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Regulatory Matters
 12 Months Ended
Dec. 31, 2019
Regulatory Matters [Abstract]  
Regulatory Matters
21.  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 2020, approximately $68.8 million plus any 2020 net profits can be paid by CTB without prior regulatory approval.


The Federal Reserve Bank adopted quantitative measures which assign risk weightings to assets and off-balance sheet items and also define and set minimum regulatory capital requirements (risk based capital ratios).  Failure to meet certain capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements.  On July 2, 2013, the Federal Reserve approved final rules that substantially amended the regulatory risk-based capital rules applicable to CTBI and CTB.  The FDIC subsequently approved these rules.  The final rules implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.



The rules included new risk-based capital and leverage ratios, which were phased in from 2015 to January 2019, and refined the definition of what constitutes “capital” for purposes of calculating those ratios.  The minimum capital level requirements applicable to CTBI and CTB under the final rules are: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6% of risk-weighted assets; (iii) a total capital ratio of 8% of risk-weighted assets; and (iv) a Tier 1 leverage ratio of 4% of adjusted quarterly average assets for all institutions.  Tier 1 capital consists principally of shareholders’ equity including capital-qualifying subordinated debt but excluding unrealized gains and losses on securities available-for-sale, less goodwill and certain other intangibles.  Total capital consists of Tier 1 capital plus certain debt instruments and the reserve for credit losses, subject to limitation.  The final rules also established a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital.  The capital conservation buffer began to be phased in on January 1, 2016 at 0.625% of risk-weighted assets increased by 0.625% annually until fully implemented in January 2019.  An institution is subject to limitations on certain activities including payment of dividends, share repurchases, and discretionary bonuses to executive officers if its capital level is below the total capital plus capital conservation buffer amount.



The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including CTB, if their capital levels begin to show signs of weakness.  These revisions took effect January 1, 2015.  Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as “well capitalized:” (i) a common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8%; (iii) a total capital ratio of 10%; and (iv) a Tier 1 leverage ratio of 5%.  We had Tier 1 leverage, common equity Tier 1 capital, Tier 1, and total capital ratios above the well-capitalized levels and we exceeded the capital conservation standards at December 31, 2019 and 2018.  Based on our current capital composition and levels, we anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well-capitalized minimum capital requirements and capital conservation buffer standards.



Under the current Federal Reserve Board’s regulatory framework, certain capital securities offered by wholly owned unconsolidated trust preferred entities of CTBI are included as Tier 1 regulatory capital.  On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust preferred securities in the Tier 1 capital of bank holding companies (“BHCs”).  Under the final rule, trust preferred securities and other restricted core capital elements are subject to stricter quantitative limits.  The Board’s final rule limits restricted core capital elements to 25 percent of all core capital elements, net of goodwill less any associated deferred tax liability.  Amounts of restricted core capital elements in excess of these limits generally may be included in Tier 2 capital.  The final rule provided a five-year transition period, which ended March 31, 2009, for application of the quantitative limits.  The requirement for trust preferred securities to include a call option has been eliminated, and standards for the junior subordinated debt underlying trust preferred securities eligible for Tier 1 capital treatment have been clarified.  The final rule addressed supervisory concerns, competitive equity considerations, and the accounting for trust preferred securities. The final rule also strengthened the definition of regulatory capital by incorporating longstanding Board policies regarding the acceptable terms of capital instruments included in banking organizations’ Tier 1 or Tier 2 capital.



Consolidated Capital Ratios


  
Actual
    
For Capital Adequacy
Purposes
  
(in thousands)
  
Amount
    
Ratio
    
Amount
    
Ratio
  
As of December 31, 2019:
                        
Tier 1 capital (to average assets)
  
$
601,142
      
14.01
%
  
$
171,632
      
4.00
%
Common equity Tier 1 capital (to risk weighted assets)
    
545,142
      
17.18
      
142,790
      
4.50
  
Tier 1 capital (to risk weighted assets)
    
601,142
      
18.94
      
190,436
      
6.00
  
Total capital (to risk weighted assets)
    
636,512
      
20.05
      
253,970
      
8.00
  
                                 
As of December 31, 2018:
                                
Tier 1 capital (to average assets)
  
$
562,771
      
13.51
%
  
$
166,623
      
4.00
%
Common equity Tier 1 capital (to risk weighted assets)
    
505,271
      
16.27
      
139,749
      
4.50
  
Tier 1 capital (to risk weighted assets)
    
562,771
      
18.12
      
186,348
      
6.00
  
Total capital (to risk weighted assets)
    
598,934
      
19.29
      
248,391
      
8.00
  

Community Trust Bank, Inc.’s Capital Ratios


  
Actual
    
For Capital Adequacy
Purposes
    
To Be Well-Capitalized
Under Prompt
Corrective Action
Provision
  
(in thousands)
  
Amount
    
Ratio
    
Amount
    
Ratio
    
Amount
    
Ratio
  
As of December 31, 2019:
                                    
Tier 1 capital (to average assets)
  
$
570,256
      
13.34
%
  
$
170,991
      
4.00
%
  
$
213,739
      
5.00
%
Common equity Tier 1 capital (to risk weighted assets)
    
570,256
      
18.01
      
142,485
      
4.50
      
205,811
      
6.50
  
Tier 1 capital (to risk weighted assets)
    
570,256
      
18.01
      
189,980
      
6.00
      
253,306
      
8.00
  
Total capital (to risk weighted assets)
    
605,625
      
19.12
      
253,400
      
8.00
      
316,749
      
10.00
  
                                                 
As of December 31, 2018:
                                                
Tier 1 capital (to average assets)
  
$
536,992
      
12.94
%
  
$
165,994
      
4.00
%
  
$
207,493
      
5.00
%
Common equity Tier 1 capital (to risk weighted assets)
    
536,992
      
17.33
      
139,438
      
4.50
      
201,411
      
6.50
  
Tier 1 capital (to risk weighted assets)
    
536,992
      
17.33
      
185,918
      
6.00
      
247,890
      
8.00
  
Total capital (to risk weighted assets)
    
573,155
      
18.50
      
247,851
      
8.00
      
309,814
      
10.00