously Awarded Compensation, documented such attempt(s) and provided such documentation; or

(ii)
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and regulations thereunder.
 
C.
DISCLOSURE REQUIREMENTS

The Company shall file all disclosures with respect to this Policy required by applicable U.S. Securities and Exchange Commission (“SEC”) filings and rules.
 
D.
PROHIBITION OF INDEMNIFICATION
 
The Company shall not be permitted to insure or indemnify any Executive Officer against (i) the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the Company’s enforcement of its rights under this Policy. Further, the Company shall not enter into any agreement that exempts any Incentive-based Compensation that is granted, paid or awarded to an Executive Officer from the application of this Policy or that waives the Company’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date of this Policy).
 
E.
ADMINISTRATION AND INTERPRETATION
 
This Policy shall be administered by the Committee, and any determinations made by the Committee shall be final and binding on all affected individuals.
 

The Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy and for the Company’s compliance with Nasdaq Rules, Section 10D, Rule 10D-1 and any other applicable law, regulation, rule or interpretation of the SEC or Nasdaq promulgated or issued in connection therewith.
 
F.
AMENDMENT; TERMINATION
 
The Committee may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary. Notwithstanding anything in this Section F to the contrary, no amendment or termination of this Policy shall be effective if such amendment or termination would (after considering any actions taken by the Company contemporaneously with such amendment or termination) cause the Company to violate any federal securities laws, SEC rule or Nasdaq rule.

G.
OTHER RECOVERY RIGHTS

This Policy shall be binding and enforceable against all Executive Officers and, to the extent required by applicable law or guidance from the SEC or Nasdaq, their beneficiaries, heirs, executors, administrators or other legal representatives. The Committee intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement, equity award agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include, as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy.12 Any right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any provision in any employment agreement, equity award agreement, compensatory plan, agreement or other arrangement.
 
H.
DEFINITIONS

For purposes of this Policy, the following capitalized terms shall have the meanings set forth below.

(1)
“Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “little r” restatement).

(2)
“Clawback Eligible Incentive Compensation” means all Incentive-based Compensation Received by an Executive Officer (i) on or after the effective date of the applicable Nasdaq rules, (ii) after beginning service as an Executive Officer, (iii) who served as an Executive Officer at any time during the applicable performance period relating to any Incentive-based Compensation (whether or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is required to be repaid to the Company), (iv) while the Company has a class of securities listed on a national securities exchange or a national securities association, and (v) during the applicable Clawback Period (as defined below).
 

“Clawback Period” means, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately preceding the Restatement Date (as defined below), and if the Company changes its fiscal year, any transition period of less than nine months within or immediately following those three completed fiscal years.
 
(1)
“Erroneously Awarded Compensation” means, with respect to each Executive Officer in connection with an Accounting Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-based Compensation that otherwise would have been Received had it been determined based on the restated amounts, computed without regard to any taxes paid.16

(2)
“Executive Officer” means each individual who is currently or was previously designated as an “officer” of the Company as defined in Rule 16a-1(f) under the Exchange Act. For the avoidance of doubt, the identification of an executive officer for purposes of this Policy shall include each executive officer who is or was identified pursuant to Item 401(b) of Regulation S-K or Item 6.A of Form 20-F, as applicable, as well as the principal financial officer and principal accounting officer (or, if there is no principal accounting officer, the controller).

(3)
“Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and all other measures that are derived wholly or in part from such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or total shareholder return) shall, for purposes of this Policy, be considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
 
(4)
“Incentive-based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure.
 
(5)
“Nasdaq” means The Nasdaq Stock Market.
 
(6)
“Received” means, with respect to any Incentive-based Compensation, actual or deemed receipt, and Incentive-based Compensation shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-based Compensation award is attained, even if the payment or grant of the Incentive-based Compensation to the Executive Officer occurs after the end of that period.
 
(7)
“Restatement Date” means the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
 
Effective as of December 1, 2023.