Loans

12 Months Ended

Dec. 31, 2023

Loans [Abstract]

Loans

4.  Loans

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

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

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

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

Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.8% of total loans.  This industry has unique risk characteristics as it is highly susceptible to changes in the domestic and global economic environments, which can cause the industry to experience substantial volatility.  Additionally, any hotel/motel construction loans would be included in this segment as CTBI’s construction loans are primarily completed as one loan going from construction to permanent financing.  These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.

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

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

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

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

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

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

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

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

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

For the year ended December 31, 2022 and the three months ended March 31, 2023, CTBI derived our ACL balance by using vintage modeling for the consumer and residential portfolios.  Static pool models incorporating losses by credit risk rating were developed to determine credit loss balances for the commercial loan segments.  Qualitative loss factors were based on CTBI’s judgment of delinquency trends, level of nonperforming loans, trend in loan losses, supervision and administration, quality control exceptions, and reasonable and supportable forecasts based on unemployment rates and industry concentrations.  CTBI determined that twelve months represented a reasonable and supportable forecast period and reverted back to a historical loss rate immediately.  CTBI leveraged economic projections from a reputable and independent third party to form its loss driver forecasts over the twelve-month forecast period.  Other internal and external indicators of economic forecasts were also considered by CTBI when developing the forecast metrics.  CTBI also had an inherent model risk allocation included in our ACL calculation to allow for certain known model limitations as well as other potential risks not quantified elsewhere.  One limitation was the inability to completely identify revolving line of credit within the commercial other segment.

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

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

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

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

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

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

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

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

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

• Changes in delinquency trends by loan segment

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

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

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

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

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

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

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

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

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

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

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

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

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

Discussion of the Nonaccrual Policy

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

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

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

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

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

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

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

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

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

Commercial other loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value.  Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from our customers.  As we underwrite our equipment lease financing in a manner similar to our commercial loan portfolio described below, the risk characteristics for this portfolio mirror that of the commercial loan portfolio. CTBI’s participation in the CARES Act PPP loan program had previously resulted in a new loan segment of unsecured commercial other loans that are 100% guaranteed by the U.S. Small Business Administration (“SBA”).  As the balances are now less than $1.0 million, these loans have been collapsed into the commercial other segment.  These loans have maturities of either two or three to five years, depending on when the loans were made.  These loans currently have no ACL.

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

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

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

Credit Quality Indicators

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

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

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

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

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

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

The following tables present the credit risk profile of CTBI’s commercial loan portfolio based on rating category and payment activity, segregated by class of loans and based on last credit decision or year of origination:

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

Pass		411,703			424,100			303,445			146,909			113,411			241,655			202,377		1,843,600
Watch		15,576			9,730			14,182			8,491			6,259			14,645			6,355		75,238
OAEM		2,404			3,997			0			7,255			0			3,503			30		17,189
Substandard		8,201			6,033			7,451			6,196			2,496			15,952			613		46,942
Doubtful		0			0			0			0			0			766			0		766
Total commercial loans	$	437,884		$	443,860		$	325,078		$	168,851		$	122,166		$	276,521		$	209,375	$	1,983,735
Total commercial loans current period gross charge-offs	$	(725	)	$	(710	)	$	(337	)	$	(27	)	$	(90	)	$	(333	)	$	0	$	(2,222	)

	Term Loans Amortized Cost Basis by Origination Year
(in thousands) December 31	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Hotel/motel
Risk rating:
Pass	$	145,262	$	36,002	$	17,742	$	54,328	$	13,178	$	35,179	$	545	$	302,236
Watch		7,921		8,996		5,523		3,453		0		13,555		0		39,448
OAEM		0		0		0		0		0		1,956		0		1,956
Substandard		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total hotel/motel		153,183		44,998		23,265		57,781		13,178		50,690		545		343,640
Commercial real estate residential
Risk rating:
Pass		119,826		110,963		38,423		15,467		10,492		36,307		14,297		345,775
Watch		1,474		898		1,675		848		2,136		7,015		152		14,198
OAEM		0		0		0		39		0		0		29		68
Substandard		182		4,289		1,878		346		3,639		2,539		0		12,873
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate residential		121,482		116,150		41,976		16,700		16,267		45,861		14,478		372,914
Commercial real estate nonresidential
Risk rating:
Pass		175,220		171,311		80,932		70,848		44,099		137,575		23,166		703,151
Watch		3,331		5,765		10,090		2,178		1,962		10,022		1,550		34,898
OAEM		19		0		0		0		0		90		0		109
Substandard		1,939		2,537		4,877		3,135		508		10,865		25		23,886
Doubtful		0		0		0		0		0		305		0		305
Total commercial real estate nonresidential		180,509		179,613		95,899		76,161		46,569		158,857		24,741		762,349
Dealer floorplans
Risk rating:

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

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

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

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

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

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

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

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

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

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

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

	Interest Rate Reduction					Term Extension
(in thousands)	Amortized Cost at December 31, 2023		% of total			Amortized Cost at December 31, 2023		% of total
Hotel/motel	$	0		0.00	%	$	0		0.00	%
Commercial real estate residential		534		0.13			1,788		0.43
Commercial real estate nonresidential		4,504		0.58			5,342		0.69
Dealer floorplans		0		0.00			0		0.00
Commercial other		0		0.00			6,025		1.88
Commercial loans		5,038		0.25			13,155		0.66
Real estate mortgage		581		0.06			5,431		0.58
Home equity lines		0		0.00			246		0.17
Residential loans		581		0.05			5,677		0.52
Consumer direct		0		0.00			165		0.10
Consumer indirect		0		0.00			334		0.04
Consumer loans		0		0.00			499		0.05
Loans and lease financing	$	5,619		0.14	%	$	19,331		0.48	%

	Combination – Term Extension and Interest Rate Reduction					Payment Change
(in thousands)	Amortized Cost at December 31, 2023		% of total			Amortized Cost at December 31, 2023		% of total
Hotel/motel	$	0		0.00	%	$	1,955		0.49	%
Commercial real estate residential		0		0.00			218		0.05
Commercial real estate nonresidential		0		0.00			0		0.00
Dealer floorplans		0		0.00			0		0.00
Commercial other		29		0.01			288		0.09
Commercial loans		29		0.00			2,461		0.01
Real estate mortgage		1,101		0.12			0		0.00
Home equity lines		125		0.09			42		0.03
Residential loans		1,226		0.11			42		0.00
Consumer direct		0		0.00			18		0.01
Consumer indirect		0		0.00			0		0.00
Consumer loans		0		0.00			18		0.00
Loans and lease financing	$	1,255		0.03	%	$	2,521		0.06	%

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

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

Loan Type	Combination – Term Extension and  Interest Rate Reduction Financial Impact	Payment Changes Financial Impact
Hotel/motel		Provided payment changes that will be added to the end of the original loan term
Commercial real estate residential		Provided payment changes that will be added to the end of the original loan term
Commercial real estate nonresidential
Dealer floorplans
Commercial other	Reduced weighted-average contractual interest rate from 12.8% to 11.3% and increased the weighted-average life by 2.9 years	Provided payment changes that will be added to the end of the original loan term
Real estate mortgage	Reduced weighted-average contractual interest rate from 6.3% to 5.8% and increased the weighted-average life by 12.2 years
Home equity lines	Reduced weighted-average contractual interest rate from 9.4% to 8.1% and increased the weighted-average life by 9.3 years	Provided payment changes that will be added to the end of the original loan term
Consumer direct		Provided payment changes that will be added to the end of the original loan term
Consumer indirect

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

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

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

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

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

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

The allowance for credit losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.  Presented below, segregated by class of loans, are loans that were modified as TDRs during the year ended December 31, 2022 that subsequently defaulted.  CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual.

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

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