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Loans
 6 Months Ended
Jun. 30, 2023
Loans [Abstract]  
Loans
Note 4 – Loans


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

(in thousands)
  
June 30
2023
    
December 31
2022
  
Hotel/motel
  
$
372,981
    
$
343,640
  
Commercial real estate residential
    
393,309
      
372,914
  
Commercial real estate nonresidential
    
787,598
      
762,349
  
Dealer floorplans
    
76,903
      
77,533
  
Commercial other
    
319,838
      
312,422
  
Commercial loans
    
1,950,629
      
1,868,858
  
                 
Real estate mortgage
    
883,104
      
824,996
  
Home equity lines
    
132,033
      
120,540
  
Residential loans
    
1,015,137
      
945,536
  
                 
Consumer direct
    
157,848
      
157,504
  
Consumer indirect
    
806,081
      
737,392
  
Consumer loans
    
963,929
      
894,896
  
                 
Loans and lease financing
  
$
3,929,695
    
$
3,709,290
  


The loan portfolios presented above are net of unearned fees and unamortized premiums.  Unearned fees included above totaled $1.0 million as of June 30, 2023 and as of December 31, 2022, while the unamortized premiums on the indirect lending portfolio totaled $30.9 million as of June 30, 2023 and $28.5 million as of December 31, 2022.


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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.5% of total loans. This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility. Additionally, any hotel/motel construction loans would be included in this segment as CTBI’s construction loans are primarily completed as one loan going from construction to permanent financing. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.


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


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


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


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



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


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


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



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


Not included in the loan balances above were loans held for sale in the amount of $0.2 million at June 30, 2023 and $0.1 million at December 31, 2022.



For periods ended June 30, 2022 and December 31, 2022, CTBI derived our ACL balance by using vintage modeling for the consumer and residential portfolios.  Static pool models incorporating losses by credit risk rating were developed to determine credit loss balances for the commercial loan segments.  Qualitative loss factors were based on CTBI’s judgment of delinquency trends, level of nonperforming loans, trend in loan losses, supervision and administration, quality control exceptions, and reasonable and supportable forecasts based on unemployment rates and industry concentrations.  CTBI determined that twelve months represented a reasonable and supportable forecast period and reverted back to a historical loss rate immediately.  CTBI leveraged economic projections from a reputable and independent third party to form its loss driver forecasts over the twelve-month forecast period.  Other internal and external indicators of economic forecasts were also considered by CTBI when developing the forecast metrics.  CTBI also had an inherent model risk allocation included in our ACL calculation to allow for certain known model limitations as well as other potential risks not quantified elsewhere.  One limitation was the inability to completely identify revolving line of credit within the commercial other segment.



During the quarter ended June 30, 2023, CTBI implemented third party software for its ACL calculations.  During the implementation process, discounted cash flow modeling was chosen for all loan segments.  The primary reasons that contributed to this decision were:  Discounted cash flow (“DCF”) models allow for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner; the analysis aligns well with other calculations outside of the ACL estimation which will mitigate model risk in other areas; and peer data is available for certain inputs if first -party data is not available or meaningful.  This change in modeling resulted in a shift in our reserve estimates as of June 30, 2023 as presented below:

 (in thousands)
  
ACL Software
June 30, 2023
    
CTBI Internal
ACL Model
June 30, 2023
    
Change in Allocation
  
                   
Hotel/motel
  
$
5,192
    
$
6,038
    
$
(846
)
Commercial real estate residential
    
3,749
      
4,669
      
(920
)
Commercial real estate nonresidential
    
7,797
      
8,794
      
(997
)
Dealer floorplans
    
1,157
      
1,719
      
(562
)
Commercial other
    
6,176
      
4,547
      
1,629
  
Commercial loans reserve allocation
    
24,071
      
25,767
      
(1,696
)
                         
Real estate mortgage
    
7,884
      
8,443
      
(559
)
Home equity lines
    
1,108
      
1,065
      
43
  
Residential loans reserve allocation
    
8,992
      
9,508
      
(516
)
                         
Consumer direct
    
2,563
      
1,673
      
890
  
Consumer indirect
    
12,392
      
10,959
      
1,433
  
Consumer loans reserve allocation
    
14,955
      
12,632
      
2,323
  
                         
Loans and lease financing allowance for credit loss
  
$
48,018
      
47,907
     $ 111  


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



The following tables present the balance in the ACL for the periods ended June 30, 2023, December 31, 2022, and June 30, 2022:


 
  
Three Months Ended
June 30, 2023
  
(in thousands)
  
Beginning
Balance
    
Provision
Charged to
Expense
    
Losses
Charged Off
    
Recoveries
    
Ending
Balance
  
ACL
                              
Hotel/motel
  
$
5,287
    
$
(95
)
  
$
0
    
$
0
    
$
5,192
  
Commercial real estate residential
    
5,157
      
(1,384
)
    
(28
)
    
4
      
3,749
  
Commercial real estate
nonresidential
    
9,010
      
(1,393
)
    
(9
)
    
189
      
7,797
  
Dealer floorplans
    
1,694
      
(537
)
    
0
      
0
      
1,157
  
Commercial other
    
4,782
      
2,387
      
(1,073
)
    
80
      
6,176
  
Real estate mortgage
    
7,917
      
10
      
(55
)
    
12
      
7,884
  
Home equity
    
1,044
      
76
      
(13
)
    
1
      
1,108
  
Consumer direct
    
1,746
      
807
      
(82
)
    
92
      
2,563
  
Consumer indirect
    
10,046
      
2,138
      
(693
)
    
901
      
12,392
  
Total
  
$
46,683
    
$
2,009
    
$
(1,953
)
  
$
1,279
    
$
48,018
  

 
  
Six Months Ended
June 30, 2023
  
(in thousands)
  
Beginning
Balance
    
Provision
Charged to
Expense
    
Losses
Charged Off
    
Recoveries
    
Ending
Balance
  
ACL
                              
Hotel/motel
  
$
5,171
    
$
21
    
$
0
    
$
0
    
$
5,192
  
Commercial real estate residential
    
4,894
      
(1,198
)
    
(28
)
    
81
      
3,749
  
Commercial real estate nonresidential
    
9,419
      
(1,946
)
    
(9
)
    
333
      
7,797
  
Dealer floorplans
    
1,776
      
(619
)
    
0
      
0
      
1,157
  
Commercial other
    
5,285
      
1,971
      
(1,260
)
    
180
      
6,176
  
Real estate mortgage
    
7,932
      
31
      
(95
)
    
16
      
7,884
  
Home equity
    
1,106
      
12
      
(13
)
    
3
      
1,108
  
Consumer direct
    
1,694
      
912
      
(238
)
    
195
      
2,563
  
Consumer indirect
    
8,704
      
3,941
      
(2,075
)
    
1,822
      
12,392
  
Total
  
$
45,981
    
$
3,125
    
$
(3,718
)
  
$
2,630
    
$
48,018
  

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

 
  
Three Months Ended
June 30, 2022
  
(in thousands)
  
Beginning
Balance
    
Provision
Charged to
Expense
    
Losses
Charged Off
    
Recoveries
    
Ending
Balance
  
ACL
                              
Hotel/motel
  
$
4,711
    
$
133
    
$
0
    
$
0
    
$
4,844
  
Commercial real estate residential
    
4,070
      
124
      
0
      
6
      
4,200
  
Commercial real estate nonresidential
    
9,169
      
(223
)
    
0
      
22
      
8,968
  
Dealer floorplans
    
1,519
      
(42
)
    
0
      
0
      
1,477
  
Commercial other
    
4,844
      
(285
)
    
(187
)
    
101
      
4,473
  
Real estate mortgage
    
7,662
      
586
      
(84
)
    
15
      
8,179
  
Home equity
    
819
      
71
      
(5
)
    
2
      
887
  
Consumer direct
    
1,787
      
(65
)
    
(175
)
    
74
      
1,621
  
Consumer indirect
    
7,728
      
(222
)
    
(377
)
    
566
      
7,695
  
Total
  
$
42,309
    
$
77
    
$
(828
)
  
$
786
    
$
42,344
  

 
  
Six Months Ended
June 30, 2022
  
(in thousands)
  
Beginning
Balance
    
Provision
Charged to
Expense
    
Losses
Charged Off
    
Recoveries
    
Ending
Balance
  
ACL
                              
Hotel/motel
  
$
5,080
    
$
(20
)
  
$
(216
)
  
$
0
    
$
4,844
  
Commercial real estate residential
    
3,986
      
234
      
(31
)
    
11
      
4,200
  
Commercial real estate nonresidential
    
8,884
      
(49
)
    
0
      
133
      
8,968
  
Dealer floorplans
    
1,436
      
41
      
0
      
0
      
1,477
  
Commercial other
    
4,422
      
193
      
(344
)
    
202
      
4,473
  
Real estate mortgage
    
7,637
      
683
      
(177
)
    
36
      
8,179
  
Home equity
    
866
      
38
      
(24
)
    
7
      
887
  
Consumer direct
    
1,951
      
(245
)
    
(345
)
    
260
      
1,621
  
Consumer indirect
    
7,494
      
77
      
(1,011
)
    
1,135
      
7,695
  
Total
  
$
41,756
    
$
952
    
$
(2,148
)
  
$
1,784
    
$
42,344
  



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


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


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


 •
Changes in delinquency trends by loan segment

•
Changes in international, national, regional, and local conditions

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

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

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

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

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

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


Economic forecast factors utilized in the estimate improved quarter over quarter and the slight reduction in reserve requirements from 1.24% to 1.22% is reflective of this improvement.  Management continues to note the continued impact of global uncertainty, the current rate of inflation, the significant rising rate environment, and the fact that there is no immediate end foreseen, and these conditions are now part of qualitative factors noted above.  As in previous quarters an allocation was made for delinquency trends, industry concentrations, supervisory and administration, loan exceptions, and collateral values.



Our provision for credit losses for the quarter increased $0.9 million from prior quarter and $1.9 million from prior year same quarter.  Our reserve coverage (allowance for credit losses to nonperforming loans) at June 30, 2023 was 408.9%, compared to 382.3% at March 31, 2023 and 305.9% at June 30, 2022.  Our credit loss reserve as a percentage of total loans outstanding at June 30, 2023 was 1.22% compared to 1.24% at March 31, 2023 and 1.19% at June 30, 2022.


Refer to Note 1 to the condensed consolidated financial statements for further information regarding our nonaccrual policy.  Nonaccrual loans and loans 90 days past due and still accruing segregated by class of loans for both June 30, 2023 and December 31, 2022 were as follows:

 
June 30, 2023
  
 (in thousands)
  
Nonaccrual Loans
with No ACL
    
Nonaccrual Loans
with ACL
    
90+ and Still
Accruing
    
Total
Nonperforming
Loans
  
                         
Hotel/motel
  
$
0
    
$
0
    
$
0
    
$
0
  
Commercial real estate residential
    
0
      
322
      
712
      
1,034
  
Commercial real estate nonresidential
    
0
      
982
      
300
      
1,282
  
Commercial other
    
0
      
753
      
277
      
1,030
  
Total commercial loans
    
0
      
2,057
      
1,289
      
3,346
  
                                 
Real estate mortgage
    
0
      
3,093
      
4,206
      
7,299
  
Home equity lines
    
0
      
195
      
459
      
654
  
Total residential loans
    
0
      
3,288
      
4,665
      
7,953
  
                                 
Consumer direct
    
0
      
0
      
6
      
6
  
Consumer indirect
    
0
      
0
      
439
      
439
  
Total consumer loans
    
0
      
0
      
445
      
445
  
                                 
Loans and lease financing
  
$
0
    
$
5,345
    
$
6,399
    
$
11,744
  

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

Discussion of the Nonaccrual Policy



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


The following tables present CTBI’s loan portfolio aging analysis, segregated by class, as of June 30, 2023 and December 31, 2022 (includes loans 90 days past due and still accruing as well):

 
June 30, 2023
  
(in thousands)
  
30-59 Days
Past Due
    
60-89
Days Past
Due
    
90+ Days
Past Due
    
Total
Past Due
    
Current
    
Total Loans
  
Hotel/motel
  
$
0
    
$
0
    
$
0
    
$
0
    
$
372,981
    
$
372,981
  
Commercial real estate residential
    
152
      
279
      
1,000
      
1,431
      
391,878
      
393,309
  
Commercial real estate nonresidential
    
1,101
      
110
      
940
      
2,151
      
785,447
      
787,598
  
Dealer floorplans
    
0
      
0
      
0
      
0
      
76,903
      
76,903
  
Commercial other
    
1,062
      
330
      
694
      
2,086
      
317,752
      
319,838
  
Total commercial loans
    
2,315
      
719
      
2,634
      
5,668
      
1,944,961
      
1,950,629
  
                                                 
Real estate mortgage
    
1,440
      
2,528
      
6,220
      
10,188
      
872,916
      
883,104
  
Home equity lines
    
733
      
435
      
490
      
1,658
      
130,375
      
132,033
  
Total residential loans
    
2,173
      
2,963
      
6,710
      
11,846
      
1,003,291
      
1,015,137
  
                                                 
Consumer direct
    
557
      
95
      
6
      
658
      
157,190
      
157,848
  
Consumer indirect
    
3,147
      
865
      
439
      
4,451
      
801,630
      
806,081
  
Total consumer loans
    
3,704
      
960
      
445
      
5,109
      
958,820
      
963,929
  
                                                 
Loans and lease financing
  
$
8,192
    
$
4,642
    
$
9,789
    
$
22,623
    
$
3,907,072
    
$
3,929,695
  

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


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


Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.5% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Hotel/motel lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Management monitors and evaluates all commercial real estate loans based on collateral and risk grade criteria.  Commercial construction loans generally are made to customers for the purpose of building income-producing properties, and any hotel/motel construction loan would be included in this segment.  Personal guarantees of the principals are generally required.  Such loans are made on a projected cash flow basis and are secured by the project being constructed.  Construction loan draw procedures are included in each specific loan agreement, including required documentation items and inspection requirements.  Construction loans may convert to term loans at the end of the construction period, or may be repaid by the take-out commitment from another financing source.  If the loan is to convert to a term loan, the repayment ability is based on the borrower’s projected cash flow.  Risk is mitigated during the construction phase by requiring proper documentation and inspections whenever a draw is requested.


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


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


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


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


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


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


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

Credit Quality Indicators:


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

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

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

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

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

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


The following tables present the credit risk profile of CTBI’s commercial loan portfolio based on rating category and payment activity, as well as gross charge-offs year to date, if any, segregated by class of loans and based on last credit decision or year of origination:

June 30, 2023
  
Term Loans Amortized Cost Basis by Origination Year
  
(in thousands)
  
2023
    
2022
    
2021
    
2020
    
2019
    
Prior
    
Revolving
Loans
    
Total
  
Hotel/motel
                                                
Risk rating:
                                                
Pass
  
$
38,210
    
$
150,521
    
$
28,454
    
$
17,968
    
$
47,039
    
$
47,091
    
$
4,043
    
$
333,326
  
Watch
    
2,949
      
6,957
      
8,873
      
4,709
      
3,412
      
3,871
       0      
30,771
  
OAEM
    
0
      
0
      
6,971
      
0
      
0
      
1,913
      
0
      
8,884
  
Substandard
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Doubtful
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Total hotel/motel
    
41,159
      
157,478
      
44,298
      
22,677
      
50,451
      
52,875
      
4,043
      
372,981
  
                                                                 
Commercial real estate residential
                                                                
Risk rating:
                                                                
Pass
    
55,238
      
104,912
      
104,205
      
35,701
      
12,921
      
41,206
      
14,132
      
368,315
  
Watch
    
753
      
1,010
      
835
      
1,948
      
743
      
7,367
      
144
      
12,800
  
OAEM
    
0
      
0
      
0
      
0
      
0
      
65
      
0
      
65
  
Substandard
    
286
      
617
      
4,295
      
623
      
289
      
6,019
      
0
      
12,129
  
Doubtful
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Total commercial real estate residential
    
56,277
      
106,539
      
109,335
      
38,272
      
13,953
      
54,657
      
14,276
      
393,309
  
                                                                 
Commercial real estate residential current period gross charge-offs
     0       0       (28 )     0       0       0       0       (28 )
                                                                 
Commercial real estate nonresidential
                                                                
Risk rating:
                                                                
Pass
    
81,927
      
153,561
      
152,539
      
79,949
      
66,557
      
166,883
      
25,508
      
726,924
  
Watch
    
300
      
3,966
      
6,499
      
9,716
      
7,618
      
6,710
      
711
      
35,520
  
OAEM
    
2,375
      
19
      
0
      
0
      
0
      
74
      
0
      
2,468
  
Substandard
    
1,370
      
1,439
      
2,522
      
4,543
      
3,096
      
9,701
      
0
      
22,671
  
Doubtful
    
0
      
0
      
0
      
0
      
0
      
15
      
0
      
15
  
Total commercial real estate nonresidential
    
85,972
      
158,985
      
161,560
      
94,208
      
77,271
      
183,383
      
26,219
      
787,598
  
                                                                 
Commercial real estate nonresidential current period gross charge-offs
     0       0       0       (9 )     0       0       0       (9 )
                                                                 
Dealer floorplans
                                                                
Risk rating:
                                                                
Pass
    
0
      
0
      
0
      
0
      
0
      
0
      
76,903
      
76,903
  
Watch
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
OAEM
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Substandard
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Doubtful
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Total dealer floorplans
    
0
      
0
      
0
      
0
      
0
      
0
      
76,903
      
76,903
  
                                                                 
Commercial other
                                                                
Risk rating:
                                                                
Pass
    
41,105
      
60,219
      
54,817
      
31,984
      
6,523
      
24,483
      
78,670
      
297,801
  
Watch
    
541
      
1,390
      
980
      
156
      
334
      
771
      
5,990
      
10,162
  
OAEM
    
0
      
30
      
0
      
0
      
0
      
0
      
30
      
60
  
Substandard
    
466
      
4,216
      
4,807
      
943
      
219
      
564
      
600
      
11,815
  
Doubtful
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Total commercial other
    
42,112
      
65,855
      
60,604
      
33,083
      
7,076
      
25,818
      
85,290
      
319,838
  
                                                                 
Commercial other current period gross charge-offs
     (321 )     (632 )     (154 )     (17 )     (90 )     (46 )     0       (1,260 )
                                                                 
Commercial loans
                                                                
Risk rating:
                                                                
Pass
    
216,480
      
469,213
      
340,015
      
165,602
      
133,040
      
279,663
      
199,256
      
1,803,269
  
Watch
    
4,543
      
13,323
      
17,187
      
16,529
      
12,107
      
18,719
      
6,845
      
89,253
  
OAEM
    
2,375
      
49
      
6,971
      
0
      
0
      
2,052
      
30
      
11,477
  
Substandard
    
2,122
      
6,272
      
11,624
      
6,109
      
3,604
      
16,284
      
600
      
46,615
  
Doubtful
    
0
      
0
      
0
      
0
      
0
      
15
      
0
      
15
  
Total commercial loans
  
$
225,520
    
$
488,857
    
$
375,797
    
$
188,240
    
$
148,751
    
$
316,733
    
$
206,731
    
$
1,950,629
  
                                                                 
Total commercial loans current period gross charge-offs
   $ (321 )   $ (632 )   $ (182 )   $ (26 )   $ (90 )   $ (46 )   $ 0     $ (1,297 )

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

153,183
    

44,998
    

23,265
    

57,781
    

13,178
    

50,690
    

545
    

343,640
  
                                                                 
Commercial real estate residential
                                                                
Risk rating:
                                                                
Pass
  

119,826
    

110,963
    

38,423
    

15,467
    

10,492
    

36,307
    

14,297
    

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

121,482
    

116,150
    

41,976
    

16,700
    

16,267
    

45,861
    

14,478
    

372,914
  
                                                                 
Commercial real estate nonresidential
                                                                
Risk rating:
                                                                
Pass
  

175,220
    

171,311
    

80,932
    

70,848
    

44,099
    

137,575
    

23,166
    

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

180,509
    

179,613
    

95,899
    

76,161
    

46,569
    

158,857
    

24,741
    

762,349
  
                                                                 
Dealer floorplans
                                                                
Risk rating:
                                                                
Pass
  

0
    

0
    

0
    

0
    

0
    

0
    

77,153
    

77,153
  
Watch
    
0
      
0
      
0
      
0
      
0
      
0
      
380
      
380
  
OAEM
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Substandard
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Doubtful
    
0
      
0
      
0
      
0
      
0
      
0
      
0
      
0
  
Total dealer floorplans
  

0
    

0
    

0
    

0
    

0
    

0
    

77,533
    

77,533
  
                                                                 
Commercial other
                                                                
Risk rating:
                                                                
Pass
  

78,846
    

60,550
    

34,841
    

8,922
    

2,333
    

23,961
    

77,355
    

286,808
  
Watch
    
1,622
      
393
      
604
      
217
      
159
      
780
      
6,402
      
10,177
  
OAEM
    
30
      
0
      
0
      
0
      
0
      
0
      
30
      
60
  
Substandard
    
6,090
      
5,489
      
885
      
356
      
143
      
758
      
952
      
14,673
  
Doubtful
    
466
      
129
      
0
      
109
      
0
      
0
      
0
      
704
  
Total commercial other
  

87,054
    

66,561
    

36,330
    

9,604
    

2,635
    

25,499
    

84,739
    

312,422
  
                                                                 
Commercial loans
                                                                
Risk rating:
                                                                
Pass
  

519,154
    

378,826
    

171,938
    

149,565
    

70,102
    

233,022
    

192,516
    

1,715,123
  
Watch
    
14,348
      
16,052
      
17,892
      
6,696
      
4,257
      
31,372
      
8,484
      
99,101
  
OAEM
    
49
      
0
      
0
      
39
      
0
      
2,046
      
59
      
2,193
  
Substandard
    
8,211
      
12,315
      
7,640
      
3,837
      
4,290
      
14,162
      
977
      
51,432
  
Doubtful
    
466
      
129
      
0
      
109
      
0
      
305
      
0
      
1,009
  
Total commercial loans
  
$
542,228
    
$
407,322
    
$
197,470
    
$
160,246
    
$
78,649
    
$
280,907
    
$
202,036
    
$
1,868,858
  


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

June 30, 2023
  
Term Loans Amortized Cost Basis by Origination Year
  
(in thousands)
  
2023
    
2022
    
2021
    
2020
    
2019
    
Prior
    
Revolving
Loans
    
Total
  
Home equity lines
                                                
Performing
  
$
0
    
$
0
    
$
0
    
$
0
    
$
0
    
$
9,047
    
$
122,332
    
$
131,379
  
Nonperforming
    
0
      
0
      
0
      
0
      
0
      
403
      
251
      
654
  
Total home equity lines
    
0
      
0
      
0
      
0
      
0
      
9,450
      
122,583
      
132,033
  
                                                                 
Home equity lines current period gross charge-offs
                                             (13 )     0       (13 )
                                                                 
Mortgage loans
                                                                
Performing
    
96,372
      
175,566
      
169,481
      
125,782
      
59,375
      
249,229
      
0
      
875,805
  
Nonperforming
    
0
      
0
      
311
      
121
      
773
      
6,094
      
0
      
7,299
  
Total mortgage loans
    
96,372
      
175,566
      
169,792
      
125,903
      
60,148
      
255,323
      
0
      
883,104
  
                                                                 
Mortgage loans current period gross charge-offs
     0       0       (47 )     0       (1 )     (47 )     0       (95 )
                                                                 
Residential loans
                                                                
Performing
    
96,372
      
175,566
      
169,481
      
125,782
      
59,375
      
258,276
      
122,332
      
1,007,184
  
Nonperforming
    
0
      
0
      
311
      
121
      
773
      
6,497
      
251
      
7,953
  
Total residential loans
  
$
96,372
    
$
175,566
    
$
169,792
    
$
125,903
    
$
60,148
    
$
264,773
    
$
122,583
    
$
1,015,137
  
                                                                 
Total residential loans current period gross charge-offs
   $
0     $
0     $
(47 )   $
0     $
(1 )   $
(60 )   $
0     $
(108 )
                                                                 
Consumer direct loans
                                                                
Performing
  
$
35,168
    
$
45,893
    
$
33,307
    
$
19,215
    
$
9,082
    
$
15,177
    
$
0
    
$
157,842
  
Nonperforming
    
0
      
6
      
0
      
0
      
0
      
0
      
0
      
6
  
Total consumer direct loans
    
35,168
      
45,899
      
33,307
      
19,215
      
9,082
      
15,177
      
0
      
157,848
  
                                                                 
Total consumer direct loans current period gross charge-offs
     0       (146 )     (42 )     (30 )     (14 )     (6 )     0       (238 )
                                                                 
Consumer indirect loans
                                                                
Performing
    
217,355
      
306,664
      
136,812
      
90,812
      
33,856
      
20,143
      
0
      
805,642
  
Nonperforming
    
0
      
157
      
183
      
36
      
18
      
45
      
0
      
439
  
Total consumer indirect loans
    
217,355
      
306,821
      
136,995
      
90,848
      
33,874
      
20,188
      
0
      
806,081
  
                                                                 
Total consumer indirect loans current period gross charge-offs
     (42 )     (785 )     (883 )     (217 )     (75 )     (73 )     0       (2,075 )
                                                                 
Consumer loans
                                                                
Performing
    
252,523
      
352,557
      
170,119
      
110,027
      
42,938
      
35,320
      
0
      
963,484
  
Nonperforming
    
0
      
163
      
183
      
36
      
18
      
45
      
0
      
445
  
Total consumer loans
  
$
252,523
    
$
352,720
    
$
170,302
    
$
110,063
    
$
42,956
    
$
35,365
    
$
0
    
$
963,929
  
                                                                 
Total consumer loans current period gross charge-offs
   $
(42 )   $
(931 )   $
(925 )   $
(247 )   $
(89 )   $
(79 )   $
0     $
(2,313 )

December 31, 2022
  
Term Loans Amortized Cost Basis by Origination Year
  
(in thousands)
  
2022
    
2021
    
2020
    
2019
    
2018
    
Prior
    
Revolving
Loans
    
Total
  
Home equity lines
                                                
Performing
  
$
0
    
$
0
    
$
0
    
$
0
    
$
0
    
$
10,195
    
$
109,567
    
$
119,762
  
Nonperforming
    
0
      
0
      
0
      
0
      
0
      
502
      
276
      
778
  
Total home equity lines
  

0
    

0
    

0
    

0
    

0
    

10,697
    

109,843
    

120,540
  
                                                                 
Mortgage loans
                                                                
Performing
  

176,736
    

177,469
    

132,795
    

62,415
    

30,473
    

236,110
    

0
    

815,998
  
Nonperforming
    
0
      
282
      
98
      
791
      
422
      
7,405
      
0
      
8,998
  
Total mortgage loans
  

176,736
    

177,751
    

132,893
    

63,206
    

30,895
    

243,515
    

0
    

824,996
  
                                                                 
Residential loans
                                                                
Performing
  

176,736
    

177,469
    

132,795
    

62,415
    

30,473
    

246,305
    

109,567
    

935,760
  
Nonperforming
    
0
      
282
      
98
      
791
      
422
      
7,907
      
276
      
9,776
  
Total residential loans
  
$
176,736
    
$
177,751
    
$
132,893
    
$
63,206
    
$
30,895
    
$
254,212
    
$
109,843
    
$
945,536
  
                                                                 
Consumer direct loans
                                                                
Performing
  
$
62,239
    
$
42,014
    
$
23,921
    
$
11,166
    
$
6,766
    
$
11,357
    
$
0
    
$
157,463
  
Nonperforming
    
25
      
11
      
5
      
0
      
0
      
0
      
0
      
41
  
Total consumer direct loans
  

62,264
    

42,025
    

23,926
    

11,166
    

6,766
    

11,357
    

0
    

157,504
  
                                                                 
Consumer indirect loans
                                                                
Performing
  

371,079
    

168,513
    

116,267
    

45,748
    

26,247
    

9,073
    

0
    

736,927
  
Nonperforming
    
65
      
251
      
96
      
30
      
1
      
22
      
0
      
465
  
Total consumer indirect loans
  

371,144
    

168,764
    

116,363
    

45,778
    

26,248
    

9,095
    

0
    

737,392
  
                                                                 
Consumer loans
                                                                
Performing
  

433,318
    

210,527
    

140,188
    

56,914
    

33,013
    

20,430
    

0
    

894,390
  
Nonperforming
    
90
      
262
      
101
      
30
      
1
      
22
      
0
      
506
  
Total consumer loans
  
$
433,408
    
$
210,789
    
$
140,289
    
$
56,944
    
$
33,014
    
$
20,452
    
$
0
    
$
894,896
  

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


The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings are in process was $3.8 million at June 30, 2023.  The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings have resumed with restricted parameters was $3.3  million at December 31, 2022.


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

 
June 30, 2023
  
(in thousands)
  
Number of
Loans
    
Recorded
Investment
    
Specific
Reserve
  
Hotel/motel
    
2
    
$
8,114
    
$
0
  
Commercial real estate residential
    
3
      
6,353
      
0
  
Commercial real estate nonresidential
    
6
      
11,704
      
0
  
Commercial other
    
2
      
6,585
      
0
  
Total collateral dependent loans
    
13
    
$
32,756
    
$
0
  

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

 
June 30, 2022
  
(in thousands)
  
Number of
Loans
    
Recorded
Investment
    
Specific
Reserve
  
Hotel/motel
    
1
    
$
1,196
    
$
0
  
Commercial real estate residential
    
4
      
6,957
      
0
  
Commercial real estate nonresidential
    
10
      
18,218
      
200
  
Commercial other
    
3
      
10,190
      
550
  
Total collateral dependent loans
    
18
    
$
36,561
    
$
750
  


The hotel/motel, commercial real estate residential, and commercial real estate nonresidential segments are all collateralized with real estate. The two loans listed in the commercial other segment at June 30, 2023 are collateralized by inventory, equipment, and accounts receivable.


Certain loans have been modified where the customer is facing financial difficulty and economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances.  Those loans, segregated by class of loans and concession granted, are presented below for the three months ended June 30, 2023:

   
Interest Rate Reduction
    
Term Extension
  
(in thousands)
  
Amortized Cost at
June 30, 2023
    
% of total
    
Amortized Cost at
June 30, 2023
    
% of total
  
Hotel/motel
  
$
0
      
0.00
%
  
$
0
      
0.00
%
Commercial real estate residential
    
0
      
0.00
      
44
      
0.01
  
Commercial real estate nonresidential
    
73
       0.01
      
13
      
0.00
  
Dealer floorplans
    
0
      
0.00
      
0
      
0.00
  
Commercial other
    
0
      
0.00
      
522
      
0.16
  
Commercial loans
    
73
      
0.00
      
579
      
0.03
  
                                 
Real estate mortgage
    
0
      
0.00
      
877
      
0.10
  
Home equity lines
    
0
      
0.00
      
0
      
0.00
  
Residential loans
    
0
      
0.00
      
877
      
0.09
  
                                 
Consumer direct
    
0
      
0.00
      
54
      
0.03
  
Consumer indirect
    
0
      
0.00
      
95
      
0.01
  
Consumer loans
    
0
      
0.00
      
149
      
0.02
  
                                 
Loans and lease financing
  
$
73
      
0.00
%
  
$
1,605
       0.04
%

   
Combination – Term Extension
and Interest Rate Reduction
    
Payment Change
  
(in thousands)
  
Amortized Cost at
June 30, 2023
    
% of total
    
Amortized Cost at
June 30, 2023
    
% of total
  
Hotel/motel
  
$
0
      
0.00
%
  
$
0
      
0.00
%
Commercial real estate residential
    
0
      
0.00
      
0
      
0.00
  
Commercial real estate nonresidential
    
0
      
0.00
      
0
      
0.00
  
Dealer floorplans
    
0
      
0.00
      
0
      
0.00
  
Commercial other
    
0
      
0.00
      
300
      
0.09
  
Commercial loans
    
0
      
0.00
      
300
      
0.02
  
                                 
Real estate mortgage
    
209
      
0.02
      
0
      
0.00
  
Home equity lines
    
43
      
0.03
      
116
      
0.09
  
Residential loans
    
252
      
0.02
      
116
      
0.01
  
                                 
Consumer direct
    
0
      
0.00
      
0
      
0.00
  
Consumer indirect
    
0
      
0.00
      
0
      
0.00
  
Consumer loans
    
0
      
0.00
      
0
      
0.00
  
                                 
Loans and lease financing
  
$
252
      
0.01
%
  
$
416
      
0.01
%


The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the three months ended June 30, 2023:

Loan Type
  
Interest Rate Reduction
Financial Impact
  
Term Extension
Financial Impact
         
Hotel/motel
           
         
Commercial real estate residential
  

 
Added a weighted-average 11.7 years to life of the loans
         
Commercial real estate nonresidential
  
Reduced weighted-average contractual interest rate from 10.8% to 8.5%
  

         
Dealer floorplans
           
         
Commercial other
      
Added a weighted-average 0.8 years to life of the loans
               
Real estate mortgage
  

 
Added a weighted-average 4 years to life of the loans
         
Home equity lines
      

               
Consumer direct
      
Added a weighted-average 0.2 years to the life of the loans
         
Consumer indirect
      
Added a weighted-average 0.5 years to the life of the loans

Loan Type
  
Combination – Term Extension and
 Interest Rate Reduction
Financial Impact
  
Payment Changes
Financial Impact
         
Hotel/motel
           
         
Commercial real estate residential
  

   
         
Commercial real estate nonresidential
           
         
Dealer floorplans
           
         
Commercial other
      
Provided payment changes that will be added to the end of the original loan term
               
Real estate mortgage
  
Reduced weighted-average contractual interest rate from 6.8% to 6.2% and increased the weighted-average life by 9.7 years
    
         
Home equity lines
  
Reduced weighted-average contractual interest rate from 10.3% to 8.3% and increased the weighted-average life by 14.3 years
  
Provided payment changes that will be added to the end of the original loan term
               
Consumer direct
      

         
Consumer indirect
       


Those loans, segregated by class of loans and concession granted, are presented below for the six months ended June 30, 2023:

   
Interest Rate Reduction
    
Term Extension
  
(in thousands)
  
Amortized Cost at
June 30, 2023
    
% of total
    
Amortized Cost at
June 30, 2023
    
% of total
  
Hotel/motel
  
$
0
      
0.00
%
  
$
0
      
0.00
%
Commercial real estate residential
    
311
      
0.08
      
1,383
      
0.35
  
Commercial real estate nonresidential
    
4,573
      
0.58
      
4,800
      
0.61
  
Dealer floorplans
    
0
      
0.00
      
0
      
0.00
  
Commercial other
    
0
      
0.00
      
1,474
      
0.46
  
Commercial loans
    
4,884
      
0.25
      
7,657
      
0.39
  
                                 
Real estate mortgage
    
58
      
0.01
      
3,317
      
0.38
  
Home equity lines
    
0
      
0.00
      
54
      
0.04
  
Residential loans
    
58
      
0.01
      
3,371
      
0.33
  
                                 
Consumer direct
    
0
      
0.00
      
224
      
0.14
  
Consumer indirect
    
0
      
0.00
      
450
      
0.06
  
Consumer loans
    
0
      
0.00
      
674
      
0.07
  
                                 
Loans and lease financing
  
$
4,942
       0.13 %  
$
11,702
       0.30 %

   
Combination – Term Extension
and Interest Rate Reduction
    
Payment Change
  
(in thousands)
  
Amortized Cost at
June 30, 2023
    
% of total
    
Amortized Cost at
June 30, 2023
    
% of total
  
Hotel/motel
  
$
0
      
0.00
%
  
$
0
      
0.00
%
Commercial real estate residential
    
88
      
0.02
      
0
      
0.00
  
Commercial real estate nonresidential
    
0
      
0.00
      
0
      
0.00
  
Dealer floorplans
    
0
      
0.00
      
0
      
0.00
  
Commercial other
    
0
      
0.00
      
300
      
0.09
  
Commercial loans
    
88
      
0.00
      
300
      
0.02
  
                                 
Real estate mortgage
    
427
      
0.05
      
0
      
0.00
  
Home equity lines
    
77
      
0.06
      
116
      
0.09
  
Residential loans
    
504
      
0.05
      
116
      
0.01
  
                                 
Consumer direct
    
0
      
0.00
      
20
      
0.01
  
Consumer indirect
    
0
      
0.00
      
0
      
0.00
  
Consumer loans
    
0
      
0.00
      
20
      
0.00
  
                                 
Loans and lease financing
  
$
592
      
0.02
%
  
$
436
      
0.01
%


The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the six months ended June 30, 2023:

Loan Type
  
Interest Rate Reduction
Financial Impact
  
Term Extension
Financial Impact
Hotel/motel
         
           
Commercial real estate residential
  
Reduced weighted-average contractual interest rate from 9.6% to 8.0%
  
The weighted-average term was not increased with the changes to this portfolio
           
Commercial real estate nonresidential
  
Reduced weighted-average contractual interest rate from 9.5% to 7.5%
  
The weighted-average term was not increased with the changes to this portfolio
           
Dealer floorplans
         
           
Commercial other
      
Added a weighted-average 1.4 years to life of the loans
           
Real estate mortgage
  
Resulted in no change of the weighted average contractual interest rate of 3.0%
  
Added a weighted-average 2.8 years to life of the loans
           
Home equity lines
      
Added a weighted-average 6.8 years to life of the loans
           
Consumer direct
      
Removed a weighted-average 0.6 years from the life of the loans
           
Consumer indirect
      
Added a weighted-average 0.3 years to the life of the loans

Loan Type
  
Combination – Term Extension and
Interest Rate Reduction
Financial Impact
  
Payment Changes
Financial Impact
Hotel/motel
         
           
Commercial real estate residential
  
Reduced weighted-average contractual interest rate from 10.4% to 7.2% and increased the weighted-average life by 5.9 years
    
           
Commercial real estate nonresidential
         
           
Dealer floorplans
         
           
Commercial other
      
Provided payment changes that will be added to the end of the original loan term
           
Real estate mortgage
  
Reduced weighted-average contractual interest rate from 7.1% to 6.1% and increased the weighted-average life by 11.3 years
    
           
Home equity lines
  
Reduced weighted-average contractual interest rate from 9.1% to 8.0% and increased the weighted-average life by 10.2 years
  
Provided payment changes that will be added to the end of the original loan term
           
Consumer direct
      
Provided payment changes that will be added to the end of the original loan term
           
Consumer indirect
         


 Presented  below, segregated by class of loans, are TDRs that occurred during the three and six months ended June 30, 2022 and the year ended December 31, 2022:

 
Three Months Ended
June 30, 2022
  
   
Pre-Modification Outstanding Balance
  
(in thousands)
  
Number of
Loans
    
Term
Modification
    
Combination
    
Total
Modification
  
Hotel/motel
     0     $
0     $
0     $
0  
Commercial real estate residential
    
0
    
0
    
0
    
0
  
Commercial real estate nonresidential
    
0
      
0
      
0
      
0
  
Commercial other
    
5
      
5,562
      
0
      
5,562
  
Total commercial loans
    
5
      
5,562
      
0
      
5,562
  
                                 
Real estate mortgage
     1       305       0       305  
Total residential loans
     1       305       0       305  
                                 
Total troubled debt restructurings
    
6
    
$
5,867
    
$
0
    
$
5,867
  

 
Three Months Ended
June 30, 2022
  
   
Post-Modification Outstanding Balance
  
(in thousands)
  
Number of
Loans
    
Term
Modification
    
Combination
    
Total
Modification
  
Hotel/motel
     0     $
0     $
0     $
0  
Commercial real estate residential
    
0
    
0
    
0
    
0
  
Commercial real estate nonresidential
    
0
      
0
      
0
      
0
  
Commercial other
    
5
      
5,562
      
0
      
5,562
  
Total commercial loans
    
5
      
5,562
      
0
      
5,562
  
                                 
Real estate mortgage
     1       305       0       305  
Total residential loans
     1       305       0       305  
                                 
Total troubled debt restructurings
    
6
    
$
5,867
    
$
0
    
$
5,867
  

 
Six Months Ended
June 30, 2022
  
   
Pre-Modification Outstanding Balance
  
(in thousands)
  
Number of
Loans
    
Term
Modification
    
Combination
    
Total
Modification
  
Hotel/motel
     0     $
0     $
0     $
0  
Commercial real estate residential
    
2
      
154
      
0
    
154
  
Commercial real estate nonresidential
    
2
      
245
      
0
      
245
  
Commercial other
    
9
      
6,526
      
0
      
6,526
  
Total commercial loans
    
13
      
6,925
      
0
      
6,925
  
                                 
Real estate mortgage
     3       305       916       1,221  
Total residential loans
     3       305       916       1,221  
                                 
Total troubled debt restructurings
    
16
    
$
7,230
    
$
916
    
$
8,146
  

 
Six Months Ended
June 30, 2022
  
   
Post-Modification Outstanding Balance
  
(in thousands)
  
Number of
Loans
    
Term
Modification
    
Combination
    
Total
Modification
  
Hotel/motel
     0     $
0     $
0     $ 0  
Commercial real estate residential
    
2
    
154
    
0
    
154
  
Commercial real estate nonresidential
    
2
      
244
      
0
      
244
  
Commercial other
    
9
      
6,525
      
0
      
6,525
  
Total commercial loans
    
13
      
6,923
      
0
      
6,923
  
                                 
Real estate mortgage
     3       305       916       1,221  
Total residential loans
     3       305       916       1,221  
                                 
Total troubled debt restructurings
    
16
    
$
7,228
    
$
916
    
$
8,144
  

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

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


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

   
Past Due Status (Amortized Cost Basis)
  
   
Current
      
30-89 Days
      
90+ Days

 
Nonaccrual
  
Hotel/motel
  
$
0
    
$
0
    
$
0
    
$
0
  
Commercial real estate residential
    
1,741
      
40
      
0
      
0
  
Commercial real estate nonresidential
    
9,373
      
0
      
0
      
0
  
Dealer floorplans
    
0
      
0
      
0
      
0
  
Commercial other
    
1,145
      
292
      
0
      
337
  
Real estate mortgage
    
3,374
      
125
      
118
      
185
  
Home equity lines
    
168
      
59
      
0
      
22
  
Consumer direct
    
239
      
5
      
0
      
0
  
Consumer indirect
    
371
      
78
      
0
      
0
  
Total
  
$
16,411
    
$
599
    
$
118
    
$
544
  


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.  During the quarter ended June 30, 2023, there were three loans to borrowers experiencing financial difficulty that subsequently defaulted.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.


There were no troubled debt restructured loans for the three and six months ended June 30, 2023.


Financial instrument credit losses apply to off-balance sheet credit exposures such as unfunded loan commitments and standby letters of credit.  A liability for expected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancellable by the entity.  Changes in this allowance are reflected in other operating expenses within the non-interest expense category.  As of June 30, 2023 and December 31, 2022, the total unfunded commitment off-balance sheet credit exposure was $1.1 million and $0.7 million, respectively.