# COMMUNITY TRUST BANCORP INC /KY/ (CTBI) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from COMMUNITY TRUST BANCORP INC /KY/'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/350852/000114036123009057/brhc10048754_10k.htm
Accession: 0001140361-23-009057
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CTBI/
All MD&A years: /company/CTBI/mda/
Previous year: /company/CTBI/mda/fy2021/ (FY 2021)
Next year: /company/CTBI/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Community Trust Bancorp, Inc., our
operations, and our present business environment.  The MD&A is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes thereto contained in Item 8 of this annual report. 
The MD&A includes the following sections:

[[GREPCENT_TABLE]]
[["\u2756","Our Business"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Financial Goals and Performance"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Results of Operations and Financial Condition"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Liquidity and Market Risk"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Interest Rate Risk"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Capital Resources"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Impact of Inflation, Changing Prices, and Economic Conditions"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Stock Repurchase Program"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Critical Accounting Policies and Estimates"]]
[[/GREPCENT_TABLE]]

Our Business

Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company headquartered in Pikeville, Kentucky.  Currently, we own one commercial bank, Community Trust Bank, Inc. (“CTB”) and one trust
company, Community Trust and Investment Company.  Through our subsidiaries, we have seventy-eight banking locations in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee, four trust offices
across Kentucky, and one trust office in northeastern Tennessee.  At December 31, 2022, we had total consolidated assets of $5.4 billion and total consolidated deposits, including repurchase agreements, of $4.6 billion.  Total shareholders’ equity at
December 31, 2022 was $628.0 million.  Trust assets under management at December 31, 2022 were $3.2 billion, including CTB’s investment portfolio totaling $1.3 billion.

Through our subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust and wealth management activities, which include accepting time and demand deposits; making secured
and unsecured loans to corporations, individuals, and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services.  The lending
activities of CTB include making commercial, construction, mortgage, and personal loans.  Lease-financing, lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available.  Our
corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as paying agents for bond and stock issues, as investment agent, as depositories for securities, and as providers of
full-service brokerage, and insurance services.  For further information, see Item 1 of this annual report.

20

Table of Contents

Financial Goals and Performance

The following table shows the primary measurements used by management to assess annual performance.  The goals in the table below should not be viewed as a forecast of our performance for 2023. 
Rather, the goals represent a range of target performance for 2023.  There is no assurance that any or all of these goals will be achieved.  See “Cautionary Statement Regarding Forward Looking Statements.”

[[GREPCENT_TABLE]]
[["","","2022 Goals","2022 Performance","2023 Goals"],["","Basic earnings per share","$4.15 - $4.31","$4.59","$4.57 - $4.75"],["","Net income","$74.1 - $77.1 million","$81.8 million","$82.0 - $85.4 million"],["","ROAA","1.35% - 1.40%","1.50%","1.50% - 1.56%"],["","ROAE","10.18% - 10.59%","12.73%","12.26% - 12.76%"],["","Revenues","$216.0 - $224.8 million","$227.0 million","$237.9 - $247.6 million"],["","Noninterest revenue as % of total revenue","24.00% - 26.00%","25.51%","24.00% - 26.00%"],["","Assets","$5.42 - $5.75 billion","$5.38 billion","$5.38 - $5.72 billion"],["","Loans","$3.41 - $3.55 billion","$3.71 billion","$3.77 - $3.92 billion"],["","Deposits, including repurchase agreements","$4.63 - $4.82 billion","$4.64 billion","$4.64 - $4.83 billion"],["","Shareholders\u2019 equity","$ 733.5 - $763.4 million","$628.0 million","$ 686.5 - $714.5 million"]]
[[/GREPCENT_TABLE]]

Results of Operations and Financial Condition

We reported earnings of $81.8 million, or $4.59 per basic share, for the year ended December 31, 2022 compared to $87.9 million, or $4.94 per basic share, for the year ended December 31, 2021.  The
decrease in net income from prior year was primarily due to the $6.4 million recovery of provision for credit losses taken in 2021 compared to provision expense of $4.9 million for the year 2022 and a $5.3 million decline in gains on sales of loans
year over year.  Total revenue for 2022 was $3.5 million above prior year, as net interest revenue increased $6.0 million and noninterest income decreased $2.5 million compared to prior year.

21

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2022 Highlights

[[GREPCENT_TABLE]]
[["\u2756","Net interest income for the year ended December 31, 2022 increased $6.0 million, or 3.7%, from December 31, 2021 with an 11 basis point increase in our net interest margin and a $13.4 million increase in average earning assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Provision for credit losses was $4.9 million for the year ended December 31, 2022 compared to a recovery of provision of $6.4 million for the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Our loan portfolio increased $300.5 million, or 8.8%, from December 31, 2021. Loans excluding Paycheck Protection Program (\u201cPPP\u201d) loans increased $347.0 million during the year."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Net loan charge-offs were $0.7 million, or 0.02% of average loans annualized, for the year ended December 31, 2022, compared to a net recovery of loan losses of $0.1 million for the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Asset quality remained strong during the year 2022, as nonperforming loans at $15.3 million decreased $1.3 million, or 7.9%, from December 31, 2021. Nonperforming assets at $19.0 million decreased $1.1 million, or 5.6%, from December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Deposits, including repurchase agreements, increased $26.2 million, or 0.6%, from December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Noninterest income for the year ended December 31, 2022 at $57.9 million decreased $2.5 million, or 4.2%, compared to the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2756","Noninterest expense for the year ended December 31, 2022 at $121.1 million increased $1.8 million, or 1.5%, compared to the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

Income Statement Review

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","","","","","","","Change 2022 vs. 2021"],["Year Ended December 31","","2022","","","2021","","","Amount","","","Percent"],["Net interest income","","$","169,102","","","$","163,079","","","$","6,023","","","","3.7","%"],["Provision for credit losses (recovery)","","","4,905","","","","(6,386",")","","","11,291","","","","(176.8",")"],["Noninterest income","","","57,916","","","","60,463","","","","(2,547",")","","","(4.2",")"],["Noninterest expense","","","121,071","","","","119,285","","","","1,786","","","","1.5"],["Income taxes","","","19,228","","","","22,704","","","","(3,476",")","","","(15.3",")"],["Net income","","$","81,814","","","$","87,939","","","$","(6,125",")","","","(7.0",")%"],["Average earning assets","","$","5,129,345","","","$","5,115,961","","","$","13,384","","","","0.3","%"],["Yield on average earnings assets, tax equivalent*","","","3.87","%","","","3.50","%","","","0.37","%","","","10.7","%"],["Cost of interest bearing funds","","","0.85","%","","","0.45","%","","","0.40","%","","","91.3","%"],["Net interest margin, tax equivalent*","","","3.32","%","","","3.21","%","","","0.11","%","","","3.4","%"]]
[[/GREPCENT_TABLE]]

*Yield on average earning assets and net interest margin are computed on a taxable equivalent basis using a 24.95% tax rate.

22

Table of Contents

Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["(in thousands)","","Average Balances","","","Interest","","","Average Rate","","","Average Balances","","","Interest","","","Average Rate"],["Earning assets:"],["Loans (1)(2)(3)","","$","3,552,941","","","$","169,950","","","","4.78","%","","$","3,455,742","","","$","159,893","","","","4.63","%"],["Loans held for sale","","","893","","","","94","","","","10.53","","","","8,737","","","","379","","","","4.34"],["Securities:"],["U.S. Treasury and agencies","","","1,022,511","","","","14,699","","","","1.44","","","","970,754","","","","9,958","","","","1.03"],["Tax exempt state and political subdivisions (3)","","","119,118","","","","3,795","","","","3.19","","","","138,158","","","","3,921","","","","2.84"],["Other securities","","","260,423","","","","6,996","","","","2.69","","","","218,202","","","","4,023","","","","1.84"],["Federal Reserve Bank and Federal Home Loan Bank stock","","","12,388","","","","603","","","","4.87","","","","14,005","","","","486","","","","3.47"],["Federal funds sold","","","414","","","","15","","","","3.62","","","","73","","","","0","","","","0.00"],["Interest bearing deposits","","","158,563","","","","2,484","","","","1.57","","","","308,200","","","","372","","","","0.12"],["Other investments","","","245","","","","0","","","","0.00","","","","245","","","","0","","","","0.00"],["Investment in unconsolidated subsidiaries","","","1,849","","","","62","","","","3.35","","","","1,845","","","","34","","","","1.84"],["Total earning assets","","$","5,129,345","","","$","198,698","","","","3.87","%","","$","5,115,961","","","$","179,066","","","","3.50","%"],["Allowance for credit losses","","","(43,081",")","","","","","","","","","","","(44,157",")"],["","","","5,086,264","","","","","","","","","","","","5,071,804"],["Nonearning assets:"],["Cash and due from banks","","","59,645","","","","","","","","","","","","60,160"],["Premises and equipment and right of use assets, net","","","53,928","","","","","","","","","","","","53,441"],["Other assets","","","238,859","","","","","","","","","","","","201,836"],["Total assets","","$","5,438,696","","","","","","","","","","","$","5,387,241"],["Interest bearing liabilities:"],["Deposits:"],["Savings and demand deposits","","$","2,020,065","","","$","16,526","","","","0.82","%","","$","1,925,263","","","$","4,505","","","","0.23","%"],["Time deposits","","","1,027,726","","","","7,542","","","","0.73","","","","1,057,347","","","","8,248","","","","0.78"],["Repurchase agreements and federal funds purchased","","","243,102","","","","2,540","","","","1.04","","","","334,520","","","","1,254","","","","0.37"],["Advances from Federal Home Loan Bank","","","898","","","","20","","","","2.23","","","","384","","","","0","","","","0.00"],["Long-term debt","","","57,841","","","","1,943","","","","3.36","","","","57,841","","","","1,028","","","","1.78"],["Finance lease liability","","","1,589","","","","69","","","","4.34","","","","1,433","","","","55","","","","3.84"],["Total interest bearing liabilities","","$","3,351,221","","","$","28,640","","","","0.85","%","","$","3,376,788","","","$","15,090","","","","0.45","%"],["Noninterest bearing liabilities:"],["Demand deposits","","","1,398,778","","","","","","","","","","","","1,276,367"],["Other liabilities","","","46,274","","","","","","","","","","","","51,389"],["Total liabilities","","","4,796,273","","","","","","","","","","","","4,704,544"],["Shareholders\u2019 equity","","","642,423","","","","","","","","","","","","682,697"],["Total liabilities and shareholders\u2019 equity","","$","5,438,696","","","","","","","","","","","$","5,387,241"],["Net interest income, tax equivalent","","","","","","$","170,058","","","","","","","","","","","$","163,976"],["Less tax equivalent interest income","","","","","","","956","","","","","","","","","","","","897"],["Net interest income","","","","","","$","169,102","","","","","","","","","","","$","163,079"],["Net interest spread","","","","","","","","","","","3.02","%","","","","","","","","","","","3.05","%"],["Benefit of interest free funding","","","","","","","","","","","0.30","","","","","","","","","","","","0.16"],["Net interest margin","","","","","","","","","","","3.32","%","","","","","","","","","","","3.21","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Interest includes fees on loans of $1,723 and $1,763 in 2022 and 2021, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Loan balances include deferred loan origination costs and principal balances on nonaccrual loans."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Tax exempt income on securities and loans is reported on a fully taxable equivalent basis using a 24.95% rate."]]
[[/GREPCENT_TABLE]]

23

Table of Contents

Net Interest Differential

The following table illustrates the approximate effect of volume and rate changes on net interest differentials between 2022 and 2021.

[[GREPCENT_TABLE]]
[["","","Total Change","","","Change Due to"],["(in thousands)","","","2022/2021","","","Volume","","","Rate"],["Interest income:"],["Loans","","$","10,057","","","$","4,566","","","$","5,491"],["Loans held for sale","","","(285",")","","","(153",")","","","(132",")"],["U.S. Treasury and agencies","","","4,741","","","","556","","","","4,185"],["Tax exempt state and political subdivisions","","","(126",")","","","(505",")","","","379"],["Other securities","","","2,973","","","","884","","","","2,089"],["Federal Reserve Bank and Federal Home Loan Bank stock","","","117","","","","(51",")","","","168"],["Federal funds sold","","","15","","","","0","","","","15"],["Interest bearing deposits","","","2,112","","","","(96",")","","","2,208"],["Other investments","","","0","","","","0","","","","0"],["Investment in unconsolidated subsidiaries","","","28","","","","0","","","","28"],["Total interest income","","","19,632","","","","5,201","","","","14,431"],["Interest expense:"],["Savings and demand deposits","","","12,021","","","","233","","","","11,788"],["Time deposits","","","(706",")","","","(235",")","","","(471",")"],["Repurchase agreements and federal funds purchased","","","1,286","","","","(261",")","","","1,547"],["Advances from Federal Home Loan Bank","","","20","","","","0","","","","20"],["Long-term debt","","","915","","","","0","","","","915"],["Finance lease liability","","","14","","","","6","","","","8"],["Total interest expense","","","13,550","","","","(257",")","","","13,807"],["Net interest income","","$","6,082","","","$","5,458","","","$","624"]]
[[/GREPCENT_TABLE]]

For purposes of the above table, changes which are due to both rate and volume are allocated based on a percentage basis, using the absolute values of rate and volume variance as a basis for
percentages.  Income is stated at a fully taxable equivalent basis, using a 24.95% tax rate.

24

Table of Contents

Net Interest Income

[[GREPCENT_TABLE]]
[["(dollars in thousands) Year Ended December 31","","2022","","","2021","","","Percent Change"],["Components of net interest income:"],["Income on earning assets","","$","197,742","","","$","178,169","","","","11.0","%"],["Expense on interest bearing liabilities","","","28,640","","","","15,090","","","","89.8","%"],["Net interest income","","","169,102","","","","163,079","","","","3.7","%"],["TEQ","","","956","","","","897","","","","6.5","%"],["Net interest income, tax equivalent","","$","170,058","","","$","163,976","","","","3.7","%"],["Average yield and rates paid:"],["Earning assets yield","","","3.87","%","","","3.50","%","","","10.7","%"],["Rate paid on interest bearing liabilities","","","0.85","%","","","0.45","%","","","91.3","%"],["Gross interest margin","","","3.02","%","","","3.05","%","","","(1.1",")%"],["Net interest margin","","","3.32","%","","","3.21","%","","","3.4","%"],["Average balances:"],["Investment securities","","$","1,402,052","","","$","1,327,114","","","","5.6","%"],["Loans","","$","3,552,941","","","$","3,455,742","","","","2.8","%"],["Earning assets","","$","5,129,345","","","$","5,115,961","","","","0.3","%"],["Interest-bearing liabilities","","$","3,351,221","","","$","3,376,788","","","","(0.8",")%"]]
[[/GREPCENT_TABLE]]

Net interest income for the year ended December 31, 2022 of $169.1 million increased $6.0 million, or 3.7%, from prior year.  Average earning assets for the year 2022 increased $13.4 million over
prior year.  Our yield on average earning assets for the year 2022 increased 37 basis points from prior year, and our cost of interest bearing funds increased 40 basis points during the same time period.  Our net interest margin, on a fully tax
equivalent basis, for the year 2022 increased 11 basis points from 2021 to 3.32%.  While the cost of funds increased more than our yield on earnings assets improved, the net interest margin increased because of the benefit of our noninterest bearing
deposits.  The benefit of these deposits increased 30 basis points during the year.  Noninterest bearing deposits increased $63.8 million over prior year.  Average loans to deposits, including repurchase agreements, for the year ended December 31,
2022 were 75.8% compared to 75.3% for the year ended December 31, 2021.

Provision for Credit Losses

Provision for credit losses for the year 2022 was $4.9 million compared to a recovery of $6.4 million during the year 2021.  See below for discussion of our
allowance for credit losses.

Noninterest Income

[[GREPCENT_TABLE]]
[["(dollars in thousands) Year Ended December 31","","2022","","","2021","","","Percent Change"],["Deposit service charges","","$","29,049","","","$","26,529","","","","9.5","%"],["Trust revenue","","","12,394","","","","12,644","","","","(2.0",")%"],["Gains on sales of loans","","","1,525","","","","6,820","","","","(77.6",")%"],["Loan related fees","","","6,185","","","","5,578","","","","10.9","%"],["Bank owned life insurance revenue","","","2,708","","","","2,844","","","","(4.8",")%"],["Brokerage revenue","","","1,846","","","","1,962","","","","(5.9",")%"],["Other","","","4,209","","","","4,086","","","","3.0","%"],["Total noninterest income","","$","57,916","","","$","60,463","","","","(4.2",")%"]]
[[/GREPCENT_TABLE]]

Noninterest income for the year 2022 decreased $2.5 million from the year ended December 31, 2021 primarily due to a $5.3 million decline in gains on sales of loans, partially offset by a $2.5
million increase in deposit related fees.  Gains on sales of loans continue to be impacted by the slowdown in the industry-wide mortgage refinancing boom.  Deposit related fees were primarily impacted by debit card
income and overdraft charges.

25

Table of Contents

Noninterest Expense

[[GREPCENT_TABLE]]
[["(dollars in thousands) Year Ended December 31","","2022","","","2021","","","Percent Change"],["Salaries","","$","48,934","","","$","47,061","","","","4.0","%"],["Employee benefits","","","23,556","","","","27,053","","","","(12.9",")%"],["Net occupancy and equipment","","","11,083","","","","10,854","","","","2.1","%"],["Data processing","","","8,910","","","","8,039","","","","10.8","%"],["Legal and professional fees","","","3,434","","","","3,199","","","","7.3","%"],["Advertising and marketing","","","3,005","","","","2,928","","","","2.6","%"],["Taxes other than property and payroll","","","1,570","","","","1,750","","","","(10.3",")%"],["Net other real estate owned expense","","","456","","","","1,401","","","","(67.4",")%"],["Other","","","20,123","","","","17,000","","","","18.4","%"],["Total noninterest expense","","$","121,071","","","$","119,285","","","","1.5","%"]]
[[/GREPCENT_TABLE]]

Noninterest expense for the year ended December 31, 2022 was $1.8 million, or 1.5%, higher than the year 2021.  Noninterest expense for the year 2022 was impacted by a $1.4 million accrual for customer refunds of re-presented returned item fees during the third quarter and year over year increases of $0.9 million in data processing expense, $0.6 million in loan related expenses, and $0.4 million in
contributions, partially offset by a $1.6 million year over year decrease in personnel expense.  Personnel expense year over year was impacted by a $1.8 million increase in salaries, offset by decreases of $1.5 million in bonuses and $1.9
million in post-retirement benefits.

* Please refer to our annual report on Form 10-K for the year ended December 31, 2021 for more detailed income discussion related to the year 2020.

Balance Sheet Review

CTBI’s total assets at $5.4 billion decreased $37.9 million, or 0.7%, from December 31, 2021.  Loans outstanding at December 31, 2022 were $3.7 billion, increasing $300.5 million, or 8.8%, year over
year.  The increase in loans from prior year included a $157.9 million increase in the commercial loan portfolio (excluding PPP loans), a $116.6 million increase in the indirect loan portfolio, a $71.7 million increase in the residential loan
portfolio, and a $0.8 million increase in the consumer direct loan portfolio.  PPP loans decreased $46.5 million during the year.  Loans held for sale at $0.1 million at December 31, 2022 decreased $2.5 million over prior year.  CTBI’s investment
portfolio decreased $199.3 million, or 13.7%, from December 31, 2021.  Deposits in other banks decreased $187.8 million from December 31, 2021.  Deposits, including repurchase agreements, at $4.6 billion increased $26.2 million, or 0.6%, from
December 31, 2021.  During the year 2022, $100.2 million in deposits was referred to our trust subsidiary, Community Trust and Investment Company, allowing us to maintain the overall customer relationship for those depositors who moved funds for
additional investment opportunities.

Shareholders’ equity at December 31, 2022 of $628.0 million was a $70.2 million, or 10.0%, decrease from the $698.2 million at December 31, 2021, resulting from an increase year over year in
unrealized losses on our securities portfolio due to an increased interest rate environment.  Net unrealized losses on securities were $129.2 million at December 31, 2022, compared to $4.8 million at December 31, 2021.  Management has the ability and
intent to hold these securities to recovery or maturity.  CTBI’s annualized dividend yield to shareholders as of December 31, 2022 was 3.83%.

26

Table of Contents

Loans

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","December 31, 2022"],["Loan Category","","Balance","","","Variance from Prior Year","","","Net (Charge-Offs)/ Recoveries","","","Nonperforming","","","ACL"],["Commercial:"],["Hotel/motel","","$","343,640","","","","33.7","%","","$","(216",")","","$","0","","","$","5,171"],["Commercial real estate residential","","","372,914","","","","11.2","","","","(43",")","","","613","","","","4,894"],["Commercial real estate nonresidential","","","762,349","","","","0.6","","","","689","","","","3,063","","","","9,419"],["Dealer floorplans","","","77,533","","","","11.6","","","","0","","","","0","","","","1,776"],["Commercial other","","","311,539","","","","7.3","","","","(84",")","","","1,338","","","","5,285"],["Commercial unsecured SBA PPP","","","883","","","","(98.1",")","","","0","","","","13","","","","0"],["Total commercial","","","1,868,858","","","","6.3","","","","346","","","","5,027","","","","26,545"],["Residential:"],["Real estate mortgage","","","824,996","","","","7.5","","","","(171",")","","","8,998","","","","7,932"],["Home equity","","","120,540","","","","13.0","","","","(17",")","","","778","","","","1,106"],["Total residential","","","945,536","","","","8.2","","","","(188",")","","","9,776","","","","9,038"],["Consumer:"],["Consumer direct","","","157,504","","","","0.5","","","","(47",")","","","41","","","","1,694"],["Consumer indirect","","","737,392","","","","18.8","","","","(791",")","","","465","","","","8,704"],["Total consumer","","","894,896","","","","15.1","","","","(838",")","","","506","","","","10,398"],["Total loans","","$","3,709,290","","","","8.8","%","","$","(680",")","","$","15,309","","","$","45,981"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","December 31, 2021"],["Loan Category","","Balance","","","Variance from Prior Year","","","Net (Charge-Offs)/ Recoveries","","","Nonperforming","","","ACL"],["Commercial:"],["Hotel/motel","","$","257,062","","","","(1.4",")%","","$","0","","","$","1,075","","","$","5,080"],["Commercial real estate residential","","","335,233","","","","16.4","","","","10","","","","897","","","","3,986"],["Commercial real estate nonresidential","","","757,893","","","","2.0","","","","31","","","","4,193","","","","8,884"],["Dealer floorplans","","","69,452","","","","0.5","","","","0","","","","0","","","","1,436"],["Commercial other","","","290,478","","","","3.8","","","","(255",")","","","378","","","","4,422"],["Commercial unsecured SBA PPP","","","47,335","","","","(81.3",")","","","0","","","","0","","","","0"],["Total commercial","","","1,757,453","","","","(7.2",")","","","(214",")","","","6,543","","","","23,808"],["Residential:"],["Real estate mortgage","","","767,185","","","","(2.2",")","","","(198",")","","","8,740","","","","7,637"],["Home equity","","","106,667","","","","2.8","","","","(17",")","","","1,092","","","","866"],["Total residential","","","873,852","","","","(1.6",")","","","(215",")","","","9,832","","","","8,503"],["Consumer:"],["Consumer direct","","","156,683","","","","2.9","","","","(168",")","","","44","","","","1,951"],["Consumer indirect","","","620,825","","","","0.1","","","","717","","","","206","","","","7,494"],["Total consumer","","","777,508","","","","0.7","","","","549","","","","250","","","","9,445"],["Total loans","","$","3,408,813","","","","(4.1",")%","","$","120","","","$","16,625","","","$","41,756"]]
[[/GREPCENT_TABLE]]

27

Table of Contents

Total Deposits and Repurchase Agreements

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","2022","","","2021","","","Percent Change"],["Noninterest bearing deposits","","$","1,394,915","","","$","1,331,103","","","","4.8","%"],["Interest bearing deposits"],["Interest checking","","","112,265","","","","97,064","","","","15.7","%"],["Money market savings","","","1,348,809","","","","1,206,401","","","","11.8","%"],["Savings accounts","","","654,380","","","","632,645","","","","3.4","%"],["Time deposits","","","915,774","","","","1,077,079","","","","(15.0",")%"],["Repurchase agreements","","","215,431","","","","271,088","","","","(20.5",")%"],["Total interest bearing deposits and repurchase agreements","","","3,246,659","","","","3,284,277","","","","(1.1",")%"],["Total deposits and repurchase agreements","","$","4,641,574","","","$","4,615,380","","","","0.6","%"]]
[[/GREPCENT_TABLE]]

Average Deposits and Other Borrowed Funds

[[GREPCENT_TABLE]]
[["(in thousands)","","2022","","","2021"],["Deposits:"],["Noninterest bearing deposits","","$","1,398,778","","","$","1,276,367"],["Interest bearing deposits","","","104,631","","","","94,762"],["Money market accounts","","","1,248,067","","","","1,238,009"],["Savings accounts","","","667,367","","","","592,492"],["Certificates of deposit of $100,000 or more","","","556,849","","","","562,525"],["Certificates of deposit $100,000 and other time deposits","","","470,877","","","","494,822"],["Total deposits","","","4,446,569","","","","4,258,977"],["Other borrowed funds:"],["Repurchase agreements and federal funds purchased","","","243,102","","","","334,520"],["Advances from Federal Home Loan Bank","","","898","","","","384"],["Long-term debt","","","59,430","","","","59,274"],["Total other borrowed funds","","","303,430","","","","394,178"],["Total deposits and other borrowed funds","","$","4,749,999","","","$","4,653,155"]]
[[/GREPCENT_TABLE]]

The maximum balance for federal funds purchased and repurchase agreements at any month-end during 2022 occurred at February 28, 2022, with a month-end balance of $277.9 million.  The maximum balance
for federal funds purchased and repurchase agreements at any month-end during 2021 occurred at May 31, 2021, with a month-end balance of $373.8 million.

Asset Quality

CTBI’s total nonperforming loans, not including troubled debt restructurings, were $15.3 million, or 0.41% of total loans, at December 31, 2022 compared to $16.6 million, or 0.49% of total loans, at
December 31, 2021.  Accruing loans 90+ days past due increased $2.5 million from December 31, 2021, while nonaccrual loans decreased $3.8 million from December 31, 2021.  Accruing loans 30-89 days past due at $15.3 million was an increase of $4.4
million from December 31, 2021.  Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.  Our loan portfolio risk management processes include
weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due.  Any activity regarding a
criticized/classified loan (i.e. problem loan) must be approved by CTB’s Watch List Asset Committee (i.e. Problem Loan Committee).  CTB’s Watch List Asset Committee also meets on a quarterly basis and reviews every criticized/classified loan of
$100,000 or greater.  CTB’s Loan Portfolio Risk Management Committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio.  We also have a Loan Review Department that reviews every market within CTB
annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency, troubled debt restructuring, nonaccrual status, and adequate loan loss reserves.  The Loan Review Department has
annually reviewed on average 96% of the outstanding commercial loan portfolio for the past three years.  The average annual review percentage of the consumer and residential loan portfolio for the past three years was 85% based on the loan production
during the number of months included in the review scope.  The review scope is generally four to six months of production.  CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only
loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.

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For further information regarding nonperforming loans, see note 4 to the consolidated financial statements contained herein.

Our level of foreclosed properties at $3.7 million at December 31, 2022 was an increase of $0.2 million from the $3.5 million at December 31, 2021.  Sales of foreclosed properties for the year ended
December 31, 2022 totaled $2.0 million while new foreclosed properties totaled $2.4 million.  At December 31, 2022, the book value of properties under contracts to sell was $1.2 million; however, the closings had not occurred at year-end. 
Nonperforming assets to loans and foreclosed properties at December 31, 2022 were 0.5% compared to 0.6% at December 31, 2021.

When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current market value less expected sales costs.  Additionally, periodic updated appraisals are
obtained on unsold foreclosed properties.  When an updated appraisal reflects a fair value below the current book value, a charge is booked to current earnings to reduce the property to its new market value less expected sales costs.  Charges to
earnings in 2022 to reflect the decrease in current market values of foreclosed properties totaled $0.3 million, compared to $0.9 million for the year 2021.  Our policy for determining the frequency of periodic reviews is based upon consideration of
the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months.  Approximately 92% of our other real estate owned (“OREO”) properties and
approximately 93% of the book value of our OREO properties have appraisals dated within the past 18 months.

The appraisal aging analysis of foreclosed properties, as well as the holding period, at December 31, 2022 is shown below:

[[GREPCENT_TABLE]]
[["(dollars in thousands)"],["Appraisal Aging Analysis","","Holding Period Analysis"],["Days Since Last Appraisal","","Number of Properties","","","Current Book Value","","Holding Period","","Current Book Value"],["Up to 3 months","","","2","","","$","42","","Less than one year","","$","2,059"],["3 to 6 months","","","15","","","","1,953","","1 year","","","157"],["6 to 9 months","","","0","","","","0","","2 years","","","546"],["9 to 12 months","","","13","","","","1,245","","3 years","","","0"],["12 to 18 months","","","6","","","","191","","4 years","","","87"],["18 to 24 months","","","2","","","","109","","5 years","","","24"],["Over 24 months","","","1","","","","131","","6 years","","","0"],["Total","","","39","","","$","3,671","","7 years","","","234"],["","","","","","","","","","8 years","","","564"],["","","","","","","","","","9 years","","","0"],["","","","","","","","","","Total","","$","3,671"]]
[[/GREPCENT_TABLE]]

Regulatory approval is required and has been obtained to hold foreclosed properties beyond the initial period of 5 years.  Additionally, CTBI is required to dispose of any foreclosed property that
has not been sold within 10 years.

Net loan charge-offs were $0.7 million, 0.02% of average loans annualized, for the year ended December 31, 2022, compared to a net recovery of loan losses of $0.1 million for the year ended December
31, 2021.

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Allowance for Credit Losses

Our reserve coverage (allowance for credit losses to nonperforming loans) at December 31, 2022 was 300.4% compared to 251.2% at December 31, 2021.  Nonaccrual loans to total loans at December 31,
2022 was 0.2% compared to 0.3% at December 31, 2021.  Our allowance for credit losses to nonaccrual loans at December 31, 2022 was 674.9% compared to 391.3% at December 31, 2021.  Our credit loss reserve as a percentage of total loans outstanding at
December 31, 2022 was 1.24%, an increase from the 1.22% at December 31, 2021.

Liquidity and Market Risk

The objective of CTBI’s Asset/Liability management function is to maintain consistent growth in net interest income within our policy limits. This objective is accomplished through management of our
consolidated balance sheet composition, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates, and customer preferences. The goal of liquidity management is to provide adequate funds to meet changes in
loan and lease demand or deposit withdrawals. This is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities, sufficient unused borrowing capacity, and growth in core deposits.  As of December 31,
2022, we had approximately $128.7 million in cash and cash equivalents and approximately $309.2 million in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared
to $311.8 million and $568.9 million at December 31, 2021.  Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans.  In addition to core deposit funding, we also have a variety of other
short-term and long-term funding sources available.  We also rely on Federal Home Loan Bank advances for both liquidity and management of our asset/liability position.  Federal Home Loan Bank advances were $0.4 million at December 31, 2022 and at
December 31, 2021.  As of December 31, 2022, we had a $501.0 million available borrowing position with the Federal Home Loan Bank compared to $484.4 million at December 31, 2021.  We generally rely upon net inflows of cash from financing activities,
supplemented by net inflows of cash from operating activities, to provide cash for our investing activities.  As is typical of many financial institutions, significant financing activities include deposit gathering, use of short-term borrowing
facilities such as repurchase agreements and federal funds purchased, and issuance of long-term debt.  At December 31, 2022 and at December 31, 2021, we had $75 million in lines of credit with various correspondent banks available to meet any future
cash needs.  Our primary investing activities include purchases of securities and loan originations.  We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs.  Included in our
cash and cash equivalents at December 31, 2022 were deposits with the Federal Reserve of $72.6 million compared to $262.4 million at December 31, 2021.  Additionally, we project cash flows from our investment portfolio to generate additional
liquidity over the next 90 days.

The investment portfolio consists of investment grade short-term issues suitable for bank investments.  The majority of the investment portfolio is in U.S. government and government sponsored agency
issuances.  At December 31, 2022, available-for-sale (“AFS”) securities comprised all of the total investment portfolio, and the AFS portfolio was approximately 200% of
equity capital.  Eighty-one percent of the pledge eligible portfolio was pledged.

Contractual Commitments

Our significant contractual obligations and commitments as of December 31, 2022 include debt, lease, and purchase obligations.  As disclosed in the notes to the consolidated financial statements, we
have certain obligations and commitments to make future payments under contracts.

As of December 31, 2022, our outstanding balance on long-term debt was $57.8 million.  The interest payments on long-term debt due in one year or less is $3.9 million, and interest payments on
long-term debt due in more than one year is $31.3 million.  The interest on $57.8 million in long-term debt is calculated based on the three-month LIBOR plus 1.59% until its maturity of June 1, 2037.  The three-month LIBOR rate is projected using the
most likely rate forecast from assumptions incorporated in the interest rate risk model and is determined two business days prior to the interest payment date.  Interest on long-term debt assumes the liability will not be prepaid and interest is
calculated to maturity.  These assumptions are uncertain, and as a result, the actual payments will differ from the projection due to changes in economic conditions. Refer to note 10 to the consolidated financial statements contained herein for
additional information regarding long-term debt.

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On March 5, 2021, LIBOR’s administrator, ICE Benchmarks Administration, announced that LIBOR would no longer be provided (i) for the one-week and two-month U.S. dollar settings after December 31,
2021 and (ii) for the remaining U.S. dollar settings after June 30, 2023. The U.S. federal banking agencies issued supervisory guidance encouraging banks to stop entering into new contracts that use LIBOR as a reference rate after December 31, 2021. 
In addition, on March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law.  The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a
clearly defined replacement benchmark rate.  As directed by the LIBOR Act, on December 16, 2022, the Federal Reserve Board issued a final rule setting forth regulations to implement the LIBOR Act, including establishing benchmark replacements based
on the Secured Overnight Funding Rate for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR (the overnight and one-, three-, six-, and twelve-month tenors) and that do not have terms that provide for the use of a
clearly defined and predictable replacement benchmark rate (“fallback provisions”) following the first London banking day after June 30, 2023.  We have analyzed our financial exposure related to the discontinuation of LIBOR and consider our exposure
to be insignificant.

As of December 31, 2022, our remaining contractual commitment for operating and finance leases due in one year or less is $2.0 million and operating leases due in more than one year is $23.4
million.  Refer to note 15 to the consolidated financial statements contained herein for additional information regarding leases.

Commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.   As of December 31,
2022, the commitments due in one year or less for other commitments is $646.6 million and commitments due in more than one year is $227.7 million.  Refer to note 17 to the consolidated financial statements contained herein for additional information
regarding other commitments.

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.  As of December 31, 2022, the value of our non-cancellable unconditional
purchase obligations was $10.3 million.

These contractual obligations impact our liquidity and capital resource needs.  We believe our liquidity sources as mentioned in the liquidity discussion are adequate to meet our future cash
requirements.

Investment Maturities

[[GREPCENT_TABLE]]
[["","","Estimated Maturity at December 31, 2022"],["","","Within 1 Year","","","1-5 Years","","","5-10 Years","","","After 10 Years","","","Total Fair Value","","","Amortized Cost"],["(in thousands)","","Amount","","","Yield","","","Amount","","","Yield","","","Amount","","","Yield","","","Amount","","","Yield","","","Amount","","","Yield","","","Amount"],["U.S. Treasury, government agencies, and government sponsored agency mortgage-backed securities","","$","38,955","","","","1.41","%","","$","252,588","","","","1.24","%","","$","180,279","","","","2.62","%","","$","430,195","","","","1.93","%","","$","902,017","","","","1.85","%","","$","1,012,496"],["State and political subdivisions","","","1,705","","","","3.64","","","","11,752","","","","3.52","","","","96,764","","","","2.34","","","","154,881","","","","2.50","","","","265,102","","","","2.50","","","","326,746"],["Asset-backed securities","","","0","","","","0.00","","","","0","","","","0.00","","","","52,053","","","","6.16","","","","37,054","","","","5.34","","","","89,107","","","","5.82","","","","91,363"],["Total","","$","40,660","","","","1.51","%","","$","264,340","","","","1.34","%","","$","329,096","","","","3.10","%","","$","622,130","","","","2.28","%","","$","1,256,226","","","","2.27","%","","$","1,430,605"]]
[[/GREPCENT_TABLE]]

The calculations of the weighted average yields for each maturity category are based upon yield weighted by the respective costs of the securities.  The weighted average rates on state and political
subdivisions are computed on a taxable equivalent basis using a 24.95% tax rate.

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Table of Contents

Loan Maturities

The following table shows the amounts of loans (excluding residential mortgages of 1-4 family residences, consumer loans, and lease financing) which, based on the remaining scheduled repayments of
principal are due in the periods indicated.  Also, the amounts are classified according to sensitivity to changes in interest rates (fixed, variable).

CTB has changed the origination process on commercial and residential construction loans to be almost exclusively construction to permanent financing with only one note.  This change is resulting in
a greater number of loans showing in the after five year maturity for construction loans, even though those loans will be converted from construction loans to permanent financing by a change in the internal coding on the loans while the maturity date
remains the same.

[[GREPCENT_TABLE]]
[["","","Maturity at December 31, 2022"],["","","","","","After one"],["","","Within","","","but within","","","After"],["(in thousands)","","one year","","","five years","","","five years","","","Total"],["Commercial secured by real estate and commercial other","","$","215,139","","","$","175,242","","","$","1,324,122","","","$","1,714,503"],["Commercial and real estate construction","","","71,107","","","","19,643","","","","185,340","","","","276,090"],["","","$","286,246","","","$","194,885","","","$","1,509,462","","","$","1,990,593"],["Rate sensitivity:"],["Predetermined rate","","$","43,680","","","$","101,315","","","$","77,546","","","$","222,541"],["Adjustable rate","","","242,566","","","","93,570","","","","1,431,916","","","","1,768,052"],["","","$","286,246","","","$","194,885","","","$","1,509,462","","","$","1,990,593"]]
[[/GREPCENT_TABLE]]

Deposit Maturities

Maturities and/or repricing of time deposits of $100,000 or more outstanding at December 31, 2022 are summarized as follows:

[[GREPCENT_TABLE]]
[["(in thousands)","","Certificates of Deposit","","","Other Time Deposits","","","Total"],["Three months or less","","$","78,400","","","$","10,955","","","$","89,355"],["Over three through six months","","","68,841","","","","10,304","","","","79,145"],["Over six through twelve months","","","213,139","","","","15,841","","","","228,980"],["Over twelve through sixty months","","","111,400","","","","22,390","","","","133,790"],["Over sixty","","","154","","","","0","","","","154"],["","","$","471,934","","","$","59,490","","","$","531,424"]]
[[/GREPCENT_TABLE]]

Interest Rate Risk

We consider interest rate risk one of our most significant market risks.  Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates.  Consistency
of our net interest revenue is largely dependent upon the effective management of interest rate risk.  We employ a variety of measurement techniques to identify and manage our interest rate risk, including the use of an earnings simulation model to
analyze net interest income sensitivity to changing interest rates.  The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of
changing interest rates on the prepayment rates of certain assets and liabilities.  Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model.  These
assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income.  Actual results will differ from simulated results
due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

CTBI’s Asset/Liability Management Committee (ALCO), which includes executive and senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk
within Board-approved policy limits.  Our current exposure to interest rate risks is determined by measuring the anticipated change in net interest income spread evenly over the twelve-month period.

32

Table of Contents

The following table shows our estimated earnings sensitivity profile as of December 31, 2022:

[[GREPCENT_TABLE]]
[["Change in Interest Rates (basis points)","Percentage Change in Net Interest Income (12 Months)"],["+400","9.98%"],["+300","7.26%"],["+200","4.60%"],["+100","1.94%"],["-100","(1.95)%"],["-200","(3.92)%"],["-300","(5.96)%"],["-400","(7.91)%"]]
[[/GREPCENT_TABLE]]

The following table shows our estimated earnings sensitivity profile as of December 31, 2021:

[[GREPCENT_TABLE]]
[["Change in Interest Rates (basis points)","Percentage Change in Net Interest Income (12 Months)"],["+400","11.23%"],["+300","7.61%"],["+200","4.56%"],["+100","2.01%"],["-25","(0.66)%"]]
[[/GREPCENT_TABLE]]

The simulation model used the yield curve spread evenly over a twelve-month period.  The measurement at December 31, 2022 estimates that our net interest income in an up-rate environment would
increase by 9.98% at a 400 basis point change, increase by 7.26% at a 300 basis point change, increase by 4.60% at a 200 basis point change, and increase by 1.94% at a 100 basis point change.  In a down-rate environment, net interest income would
decrease 1.95% at a 100 basis point change, decrease by 3.92% at a 200 basis point change, decrease by 5.96% at a 300 basis point change, and decrease by 7.91% at a 400 basis point change over one year.  We actively manage our balance sheet and limit
our exposure to long-term fixed rate financial instruments, including loans.  In order to reduce the exposure to interest rate fluctuations and to manage liquidity, we have developed sale procedures for several types of interest-sensitive assets. 
Primarily all long-term, fixed rate single family residential mortgage loans underwritten according to Federal Home Loan Mortgage Corporation guidelines are sold for cash upon origination or originated under terms where they could be sold. 
Periodically, additional assets such as commercial loans are also sold.  In 2022 and 2021, proceeds of $66.0 million and $307.8 million, respectively, were realized on the sale of fixed rate residential mortgages.  We focus our efforts on consistent
net interest revenue and net interest margin growth through each of the retail and wholesale business lines.  We do not currently engage in trading activities.

The preceding analysis was prepared using a rate ramp analysis which attempts to spread changes evenly over a specified time period as opposed to a rate shock which measures the impact of an
immediate change.  Had these measurements been prepared using the rate shock method, the results would vary.

Capital Resources

We continue to grow our shareholders’ equity while also providing an annual dividend yield for the year 2022 of 3.83% to shareholders.  Shareholders’ equity decreased 10.0% from December 31, 2021 to
$628.0 million at December 31, 2022.  Our primary source of capital growth is the retention of earnings.  Cash dividends were $1.68 per share for 2022 compared to $1.57 per share for 2021.  We retained 63.4% of our earnings in 2022 compared to 68.2%
in 2021.

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Insured depository institutions are required to meet certain capital level requirements.  On October 29, 2019, federal banking regulators adopted a final rule to simplify the regulatory capital
requirements for eligible community banks and holding companies that opt-in to the community bank leverage ratio framework (the “CBLR framework”), as required by Section 201 of the Economic Growth, Relief and Consumer Protection Act of 2018.  Under
the final rule, which became effective as of January 1, 2020, community banks and holding companies (which includes CTB and CTBI) that satisfy certain qualifying criteria, including having less than $10 billion in average total consolidated assets
and a leverage ratio (referred to as the “community bank leverage ratio”) of greater than 9%, were eligible to opt-in to the CBLR framework.  The community bank leverage ratio is the ratio of a banking organization’s Tier 1 capital to its average
total consolidated assets, both as reported on the banking organization’s applicable regulatory filings.  Accordingly, a qualifying community banking organization that has a community bank leverage ratio greater than 9% will be considered to have
met: (i) the risk-based and leverage capital requirements of the generally applicable capital rules; (ii) the capital ratio requirements in order to be considered well-capitalized under the prompt corrective action framework; and (iii) any other
applicable capital or leverage requirements.

In April 2020, as directed by Section 4012 of the CARES Act, the regulatory agencies introduced temporary changes to the CBLR.  These changes, which subsequently were adopted as a final rule,
temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020.  Beginning in calendar year 2021, the CBLR requirement increased to 8.5% for the calendar year before returning to 9% in calendar year 2022.  Management elected to
use the CBLR framework for CTBI and CTB.  CTBI’s CBLR ratio as of December 31, 2022 was 13.55%.  CTB’s CBLR ratio as of December 31, 2022 was 12.98%.

As of December 31, 2022, we are not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a
material adverse impact on our liquidity, capital resources, or operations.

Impact of Inflation, Changing Prices, and Economic Conditions

The majority of our assets and liabilities are monetary in nature.  Therefore, CTBI differs greatly from most commercial and industrial companies that have significant investment in nonmonetary
assets, such as fixed assets and inventories.  However, inflation does have an important impact on the growth of assets in the banking industry and on the resulting need to increase equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio.  Inflation also affects other expenses, which tend to rise during periods of general inflation.

We believe one of the most significant impacts on financial and operating results is our ability to react to changes in interest rates.  We seek to maintain an essentially balanced position between
interest rate sensitive assets and liabilities in order to protect against the effects of wide interest rate fluctuations.

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Stock Repurchase Program

CTBI’s stock repurchase program began in December 1998 with the authorization to acquire up to 500,000 shares and was increased by an additional 1,000,000 shares in each of July 2000, May 2003, and
March 2020.  As of December 31, 2022, a total of 2,465,294 shares have been repurchased through this program, leaving 1,034,706 shares remaining under our current repurchase authorization.  The following table shows Board authorizations and
repurchases made through the stock repurchase program for the years 1998 through 2022:

[[GREPCENT_TABLE]]
[["","Board Authorizations","Repurchases*","Shares Available for Repurchase"],["Average Price ($)","# of Shares"],["1998","500,000","-","0"],["1999","0","14.45","144,669"],["2000","1,000,000","10.25","763,470"],["2001","0","13.35","489,440"],["2002","0","17.71","396,316"],["2003","1,000,000","19.62","259,235"],["2004","0","23.14","60,500"],["2005","0","-","0"],["2006","0","-","0"],["2007","0","28.56","216,150"],["2008","0","25.53","102,850"],["2009-2019","0","-","0"],["2020","1,000,000","33.64","32,664"],["2021","0","-","0"],["2022","0","-","0"],["Total","3,500,000","16.17","2,465,294","1,034,706"]]
[[/GREPCENT_TABLE]]

*Repurchased shares and average prices have been restated to reflect stock dividends that have occurred; however, board authorized shares have not been adjusted.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted.  Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31,
2022 by publicly traded U.S. corporations like CTBI.  With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

Critical Accounting Policies and Estimates

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

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

Our accounting policies are described in note 1 to the consolidated financial statements contained herein.  We have identified the following critical accounting policies:

Allowance for Credit Losses – CTBI accounts for the allowance for credit losses (“ACL”) and the reserve for unfunded
commitments in accordance with Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its related subsequent
amendments, commonly known as CECL.

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We disaggregate our portfolio loans into portfolio segments for purposes of determining the ACL.  Our loan portfolio segments include commercial, residential mortgage, and consumer.  We further
disaggregate our portfolio segments into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics.  For an analysis of CTBI’s ACL by portfolio segment and credit quality information by class, refer to note
4 to the consolidated financial statements contained herein.

CTBI maintains the ACL to absorb the amount of credit losses that are expected to be incurred over the remaining contractual terms of the related loans.  Contractual terms are adjusted for expected
prepayments but are not extended for expected extensions, renewals or modifications except in circumstances where CTBI reasonably expects to execute a troubled debt restructuring (“TDR”) with the borrower or where certain extension or renewal options
are embedded in the original contract and not unconditionally cancellable by CTBI.  Accrued interest receivable on loans is presented in the consolidated financial statements as a component of other assets.  When accrued interest is deemed to be
uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed.  In the event that collection of principal becomes uncertain, CTBI has policies in place to reverse accrued interest in a timely manner.  Therefore,
CTBI elected ASU 2019-04 which allows that accrued interest would continue to be presented separately and not part of the amortized cost of the loan.  For additional information on CTBI’s accounting policies related to nonaccrual loans, refer to note
1 to the consolidated financial statements contained herein.

Credit losses are charged and recoveries are credited to the ACL.  The ACL is maintained at a level CTBI considers to be adequate and is based on ongoing quarterly assessments and evaluations of the
collectability of loans, including historical credit loss experience, current and forecasted market and economic conditions, and consideration of various qualitative factors that, in management’s judgment, deserve consideration in estimating expected
credit losses.  Provisions for credit losses are recorded for the amounts necessary to adjust the ACL to CTBI’s current estimate of expected credit losses on portfolio loans.  CTBI’s strategy for credit risk management includes a combination of
conservative exposure limits significantly below legal lending limits and conservative underwriting, documentation, and collection standards.  The strategy also emphasizes diversification on a geographic, industry, and customer level, regular credit
examinations, and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality.

CTBI’s methodology for determining the ACL requires significant management judgment and includes an estimate of expected credit losses on a collective basis for groups of loans with similar risk
characteristics and specific allowances for loans which are individually evaluated.

Larger commercial loans with balances exceeding $1 million that exhibit probable or observed credit weaknesses, (i) have a criticized risk rating, (ii) are on nonaccrual status, (iii) are classified
as TDRs, or (iv) are 90 days or more past due, are individually evaluated for an ACL.  CTBI considers the current value of collateral, credit quality of any guarantees, the guarantor’s liquidity and willingness to cooperate, the loan structure and
other factors when determining the amount of the ACL.  Other factors may include the borrower’s susceptibility to risks presented by the forecasted macroeconomic environment, the industry and geographic region of the borrower, size and financial
condition of the borrower, cash flow and leverage of the borrower, and our evaluation of the borrower’s management.  Significant management judgment is required when evaluating which of these factors are most relevant in individual circumstances, and
when estimating the amount of expected credit losses based on those factors.  When loans are individually evaluated, allowances are determined based on management’s estimate of the borrower’s ability to repay the loan given the availability of
collateral and other sources of cash flow, as well as an evaluation of legal options available to CTBI.  Allowances for individually evaluated loans that are collateral-dependent are typically measured based on the fair value of the underlying
collateral, less expected costs to sell where applicable.  For collateral-dependent financial assets, the credit loss expected may be zero if the fair value less costs to sell exceeds the amortized cost of the loan.  Loans shall not be included in
both collective assessments and individual assessments.  Individually evaluated loans that are not collateral-dependent are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate.  Specific
allowances on individually evaluated commercial loans, including TDRs, are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.  Regardless of an initial
measurement method, once it is determined that foreclosure is probable, the ACL is measured based on the fair value of the collateral as of the measurement date.  As a practical expedient, the fair value of the collateral may be used for a loan when
determining the ACL for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty.  The fair value shall be adjusted for selling costs when
foreclosure is probable.

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Expected credit losses are estimated on a collective basis for loans that are not individually evaluated.  These include commercial loans that do not meet the criteria for individual evaluation as
well as homogeneous loans in the residential mortgage and consumer portfolio segments.  For collectively evaluated commercial loans, CTBI uses a static pool methodology based on our risk rating system.  See note 4 to the consolidated financial
statements contained herein for information on CTBI’s risk rating system.  Other homogenous loans such as the residential mortgage and consumer portfolio segments derive their ACL from vintage modeling.  Vintage modeling was chosen primarily because
these loans have fixed amortization schedules, and it allows CTBI to track loans from origination to completion, including repayments and prepayments, and captures net charge-offs by the different vintages providing historical loss rates.  These are
the two primary models utilized for ACL determination although there are additional models for specific processes in addition.  CTBI’s expected credit loss models were developed based on historical credit loss experience and observations of migration
patterns for various credit risk characteristics (such as internal credit risk grades, external credit ratings or scores, delinquency status, etc.) over time, with those observations evaluated in the context of concurrent macroeconomic conditions. 
CTBI developed our models from historical observations capturing a full economic cycle when possible.

CTBI’s expected credit loss models consider historical credit loss experience, current market and economic conditions, and forecasted changes in market and economic conditions if such forecasts are
considered reasonable and supportable.  Generally, CTBI considers our forecasts to be reasonable and supportable for a period of up to one year from the estimation date.  For periods beyond the reasonable and supportable forecast period, expected
credit losses are estimated by reverting to historical loss information.  CTBI evaluates the length of our reasonable and supportable forecast period, our reversion period, and reversion methodology at least annually, or more often if warranted by
economic conditions or other circumstances.

Other qualitative factors are used by CTBI in determining the ACL. These considerations inherently require significant management judgment to determine the appropriate factors to be considered and
the extent of their impact on the ACL estimate.  Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within CTBI’s expected credit loss models.  These include
adjustments for changes in policies or procedures in underwriting, monitoring or collections, lending and risk management personnel, and results of internal audit and quality control reviews.  These may also include adjustments, when deemed
necessary, for specific idiosyncratic risks such as geopolitical events, natural disasters and their effects on regional borrowers, and changes in product structures.  Qualitative factors may also be used to address the impacts of unforeseen events
on key inputs and assumptions within CTBI’s expected credit loss models, such as the reasonable and supportable forecast period, changes to historical loss information, or changes to the reversion period or methodology.  When evaluating the adequacy
of allowances, consideration is also given to regional geographic concentrations and the closely associated effect that changing economic conditions may have on CTBI’s customers.

Overall, the collective evaluation process requires significant management judgment when determining the estimation methodology and inputs into the models, as well as in evaluating the reasonableness
of the modeled results and the appropriateness of qualitative adjustments.  CTBI’s forecasts of market and economic conditions and the internal risk grades assigned to loans in the commercial portfolio segment are examples of inputs to the expected
credit loss models that require significant management judgment.  These inputs have the potential to drive significant variability in the resulting ACL.

The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities and is included
in other liabilities in the consolidated balance sheets.  The determination of the adequacy of the reserve is based upon expected credit losses over the remaining contractual life of the commitments, taking into consideration the current funded
balance and estimated exposure over the reasonable and supportable forecast period.  This process takes into consideration the same risk elements that are analyzed in the determination of the adequacy of CTBI’s ACL, as previously discussed.  Net
adjustments to the reserve for unfunded commitments are included in other noninterest expense in the consolidated statements of income.

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Goodwill – Business combinations entered into by CTBI typically include the recognition of goodwill.  U.S. generally
accepted accounting principles (“GAAP”) require goodwill to be tested for impairment on an annual basis, which for CTBI is October 1, and more frequently if events or circumstances indicate that there may be
impairment.  Refer to note 1 to the consolidated financial statements contained herein for a discussion on the methodology used by CTBI to assess goodwill for impairment.

Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value.  In testing goodwill for impairment, U.S. GAAP permits companies to first
assess qualitative factors to determine whether it is more likely than not that its fair value is less than its carrying amount.  In this qualitative assessment, CTBI evaluates events and circumstances which may include, but are not limited to, the
general economic environment, banking industry and market conditions, the overall financial performance of CTBI, and the performance of CTBI’s common stock, to determine if it is not more likely than not that the fair value is less than its
carrying amount.  If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, CTBI performs the goodwill impairment test by comparing its fair value with its carrying amount, including goodwill. 
If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill recorded.  A recognized impairment loss cannot be reversed in future periods even if the fair
value of the reporting unit subsequently recovers.

The fair value of CTBI is the price that would be received to sell the company as a whole in an orderly transaction between market participants at the measurement date.  The
determination of the fair value is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium.  CTBI employs an income-based approach,
utilizing forecasted cash flows and the estimated cost of equity as the discount rate.  Significant management judgment is necessary in the preparation of the forecasted cash flows surrounding expectations for earnings projections, growth and
credit loss expectations, and actual results may differ from forecasted results.

Income Taxes – Income tax liabilities or assets are established for the amount of taxes payable or refundable for the
current year.  Deferred tax liabilities (“DTLs”) and assets (“DTAs”) are also established for the future tax consequences of events that have been recognized in CTBI’s financial statements or tax returns.  A DTL or DTA is recognized for the
estimated future tax effects attributable to temporary differences and deductions that can be carried forward (used) in future years.  The valuation of current and deferred income tax liabilities and assets is considered critical, as it requires
management to make estimates based on provisions of the enacted tax laws.  The assessment of tax liabilities and assets involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and
federal and state tax codes.

Fair Value Measurements – As a financial services company, the carrying value of certain financial assets and liabilities is impacted by the
application of fair value measurements, either directly or indirectly.  In certain cases, an asset or liability is measured and reported at fair value on a recurring basis, such as available-for-sale investment securities.  In other cases, management
must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment write-down or whether a valuation reserve should be established.  Given the inherent volatility, the use of fair value
measurements may have a significant impact on the carrying value of assets or liabilities or result in material changes to the consolidated financial statements from period to period.  Detailed information regarding fair value measurements can be
found in note 16 to the consolidated financial statements contained herein.