COMMUNITY TRUST BANCORP INC /KY/
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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For the fiscal year ended
December 31, 2024
Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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For the transition period from _____________ to _____________
Commission file number
001-31220
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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| (Address of principal executive offices) | (Zip code) |
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(
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| Securities registered pursuant to Section 12(b) of the Act: |
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(Title of class)
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The
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(Trading symbol)
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(Name of exchange on which registered)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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Yes
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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.
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No
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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).
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No
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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.
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Accelerated Filer
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Non-accelerated Filer
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Smaller Reporting Company
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Emerging Growth Company
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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.
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I
ndicate 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.
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Yes
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No
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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.
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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).
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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No
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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, 2024 was $
761.0
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, 2025 was
18,101,765
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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 22, 2025
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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.
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, 2024, CTBI had total consolidated assets of $6.2 billion and total consolidated deposits, including repurchase agreements, of $5.3 billion. Total shareholders’ equity at December
31, 2024 was $757.6 million. Trust assets under management at December 31, 2024 were $3.7 billion, including CTB’s investment portfolio totaling $1.1 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 $38 million for the year 2024. Also, during 2024, CTBI made contributions totaling over $450 thousand to aid low and moderate income families and communities and encourage economic development. Our
employees served over 1,000 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 21% 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, 2024, CTBI and our subsidiaries had 934 full-time equivalent employees. Females comprise 75% of our workforce, and 60% of our managerial positions (supervisor or above) are
held by females. This includes 66% of our branch managers, 27% of our market presidents, and 33% of our senior vice presidents. At the time of this filing, our Board of Directors is 30% 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 (“SEC”). 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
Chairman, President, and CEO
P.O. Box 2947
Pikeville, KY 41502-2947
The 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. Management elected to use the CBLR framework for CTBI and CTB. CTBI’s CBLR ratio as of December 31, 2024 was 13.76%. CTB’s CBLR
ratio as of December 31, 2024 was 13.29%.
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:
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Clients may not want, need, or qualify for our products and services;
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Borrowers may not be able to repay their loans;
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The value of the collateral securing our loans to borrowers may decline; and
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The quality of our loan portfolio may decline.
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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 Infectious Disease Outbreaks
Our business, results of operations, and financial condition may be adversely affected by epidemics, pandemics, 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.
Epidemics, pandemics, or infectious disease outbreaks, 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 could 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 an 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 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 infectious 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 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:
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The rate of inflation;
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The rate of economic growth;
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Employment levels;
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Monetary policies; and
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Instability in domestic and foreign financial markets.
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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:
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The length and severity of downturns in the local economies in which we operate or the national economy;
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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
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A rapid increase in interest rates.
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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:
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Commercial Real Estate Residential
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Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt
service. As of December 31, 2024, commercial real estate residential loans comprised approximately 11% of our total loan portfolio.
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Commercial Real Estate Nonresidential
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Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt
service. As of December 31, 2024, commercial real estate nonresidential loans comprised approximately 19% of our total loan portfolio.
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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, 2024, hotel/motel loans comprised approximately 10% of our total loan portfolio.
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Other Commercial Loans
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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, 2024, other commercial loans comprised approximately 10% of our total loan
portfolio.
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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, 2024, consumer loans comprised approximately 22% of our total loan portfolio. As of December 31, 2024, approximately 85% of our consumer loans and 19% 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, 2024, approximately 68% of our loan portfolio was secured by real estate, with approximately 41% of the portfolio consisting of commercial real estate (“CRE”). 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. CRE held by CTBI is not concentrated in office space/large metro areas and at risk of significant decrease in collateral value.
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 in
our annual report on Form 10-K for the year ended December 31, 2023. The incident did not impact the ongoing operations of CTBI, and we do not expect any significant expenses beyond what our insurance policy covers.
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. 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 bank failures or concerns involving liquidity, may have a material effect on our operations.
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. Bank failures that occurred in 2023 highlighted 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.
The recent increase in longer-term interest rates has negatively impacted the market value of our investment portfolio. We have traditionally relied upon our investment portfolio
as a source of liquidity. With this reduced market value, it is more difficult to access this liquidity without an adverse impact on our capital and earnings positions.
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.
None.
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.
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.
Our
processes for assessing, identifying, and managing material risks from cybersecurity threats have been integrated into our overall risk
management processes. Our internal audit program executes
a
comprehensive and layered auditing approach including people, processes and technology 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. The audit program and cybersecurity defense evaluations are key parts of our overall risk management processes.
Our enterprise risk management program is designed to identify, assess, and mitigate risks across various aspects of
our company, including financial, operational, regulatory, reputational, and legal. Cybersecurity is a critical component of this program, given the increasing reliance on technology and potential of cyber threats. Our processes and
policies related to cybersecurity are focused on: (i) developing organizational understanding to manage cybersecurity risks, (ii) applying safeguards to protect our systems, (iii) detecting the occurrence of a cybersecurity incident, (iv)
responding to a cybersecurity incident, and (v) recovering from a cybersecurity incident. Where appropriate, these processes and policies are integrated into our overall enterprise risk management systems and processes. For example, all of
our employees with network access are required to complete information security and privacy training on an annual basis. We are continuously working to improve our information technology systems and provide employee awareness training around
phishing, malware, and other cyber risks to enhance our levels of protection.
Other aspects of our cyber and information security risk management program include:
|
|
• |
Monitoring external and internal threats and events, managing access, facilitating use of appropriate authentication options, validating controls and programs by
internal teams and independent third parties and testing various compromise scenarios that are overseen by our information security team;
|
|
|
• |
Investing in threat intelligence platforms and participating in financial services industry and government forums which track and report on cyber and other
information security threats;
|
|
|
• |
Routinely performing vulnerability tests;
|
|
|
• |
Engaging independent consultants and other third-parties to assist CTBI in establishing and improving its policies; and
|
|
|
• |
Conducting “tabletop” exercises at least annually to test CTBI’s processes and policies and using feedback from those exercises to further improve our processes.
|
CTBI also maintains insurance coverage for cybersecurity incidents as part of its overall insurance portfolio.
In the event
of a cybersecurity incident, CTBI maintains incident response plans to investigate, classify, respond to, and manage cybersecurity incidents that may compromise the availability or integrity of our information systems, network resources, or
data. In accordance with the incident response plans, cross-functional management teams assess and assign a threat level
t
o each cybersecurity incident.
A cybersecurity incident (or incidents, if aggregated together) determined to be at a critical threat level is escalated to a group consisting of CTBI’s Chief
Executive Officer and certain other officers, including the Chief Legal Officer, Executive Vice President/Operations, Chief Risk Officer, and Chief Financial Officer for review.
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.
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, 2024:
|
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)
|
5
|
2
|
7
|
|
6 locations in Fayette County, Kentucky, 1 location in Boone 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)
|
9
|
0
|
9
|
|
|
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, 1
location in Marion County, Kentucky, and 1 location in Hardin 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
|
73
|
8
|
81
|
|
|
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
|
74
|
8
|
82
|
|
* Community Trust and Investment Company has leased offices in the main office locations in these markets.
** Land was purchased in Mt. Sterling for a branch consolidation scheduled to open in the 3
rd
quarter 2025.
See notes 7 and 15 to the consolidated financial statements contained herein for the year ended December 31, 2024, for additional information relating to lease commitments and amounts invested
in premises and equipment.
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.
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; 66
|
Chairman, President, and Chief Executive Officer
|
1997
|
(2)
|
Chairman, President, and CEO of CTBI
|
|
Kevin J. Stumbo; 64
|
Executive Vice President, Chief Financial Officer, and Treasurer
|
2002
|
Executive Vice President/ Chief Financial Officer of CTBI
|
|
|
Billie J. Dollins; 64
|
Executive Vice President
|
2023
|
(3)
|
Executive Vice President/ Central Kentucky Region President of CTB
|
|
C. Wayne Hancock; 50
|
Executive Vice President and Secretary
|
2014
|
(4)
|
Executive Vice President/ Chief Legal Officer of CTB
|
|
Steven E. Jameson; 68
|
Executive Vice President
|
2004
|
(5)
|
Executive Vice President/ Chief Internal Audit & Risk Officer of CTB
|
|
D. Andrew Jones; 62
|
Executive Vice President
|
2010
|
Executive Vice President/ Northeastern Region President of CTB
|
|
|
Thomas E. McCoy; 56
|
Executive Vice President
|
2025
|
(6)
|
Executive Vice President/Operations of CTB
|
|
Richard W. Newsom; 70
|
Executive Vice President
|
2002
|
(7)
|
Executive Vice President/ President of CTB
|
|
Mark E. Smith; 54
|
Executive Vice President
|
2024
|
(8)
|
Executive Vice President/ Chief Credit Officer of CTB
|
|
Ricky D. Sparkman; 62
|
Executive Vice President
|
2002
|
Executive Vice President/ South Central Region President of CTB
|
|
|
David Tackett; 59
|
Executive Vice President
|
2022
|
(9)
|
Executive Vice President/ Eastern Region President of CTB
|
|
Andy D. Waters; 59
|
Executive Vice President
|
2011
|
President and CEO of CTIC
|
|
| (1) |
The ages listed for CTBI’s executive officers are as of February 28, 2025.
|
| (2) |
Mr. Gooch was appointed Chairman of the Board effective with the retirement of M. Lynn Parrish on March 17, 2024. 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. 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 on February 7,
2022.
|
| (3) |
Ms. Dollins became Executive Vice President of CTBI and President of the Central Kentucky Region of CTB on January 3, 2023. She previously held the position of President of the Versailles Market 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. McCoy was named Executive Vice President of CTBI and Executive Vice President/Operations of CTB effective February 1, 2025, following the retirement of James B. Draughn, former Executive Vice President of CTBI and Executive Vice
President/Operations of CTB, effective January 31, 2025. Mr. McCoy previously held the position of Senior Vice President/Application Systems Manager.
|
| (7) |
Mr. Newsom became President of CTB on February 7, 2022. He previously served as President of the Eastern Region of CTB.
|
| (8) |
Mr. Smith was named Executive Vice President of CTBI and Executive Vice President/Chief Credit Officer of CTB effective January 2, 2024. He was previously Senior Vice President/Loan Review Manager of CTB.
|
| (9) |
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.
|
|
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, 2025, there were approximately 9,800 holders of record of our outstanding common shares.
Dividends
The annual dividend paid to our stockholders was increased from $1.80 per share to $1.86 per share during 2024. 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 40.3%, and the 10-year average dividend payout ratio has been 41.5%. 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, 2024.
Stock Repurchases
CTBI did not acquire any shares of stock through the stock repurchase program during the year 2024. 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 $100 on December 31, 2019 in CTBI’s common stock and in each index and the reinvestment of all dividends paid during the five-year period.
Comparison of 5 Year Cumulative Total Return
among Community Trust Bancorp, Inc., NASDAQ Stock Market (U.S.),
and NASDAQ Bank Stocks
|
Fiscal Year Ending December 31 ($)
|
|||||||
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||
|
Community Trust Bancorp, Inc.
|
100.00
|
82.72
|
100.87
|
110.12
|
109.47
|
137.01
|
|
|
NASDAQ Stock Market (U.S.)
|
100.00
|
121.27
|
152.67
|
122.55
|
154.93
|
192.86
|
|
|
NASDAQ Bank Stocks
|
100.00
|
87.20
|
119.74
|
99.06
|
109.02
|
146.80
|
|
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 eighty-one 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, 2024, we had total consolidated assets of $6.2 billion and total consolidated deposits, including repurchase agreements, of $5.3 billion. Total
shareholders’ equity at December 31, 2024 was $757.6 million. Trust assets under management at December 31, 2024 were $3.7 billion, including CTB’s investment portfolio totaling $1.1 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
2025. Rather, the goals represent a range of target performance for 2025. There is no assurance that any or all of these goals will be achieved. See “Cautionary Statement Regarding Forward Looking Statements.”
|
2024 Goals
|
2024 Performance
|
2025 Goals
|
||
|
Basic earnings per share
|
$ 4.31 - $4.49
|
$ 4.61
|
$4.86 - $5.06
|
|
|
Net income
|
$77.7 - $80.8 million
|
$82.8 million
|
$88.0 - $91.6 million
|
|
|
ROAA
|
1.33% - 1.39%
|
1.41%
|
1.41% - 1.46%
|
|
|
ROAE
|
10.99% - 11.44%
|
11.31%
|
11.17% - 11.62%
|
|
|
Revenues
|
$236.8 - $246.5 million
|
$248.6 million
|
$261.6 - $272.3 million
|
|
|
Noninterest revenue as % of total revenue
|
23.50% - 25.50%
|
25.00%
|
23.50% - 25.50%
|
|
|
Assets
|
$5.74 - $6.10 billion
|
$6.19 billion
|
$6.19 - $6.57 billion
|
|
|
Loans
|
$4.18 - $4.35 billion
|
$4.49 billion
|
$4.53 - $4.71 billion
|
|
|
Deposits, including repurchase agreements
|
$4.97 - $5.17 billion
|
$5.31 billion
|
$5.32 - $5.54 billion
|
|
|
Shareholders’ equity
|
$711.2 - $740.3 million
|
$757.6 million
|
$797.8 - $830.3 million
|
Results of Operations and Financial Condition
We reported earnings of $82.8 million, or $4.61 per basic share, for the year ended December 31, 2024 compared to $78.0 million, or $4.36 per basic share, for the year ended December 31, 2023.
Total revenue for 2024 was $17.8 million above prior year, as net interest revenue increased $12.9 million and noninterest income increased $4.9 million compared to prior year. Our provision for credit losses for 2024 increased $4.1 million
over prior year, and our noninterest expense increased $5.5 million over prior year. Noninterest expense and tax expense were impacted by an accounting method change (Accounting Standards Update (“ASU”) No. 2023-02), which is intended to
improve the accounting and disclosures for investments in tax credit structures. Historically, the amortization expense related to our tax credits had been booked to noninterest expense. Beginning in January 2024, the amortization expense is
now booked to tax expense. We had a decrease in amortization expense, recognized in other direct expenses, that totaled $2.6 million for the year ended December 31, 2023. The amortization expense included in income tax expense was $3.0
million for the year ended December 31, 2024. The amount of income tax credits and other tax benefits recognized was $4.3 million for the year ended December 31, 2024.
2024 Highlights
| ❖ |
Net interest income for the year ended December 31, 2024 increased $12.9 million, or 7.4%, from December 31, 2023 with a $325.8 million increase in average earning assets.
|
| ❖ |
Provision for credit losses was $11.0 million for the year ended December 31, 2024 compared to $6.8 million for the year ended December 31, 2023.
|
| ❖ |
Our loan portfolio increased $435.7 million, or 10.8%, from December 31, 2023 to December 31, 2024.
|
| ❖ |
Net loan charge-offs were $5.5 million, or 0.13% of average loans, for the year ended December 31, 2024 compared to $3.2 million, or 0.08% of average loans, for the year ended December 31, 2023.
|
| ❖ |
Our total nonperforming loans at $26.7 million at December 31, 2024 increased $12.7 million, or 91.1%, from December 31, 2023. Nonperforming assets at $30.3 million increased $14.7 million, or 94.7%, from December 31, 2023.
|
| ❖ |
Deposits, including repurchase agreements, at December 31, 2024 increased $360.5 million, or 7.3%, from December 31, 2023.
|
| ❖ |
Noninterest income for the year ended December 31, 2024 of $62.6 million increased $4.9 million, or 8.5%, compared to the year ended December 31, 2023.
|
| ❖ |
Noninterest expense for the year ended December 31, 2024 of $130.9 million increased $5.5 million, or 4.4%, compared to the year ended December 31, 2023.
|
Income Statement Review
|
(dollars in thousands)
|
Change 2024 vs. 2023
|
|||||||||||||||
|
Year Ended December 31
|
2024
|
2023
|
Amount
|
Percent
|
||||||||||||
|
Net interest income
|
$
|
185,995
|
$
|
173,110
|
$
|
12,885
|
7.4
|
%
|
||||||||
|
Provision for credit losses
|
10,951
|
6,811
|
4,140
|
60.8
|
||||||||||||
|
Noninterest income
|
62,565
|
57,659
|
4,906
|
8.5
|
||||||||||||
|
Noninterest expense
|
130,923
|
125,390
|
5,533
|
4.4
|
||||||||||||
|
Income taxes
|
23,873
|
20,564
|
3,309
|
16.1
|
||||||||||||
|
Net income
|
$
|
82,813
|
$
|
78,004
|
$
|
4,809
|
6.2
|
%
|
||||||||
|
Average earning assets
|
$
|
5,569,948
|
$
|
5,244,128
|
$
|
325,820
|
6.2
|
%
|
||||||||
|
Yield on average earnings assets, tax equivalent*
|
5.65
|
%
|
5.15
|
%
|
0.50
|
%
|
9.8
|
%
|
||||||||
|
Cost of interest bearing funds
|
3.30
|
%
|
2.72
|
%
|
0.58
|
%
|
21.2
|
%
|
||||||||
|
Net interest margin, tax equivalent*
|
3.36
|
%
|
3.32
|
%
|
0.04
|
%
|
1.1
|
%
|
||||||||
*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
|
2024
|
2023
|
|||||||||||||||||||||||
|
(in thousands)
|
Average
Balances
|
Interest
|
Average
Rate
|
Average
Balances
|
Interest
|
Average
Rate
|
||||||||||||||||||
|
Earning assets:
|
||||||||||||||||||||||||
|
Loans (1)(2)(3)
|
$
|
4,247,762
|
$
|
274,886
|
6.47
|
%
|
$
|
3,888,585
|
$
|
231,114
|
5.94
|
%
|
||||||||||||
|
Loans held for sale
|
165
|
24
|
14.55
|
228
|
31
|
13.60
|
||||||||||||||||||
|
Securities:
|
||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
775,788
|
16,526
|
2.13
|
855,300
|
17,369
|
2.03
|
||||||||||||||||||
|
Tax exempt state and political subdivisions (3)
|
102,783
|
3,401
|
3.31
|
105,158
|
3,568
|
3.39
|
||||||||||||||||||
|
Other securities
|
227,116
|
8,427
|
3.71
|
243,012
|
9,894
|
4.07
|
||||||||||||||||||
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
10,099
|
783
|
7.75
|
10,841
|
759
|
7.00
|
||||||||||||||||||
|
Federal funds sold
|
19
|
1
|
5.26
|
256
|
9
|
3.52
|
||||||||||||||||||
|
Interest bearing deposits
|
204,113
|
10,396
|
5.09
|
138,646
|
6,968
|
5.03
|
||||||||||||||||||
|
Other investments
|
245
|
6
|
2.45
|
245
|
0
|
0.00
|
||||||||||||||||||
|
Investment in unconsolidated subsidiaries
|
1,858
|
132
|
7.10
|
1,857
|
129
|
6.95
|
||||||||||||||||||
|
Total earning assets
|
$
|
5,569,948
|
$
|
314,582
|
5.65
|
%
|
$
|
5,244,128
|
$
|
269,841
|
5.15
|
%
|
||||||||||||
|
Allowance for credit losses
|
(51,749
|
)
|
(47,606
|
)
|
||||||||||||||||||||
|
5,518,199
|
5,196,522
|
|||||||||||||||||||||||
|
Nonearning assets:
|
||||||||||||||||||||||||
|
Cash and due from banks
|
58,714
|
61,184
|
||||||||||||||||||||||
|
Premises and equipment and right of use assets, net
|
62,584
|
60,232
|
||||||||||||||||||||||
|
Other assets
|
254,498
|
254,203
|
||||||||||||||||||||||
|
Total assets
|
$
|
5,893,995
|
$
|
5,572,141
|
||||||||||||||||||||
|
Interest bearing liabilities:
|
||||||||||||||||||||||||
|
Deposits:
|
||||||||||||||||||||||||
|
Savings and demand deposits
|
$
|
2,309,430
|
$
|
62,812
|
2.72
|
%
|
$
|
2,136,653
|
$
|
52,336
|
2.45
|
%
|
||||||||||||
|
Time deposits
|
1,260,730
|
49,704
|
3.94
|
1,071,584
|
28,831
|
2.69
|
||||||||||||||||||
|
Repurchase agreements and federal funds purchased
|
229,408
|
10,393
|
4.53
|
219,591
|
8,994
|
4.10
|
||||||||||||||||||
|
Advances from Federal Home Loan Bank
|
597
|
16
|
2.68
|
18,494
|
1,004
|
5.43
|
||||||||||||||||||
|
Long-term debt
|
64,130
|
4,365
|
6.81
|
64,351
|
4,257
|
6.62
|
||||||||||||||||||
|
Finance lease liability
|
3,438
|
158
|
4.60
|
3,469
|
118
|
3.40
|
||||||||||||||||||
|
Total interest bearing liabilities
|
$
|
3,867,733
|
$
|
127,448
|
3.30
|
%
|
$
|
3,514,142
|
$
|
95,540
|
2.72
|
%
|
||||||||||||
|
Noninterest bearing liabilities:
|
||||||||||||||||||||||||
|
Demand deposits
|
1,238,101
|
1,343,917
|
||||||||||||||||||||||
|
Other liabilities
|
56,042
|
50,418
|
||||||||||||||||||||||
|
Total liabilities
|
5,161,876
|
4,908,477
|
||||||||||||||||||||||
|
Shareholders’ equity
|
732,119
|
663,664
|
||||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$
|
5,893,995
|
$
|
5,572,141
|
||||||||||||||||||||
|
Net interest income, tax equivalent
|
$
|
187,134
|
$
|
174,301
|
||||||||||||||||||||
|
Less tax equivalent interest income
|
1,139
|
1,191
|
||||||||||||||||||||||
|
Net interest income
|
$
|
185,995
|
$
|
173,110
|
||||||||||||||||||||
|
Net interest spread
|
2.35
|
%
|
2.43
|
%
|
||||||||||||||||||||
|
Benefit of interest free funding
|
1.01
|
0.89
|
||||||||||||||||||||||
|
Net interest margin
|
3.36
|
%
|
3.32
|
%
|
||||||||||||||||||||
(1) Interest includes fees on loans of $1,998 and $1,770 in 2024 and 2023, 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 2024 and 2023.
|
Total
Change |
Change Due to
|
|||||||||||
|
(in thousands)
|
2024/2023
|
Volume
|
Rate
|
|||||||||
|
Interest income:
|
||||||||||||
|
Loans
|
$
|
43,772
|
$
|
22,314
|
$
|
21,458
|
||||||
|
Loans held for sale
|
(7
|
)
|
(8
|
)
|
1
|
|||||||
|
U.S. Treasury and agencies
|
(843
|
)
|
(1,563
|
)
|
720
|
|||||||
|
Tax exempt state and political subdivisions
|
(167
|
)
|
(82
|
)
|
(85
|
)
|
||||||
|
Other securities
|
(1,467
|
)
|
(672
|
)
|
(795
|
)
|
||||||
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
24
|
(50
|
)
|
74
|
||||||||
|
Federal funds sold
|
(8
|
)
|
(6
|
)
|
(2
|
)
|
||||||
|
Interest bearing deposits
|
3,428
|
3,333
|
95
|
|||||||||
|
Other investments
|
6
|
0
|
6
|
|||||||||
|
Investment in unconsolidated subsidiaries
|
3
|
0
|
3
|
|||||||||
|
Total interest income
|
44,741
|
23,266
|
21,475
|
|||||||||
|
Interest expense:
|
||||||||||||
|
Savings and demand deposits
|
10,476
|
4,430
|
6,046
|
|||||||||
|
Time deposits
|
20,873
|
5,740
|
15,133
|
|||||||||
|
Repurchase agreements and federal funds purchased
|
1,399
|
415
|
984
|
|||||||||
|
Advances from Federal Home Loan Bank
|
(988
|
)
|
(1,295
|
)
|
307
|
|||||||
|
Long-term debt
|
108
|
(15
|
)
|
123
|
||||||||
|
Finance lease liability
|
40
|
(1
|
)
|
41
|
||||||||
|
Total interest expense
|
31,908
|
9,274
|
22,634
|
|||||||||
|
Net interest income
|
$
|
12,833
|
$
|
13,992
|
$
|
(1,159
|
)
|
|||||
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 for the year ended December 31, 2024 of $186.0 million increased $12.9 million, or 7.4%, from prior year with an increase in average earning assets for the year 2024 of
$325.8 million, or 6.2%. Our yield on average earning assets for the year 2024 increased 50 basis points from prior year, and our cost of interest bearing funds increased 58 basis points during the same time period. Our net interest margin,
on a fully tax equivalent basis, for the year 2024 increased 4 basis points from the year ended December 31, 2023. Average loans to deposits, including repurchase agreements, for the year ended December 31, 2024 were 84.3% compared to 81.5%
for the year ended December 31, 2023.
Provision for Credit Losses
P
rovision for credit losses for the year 2024 was $11.0 million compared to $6.8 million during the year 2023
. See below for discussion of our allowance
for credit losses.
Noninterest Income
|
(dollars in thousands)
Year Ended December 31
|
2024
|
2023
|
Percent
Change
|
|||||||||
|
Deposit service charges
|
$
|
29,824
|
$
|
29,935
|
(0.4
|
)%
|
||||||
|
Trust revenue
|
14,921
|
13,025
|
14.6
|
|
||||||||
|
Gains on sales of loans
|
294
|
395
|
(25.6
|
)
|
||||||||
|
Loan related fees
|
4,957
|
3,792
|
30.7
|
|
||||||||
|
Bank owned life insurance revenue
|
5,236
|
3,517
|
48.9
|
|
||||||||
|
Brokerage revenue
|
2,272
|
1,473
|
54.3
|
|
||||||||
|
Other
|
5,061
|
5,522
|
(8.3
|
)
|
||||||||
|
Total noninterest income
|
$
|
62,565
|
$
|
57,659
|
8.5
|
%
|
||||||
Noninterest income for the year 2024 was $62.6 million compared to $57.7 million for the year 2023
. Noninterest income was impacted year over year by a
$1.2 million increase in loan related fees, a $1.9 million increase in trust revenue, and a $1.7 million increase in bank owned life insurance revenue.
Noninterest Expense
|
(dollars in thousands)
Year Ended December 31
|
2024
|
2023
|
Percent
Change
|
|||||||||
|
Salaries
|
$
|
52,757
|
$
|
51,283
|
2.9
|
%
|
||||||
|
Employee benefits
|
26,670
|
22,428
|
18.9
|
|
||||||||
|
Net occupancy and equipment
|
12,204
|
11,843
|
3.1
|
|
||||||||
|
Data processing
|
11,172
|
9,726
|
14.9
|
|
||||||||
|
Legal and professional fees
|
3,873
|
3,350
|
15.6
|
|
||||||||
|
Advertising and marketing
|
3,130
|
3,214
|
(2.6
|
)
|
||||||||
|
Taxes other than property and payroll
|
1,754
|
1,706
|
2.8
|
|
||||||||
|
Other
|
19,363
|
21,840
|
(11.3
|
)
|
||||||||
|
Total noninterest expense
|
$
|
130,923
|
$
|
125,390
|
4.4
|
%
|
||||||
Noninterest expense for the year 2024 was $130.9 million compared to $125.4 million for the year 2023. Noninterest expense was primarily impacted year over year
by a $5.7 million increase in personnel expense and a $1.4 million increase in data processing expense, partially offset by the
positive impact to other direct expenses of the accounting method change related to investments in tax
credit structures (ASU No. 2023-02). The increase in personnel expense included a $1.4 million increase in salaries, a $2.2 million increase in bonuses, and a $2.4 million increase in the cost of group medical and life insurance.
* Please refer to our annual report on Form 10-K for the year ended December 31, 2023 for detailed income discussion related to the year 2022.
Balance Sheet Review
CTBI’s total assets at $6.2 billion increased $423.5 million, or 7.3%, from December 31, 2023. Loans outstanding at December 31, 2024 were $4.5 billion, increasing $435.7 million, or 10.8%,
year over year. The increase in loans from prior year included a $288.9 million increase in the commercial loan portfolio, a $126.3 million increase in the residential loan portfolio, and a $26.8 million increase in the indirect loan
portfolio, partially offset by a $6.3 million decrease in the consumer direct loan portfolio. CTBI’s investment portfolio decreased $107.4 million, or 9.2%, from December 31, 2023. Deposits in other banks increased $83.9 million from December
31, 2023. Deposits, including repurchase agreements, at $5.3 billion increased $360.5 million, or 7.3%, from December 31, 2023.
Shareholders’ equity at December 31, 2024 of $757.6 million was a $55.4 million, or 7.9%, increase from the $702.2 million at December 31, 2023. Net unrealized losses on securities, net of
tax, were $98.4 million at December 31, 2024, compared to $103.3 million at December 31, 2023. 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, 2024 was 3.55%.
Loans
|
(dollars in thousands)
|
December 31, 2024
|
|||||||||||||||||||
|
Loan Category
|
Balance
|
Variance
from Prior
Year
|
Net (Charge-Offs)/ Recoveries
|
Nonperforming
|
ACL
|
|||||||||||||||
|
Commercial:
|
||||||||||||||||||||
|
Hotel/motel
|
$
|
458,832
|
15.9
|
%
|
$
|
0
|
$
|
0
|
$
|
5,208
|
||||||||||
|
Commercial real estate residential
|
508,310
|
21.6
|
37
|
1,617
|
5,467
|
|||||||||||||||
|
Commercial real estate nonresidential
|
865,031
|
11.1
|
77
|
13,154
|
10,307
|
|||||||||||||||
|
Dealer floorplans
|
84,956
|
20.8
|
0
|
0
|
682
|
|||||||||||||||
|
Commercial other
|
355,550
|
10.7
|
(976
|
)
|
1,416
|
3,832
|
||||||||||||||
|
Total commercial
|
2,272,679
|
14.6
|
(862
|
)
|
16,187
|
25,496
|
||||||||||||||
|
Residential:
|
||||||||||||||||||||
|
Real estate mortgage
|
1,043,401
|
11.3
|
(98
|
)
|
8,820
|
12,504
|
||||||||||||||
|
Home equity
|
167,425
|
13.9
|
(62
|
)
|
648
|
1,499
|
||||||||||||||
|
Total residential
|
1,210,826
|
11.6
|
(160
|
)
|
9,468
|
14,003
|
||||||||||||||
|
Consumer:
|
||||||||||||||||||||
|
Consumer direct
|
152,843
|
(3.9
|
)
|
(971
|
)
|
269
|
2,221
|
|||||||||||||
|
Consumer indirect
|
850,289
|
3.3
|
(3,533
|
)
|
762
|
13,248
|
||||||||||||||
|
Total consumer
|
1,003,132
|
2.1
|
(4,504
|
)
|
1,031
|
15,469
|
||||||||||||||
|
Total loans
|
$
|
4,486,637
|
10.8
|
%
|
$
|
(5,526
|
)
|
$
|
26,686
|
$
|
54,968
|
|||||||||
Total Deposits and Repurchase Agreements
|
(dollars in thousands)
|
2024
|
2023
|
Percent
Change
|
|||||||||
|
Noninterest bearing deposits
|
$
|
1,242,676
|
$
|
1,260,690
|
(1.4
|
)%
|
||||||
|
Interest bearing deposits
|
||||||||||||
|
Interest checking
|
167,736
|
123,927
|
35.4
|
|
||||||||
|
Money market savings
|
1,781,415
|
1,525,537
|
16.8
|
|
||||||||
|
Savings accounts
|
511,378
|
535,063
|
(4.4
|
)
|
||||||||
|
Time deposits
|
1,366,984
|
1,279,405
|
6.8
|
|
||||||||
|
Repurchase agreements
|
240,166
|
225,245
|
6.6
|
|
||||||||
|
Total interest bearing deposits and repurchase agreements
|
4,067,679
|
3,689,177
|
10.3
|
|
||||||||
|
Total deposits and repurchase agreements
|
$
|
5,310,355
|
$
|
4,949,867
|
7.3
|
%
|
||||||
Average Deposits and Other Borrowed Funds
|
(in thousands)
|
2024
|
2023
|
||||||
|
Deposits:
|
||||||||
|
Noninterest bearing deposits
|
$
|
1,238,101
|
$
|
1,343,917
|
||||
|
Interest bearing deposits
|
148,025
|
128,061
|
||||||
|
Money market accounts
|
1,636,891
|
1,407,611
|
||||||
|
Savings accounts
|
524,514
|
600,981
|
||||||
|
Certificates of deposit of $100,000 or more
|
707,862
|
572,959
|
||||||
|
Certificates of deposit < $100,000 and other time deposits
|
552,868
|
498,625
|
||||||
|
Total deposits
|
4,808,261
|
4,552,154
|
||||||
|
Other borrowed funds:
|
||||||||
|
Repurchase agreements and federal funds purchased
|
229,408
|
219,591
|
||||||
|
Advances from Federal Home Loan Bank
|
597
|
18,494
|
||||||
|
Long-term debt
|
64,129
|
64,351
|
||||||
|
Finance lease liability
|
3,439
|
3,469
|
||||||
|
Total other borrowed funds
|
297,573
|
305,905
|
||||||
|
Total deposits and other borrowed funds
|
$
|
5,105,834
|
$
|
4,858,059
|
||||
The maximum balance for federal funds purchased and repurchase agreements at any month-end during 2024 occurred at December 31, 2024, with a month-end balance of $240.7 million. 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.
Asset Quality
CTBI’s total nonperforming loans were $26.7 million, or 0.59% of total loans, at December 31, 2024 compared to $14.0 million, or 0.34% of total loans, at December 31, 2023. Accruing loans 90+
days past due increased $0.4 million from December 31, 2023, while nonaccrual loans increased $12.3 million from December 31, 2023. Accruing loans 30-89 days past due at $16.8 million increased $1.5 million from December 31, 2023. Our loan
portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss. Our loan portfolio risk management processes include weekly delinquent loan review
meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due. Any activity regarding a criticized/classified loan (i.e.
problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee). CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of $100,000 or greater. CTB’s Loan
Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio. We also have a Loan Review Department that reviews every market within CTB annually and performs extensive
testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, loan modifications for borrowers experiencing financial difficulty, 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 81% 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.
Net loan charge-offs were $5.5 million, 0.13% of average loans, for the year ended December 31, 2024, compared to $3.2 million, 0.08% of average loans, for the year ended December 31, 2023.
Allowance for Credit Losses
Our reserve coverage (allowance for credit losses to nonperforming loans) at December 31, 2024 was 206.0% compared to 354.7% at December 31, 2023. Nonaccrual loans to total loans at December
31, 2024 was 0.36% compared to 0.10% at December 31, 2023. Our allowance for credit losses to nonaccrual loans at December 31, 2024 was 335.8% compared to 1,223.9% at December 31, 2023. Our credit loss reserve as a percentage of total loans
outstanding at December 31, 2024 was 1.23%, an increase from the 1.22% at December 31, 2023.
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, 2024, we had approximately $369.5 million in cash and cash equivalents and approximately $170.6 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 $271.4 million and $157.5 million at December 31, 2023. Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans. In addition to
core deposit funding, we also have a variety of other short-term and long-term funding sources available. 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, 2024 and December 31, 2023. As of December 31, 2024, we had a $485.0 million available borrowing position with the Federal Home Loan Bank, compared to $476.2 million at December 31, 2023. We
generally rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash for our investing activities. 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, 2024 and December 31, 2023, we had $50 million in lines of
credit with various correspondent banks available to meet any future cash needs. Our primary investing activities include purchases of securities and loan originations. We do not rely on any one source of liquidity and manage availability in
response to changing consolidated balance sheet needs. Included in our cash and cash equivalents at December 31, 2024 were deposits with the Federal Reserve of $289.4 million, compared to $207.6 million at December 31, 2023. Additionally, we
project cash flows from our investment portfolio to generate additional liquidity over the next 90 days.
The investment portfolio consists of investment grade short-term issues suitable for bank investments. The majority of the investment portfolio is in U.S. government and government sponsored
agency issuances. At December 31, 2024, available-for-sale (“AFS”) securities comprised all of the total investment portfolio, and the AFS portfolio
was approximately 139%
of
equity capital. Eighty-five percent
of the pledge-eligible portfolio was pledged.
Contractual Commitments
Our significant contractual obligations and commitments as of December 31, 2024 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, 2024, our outstanding balance on long-term debt was $64.0 million, which includes junior subordinated debentures of $57.8 million and loan related borrowings of $6.2
million. The interest payments on long-term debt due in one year or less is $3.7 million, and interest payments on long-term debt due in more than one year is $33.2 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 $6.2 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 United States Department of Agriculture (the “USDA”). 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, the London Interbank Offered Rate’s (“LIBOR”) 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, 2024, our remaining contractual commitment for operating and finance leases due in one year or less was $1.9 million and operating leases due in more than one year was $19.7
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, 2024, the commitments due in one year or less for other commitments was $671.8 million and commitments due in more than one year was $269.4 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, 2024, the value of our non-cancellable
unconditional purchase obligations was $9.3 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, 2024
|
||||||||||||||||||||||||||||||||||||||||||||
|
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
|
$
|
111,661
|
1.47
|
%
|
$
|
239,130
|
1.36
|
%
|
$
|
49,959
|
2.98
|
%
|
$
|
350,454
|
2.41
|
%
|
$
|
751,204
|
1.97
|
%
|
$
|
831,027
|
||||||||||||||||||||||
|
State and political subdivisions
|
730
|
3.57
|
41,264
|
2.42
|
107,793
|
2.25
|
103,770
|
2.62
|
253,557
|
2.43
|
304,588
|
|||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
0
|
0.00
|
1,985
|
5.40
|
26,433
|
6.01
|
22,549
|
5.66
|
50,967
|
5.83
|
51,034
|
|||||||||||||||||||||||||||||||||
|
Total
|
$
|
112,391
|
1.48
|
%
|
$
|
282,379
|
1.54
|
%
|
$
|
184,185
|
2.99
|
%
|
$
|
476,773
|
2.61
|
%
|
$
|
1,055,728
|
2.27
|
%
|
$
|
1,186,649
|
||||||||||||||||||||||
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, 2024
|
||||||||||||||||
|
(in thousands)
|
Within
one year
|
After one
but within
five years
|
After
five years
|
Total
|
||||||||||||
|
Commercial secured by real estate and commercial other
|
$
|
251,366
|
$
|
212,905
|
$
|
1,627,112
|
$
|
2,091,383
|
||||||||
|
Commercial and real estate construction
|
101,113
|
16,686
|
171,633
|
289,432
|
||||||||||||
|
$
|
352,479
|
$
|
229,591
|
$
|
1,798,745
|
$
|
2,380,815
|
|||||||||
|
Rate sensitivity:
|
||||||||||||||||
|
Predetermined rate
|
$
|
56,130
|
$
|
116,139
|
$
|
65,687
|
$
|
237,956
|
||||||||
|
Adjustable rate
|
296,349
|
113,452
|
1,733,058
|
2,142,859
|
||||||||||||
|
$
|
352,479
|
$
|
229,591
|
$
|
1,798,745
|
$
|
2,380,815
|
|||||||||
Deposit Maturities
Maturities and/or repricing of time deposits of $100,000 or more outstanding at December 31, 2024 are summarized as follows:
|
(in thousands)
|
Certificates of
Deposit
|
Other Time
Deposits
|
Total
|
|||||||||
|
Three months or less
|
$
|
243,698
|
$
|
15,469
|
$
|
259,167
|
||||||
|
Over three through six months
|
154,092
|
19,872
|
173,964
|
|||||||||
|
Over six through twelve months
|
356,948
|
21,075
|
378,023
|
|||||||||
|
Over twelve through sixty months
|
40,881
|
10,636
|
51,517
|
|||||||||
|
Over sixty
|
0
|
0
|
0
|
|||||||||
|
$
|
795,619
|
$
|
67,052
|
$
|
862,671
|
|||||||
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, 2024:
|
Change in Interest Rates
(basis points)
|
Percentage Change in Net Interest Income
(12 Months)
|
|
+400
|
3.83%
|
|
+300
|
2.88%
|
|
+200
|
1.93%
|
|
+100
|
0.98%
|
|
-100
|
(1.34)%
|
|
-200
|
(2.76)%
|
|
-300
|
(4.07)%
|
|
-400
|
(5.32)%
|
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 simulation model used the yield curve spread evenly over a twelve-month period. The measurement at December 31, 2024 estimates that our net interest income in an up-rate environment would
increase by 3.83% at a 400 basis point change, increase by 2.88% at a 300 basis point change, increase by 1.93% at a 200 basis point change, and increase by 0.98% at a 100 basis point change. In a down-rate environment, net interest income
would decrease 1.34% at a 100 basis point change, decrease by 2.76% at a 200 basis point change, decrease by 4.07% at a 300 basis point change, and decrease by 5.32% 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 2024 and 2023, proceeds of $11.6 million and $15.2 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 2024 of 3.55% to shareholders. Shareholders’ equity increased 7.9% from December 31,
2023 to $757.6 million at December 31, 2024. Our primary source of capital growth is the retention of earnings. Cash dividends were $1.86 per share for 2024 compared to $1.80 per share for 2023. We retained 59.7% of our earnings in 2023
compared to 58.7% in 2023.
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. Management elected to use the CBLR framework for CTBI and CTB. CTBI’s CBLR ratio as of December 31, 2024 was 13.76%. CTB’s CBLR ratio as of December 31, 2024 was
13.29%.
As of December 31, 2024, we are not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a
material adverse impact on our liquidity, capital resources, or operations.
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, 2024, 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 2024:
|
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
|
|
|
2024
|
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 (“GAAP”) 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 ACL and the reserve for unfunded commitments in accordance
with 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 troubled debt restructurings by creditors in Subtopic 310-40,
Receivables—Troubled Debt Restructurings by Creditors
, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial
difficulty along with requiring that disclosures be added by year of origination for gross charge-off information for financing receivables. Accrued interest receivable on loans is presented in the 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.
GAAP
requires 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, 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.
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.
Community Trust Bancorp, Inc.
Consolidated Balance Sheets
|
(dollars in thousands)
December 31
|
2024
|
2023
|
||||||
|
Assets:
|
||||||||
|
Cash and due from banks
|
$
|
|
$
|
|
||||
|
Interest bearing deposits
|
|
|
||||||
|
Cash and cash equivalents
|
|
|
||||||
|
Certificates of deposit in other banks
|
|
|
||||||
|
Debt securities available-for-sale at fair value (amortized cost of $
|
|
|
||||||
|
Equity securities at fair value
|
|
|
||||||
|
Loans held for sale
|
|
|
||||||
|
Loans
|
|
|
||||||
| Allowance for credit losses |
(
|
)
|
(
|
)
|
||||
|
Net loans
|
|
|
||||||
|
Premises and equipment, net
|
|
|
||||||
|
Operating right-of-use assets
|
|
|
||||||
|
Finance right-of-use assets
|
|
|
||||||
|
Federal Home Loan Bank stock
|
|
|
||||||
|
Federal Reserve Bank stock
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Bank owned life insurance
|
|
|
||||||
|
Mortgage servicing rights
|
|
|
||||||
|
Other real estate owned
|
|
|
||||||
|
Deferred tax asset
|
|
|
||||||
|
Accrued interest receivable
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities and shareholders’ equity:
|
||||||||
|
Deposits:
|
||||||||
|
Noninterest bearing
|
$
|
|
$
|
|
||||
|
Interest bearing
|
|
|
||||||
|
Total deposits
|
|
|
||||||
|
Repurchase agreements
|
|
|
||||||
|
Federal funds purchased
|
|
|
||||||
|
Advances from Federal Home Loan Bank
|
|
|
||||||
|
Long-term debt
|
|
|
||||||
|
Operating lease liability
|
|
|
||||||
|
Finance lease liability
|
|
|
||||||
|
Accrued interest payable
|
|
|
||||||
|
Other liabilities
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Commitments and contingencies (notes 17 and 19)
|
|
|
||||||
|
Shareholders’ equity:
|
||||||||
|
Preferred stock,
|
|
|
||||||
|
Common stock, $
|
|
|
||||||
|
Capital surplus
|
|
|
||||||
|
Retained earnings
|
|
|
||||||
|
Accumulated other comprehensive loss, net of tax
|
(
|
)
|
(
|
)
|
||||
|
Total shareholders’ equity
|
|
|
||||||
|
Total liabilities and shareholders’ equity
|
$
|
|
$
|
|
||||
See notes to consolidated financial statements.
Consolidated Statements of Income and Comprehensive Income (Loss)
|
(in thousands except per share data)
Year Ended December 31
|
2024
|
2023
|
2022
|
|||||||||
|
Interest income:
|
||||||||||||
|
Interest and fees on loans, including loans held for sale
|
$
|
|
$
|
|
$
|
|
||||||
|
Interest and dividends on securities:
|
||||||||||||
|
Taxable
|
|
|
|
|||||||||
|
Tax exempt
|
|
|
|
|||||||||
|
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
|
|
|
|
|||||||||
|
Interest on Federal Reserve Bank deposits
|
|
|
|
|||||||||
|
Other, including interest on federal funds sold
|
|
|
|
|||||||||
|
Total interest income
|
|
|
|
|||||||||
|
Interest expense:
|
||||||||||||
|
Interest on deposits
|
|
|
|
|||||||||
|
Interest on repurchase agreements and federal funds purchased
|
|
|
|
|||||||||
|
Interest on advances from Federal Home Loan Bank
|
|
|
|
|||||||||
|
Interest on long-term debt
|
|
|
|
|||||||||
|
Total interest expense
|
|
|
|
|||||||||
|
Net interest income
|
|
|
|
|||||||||
|
Provision for credit losses
|
|
|
|
|||||||||
|
Net interest income after provision for credit losses
|
|
|
|
|||||||||
|
Noninterest income:
|
||||||||||||
|
Deposit related fees
|
|
|
|
|||||||||
|
Gains on sales of loans, net
|
|
|
|
|||||||||
|
Trust and wealth management income
|
|
|
|
|||||||||
|
Loan related fees
|
|
|
|
|||||||||
|
Bank owned life insurance
|
|
|
|
|||||||||
|
Brokerage revenue
|
|
|
|
|||||||||
|
Securities gains (losses)
|
|
|
(
|
)
|
||||||||
|
Other noninterest income
|
|
|
|
|||||||||
|
Total noninterest income
|
|
|
|
|||||||||
|
Noninterest expense:
|
||||||||||||
|
Officer salaries and employee benefits
|
|
|
|
|||||||||
|
Other salaries and employee benefits
|
|
|
|
|||||||||
|
Occupancy, net
|
|
|
|
|||||||||
|
Equipment
|
|
|
|
|||||||||
|
Data processing
|
|
|
|
|||||||||
|
Bank franchise tax
|
|
|
|
|||||||||
|
Legal fees
|
|
|
|
|||||||||
|
Professional fees
|
|
|
|
|||||||||
|
Advertising and marketing
|
|
|
|
|||||||||
|
FDIC insurance
|
|
|
|
|||||||||
|
Other real estate owned provision and expense
|
|
|
|
|||||||||
|
Repossession expense
|
|
|
|
|||||||||
|
Other noninterest expense
|
|
|
|
|||||||||
|
Total noninterest expense
|
|
|
|
|||||||||
|
Income before income taxes
|
|
|
|
|||||||||
|
Income taxes
|
|
|
|
|||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Unrealized holding gains (losses) on debt securities available-for-sale:
|
||||||||||||
|
Unrealized holding gains (losses) arising during the period
|
|
|
(
|
)
|
||||||||
|
Less: Reclassification adjustments for realized gains (losses) included in net income
|
|
|
(
|
)
|
||||||||
|
Tax expense (benefit)
|
|
|
(
|
)
|
||||||||
|
Other comprehensive income (loss), net of tax
|
|
|
(
|
)
|
||||||||
|
Comprehensive income (loss)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Basic earnings per share
|
$
|
|
$
|
|
$
|
|
||||||
|
Diluted earnings per share
|
$
|
|
$
|
|
$
|
|
||||||
|
Weighted average shares outstanding-basic
|
|
|
|
|||||||||
|
Weighted average shares outstanding-diluted
|
|
|
|
|||||||||
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, 2021
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Net income
|
|
|
||||||||||||||||||||||
|
Other comprehensive income (loss)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Cash dividends declared ($
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Issuance of common stock
|
|
|
|
|
||||||||||||||||||||
|
Issuance of restricted stock
|
|
|
(
|
)
|
|
|||||||||||||||||||
|
Vesting of restricted stock
|
(
|
)
|
(
|
)
|
|
|
||||||||||||||||||
|
Stock-based compensation
|
|
|
||||||||||||||||||||||
|
Balance, December 31,
2022
|
|
|
|
|
|
|
|
|
(
|
)
|
|
|
||||||||||||
|
Net income
|
|
|
||||||||||||||||||||||
|
Other comprehensive income (loss)
|
|
|
||||||||||||||||||||||
|
Cash dividends declared ($
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Issuance of common stock
|
|
|
|
|
||||||||||||||||||||
|
Issuance of restricted stock
|
|
|
(
|
)
|
|
|||||||||||||||||||
|
Vesting of restricted stock
|
(
|
) |
(
|
) |
|
|
||||||||||||||||||
|
Forfeiture of restricted stock
|
(
|
) |
(
|
) |
|
|
||||||||||||||||||
|
Stock-based compensation
|
|
|
||||||||||||||||||||||
|
Balance, December 31,
2023
|
|
|
|
|
|
|
|
|
(
|
)
|
|
|
||||||||||||
|
Net income
|
|
|
||||||||||||||||||||||
|
Other comprehensive income (loss)
|
|
|
||||||||||||||||||||||
|
Cash dividends declared ($
|
(
|
) |
(
|
) | ||||||||||||||||||||
|
Issuance of common stock
|
|
|
|
|
||||||||||||||||||||
|
Issuance of restricted stock
|
|
|
(
|
) |
|
|||||||||||||||||||
|
Vesting of restricted stock
|
(
|
) |
(
|
) |
|
|
||||||||||||||||||
|
Forfeiture of restricted stock
|
(
|
) |
(
|
) |
|
|
||||||||||||||||||
|
Stock-based compensation
|
|
|
||||||||||||||||||||||
|
(
|
) |
(
|
) | |||||||||||||||||||||
| Balance, December 31, 2024 |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||||
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
|
(in thousands)
Year Ended December 31
|
2024
|
2023
|
2022
|
|||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Deferred tax expense (benefit)
|
(
|
)
|
|
|
||||||||
|
Stock-based compensation
|
|
|
|
|||||||||
|
Provision for credit losses
|
|
|
|
|||||||||
|
Write-downs of other real estate owned and other repossessed assets
|
|
|
|
|||||||||
|
Gains on sale of loans held for sale
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
| Securities gains (losses) |
(
|
)
|
(
|
)
|
|
|||||||
|
Fair value adjustment in equity securities
|
(
|
)
|
(
|
)
|
|
|||||||
|
Gains on sale of assets, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from sale of mortgage loans held for sale
|
|
|
|
|||||||||
|
Funding of mortgage loans held for sale
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Amortization of securities premiums and discounts, net
|
|
|
|
|||||||||
|
Change in cash surrender value of bank owned life insurance
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Payment of operating lease liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Mortgage servicing rights:
|
||||||||||||
|
Fair value adjustments
|
|
|
(
|
)
|
||||||||
|
New servicing assets created
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Changes in:
|
||||||||||||
|
Accrued interest receivable
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Other assets
|
|
(
|
)
|
|
||||||||
|
Accrued interest payable
|
|
|
|
|||||||||
|
Other liabilities
|
|
(
|
)
|
|
||||||||
|
Net cash provided by operating activities
|
|
|
|
|||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Certificates of deposit in other banks:
|
||||||||||||
|
Purchase of certificates of deposit
|
|
(
|
)
|
|
||||||||
|
Maturity of certificates of deposit
|
|
|
|
|||||||||
|
Securities available-for-sale (AFS):
|
||||||||||||
|
Purchase of AFS securities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from sales of AFS securities
|
|
|
|
|||||||||
|
Proceeds from prepayments, calls, and maturities of AFS securities
|
|
|
|
|||||||||
|
Change in loans, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Purchase of premises and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from sale and retirement of premises and equipment
|
|
|
|
|||||||||
|
Purchase of Federal Home Loan Bank stock
|
(
|
) |
(
|
) |
|
|||||||
|
Redemption of stock by Federal Home Loan Bank
|
|
|
|
|||||||||
|
Proceeds from sale of other real estate owned and repossessed assets
|
|
|
|
|||||||||
|
Additional investment in other real estate owned and repossessed assets
|
(
|
) |
(
|
) |
(
|
) | ||||||
|
Additional investment in bank owned life insurance
|
|
(
|
)
|
|
||||||||
|
Proceeds from settlement of bank owned life insurance
|
|
|
|
|||||||||
|
Redemption of bank owned life insurance
|
|
|
|
|||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Change in deposits, net
|
|
|
|
|||||||||
|
Change in repurchase agreements and federal funds purchased, net
|
|
|
(
|
)
|
||||||||
|
Advances from Federal Home Loan Bank
|
|
|
|
|||||||||
|
Payments on advances from Federal Home Loan Bank
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Payment of finance lease liabilities
|
|
(
|
)
|
(
|
)
|
|||||||
|
Proceeds from long-term debt/other borrowings
|
|
|
|
|||||||||
|
Repayment of long-term debt/other borrowings
|
(
|
)
|
(
|
)
|
|
|||||||
|
Issuance of common stock
|
|
|
|
|||||||||
|
Dividends paid
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash provided by (used in) financing activities
|
|
|
(
|
)
|
||||||||
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(
|
)
|
||||||||
|
Cash and cash equivalents at beginning of year
|
|
|
|
|||||||||
|
Cash and cash equivalents at end of year
|
$
|
|
$
|
|
$
|
|
||||||
|
Supplemental disclosures:
|
||||||||||||
|
Income taxes paid
|
$
|
|
$
|
|
$
|
|
||||||
|
Interest paid
|
|
|
|
|||||||||
|
Non-cash activities:
|
||||||||||||
|
Loans to facilitate the sale of other real estate owned and repossessed assets
|
|
|
|
|||||||||
|
Common stock dividends accrued, paid in subsequent quarter
|
|
|
|
|||||||||
|
Real estate and assets acquired in settlement of loans
|
|
|
|
|||||||||
|
Right-of-use assets obtained in exchange for new operating/finance lease liabilities
|
|
|
|
|||||||||
See 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 the 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, 2024 and 2023; therefore,
no
ACL for AFS securities was recorded.
Changes in the ACL for AFS debt securities are recorded as expense. Losses are charged against the ACL for AFS debt securities when management
believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Gains or losses on disposition of debt securities are computed by specific identification for 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, 2024 and 2023, CTBI held
no
securities designated as HTM.
CTBI accounts for equity securities in accordance with ASC 321,
Investments – Equity Securities
. ASC 321
requires equity investments (except those accounted for under the equity method and those that result in the consolidation of the investee) to be measured at fair value, with changes in fair values recognized in net income.
Equity securities with a readily determinable fair value are required to be measured at fair value, with changes in fair value recognized in net
income. Equity securities without a readily determinable fair value are carried at cost, less any impairment, if any, plus or minus changes resulting from observable price changes for identical or similar investments. As permitted by ASC
321-10-35-2, CTBI can make an irrevocable election to subsequently measure an equity security without a readily determinable fair value, and all identical or similar investments of the same issuer, including future purchases of identical or similar
investments of the same issuer, at fair value. CTBI has made this election for our Visa Class B equity securities. The fair value of these securities was determined by a 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.
With the implementation of ASU 2022-02, enhanced disclosure requirements have been implemented for certain loan modifications when a borrower is
experiencing financial difficulty. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Modifications of
terms for our loans are based on individual facts and circumstances. Loan modifications involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal and/or interest payments, regardless of
the period of the modification. All of the loan modifications were done 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.
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
Accounting Standards Update (
“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.
CTBI utilizes third party software and 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, underwriting exceptions, and industry concentrations. Forecast factors include gross domestic product, light weight vehicle sales, and S&P/Case-Shiller US National Home
Price Index. 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.
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 (“OREO”) 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 principles under 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, 2024, 2023, and 2022,
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.
Estimated Credit Losses on
Off-Balance Sheet Credit Exposures Recognized as Other Liabilitie
s
– CTBI estimates expected credit losses over the contractual period in which it has exposure to credit
risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by CTBI. The ACL on off-balance sheet credit exposures recognized in other liabilities is adjusted as an expense in other noninterest
expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. Estimating credit losses on unfunded commitments
requires CTBI to consider the following categories of off-balance sheet credit exposure: unfunded commitments to extend credit, unfunded lines of credit, and standby letters of credit. Each of these unfunded commitments is then analyzed for a
probability of funding to calculate a probable funding amount. The life of loan loss factor by related portfolio segment from the loan ACL calculation is then applied to the probable funding amount to calculate the estimated credit losses on
off-balance sheet credit exposures recognized as other liabilities
.
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 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 deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities are no longer permitted to apply the relief in Topic 848.
On January 27, 2023, CTBI received notice from the trustee of the trust subsidiary, that based on
their review of the junior subordinated debentures and the related trust preferred securities (the
“
TRUPS Documents
”)
, after application of the Adjustable Interest Rate (LIBOR) Act (as implemented by the Final Regulations (defined below)
, the
“LIBOR Act
”)
and the final regulations of the Board of Governors of the Federal Reserve System issued on December 16
, 2022 implementing the LIBOR Act (the
“Final Regulations
”
)
,
the TRUPS Documents issued by the trust
subsidiary do not provide a replacement rate for Applicable LIBOR (a “Replacement Rate”) or include other fallback provisions which would apply on the first London banking day after June 30
, 2023 (the
“
LIBOR
Replacement Date
”)
.
Absent an amendment to the TRUPS Documents, some other change in applicable law, rule, regulation, or some other development, the LIBOR Act as implemented by the Final Regulations provides that (i) on and after the LIBOR Replacement Date,
3
-month CME Term
or
6
-month CME Term
(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.
➢
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 were effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The adoption of the ASU did not have 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 were effective for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years. We adopted ASU 2023-02 effective January 1, 2024. See note 13, Income Taxes, for additional information on the adoption of this ASU.
➢
FASB Issues Improvements to Reportable Segment Disclosures
– In November 2023, the FASB issued ASU No. 2023-07,
Segment Reporting (Topic 280), Improvements to Reportable Segment
Disclosures.
The amendments in ASU 2023-07 provide for new disclosures which: (1) require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief
operating decision maker (
”
CODM”) and included within each reported measure of segment profit or loss; (2) require that
a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition; (3) require that a public entity provide all annual disclosures about a reportable
segment’s profit or loss and assets currently required by Topic 280 in interim periods; (4) allow more than one measure of segment profit or loss used by the CODM when assessing segment performance and deciding how to allocate resources to
be disclosed; (5) require disclosure of title and position of the CODM and explain how the CODM uses the disclosed reported measures to assess segment performance; and (6) require that a public entity that has a single reportable segment
provide all the disclosures required by the amended Topic 280. The amendments in this update are effective for CTBI for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15,
2024. The amendments in this update are required to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should
be based on the significant segment expense categories and the amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. CTBI’s financial
condition, results of operations, and cash flows were not impacted by this guidance. We have provided the required disclosures of our single reportable segment in note 22 below.
➢
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. 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 did not early adopt. We do not anticipate a significant impact to our consolidated financial statements.
➢
FASB Issues Improvement to Income Statement Expense Disclosures
– In November 2024, the FASB issued ASU No. 2024-03,
Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.
This ASU is expected to improve financial reporting and responds
to investor input by requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to financial statements. Specifically, they will be required to:
|
|
● |
Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset
amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas- producing activities (or other amounts of depletion expense) included in each relevant expense caption.
|
|
|
● |
Include certain amounts that are already required to be disclosed under current GAAP in the same disclosure as the other
disaggregation requirements.
|
|
|
● |
Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated
quantitatively.
|
|
|
● |
Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
|
The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early
adoption is permitted. CTBI does not anticipate a significant impact to our consolidated financial statements.
2. Cash and Due from Banks and Interest Bearing Deposits
At December 31, 2024, CTBI had cash accounts which exceeded federally insured limits, and therefore were not subject to FDIC insurance,
with $
289.4
million in deposits with the Federal Reserve, $
25.6
million in deposits with U.S. Bank, $
6.0
million in deposits with the FHLB,
$
2.3
million in deposits with Fifth Third Bank, and $
1.1
million in deposits with Raymond James.
3. Securities
The amortized cost and fair value of debt securities at December 31, 2024 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
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
State and political subdivisions
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
(
|
)
|
|
|||||||||||
|
Asset-backed securities
|
|
|
(
|
)
|
|
|||||||||||
|
Total available-for-sale 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
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
State and political subdivisions
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
(
|
)
|
|
|||||||||||
|
Asset-backed securities
|
|
|
(
|
)
|
|
|||||||||||
|
Total available-for-sale securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
The amortized cost and fair value of debt securities at December 31, 2024 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call
or prepayment penalties.
|
Available-for-Sale
|
||||||||
|
(in thousands)
|
Amortized
Cost
|
Fair Value
|
||||||
|
Due in one year or less
|
$
|
|
$
|
|
||||
|
Due after one through five years
|
|
|
||||||
|
Due after five through ten years
|
|
|
||||||
|
Due after ten years
|
|
|
||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
||||||
|
Asset-backed securities
|
|
|
||||||
|
Total debt securities
|
$
|
|
$
|
|
||||
For the year ended December 31, 2024, we had a net securities gain of $
631
thousand. There was a net gain of $
8
thousand realized on
sales and calls of AFS securities, and an unrealized gain of $
623
thousand from the fair value adjustment of equity securities. There
was a net gain of $
996
thousand realized for the year 2023 and a net loss of $
168
thousand realized for the year 2022.
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, 2024 were $
3.8
million, as a result of a $
623
thousand increase in the fair value in 2024. The fair value of equity
securities increased $
992
thousand in 2023.
No
equity securities were sold during 2024 or 2023.
The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $
630.8
million at
December 31, 2024 and $
761.5
million at December 31, 2023.
The amortized cost of securities sold under agreements to repurchase amounted to $
330.0
million at December 31, 2024 and $
333.6
million at December 31, 2023.
CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of December 31, 2024 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, 2024 was
95.5
% compared to
97.3
% as of December 31, 2023. 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, 2024 that are not deemed
to have credit losses.
Available-for-Sale
|
(in thousands)
|
Amortized
Cost
|
Gross
Unrealized
Losses
|
Fair Value
|
|||||||||
|
Less Than 12 Months
|
||||||||||||
|
U.S. Treasury and government agencies
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
State and political subdivisions
|
|
(
|
)
|
|
||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
(
|
)
|
|
||||||||
|
Asset-backed securities
|
|
(
|
)
|
|
||||||||
|
Total <12 months temporarily impaired AFS securities
|
|
(
|
)
|
|
||||||||
|
|
||||||||||||
|
12 Months or More
|
||||||||||||
|
U.S. Treasury and government agencies
|
|
(
|
)
|
|
||||||||
|
State and political subdivisions
|
|
(
|
)
|
|
||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
(
|
)
|
|
||||||||
|
Asset-backed securities
|
|
(
|
)
|
|
||||||||
|
Total ≥12 months temporarily impaired AFS securities
|
|
(
|
)
|
|
||||||||
|
|
||||||||||||
|
Total
|
||||||||||||
|
U.S. Treasury and government agencies
|
|
(
|
)
|
|
||||||||
|
State and political subdivisions
|
|
(
|
)
|
|
||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
(
|
)
|
|
||||||||
|
Asset-backed securities
|
|
(
|
)
|
|
||||||||
|
Total temporarily impaired AFS securities
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
The analysis performed as of December 31, 2023 indicated that all impairment was considered temporary, market and interest rate driven,
and not credit-related. The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of
December 31, 2023 that are not deemed to be other-than-temporarily impaired.
Available-for-Sale
|
(in thousands)
|
Amortized
Cost
|
Gross
Unrealized
Losses
|
Fair Value
|
|||||||||
|
Less Than 12 Months
|
||||||||||||
|
U.S. Treasury and government agencies
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
State and political subdivisions
|
|
(
|
)
|
|
||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
(
|
)
|
|
||||||||
|
Asset-backed securities
|
|
|
|
|
||||||||
|
Total <12 months temporarily impaired AFS securities
|
|
(
|
)
|
|
||||||||
|
|
||||||||||||
|
12 Months or More
|
||||||||||||
|
U.S. Treasury and government agencies
|
|
(
|
)
|
|
||||||||
|
State and political subdivisions
|
|
(
|
)
|
|
||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
(
|
)
|
|
||||||||
|
Asset-backed securities
|
|
(
|
)
|
|
||||||||
|
Total ≥12 months temporarily impaired AFS securities
|
|
(
|
)
|
|
||||||||
|
|
||||||||||||
|
Total
|
||||||||||||
|
U.S. Treasury and government agencies
|
|
(
|
)
|
|
||||||||
|
State and political subdivisions
|
|
(
|
)
|
|
||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
(
|
)
|
|
||||||||
|
Asset-backed securities
|
|
(
|
)
|
|
||||||||
|
Total temporarily impaired AFS securities
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
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
2024
|
December 31
2023
|
||||||
|
Hotel/motel
|
$
|
|
$
|
|
||||
|
Commercial real estate residential
|
|
|
||||||
|
Commercial real estate nonresidential
|
|
|
||||||
|
Dealer floorplans
|
|
|
||||||
|
Commercial other
|
|
|
||||||
|
Commercial loans
|
|
|
||||||
|
Real estate mortgage
|
|
|
||||||
|
Home equity lines
|
|
|
||||||
|
Residential loans
|
|
|
||||||
|
Consumer direct
|
|
|
||||||
|
Consumer indirect
|
|
|
||||||
|
Consumer loans
|
|
|
||||||
|
Loans and lease financing
|
$
|
|
$
|
|
||||
The
loan portfolios presented above are net of unearned fees and unamortized premiums. Unearned fees included above totaled $
1.2
thousand as
of December 31, 2024 and $
0.8
million as of December 31, 2023, while the unamortized premiums on the indirect lending portfolio totaled $
32.0
million as of December 31, 2024 and $
31.4
million as of December 31, 2023.
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
10.2
% of total loans. This industry has unique risk
characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility. Additionally, any hotel/motel construction loans would be included in this
segment as CTBI’s construction loans are primarily completed as one loan going from construction to permanent financing. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the
underlying collateral.
Commercial
real estate residential loans are commercial purpose construction and permanent financed loans for commercial purpose 1-4 family/multi-family properties. These loans are originated based on the borrower’s ability to service the debt and secondarily
based on the fair value of the underlying collateral.
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 fixed rate consumer loans secured by automobiles, trucks, vans, and recreational vehicles originated at the selling dealership underwritten and purchased by CTBI’s indirect lending department. Both new and used products are
financed. Only dealers who have executed dealer agreements with CTBI participate in the indirect lending program.
Not
included in the loan balances above were loans held for sale in the amount of $
0.2
million at December 31, 2024 and December 31,
2023.
Allowance for Credit Losses
The following tables present the balance in the
ACL for the years ended December 31, 2024 and December 31, 2023.
|
Year Ended
December 31, 2024
|
||||||||||||||||||||
|
(in thousands)
|
Beginning
Balance
|
Provision
Charged to
Expense
|
Losses
Charged Off
|
Recoveries
|
Ending
Balance
|
|||||||||||||||
|
ACL
|
||||||||||||||||||||
|
Hotel/motel
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Commercial real estate residential
|
|
|
|
|
|
|||||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
|
|||||||||||||||
|
Dealer floorplans
|
|
|
|
|
|
|||||||||||||||
|
Commercial other
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Real estate mortgage
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Home equity
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Consumer direct
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Consumer indirect
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Year Ended
December 31, 2023
|
||||||||||||||||||||
|
(in thousands)
|
Beginning
Balance
|
Provision
Charged to
Expense
|
Losses
Charged Off
|
Recoveries
|
Ending
Balance
|
|||||||||||||||
|
ACL
|
||||||||||||||||||||
|
Hotel/motel
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||
|
Commercial real estate residential
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Commercial real estate nonresidential
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Dealer floorplans
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Commercial other
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||||||
|
Real estate mortgage
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Home equity
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Consumer direct
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Consumer indirect
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
Using the ACL software, forecasts include gross domestic product, light weight
vehicle sales index, and housing price index considerations. CTBI leverages economic projections from the Federal Open Market Committee to obtain various forecasts for unemployment rate, gross domestic product, light weight vehicle sales
index, and the PNC forecast for the Case-Shiller National Home Price Index. 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. 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 providing a risk curve that most approximates the asset class under consideration.
Management elected to evaluate internal prepayment experience over a trailing timeframe to determine the appropriate prepayment and curtailment rates to be used in the credit loss estimate.
CTBI uses management judgement for qualitative loss factors such as delinquency
trends, supervision and administration, quality control exceptions, collateral values, and industry concentrations. The ACL software allows management to approve a “worst case” scenario or a maximum loss rate for each segment. Qualitative
dollars available for allocation then become the difference between the worst case and the ACL quantitative reserve estimate. Each factor is then given a risk weighting that is applied to determine a basis point allocation. The qualitative
loss factors are as follows:
|
|
• |
Changes in delinquency trends by loan segment
|
|
|
• |
Changes in international, national, regional, and local conditions
|
|
|
• |
The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses
|
|
|
• |
The existence and effect of any concentrations of credit and changes in the levels of such concentrations
|
|
|
• |
A supervision and administration allocation based on CTBI’s loan review process
|
|
|
• |
Exceptions in lending policies and procedures as measured by quarterly loan portfolio exceptions reports
|
|
|
• |
Changes in the nature and volume of the portfolio and terms of loans
|
Delinquencies
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.
Nonaccrual
loans and loans 90 days past due and still accruing segregated by loan segment for December 31, 2024 and December 31, 2023 were as follows:
|
(in thousands)
December 31, 2024
|
Nonaccrual Loans
with No ACL
|
Nonaccrual Loans
with ACL
|
90+ and Still
Accruing
|
Total
Nonperforming
Loans
|
||||||||||||
|
Commercial real estate residential
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Total commercial loans
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Total residential loans
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Total consumer loans
|
|
|
|
|
||||||||||||
|
Loans and lease financing
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(in thousands)
December 31, 2023
|
Nonaccrual Loans
with No ACL
|
Nonaccrual Loans
with ACL
|
90+ and Still
Accruing
|
Total
Nonperforming
Loans
|
||||||||||||
|
Commercial real estate residential
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Total commercial loans
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Total residential loans
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Total consumer loans
|
|
|
|
|
||||||||||||
|
Loans and lease financing
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The following tables present CTBI’s loan portfolio aging analysis,
segregated by loan segment, as of December 31, 2024 and December 31, 2023 (includes loans 90 days past due and still accruing as well):
|
(in thousands)
December 31, 2024
|
30-59 Days
Past Due
|
60-89
Days Past
Due
|
90+ Days
Past Due
|
Total
Past Due
|
Current
|
Total Loans
|
||||||||||||||||||
|
Hotel/motel
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Commercial real estate residential
|
|
|
|
|
|
|
||||||||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
|
|
||||||||||||||||||
|
Dealer floorplans
|
|
|
|
|
|
|
||||||||||||||||||
|
Commercial other
|
|
|
|
|
|
|
||||||||||||||||||
|
Total commercial loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines
|
|
|
|
|
|
|
||||||||||||||||||
|
Total residential loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer direct
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer indirect
|
|
|
|
|
|
|
||||||||||||||||||
|
Total consumer loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Loans and lease financing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
(in thousands)
December 31, 2023
|
30-59 Days
Past Due
|
60-89
Days Past
Due
|
90+ Days
Past Due
|
Total
Past Due
|
Current
|
Total Loans
|
||||||||||||||||||
|
Hotel/motel
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Commercial real estate residential
|
|
|
|
|
|
|
||||||||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
|
|
||||||||||||||||||
|
Dealer floorplans
|
|
|
|
|
|
|
||||||||||||||||||
|
Commercial other
|
|
|
|
|
|
|
||||||||||||||||||
|
Total commercial loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Real estate mortgage
|
|
|
|
|
|
|
||||||||||||||||||
|
Home equity lines
|
|
|
|
|
|
|
||||||||||||||||||
|
Total residential loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer direct
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer indirect
|
|
|
|
|
|
|
||||||||||||||||||
|
Total consumer loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Loans and lease financing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Risk Characteristics
The risk characteristics of CTBI’s material portfolio segments are as follows:
Hotel/motel loans are a significant concentration for CTBI, representing approximately
10.2
% of total loans. This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to
experience substantial volatility. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is
generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Management monitors and evaluates all commercial real estate loans based on collateral and risk grade
criteria. Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment. Personal guarantees of the principals are
generally required. Such loans are made on a projected cash flow basis and are secured by the project being constructed. Construction loan draw procedures are included in each specific loan agreement, including required documentation items and
inspection requirements. Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source. If the loan is to convert to a term loan, the repayment ability
is based on the borrower’s projected cash flow. Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.
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.
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. 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
loan segment and based on last credit decision or year of origination:
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|||||||||||||||||||||||||||||||
|
(in thousands)
December 31
|
2024
|
2023
|
2022
|
2021
|
2020
|
Prior
|
Revolving
Loans
|
Total
|
||||||||||||||||||||||||
|
Hotel/motel
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total hotel/motel
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Commercial real estate residential
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial real estate residential
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Commercial real estate nonresidential
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial real estate nonresidential
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Dealer floorplans
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total dealer floorplans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Commercial other
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial other
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Commercial other current
period gross charge-offs
|
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
|
(
|
) | |||||||||||||||||
|
Commercial loans
|
||||||||||||||||||||||||||||||||
| Risk rating: | ||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Total commercial loans current period gross charge-offs
|
$
|
(
|
) | $ |
(
|
) |
$
|
(
|
) | $ |
(
|
) |
$
|
(
|
) | $ |
(
|
) |
$
|
|
$ |
(
|
) |
|
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total hotel/motel
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Commercial real estate residential
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial real estate residential
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial real estate residential current period gross charge-offs
|
|
|
(
|
) |
|
|
|
|
(
|
) | ||||||||||||||||||||||
|
Commercial real estate nonresidential
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial real estate nonresidential
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial real estate nonresidential current period gross charge-offs
|
|
|
(
|
) |
|
|
(
|
) |
|
(
|
) | |||||||||||||||||||||
| Dealer floorplans | ||||||||||||||||||||||||||||||||
| Risk rating: | ||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total dealer floorplans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Commercial other
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial other
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial other current period gross charge-offs
|
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
|
(
|
) | |||||||||||||||||
|
Commercial loans
|
||||||||||||||||||||||||||||||||
|
Risk rating:
|
||||||||||||||||||||||||||||||||
|
Pass
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Watch
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
OAEM
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total commercial loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Total commercial loans current period gross charge-offs
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) |
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 loan segment:
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|||||||||||||||||||||||||||||||
|
(in thousands)
December 31
|
2024
|
2023
|
2022
|
2021
|
2020
|
Prior
|
Revolving
Loans
|
Total
|
||||||||||||||||||||||||
|
Home equity lines
|
||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total home equity lines
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total home equity lines current period gross charge-offs
|
|
|
|
|
|
(
|
) |
|
(
|
) | ||||||||||||||||||||||
|
Mortgage loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total mortgage loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total mortgage loans current period gross charge-offs
|
|
|
(
|
) |
|
|
(
|
) |
|
(
|
) | |||||||||||||||||||||
|
Residential loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total residential loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Total residential loans current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
(
|
) |
$
|
|
$
|
(
|
) |
$
|
|
$
|
(
|
) | |||||||||||||
|
Consumer direct loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer direct loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer direct loans current period gross charge-offs
|
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
|
(
|
) | |||||||||||||||||
|
Consumer indirect loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer indirect loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer indirect loans current period gross charge-offs
|
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
|
(
|
) | |||||||||||||||||
|
Consumer loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Total consumer loans current period gross charge-offs
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | |||||||||
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|||||||||||||||||||||||||||||||
|
(in thousands)
December 31
|
2023
|
2022
|
2021
|
2020
|
2019
|
Prior
|
Revolving Loans
|
Total
|
||||||||||||||||||||||||
|
Home equity lines
|
||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total home equity lines
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total home equity lines current period gross charge-offs
|
|
|
|
|
|
(
|
) |
|
(
|
) | ||||||||||||||||||||||
|
Mortgage loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total mortgage loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total mortgage loans current period gross charge-offs
|
|
|
(
|
) |
|
(
|
) |
(
|
) |
|
(
|
) | ||||||||||||||||||||
|
Residential loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total residential loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Total residential loans current period gross charge-offs
|
$
|
|
$
|
|
$
|
(
|
) |
|
$ |
|
$
|
(
|
) |
$
|
(
|
) |
$
|
|
$
|
(
|
) | |||||||||||
|
Consumer direct loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer direct loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer direct loans current period gross charge-offs
|
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
|
(
|
) | |||||||||||||||||
|
Consumer indirect loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer indirect loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer indirect loans current period gross charge-offs
|
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
|
(
|
) | |||||||||||||||||
|
Consumer loans
|
||||||||||||||||||||||||||||||||
|
Performing
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total consumer loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Total consumer loans current period gross charge-offs
|
$ |
(
|
) |
$
|
(
|
) | $ |
(
|
) |
$
|
(
|
) |
$
|
(
|
) |
$
|
(
|
) |
$
|
|
$
|
(
|
) | |||||||||
|
*
|
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 are in process was $
4.0
million at December 31, 2024 and $
3.5
million at December 31, 2023.
Individually Evaluated Loans
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:
|
(in thousands)
December 31, 2024
|
Number of
Loans
|
Recorded
Investment
|
Specific
Reserve
|
|||||||||
|
Hotel/motel
|
|
$
|
|
$
|
|
|||||||
|
Commercial real estate residential
|
|
|
|
|||||||||
|
Commercial real estate nonresidential
|
|
|
|
|||||||||
|
Commercial other
|
|
|
|
|||||||||
|
Total collateral dependent loans
|
|
$
|
|
$
|
|
|||||||
|
(in thousands)
December 31,
2023
|
Number of
Loans
|
Recorded
Investment
|
Specific
Reserve
|
|||||||||
|
Hotel/motel
|
|
$
|
|
$
|
|
|||||||
|
Commercial real estate residential
|
|
|
|
|||||||||
|
Commercial real estate nonresidential
|
|
|
|
|||||||||
|
Commercial other
|
|
|
|
|||||||||
|
Total collateral dependent loans
|
|
$
|
|
$
|
|
|
||||||
The hotel/motel, commercial real estate
residential, and commercial real estate nonresidential segments are all collateralized with real estate.
Two
loans listed in the
commercial other segment at December 31, 2024 are collateralized by inventory, equipment, and accounts receivable, while one loan in the amount of $
8.5
million is secured by shares of common stock.
Loan Modifications
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 loan segment and concession granted, are presented below for the year ended December 31, 2024:
|
Amortized Cost at December 31, 2024
|
||||||||||||||||
|
(in thousands)
|
Interest Rate
Reduction
|
% of total
|
Term Extension |
% of total
|
||||||||||||
|
Hotel/motel
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
Commercial real estate residential
|
|
|
|
|
||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Dealer floorplans
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Residential loans
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Consumer loans
|
|
|
|
|
||||||||||||
|
Loans and lease financing
|
$
|
|
|
%
|
$
|
|
|
% | ||||||||
|
Amortized Cost at December 31, 2024
|
||||||||||||||||
|
(in thousands)
|
Combination –
Term Extension
and Interest Rate
Reduction
|
% of total
|
Payment Change |
% of total
|
||||||||||||
|
Hotel/motel
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
Commercial real estate residential
|
|
|
|
|
||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Dealer floorplans
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Residential loans
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Consumer loans
|
|
|
|
|
||||||||||||
|
Loans and lease financing
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
The
following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty for the year ended December 31, 2024:
|
Loan Type
|
Interest Rate Reduction
Financial Impact
|
Term Extension
Financial Impact
|
||
|
Hotel/motel
|
Added a weighted-average
|
|||
|
Commercial real estate residential
|
|
Added a weighted-average
|
||
|
Commercial real estate nonresidential
|
Reduced weighted-average contractual interest rate from
|
|
||
|
Dealer floorplans
|
Added a weighted-average
|
|||
|
Commercial other
|
Added a weighted-average
|
|||
|
Real estate mortgage
|
Reduced weighted-average contractual interest rate from
|
Added a weighted-average
|
||
|
Home equity lines
|
|
Added a weighted-average
|
||
|
Consumer direct
|
Added
a weighted-average
|
|||
|
Consumer indirect
|
Added a weighted-average
|
|
Loan Type
|
Combination – Term Extension and
Interest Rate Reduction
Financial Impact
|
Payment Changes
Financial Impact
|
||
|
Hotel/motel
|
|
|||
|
Commercial real estate residential
|
Weighted-average contractual interest rate remained at
|
Provided payment changes that will be added to the end of the original loan term
|
||
|
Commercial real estate nonresidential
|
Increased weighted-average contractual interest rate from
|
Provided payment changes that will be added to the end of the original loan term | ||
|
Dealer floorplans
|
||||
|
Commercial other
|
Increased weighted-average contractual interest rate from
|
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
|
|||
|
Home equity lines
|
Reduced weighted-average contractual interest rate from
|
|
||
|
Consumer direct
|
Provided payment changes that will be added to the end of the original loan term
|
|||
|
Consumer indirect
|
Provided payment changes that will be added to the end of the original loan term |
These
loans, segregated by loan segment and concession granted, are presented below for the year ended December 31, 2023:
|
Amortized Cost at December 31, 2023
|
||||||||||||||||
|
(in thousands)
|
Interest Rate
Reduction
|
% of total
|
Term Extension |
% of total
|
||||||||||||
|
Hotel/motel
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
Commercial real estate residential
|
|
|
|
|
||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Dealer floorplans
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Residential loans
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Consumer loans
|
|
|
|
|
||||||||||||
|
Loans and lease financing
|
$
|
|
|
%
|
$
|
|
|
% | ||||||||
|
Amortized Cost of December 31, 2023
|
||||||||||||||||
|
(in thousands)
|
Combination –
Term Extension
and Interest Rate
Reduction
|
% of total
|
Payment Change |
% of total
|
||||||||||||
|
Hotel/motel
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
Commercial real estate residential
|
|
|
|
|
||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Dealer floorplans
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Residential loans
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Consumer loans
|
|
|
|
|
||||||||||||
|
Loans and lease financing
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
The following tables describe 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
|
Added a weighted-average
|
||
|
Commercial real estate nonresidential
|
Reduced weighted-average contractual interest rate from
|
Added a weighted-average
|
||
|
Dealer floorplans
|
||||
|
Commercial other
|
Added a weighted-average
|
|||
|
Real estate mortgage
|
Reduced weighted-average contractual interest rate from
|
Added a weighted-average
|
||
|
Home equity lines
|
|
Added a weighted-average
|
||
|
Consumer direct
|
Removed a weighted-average
|
|||
|
Consumer indirect
|
Added a weighted-average
|
|
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
|
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
|
|||
|
Home equity lines
|
Reduced weighted-average contractual interest rate from
|
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
|
No
charge-offs have resulted from modifications for any of the presented periods. We had commitments to extend additional credit in the amount of $
100
thousand and $
16
thousand at December 31, 2024 and 2023, respectively, on loans that were considered in financial difficulty.
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 due to a borrower’s financial difficulty are closely monitored for delinquency as an early indicator of possible future default. If a loan to a borrower experiencing financial difficulty subsequently
defaults, CTBI evaluates the loan for possible further impairment.
The table below represents the payment status of loans to borrowers experiencing financial difficulty for the past 12 months as of December 31, 2024.
|
Past Due Status (Amortized Cost Basis)
|
||||||||||||||||
|
(in thousands)
|
Current
|
30-89 Days
|
90+ Days
|
Nonaccrual
|
||||||||||||
|
Hotel/motel
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Commercial real estate residential
|
|
|
|
|
||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Dealer floorplans
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The table below represents the payment
status of loans to borrowers experiencing financial difficulty for the past 12 months as of December 31, 2023.
|
Past Due Status (Amortized Cost Basis)
|
||||||||||||||||
|
(in thousands)
|
Current
|
30-89 Days
|
90+ Days
|
Nonaccrual
|
||||||||||||
|
Hotel/motel
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Commercial real estate residential
|
|
|
|
|
||||||||||||
|
Commercial real estate nonresidential
|
|
|
|
|
||||||||||||
|
Dealer floorplans
|
|
|
|
|
||||||||||||
|
Commercial other
|
|
|
|
|
||||||||||||
|
Real estate mortgage
|
|
|
|
|
||||||||||||
|
Home equity lines
|
|
|
|
|
||||||||||||
|
Consumer direct
|
|
|
|
|
||||||||||||
|
Consumer indirect
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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. During the year ended December 31, 2024, there
were
10
loans to borrowers experiencing financial difficulty that subsequently defaulted. CTBI considers a loan in default when it is
90
days or more past due or transferred to nonaccrual. Presented below, segregated by segment, are loans to borrowers experiencing
financial difficulty for which there was a payment default during the periods indicated and such default was within 12 months of the loan modification.
|
|
Year Ended
December 31, 2024
|
|||||||
|
(in thousands)
|
Number of Loans
|
Recorded Balance
|
||||||
|
Commercial:
|
||||||||
|
Commercial other
|
|
$ |
|
|||||
|
Residential:
|
||||||||
|
Real estate mortgage
|
|
|
||||||
|
Total loans experiencing financial difficulty
|
|
$
|
|
|||||
|
|
Year Ended
December 31, 2023
|
|||||||
|
(in thousands)
|
Number of Loans
|
Recorded Balance
|
||||||
|
Residential:
|
||||||||
|
Real estate mortgage
|
|
$ |
|
|||||
|
Total loans experiencing financial difficulty
|
|
$
|
|
|||||
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. The total unfunded
commitment off-balance sheet credit exposure was $
1.5
million at December 31, 2024 and 2023.
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
|
2024
|
2023
|
2022
|
|||||||||
|
Net gain on sale of mortgage loans held for sale
|
$
|
|
$
|
|
$
|
|
||||||
|
Net loan servicing income:
|
||||||||||||
|
|
|
|
|
|||||||||
|
|
|
|
|
|||||||||
|
|
|
|
|
|||||||||
|
Fair value adjustments
|
(
|
)
|
(
|
)
|
|
|||||||
|
Net loan servicing income
|
|
|
|
|||||||||
|
Mortgage banking income
|
$
|
|
$
|
|
$
|
|
||||||
Mortgage loans serviced for others are not included in the accompanying balance sheets. Loans serviced for the benefit of others
(primarily FHLMC) totaled $
667
million, $
725
million, and $
783
million at December 31, 2024,
2023, and 2022,
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 $
2.2
million,
$
2.5
million, and $
3.0
million
at December 31, 2024, 2023, and 2022, respectively.
Activity for capitalized MSRs using the fair value method is as follows:
|
(in thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Fair value of MSRs, beginning of year
|
$
|
|
$
|
|
$
|
|
||||||
|
New servicing assets created
|
|
|
|
|||||||||
|
Change in fair value during the year due to:
|
||||||||||||
|
Time decay (1)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Payoffs (2)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Changes in valuation inputs or assumptions (3)
|
|
(
|
)
|
|
||||||||
|
Fair value of MSRs, end of year
|
$
|
|
$
|
|
$
|
|
||||||
| (1) |
|
| (2) |
|
| (3) |
|
The fair values of capitalized MSRs were $
7.4
million, $
7.7
million, and $
8.5
million at December 31, 2024, 2023,
and 2022, respectively. Fair values for the years ended December 31, 2024, 2023, and 2022 were determined by third-party valuations
with a resulting
10.1
% average discount rate in 2024 compared to the
10.0
% average discount rate in 2023 and 2022 and weighted average default rates of
1.66
%,
0.95
%, and
1.24
%, respectively. Prepayment speeds generated using the Andrew Davidson Prepayment Model averaged
6.6
%,
7.5
%, and
7.1
% at December
31, 2024, 2023, and 2022, 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 Commissions). 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 2024 and 2023 is as follows:
|
(in thousands)
|
2024
|
2023
|
||||||
|
Related party extensions of credit, beginning of year
|
$
|
|
$
|
|
||||
|
New loans and advances on lines of credit
|
|
|
||||||
|
Repayments
|
(
|
)
|
(
|
)
|
||||
|
Decrease due to changes in related parties
|
(
|
)
|
(
|
)
|
||||
|
Related party extensions of credit, end of year
|
$
|
|
$
|
|
||||
The aggregate balances of related party deposits at December 31, 2024 and 2023 were $
29.5
million and $
28.3
million, respectively.
A director of CTBI is a shareholder in a law firm that provided services to CTBI and our subsidiaries during the years 2024, 2023, and 2022. Approximately $
0.5
million in legal fees and $
0.1
million in expenses paid on behalf of CTBI, $
0.6
million total, were paid to this law firm during 2024. 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 2023. 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 2022.
7. Premises and Equipment
Premises and equipment are summarized as follows:
|
(in thousands)
December 31
|
2024
|
2023
|
||||||
|
Land and buildings
|
$
|
|
$
|
|
||||
|
Leasehold improvements
|
|
|
||||||
|
Furniture, fixtures, and equipment
|
|
|
||||||
|
Construction in progress
|
|
|
||||||
|
Total premises and equipment
|
|
|
||||||
|
Less accumulated depreciation and amortization
|
(
|
)
|
(
|
)
|
||||
|
Premises and equipment, net
|
$
|
|
$
|
|
||||
Depreciation and amortization of premises and equipment for 2024, 2023, and 2022 was $
3.7
million, $
3.6
million, and $
3.3
million, respectively.
8. Other Real Estate Owned
Activity for OREO was as follows:
|
(in thousands)
|
2024
|
2023
|
||||||
|
Beginning balance of other real estate owned
|
$
|
|
$
|
|
||||
|
New assets acquired
|
|
|
||||||
|
Capitalized costs
|
|
|
||||||
|
Fair value adjustments
|
(
|
)
|
(
|
)
|
||||
|
Sale of assets
|
(
|
)
|
(
|
)
|
||||
|
Ending balance of other real estate owned
|
$
|
|
$
|
|
||||
Carrying costs and fair value adjustments associated with foreclosed properties were $
0.2
million, $
0.3
million, and $
0.5
million for 2024, 2023, and 2022, respectively. See
note 1 for a description of our accounting policies relative to foreclosed properties and OREO.
The major classifications of foreclosed properties are shown in the following table:
|
(in thousands)
December 31
|
2024
|
2023
|
||||||
|
1-4 family
|
$
|
|
$
|
|
||||
|
Construction/land development/other
|
|
|
||||||
|
Multifamily
|
|
|
||||||
|
Non-farm/non-residential
|
|
|
||||||
|
Total foreclosed properties
|
$
|
|
$
|
|
||||
9. Deposits
Major classifications of deposits are categorized as follows:
|
(in thousands)
December 31
|
2024
|
2023
|
||||||
|
Noninterest bearing deposits
|
$
|
|
$
|
|
||||
|
Interest bearing demand deposits
|
|
|
||||||
|
Money market deposits
|
|
|
||||||
|
Savings
|
|
|
||||||
|
Certificates of deposit and other time deposits of $100,000 or more
|
|
|
||||||
|
Certificates of deposit and other time deposits less than $100,000
|
|
|
||||||
|
Total deposits
|
$
|
|
$
|
|
||||
Certificates of deposit and other time deposits of $250,000
or more at December 31,
2024
and
2023
were $
396.3
million and $
318.0
million, respectively.
Maturities of certificates of deposits and other time deposits are presented below:
|
Maturities by Period at December 31, 2024
|
||||||||||||||||||||||||||||
|
(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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Certificates of deposit and other time deposits less than $100,000
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total maturities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
10. Borrowings
Short-term debt is categorized as follows:
|
(in thousands)
December 31
|
2024
|
2023
|
||||||
|
Repurchase agreements
|
$
|
|
$
|
|
||||
|
Federal funds purchased
|
|
|
||||||
|
Total short-term debt
|
$
|
|
$
|
|
||||
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, 2024 were
4.30
% and
4.05
%, respectively.
The maximum balance for repurchase agreements at any month-end during 2024 occurred at December 31, 2024, with a month-end balance of $
240.2
million. The average balance of repurchase agreements for the year was $
228.6
million.
Long-term debt is categorized as follows:
|
(in thousands)
December 31
|
2024
|
2023
|
||||||
|
Junior subordinated debentures,
|
$
|
|
$
|
|
||||
|
Loan related borrowings,
|
|
|
||||||
|
Total long-term debt
|
$ |
|
$ |
|
||||
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 LIBOR Act. Under the LIBOR Act, on the first London banking day after 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 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 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 discussed in note 1 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
or
6
-month CME Term
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 27, 2024, the coupon rate was set at
6.35098
% for the March 3, 2025 distribution date, which was based on the
3
-month CME Term
rate as of November 27, 2024 of
4.49937
%
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 USDA.
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 $
292.2
million and $
296.6
million at December 31, 2024 and December 31, 2023,
respectively.
The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in the
accompanying consolidated balance sheets as of December 31, 2024 and December 31, 2023 is presented in the following tables:
|
December 31, 2024
|
||||||||||||||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
State and political subdivisions
|
|
|
|
|
|
|||||||||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Asset-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
State and political subdivisions
|
|
|
|
|
|
|||||||||||||||
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Asset-backed securities
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
12. Advances from Federal Home Loan Bank
FHLB advances consisted of the following monthly amortizing borrowings at December 31:
|
(in thousands)
|
2024
|
2023
|
||||||
|
Monthly amortizing
|
$
|
|
$
|
|
||||
|
Total FHLB advances
|
$
|
|
$
|
|
||||
The advances from the FHLB that require monthly principal payments were due for repayment as follows:
|
Principal Payments Due by Period at December 31, 2024
|
||||||||||||||||||||||||||||
|
(in thousands)
|
Total
|
Within 1 Year
|
2 Years
|
3 Years
|
4 Years
|
5 Years
|
After 5 Years
|
|||||||||||||||||||||
|
Outstanding advances, weighted average interest rate –
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
At December 31, 2024,
CTBI had monthly amortizing FHLB advances totaling $
0.3
million at a weighted average interest rate of
0.04
%.
Advances totaling $
0.3
million at December 31, 2024 were collateralized by FHLB stock of $
5.1
million and a blanket lien on qualifying 1-4 family first mortgage loans. As of December 31, 2024, CTBI had a $
589.0
million FHLB borrowing capacity with $
0.3
million in advances and $
103.7
million
in letters of credit used for public fund pledging leaving $
485.0
million available for additional advances. The advances had fixed
interest rates of
0.00
% and
2.00
%
with a weighted average rate of
0.04
%. 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)
|
2024
|
2023
|
2022
|
|||||||||
|
Current federal income tax expense
|
$
|
|
$
|
|
$
|
|
||||||
|
Current state income tax expense
|
|
|
|
|||||||||
|
Deferred federal income tax expense (benefit)
|
(
|
)
|
|
|
||||||||
|
Deferred state income tax expense (benefit)
|
(
|
) |
|
|
||||||||
|
Total income tax expense
|
$
|
|
$
|
|
$
|
|
||||||
A reconciliation of income tax expense at the statutory rate to our actual income tax expense is shown below:
|
(in thousands)
|
2024
|
2023
|
2022
|
|||||||||||||||||||||
|
Computed at the statutory rate
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||||||
|
Adjustments resulting from:
|
||||||||||||||||||||||||
|
Tax-exempt interest
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Housing and new markets credits
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Bank owned life insurance
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
ESOP dividend deduction
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Stock option exercises and restricted stock vesting
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||||||
|
State income taxes
|
|
|
|
|
|
|
||||||||||||||||||
|
Split dollar life insurance
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
Other
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||||||
The components of the net deferred tax asset as of December 31 are as follows:
|
(in thousands)
|
2024
|
2023
|
||||||
|
Deferred tax assets:
|
||||||||
|
Allowance for credit losses
|
$
|
|
$
|
|
||||
|
Interest on nonaccrual loans
|
|
|
||||||
|
Accrued expenses
|
|
|
||||||
|
Unrealized losses on AFS securities
|
|
|
||||||
|
Allowance for other real estate owned
|
|
|
||||||
|
Lease liabilities
|
|
|
||||||
|
Limited partnership investments
|
|
|||||||
|
Other
|
|
|
||||||
|
Total deferred tax assets
|
|
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Depreciation and amortization
|
(
|
)
|
(
|
)
|
||||
|
FHLB stock dividends
|
(
|
)
|
(
|
)
|
||||
|
Loan fee income
|
(
|
)
|
(
|
)
|
||||
|
Mortgage servicing rights
|
(
|
)
|
(
|
)
|
||||
|
Limited partnership investments
|
|
(
|
)
|
|||||
|
Right of use assets
|
(
|
)
|
(
|
)
|
||||
|
Other
|
(
|
)
|
(
|
)
|
||||
|
Total deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net deferred tax asset
|
$
|
|
$
|
|
||||
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.
CTBI adopted 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.
As a result of the implementation of this ASU, we recorded a cumulative effect impact that reduced retained earnings by
$
2.0
million during the first quarter 2024. Additionally, we had a decrease in amortization expense, recognized in
, that totaled $
2.6
million for the year ended December 31, 2023. The amortization expense included in
was $
3.0
million for the year ended December 31, 2024. The amount of income tax credits and other tax benefits recognized was $
4.3
million for the year ended December 31, 2024. The amortization, income tax credits, and other tax benefits recognized were included in
on the consolidated statement of income and in net income on the consolidated statement of cash flows. We had $
16.1
million in tax investments at December 31, 2024 included in
on the consolidated balance sheet. There were no non-income tax related activities or other returns received that were recognized outside of income tax expense and the
consolidated statement of income and the consolidated statement of cash flows. There were also no significant modifications or events that resulted in a change in the nature of the investment or change in the relationship with the underlying
projects.
No
investment income or loss was included in pre-tax income, and
no
impairment was recognized during the quarter or year to date resulting from the forfeiture or ineligibility of income tax credits or other circumstances. At December 31, 2024, there
was $
4.5
million in unfunded commitments.
Of the amount outstanding, the contribution schedule is as follows:
|
(in thousands)
Amount due in:
|
Unfunded Commitments
|
|||
|
2025
|
$
|
|
||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
After
|
|
|||
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 2021, and state and local income tax examinations by tax authorities for years before 2020. 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 $
1.4
million, $
1.2
million, and $
1.2
million for the three years ended December 31, 2024, 2023, and 2022, respectively. The 401(k) Plan owned
304,554
,
367,106
, and
348,859
shares of CTBI’s
common stock at December 31, 2024, 2023, and 2022, 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 $
2.0
million, $
1.8
million, and $
1.7
million for the three years ended December 31, 2024, 2023, and 2022, respectively. The ESOP owned
760,396
,
772,351
, and
734,677
shares of CTBI’s common stock at December 31, 2024, 2023, and 2022, 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, 2024, CTBI maintained
one
active and
one
inactive incentive stock ownership plan covering key employees. The 2025 Employee Stock Ownership Incentive Plan (“2025 Plan”) was approved by the Board of Directors and
the Shareholders in 2024 and became active on February 1, 2025. The 2015 Stock Ownership Incentive Plan (“2015 Plan”) was approved by the Board of Directors and the Shareholders in 2015. The 2015 plan was rendered inactive as of February 1,
2025. 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, and all outstanding options had been exercised under the
2006 Plan as of December 31, 2024. The 2025 Plan was not active as of December 31, 2024. The 2015 Plan had
550,000
shares authorized,
335,583
of which were available at December 31, 2024. Shares issuable pursuant to awards which were granted under the 2015 Plan on or
before their respective expiration or termination dates will be issued from the remaining shares reserved for issuance under the 2015 Plan. The shares of common stock reserved for issuance under the 2015 Plan 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 2015 Plan may lapse, expire, terminate, or be canceled, will not be reserved and available for issuance or reissuance
under the 2025 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, 2024:
|
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
|
|
|
|
|
(a)
|
|||||||
|
Restricted stock
|
(c)
|
(b)
|
(a)
|
|||||||||
|
Performance units
|
(d)
|
(b)
|
(a)
|
|||||||||
|
Stock appreciation rights (“SARs”)
|
(e)
|
(b)
|
(a)
|
|||||||||
|
Total
|
|
|||||||||||
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
|
| (e) |
|
The 2025 Plan became effective on February 1, 2025; therefore,
no
activity is reportable as of December 31, 2024.
|
Plan Category
|
Shares Available for
Future Issuance
|
|||
|
Shares available at January 1,
2024
|
|
|||
|
Stock option grants
|
|
|||
|
Restricted stock grants
|
(
|
)
|
||
|
Forfeitures
|
|
|||
|
Shares available for future issuance
at December 31,
2024
|
|
|||
There were
no
stock options granted in
2024, 2023, or 2022.
The 2015 Plan:
There was
no
stock
option activity for the 2015 Plan for the years ended December 31, 2024, 2023, and 2022.
The following table shows restricted stock activity for the 2015 Plan for the years ended December 31, 2024, 2023, and 2022:
|
December 31
|
2024
|
2023
|
2022
|
|||||||||||||||||||||
|
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
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
|
Granted
|
|
|
|
|
|
|
||||||||||||||||||
|
Vested
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||||
|
Forfeited
|
(
|
)
|
|
(
|
)
|
|
|
|
||||||||||||||||
|
Outstanding at end of year
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
The 2006 Plan:
CTBI’s stock option activity for the 2006 Plan for the years ended December 31, 2024, 2023, and 2022 is summarized as follows:
|
December 31
|
2024
|
2023
|
2022
|
|||||||||||||||||||||
|
Options
|
Weighted
Average
Exercise
Price
|
Options
|
Weighted
Average
Exercise
Price
|
Options
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||||
|
Outstanding at beginning of year
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
|
Exercised
|
|
|
|
|
|
|
||||||||||||||||||
|
Outstanding at end of year
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
|
Exercisable at end of year
|
|
$
|
|
|
$
|
|
|
$
|
|
|||||||||||||||
There were
no
outstanding options at December 31, 2024. There
were
no
options granted from the 2006 Plan during the years 2024, 2023, and 2022.
The following table shows the intrinsic values of options exercised, exercisable, and outstanding for the 2006 Plan for the years ended
December 31, 2024, 2023,
and 2022:
|
(in thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Options exercised
|
$
|
|
$
|
|
$
|
|
||||||
|
Options exercisable
|
|
|
|
|||||||||
|
Outstanding options
|
|
|
|
|||||||||
There was
no
restricted stock activity for the 2006 Plan for the years ended December 31, 2024, 2023, and 2022.
The following table shows the unrecognized compensation cost related to nonvested share-based compensation arrangements granted under
the plans at December 31, 2024, 2023,
and 2022 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, 2024, 2023, and 2022.
|
(in thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Unrecognized compensation cost of nonvested share-based compensation arrangements granted under the plan at
year-end
|
$
|
|
$
|
|
$
|
|
||||||
|
Total fair value of shares vested for the year
|
|
|
|
|||||||||
|
Cash received from option exercises under all share-based payment arrangements for the year
|
|
|
|
|||||||||
|
Tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements for
the year
|
|
|
|
|||||||||
The unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans at December 31, 2024 is expected to be recognized over a weighted-average period of
2.4
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. 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. Right-of-use assets are further adjusted for prepaid rent, lease incentives, and initial direct
costs, if any.
The components of lease expense for the years ended December 31, 2024 and 2023 were as follows:
|
(in thousands)
|
Year Ended
December 31, 2024
|
Year Ended
December 31, 2023
|
||||||
|
Finance lease cost:
|
||||||||
|
Amortization of right-of-use assets – finance leases
|
$
|
|
$
|
|
||||
|
Interest on lease liabilities – finance leases
|
|
|
||||||
|
Total finance lease cost
|
|
|
||||||
|
Short-term lease cost
|
|
|
||||||
|
Operating lease cost
|
|
|
||||||
|
Total lease cost
|
|
|
||||||
|
Sublease income
|
(
|
)
|
(
|
)
|
||||
|
Net lease cost
|
$
|
|
$
|
|
||||
Supplemental cash flow information related to CTBI’s operating and finance leases for the years ended December 31, 2024 and 2023 was as
follows:
|
(in thousands)
|
Year Ended
December 31, 2024
|
Year Ended
December 31, 2023
|
||||||
|
Finance lease – operating cash flows
|
$
|
|
$
|
|
||||
|
Finance lease – financing cash flows
|
$
|
|
$
|
|
||||
|
Operating lease – operating cash flows (fixed payments)
|
$
|
|
$
|
|
||||
|
Operating lease – operating cash flows (liability reduction)
|
$
|
|
$
|
|
||||
|
New right-of-use assets – operating leases
|
$
|
|
$
|
|
||||
|
New right-of-use assets – finance leases
|
$ |
|
$ |
|
||||
|
Weighted average lease term – financing leases
|
|
|
||||||
|
Weighted average lease term – operating leases
|
|
|
||||||
|
Weighted average discount rate – financing leases
|
|
%
|
|
%
|
||||
|
Weighted average discount rate – operating leases
|
|
%
|
|
%
|
||||
Maturities of lease liabilities as of December 31, 2024 are as follows:
|
(in thousands)
|
Operating Leases
|
Finance Leases
|
||||||
|
2025
|
$
|
|
$
|
|
||||
|
2026
|
|
|
||||||
|
2027
|
|
|
||||||
|
2028
|
|
|
||||||
|
2029
|
|
|
||||||
|
Thereafter
|
|
|
||||||
|
Total lease payments
|
|
|
||||||
|
Less imputed interest
|
(
|
)
|
(
|
)
|
||||
|
Total
|
$
|
|
$
|
|
||||
Maturities of lease liabilities as of December 31, 2023 are as follows:
|
(in thousands)
|
Operating Leases
|
Finance Leases
|
||||||
|
2024
|
$
|
|
$
|
|
||||
|
2025
|
|
|
||||||
|
2026
|
|
|
||||||
|
2027
|
|
|
||||||
|
2028
|
|
|
||||||
|
Thereafter
|
|
|
||||||
|
Total lease payments
|
|
|
||||||
|
Less imputed interest
|
(
|
)
|
(
|
)
|
||||
|
Total
|
$
|
|
$
|
|
||||
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, 2024 and December 31, 2023 and indicate the level within the fair value hierarchy of the valuation techniques.
|
|
Fair Value Measurements at
December 31, 2024
Using
|
|||||||||||||||
| (in thousands) |
Fair Value
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Assets measured – recurring basis
|
||||||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||
|
U.S. Treasury and government agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
U.S. government sponsored agenc
y mortgage-backed securities
|
|
|
|
|
||||||||||||
|
Asset-backed securities
|
|
|
|
|
||||||||||||
|
Equity securities at fair value
|
|
|
|
|
||||||||||||
|
Mortgage servicing rights
|
|
|
|
|
||||||||||||
|
|
Fair Value Measurements at
December 31, 2023
Using
|
|||||||||||||||
| (in thousands) |
Fair Value
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Assets measured – recurring basis
|
||||||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||
|
U.S. Treasury and government agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
U.S. government sponsored agenc
y mortgage-backed securities
|
|
|
|
|
||||||||||||
|
Asset-backed securities
|
|
|
|
|
||||||||||||
|
Equity securities at fair value
|
|
|
|
|
||||||||||||
|
Mortgage servicing rights
|
|
|
|
|
||||||||||||
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, 2024 and December 31, 2023. There have been no significant
changes in the valuation techniques during the year ended December 31, 2024. For assets classified within Level 3 of the fair value
hierarchy, the process used to develop the reported fair value is described below.
Available-for-Sale Securities
Securities classified as 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, 2024 and December 31, 2023, 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 tables below for inputs and valuation techniques used for Level 3 equity securities.
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 GAAP. 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:
|
|
2024
|
2023
|
||||||||||||||
| (in thousands) |
Equity
Securities
at Fair
Value
|
Mortgage
Servicing
Rights
|
Equity
Securities
at Fair
Value
|
Mortgage
Servicing
Rights
|
||||||||||||
|
Beginning balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total unrealized gains (losses)
|
||||||||||||||||
|
Included in net income
|
|
|
|
(
|
)
|
|||||||||||
|
Issues
|
|
|
|
|
||||||||||||
|
Settlements
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Ending balance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||||
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)
|
2024
|
2023
|
||||||
|
Total gains
|
$
|
|
|
$
|
|
|
||
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, 2024 and December 31, 2023 and indicate the level within the fair value hierarchy of the valuation techniques.
|
|
Fair Value Measurements at
December 31, 2024
Using
|
|||||||||||||||
| (in thousands) |
Fair Value
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Assets measured – nonrecurring basis
|
||||||||||||||||
|
Collateral dependent loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Other real estate owned
|
|
|
|
|
||||||||||||
|
|
Fair Value Measurements at
December 31, 2023
Using
|
|||||||||||||||
| (in thousands) |
Fair Value
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Assets measured – nonrecurring basis
|
||||||||||||||||
|
Collateral dependent loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Other real estate owned
|
|
|
|
|
||||||||||||
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 $
0.1
million and $
0.3
million for the years ended December 31, 2024 and December 31, 2023,
respectively.
Other Real Estate Owned
In accordance with the provisions of ASC 360,
Property, Plant, and Equipment,
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 for each of the
years ended December 31, 2024 and December 31, 2023.
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, 2024 and December 31, 2023.
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
||||||||
| (in thousands) |
Fair Value at
December 31,
2024
|
Valuation
Technique(s)
|
Unobservable Input
|
Range (Weighted
Average)
|
|||||
|
Equity securities at fair value
|
$
|
|
Discount cash flows, computer pricing model
|
Discount rate
|
(
|
||||
|
Conversion date
|
–
(
)
|
||||||||
|
Mortgage servicing rights
|
$
|
|
Discount cash flows, computer pricing model
|
Constant prepayment rate
|
(
|
||||
|
Probability of default
|
(
|
||||||||
|
Discount rate
|
(
|
||||||||
|
Collateral-dependent loans
|
$
|
|
Market comparable properties
|
Marketability discount
|
(
|
||||
|
Other real estate owned
|
$
|
|
Market comparable properties
|
Comparability adjustments
|
(
|
||||
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
||||||||
| (in thousands) |
Fair Value at
December 31,
2023
|
Valuation
Technique(s)
|
Unobservable Input
|
Range (Weighted
Average)
|
|||||
|
Equity securities at fair value
|
$
|
|
Discount cash flows, computer pricing model
|
Discount rate
|
(
|
||||
|
Conversion date
|
-
(
)
|
||||||||
|
Mortgage servicing rights
|
$
|
|
Discount cash flows, computer pricing model
|
Constant prepayment rate
|
(
|
||||
|
Probability of default
|
(
|
||||||||
|
Discount rate
|
(
|
||||||||
|
Collateral-dependent loans
|
$
|
|
Market comparable properties
|
Marketability discount
|
(
|
||||
|
Other real estate owned
|
$
|
|
Market comparable properties
|
Comparability adjustments
|
(
|
||||
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
1.5653
and
the most recent dividend rate of
0.9235
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, 2024 and indicates the level within the fair value hierarchy of the valuation techniques. In accordance with the adoption of ASU 2016-01, the fair
values as of December 31, 2024 were measured using an exit price notion.
|
|
Fair Value Measurements
at December 31, 2024
Using
|
|||||||||||||||
| (in thousands) |
Carrying
Amount
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Financial assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Certificates of deposit in other banks
|
|
|
|
|
||||||||||||
|
Debt securities available-for-sale
|
|
|
|
|
||||||||||||
|
Equity securities at fair value
|
|
|
|
|
||||||||||||
|
Loans held for sale
|
|
|
|
|
||||||||||||
|
Loans, net
|
|
|
|
|
||||||||||||
|
Federal Home Loan Bank stock
|
|
|
|
|
||||||||||||
|
Federal Reserve Bank stock
|
|
|
|
|
||||||||||||
|
Accrued interest receivable
|
|
|
|
|
||||||||||||
|
Financial liabilities:
|
||||||||||||||||
|
Deposits
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Repurchase agreements
|
|
|
|
|
||||||||||||
|
Federal funds purchased
|
|
|
|
|
||||||||||||
|
Advances from Federal Home Loan Bank
|
|
|
|
|
||||||||||||
|
Long-term debt
|
|
|
|
|
||||||||||||
|
Accrued interest payable
|
|
|
|
|
||||||||||||
|
Unrecognized financial instruments:
|
||||||||||||||||
|
Letters of credit
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Commitments to extend credit
|
|
|
|
|
||||||||||||
|
Forward sale commitments
|
|
|
|
|
||||||||||||
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.
|
|
Fair Value Measurements
at December 31, 2023
Using
|
|||||||||||||||
| (in thousands) |
Carrying
Amount
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Financial assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Certificates of deposit in other banks
|
|
|
|
|
||||||||||||
|
Debt securities available-for-sale
|
|
|
|
|
||||||||||||
|
Equity securities at fair value
|
|
|
|
|
||||||||||||
|
Loans held for sale
|
|
|
|
|
||||||||||||
|
Loans, net
|
|
|
|
|
||||||||||||
|
Federal Home Loan Bank stock
|
|
|
|
|
||||||||||||
|
Federal Reserve Bank stock
|
|
|
|
|
||||||||||||
|
Accrued interest receivable
|
|
|
|
|
||||||||||||
|
Financial liabilities:
|
||||||||||||||||
|
Deposits
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Repurchase agreements
|
|
|
|
|
||||||||||||
|
Federal funds purchased
|
|
|
|
|
||||||||||||
|
Advances from Federal Home Loan Bank
|
|
|
|
|
||||||||||||
|
Long-term debt
|
|
|
|
|
||||||||||||
|
Accrued interest payable
|
|
|
|
|
||||||||||||
|
Unrecognized financial instruments:
|
||||||||||||||||
|
Letters of credit
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Commitments to extend credit
|
|
|
|
|
||||||||||||
|
Forward sale commitments
|
|
|
|
|
||||||||||||
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, 2024 and 2023, CTBI had the following off-balance sheet financial instruments, whose approximate contract amounts
represent additional credit risk to CTBI:
|
(in thousands)
|
2024
|
2023
|
||||||
|
Standby letters of credit
|
$
|
|
$
|
|
||||
|
Commitments to extend credit
|
|
|
||||||
|
Total off-balance sheet financial instruments
|
$
|
|
$
|
|
||||
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, 2024, 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
72
% of the total standby letters of credit are
secured, with $
22.5
million of the total $
27.8
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, 2024, 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, 2024 of $
122.0
million had interest rates ranging predominantly from
4.0
%
to
8.25
% and terms of predominantly
two years
or less. These credit commitments were based on prevailing rates, terms, and conditions applicable to other loans being made at December 31, 2024.
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. There were
no
mortgage loans in the process of origination at December 31, 2024. We had mortgage loans in the process of origination totaling $
0.4
million at December 31, 2023.
Mortgage loans held for sale were $
0.2
million for each of the years ended December 31, 2024 and 2023.
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 its 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. On December 31, 2024, and December 31, 2023, our concentrations of hospitality
industry credits were
64
% and
62
%
of Tier 1 Capital plus the ACL, respectively. Lessors of residential buildings and dwellings were
51
% and
46
% for each period end, respectively, and lessors of non-residential buildings credits were
32
% and
35
% for each period end, respectively. 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, 2024 are without merit or that the ultimate liability, if any, will not materially affect our consolidated financial position or results of operations.
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 2025, approximately $
102.6
million plus any 2025 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.
CTBI’s and CTB’s CBLR ratios as of December 31, 2024 and 2023 are disclosed below.
Consolidated Capital Ratios
|
Actual
|
For Capital Adequacy
Purposes
|
|||||||||||||||
|
(in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||
|
As of December 31, 2024:
|
||||||||||||||||
|
CBLR
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
As of December 31, 2023:
|
||||||||||||||||
|
CBLR
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
Community Trust Bank, Inc.’s Capital Ratios
|
Actual
|
For Capital Adequacy
Purposes
|
|||||||||||||||
|
(in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||
|
As of December 31, 2024:
|
||||||||||||||||
|
CBLR
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
As of December 31, 2023:
|
||||||||||||||||
|
CBLR
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
21. Parent Company Financial Statements
Condensed Balance Sheets
|
(in thousands)
December 31
|
2024
|
2023
|
||||||
|
Assets:
|
||||||||
|
Cash on deposit
|
$
|
|
$
|
|
||||
|
Investment in and advances to subsidiaries
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Premises and equipment, net
|
|
|
||||||
|
Deferred tax asset
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities and shareholders’ equity:
|
||||||||
|
Long-term debt
|
$
|
|
$
|
|
||||
|
Other liabilities
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Shareholders’ equity
|
|
|
||||||
|
Total liabilities and shareholders’ equity
|
$
|
|
$
|
|
||||
Condensed Statements of Income and Comprehensive Income (Loss)
|
(in thousands)
Year Ended December 31
|
2024
|
2023
|
2022
|
|||||||||
|
Income:
|
||||||||||||
|
Dividends from subsidiaries
|
$
|
|
$
|
|
$
|
|
||||||
|
Other income
|
|
|
|
|||||||||
|
Total income
|
|
|
|
|||||||||
|
Expenses:
|
||||||||||||
|
Interest expense
|
|
|
|
|||||||||
|
Depreciation expense
|
|
|
|
|||||||||
|
Other expenses
|
|
|
|
|||||||||
|
Total expenses
|
|
|
|
|||||||||
|
Income before income taxes and equity in undistributed income of subsidiaries
|
|
|
|
|||||||||
|
Income tax benefit
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Income before equity in undistributed income of subsidiaries
|
|
|
|
|||||||||
|
Equity in undistributed income of subsidiaries
|
|
|
|
|||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Unrealized holding gains (losses) on debt securities available-for-sale:
|
||||||||||||
|
Unrealized holding gains (losses) arising during the period
|
|
|
(
|
)
|
||||||||
|
Less: Reclassification adjustments for realized gains (losses) included in net income
|
|
|
(
|
)
|
||||||||
|
Tax expense (benefit)
|
|
|
(
|
)
|
||||||||
|
Other comprehensive income (loss), net of tax
|
|
|
(
|
)
|
||||||||
|
Comprehensive income (loss)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
Condensed Statements of Cash Flows
|
(in thousands)
Year Ended December 31
|
2024
|
2023
|
2022
|
|||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation
|
|
|
|
|||||||||
|
Equity in undistributed earnings of subsidiaries
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Deferred taxes
|
(
|
)
|
(
|
)
|
|
|||||||
|
Stock-based compensation
|
|
|
|
|||||||||
|
Gains on sale of assets, net
|
|
(
|
) |
|
||||||||
|
Changes in:
|
||||||||||||
|
Other assets
|
(
|
)
|
|
|
||||||||
|
Other liabilities
|
(
|
)
|
|
(
|
)
|
|||||||
|
Net cash provided by operating activities
|
|
|
|
|||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Net purchases of premises and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from sale and retirement of premises and equipment
|
|
|
|
|||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Issuance of common stock
|
|
|
|
|||||||||
|
Dividends paid
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net increase (decrease) in cash and cash equivalents
|
(
|
)
|
|
(
|
)
|
|||||||
|
Cash and cash equivalents at beginning of year
|
|
|
|
|||||||||
|
Cash and cash equivalents at end of year
|
$
|
|
$
|
|
$
|
|
||||||
22. Segment Reporting
CTBI is a financial holding company, whose principal activity is the ownership and management of its wholly-owned subsidiaries, including CTB and
Community Trust and Investment Company. As a community-oriented financial institution, the majority of CTBI’s operations consist of commercial and personal banking services. 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. CTBI’s chief operating decision maker is comprised of the executive leadership team. For CTBI, the executive leadership team uses gross profit to allocate resources in the annual budget and forecasting process. The chief
operating decision maker considers budget-to-actual variances on a monthly basis for profit measures when making decisions about allocating capital and personnel to the operating segment. For CTBI, the executive leadership team uses net interest
income and noninterest income to allocate resources (including employees, financial, or capital resources) to that segment in the annual budget and forecasting process and uses that measure as a basis for evaluating product offerings and pricing.
The following tables present information about reported segment revenue, measures of a segment’s profit or loss, and significant segment expenses for the years ended December 31, 2024, 2023, and 2022, and measure of a segment’s assets as of
December 31, 2024 and 2023. CTBI does not allocate all holding company expenses, income taxes, or unusual items to the reportable segment. Accounting policies for the segment are the same as described in note 1 above. All operations of CTBI are
domestic.
The following tables present the reconciliations of reportable segment revenues and measures of profit or loss and line item reconciliation to CTBI’s consolidated financial
statement totals.
|
(in thousands)
Year Ended December 31, 2024
|
Community
Banking
Services
|
Holding
Company
|
Eliminations
|
Consolidated
|
||||||||||||
|
Interest income:
|
||||||||||||||||
|
Interest and fees on loans, including loans held for sale
|
$
|
|
$
|
|
$ |
|
$
|
|
||||||||
|
Interest and dividends on securities:
|
||||||||||||||||
|
Taxable
|
|
|
|
|
||||||||||||
|
Tax exempt
|
|
|
|
|
||||||||||||
|
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
|
|
|
|
|
||||||||||||
|
Interest on Federal Reserve Bank deposits
|
|
|
|
|
||||||||||||
|
Other, including interest on federal funds sold
|
|
|
|
|
||||||||||||
|
Total interest income
|
|
|
|
|
||||||||||||
|
Interest expense:
|
||||||||||||||||
|
Interest on deposits
|
|
|
|
|
||||||||||||
|
Interest on repurchase agreements and federal funds purchased
|
|
|
|
|
||||||||||||
|
Interest on advances from Federal Home Loan Bank
|
|
|
|
|
||||||||||||
|
Interest on long-term debt
|
|
|
(
|
)
|
|
|||||||||||
|
Total interest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Net interest income
|
|
(
|
)
|
|
|
|||||||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Net interest income after provision for credit losses
|
|
(
|
)
|
|
|
|||||||||||
|
Noninterest income:
|
||||||||||||||||
|
Deposit related fees
|
|
|
|
|
||||||||||||
|
Gains on sales of loans, net
|
|
|
|
|
||||||||||||
|
Trust and wealth management income
|
|
|
|
|
||||||||||||
|
Loan related fees
|
|
|
|
|
||||||||||||
|
Bank owned life insurance
|
|
|
|
|
||||||||||||
|
Brokerage revenue
|
|
|
|
|
||||||||||||
|
Securities gains (losses)
|
|
|
|
|
||||||||||||
|
Dividend and undistributed income from subsidiaries
|
|
|
(
|
)
|
|
|||||||||||
|
Other noninterest income
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest income
|
|
|
(
|
)
|
|
|||||||||||
|
Noninterest expense:
|
||||||||||||||||
|
Officer salaries and employee benefits
|
|
|
(
|
)
|
|
|||||||||||
|
Other salaries and employee benefits
|
|
|
(
|
)
|
|
|||||||||||
|
Occupancy, net
|
|
|
|
|
||||||||||||
|
Equipment
|
|
|
(
|
)
|
|
|||||||||||
|
Data processing
|
|
|
|
|
||||||||||||
|
Bank franchise tax
|
|
|
|
|
||||||||||||
|
Legal fees
|
|
|
|
|
||||||||||||
|
Professional fees
|
|
|
(
|
)
|
|
|||||||||||
|
Advertising and marketing
|
|
|
|
|
||||||||||||
|
FDIC insurance
|
|
|
|
|
||||||||||||
|
Other real estate owned provision and expense
|
|
|
|
|
||||||||||||
|
Repossession expense
|
|
|
|
|
||||||||||||
|
Other noninterest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Income before income taxes
|
|
|
(
|
)
|
|
|||||||||||
|
Income taxes
|
|
(
|
)
|
|
|
|||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
(in thousands)
Year Ended December 31, 2023
|
Community
Banking
Services
|
Holding
Company
|
Eliminations
|
Consolidated
|
||||||||||||
|
Interest income:
|
||||||||||||||||
|
Interest and fees on loans, including loans held for sale
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest and dividends on securities:
|
||||||||||||||||
|
Taxable
|
|
|
|
|
||||||||||||
|
Tax exempt
|
|
|
|
|
||||||||||||
|
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
|
|
|
|
|
||||||||||||
|
Interest on Federal Reserve Bank deposits
|
|
|
|
|
||||||||||||
|
Other, including interest on federal funds sold
|
|
|
|
|
||||||||||||
|
Total interest income
|
|
|
|
|
||||||||||||
|
Interest expense:
|
||||||||||||||||
|
Interest on deposits
|
|
|
|
|
||||||||||||
|
Interest on repurchase agreements and federal funds purchased
|
|
|
|
|
||||||||||||
|
Interest on advances from Federal Home Loan Bank
|
|
|
|
|
||||||||||||
|
Interest on long-term debt
|
|
|
(
|
)
|
|
|||||||||||
|
Total interest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Net interest income
|
|
(
|
)
|
|
|
|||||||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Net interest income after provision for credit losses
|
|
(
|
)
|
|
|
|||||||||||
|
Noninterest income:
|
||||||||||||||||
|
Deposit related fees
|
|
|
|
|
||||||||||||
|
Gains on sales of loans, net
|
|
|
|
|
||||||||||||
|
Trust and wealth management income
|
|
|
|
|
||||||||||||
|
Loan related fees
|
|
|
|
|
||||||||||||
|
Bank owned life insurance
|
|
|
|
|
||||||||||||
|
Brokerage revenue
|
|
|
|
|
||||||||||||
|
Securities gains (losses)
|
|
|
|
|
||||||||||||
|
Dividend and undistributed income from subsidiaries
|
|
|
(
|
)
|
|
|||||||||||
|
Other noninterest income
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest income
|
|
|
(
|
)
|
|
|||||||||||
|
Noninterest expense:
|
||||||||||||||||
|
Officer salaries and employee benefits
|
|
|
(
|
)
|
|
|||||||||||
|
Other salaries and employee benefits
|
|
|
(
|
)
|
|
|||||||||||
|
Occupancy, net
|
|
|
|
|
||||||||||||
|
Equipment
|
|
|
(
|
)
|
|
|||||||||||
|
Data processing
|
|
|
|
|
||||||||||||
|
Bank franchise tax
|
|
|
|
|
||||||||||||
|
Legal fees
|
|
|
|
|
||||||||||||
|
Professional fees
|
|
|
(
|
)
|
|
|||||||||||
|
Advertising and marketing
|
|
|
|
|
||||||||||||
|
FDIC insurance
|
|
|
|
|
||||||||||||
|
Other real estate owned provision and expense
|
|
|
|
|
||||||||||||
|
Repossession expense
|
|
|
|
|
||||||||||||
|
Other noninterest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Income before income taxes
|
|
|
(
|
)
|
|
|||||||||||
|
Income taxes
|
|
(
|
)
|
|
|
|||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
(in thousands)
Year Ended December 31, 2022
|
Community
Banking
Services
|
Holding
Company
|
Eliminations
|
Consolidated
|
||||||||||||
|
Interest income:
|
||||||||||||||||
|
Interest and fees on loans, including loans held for sale
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest and dividends on securities:
|
||||||||||||||||
|
Taxable
|
|
|
|
|
||||||||||||
|
Tax exempt
|
|
|
|
|
||||||||||||
|
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
|
|
|
|
|
||||||||||||
|
Interest on Federal Reserve Bank deposits
|
|
|
|
|
||||||||||||
|
Other, including interest on federal funds sold
|
|
|
|
|
||||||||||||
|
Total interest income
|
|
|
|
|
||||||||||||
|
Interest expense:
|
||||||||||||||||
|
Interest on deposits
|
|
|
|
|
||||||||||||
|
Interest on repurchase agreements and federal funds purchased
|
|
|
|
|
||||||||||||
|
Interest on advances from Federal Home Loan Bank
|
|
|
|
|
||||||||||||
|
Interest on long-term debt
|
|
|
(
|
)
|
|
|||||||||||
|
Total interest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Net interest income
|
|
(
|
)
|
|
|
|||||||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Net interest income after provision for credit losses
|
|
(
|
)
|
|
|
|||||||||||
|
Noninterest income:
|
||||||||||||||||
|
Deposit related fees
|
|
|
|
|
||||||||||||
|
Gains on sales of loans, net
|
|
|
|
|
||||||||||||
|
Trust and wealth management income
|
|
|
|
|
||||||||||||
|
Loan related fees
|
|
|
|
|
||||||||||||
|
Bank owned life insurance
|
|
|
|
|
||||||||||||
|
Brokerage revenue
|
|
|
|
|
||||||||||||
|
Securities gains (losses)
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Dividend and undistributed income from subsidiaries
|
|
|
(
|
)
|
|
|||||||||||
|
Other noninterest income
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest income
|
|
|
(
|
)
|
|
|||||||||||
|
Noninterest expense:
|
||||||||||||||||
|
Officer salaries and employee benefits
|
|
|
(
|
)
|
|
|||||||||||
|
Other salaries and employee benefits
|
|
|
(
|
)
|
|
|||||||||||
|
Occupancy, net
|
|
|
|
|
||||||||||||
|
Equipment
|
|
|
(
|
)
|
|
|||||||||||
|
Data processing
|
|
|
(
|
)
|
|
|||||||||||
|
Bank franchise tax
|
|
|
|
|
||||||||||||
|
Legal fees
|
|
|
|
|
||||||||||||
|
Professional fees
|
|
|
(
|
)
|
|
|||||||||||
|
Advertising and marketing
|
|
|
|
|
||||||||||||
|
FDIC insurance
|
|
|
|
|
||||||||||||
|
Other real estate owned provision and expense
|
|
|
|
|
||||||||||||
|
Repossession expense
|
|
|
|
|
||||||||||||
|
Other noninterest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest expense
|
|
|
(
|
)
|
|
|||||||||||
|
Income before income taxes
|
|
|
(
|
)
|
|
|||||||||||
|
Income taxes
|
|
(
|
)
|
|
|
|||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
The following tables present other segment disclosures:
|
(thousands)
Year Ended December 31, 2024
|
Community
Banking
Services
|
Holding
Company
|
Eliminations
|
Consolidated
|
||||||||||||
|
Depreciation
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Amortization of operating lease right-of-use assets
|
|
|
|
|
||||||||||||
|
Significant non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Change in cash surrender value of bank owned life insurance
|
|
|
|
|
||||||||||||
|
Expenditures for long-lived assets
|
|
|
|
|
||||||||||||
|
(thousands)
Year Ended December 31, 2023
|
Community
Banking
Services |
Holding
Company
|
Eliminations
|
Consolidated
|
||||||||||||
|
Depreciation
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Amortization of operating lease right-of-use assets
|
|
|
|
|
||||||||||||
|
Significant non-cash items:
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Change in cash surrender value of bank owned life insurance
|
|
|
|
|
||||||||||||
|
Expenditures for long-lived assets
|
|
|
|
|
||||||||||||
|
(thousands)
Year Ended December 31, 2022
|
Community
Banking
Services
|
Holding
Company
|
Eliminations
|
Consolidated
|
||||||||||||
|
Depreciation
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Amortization of operating lease right-of-use assets
|
|
|
|
|
||||||||||||
|
Significant non-cash items:
|
|
|
|
|
|
|
|
|||||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Change in cash surrender value of bank owned life insurance
|
|
|
|
|
||||||||||||
|
Expenditures for long-lived assets
|
|
|
|
|
||||||||||||
Below is a reconciliation of our reportable segment assets to CTBI’s consolidated total assets:
|
(in thousands)
|
December 31
2024
|
December 31
2023
|
||||||
|
Assets
|
||||||||
|
Community banking services assets
|
$
|
|
$
|
|
||||
|
Holding company assets
|
|
|
||||||
|
Elimination of subsidiary and parent cash and intercompany receivables
|
(
|
)
|
(
|
)
|
||||
|
Elimination of investment in subsidiaries
|
(
|
)
|
(
|
)
|
||||
|
Consolidated total assets
|
$
|
|
$
|
|
||||
23. 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
no
t 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 MSRs, gains/losses on the sale of
investment securities, gains/losses on the sale of OREO, gains/losses on the sale of property, plant and equipment, and income from bank owned life insurance.
For more information related to our components of noninterest income, see the consolidated statements of income and comprehensive income above.
24. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
(in thousands except per share data)
Year Ended December 31
|
2024
|
2023
|
2022
|
|||||||||
|
Numerator:
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Denominator:
|
||||||||||||
|
Basic earnings per share:
|
||||||||||||
|
Weighted average shares
|
|
|
|
|||||||||
|
Diluted earnings per share:
|
||||||||||||
|
Dilutive effect of equity grants
|
|
|
|
|||||||||
|
Adjusted weighted average shares
|
|
|
|
|||||||||
|
Earnings per share:
|
||||||||||||
|
Basic earnings per share
|
$
|
|
$
|
|
$
|
|
||||||
|
Diluted earnings per share
|
|
|
|
|||||||||
There were
no
options to purchase
common shares that were excluded from the diluted calculations above for the years ended December 31, 2024, 2023, and 2022. 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.
25. 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, 2024, 2023, and 2022 were:
|
Amounts Reclassified from AOCI
|
||||||||||||
|
(in thousands)
Year Ended December 31
|
2024
|
2023
|
2022
|
|||||||||
|
Affected line item in the statements of income
|
||||||||||||
|
Securities gains (losses)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Tax expense (benefit)
|
|
|
(
|
)
|
||||||||
|
Total reclassifications out of AOCI
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, 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, 2024, 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, 2025, 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 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 $4.5 billion as of December 31, 2024 and
the associated allowance for credit losses (ACL) was $55 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 qualitative factor 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
|
We have served as
the Company’s auditor since 2006.
/s/
February 28, 2025
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2024, 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, 2024, 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, 2024 and 2023, and for each of the three years in the period ended December 31, 2024, and our report dated February 28,
2025 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 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 generally accepted accounting principles. 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 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 (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 Mazars, LLP
February 28, 2025
None.
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, 2024, 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, 2024 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, 2024 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, 2024.
There were no changes in CTBI’s internal control over financial reporting that occurred during the year ended December 31, 2024 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, 2024 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, 2024.
The effectiveness of CTBI’s internal control over financial reporting as of December 31, 2024 has been audited by Forvis Mazars, LLP (formerly FORVIS, LLP), an independent registered public
accounting firm that audited CTBI’s consolidated financial statements included in this annual report.
|
February 28, 2025
|
/s/ Mark A. Gooch
|
|
|
Mark A. Gooch
|
||
|
Chairman, President, and Chief Executive Officer
|
||
|
/s/ Kevin J. Stumbo
|
||
|
Kevin J. Stumbo
|
||
|
Executive Vice President, Chief Financial Officer,
|
||
|
and Treasurer
|
||
|
(a)
|
Information required to be disclosed in a report on Form 8-K | None |
|
(b)
|
Insider trading arrangements |
During the quarter ended December 31, 2024, no director or officer of CTBI
adopted
or
terminated
a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item
408(a) of Regulation S-K.
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.
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, 2024, 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, 2024, we maintained one active and one inactive incentive stock option plan covering key employees. The 2025 Employee Stock
Ownership Incentive Plan (“2025 Plan”) was approved by the Board of Directors and the Shareholders in 2024 and became active on February 1, 2025. The 2015 Stock Ownership Incentive Plan (“2015 Plan”) was approved by the Board of Directors
and the Shareholders in 2015. The 2015 plan was rendered inactive as of February 1, 2025. 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, and all outstanding options had been exercised under the 2006 Plan as of December 31, 2024. The 2025 Plan was not active as of December 31, 2024. The 2015 Plan had 550,000 shares authorized, 335,583
of which were available at December 31, 2024. Shares issuable pursuant to awards which were granted under the 2015 Plan on or before their respective expiration or termination dates will be issued from the
remaining shares reserved for issuance under the 2015 Plan. The shares of common stock reserved for issuance under the 2015 Plan 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 2015 Plan may lapse, expire, terminate, or be canceled, will not be reserved and available for issuance or reissuance under the 2025 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:
|
0
|
--
|
336
|
||||||
|
Stock options
|
|||||||||
|
Equity compensation plans not approved by shareholders
|
0
|
--
|
0
|
||||||
|
Total
|
336
|
Additional information regarding CTBI’s stock option plans can be found in notes 1 and 14 to the consolidated financial statements contained herein.
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.
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.
| (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 Mazars, LLP, Louisville, Kentucky, PCAOB ID
)
|
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}
|
|
3.2
|
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 Exhibit 3.1 of 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 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}
|
|
|
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}
|
|
Community Trust Bancorp, Inc. 2015 Stock Ownership Incentive Plan {incorporated by reference to Appendix A of Definitive Proxy Statement on Schedule 14A filed March 20, 2015 under SEC file no.
001-31220}
|
|
|
Restricted Stock Agreement {incorporated 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}
|
|
|
Community Trust Bancorp, Inc. 2025 Stock Ownership Incentive Plan {incorporated by reference to Appendix A of Definitive Proxy Statement on Schedule 14A filed March 18, 2024}
|
|
|
Senior Management Incentive Compensation Plan (2025) {incorporated by reference to Exhibit 10.1 of current report on Form 8-K filed January 29, 2025}
|
|
|
Employee Incentive Compensation Plan (2025) {incorporated by reference to Exhibit 10.2 of current report on Form 8-K filed January 29, 2025}
|
|
|
Community Trust Bancorp, Inc. 2023 Executive Committee Long-Term Incentive Compensation Plan {incorporated by reference to Exhibit 10.24 of current report on Form 8-K filed January 26, 2023}
|
|
|
Community Trust Bancorp, Inc. 2024 Executive Committee Long-Term Incentive Compensation Plan {incorporated by reference to Exhibit 10.21 of current report on Form 8-K filed January 25, 2024}
|
|
|
Community Trust Bancorp, Inc. 2025 Executive Committee Long-Term Incentive Compensation Plan {incorporated by reference to Exhibit 10.3 of current report on Form 8-K filed January 29, 2025}
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Community Trust Bancorp, Inc. and Community Trust Bank, Inc. Insider Trading Policy
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Subsidiaries of the Registrant
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Consent of Forvis Mazars, LLP, Independent Registered Public Accounting Firm
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Certification of Principal Executive Officer (Mark A. Gooch, Chairman, President, and Chief Executive Officer)
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Certification of Principal Financial Officer (Kevin J. Stumbo, Executive Vice President, Chief Financial Officer, and Treasurer)
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Certification of Mark A. Gooch, 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
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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
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Community Trust Bancorp, Inc. Policy for the Recovery of Erroneously Awarded Compensation {incorporated by reference to Exhibit 97 of Form 10-K for the fiscal year ended December 31, 2023 under SEC
file no. 001-31220}
|
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Community Trust Bancorp, Inc. Dividend Reinvestment Plan, as amended December 20, 2013 {incorporated by reference to registration statement no. 333-193011}
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101.INS
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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
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101.SCH
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Inline XBRL Taxonomy Extension Schema
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101.CAL
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Inline XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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Inline XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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Inline XBRL Taxonomy Extension Label Linkbase
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101.PRE
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Inline XBRL Taxonomy Extension Presentation Linkbase
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104
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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* Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report.
+ Filed with this report.
++ Furnished with this report.
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(b)
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Exhibits
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The response to this portion of Item 15 is submitted in (a) 3. above.
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(c)
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Financial Statement Schedules
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None
None
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.
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COMMUNITY TRUST BANCORP, INC.
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|||
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February 28, 2025
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By:
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/s/ Mark A. Gooch
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Mark A. Gooch
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Chairman, President, and Chief Executive Officer
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/s/ Kevin J. Stumbo
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||
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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.
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February 28, 2025
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/s/ Mark A. Gooch
|
Chairman, President, and Chief Executive Officer
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|
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Mark A. Gooch
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|||
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February 28, 2025
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/s/ Kevin J. Stumbo
|
Executive Vice President, Chief Financial Officer, and Treasurer
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Kevin J. Stumbo
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February 28, 2025
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/s/ Franklin H. Farris, Jr.
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Director
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Franklin H. Farris, Jr.
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February 28, 2025
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/s/ Eugenia “Crit” Luallen
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Director
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Eugenia “Crit” Luallen
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|||
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February 28, 2025
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/s/ Ina Michelle Matthews
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Director
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Ina Michelle Matthews
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February 28, 2025
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/s/ James E. McGhee, II
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Director
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James E. McGhee II
|
|||
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February 28, 2025
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/s/ Franky Minnifield
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Director
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Franky Minnifield
|
|||
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February 28, 2025
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/s/ Jefferson F. Sandlin
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Director
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|
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Jefferson F. Sandlin
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|||
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February 28, 2025
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/s/ Anthony W. St. Charles
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Director
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Anthony W. St. Charles
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|||
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February 28, 2025
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/s/ Chad C. Street
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Director
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Chad C. Street
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|||
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February 28, 2025
|
/s/ Lillian (Kay) Webb
|
Director
|
|
|
Lillian (Kay) Webb
|
117
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. [reserved]Part IIItem 5. Market For The Registrant S Common Equity, Related Shareholder Matters, and Issuer Purchases Of Equity SecuritiesItem 6. [reserved]Item 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers, and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Shareholder MattersItem 13. Certain Relationships, Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary