10-Q 1 ctbi10q0317.htm CTBI FORM 10-Q MARCH 31, 2017

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2017
   
 
or
   
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to _____________
   

Commission file number 0-11129

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

Kentucky
61-0979818
(State or other jurisdiction of incorporation or organization)
IRS Employer Identification No.
   
346 North Mayo Trail
Pikeville, Kentucky
(Address of principal executive offices)
41501
(Zip code)

(606) 432-1414
(Registrants telephone number)

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

Yes 
No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)

Yes 
No

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

Large accelerated filer
Accelerated filer 
Non-accelerated filer
Smaller reporting company
   
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes
   No

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

Common stock – 17,665,001 shares outstanding at April 30, 2017
 
 




CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS

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


PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 2016 for further information in this regard.



Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands)
 
(unaudited)
March 31
2017
   
December 31
2016
 
Assets:
           
Cash and due from banks
 
$
51,089
   
$
48,603
 
Interest bearing deposits
   
145,607
     
95,586
 
Federal funds sold
   
6,345
     
527
 
Cash and cash equivalents
   
203,041
     
144,716
 
                 
Certificates of deposit in other banks
   
9,565
     
980
 
Securities available-for-sale at fair value (amortized cost of $608,123 and $608,939, respectively)
   
605,701
     
605,394
 
Securities held-to-maturity at amortized cost (fair value of $858 and $867, respectively)
   
858
     
866
 
Loans held for sale
   
2,599
     
1,244
 
                 
Loans
   
2,969,865
     
2,938,371
 
Allowance for loan and lease losses
   
(35,713
)
   
(35,933
)
Net loans
   
2,934,152
     
2,902,438
 
                 
Premises and equipment, net
   
47,298
     
47,940
 
Federal Home Loan Bank stock
   
17,927
     
17,927
 
Federal Reserve Bank stock
   
4,887
     
4,887
 
Goodwill
   
65,490
     
65,490
 
Core deposit intangible (net of accumulated amortization of $8,523 and $8,483, respectively)
   
93
     
133
 
Bank owned life insurance
   
64,235
     
63,881
 
Mortgage servicing rights
   
3,474
     
3,433
 
Other real estate owned
   
35,812
     
35,856
 
Other assets
   
39,029
     
36,984
 
Total assets
 
$
4,034,161
   
$
3,932,169
 
                 
Liabilities and shareholders’ equity:
               
Deposits:
               
Noninterest bearing
 
$
804,944
   
$
767,918
 
Interest bearing
   
2,354,834
     
2,313,390
 
Total deposits
   
3,159,778
     
3,081,308
 
                 
Repurchase agreements
   
257,497
     
251,065
 
Federal funds purchased
   
11,354
     
4,816
 
Advances from Federal Home Loan Bank
   
919
     
944
 
Long-term debt
   
61,341
     
61,341
 
Deferred taxes
   
8,351
     
7,836
 
Other liabilities
   
27,437
     
24,244
 
Total liabilities
   
3,526,677
     
3,431,554
 
                 
Shareholders’ equity:
               
Preferred stock, 300,000 shares authorized and unissued
   
-
     
-
 
Common stock, $5 par value, shares authorized 25,000,000; shares outstanding 2017 – 17,660,868; 2016 – 17,628,695
   
88,304
     
88,144
 
Capital surplus
   
220,037
     
219,697
 
Retained earnings
   
200,717
     
195,078
 
Accumulated other comprehensive loss, net of tax
   
(1,574
)
   
(2,304
)
Total shareholders’ equity
   
507,484
     
500,615
 
                 
Total liabilities and shareholders’ equity
 
$
4,034,161
   
$
3,932,169
 

See notes to condensed consolidated financial statements.


 
 
Community Trust Bancorp, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(unaudited)
 
   
Three Months Ended
 
   
March 31
 
(in thousands except per share data)
 
2017
   
2016
 
Interest income:
           
Interest and fees on loans, including loans held for sale
 
$
33,475
   
$
33,324
 
Interest and dividends on securities
               
Taxable
   
2,030
     
2,093
 
Tax exempt
   
749
     
692
 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
   
276
     
254
 
Other, including interest on federal funds sold
   
238
     
164
 
Total interest income
   
36,768
     
36,527
 
                 
Interest expense:
               
Interest on deposits
   
2,941
     
2,571
 
Interest on repurchase agreements
   
338
     
264
 
Interest on advances from Federal Home Loan Bank
   
3
     
44
 
Interest on long-term debt
   
396
     
324
 
Total interest expense
   
3,678
     
3,203
 
                 
Net interest income
   
33,090
     
33,324
 
Provision for loan losses
   
1,229
     
1,765
 
Net interest income after provision for loan losses
   
31,861
     
31,559
 
                 
Noninterest income:
               
Service charges on deposit accounts
   
5,960
     
5,845
 
Gains on sales of loans, net
   
256
     
316
 
Trust and wealth management income
   
2,586
     
2,275
 
Loan related fees
   
1,005
     
611
 
Bank owned life insurance
   
524
     
530
 
Brokerage revenue
   
312
     
363
 
Securities gains (losses)
   
(8
)
   
68
 
Other noninterest income
   
944
     
963
 
Total noninterest income
   
11,579
     
10,971
 
                 
Noninterest expense:
               
Officer salaries and employee benefits
   
3,264
     
3,093
 
Other salaries and employee benefits
   
11,660
     
11,040
 
Occupancy, net
   
2,027
     
2,057
 
Equipment
   
786
     
715
 
Data processing
   
1,789
     
1,569
 
Bank franchise tax
   
1,520
     
1,399
 
Legal fees
   
442
     
480
 
Professional fees
   
496
     
439
 
Advertising and marketing
   
685
     
629
 
FDIC insurance
   
292
     
583
 
Other real estate owned provision and expense
   
916
     
551
 
Repossession expense
   
201
     
215
 
Amortization of limited partnership investments
   
605
     
535
 
Other noninterest expense
   
2,961
     
2,937
 
Total noninterest expense
   
27,644
     
26,242
 
                 
Income before income taxes
   
15,796
     
16,288
 
Income taxes
   
4,519
     
4,686
 
Net income
   
11,277
     
11,602
 
                 
Other comprehensive income:
               
Unrealized holding gains on securities available-for-sale:
               
Unrealized holding gains arising during the period
   
1,115
     
5,803
 
Less: Reclassification adjustments for realized gains (losses) included in net income
   
(8
)
   
68
 
Tax expense
   
393
     
2,007
 
Other comprehensive income, net of tax
   
730
     
3,728
 
Comprehensive income
 
$
12,007
   
$
15,330
 
                 
Basic earnings per share
 
$
0.64
   
$
0.66
 
Diluted earnings per share
 
$
0.64
   
$
0.66
 
                 
Weighted average shares outstanding-basic
   
17,615
     
17,513
 
Weighted average shares outstanding-diluted
   
17,638
     
17,533
 
                 
Dividends declared per share
 
$
0.32
   
$
0.31
 

See notes to condensed consolidated financial statements.



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

   
Three Months Ended
 
   
March 31
 
(in thousands)
 
2017
   
2016
 
Cash flows from operating activities:
           
Net income
 
$
11,277
   
$
11,602
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
1,021
     
948
 
Deferred taxes
   
122
     
515
 
Stock-based compensation
   
147
     
123
 
Excess tax benefits of stock-based compensation
   
0
     
93
 
Provision for loan losses
   
1,229
     
1,765
 
Write-downs of other real estate owned and other repossessed assets
   
538
     
134
 
Gains on sale of mortgage loans held for sale
   
(256
)
   
(316
)
Securities (gains) losses
   
8
     
(68
)
(Gains)/losses on sale of assets, net
   
11
     
(27
)
Proceeds from sale of mortgage loans held for sale
   
11,133
     
13,793
 
Funding of mortgage loans held for sale
   
(12,232
)
   
(15,012
)
Amortization of securities premiums and discounts, net
   
800
     
563
 
Change in cash surrender value of bank owned life insurance
   
(354
)
   
(385
)
Mortgage servicing rights:
               
 Fair value adjustments
   
42
     
421
 
 New servicing assets created
   
(83
)
   
(93
)
Changes in:
               
 Other assets
   
(2,045
)
   
(2,464
)
 Other liabilities
   
3,197
     
(92
)
Net cash provided by operating activities
   
14,555
     
11,500
 
                 
Cash flows from investing activities:
               
Certificates of deposit in other banks:
               
 Purchase of certificates of deposit
   
(8,820
)
   
0
 
 Maturity of certificates of deposit
   
235
     
2,236
 
Securities available-for-sale (AFS):
               
 Purchase of AFS securities
   
(46,756
)
   
(3,906
)
 Proceeds from the sales of AFS securities
   
0
     
3,509
 
 Proceeds from prepayments and maturities of AFS securities
   
46,764
     
19,623
 
Securities held-to-maturity (HTM):
               
 Proceeds from maturities of HTM securities
   
8
     
0
 
Change in loans, net
   
(33,746
)
   
(17,034
)
Purchase of premises and equipment
   
(487
)
   
(881
)
Proceeds from sale and retirement of premises and equipment
   
25
     
0
 
Proceeds from sale of other real estate and other repossessed assets
   
427
     
1,808
 
Net cash provided by (used in) investing activities
   
(42,350
)
   
5,355
 
                 
Cash flows from financing activities:
               
Change in deposits, net
   
78,470
     
53,436
 
Change in repurchase agreements, federal funds purchased, and other short-term borrowings, net
   
12,970
     
10,113
 
Payments on advances from Federal Home Loan Bank
   
(25
)
   
(100,028
)
Issuance of common stock
   
367
     
331
 
Repurchase of common stock
   
0
     
(382
)
Excess tax benefits of stock-based compensation
   
0
     
(93
)
Dividends paid
   
(5,662
)
   
(5,454
)
Net cash provided by (used in) financing activities
   
86,120
     
(42,077
)
Net increase (decrease) in cash and cash equivalents
   
58,325
     
(25,222
)
Cash and cash equivalents at beginning of period
   
144,716
     
187,611
 
Cash and cash equivalents at end of period
 
$
203,041
   
$
162,389
 
                 
Supplemental disclosures:
               
Income taxes paid
 
$
150
   
$
1,419
 
Interest paid
   
3,340
     
2,883
 
Non-cash activities:
               
Loans to facilitate the sale of other real estate owned and repossessed assets
   
53
     
1,117
 
Common stock dividends accrued, paid in subsequent quarter
   
209
     
227
 
Real estate acquired in settlement of loans
   
856
     
1,291
 
See notes to condensed consolidated financial statements.


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

Note 1 - Summary of Significant Accounting Policies

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring adjustments) necessary, to present fairly the condensed consolidated financial position as of March 31, 2017, the results of operations for the three months ended March 31, 2017 and 2016, and the cash flows for the three months ended March 31, 2017 and 2016.  In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements.  The results of operations and the cash flows for the three months ended March 31, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year.  The condensed consolidated balance sheet as of December 31, 2016 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (“CTBI”) for that period.  For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2016, included in our annual report on Form 10-K.

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

Reclassifications – Certain reclassifications considered to be immaterial have been made in the prior year condensed consolidated financial statements to conform to current year classifications.  These reclassifications had no effect on net income.

New Accounting Standards

Ø Financial Instruments – Overall – In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10).   The amendments in this Update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).  The amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  In addition, the amendments in this Update eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities.  Public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.  This Update is the final version of Proposed ASU 2013-220—Financial Instruments—Overall (Subtopic 825-10) and Proposed ASU 2013-221—Financial Instruments—Overall (Subtopic 825-10).  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption.  The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption.  Management does not expect a significant impact on CTBI’s accounting for equity investments as a result of this ASU.  At this time, we cannot quantify the change in the fair value disclosures since we are currently evaluating the full impact of this ASU and are in the planning stages of developing appropriate procedures and processes to comply with the disclosure requirements of such amendments.

Ø Leases – In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).   ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases.  A lease will be 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.  The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities.  Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available.  Early adoption is permitted.  CTBI has an implementation team working through the provisions of ASU 2016-02 including reviewing all leases to assess the impact on its accounting and disclosures.  CTBI does not anticipate a significant increase in leasing activity between now and the date of adoption.  While we expect the impact of this ASU to be significant, we have not finalized our calculation of the estimated amounts as we are currently evaluating certain significant variables within the calculation including the impact of individual renewal options and applicable discount rates for each individual lease.

Ø Investments—Equity Method and Joint Ventures:  Simplifying the Transition to the Equity Method of Accounting – In March 2016, the FASB  issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.

The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held.  The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.  Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.

The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.  The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method.

The amendments became effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and did not have a material impact on CTBI’s consolidated financial statements.

Ø Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting – In April 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.

Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.

For public companies, the amendments were effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  CTBI adopted this ASU effective January 1, 2017, and it did not have a material impact on our consolidated financial statements.

Ø Revenue from Contracts with Customers – In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers.  The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements.  In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 to fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2017.  In March 2016, the FASB issued ASU 2016-08 which clarified the revenue recognition implementation guidance on principal versus agent considerations and is effective during the same period as ASU 2014-09.  In April 2016, the FASB issued ASU 2016-10 which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation and is effective during the same period as ASU 2014-09.  In May 2016, the FASB issued ASU 2016-12 which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax, and transition.  ASU 2016-12 is effective during the same period as ASU 2014-09.  Management is currently evaluating the effects of these ASUs on its financial statements and disclosures but does not expect a material impact on CTBI’s consolidated financial statements, as we have determined the majority of the revenues earned by CTBI are not within the scope of ASU 2014-09.

Ø Accounting for Credit Losses – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The provisions of ASU 2016-13 were issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date.  This ASU requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.  The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses.  The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense.  Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense.

Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security.

ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. CTBI has an implementation team working through the provisions of ASU 2016-13 including assessing the impact on its accounting and disclosures.

Ø Statement of Cash Flows – In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics.  This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.  The amendments in this Update apply to all entities that are required to present a statement of cash flows under Topic 230.  This Update is the final version of Proposed Accounting Standards Update EITF-15F—Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments (Topic 230), which has been deleted.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  The amendments in this Update should be applied using a retrospective transition method to each period presented.  If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.  Management intends to adopt this ASU effective January 1, 2018, and we do not expect a material impact on CTBI’s consolidated financial statements.

Ø Simplifying the Test for Goodwill Impairment – In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.  These amendments eliminate Step 2 from the goodwill impairment test.  The amendments also eliminate the requirements from any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.  An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.  The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods with those fiscal years.  ASU 2017-04 should be implemented on a prospective basis.  Management does not expect ASU 2017-04 to have an impact on CTBI’s consolidated financial statements.

Ø Receivables – Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities – In April 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.  The ASU shortens the amortization period for certain callable debt securities held at a premium to the earliest call date.  However, the amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  The amendments are effective for public business entities for fiscal periods beginning after December 15, 2018, including interim periods within those fiscal periods.  Entities are required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.  We plan to early adopt this ASU effective January 1, 2018.  We have reviewed the anticipated effects of this ASU and determined that we expect a $150 thousand reduction in retained earnings and a quarterly increase in amortization expense between $24 thousand and $30 thousand.

Critical Accounting Policies and Estimates

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

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

We have identified the following critical accounting policies:

Investments  Management determines the classification of securities at purchase.  We classify securities into held-to-maturity, trading, or available-for-sale categories.  Held-to-maturity securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost.  In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, Investment Securities, investments in debt securities that are not classified as held-to-maturity and equity securities that have readily determinable fair values shall be classified in one of the following categories and measured at fair value in the statement of financial position:
a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturity securities) shall be classified as available-for-sale securities.
We do not have any securities that are classified as trading securities.  Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders’ equity, net of tax.  If declines in fair value are other than temporary, the carrying value of the securities is written down to fair value as a realized loss with a charge to income for the portion attributable to credit losses and a charge to other comprehensive income for the portion that is not credit related.

Gains or losses on disposition of securities are computed by specific identification for all securities except for shares in mutual funds, which are computed by average cost.  Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair market value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists.  Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other than temporary impairment.  The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity.  Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment.  If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the CTBI’s results of operations and financial condition.

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

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

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

We utilize an internal risk grading system for commercial credits.  Those larger commercial credits that exhibit probable or observed credit weaknesses are subject to individual review.  The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated.  The review of individual loans includes those loans that are impaired as defined by ASC 310-10-35, Impairment of a Loan.  We evaluate the collectability of both principal and interest when assessing the need for loss provision.  Historical loss rates are analyzed and applied to other commercial loans not subject to specific allocations.  The ALLL allocation for this pool of commercial loans is established based on the historical average, maximum, minimum, and median loss ratios.

A loan is considered impaired when, based on current information and events, it is probable that CTBI will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded.  The associated ALLL for these loans is measured under ASC 450, Contingencies.

When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made.  If the balance of the loan exceeds the fair value of the collateral, the loan is placed on nonaccrual and the loan is charged down to the value of the collateral less estimated cost to sell or a specific reserve equal to the difference between book value of the loan and the fair value assigned to the collateral is created until such time as the loan is foreclosed.  When the foreclosed collateral has been legally assigned to CTBI, a charge off is taken, if necessary, in order that the remaining balance reflects the fair value estimated less costs to sell of the collateral then transferred to other real estate owned or other repossessed assets.  When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.

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

Historical loss rates for loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition.  We use twelve rolling quarters for our historical loss rate analysis.  Factors that we consider include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge-offs, trends in loan losses, industry concentrations and their relative strengths, amount of unsecured loans, and underwriting exceptions.  Management continually reevaluates the other subjective factors included in its ALLL analysis.

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

Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.  Any interest and penalties incurred in connection with income taxes are recorded as a component of income tax expense in the consolidated financial statements.  During the quarters ended March 31, 2017 and 2016, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.

Note 2 – Stock-Based Compensation

CTBI’s compensation expense related to stock option grants was $14 thousand and $13 thousand, respectively, for the three months ended March 31, 2017 and 2016.  Restricted stock expense for the three months ended March 31, 2017 and 2016 was $133 thousand and $101 thousand, respectively, including $13 thousand and $9 thousand in dividends paid for each period.  As of March 31, 2017, there was a total of $0.2 million of unrecognized compensation expense related to unvested stock option awards that will be recognized as expense as the awards vest over a weighted average period of 3.1 years and a total of $1.6 million of unrecognized compensation expense related to restricted stock grants that will be recognized as expense as the awards vest over a weighted average period of 3.5 years.

There were 23,668 and 18,069 shares of restricted stock granted during the three months ended March 31, 2017 and 2016, respectively.  The restricted stock was issued pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan.  The restrictions on the restricted stock will lapse ratably over four years, except for a 5,000 management retention restricted stock award granted in 2017 which will cliff vest at the end of five years.  However, in the event of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of the participant, the restrictions will lapse, and in the event of the participant’s disability, the restrictions will lapse on a pro rata basis.  The Compensation Committee will have discretion to review and revise restrictions applicable to a participant’s restricted stock in the event of the participant’s retirement.

There were no stock options granted in the first quarter 2017.  There were 10,000 stock options granted during the first quarter 2016.  The fair value of stock options granted during the three months ended March 31, 2016 were established at the date of grant using a Black-Scholes option pricing model with the weighted average assumptions as follows:

       
   
Three Months Ended
March 31, 2016
 
Expected dividend yield
   
3.70
%
Risk-free interest rate
   
1.45
%
Expected volatility
   
34.34
%
Expected term (in years)
   
7.5
 
Weighted average fair value of options
 
$
6.82
 
 
Note 3 – Securities

Securities are classified into held-to-maturity and available-for-sale categories.  Held-to-maturity (HTM) securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost.  Available-for-sale (AFS) securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons.  Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.
 
The amortized cost and fair value of securities at March 31, 2017 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
 
$
231,592
   
$
205
   
$
(615
)
 
$
231,182
 
State and political subdivisions
   
132,365
     
2,388
     
(1,295
)
   
133,458
 
U.S. government sponsored agency mortgage-backed securities
   
219,166
     
946
     
(3,409
)
   
216,703
 
Total debt securities
   
583,123
     
3,539
     
(5,319
)
   
581,343
 
CRA investment funds
   
25,000
     
76
     
(718
)
   
24,358
 
Total available-for-sale securities
 
$
608,123
   
$
3,615
   
$
(6,037
)
 
$
605,701
 

Held-to-Maturity

(in thousands)
 
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
State and political subdivisions
 
$
858
   
$
0
   
$
0
   
$
858
 
Total held-to-maturity securities
 
$
858
   
$
0
   
$
0
   
$
858
 

The amortized cost and fair value of securities at December 31, 2016 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
 
$
223,014
   
$
193
   
$
(743
)
 
$
222,464
 
State and political subdivisions
   
133,351
     
1,957
     
(1,792
)
   
133,516
 
U.S. government sponsored agency mortgage-backed securities
   
227,574
     
1,008
     
(3,526
)
   
225,056
 
Total debt securities
   
583,939
     
3,158
     
(6,061
)
   
581,036
 
CRA investment funds
   
25,000
     
76
     
(718
)
   
24,358
 
Total available-for-sale securities
 
$
608,939
   
$
3,234
   
$
(6,779
)
 
$
605,394
 

Held-to-Maturity

(in thousands)
 
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
State and political subdivisions
  $
866
    $
1
    $
0
    $
867
 
Total held-to-maturity securities
 
$
866
   
$
1
   
$
0
   
$
867
 
 
The amortized cost and fair value of securities at March 31, 2017 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

   
Available-for-Sale
   
Held-to-Maturity
 
(in thousands)
 
Amortized Cost
   
Fair Value
   
Amortized Cost
   
Fair Value
 
Due in one year or less
 
$
69,248
   
$
69,205
   
$
0
   
$
0
 
Due after one through five years
   
148,439
     
149,115
     
858
     
858
 
Due after five through ten years
   
59,494
     
60,236
     
0
     
0
 
Due after ten years
   
86,776
     
86,084
     
0
     
0
 
U.S. government sponsored agency mortgage-backed securities
   
219,166
     
216,703
     
0
     
0
 
Total debt securities
   
583,123
     
581,343
     
858
     
858
 
CRA investment funds
   
25,000
     
24,358
     
0
     
0
 
Total securities
 
$
608,123
   
$
605,701
   
$
858
   
$
858
 

As of March 31, 2017, there was a loss of $8 thousand realized on the call of an AFS security.  As of March 31, 2016, there was a net gain of $68 thousand on sales.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $222.0 million at March 31, 2017 and $221.2 million at December 31, 2016.

The amortized cost of securities sold under agreements to repurchase amounted to $304.7 million at March 31, 2017 and $303.5 million at December 31, 2016.

CTBI evaluates its investment portfolio on a quarterly basis for impairment.  The analysis performed as of March 31, 2017 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related.  The percentage of total investments with unrealized losses as of March 31, 2017 was 62.6% compared to 65.6% as of December 31, 2016.  The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of March 31, 2017 that are not deemed to be other-than-temporarily impaired.  There were no held-to-maturity securities that were deemed to be impaired as of March 31, 2017.

Available-for-Sale

(in thousands)
 
Amortized Cost
   
Gross Unrealized Losses
   
Fair Value
 
Less Than 12 Months
                 
U.S. Treasury and government agencies
 
$
161,565
   
$
(592
)
 
$
160,973
 
State and political subdivisions
   
40,167
     
(1,275
)
   
38,892
 
U.S. government sponsored agency mortgage-backed securities
   
126,765
     
(2,452
)
   
124,313
 
Total debt securities
   
328,497
     
(4,319
)
   
324,178
 
CRA investment funds
   
17,500
     
(444
)
   
17,056
 
Total <12 months temporarily impaired AFS securities
   
345,997
     
(4,763
)
   
341,234
 
                         
12 Months or More
                       
U.S. Treasury and government agencies
   
1,730
     
(23
)
   
1,707
 
State and political subdivisions
   
2,089
     
(20
)
   
2,069
 
U.S. government sponsored agency mortgage-backed securities
   
30,718
     
(957
)
   
29,761
 
Total debt securities
   
34,537
     
(1,000
)
   
33,537
 
CRA investment funds
   
5,000
     
(274
)
   
4,726
 
Total ≥12 months temporarily impaired AFS securities
   
39,537
     
(1,274
)
   
38,263
 
                         
Total
                       
U.S. Treasury and government agencies
   
163,295
     
(615
)
   
162,680
 
State and political subdivisions
   
42,256
     
(1,295
)
   
40,961
 
U.S. government sponsored agency mortgage-backed securities
   
157,483
     
(3,409
)
   
154,074
 
Total debt securities
   
363,034
     
(5,319
)
   
357,715
 
CRA investment funds
   
22,500
     
(718
)
   
21,782
 
Total temporarily impaired AFS securities
 
$
385,534
   
$
(6,037
)
 
$
379,497
 
 
U.S. Treasury and Government Agencies

The unrealized losses in U.S. Treasury and government agencies were caused by interest rate increases.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than par which will equal amortized cost at maturity.  CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2017, because CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost, which may be maturity.

State and Political Subdivisions

The unrealized losses in securities of state and political subdivisions were caused by interest rate increases.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than par which will equal amortized cost at maturity.  CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2017, because 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, which may be maturity.

U.S. Government Sponsored Agency Mortgage-Backed Securities

The unrealized losses in U.S. government sponsored agency mortgage-backed securities were caused by interest rate increases.  CTBI expects to recover the amortized cost basis over the term of the securities.  CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2017, because (i) the decline in market value is attributable to changes in interest rates and not credit quality, (ii) CTBI does not intend to sell the investments, and (iii) it is not more likely than not we will be required to sell the investments before recovery of their amortized cost, which may be maturity.

CRA Investment Funds

CTBI’s CRA investment funds consist of investments in fixed income mutual funds ($24.4 million of the total fair value and $718 thousand of the total unrealized losses in common stock investments).  The severity of the impairment (fair value is approximately 2.9% less than cost) and the duration of the impairment correlates with the decline in long-term interest rates in 2017.  CTBI evaluated the near-term prospects of these funds in relation to the severity and duration of the impairment.  Based on that evaluation, CTBI does not consider those investments to be other-than-temporarily impaired at March 31, 2017.

The analysis performed as of December 31, 2016 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related.  The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2016 that are not deemed to be other-than-temporarily impaired.  There were no held-to-maturity securities that were deemed to be impaired as of December 31, 2016.
 
Available-for-Sale

(in thousands)
 
Amortized Cost
   
Gross Unrealized Losses
   
Fair Value
 
Less Than 12 Months
                 
U.S. Treasury and government agencies
 
$
158,732
   
$
(716
)
 
$
158,016
 
State and political subdivisions
   
53,491
     
(1,780
)
   
51,711
 
U.S. government sponsored agency mortgage-backed securities
   
135,939
     
(2,646
)
   
133,293
 
Total debt securities
   
348,162
     
(5,142
)
   
343,020
 
CRA investment funds
   
17,500
     
(444
)
   
17,056
 
Total <12 months temporarily impaired AFS securities
   
365,662
     
(5,586
)
   
360,076
 
                         
12 Months or More
                       
U.S. Treasury and government agencies
   
1,880
     
(27
)
   
1,853
 
State and political subdivisions
   
751
     
(12
)
   
739
 
U.S. government sponsored agency mortgage-backed securities
   
31,132
     
(880
)
   
30,252
 
Total debt securities
   
33,763
     
(919
)
   
32,844
 
CRA investment funds
   
5,000
     
(274
)
   
4,726
 
Total ≥12 months temporarily impaired AFS securities
   
38,763
     
(1,193
)
   
37,570
 
                         
Total
                       
U.S. Treasury and government agencies
   
160,612
     
(743
)
   
159,869
 
State and political subdivisions
   
54,242
     
(1,792
)
   
52,450
 
U.S. government sponsored agency mortgage-backed securities
   
167,071
     
(3,526
)
   
163,545
 
Total debt securities
   
381,925
     
(6,061
)
   
375,864
 
CRA investment funds
   
22,500
     
(718
)
   
21,782
 
Total temporarily impaired AFS securities
 
$
404,425
   
$
(6,779
)
 
$
397,646
 

Note 4 – Loans

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

 
(in thousands)
 
March 31
2017
   
December 31
2016
 
Commercial construction
 
$
69,777
   
$
66,998
 
Commercial secured by real estate
   
1,102,986
     
1,085,428
 
Equipment lease financing
   
5,443
     
5,512
 
Commercial other
   
350,506
     
350,159
 
Real estate construction
   
55,746
     
57,966
 
Real estate mortgage
   
704,555
     
702,969
 
Home equity
   
91,330
     
91,511
 
Consumer direct
   
132,201
     
133,093
 
Consumer indirect
   
457,321
     
444,735
 
Total loans
 
$
2,969,865
   
$
2,938,371
 

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

Commercial construction loans are for the purpose of erecting or rehabilitating buildings or other structures for commercial purposes, including any infrastructure necessary for development.   Included in this category are improved property, land development, and tract development loans.  The terms of these loans are generally short-term with permanent financing upon completion.

Commercial real estate loans include loans secured by nonfarm, nonresidential properties, 1-4 family/multi-family properties, farmland, and other commercial real estate.  These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.

Equipment lease financing loans are fixed, variable, and tax exempt leases for commercial purposes.

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

Real estate construction loans are typically for owner-occupied properties.  The terms of these loans are generally short-term with permanent financing upon completion.

Residential real estate loans are a mixture of fixed rate and adjustable rate first and second lien residential mortgage loans.  As a policy, CTBI holds adjustable rate loans and sells the majority of its fixed rate first lien mortgage loans into the secondary market.  Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and interest payments.  Residential real estate loans are secured by real property.

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

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

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

Not included in the loan balances above were loans held for sale in the amount of $2.6 million at March 31, 2017 and $1.2 million at December 31, 2016.

Refer to note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy.  Nonaccrual loans segregated by class of loans were as follows:

 (in thousands)
 
March 31
2017
   
December 31
2016
 
Commercial:
           
Commercial construction
 
$
1,684
   
$
1,912
 
Commercial secured by real estate
   
5,668
     
6,326
 
Commercial other
   
1,466
     
1,559
 
                 
Residential:
               
Real estate construction
   
189
     
11
 
Real estate mortgage
   
6,887
     
6,260
 
Home equity
   
604
     
555
 
                 
Consumer:
               
Consumer direct
   
0
     
0
 
Total nonaccrual loans
 
$
16,498
   
$
16,623
 
 
The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of March 31, 2017 and December 31, 2016:
 
   
March 31, 2017
 
(in thousands)
 
30-59 Days Past Due
   
60-89 Days Past Due
   
90+ Days Past Due
   
Total Past Due
   
Current
   
Total Loans
   
90+ and Accruing*
 
Commercial:
                                         
Commercial construction
 
$
60
   
$
112
   
$
1,708
   
$
1,880
   
$
67,897
   
$
69,777
   
$
24
 
Commercial secured by real estate
   
3,905
     
793
     
7,982
     
12,680
     
1,090,306
     
1,102,986
     
3,135
 
Equipment lease financing
   
1
     
137
     
0
     
138
     
5,305
     
5,443
     
0
 
Commercial other
   
327
     
601
     
1,308
     
2,236
     
348,270
     
350,506
     
271
 
Residential:
                                                       
Real estate construction
   
184
     
58
     
223
     
465
     
55,281
     
55,746
     
34
 
Real estate mortgage
   
1,244
     
4,700
     
9,096
     
15,040
     
689,515
     
704,555
     
4,323
 
Home equity
   
855
     
116
     
730
     
1,701
     
89,629
     
91,330
     
332
 
Consumer:
                                                       
Consumer direct
   
718
     
150
     
49
     
917
     
131,284
     
132,201
     
49
 
Consumer indirect
   
2,104
     
554
     
415
     
3,073
     
454,248
     
457,321
     
415
 
Total
 
$
9,398
   
$
7,221
   
$
21,511
   
$
38,130
   
$
2,931,735
   
$
2,969,865
   
$
8,583
 

   
December 31, 2016
 
(in thousands)
 
30-59 Days Past Due
   
60-89 Days Past Due
   
90+ Days Past Due
   
Total Past Due
   
Current
   
Total Loans
   
90+ and Accruing*
 
Commercial:
                                         
Commercial construction
 
$
22
   
$
0
   
$
1,940
   
$
1,962
   
$
65,036
   
$
66,998
   
$
28
 
Commercial secured by real estate
   
2,033
     
478
     
8,847
     
11,358
     
1,074,070
     
1,085,428
     
3,015
 
Equipment lease financing
   
0
     
0
     
0
     
0
     
5,512
     
5,512
     
0
 
Commercial other
   
997
     
122
     
1,235
     
2,354
     
347,805
     
350,159
     
141
 
Residential:
                                                       
Real estate construction
   
707
     
42
     
152
     
901
     
57,065
     
57,966
     
152
 
Real estate mortgage
   
1,493
     
5,278
     
10,695
     
17,466
     
685,503
     
702,969
     
6,295
 
Home equity
   
829
     
288
     
905
     
2,022
     
89,489
     
91,511
     
467
 
Consumer:
                                                       
Consumer direct
   
873
     
265
     
68
     
1,206
     
131,887
     
133,093
     
68
 
Consumer indirect
   
3,288
     
851
     
681
     
4,820
     
439,915
     
444,735
     
681
 
Total
 
$
10,242
   
$
7,324
   
$
24,523
   
$
42,089
   
$
2,896,282
   
$
2,938,371
   
$
10,847
 

*90+ and Accruing are also included in 90+ Days Past Due column.
 
The risk characteristics of CTBI’s material portfolio segments are as follows:

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

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.  Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria.

Equipment lease financing is underwritten by our commercial lenders using the same underwriting standards as would be applied to a secured commercial loan requesting 100% financing.  The pricing for equipment lease financing is comparable to that of borrowers with similar quality commercial credits with similar collateral.  Maximum terms of equipment leasing are determined by the type and expected life of the equipment to be leased.  Residual values are determined by appraisals or opinion letters from industry experts.  Leases must be in conformity with our consolidated annual tax plan.  As we underwrite our equipment lease financing in a manner similar to our commercial loan portfolio described below, the risk characteristics for this portfolio mirror that of the commercial loan portfolio.

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

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

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

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

Credit Quality Indicators:

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

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

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

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

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

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

The following tables present the credit risk profile of CTBI’s commercial loan portfolio based on rating category and payment activity, segregated by class of loans, as of March 31, 2017 and December 31, 2016:

 (in thousands)
 
Commercial Construction
   
Commercial Secured by Real Estate
   
Equipment Leases
   
Commercial Other
   
Total
 
March 31, 2017
                             
Pass
 
$
58,298
   
$
976,696
   
$
5,168
   
$
301,815
   
$
1,341,977
 
Watch
   
3,966
     
68,036
     
0
     
31,490
     
103,492
 
OAEM
   
2,300
     
22,947
     
138
     
6,091
     
31,476
 
Substandard
   
5,035
     
34,944
     
137
     
10,726
     
50,842
 
Doubtful
   
178
     
363
     
0
     
384
     
925
 
Total
 
$
69,777
   
$
1,102,986
   
$
5,443
   
$
350,506
   
$
1,528,712
 
                                         
December 31, 2016
                                       
Pass
 
$
55,315
   
$
975,383
   
$
5,206
   
$
299,301
   
$
1,335,205
 
Watch
   
3,366
     
51,932
     
137
     
32,780
     
88,215
 
OAEM
   
2,535
     
25,772
     
169
     
7,913
     
36,389
 
Substandard
   
5,592
     
31,945
     
0
     
9,599
     
47,136
 
Doubtful
   
190
     
396
     
0
     
566
     
1,152
 
Total
 
$
66,998
   
$
1,085,428
   
$
5,512
   
$
350,159
   
$
1,508,097
 

The following tables present the credit risk profile of CTBI’s residential real estate and consumer loan portfolios based on performing or nonperforming status, segregated by class, as of March 31, 2017 and December 31, 2016:

(in thousands)
 
Real Estate Construction
   
Real Estate Mortgage
   
Home Equity
   
Consumer Direct
   
Consumer
Indirect
   
Total
 
March 31, 2017
                                   
Performing
 
$
55,523
   
$
693,345
   
$
90,394
   
$
132,152
   
$
456,906
   
$
1,428,320
 
Nonperforming (1)
   
223
     
11,210
     
936
     
49
     
415
     
12,833
 
Total
 
$
55,746
   
$
704,555
   
$
91,330
   
$
132,201
   
$
457,321
   
$
1,441,153
 
                                                 
December 31, 2016
                                               
Performing
 
$
57,803
   
$
690,414
   
$
90,489
   
$
133,025
   
$
444,054
   
$
1,415,785
 
Nonperforming (1)
   
163
     
12,555
     
1,022
     
68
     
681
     
14,489
 
Total
 
$
57,966
   
$
702,969
   
$
91,511
   
$
133,093
   
$
444,735
   
$
1,430,274
 

(1)  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 totaled $3.2 million at March 31, 2017 compared to $3.5 million at December 31, 2016.

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable CTBI will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection.
 
The following table presents impaired loans, the average investment in impaired loans, and interest income recognized on impaired loans for the periods ended March 31, 2017, December 31, 2016, and March 31, 2016:

   
March 31, 2017
 
(in thousands)
 
Recorded Balance
   
Unpaid Contractual Principal Balance
   
Specific Allowance
   
Average Investment in Impaired Loans
   
*Interest Income Recognized
 
Loans without a specific valuation allowance:
                             
Commercial construction
 
$
4,966
   
$
4,968
   
$
0
   
$
5,161
   
$
37
 
Commercial secured by real estate
   
28,493
     
28,956
     
0
     
28,645
     
361
 
Commercial other
   
10,927
     
12,847
     
0
     
11,079
     
140
 
Real estate mortgage
   
1,802
     
1,802
     
0
     
1,804
     
11
 
                                         
Loans with a specific valuation allowance:
                                       
Commercial construction
   
153
     
174
     
25
     
161
     
0
 
Commercial secured by real estate
   
3,959
     
5,051
     
927
     
3,978
     
0
 
Commercial other
   
0
     
0
     
0
     
0
     
0
 
                                         
Totals:
                                       
Commercial construction
   
5,119
     
5,142
     
25
     
5,322
     
37
 
Commercial secured by real estate
   
32,452
     
34,007
     
927
     
32,623
     
361
 
Commercial other
   
10,927
     
12,847
     
0
     
11,079
     
140
 
Real estate mortgage
   
1,802
     
1,802
     
0
     
1,804
     
11
 
Total
 
$
50,300
   
$
53,798
   
$
952
   
$
50,828
   
$
549
 

   
December 31, 2016
 
(in thousands)
 
Recorded Balance
   
Unpaid Contractual Principal Balance
   
Specific Allowance
   
Average Investment in Impaired Loans
   
*Interest Income Recognized
 
Loans without a specific valuation allowance:
                             
Commercial construction
 
$
4,102
   
$
4,123
   
$
0
   
$
4,367
   
$
218
 
Commercial secured by real estate
   
29,025
     
29,594
     
0
     
31,136
     
1,609
 
Commercial other
   
11,215
     
13,155
     
0
     
11,561
     
632
 
Real estate mortgage
   
1,483
     
1,483
     
0
     
1,691
     
52
 
                                         
Loans with a specific valuation allowance:
                                       
Commercial construction
   
1,507
     
1,509
     
213
     
2,290
     
0
 
Commercial secured by real estate
   
4,731
     
5,885
     
1,035
     
4,151
     
19
 
Commercial other
   
139
     
139
     
65
     
483
     
0
 
                                         
Totals:
                                       
Commercial construction
   
5,609
     
5,632
     
213
     
6,657
     
218
 
Commercial secured by real estate
   
33,756
     
35,479
     
1,035
     
35,287
     
1,628
 
Commercial other
   
11,354
     
13,294
     
65
     
12,044
     
632
 
Real estate mortgage
   
1,483
     
1,483
     
0
     
1,691
     
52
 
Total
 
$
52,202
   
$
55,888
   
$
1,313
   
$
55,679
   
$
2,530
 
 
   
March 31, 2016
 
(in thousands)
 
Recorded Balance
   
Unpaid Contractual Principal Balance
   
Specific Allowance
   
Average Investment in Impaired Loans
   
*Interest Income Recognized
 
Loans without a specific valuation allowance:
                             
Commercial construction
 
$
4,219
   
$
4,220
   
$
0
   
$
4,322
   
$
49
 
Commercial secured by real estate
   
32,664
     
33,474
     
0
     
32,511
     
387
 
Commercial other
   
11,838
     
13,600
     
0
     
11,748
     
148
 
Real estate mortgage
   
2,018
     
2,018
     
0
     
2,021
     
16
 
                                         
Loans with a specific valuation allowance:
                                       
Commercial construction
   
3,337
     
3,339
     
746
     
3,401
     
0
 
Commercial secured by real estate
   
4,753
     
4,868
     
1,588
     
4,727
     
18
 
Commercial other
   
713
     
781
     
332
     
719
     
0
 
                                         
Totals:
                                       
Commercial construction
   
7,556
     
7,559
     
746
     
7,723
     
49
 
Commercial secured by real estate
   
37,417
     
38,342
     
1,588
     
37,238
     
405
 
Commercial other
   
12,551
     
14,381
     
332
     
12,467
     
148
 
Real estate mortgage
   
2,018
     
2,018
     
0
     
2,021
     
16
 
Total
 
$
59,542
   
$
62,300
   
$
2,666
   
$
59,449
   
$
618
 

*Cash basis interest is substantially the same as interest income recognized.

Included in certain loan categories of impaired loans are certain loans and leases that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.  Modifications of terms for our loans and their inclusion as troubled debt restructurings are based on individual facts and circumstances.  Loan modifications that are included as troubled debt restructurings may involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal and/or interest payments, regardless of the period of the modification.  All of the loans identified as troubled debt restructuring were modified due to financial stress of the borrower.  In order to determine if a borrower is experiencing financial difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.  This evaluation is performed under CTBI’s internal underwriting policy.

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

During the first quarter of 2017, certain loans were modified in troubled debt restructurings, where economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances.  Presented below, segregated by class of loans, are troubled debt restructurings that occurred during the three months ended March 31, 2017 and 2016 and the year ended December 31, 2016:
 
   
Three Months Ended
March 31, 2017
 
(in thousands)
 
Number of Loans
   
Term Modification
   
Rate Modification
   
Combination
   
Post-Modification Outstanding Balance
 
Commercial:
                             
Commercial secured by real estate
   
1
    $
49
    $
0
    $
0
    $
49
 
Commercial other
   
2
     
53
     
0
     
0
     
53
 
Residential:
                                       
Real estate mortgage
   
1
     
323
     
0
     
0
     
323
 
Total troubled debt restructurings
   
4
   
$
425
   
$
0
   
$
0
   
$
425
 
 
   
Year Ended
December 31, 2016
 
(in thousands)
 
Number of Loans
   
Term Modification
   
Rate Modification
   
Combination
   
Post-Modification Outstanding Balance
 
Commercial:
                             
Commercial construction
   
1
   
$
1,288
   
$
0
   
$
0
   
$
1,288
 
Commercial secured by real estate
   
27
     
8,827
     
0
     
581
     
9,408
 
Commercial other
   
14
     
5,088
     
0
     
87
     
5,175
 
Residential:
                                       
Real estate mortgage
   
1
     
0
     
0
     
281
     
281
 
Total troubled debt restructurings
   
43
   
$
15,203
   
$
0
   
$
949
   
$
16,152
 
 
   
Three Months Ended
March 31, 2016
 
(in thousands)
 
Number of Loans
   
Term Modification
   
Rate Modification
   
Combination
   
Post-Modification Outstanding Balance
 
Commercial:
                             
Commercial construction
   
1
   
$
1,288
   
$
0
   
$
0
   
$
1,288
 
Commercial secured by real estate
   
13
     
3,998
     
0
     
44
     
4,042
 
Commercial other
   
10
     
4,601
     
0
     
0
     
4,601
 
Residential:
                                       
Real estate mortgage
   
1
     
0
     
0
     
280
     
280
 
Total troubled debt restructurings
   
25
   
$
9,887
   
$
0
   
$
324
   
$
10,211
 
 
No charge-offs have resulted from modifications for any of the presented periods.  We have commitments to extend additional credit in the amount of $0.1 million on loans that are considered troubled debt restructurings.

Loans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual.  Commercial and consumer loans modified in a troubled debt restructuring are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a troubled debt restructuring subsequently default, CTBI evaluates the loan for possible further impairment.  The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.  Presented below, segregated by class of loans, are loans that were modified as troubled debt restructurings within the past twelve months which have subsequently defaulted.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.

 (in thousands)
 
Three Months Ended
March 31, 2017
   
Three Months Ended
March 31, 2016
 
   
Number of Loans
   
Recorded Balance
   
Number of Loans
   
Recorded Balance
 
Commercial:
                       
Commercial secured by real estate