# EDGAR Filing Document

**Accession Number:** 0000350852
**File Stem:** 0000350852-23-000048
**Filing Date:** 2023-3
**Character Count:** 308117
**Document Hash:** fd9464423f97535652ee6c65e57bed8b
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000350852-23-000048.hdr.sgml**: 20230331

**ACCESSION NUMBER**: 0000350852-23-000048

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230331

**DATE AS OF CHANGE**: 20230331

**EFFECTIVENESS DATE**: 20230331

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** COMMUNITY TRUST BANCORP INC /KY/
- **CENTRAL INDEX KEY:** 0000350852
- **STANDARD INDUSTRIAL CLASSIFICATION:** STATE COMMERCIAL BANKS [6022]
- **IRS NUMBER:** 610979818
- **STATE OF INCORPORATION:** KY
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-31220
- **FILM NUMBER:** 23786118

**BUSINESS ADDRESS:**
- **STREET 1:** 346 NORTH MAYO TRAIL
- **STREET 2:** P.O. BOX 2947
- **CITY:** PIKEVILLE
- **STATE:** KY
- **ZIP:** 41502-2947
- **BUSINESS PHONE:** (606)433-4643

**MAIL ADDRESS:**
- **STREET 1:** 346 NORTH MAYO TRAIL
- **STREET 2:** P.O. BOX 2947
- **CITY:** PIKEVILLE
- **STATE:** KY
- **ZIP:** 41502-2947

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** COMMUNITY TRUST BANCORP INC/
- **DATE OF NAME CHANGE:** 19971124

### Attached PDF Documents

**Attachment 1:** `ctbi2022annualreport.pdf`

# 2022
ANNUAL REPORT

![img-0.jpeg](img-0.jpeg)

Community Trust®
Bancorp, Inc.

# YOUR COMPANY

## 2022 Annual Report

**“We are committed to increasing shareholder value by operating our community banking model with the core values of fairness, respect, and integrity.”**

-Mission Statement

### 2022: A Year of Resilience and Growth

Your Company continues to operate with a conservative, efficient model of traditional community banking which has been the foundation of service to our customers for more than 119 years and has driven our strong history of earnings.

The challenging economic conditions of 2022, which included high inflation and rising interest rates, remain. Our community banking business model, organizational structure, and conservative operating philosophy give us the tools to successfully navigate in a difficult economic environment.

During the year, we also faced record flooding in parts of our market area which caused significant loss of life and property damage. Six of our branch offices were impacted, of which one was destroyed. All these offices have now been reopened. We, nevertheless, continued our growth and opened two new full-service branch offices, one of which was a branch consolidation, in our fastest growing region.

The directors and management of Community Trust Bancorp, Inc. remain committed to meeting the challenges that the economy presents, while remaining focused on our core community banking business model and increasing shareholder value.

### Net Income

![img-1.jpeg](img-1.jpeg)

1

# TO OUR SHAREHOLDERS

2022 Annual Report

> “We continue to operate as a large community bank financial services company across our service area and will look to remain competitive in a very fierce rate environment”

![img-2.jpeg](img-2.jpeg)

## Dear Shareholders

We are pleased to report strong earnings and overall performance for your Company during 2022. The Board of Directors, management team, and all employees across our service area in Kentucky, Tennessee, and West Virginia worked together to provide solid financial results during turbulent economic and other unusual conditions. Our net income of $81.8 million for the year 2022 represented $4.59 basic earnings per share, return on average assets of 1.50%, and return on average equity of 12.73%. We maintained solid expense control represented by our efficiency ratio of 53.12% and maintained solid asset quality numbers with nonperforming assets at 0.35% and net losses of only 0.02% with strong loan growth of $300.5 million, or 8.8%. Deposits, including repurchase agreements, grew $26.2 million, or 0.6%, during 2022. Our net interest margin for the year ended December 31, 2022 was 3.32%. We paid out dividends in the amount of $1.68 per share for the year 2022, representing a yield of 3.83% at year end 2022. In July 2022, our Board of Directors increased our dividend payout by 10%. This represents 42 years of consecutive increases. Shareholders' equity of $628.0 million is still very strong, despite a decline of $70.2 million from one year ago, due primarily to unrealized losses in our securities portfolio.

![img-3.jpeg](img-3.jpeg)

Mark A. Gooch
Vice Chairman, President, and CEO

We were able to accomplish these numbers in spite of interest rate increases by The Federal Reserve Board of Governors of 4.25% percent during 2022, continued uncertainty and slowdown in our overall economy, and significant flooding during the summer of 2022. This flooding affected many of our employees and branches. Our Board of Directors and employees all worked to assist our affected employees from the devastating flooding by contributing financially to a charitable foundation established by our Bank which enabled our employees to get back into their homes more timely. In addition, many of our employees volunteered to assist flood ravaged areas throughout Eastern Kentucky, helping co-workers, customers, and businesses recover from the extensive damage that occurred. During 2022, we were also able to open a new branch office in Georgetown, Kentucky and consolidate two existing offices into a new location in Versailles, Kentucky.

We continue to operate as a large community bank financial services company across our service area and will look to remain competitive in a very fierce rate environment, as we seek to maintain and grow our loan and deposit base in a prudent manner while growing our noninterest income via traditional bank noninterest income products and also by increasing the revenue from our trust and brokerage area. We will work to grow organically but also look for strategic branching and acquisition opportunities.

We appreciate your confidence in our Company as Shareholders and encourage you to continue to refer your friends, neighbors and business associates to our Bank and Trust entities. We will do our very best to provide all their financial needs!

We look forward to seeing you in person at our Annual Shareholders' Meeting at our Corporate Headquarters, 346 North Mayo Trail, Pikeville, KY, at 10 a.m. on April 25, 2023!

A handwritten signature in black ink, appearing to read 'Mark A. Gooch'.

Mark A. Gooch
Vice Chairman, President, and CEO

3

# FINANCIAL HIGHLIGHTS

## For the Year

(in thousands except per share amounts)

|  | 2022 | 2021 | Percentage Change |
| --- | --- | --- | --- |
| Net income | $81,814 | $87,939 | (7.0)% |
| Basic earnings per share | 4.59 | 4.94 | (7.1) |
| Diluted earnings per share | 4.58 | 4.94 | (7.3) |
| Cash dividends per share | 1.68 | 1.57 | 7.0 |
| Average shares outstanding | 17,836 | 17,786 | 0.3% |

## At Year End

(in thousands except per share amounts and employees)

|  | 2022 | 2021 | Percentage Change |
| --- | --- | --- | --- |
| Total assets | $5,380,316 | $5,418,257 | (0.7)% |
| Earning assets | 5,058,829 | 5,149,440 | (1.8) |
| Deposits, incl. repurchase agreements | 4,641,574 | 4,615,380 | 0.6 |
| Loans | 3,709,290 | 3,408,813 | 8.8 |
| Allowance for credit losses | 45,981 | 41,756 | 10.1 |
| Shareholders' equity | 628,047 | 698,202 | (10.0) |
| Book value per share | 35.05 | 39.13 | (10.4) |
| Market price per common share | 45.93 | 43.61 | 5.3 |
| Common shares outstanding | 17,918 | 17,843 | 0.4% |
| Full time equivalent employees | 985 | 974 | 1.1 |

## Significant Ratios

### For the year

|  | 2022 | 2021 | Percentage Change |
| --- | --- | --- | --- |
| Return on average assets | 1.50% | 1.63% | (8.0)% |
| Return on average common equity | 12.73 | 12.88 | (1.2) |
| Net interest margin | 3.32 | 3.21 | 3.4 |
| Net charge-offs to average loans | 0.02 | 0.00 | 0.0 |
| Efficiency ratio | 53.12 | 53.11 | 0.0 |

### At year end

#### Capital ratios:

| Equity to assets | 11.67% | 12.89% | (9.5)% |
| --- | --- | --- | --- |
| CBLR | 13.55 | 13.00 | 4.2 |
| Allowance to net loans | 1.24 | 1.22 | 1.6 |
| Allowance to nonperforming loans | 300.36 | 251.16 | 19.6 |

4

### Earnings Per Share

![img-4.jpeg](img-4.jpeg)

### Dividends Per Share

![img-5.jpeg](img-5.jpeg)

### Noninterest Income *(in thousands)*

![img-6.jpeg](img-6.jpeg)

### Efficiency Ratio

![img-7.jpeg](img-7.jpeg)

5

# FINANCIAL HIGHLIGHTS

## Consolidated Statements of Income

Year Ended December 31

(in thousands except per share data)

|  | 2022 | 2021 | Percentage Change |
| --- | --- | --- | --- |
| Interest income | $197,742 | $178,169 | 11.0% |
| Interest expense | 28,640 | 15,090 | 89.8 |
| Net interest income | 169,102 | 163,079 | 3.7 |
| Provision for credit losses (recovery) | 4,905 | (6,386) | (176.8) |
| Noninterest income | 57,916 | 60,463 | (4.2) |
| Noninterest expense | 121,071 | 119,285 | 1.5 |
| Income before income taxes | 101,042 | 110,643 | (8.7) |
| Income tax expense | 19,228 | 22,704 | (15.3) |
| Net Income | $81,814 | $87,939 | (7.0) |
| Cash dividends per share | $1.68 | $1.57 | 7.0% |
| Book value per share | 35.05 | 39.13 | (10.4) |
| Average shares outstanding | 17,836 | 17,786 | 0.3% |

## Consolidated Balance Sheets

At December 31

| (in thousands) | 2022 | 2021 | Percentage Change |
| --- | --- | --- | --- |
| Assets |  |  |  |
| Cash and deposits in other banks | $128,931 | $312,001 | (58.7)% |
| Securities | 1,258,392 | 1,457,682 | (13.7) |
| Loans, net of allowance | 3,663,309 | 3,367,057 | 8.8 |
| Other assets | 329,684 | 281,517 | 17.1 |
| Total Assets | $5,380,316 | $5,418,257 | (0.7) |
| Liabilities and Shareholders' Equity |  |  |  |
| Deposits | $4,426,143 | $4,344,292 | 1.9% |
| Repurchase agreements | 215,431 | 271,088 | (20.5) |
| Federal funds purchased | 500 | 500 | 0.0 |
| Advances from Federal Home Loan Bank | 355 | 375 | (5.3) |
| Long-term debt | 57,841 | 57,841 | 0.0 |
| Other liabilities | 51,999 | 45,959 | 13.1 |
| Total Liabilities | 4,752,269 | 4,720,055 | 0.7 |
| Shareholders' Equity | 628,047 | 698,202 | (10.0) |
| Total Liabilities and Shareholders' Equity | $5,380,316 | $5,418,257 | (0.7) |

6

# **Total Assets** *(in thousands)*

![img-8.jpeg](img-8.jpeg)

# **Shareholders' Equity** *(in thousands)*

![img-9.jpeg](img-9.jpeg)

# **Total Loans** *(in thousands)*

![img-10.jpeg](img-10.jpeg)

# **Nonperforming Assets to Total Assets**

![img-11.jpeg](img-11.jpeg)

7

# SHAREHOLDERS

2022 Annual Report

As a performance-driven team, our directors, officers, and staff focus on providing a stable and competitive return for our investors. Our history of sharing our success with our shareholders continued during 2022, as we increased the cash dividend to our shareholders for the 42nd consecutive year.

Our Company is focused on maintaining the highest level of operating performance necessary to create shareholder value.

CTBI must maintain certain minimum capital ratios for capital adequacy purposes. In 2020, CTBI elected to opt-in to the community bank leverage ratio (CBLR) framework, which simplifies the regulatory capital requirements for eligible bank holding companies. For 2022, CTBI was required to maintain a minimum CBLR ratio of 9.00%. At December 31, 2022, our CBLR ratio was 13.55%. Our tangible common equity/tangible assets ratio on December 31, 2022 remained strong at 10.58%.

Our annualized dividend yield to shareholders as of December 31, 2022 was 3.83%, and the five-year compound growth rate of cash dividends per share was 5.3%. The five-year compound growth rate of earnings per share was 9.4% at December 31, 2022, as Community Trust achieved earnings of $81.8 million. In 2021, earnings were $87.9 million.

Shareholders' equity at $628.0 million at December 31, 2022 declined $70.2 million, or 10.0%, from December 31, 2021, as a result of an increase year-over-year in unrealized losses on our securities portfolio due to an increased interest rate environment. In 2022, our stock experienced a 5.3% increase in market price.

Our stock is traded on the prestigious NASDAQ Global Select Market (a founding stock selection) and is also one of 50 founding stocks of the NASDAQ's Dividend Achievers Index. An investment in CTBI stock on December 31, 2012 would have provided an annualized total return of 7.2% as of December 31, 2022.

Our employees are committed to the mission of your Company by also making it their company, as is evidenced by their ownership of the Company's stock. Through their 401(k) and ESOP plans, our employees collectively own 1.1 million shares, or 6.0%, of Community Trust Bancorp, Inc. stock. This ownership, along with their individually owned shares, makes our employees our largest shareholder.

Book Value Per Share

![img-12.jpeg](img-12.jpeg)

9

# CUSTOMERS

2022 Annual Report

“Since 1903,  
we have  
worked hard  
to meet the  
financial  
product and  
service needs  
of our  
customers”

We are proud to have served our customers for more than 119 years, and we want to thank each and every one of them for allowing Community Trust Bancorp, Inc. to be their financial services provider! In 2022, Community Trust served more than 280,000 customers.

Community Trust Bank, Inc. was honored for the 14th consecutive year in 2022 with the “Gold Lender Award” from the United States Small Business Administration (SBA) as Kentucky’s volume SBA 7a Community Bank lender. Since 2020, we have worked with more than 5,000 businesses, employing more than 50,000 employees, in obtaining Paycheck Protection Program loans. With our assistance, more than 99.9% of these loans have already received SBA forgiveness.

Community Trust participates in several programs through the Federal Home Loan Bank of Cincinnati, Ohio to fund affordable housing projects in partnership with organizations like Habitat for Humanity and HOMES, Inc. of Letcher County, Kentucky. We also make grant funds available directly to low and moderate income families through their “Welcome Home” program.

Outstanding customer service is our goal. We are committed to bringing new and innovative technological advances to our customers. Our enhanced “Mortgage Center” offers our customers convenient mortgage tools to help guide customers through the process of choosing and getting a loan using an online application. Users may apply for a loan, use the checklist to find out what information they will need when applying, use the “mortgage glossary” to lookup terms, and have access to calculators to determine their estimated payments. In 2022, we introduced the “Meridian Link Portal” on our website which allows customers to apply for consumer and vehicle loans online.

In 2022, we introduced the Advantage Checking and Advantage Checking Plus Interest deposit products. The product features include an identity theft monitoring and resolution service, $10,000 in accidental death and dismemberment insurance, cellular telephone insurance, roadside assistance, travel and leisure discounts, and shopping rewards. The products are designed to give our customers more savings, convenience, and security in a checking account. Customers can also access these products through a dedicated app. In addition, “Spending Insights” was added as a feature of Consumer Electronic Banking. Spending Insights is a wellness suite that provides personalized financial insights and advice that drives customer engagement and promotes financial wellness. In 2022, we initiated a change that allows ACH origination companies to originate same-day ACH files up to $1.0 million dollars, an increase from the previous limit of $100,000. Also, Autobooks was added to Business eBanking which allows these customers to create and send digital invoices and accept payments directly within Business eBanking.

Our deposit related products and services include certificates of deposits, savings accounts, online banking and online bill payment (at www.ctbi.com), mobile banking, business and consumer remote deposit capture, and commercial cash management services. In 2022, Community Trust offered customers a new 13-week term certificate of deposit and a new 17-week term certificate of deposit.

We offer our customers convenient access to their accounts through our network of 85 ATMs. The total number of ATMs to which our customers have free access is more than 100. Please visit our website at https://www.ctbi.com for a complete listing of our ATM locations.

Our trust and wealth management professionals are dedicated to helping individuals and businesses identify the right products and services to meet their unique needs. We offer customers a full line of wealth and trust management, estate planning, and retirement planning services, in addition to full service brokerage and life insurance products.

Since 1903, we have worked hard to meet the financial product and service needs of our customers - individuals, businesses, and organizations - by helping them achieve their financial goals. We are pleased to serve our customers with our extensive, convenient electronic banking services, as well as through our 79 banking offices and five trust offices in Kentucky, West Virginia, and Tennessee.

11

# EMPLOYEES

2022 Annual Report

![img-0.jpeg](img-0.jpeg)

Our employees are Community Trust's most valuable asset.

Many of our employees were significantly impacted by the severe flooding of July 2022 in eastern Kentucky. The overwhelming amounts of rain and resultant flooding led to 44 deaths and widespread catastrophic damage. Entire homes and parts of some communities were swept away by flood waters, leading to costly damage to infrastructure in the region. Over 600 helicopter rescues and countless swift water rescues by boat were needed to evacuate people who were trapped by the quickly rising flood waters.

Community Trust and its employees responded to this disaster by providing cash, replacement clothing, and furniture and by volunteering time to help flood victims clean their homes. Community Trust provided paid time off to our employees willing to spend that time helping those impacted. Teams of employees worked directly in the affected communities helping with the cleanup. Community Trust also established a foundation to help its directors, officers, employees, and the public make donations to help the affected families. Community Trust had 20 families that were directly affected; six of these families lost their homes. Through the newly formed foundation, these families were provided direct assistance allowing them to get back into their homes more quickly.

The success of our employees means success for Community Trust. We recognize the long-term value of a highly skilled, dedicated workforce, with an average tenure of over 10 years, and are committed to providing our employees with opportunities for personal and professional growth, whether it is by providing reimbursement of educational expenses, encouraging attendance at seminars and in-house training programs, or sponsoring memberships in local civic organizations. Our employees recognize the long-term benefit of working with our organization as evidenced by the 20% of our employees who have more than 20 years of service.

Our employees participated in numerous coaching, training, and education programs throughout the year. Additionally, Community Trust makes online training available to employees. As a result, over 1,100 employees completed 85 different compliance and technical skill training courses through our Regulatory University system during 2022. Even with the limitations on training during the pandemic, the Training Department was able to convert all of the existing classroom courses into remote classes using e-learning and webinar formats so that our employees would still be able to access skill training. These remote training opportunities are allowing employees to be trained without having to travel, thus saving time and money. Some employees worked on their skill development through post-secondary education courses, which were funded through our Educational Assistance Program.

Community Trust offers its employees competitive compensation, as well as a highly competitive benefits package of health, life, retirement benefits, education reimbursement programs, and incentive plans. Community Trust is proud to have paid in excess of $21.8 million in support of these programs in 2022.

We actively support our employees with a wellness program. Since beginning the program in 2004, participating employees have experienced improvements in preventing cardiovascular disease, cancer, and diabetes. Many of our employees have experienced decreases in elevated medical risk factors, including alcohol consumption, tobacco usage, physical inactivity, high stress, high cholesterol, and high blood pressure.

We recognize the hard work and dedication of our employees. Participants can earn cash bonuses and win awards for top achievement. In February 2023, we announced the winners of our 24th annual 'Pinnacle of Success' awards and recognized 68 employees for their outstanding performance in business development and service during the prior year. We have included the names of those employees, as well as the department, offices, markets, and regions recognized, following the 'Branch Locations' listing on page 20.

13

# COMMUNITIES

2022 Annual Report

“Community Trust continues to help our communities in hometowns across Kentucky, West Virginia, and Tennessee grow and prosper”

Our continuing support of our communities, both financially and through the volunteer service of our employees, has helped build great places to live for both our customers and our fellow employees. During 2022, we donated more than $1.5 million to community organizations involved in a wide variety of civic activities, including economic development, affordable housing, job creation, education, cultural enrichment, medical research, and health care.

We have helped our friends and neighbors fulfill their financial dreams for more than 119 years. In doing so, we have helped to build better communities. The progress and improvements upon which we focus are in the areas of jobs and the economy, education and health care, and overall quality of life.

Our employees contributed over 1,400 community service hours to organizations having a community development purpose per Community Reinvestment Act (CRA) guidelines. We also made over $196,000 in donations with a community development purpose per CRA guidelines to local organizations, in addition to other investments totaling almost $32 million that funded various community development projects. We funded $24.7 million in loans for community development projects in our CRA assessment area, as well as another $7.0 million to areas outside but near our assessment area.

Community Trust employees provide leadership, monetary support, and countless volunteer hours to many exceptional local community organizations in all of the communities we serve. Our employees are active in a wide variety of community organizations, including volunteering thousands of hours each year.

Community Trust actively participates in a vast and wide variety of organizations, including providing leadership by participating in their boards of directors and attending meetings, conferences, and workshops. In 2022, Community Trust continued to actively support SOAR (Shaping Our Appalachian Region), One East Kentucky, Ashland Alliance, and numerous local chambers of commerce to expand job opportunities; enhance the economy of the region; encourage innovation, entrepreneurship, geographic cooperation, and a diversified workforce; improve the quality of life of our citizens; and support all those working to achieve these goals.

Community Trust continues to help our communities in hometowns across Kentucky, West Virginia, and Tennessee grow and prosper.

### CTBI Community Financial Support

![img-1.jpeg](img-1.jpeg)

15

# EXECUTIVE COMMITTEE

## 2022 Annual Report

![img-2.jpeg](img-2.jpeg)

**MARK A. GOOCH**
Vice Chairman, President
and CEO
Community Trust Bancorp, Inc.
Chairman and CEO
Community Trust Bank, Inc.
Chairman
Community Trust and
Investment Company

![img-3.jpeg](img-3.jpeg)

**RICHARD W. NEWSOM**
Executive Vice President
Community Trust Bancorp, Inc.
Director and President
Community Trust Bank, Inc.

![img-4.jpeg](img-4.jpeg)

**ANDY WATERS**
Executive Vice President
Community Trust Bancorp, Inc.
Director, President and CEO
Community Trust and Investment
Company

![img-5.jpeg](img-5.jpeg)

**+ BILLIE J. DOLLINS**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice President/
Central Kentucky Region President
Community Trust Bank, Inc.

![img-6.jpeg](img-6.jpeg)

**JAMES B. DRAUGHN**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice
President/Operations
Community Trust Bank, Inc.

![img-7.jpeg](img-7.jpeg)

**JAMES J. GARTNER**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice President/
Chief Credit Officer
Community Trust Bank, Inc.

![img-8.jpeg](img-8.jpeg)

**C. WAYNE HANCOCK II**
Executive Vice President
and Secretary
Community Trust Bancorp, Inc.
Executive Vice President/
Senior Staff Attorney
Community Trust Bank, Inc.

![img-9.jpeg](img-9.jpeg)

**+ STEVEN E. JAMESON**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice President/Chief
Internal Audit & Risk Officer
Community Trust Bank, Inc.

![img-10.jpeg](img-10.jpeg)

**ANDREW JONES**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice President/
Northeastern Region President
Community Trust Bank, Inc.

![img-11.jpeg](img-11.jpeg)

**++ LARRY W. JONES**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice President/
Central Kentucky Region President
Community Trust Bank, Inc.

![img-12.jpeg](img-12.jpeg)

**RICKY D. SPARKMAN**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice President/South
Central Region President
Community Trust Bank, Inc.

![img-13.jpeg](img-13.jpeg)

**KEVIN J. STUMBO**
Executive Vice President, CFO
and Treasurer
Community Trust Bancorp, Inc.
Executive Vice President/CFO
Community Trust Bank, Inc.
Vice President
Community Trust and
Investment Company

![img-14.jpeg](img-14.jpeg)

**DAVID I. TACKETT**
Executive Vice President
Community Trust Bancorp, Inc.
Executive Vice President/
Eastern Region President
Community Trust Bank, Inc.

* Non-voting Member
+ Effective 01-03-2023
++ Retired 12-30-2022

16

# BOARDS OF DIRECTORS

## 2022 Annual Report

![img-15.jpeg](img-15.jpeg)

* M. LYNN PARRISH
Chairman of the Board
Community Trust Bancorp, Inc.
President
Marwood Land Company, Inc.
Pikeville, Kentucky

![img-16.jpeg](img-16.jpeg)

** MARK A. GOOCH
*** Vice Chairman, President
and CEO
Community Trust Bancorp, Inc.
Chairman and CEO
Community Trust Bank, Inc.
Chairman
Community Trust and
Investment Company

![img-17.jpeg](img-17.jpeg)

** RICHARD W. NEWSOM
Executive Vice President
Community Trust Bancorp, Inc.
Director and President
Community Trust Bank, Inc.

![img-18.jpeg](img-18.jpeg)

*** ANDY WATERS
Executive Vice President
Community Trust Bancorp, Inc.
Director, President and CEO
Community Trust and Investment
Company

![img-19.jpeg](img-19.jpeg)

** CHARLES J. BAIRD
President
Baird & Baird, P.S.C.
Pikeville, Kentucky

![img-20.jpeg](img-20.jpeg)

** FRANKLIN H. FARRIS, JR.
*** Owner
Farris Advisory Services, LLC
Louisville, Kentucky

![img-21.jpeg](img-21.jpeg)

*** E.B. LOWMAN II
Chairman and CEO
Cardinal Management Ltd.
Ashland, Kentucky

![img-22.jpeg](img-22.jpeg)

** EUGENIA CRITTENDEN
"CRIT" LUALLEN
Former Lt. Governor
Commonwealth of Kentucky
Frankfort, Kentucky

![img-23.jpeg](img-23.jpeg)

** INA MICHELLE MATTHEWS
President
Childers Oil/Double Kwik
Whitesburg, Kentucky

![img-24.jpeg](img-24.jpeg)

** JAMES E. MCGHEE II
President
Three JC Investments, LLC
Pikeville, Kentucky

![img-25.jpeg](img-25.jpeg)

* FRANKY MINNIFIELD
President
Minnifield Enterprise, Inc.
Lexington, Kentucky

![img-26.jpeg](img-26.jpeg)

* ANTHONY W. ST. CHARLES
President and CEO
The St. Charles Group, LLC
Cincinnati, Ohio

![img-27.jpeg](img-27.jpeg)

** CHAD C. STREET
DMD, MD
Owner and President
East Kentucky Oral &
Maxillofacial Surgery
Pikeville, Kentucky

### Boards of Directors

* Community Trust Bancorp, Inc.
** Community Trust Bank, Inc.
*** Community Trust and Investment Company

17

# ADVISORY BOARD MEMBERS

## 2022 Annual Report

### Central Region

~ Billie J. Dollins
Regional President

^ Larry W. Jones

### Lexington

~ Billie J. Dollins
Regional President

^ Larry W. Jones

James C. Baughman, Jr.
Robert A. Branham
C. Glen Combs
Anne Gay Donworth
Jenny Dulworth-Albert
Andrew Jarvis (Effective 1-01-2023)
James Keeton III
Robert Kelly
James H. Schrader
Daryl Smith

### Danville/Harrodsburg

David Maynard
Market President

Bob Allen
Scott Burks
Bob Davis
Bruce Harper
Alvis Johnson
Myrna Miller
Larry Scott, M.D.
Walter "Skip" Stocker

### Mt. Sterling

Jody Oney
Market President

Byron Amburgey
Marcus Shane Back
Jeff Brother
Reid Evans
Brigitte Danielle King, M.D.
Angela Patrick
James R. Staton
Gail Wright

### Richmond

Tim Houck
Market President

Jeannette Crockett
Alison Emmons
David Fernandez
James H. Howard
Elizabeth McCarty
Randall Stone

### Versailles

Jeffrey Koonce
Market President
Effective 1-01-2023

Robert Cleveland
John Cook
Jack Givens
Phil Huddleston
Alice Kiviniemi
William Klier
Rodney Mitchell
Billy Van Pelt
Mark Wainwright, M.D.

### Winchester

David Wills
Market President

Thomas R. Goebel
Carl E. Jennings
Robert M. Powe, Jr.
David W. Underhill
Gardner D. Wagers

### Eastern Region

David I. Tackett
Regional President

### Pikeville*

William Brett Keene
Market President

### Floyd/Knott/Johnson*

John "JR" Caldwell
Market President

### Hazard

Charlene Miller
Market President

William Bettinazzi
Frances Feltner
Meriwether W. Hall
Charles Housley
Syamala H. K. Reddy, M.D.
Jeff Sandlin
Tim Short
Alan Dale Williams

### Tug Valley

Duanne Thompson
Market President

James H. Caines
Harold Davis
Timothy A. Hatfield
Philip Haywood
John Mark Hubbard
Joshua Leonard, D.M.D.
Paul E. Pinson

### Whitesburg

~ ~ Daryl Stone
Market President

^ ^ Reed Caudill

L.M. Mike Caudill
Gwendolyn Christon
Sandra Hogg
Sam W. Quillen, Jr., D.M.D.
Pauline C. Ritter-Combs

### Northeastern Region

Andrew Jones
Regional President

### Ashland

Andrew Jones
Regional President

E. B. Lowman II
E. B. Lowman III
John McMeans
Ann Perkins
James C. Williams

### Advantage Valley

Allen Burner
Market President

Carl Midkiff
Christopher J. Plybon
Julian Saad

### Flemingsburg

Emery O. Clark III
Market President

Michael A. Boyd, M.D.
Steve Humphries
Duane Lowe
T. Scott Perkins, D.M.D.
Regina Rose
Frank Vice, D.V.M.

### Summersville

Jeff Lilly
Market President

Paul Buechler
Ellis S. Frame III
David Michael Hughes
Marshall Robinson

### South Central Region

Ricky Sparkman
Regional President

### Campbellsville

Ricky Sparkman
Regional President

Barry Bertram
Eddie Hazelwood
Jerry Russell
John Waldrop

### LaFollette

Rhonda Longmire
Market President

James C. Farris, M.D.
Marvin Minton
Peggy Payne
Thomas Robards
Robert L. Woodson III

### Middlesboro

Rebecca Hensley
Market President

Roger Ball
Marcum Brogan
Meredith J. Evans, M.D.
Keith A. Nagle

### Mt. Vernon

Betty Frederick
Market President

Martha Cox
Connie Hunt
Gary W. Mink
Tommy H. Mink

### Williamsburg

Jamie Harrison
Market President

E. L. Ballou, D.M.D.
Ray F. Bryant
Joseph E. Early, Sr.
Dallas B. Steely
Mark S. Stephens
+ Lonnie D. Walden

* These markets are served by the Community Trust Bank, Inc. Board of Directors.

+ Deceased 6/15/2022

^ Retired 12-30-2022
^^ Retired 02-24-2023

~ Effective 01-01-2023
~ Effective 02-25-2023

18

# SHAREHOLDER INFORMATION

## 2022 Annual Report

### Corporate Address

Community Trust Bancorp, Inc.
346 North Mayo Trail
P.O. Box 2947
Pikeville, KY 41502-2947
606.432.1414
www.ctbi.com

### Notice of Annual Meeting

The Annual Meeting of Shareholders will be held at 10:00 a.m. EDT on Tuesday, April 25, 2023 at:

Community Trust Bancorp, Inc.
346 North Mayo Trail
Pikeville, Kentucky

### Transfer Agent

Inquiries relating to shareholder records, stock transfers, changes of ownership, changes of address, and dividend payments should be sent to the transfer agent at:

Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717-0718
866.232.3034
720.358.3637 (International)
shareholder@broadridge.com

Inquiries may also be directed to Community Trust Bancorp, Inc.'s Stock Transfer Agent at:

Community Trust Bank, Inc.
P.O. Box 2947
Pikeville, KY 41502-2947
606.437.3279
800.422.1090, ext. 3279 (Toll Free)
investor.relations@ctbi.com

### Dividend Reinvestment

Community Trust Bancorp, Inc. offers its shareholders an automatic dividend reinvestment program. The program enables shareholders to reinvest their dividends in shares at the prevailing market price. For more information, contact us at:

Community Trust Bancorp, Inc.
c/o Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717-0718
866.232.3034
shareholder@broadridge.com

### Form 10-K

CTBI's annual report on Form 10-K filed with the Securities and Exchange Commission is available without charge on our website at www.ctbi.com or by writing:

Community Trust Bancorp, Inc.
Mark A. Gooch
Vice Chairman, President, & CEO
P.O. Box 2947
Pikeville, KY 41502-2947

### Current Analyst Coverage

Piper Sandler Companies
Raymond James and Associates, Inc.

19

# BRANCH LOCATIONS

## 2022 Annual Report

### Central Region

#### Danville

| * Danville Main | 462 W. Main St. | 859-239-9200 |
| --- | --- | --- |
| Danville Manor | 1560 Hustonsville Rd. | 859-239-9460 |
| Harrodsburg | 570 Chestnut St. | 859-734-4354 |

#### Lexington

| * Vine Street | 100 E. Vine St. | 859-389-5350 |
| --- | --- | --- |
| Beaumont | 901 Beaumont Centre Pkwy. | 859-223-1111 |
| Hamburg | 2417 Sir Barton Way | 859-264-1938 |
| Leestown | 109 Louie Place | 859-258-2659 |
| Pasadena | 185 Pasadena Dr. | 859-313-5425 |
| Richmond Road | 3090 Richmond Rd. | 859-269-0164 |

#### Mt. Sterling

| Mt. Sterling Main | 110 N. Maysville St. | 859-497-6900 |
| --- | --- | --- |
| Mt. Sterling North | 196 Evans Dr. | 859-497-6970 |

#### Richmond

| Eastern Bypass | 860 Eastern Bypass | 859-624-4622 |
| --- | --- | --- |
| Richmond Main | 128 W. Main St. | 859-623-2747 |
| Berea North | 525 Walnut Meadow Rd. | 859-985-0561 |

#### Versailles

| Versailles Main | 470 Lexington Rd. | 859-879-5400 |
| --- | --- | --- |
| Frankfort East | 427 Versailles Rd. | 502-848-0913 |
| Frankfort West | 1205 S. Hwy. 127 | 502-696-0720 |
| Georgetown Main | 315 Pleasant View Dr. | 502-863-0433 |
| Georgetown Walmart | 112 Osborne Way | 502-863-4693 |

#### Winchester

| Winchester Main | 120 S. Main St. | 859-745-7200 |
| --- | --- | --- |
| Winchester Plaza | 125 Winchester Plaza | 859-745-7220 |

### Eastern Region

#### Floyd/Knott/Johnson

| Allen | 6424 KY Rt. 1428 | 606-874-0408 |
| --- | --- | --- |
| Floyd County | 161 S. Lake Dr. | 606-886-2382 |
| Paintsville Walmart | 470 N. Mayo Trl. | 606-788-9934 |
| Knott County | 107 W. Main St. | 606-785-5095 |

#### Hazard

| Airport Gardens | 1665 Combs Rd. | 606-487-2160 |
| --- | --- | --- |
| Black Gold | 100 Citizens Ln. | 606-436-2157 |
| Hazard Village | 101 Village Ln. | 606-487-2152 |

#### Tug Valley

| Williamson | 101 E. 2nd Ave. | 304-235-5454 |
| --- | --- | --- |
| Tug Valley | 28160 US Hwy. 119 | 606-237-6051 |

#### Pikeville

| Elkhorn City | 211 W. Russell St. | 606-754-5589 |
| --- | --- | --- |
| Marrowbone | 10579 Regina Belcher Hwy. | 606-754-4462 |
| Mouthcard | 32 N. Levisa Rd. | 606-835-4907 |
| Phelps | 38720 State Hwy. 194 E. | 606-456-8701 |
| * Pikeville Main | 346 N. Mayo Trl. | 606-432-1414 |
| Pikeville Main Street | 137 Main St. | 606-437-3326 |
| Pikeville Walmart | 254 Cassidy Blvd. | 606-437-0048 |
| Town Mountain | 105 Northgate Dr. | 606-437-3323 |
| Virgie | 1056 KY Hwy. 610 W. | 606-639-4451 |
| Weddington Plaza | 4205 N. Mayo Trl. | 606-432-4529 |

#### Whitesburg

| Whitesburg Main | 155 Main St. | 606-633-0161 |
| --- | --- | --- |
| West Whitesburg | 24 Pkwy. Plaza Loop | 606-633-4532 |
| Jenkins | 9505 Hwy. 805 | 606-832-2477 |
| Isom | 56 Isom Plaza | 606-633-5995 |
| Neon | 1001 Hwy. 317 | 606-855-4435 |

### Northeastern Region

#### Advantage Valley

| Alum Creek | 315 Midway Rd. | 304-756-3317 |
| --- | --- | --- |
| Hamlin | 8049 Lynn Ave. | 304-824-7223 |
| Fort Gay | 735 Court St. | 304-648-7200 |
| Pullman Square | 952 3rd Ave. | 304-697-0272 |

#### Flemingsburg

| Ewing | 1527 Ewing Rd. | 606-267-2061 |
| --- | --- | --- |
| Flemingsburg Main | 36 Brookhaven Dr. | 606-845-3551 |
| South Ridge | 108 Clark St. | 606-849-2304 |

#### Ashland

| * Ashland Main | 1544 Winchester Ave. | 606-329-6000 |
| --- | --- | --- |
| South Ashland | 2101 29th St. | 606-329-6600 |
| Summit | 7100 US Rt. 60 | 606-928-9555 |
| Westwood | 721 Wheatley Rd. | 606-329-6610 |
| Russell | 970 Diederich Blvd. | 606-329-6680 |

#### Summersville

| Summersville | 507 Main St. | 304-872-2711 |
| --- | --- | --- |

### South Central Region

#### Campbellsville

| Campbellsville Main | 1218 E. Broadway St. | 270-789-5900 |
| --- | --- | --- |
| Campbellsville Bypass | 402 Campbellsville Bypass | 270-469-1472 |
| Columbia | 1005 Jamestown St. | 270-384-4771 |
| Greensburg | 205 S. Main St. | 270-932-7464 |
| Lebanon | 521 W. Main St. | 270-692-0064 |
| Somerset North | 239 N. Hwy. 27 | 606-679-8826 |
| Somerset South | 3809 S. Hwy. 27 | 606-679-8446 |
| Jamestown | 752 N. Main St. | 270-343-2556 |

#### Williamsburg

| Williamsburg Main | 201 N. 3rd St. | 606-549-5000 |
| --- | --- | --- |
| Convenience Center | 895 S. Hwy. 25 W. | 606-539-2251 |
| Corbin | 678 US Hwy. 25 W. | 606-526-8777 |
| London South | 1706 Hwy. 192 W. | 606-877-2644 |
| London North | 38 Shiloh Dr. | 606-864-2439 |

#### Middlesboro

| Middlesboro Main | 1918 Cumberland Ave. | 606-248-9600 |
| --- | --- | --- |
| Middlesboro East | 1206 E. Cumberland Ave. | 606-248-9642 |
| Pineville | 11792 US Hwy. 25 E. | 606-337-6122 |

#### Mt. Vernon

| Mt. Vernon Main | 2134 Lake Cumberland Rd. | 606-256-5141 |
| --- | --- | --- |
| Mt. Vernon Downtown | 120 Main St. | 606-256-5142 |

#### LaFollette

| * LaFollette Main | 106 S. Tennessee Ave. | 423-562-3364 |
| --- | --- | --- |
| Jacksboro | 2603 Jacksboro Pike | 423-566-7800 |
| Clinton | 2106 Charles G. Seivers Blvd. | 865-457-8684 |

*Community Trust and Investment Company has offices in these locations.

20

# 24$^{th}$ Annual Pinnacle Awards

- for 2022 Production -

![img-0.jpeg](img-0.jpeg)

# Honorees

## Individual Success

David Akers  
Steve Belcher  
Buddy Bishop  
Regina Blankenship  
Kim Boggs  
Allen Burner  
John R. Caldwell  
Christine Chaffin  
Brian Clark  
Gerrie Clark  
Steven Conn  
Loretta Cordell  
Billie Dollin  
Sherry Dotson  
Bridget Fields  
Bryan K. Fleming  
Dorothy Franklin  
Judy Freeman  
Todd Hargis  
Jamie Harrison  
Natalie M. Heighton  
Debra Hess  
Timothy D. Houck  
Stephanie Hudson  
Sean Hurley  
Andrew Jarvis  
Chris Johnson  
Stephen Johnson  
Tonya L. Johnson  
Selina Keathley

Brett Keene  
Joe Kenney  
Brandi N. Kiser  
Tommie Layne  
Sabrina Lequire  
Tasha Little  
Rhonda S. Longmire  
Tammy Lucas  
Tonya Maynard  
Bobby Terrell Medley  
Karen Mullens  
Gaylon D. Neat  
Marsha Newsom  
Jody E. Oney  
Jonda Patton  
Joyce Pelly  
Miranda M. Penn  
Barry Pennington  
Ricky Peterson  
Tiffany Reeder  
Shirley Riley  
Joshua R. Slone  
Mark Smith  
Roger Smith  
Helena Syck  
Charles Tackett  
Jody Thompson  
Bob Watson  
Ashley White  
David Wills

## Team Success

Audit Department  
Campbellsville Bypass Office  
Eastern Region  
Floyd-Knott Market  
Frankfort East Office  
Georgetown Walmart Office  
Mt. Vernon Market  
Pikeville Main Office

Pikeville Market  
South Central Region  
Summersville Market  
Tug Valley Office  
Versailles Main Office  
Versailles Market  
Whitesburg Main Office  
Williamsburg Market

![img-1.jpeg](img-1.jpeg)

# Financial Information

Community Trust Bancorp, Inc.
2022 Annual Report

## Financial Statements and Supplementary Data

### Community Trust Bancorp, Inc.

(dollars in thousands)

December 31

|  | 2022 | 2021 |
| --- | --- | --- |
| Assets: |  |  |
| Cash and due from banks | $51,306 | $46,558 |
| Interest bearing deposits | 77,380 | 265,198 |
| Cash and cash equivalents | 128,686 | 311,756 |
| Certificates of deposit in other banks | 245 | 245 |
| Debt securities available-for-sale at fair value (amortized cost of $1,430,605 and $1,461,829, respectively) | 1,256,226 | 1,455,429 |
| Equity securities at fair value | 2,166 | 2,253 |
| Loans held for sale | 109 | 2,632 |
| Loans | 3,709,290 | 3,408,813 |
| Allowance for credit losses | (45,981) | (41,756) |
| Net loans | 3,663,309 | 3,367,057 |
| Premises and equipment, net | 42,633 | 40,479 |
| Operating right-of-use assets | 13,809 | 10,892 |
| Finance right-of-use assets | 3,262 | 1,256 |
| Federal Home Loan Bank stock | 6,676 | 8,139 |
| Federal Reserve Bank stock | 4,887 | 4,887 |
| Goodwill | 65,490 | 65,490 |
| Bank owned life insurance | 92,746 | 91,097 |
| Mortgage servicing rights | 8,468 | 6,774 |
| Other real estate owned | 3,671 | 3,486 |
| Deferred tax asset | 39,878 | 0 |
| Accrued interest receivable | 19,592 | 15,415 |
| Other assets | 28,463 | 30,970 |
| Total assets | $5,380,316 | $5,418,257 |
| Liabilities and shareholders' equity: |  |  |
| Deposits: |  |  |
| Noninterest bearing | $1,394,915 | $1,331,103 |
| Interest bearing | 3,031,228 | 3,013,189 |
| Total deposits | 4,426,143 | 4,344,292 |
| Repurchase agreements | 215,431 | 271,088 |
| Federal funds purchased | 500 | 500 |
| Advances from Federal Home Loan Bank | 355 | 375 |
| Long-term debt | 57,841 | 57,841 |
| Deferred tax liability | 0 | 546 |
| Operating lease liability | 14,160 | 11,583 |
| Finance lease liability | 3,468 | 1,422 |
| Accrued interest payable | 2,237 | 1,016 |
| Other liabilities | 32,134 | 31,392 |
| Total liabilities | 4,752,269 | 4,720,055 |
| Commitments and contingencies (notes 17 and 19) |  |  |
| Shareholders' equity: |  |  |
| Preferred stock, 300,000 shares authorized and unissued | - | - |
| Common stock, $5.00 par value, shares authorized 25,000,000; shares outstanding 2022 - 17,918,280; 2021 - 17,843,081 | 89,591 | 89,215 |
| Capital surplus | 229,012 | 227,085 |
| Retained earnings | 438,596 | 386,750 |
| Accumulated other comprehensive loss, net of tax | (129,152) | (4,848) |
| Total shareholders' equity | 628,047 | 698,202 |
| Total liabilities and shareholders' equity | $5,380,316 | $5,418,257 |

See notes to consolidated financial statements.

22

# **Consolidated Statements of Income and Comprehensive Income (Loss)**

*(in thousands except per share data)*

**Year Ended December 31**

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Interest income: |  |  |  |
| Interest and fees on loans, including loans held for sale | $169,885 | $160,198 | $160,826 |
| Interest and dividends on securities: |  |  |  |
| Taxable | 21,695 | 13,981 | 11,939 |
| Tax exempt | 2,998 | 3,098 | 2,380 |
| Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock | 603 | 486 | 532 |
| Interest on Federal Reserve Bank deposits | 2,439 | 372 | 704 |
| Other, including interest on federal funds sold | 122 | 34 | 60 |
| Total interest income | 197,742 | 178,169 | 176,441 |
| Interest expense: |  |  |  |
| Interest on deposits | 24,068 | 12,753 | 21,177 |
| Interest on repurchase agreements and federal funds purchased | 2,540 | 1,254 | 2,788 |
| Interest on advances from Federal Home Loan Bank | 20 | 0 | 0 |
| Interest on long-term debt | 2,012 | 1,083 | 1,485 |
| Total interest expense | 28,640 | 15,090 | 25,450 |
| Net interest income | 169,102 | 163,079 | 150,991 |
| Provision for credit losses (recovery) | 4,905 | (6,386) | 16,047 |
| Net interest income after provision for credit losses (recovery) | 164,197 | 169,465 | 134,944 |
| Noninterest income: |  |  |  |
| Service charges on deposit accounts | 29,049 | 26,529 | 23,461 |
| Gains on sales of loans, net | 1,525 | 6,820 | 7,226 |
| Trust and wealth management income | 12,394 | 12,644 | 10,931 |
| Loan related fees | 6,185 | 5,578 | 4,041 |
| Bank owned life insurance | 2,708 | 2,844 | 2,306 |
| Brokerage revenue | 1,846 | 1,962 | 1,483 |
| Securities gains (losses) | (168) | (158) | 1,769 |
| Other noninterest income | 4,377 | 4,244 | 3,343 |
| Total noninterest income | 57,916 | 60,463 | 54,560 |
| Noninterest expense: |  |  |  |
| Officer salaries and employee benefits | 15,922 | 19,713 | 15,257 |
| Other salaries and employee benefits | 56,568 | 54,401 | 51,170 |
| Occupancy, net | 8,380 | 8,306 | 7,912 |
| Equipment | 2,703 | 2,548 | 2,737 |
| Data processing | 8,910 | 8,039 | 7,941 |
| Bank franchise tax | 1,528 | 1,705 | 7,299 |
| Legal fees | 1,159 | 1,160 | 1,634 |
| Professional fees | 2,275 | 2,039 | 2,091 |
| Advertising and marketing | 3,005 | 2,928 | 2,980 |
| FDIC insurance | 1,447 | 1,381 | 1,056 |
| Other real estate owned provision and expense | 456 | 1,401 | 2,655 |
| Repossession expense | 546 | 344 | 717 |
| Amortization of limited partnership investments | 2,853 | 3,352 | 3,759 |
| Other noninterest expense | 15,319 | 11,968 | 12,031 |
| Total noninterest expense | 121,071 | 119,285 | 119,239 |
| Income before income taxes | 101,042 | 110,643 | 70,265 |
| Income taxes | 19,228 | 22,704 | 10,761 |
| Net income | $81,814 | $87,939 | $59,504 |

See notes to consolidated financial statements.

23

(in thousands except per share data)

Year Ended December 31

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Other comprehensive income (loss): |  |  |  |
| Unrealized holding gains (losses) on debt securities available-for-sale: |  |  |  |
| Unrealized holding gains (losses) arising during the period | $(168,060) | $(24,827) | $13,839 |
| Less: Reclassification adjustments for realized gains (losses) included in net income | (81) | 60 | 1,251 |
| Tax expense (benefit) | (43,675) | (6,471) | 3,273 |
| Other comprehensive income (loss), net of tax | (124,304) | (18,416) | 9,315 |
| Comprehensive income (loss) | $(42,490) | $69,523 | $68,819 |
| Basic earnings per share | $4.59 | $4.94 | $3.35 |
| Diluted earnings per share | $4.58 | $4.94 | $3.35 |
| Weighted average shares outstanding-basic | 17,836 | 17,786 | 17,748 |
| Weighted average shares outstanding-diluted | 17,851 | 17,804 | 17,756 |

See notes to consolidated financial statements.

24

## Consolidated Statements of Changes in Shareholders' Equity

| (in thousands except per share and share amounts) | Common Shares | Common Stock | Capital Surplus | Retained Earnings | Accumulated Other Comprehensive Income (Loss), Net of Tax | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Balance, December 31, 2019 | 17,793,165 | $88,966 | $224,907 | $296,760 | $4,253 | $614,886 |
| Implementation of ASU 2016-13 |  |  |  | (2,366) |  | (2,366) |
| Balance, January 1, 2020 | 17,793,165 | 88,966 | 224,907 | 294,394 | 4,253 | 612,520 |
| Net income |  |  |  | 59,504 |  | 59,504 |
| Other comprehensive income (loss) |  |  |  |  | 9,315 | 9,315 |
| Cash dividends declared ($1.53 per share) |  |  |  | (27,160) |  | (27,160) |
| Issuance of common stock | 45,341 | 226 | 700 |  |  | 926 |
| Repurchase of common stock | (32,664) | (163) | (936) |  |  | (1,099) |
| Issuance of restricted stock | 21,544 | 108 | (108) |  |  | 0 |
| Vesting of restricted stock | (16,985) | (85) | 85 |  |  | 0 |
| Stock-based compensation |  |  | 859 |  |  | 859 |
| Balance, December 31, 2020 | 17,810,401 | 89,052 | 225,507 | 326,738 | 13,568 | 654,865 |
| Net income |  |  |  | 87,939 |  | 87,939 |
| Other comprehensive income (loss) |  |  |  |  | (18,416) | (18,416) |
| Cash dividends declared ($1.57 per share) |  |  |  | (27,927) |  | (27,927) |
| Issuance of common stock | 41,168 | 205 | 760 |  |  | 965 |
| Issuance of restricted stock | 9,193 | 46 | (46) |  |  | 0 |
| Vesting of restricted stock | (17,681) | (88) | 88 |  |  | 0 |
| Stock-based compensation |  |  | 776 |  |  | 776 |
| Balance, December 31, 2021 | 17,843,081 | 89,215 | 227,085 | 386,750 | (4,848) | 698,202 |
| Net income |  |  |  | 81,814 |  | 81,814 |
| Other comprehensive income (loss) |  |  |  |  | (124,304) | (124,304) |
| Cash dividends declared ($1.68 per share) |  |  |  | (29,968) |  | (29,968) |
| Issuance of common stock | 54,125 | 271 | 770 |  |  | 1,041 |
| Issuance of restricted stock | 50,438 | 252 | (252) |  |  | 0 |
| Vesting of restricted stock | (29,364) | (147) | 147 |  |  | 0 |
| Stock-based compensation |  |  | 1,262 |  |  | 1,262 |
| Balance, December 31, 2022 | 17,918,280 | $89,591 | $229,012 | $438,596 | $(129,152) | $628,047 |

See notes to consolidated financial statements.

25

## Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Cash flows from operating activities: |  |  |  |
| Net income | $81,814 | $87,939 | $59,504 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
| Depreciation and amortization | 5,219 | 5,033 | 5,346 |
| Deferred taxes | 3,250 | 2,330 | (2,909) |
| Stock-based compensation | 1,366 | 850 | 944 |
| Provision for credit losses (recovery) | 4,905 | (6,386) | 16,047 |
| Write-downs of other real estate owned and other repossessed assets | 285 | 864 | 1,454 |
| Gains on sale of loans held for sale | (1,525) | (6,820) | (7,226) |
| Securities gains (losses) | 81 | (60) | (1,251) |
| Fair value adjustment in equity securities | 87 | 218 | (518) |
| (Gains) losses on sale of assets, net | (354) | (165) | 390 |
| Proceeds from sale of mortgage loans held for sale | 65,974 | 307,843 | 347,048 |
| Funding of mortgage loans held for sale | (61,926) | (280,396) | (361,913) |
| Amortization of securities premiums and discounts, net | 5,466 | 8,010 | 5,907 |
| Change in cash surrender value of bank owned life insurance | (1,650) | (1,873) | (1,371) |
| Payment of operating lease liabilities | (1,773) | (1,693) | (1,682) |
| Mortgage servicing rights: |  |  |  |
| Fair value adjustments | (1,069) | (428) | 1,064 |
| New servicing assets created | (625) | (2,278) | (1,869) |
| Changes in: |  |  |  |
| Accrued interest receivable | (4,177) | 403 | (982) |
| Other assets | 2,507 | 4,918 | 1,845 |
| Accrued interest payable | 1,221 | (227) | (1,596) |
| Other liabilities | 608 | (2,387) | 4,147 |
| Net cash provided by operating activities | 99,684 | 115,695 | 62,379 |
| Cash flows from investing activities: |  |  |  |
| Certificates of deposit in other banks: |  |  |  |
| Purchase of certificates of deposit | 0 | 0 | (245) |
| Maturity of certificates of deposit | 0 | 0 | 245 |
| Securities available-for-sale (AFS): |  |  |  |
| Purchase of AFS securities | (179,627) | (797,445) | (857,167) |
| Proceeds from sales of AFS securities | 11,462 | 1,080 | 186,194 |
| Proceeds from prepayments, calls, and maturities of AFS securities | 193,843 | 305,361 | 281,487 |
| Securities held-to-maturity (HTM): |  |  |  |
| Proceeds from prepayments and maturities of HTM securities | 0 | 0 | 517 |
| Change in loans, net | (302,466) | 146,050 | (306,523) |
| Purchase of premises and equipment | (6,218) | (2,373) | (1,482) |
| Proceeds from sale and retirement of premises and equipment | 620 | 830 | 1 |
| Redemption of stock by Federal Home Loan Bank | 1,463 | 1,909 | 426 |
| Proceeds from sale of other real estate owned and repossessed assets | 988 | 2,819 | 4,754 |
| Additional investment in other real estate owned and repossessed assets | (73) | 0 | 0 |
| Additional investment in bank owned life insurance | 0 | (17,181) | (1,733) |
| Proceeds from settlement of bank owned life insurance | 1 | 330 | 0 |
| Net cash used in investing activities | (280,007) | (358,620) | (693,526) |
| Cash flows from financing activities: |  |  |  |
| Change in deposits, net | 81,851 | 328,210 | 610,510 |
| Change in repurchase agreements and federal funds purchased, net | (55,657) | (84,774) | 121,539 |
| Advances from Federal Home Loan Bank | 45,000 | 0 | 25,000 |
| Payments on advances from Federal Home Loan Bank | (45,020) | (20) | (25,020) |
| Payment of finance lease liabilities | (24) | (19) | (15) |
| Repurchase of long-term debt | 0 | 0 | 0 |
| Issuance of common stock | 1,041 | 965 | 926 |
| Repurchase of stock | 0 | 0 | (1,099) |
| Dividends paid | (29,938) | (27,916) | (27,142) |
| Net cash provided by (used in) financing activities | (2,747) | 216,446 | 704,699 |
| Net increase (decrease) in cash and cash equivalents | (183,070) | (26,479) | 73,552 |
| Cash and cash equivalents at beginning of year | 311,756 | 338,235 | 264,683 |
| Cash and cash equivalents at end of year | $128,686 | $311,756 | $338,235 |

See notes to consolidated financial statements.

26

(in thousands)

Year Ended December 31

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Supplemental disclosures: |  |  |  |
| Income taxes paid | $16,293 | $19,485 | $13,275 |
| Interest paid | 27,419 | 15,316 | 27,047 |
| Non-cash activities: |  |  |  |
| Loans to facilitate the sale of other real estate owned and repossessed assets | 1,124 | 1,733 | 9,632 |
| Common stock dividends accrued, paid in subsequent quarter | 278 | 248 | 238 |
| Real estate and assets acquired in settlement of loans | 2,433 | 1,200 | 4,446 |
| Right-of-use assets obtained in exchange for new operating/finance lease liabilities | 5,539 | 0 | 0 |

See notes to consolidated financial statements.

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# Notes to Consolidated Financial Statements

# 1. Accounting Policies

**Basis of Presentation** - The consolidated financial statements include Community Trust Bancorp, Inc. (“CTBI”) and our subsidiaries, including our principal subsidiary, Community Trust Bank, Inc. (“CTB”). Intercompany transactions and accounts have been eliminated in consolidation.

**Nature of Operations** - Substantially all assets, liabilities, revenues, and expenses are related to banking operations, including lending, investing of funds, obtaining of deposits, trust and wealth management operations, full service brokerage operations, and other financing activities. All of our business offices and the majority of our business are located in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.

**Use of Estimates** - In preparing the consolidated financial statements, management must make certain estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues, and expenses, as well as affecting the disclosures provided. Future results could differ from the current estimates. Such estimates include, but are not limited to, the allowance for credit losses, goodwill, the valuation of deferred tax assets, and the valuation of financial instruments.

The accompanying financial statements have been prepared using values and information currently available to CTBI.

Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses, and capital.

**Cash and Cash Equivalents** - CTBI considers all liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits in other financial institutions, and federal funds sold. Generally, federal funds are sold for one-day periods.

**Certificates of Deposit in Other Banks** - Certificates of deposit in other banks generally mature within 18 months and are carried at cost.

**Investments** - Management determines the classification of securities at purchase. We classify debt securities into held-to-maturity, trading, or available-for-sale categories. Held-to-maturity (“HTM”) securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, *Investments - Debt Securities*, investments in debt securities that are not classified as held-to-maturity shall be classified in one of the following categories and measured at fair value in the statement of financial position:

a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as HTM securities) shall be classified as available-for-sale (“AFS”) securities.

We do not have any securities that are classified as trading securities. AFS securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders’ equity, net of tax. If declines in fair value are other than temporary, the carrying value of the securities is written down to fair value as a realized loss with a charge to income for the portion attributable to credit losses and a charge to other comprehensive income for the portion that is not credit related.

For AFS debt securities in an unrealized loss position, we evaluate the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit-related is recognized in accumulated other comprehensive income, net of tax. Credit-related impairment is recognized as an allowance for credit losses (“ACL”) for AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable on AFS debt securities is excluded from the estimate of credit losses. Both the ACL for AFS debt securities and the adjustment to net income may be reversed if conditions change. However, if we intend to sell an impaired AFS debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL for AFS debt securities in this situation.

In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, we consider the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. There were no credit related factors underlying unrealized losses on AFS debt securities at December 31, 2022 and December 31, 2021, therefore, no ACL for AFS securities was recorded.

Changes in the ACL for AFS debt securities are recorded as expense. Losses are charged against the ACL for AFS debt securities when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Gains or losses on disposition of debt securities are computed by specific identification for those securities. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings.

HTM securities are subject to an allowance for lifetime expected credit losses, determined by adjusting historical loss information for current conditions and reasonable and supportable forecasts. The forward-looking evaluation of lifetime expected losses will be performed on a pooled basis for debt securities that share similar risk characteristics. These allowances for expected losses must be made by the holder of the HTM debt security when the security is purchased. At December 31, 2022 and 2021, CTBI held no securities designated as held-to-maturity.

CTBI accounts for equity securities in accordance with ASC 321, *Investments - Equity Securities*. ASC 321 requires equity investments (except those accounted for under the equity method and those that result in the consolidation of the investee) to be measured at fair value, with changes in fair values recognized in net income.

Equity securities with a readily determinable fair value are required to be measured at fair value, with changes in fair value recognized in net income. Equity securities without a readily determinable fair value are carried at cost, less any impairment, if any, plus or minus changes resulting from observable price changes for identical or similar investments. As permitted by ASC 321-10-35-2, CTBI can make an irrevocable election to subsequently measure an equity security without a readily determinable fair value, and all identical or similar investments of the same issuer, including future purchases of identical or similar investments of the same

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issuer, at fair value. CTBI has made this election for our Visa Class B equity securities. The fair value of these securities was determined by a third party service provider using Level 3 inputs as defined in ASC 820, *Fair Value Measurement*, and changes in fair value are recognized in income.

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

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

**Leases** - CTBI accounts for leases under ASC 842, recording a right-of-use asset and a lease liability for all leases with terms longer than 12 months. The right-of-use asset represents the right to use the asset under lease for the lease term, and the lease liability represents the contractual obligation to make lease payments. The right-of-use asset is tested for impairment whenever events or changes in circumstances indicate the carrying value might not be recoverable. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A lease is treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor does not convey risks and rewards or control, an operating lease results. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate on a collateralized basis, over a similar term at the lease commencement date and may be re-measured for certain modifications or the company's exercise of options (renewal, extension, or termination) under the lease. Right-of-use assets are further adjusted for prepaid rent, lease incentives, and initial direct costs, if any.

**Allowance for Credit Losses** - CTBI accounts for the allowance for credit losses under ASC 326. CTBI measures expected credit losses of financial assets on a collective (pool) basis using loss-rate methods when the financial assets share similar risk characteristics. Loans that do not share risk characteristics are evaluated on an individual basis. Regardless of an initial measurement method, once it is determined that foreclosure is probable, the allowance for credit losses 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 allowance for credit losses 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. For collateral-dependent financial assets, the credit loss expected may be zero if the fair value less costs to sell exceed the amortized cost of the loan. Loans shall not be included in both collective assessments and individual assessments.

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 Accounting Standards Update ('ASU') 2019-04 which allows that accrued interest would continue to be presented separately and not part of the amortized cost of the loan. The methodology used by CTBI is developed using the current loan balance, which is then compared to amortized cost balances to analyze the impact. The difference in amortized cost basis versus consideration of loan balances impacts the allowance for credit losses calculation by 1 basis point and is considered immaterial. The primary difference is for indirect lending premiums.

We maintain an allowance for credit losses ('ACL') at a level that is appropriate to cover estimated credit losses on individually evaluated loans, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Credit losses are charged and recoveries are credited to the ACL.

We utilize an internal risk grading system for commercial credits. Those credits that meet the following criteria are subject to individual evaluation: the loan has an outstanding bank share balance of $1 million or greater and meets one of the following criteria: (i) has a criticized risk rating, (ii) is in nonaccrual status, (iii) is a TDR, or (iv) is 90 days or more past due. The borrower's cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. We evaluate the collectability of both principal and interest when assessing the need for loss provision. Historical loss rates are analyzed and applied to other commercial loan segments not subject to individual evaluation.

Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded. The associated ACL for these loans is measured in pools with similar risk characteristics under ASC 326.

When any secured commercial loan is considered uncollectable, whether past due or not, a current assessment of the value of the underlying collateral is made. If the balance of the loan exceeds the fair value of the collateral, the loan is placed on nonaccrual and the loan is charged down to the value of the collateral less estimated cost to sell. For commercial loans greater than $1 million and classified as criticized, TDR, or nonaccrual, a specific reserve is established if a loss is determined to be possible and then charged-off once it is probable. When the foreclosed collateral has been legally assigned to CTBI, the estimated fair value of the collateral less costs to sell is then transferred to other real estate owned or other repossessed assets, and a charge-off is taken for any remaining balance. When any unsecured commercial loan is considered uncollectable the loan is charged off no later than at 90 days past due.

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

Historical loss rates for loans are adjusted for significant factors that, in management's judgment, reflect the impact of any current conditions on loss recognition. With the implementation of ASC 326, weighted average life calculations were completed as a tool to determine the life of CTBI's various loan segments. Vintage modeling was used to determine the life of loan losses for consumer and residential real estate loans. Static pool modeling was used to determine the life of loan losses for commercial loan segments. Qualitative factors used to derive CTBI's total ACL include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, trends in loan losses, and underwriting exceptions. Forecasting factors including unemployment rates and industry specific forecasts for industries in which our total exposure is 5% of capital or greater are also included as factors in the ACL model. Management continually reevaluates the other subjective factors included in our ACL analysis.

**Loans Held for Sale** - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses, if any, are recognized by charges to income. Gains and losses on loan sales are recorded in noninterest income.

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**Premises and Equipment** - Premises and equipment are stated at cost less accumulated depreciation and amortization. Premises and equipment are evaluated for impairment on a quarterly basis.

Depreciation and amortization are computed primarily using the straight-line method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years for furniture, fixtures, and equipment, and up to the lease term for leasehold improvements.

**Federal Home Loan Bank and Federal Reserve Stock** - CTB is a member of the Federal Home Loan Bank (“FHLB”) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery par value. Both cash and stock dividends are reported as income.

CTB is also a member of its regional Federal Reserve Bank. Federal Reserve Bank stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery par value. Both cash and stock dividends are reported as income.

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

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

**Other Real Estate Owned** - When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current fair 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 fair value less expected sales costs. Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months. All revenues and expenses related to the carrying of other real estate owned are recognized through the income statement.

**Goodwill and Core Deposit Intangible** - We evaluate total goodwill and core deposit intangible for impairment, based upon ASC 350, *Intangibles-Goodwill and Other*, using fair value techniques including multiples of price/equity. Goodwill and core deposit intangible are evaluated for impairment on an annual basis or as other events may warrant.

The balance of goodwill, at $65.5 million, has not changed since January 1, 2015. Our core deposit intangible has been fully amortized since December 31, 2017.

**Transfers of Financial Assets** - Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from CTBI-put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) CTBI does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

**Revenue Recognition** - The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, and investment securities, as well as revenue related to our mortgage banking activities, as these activities are subject to other generally accepted accounting principles (“GAAP”) discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows:

- Service charges on deposit accounts represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue, or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed. Payment for such performance obligations is generally received at the time the performance obligations are satisfied.
- Trust and wealth management income represents monthly or quarterly fees due from wealth management customers as consideration for managing the customers’ assets. Wealth management and trust services include custody of assets, investment management, escrow services, fees for trust services, and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month or quarter, which is generally the time that payment is received.
- Brokerage revenue is either fee based and collected upon the settlement of the transaction or commission based and recognized when our performance obligation is completed each month or quarter, which is generally the time that payment is received. Other sales, such as life insurance, generate commissions from other third parties. These fees are generally collected monthly.
- Other noninterest income primarily includes items such as letter of credit fees, gains on sale of loans held for sale, and servicing fees related to mortgage and commercial loans, none of which are subject to the requirements of ASC 606.

**Advertising Expense** - It is CTBI’s policy to expense advertising costs in the period in which they are incurred.

**Income Taxes** - Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Any interest and penalties incurred in connection with income taxes are recorded as a component of income tax expense in our consolidated financial statements. During the years ended December 31, 2022, 2021, and 2020, CTBI has not recognized a significant amount of interest expense or penalties in connection with income taxes.

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**Earnings Per Share (“EPS”)** - Basic EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding, excluding restricted shares.

Diluted EPS adjusts the number of weighted average shares of common stock outstanding by the dilutive effect of stock options, including restricted shares, as prescribed in ASC 718, *Share-Based Payment*.

**Segments** - Management analyzes the operation of CTBI assuming one operating segment, community banking services. CTBI, through our operating subsidiaries, offers a wide range of consumer and commercial community banking services. These services include: (i) residential and commercial real estate loans; (ii) checking accounts; (iii) regular and term savings accounts and savings certificates; (iv) full service securities brokerage services; (v) consumer loans; (vi) debit cards; (vii) annuity and life insurance products; (viii) Individual Retirement Accounts and Keogh plans; (ix) commercial loans; (x) trust and wealth management services; (xi) commercial demand deposit accounts; and (xii) repurchase agreements.

**Bank Owned Life Insurance** - CTBI’s bank owned life insurance policies are carried at their cash surrender value. We recognize tax-free income from the periodic increases in cash surrender value of these policies and from death benefits.

**Mortgage Servicing Rights** - Mortgage servicing rights (“MSRs”) are carried at fair value following the accounting guidance in ASC 860-50, *Servicing Assets and Liabilities*. MSRs are valued using Level 3 inputs as defined in ASC 820, *Fair Value Measurements*. The fair value is determined quarterly based on an independent third-party valuation using a discounted cash flow analysis and calculated using a computer pricing model. The system used in this evaluation, Compass Point, attempts to quantify loan level idiosyncratic risk by calculating a risk derived value. As a result, each loan’s unique characteristics determine the valuation assumptions ascribed to that loan. Additionally, the computer valuation is based on key economic assumptions including the prepayment speeds of the underlying loans generated using the Andrew Davidson Prepayment Model, FHLMC/FNMA guidelines, the weighted-average life of the loan, the discount rate, the weighted-average coupon, and the weighted-average default rate, as applicable. Along with the gains received from the sale of loans, fees are received for servicing loans. These fees include late fees, which are recorded in interest income, and ancillary fees and monthly servicing fees, which are recorded in noninterest income. Costs of servicing loans are charged to expense as incurred. Changes in fair value of the MSRs are reported as an increase or decrease to mortgage banking income.

**Share-Based Compensation** - CTBI has a share-based employee compensation plan, which is described more fully in note 14 below. CTBI accounts for this plan under the recognition and measurement principles of ASC 718, *Share-Based Payment*. Share-based compensation restricted and performance-based stock units/awards are classified as equity awards and accounted for under the treasury stock method. Compensation expense for non-vested stock units/awards is based on the fair value of the award on the measurement date, which, for CTBI, is the date of the grant and is recognized ratably over the vesting or performance period of the award. The fair value of non-vested stock units/awards is generally the market price of CTBI’s stock on the date of grant. CTBI accounts for forfeitures on an actual basis.

**Comprehensive Income** - Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on AFS securities and unrealized appreciation (depreciation) on AFS securities for which a portion of an other than temporary impairment has been recognized in income.

**Transfers between Fair Value Hierarchy Levels** - Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs), and Level 3 (significant unobservable inputs) are recognized on the period ending date.

#### New Accounting Standards -

➤ **Facilitation of the Effects of Reference Rate Reform on Financial Reporting** - In December 2022, the FASB issued ASU No. 2022-06, *Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848*, that extends the period of time preparers can utilize the reference rate reform relief guidance. The amendments in ASU No. 2022-06 are effective for all entities upon issuance. In 2020, the FASB issued ASU No. 2020-04, *Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting*, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published. The amendments in ASU No. 2020-04 provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU No. 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.

➤ **Troubled Debt Restructurings and Vintage Disclosures** - In February 2022, the FASB issued ASU 2022-02, *Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures*. The amendments in this ASU eliminate the accounting guidance for TDR by creditors in Subtopic 310-40, *Receivables-Troubled Debt Restructurings by Creditors*, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, *Financial Instruments-Credit Losses-Measured at Amortized Cost*, in the vintage disclosures required by paragraph 326-20-50-6. The amendments in the ASU are for fiscal periods beginning after December 22, 2022, including interim periods within those fiscal years. The changes can be early adopted, separately by topic. We do not anticipate a significant impact to our consolidated financial statements.

➤ **Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions** - In June 2022, the FASB issued ASU 2022-03, *Fair Value Measurement Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions*. The FASB issued this ASU to (1) clarify the guidance in Topic 820, *Fair Value Measurement*, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot,

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as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in ASU also require the following disclosures for equity securities subject to contractual sale restrictions: (1) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; (2) the nature and remaining duration of the restriction(s); and (3) the circumstances that could cause a lapse in the restriction(s). For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. We do not anticipate a significant impact to our consolidated financial statements.

## 2. Cash and Due from Banks and Interest Bearing Deposits

At December 31, 2022, CTBI had cash accounts which exceeded federally insured limits, and therefore were not subject to FDIC insurance, with $72.6 million in deposits with the Federal Reserve, $26.6 million in deposits with U.S. Bank, $1.4 million in deposits with Fifth Third Bank, $4.8 million in deposits with the Federal Home Loan Bank, and $3.0 million in deposits with Raymond James.

## 3. Securities

Debt securities are classified into HTM and AFS categories. HTM securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost. AFS securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management, or other reasons. AFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax. As of December 31, 2022 and December 31, 2021, CTBI had no HTM securities.

The amortized cost and fair value of debt securities at December 31, 2022 are summarized as follows:

### Available-for-Sale

| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| --- | --- | --- | --- | --- |
| U.S. Treasury and government agencies | $418,579 | $212 | $(36,859) | $381,932 |
| State and political subdivisions | 326,746 | 32 | (61,676) | 265,102 |
| U.S. government sponsored agency mortgage-backed securities | 593,917 | 1 | (73,833) | 520,085 |
| Asset-backed securities | 91,363 | 0 | (2,256) | 89,107 |
| Total available-for-sale securities | $1,430,605 | $245 | $(174,624) | $1,256,226 |

The amortized cost and fair value of debt securities at December 31, 2021 are summarized as follows:

### Available-for-Sale

| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| --- | --- | --- | --- | --- |
| U.S. Treasury and government agencies | $299,606 | $351 | $(4,187) | $295,770 |
| State and political subdivisions | 334,218 | 5,524 | (5,539) | 334,203 |
| U.S. government sponsored agency mortgage-backed securities | 733,467 | 5,107 | (7,765) | 730,809 |
| Asset-backed securities | 94,538 | 301 | (192) | 94,647 |
| Total available-for-sale securities | $1,461,829 | $11,283 | $(17,683) | $1,455,429 |

The amortized cost and fair value of debt securities at December 31, 2022 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

| (in thousands) | Available-for-Sale |  |
| --- | --- | --- |
|  | Amortized Cost | Fair Value |
| Due in one year or less | $29,874 | $29,242 |
| Due after one through five years | 267,190 | 244,404 |
| Due after five through ten years | 250,194 | 218,508 |
| Due after ten years | 198,067 | 154,880 |
| U.S. government sponsored agency mortgage-backed securities | 593,917 | 520,085 |
| Asset-backed securities | 91,363 | 89,107 |
| Total debt securities | $1,430,605 | $1,256,226 |

In 2022, we had a net securities loss of $168 thousand. There was a net loss of $81 thousand realized on sales and calls of AFS securities, and an unrealized loss of $87 thousand from the fair value adjustment of equity securities. There was a net loss of $158 thousand realized in 2021 and a net gain of $1.8 million realized in 2020.

### Equity Securities at Fair Value

CTBI made the election permitted by ASC 321-10-35-2 to record its Visa Class B shares at fair value. Equity securities at fair value as of December 31, 2022 were $2.2 million, as a result of an $87 thousand decrease in the fair value in 2022. The fair value of equity securities decreased $218 thousand in 2021. No equity securities were sold during 2022 or 2021.

The amortized cost of securities pledged as collateral, to secure public deposits and for other purposes, was $725.0 million at December 31, 2022 and $545.6 million at December 31, 2021.

The amortized cost of securities sold under agreements to repurchase amounted to $316.9 million at December 31, 2022 and $314.1 million at December 31, 2021.

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CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of December 31, 2022 indicates that all impairment is considered temporary, market and interest rate driven, and not credit-related. The percentage of total debt securities with unrealized losses as of December 31, 2022 was 97.4% compared to 72.4% as of December 31, 2021. The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2022 that are not deemed to have credit losses. As stated above, CTBI had no HTM securities as of December 31, 2022.

#### Available-for-Sale

| (in thousands) | Amortized Cost | Gross Unrealized Losses | Fair Value |
| --- | --- | --- | --- |
| Less Than 12 Months |  |  |  |
| U.S. Treasury and government agencies | $144,305 | $(6,953) | $137,352 |
| State and political subdivisions | 94,277 | (6,257) | 88,020 |
| U.S. government sponsored agency mortgage-backed securities | 139,314 | (6,883) | 132,431 |
| Asset-backed securities | 38,882 | (1,231) | 37,651 |
| Total <12 months temporarily impaired AFS securities | 416,778 | (21,324) | 395,454 |
| 12 Months or More |  |  |  |
| U.S. Treasury and government agencies | 249,424 | (29,906) | 219,518 |
| State and political subdivisions | 225,019 | (55,419) | 169,600 |
| U.S. government sponsored agency mortgage-backed securities | 454,357 | (66,950) | 387,407 |
| Asset-backed securities | 52,480 | (1,025) | 51,455 |
| Total ≥12 months temporarily impaired AFS securities | 981,280 | (153,300) | 827,980 |
| Total |  |  |  |
| U.S. Treasury and government agencies | 393,729 | (36,859) | 356,870 |
| State and political subdivisions | 319,296 | (61,676) | 257,620 |
| U.S. government sponsored agency mortgage-backed securities | 593,671 | (73,833) | 519,838 |
| Asset-backed securities | 91,362 | (2,256) | 89,106 |
| Total temporarily impaired AFS securities | $1,398,058 | $(174,624) | $1,223,434 |

The analysis performed as of December 31, 2021 indicated that all impairment was considered temporary, market and interest rate driven, and not credit-related. The following table provides the amortized cost, gross unrealized losses, and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2021 that are not deemed to be other-than-temporarily impaired. As stated above, CTBI had no HTM securities as of December 31, 2021.

#### Available-for-Sale

| (in thousands) | Amortized Cost | Gross Unrealized Losses | Fair Value |
| --- | --- | --- | --- |
| Less Than 12 Months |  |  |  |
| U.S. Treasury and government agencies | $249,990 | $(4,123) | $245,867 |
| State and political subdivisions | 197,592 | (4,779) | 192,813 |
| U.S. government sponsored agency mortgage-backed securities | 473,831 | (6,759) | 467,072 |
| Asset-backed securities | 52,229 | (190) | 52,039 |
| Total <12 months temporarily impaired AFS securities | 973,642 | (15,851) | 957,791 |
| 12 Months or More |  |  |  |
| U.S. Treasury and government agencies | 14,505 | (64) | 14,441 |
| State and political subdivisions | 19,126 | (760) | 18,366 |
| U.S. government sponsored agency mortgage-backed securities | 62,330 | (1,006) | 61,324 |
| Asset-backed securities | 1,368 | (2) | 1,366 |
| Total ≥12 months temporarily impaired AFS securities | 97,329 | (1,832) | 95,497 |
| Total |  |  |  |
| U.S. Treasury and government agencies | 264,495 | (4,187) | 260,308 |
| State and political subdivisions | 216,718 | (5,539) | 211,179 |
| U.S. government sponsored agency mortgage-backed securities | 536,161 | (7,765) | 528,396 |
| Asset-backed securities | 53,597 | (192) | 53,405 |
| Total temporarily impaired AFS securities | $1,070,971 | $(17,683) | $1,053,288 |

#### U.S. Treasury and Government Agencies

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

#### State and Political Subdivisions

The unrealized losses in securities of state and political subdivisions were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than par which will equal amortized cost at maturity. CTBI does not intend to sell the investments before recovery of their amortized cost and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost.

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## U.S. Government Sponsored Agency Mortgage-Backed Securities

The unrealized losses in U.S. government sponsored agency mortgage-backed securities were caused by interest rate changes. CTBI expects to recover the amortized cost basis over the term of the securities. CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost.

### Asset-Backed Securities

The unrealized losses in asset-backed securities were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than par which will equal amortized cost at maturity. CTBI does not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost.

## 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 2022 | December 31 2021 |
| --- | --- | --- |
| Hotel/motel | $343,640 | $257,062 |
| Commercial real estate residential | 372,914 | 335,233 |
| Commercial real estate nonresidential | 762,349 | 757,893 |
| Dealer floorplans | 77,533 | 69,452 |
| Commercial other | 311,539 | 290,478 |
| Commercial unsecured SBA PPP | 883 | 47,335 |
| Commercial loans | 1,868,858 | 1,757,453 |
| Real estate mortgage | 824,996 | 767,185 |
| Home equity lines | 120,540 | 106,667 |
| Residential loans | 945,536 | 873,852 |
| Consumer direct | 157,504 | 156,683 |
| Consumer indirect | 737,392 | 620,825 |
| Consumer loans | 894,896 | 777,508 |
| Loans and lease financing | $3,709,290 | $3,408,813 |

The loan portfolios presented above are net of unearned fees and unamortized premiums. Unearned fees included above totaled $1.0 million as of December 31, 2022 and $4.0 million as of December 31, 2021, while the unamortized premiums on the indirect lending portfolio totaled $28.5 million as of December 31, 2022 and $24.1 million as of December 31, 2021.

CTBI has segregated and evaluates our loan portfolio through ten 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 9.3% 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.

CTBI participation in the Paycheck Protection Program ('PPP') established by the Coronavirus Aid, Relief, and Economic Security Act (the 'CARES Act') resulted in the creation of a new loan segment of unsecured commercial other loans that are one hundred percent guaranteed by the U.S. Small Business Administration ('SBA'). These loans, which are subject to forgiveness, have maturities of either two or three to five years, depending on when the loan was made. These loans currently have no allowance for credit losses.

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.

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

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

Not included in the loan balances above were loans held for sale in the amount of $0.1 million at December 31, 2022 and $2.6 million at December 31, 2021.

The following tables present the balance in the ACL for the years ended December 31, 2022 and December 31, 2021.

| (in thousands) | Year Ended December 31, 2022 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | 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 |

| (in thousands) | Year Ended December 31, 2021 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Beginning Balance | Provision Charged to Expense | Losses Charged Off | Recoveries | Ending Balance |
| ACL |  |  |  |  |  |
| Hotel/motel | $6,356 | $(1,276) | $0 | $0 | $5,080 |
| Commercial real estate residential | 4,464 | (488) | (28) | 38 | 3,986 |
| Commercial real estate nonresidential | 11,086 | (2,233) | (306) | 337 | 8,884 |
| Dealer floorplans | 1,382 | 54 | 0 | 0 | 1,436 |
| Commercial other | 4,289 | 388 | (644) | 389 | 4,422 |
| Real estate mortgage | 7,832 | 3 | (266) | 68 | 7,637 |
| Home equity | 844 | 39 | (36) | 19 | 866 |
| Consumer direct | 1,863 | 256 | (684) | 516 | 1,951 |
| Consumer indirect | 9,906 | (3,129) | (2,361) | 3,078 | 7,494 |
| Total | $48,022 | $(6,386) | $(4,325) | $4,445 | $41,756 |

| (in thousands) | Year Ended December 31, 2020 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Beginning Balance, Prior to Adoption of ASC 326 | Impact of Adoption of ASC 326 | Provision Charged to Expense | Losses Charged Off | Recoveries | Ending Balance |
| ACL |  |  |  |  |  |  |
| Hotel/motel | $3,371 | $170 | $2,858 | $(43) | $0 | $6,356 |
| Commercial real estate residential | 3,439 | (721) | 1,772 | (182) | 156 | 4,464 |
| Commercial real estate nonresidential | 8,515 | 119 | 3,303 | (941) | 90 | 11,086 |
| Dealer floorplans | 802 | 820 | (214) | (26) | 0 | 1,382 |
| Commercial other | 5,556 | (391) | 2,040 | (3,339) | 423 | 4,289 |
| Real estate mortgage | 4,604 | 1,893 | 1,584 | (321) | 72 | 7,832 |
| Home equity | 897 | (75) | 16 | (4) | 10 | 844 |
| Consumer direct | 1,711 | (40) | 609 | (927) | 510 | 1,863 |
| Consumer indirect | 6,201 | 1,265 | 4,079 | (4,670) | 3,031 | 9,906 |
| Total | $35,096 | $3,040 | $16,047 | $(10,453) | $4,292 | $48,022 |

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 are 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 has determined that twelve months represents a reasonable and supportable forecast period and reverts back to a historical loss rate immediately. CTBI leverages economic projections from reputable and independent third parties to form our loss driver forecasts over the twelve month forecast period. Other internal and external indicators of economic forecasts are also considered by CTBI when developing the forecast metrics.

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CTBI also has 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. Management has identified the following known model limitations and made adjustments through this portion of the calculation for them:

(1) The inability to completely identify revolving lines of credit within the commercial other segment. Management had to make assumptions regarding commercial renewals as those renewals are not tracked well by our loan system.

(2) The inability within the model to estimate the value of modifications made under TDRs. Management has manually calculated the estimated impact based on research of modified terms for TDRs.

With the continued impact of global uncertainty, the current historically high rate of inflation, the significant rising rate environment, and the fact that there is no immediate end foreseen, these have been identified as significant specific events that could impact our customers' ability to pay. As segments stabilize, these allocations are adjusted with reductions totaling $0.9 million made to the segments during 2022. Management continues to have a significant event qualitative factor to anticipate the continued impact of the above factors.

Provision for credit losses for the year 2022 was $4.9 million compared to a recovery of $6.4 million during the year 2021. 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. Our credit loss reserve as a percentage of total loans outstanding at December 31, 2022 was 1.24% compared to 1.22% at December 31, 2021.

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, 2022 and December 31, 2021 were as follows:

|  | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
| (in thousands) | Nonaccrual Loans with No ACL | Nonaccrual Loans with ACL | 90+ and Still Accruing | Total Nonperforming Loans |
| Hotel/motel | $0 | $0 | $0 | $0 |
| Commercial real estate residential | 0 | 355 | 258 | 613 |
| Commercial real estate nonresidential | 0 | 1,116 | 1,947 | 3,063 |
| Commercial other | 0 | 982 | 356 | 1,338 |
| Commercial unsecured SBA PPP | 0 | 0 | 13 | 13 |
| 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 |

|  | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
| (in thousands) | Nonaccrual Loans with No ACL | Nonaccrual Loans with ACL | 90+ and Still Accruing | Total Nonperforming Loans |
| Hotel/motel | $0 | $1,075 | $0 | $1,075 |
| Commercial real estate residential | 0 | 585 | 312 | 897 |
| Commercial real estate nonresidential | 2,447 | 1,602 | 144 | 4,193 |
| Commercial other | 0 | 302 | 76 | 378 |
| Total commercial loans | 2,447 | 3,564 | 532 | 6,543 |
| Real estate mortgage | 0 | 4,081 | 4,659 | 8,740 |
| Home equity lines | 0 | 579 | 513 | 1,092 |
| Total residential loans | 0 | 4,660 | 5,172 | 9,832 |
| Consumer direct | 0 | 0 | 44 | 44 |
| Consumer indirect | 0 | 0 | 206 | 206 |
| Total consumer loans | 0 | 0 | 250 | 250 |
| Loans and lease financing | $2,447 | $8,224 | $5,954 | $16,625 |

CTBI recognized $44 thousand in interest income on the above nonaccrual loans for the year ended December 31, 2022 compared to $82 thousand for the year ended December 31, 2021.

#### 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

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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, 2022 and December 31, 2021 (includes loans 90 days past due and still accruing as well):

| (in thousands) | December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 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 | 846 | 484 | 2,359 | 309,180 | 311,539 |
| Commercial unsecured SBA PPP | 0 | 4 | 12 | 16 | 867 | 883 |
| 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 |

| (in thousands) | December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 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 | $257,062 | $257,062 |
| Commercial real estate residential | 274 | 116 | 845 | 1,235 | 333,998 | 335,233 |
| Commercial real estate nonresidential | 1,303 | 147 | 3,509 | 4,959 | 752,934 | 757,893 |
| Dealer floorplans | 0 | 0 | 0 | 0 | 69,452 | 69,452 |
| Commercial other | 1,225 | 175 | 108 | 1,508 | 288,970 | 290,478 |
| Commercial unsecured SBA PPP | 14 | 34 | 0 | 48 | 47,287 | 47,335 |
| Total commercial loans | 2,816 | 472 | 4,462 | 7,750 | 1,749,703 | 1,757,453 |
| Real estate mortgage | 1,171 | 2,707 | 6,859 | 10,737 | 756,448 | 767,185 |
| Home equity lines | 656 | 315 | 903 | 1,874 | 104,793 | 106,667 |
| Total residential loans | 1,827 | 3,022 | 7,762 | 12,611 | 861,241 | 873,852 |
| Consumer direct | 396 | 179 | 44 | 619 | 156,064 | 156,683 |
| Consumer indirect | 2,889 | 533 | 206 | 3,628 | 617,197 | 620,825 |
| Total consumer loans | 3,285 | 712 | 250 | 4,247 | 773,261 | 777,508 |
| Loans and lease financing | $7,928 | $4,206 | $12,474 | $24,608 | $3,384,205 | $3,408,813 |

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

Hotel/motel loans are a significant concentration for CTBI, representing approximately 9.3% 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. Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.

Commercial real estate 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. Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.

Commercial real estate 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

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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. Loans in amounts greater than $500,000 generally require a performance bond to be posted by the general contractor to assure completion of the project.

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 has resulted in a new loan segment of unsecured commercial other loans that are 100% SBA guaranteed. These loans, which are subject to forgiveness, have maturities of either two or three to five years, depending on when the loans were made. These loans currently have no allowance for credit losses.

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

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

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

## 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.

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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 | 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 | 59,667 | 34,841 | 8,922 | 2,333 | 23,961 | 77,355 | 285,925 |
| 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 | 65,678 | 36,330 | 9,604 | 2,635 | 25,499 | 84,739 | 311,539 |
| Commercial unsecured SBA PPP |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | 0 | 883 | 0 | 0 | 0 | 0 | 0 | 883 |
| 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 commercial unsecured SBA PPP | 0 | 883 | 0 | 0 | 0 | 0 | 0 | 883 |

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# **Term Loans Amortized Cost Basis by Origination Year**

| (in thousands) December 31 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 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 |

# **Term Loans Amortized Cost Basis by Origination Year**

| (in thousands) December 31 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Hotel/motel |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | $42,056 | $11,231 | $53,713 | $18,752 | $32,765 | $20,087 | $0 | $178,604 |
| Watch | 9,234 | 14,021 | 8,813 | 8,780 | 2,678 | 30,502 | 0 | 74,028 |
| OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Substandard | 0 | 0 | 0 | 3,355 | 1,075 | 0 | 0 | 4,430 |
| Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total hotel/motel | 51,290 | 25,252 | 62,526 | 30,887 | 36,518 | 50,589 | 0 | 257,062 |
| Commercial real estate residential |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | 142,364 | 54,380 | 22,320 | 19,826 | 11,919 | 45,791 | 9,544 | 306,144 |
| Watch | 2,643 | 2,359 | 1,962 | 2,119 | 554 | 6,949 | 156 | 16,742 |
| OAEM | 0 | 0 | 0 | 0 | 16 | 0 | 0 | 16 |
| Substandard | 4,822 | 1,990 | 620 | 1,835 | 596 | 2,468 | 0 | 12,331 |
| Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total commercial real estate residential | 149,829 | 58,729 | 24,902 | 23,780 | 13,085 | 55,208 | 9,700 | 335,233 |
| Commercial real estate nonresidential |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | 214,563 | 99,131 | 82,386 | 57,397 | 55,422 | 168,533 | 22,389 | 699,821 |
| Watch | 5,130 | 2,865 | 3,981 | 2,802 | 3,655 | 11,828 | 767 | 31,028 |
| OAEM | 0 | 0 | 0 | 0 | 0 | 178 | 20 | 198 |
| Substandard | 5,201 | 5,098 | 3,764 | 600 | 2,016 | 9,659 | 200 | 26,538 |
| Doubtful | 0 | 0 | 0 | 0 | 0 | 308 | 0 | 308 |
| Total commercial real estate nonresidential | 224,894 | 107,094 | 90,131 | 60,799 | 61,093 | 190,506 | 23,376 | 757,893 |
| Dealer floorplans |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | 0 | 0 | 0 | 0 | 0 | 0 | 69,105 | 69,105 |
| Watch | 0 | 0 | 0 | 0 | 0 | 0 | 347 | 347 |
| 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 | 69,452 | 69,452 |
| Commercial other |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | 72,650 | 43,838 | 16,495 | 29,858 | 9,105 | 13,346 | 75,119 | 260,411 |
| Watch | 7,196 | 1,967 | 1,582 | 599 | 332 | 1,071 | 11,792 | 24,539 |
| OAEM | 0 | 0 | 268 | 383 | 12 | 1 | 482 | 1,146 |
| Substandard | 1,600 | 1,589 | 147 | 184 | 287 | 451 | 124 | 4,382 |
| Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total commercial other | 81,446 | 47,394 | 18,492 | 31,024 | 9,736 | 14,869 | 87,517 | 290,478 |

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# **Term Loans Amortized Cost Basis by Origination Year**

| (in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 31 |  |  |  |  |  |  |  |  |
| Commercial unsecured SBA PPP |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | 46,227 | 1,108 | 0 | 0 | 0 | 0 | 0 | 47,335 |
| 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 commercial unsecured SBA PPP | 46,227 | 1,108 | 0 | 0 | 0 | 0 | 0 | 47,335 |
| Commercial loans |  |  |  |  |  |  |  |  |
| Risk rating: |  |  |  |  |  |  |  |  |
| Pass | 517,860 | 209,688 | 174,914 | 125,833 | 109,211 | 247,757 | 176,157 | 1,561,420 |
| Watch | 24,203 | 21,212 | 16,338 | 14,300 | 7,219 | 50,350 | 13,062 | 146,684 |
| OAEM | 0 | 0 | 268 | 383 | 28 | 179 | 502 | 1,360 |
| Substandard | 11,623 | 8,677 | 4,531 | 5,974 | 3,974 | 12,578 | 324 | 47,681 |
| Doubtful | 0 | 0 | 0 | 0 | 0 | 308 | 0 | 308 |
| Total commercial loans | $553,686 | $239,577 | $196,051 | $146,490 | $120,432 | $311,172 | $190,045 | $1,757,453 |

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) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 31 |  |  |  |  |  |  |  |  |
| 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 |

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(in thousands)

# Term Loans Amortized Cost Basis by Origination Year

| December 31 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Home equity lines |  |  |  |  |  |  |  |  |
| Performing | $0 | $0 | $0 | $0 | $0 | $10,909 | $94,666 | $105,575 |
| Nonperforming | 0 | 0 | 0 | 0 | 0 | 520 | 572 | 1,092 |
| Total home equity lines | 0 | 0 | 0 | 0 | 0 | 11,429 | 95,238 | 106,667 |
| Mortgage loans |  |  |  |  |  |  |  |  |
| Performing | 195,731 | 161,471 | 75,792 | 37,188 | 42,597 | 245,666 | 0 | 758,445 |
| Nonperforming | 0 | 63 | 424 | 364 | 558 | 7,331 | 0 | 8,740 |
| Total mortgage loans | 195,731 | 161,534 | 76,216 | 37,552 | 43,155 | 252,997 | 0 | 767,185 |
| Residential loans |  |  |  |  |  |  |  |  |
| Performing | 195,731 | 161,471 | 75,792 | 37,188 | 42,597 | 256,575 | 94,666 | 864,020 |
| Nonperforming | 0 | 63 | 424 | 364 | 558 | 7,851 | 572 | 9,832 |
| Total residential loans | $195,731 | $161,534 | $76,216 | $37,552 | $43,155 | $264,426 | $95,238 | $873,852 |
| Consumer direct loans |  |  |  |  |  |  |  |  |
| Performing | $71,626 | $39,312 | $18,492 | $10,468 | $4,490 | $12,251 | $0 | $156,639 |
| Nonperforming | 0 | 4 | 3 | 34 | 3 | 0 | 0 | 44 |
| Total consumer direct loans | 71,626 | 39,316 | 18,495 | 10,502 | 4,493 | 12,251 | 0 | 156,683 |
| Consumer indirect loans |  |  |  |  |  |  |  |  |
| Performing | 263,127 | 190,145 | 80,793 | 54,437 | 23,449 | 8,668 | 0 | 620,619 |
| Nonperforming | 24 | 135 | 20 | 0 | 23 | 4 | 0 | 206 |
| Total consumer indirect loans | 263,151 | 190,280 | 80,813 | 54,437 | 23,472 | 8,672 | 0 | 620,825 |
| Consumer loans |  |  |  |  |  |  |  |  |
| Performing | 334,753 | 229,457 | 99,285 | 64,905 | 27,939 | 20,919 | 0 | 777,258 |
| Nonperforming | 24 | 139 | 23 | 34 | 26 | 4 | 0 | 250 |
| Total consumer loans | $334,777 | $229,596 | $99,308 | $64,939 | $27,965 | $20,923 | $0 | $777,508 |

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

The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings are in process was $3.3 million at December 31, 2022. The total of consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings have resumed with restricted parameters was $2.3 million at December 31, 2021.

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

| 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 |

| December 31, 2021 |  |  |  |
| --- | --- | --- | --- |
| (in thousands) | Number of Loans | Recorded Investment | Specific Reserve |
| Hotel/motel | 2 | $9,462 | $600 |
| Commercial real estate residential | 4 | 7,255 | 0 |
| Commercial real estate nonresidential | 11 | 19,943 | 200 |
| Commercial other | 1 | 1,113 | 350 |
| Total collateral dependent loans | 18 | $37,773 | $1,150 |

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, 2022 are collateralized by inventory, equipment, and accounts receivable.

42

Certain loans have been modified in troubled debt restructurings, where economic concessions were granted to borrowers consisting of reductions in the interest rates, payment extensions, forgiveness of principal, and forbearances. Presented below, segregated by class of loans, are troubled debt restructurings that occurred during the years ended December 31, 2022 and 2021:

| (in thousands) | Number of Loans | Term Modification | Year Ended December 31, 2022 |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | Pre-Modification Outstanding Balance |  |  |
|  |  |  | 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 |

| (in thousands) | Number of Loans | Term Modification | Year Ended December 31, 2022 |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | Post-Modification Outstanding Balance |  |  |
|  |  |  | 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 |

| (in thousands) | Number of Loans | Term Modification | Year Ended December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | Pre-Modification Outstanding Balance |  |  |
|  |  |  | Combination | Other | Total Modification |
| Commercial real estate residential | 6 | $388 | $0 | $0 | $388 |
| Commercial real estate nonresidential | 9 | 4,179 | 2,988 | 0 | 7,167 |
| Hotel/motel | 0 | 0 | 0 | 0 | 0 |
| Commercial other | 5 | 417 | 0 | 0 | 417 |
| Total commercial loans | 20 | 4,984 | 2,988 | 0 | 7,972 |
| Real estate mortgage | 3 | 278 | 277 | 262 | 817 |
| Total residential loans | 3 | 278 | 277 | 262 | 817 |
| Total troubled debt restructurings | 23 | $5,262 | $3,265 | $262 | $8,789 |

| (in thousands) | Number of Loans | Term Modification | Year Ended December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | Post-Modification Outstanding Balance |  |  |
|  |  |  | Combination | Other | Total Modification |
| Commercial real estate residential | 6 | $424 | $0 | $0 | $424 |
| Commercial real estate nonresidential | 9 | 4,282 | 3,000 | 0 | 7,282 |
| Hotel/motel | 0 | 0 | 0 | 0 | 0 |
| Commercial other | 5 | 340 | 0 | 0 | 340 |
| Total commercial loans | 20 | 5,046 | 3,000 | 0 | 8,046 |
| Real estate mortgage | 3 | 279 | 277 | 262 | 818 |
| Total residential loans | 3 | 279 | 277 | 262 | 818 |
| Total troubled debt restructurings | 23 | $5,325 | $3,277 | $262 | $8,864 |

43

No charge-offs have resulted from modifications for any of the presented periods. We had commitments to extend additional credit in the amount of $40 thousand and $52 thousand at December 31, 2022 and 2021, respectively, on loans that were considered troubled debt restructurings.

Loans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual. Commercial and consumer loans modified in a troubled debt restructuring are closely monitored for delinquency as an early indicator of possible future default. If a loan modified in a troubled debt restructuring subsequently defaults, CTBI evaluates the loan for possible further impairment. The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. Presented below, segregated by class of loans, are loans that were modified as troubled debt restructurings within the past twelve months which have subsequently defaulted. CTBI considers a loan in default when it is 90 days or more past due or transferred to nonaccrual. See below for defaulted restructured loans at December 31, 2022 and 2021.

| (in thousands) | Year Ended December 31, 2022 |  | Year Ended December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Number of Loans | Recorded Balance | Number of Loans | Recorded Balance |
| Commercial: |  |  |  |  |
| Hotel/motel | 0 | $0 | 1 | $1,113 |
| Residential: |  |  |  |  |
| Real estate mortgage | 2 | 751 | 1 | 275 |
| Total defaulted restructured loans | 2 | $751 | 2 | $1,388 |

## 5. Mortgage Banking and Servicing Rights

Mortgage banking activities primarily include residential mortgage originations and servicing. As discussed in note 1 above, mortgage servicing rights ('MSRs') are carried at fair value. The fair value is determined quarterly based on an independent third-party valuation using a discounted cash flow analysis and calculated using a computer pricing model. The system used in this evaluation, Compass Point, attempts to quantify loan level idiosyncratic risk by calculating a risk derived value. As a result, each loan's unique characteristics determine the valuation assumptions ascribed to that loan. Additionally, the computer valuation is based on key economic assumptions including the prepayment speeds of the underlying loans generated using the Andrew Davidson Prepayment Model, FHLMC/FNMA guidelines, the weighted average life of the loan, the discount rate, the weighted average coupon, and the weighted-average default rate, as applicable. Along with the gains received from the sale of loans, fees are received for servicing loans. These fees include late fees, which are recorded in interest income, and ancillary fees and monthly servicing fees, which are recorded in loan related fees. Costs of servicing loans are charged to expense as incurred. Changes in fair value of the MSRs are reported as an increase or decrease to mortgage banking income.

The following table presents the components of mortgage banking income:

| (in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Year Ended December 31 |  |  |  |
| Net gain on sale of mortgage loans held for sale | $1,525 | $6,820 | $7,226 |
| Net loan servicing income: |  |  |  |
| Servicing fees | 2,226 | 2,058 | 1,515 |
| Late fees | 78 | 67 | 52 |
| Ancillary fees | 94 | 848 | 1,310 |
| Fair value adjustments | 1,069 | 428 | (1,064) |
| Net loan servicing income | 3,467 | 3,401 | 1,813 |
| Mortgage banking income | $4,992 | $10,221 | $9,039 |

Mortgage loans serviced for others are not included in the accompanying balance sheets. Loans serviced for the benefit of others (primarily FHLMC) totaled $783 million, $807 million, and $650 million at December 31, 2022, 2021, and 2020, respectively. Servicing loans for others generally consist of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and processing foreclosures. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were approximately $3.0 million, $2.6 million, and $2.0 million at December 31, 2022, 2021, and 2020, respectively.

Activity for capitalized MSRs using the fair value method is as follows:

| (in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Fair value of MSRs, beginning of year | $6,774 | $4,068 | $3,263 |
| New servicing assets created | 625 | 2,278 | 1,869 |
| Change in fair value during the year due to: |  |  |  |
| Time decay (1) | (450) | (259) | (135) |
| Payoffs (2) | (429) | (587) | (766) |
| Changes in valuation inputs or assumptions (3) | 1,948 | 1,274 | (163) |
| Fair value of MSRs, end of year | $8,468 | $6,774 | $4,068 |

(1) Represents decrease in value due to regularly scheduled loan principal payments and partial loan paydowns.

(2) Represents decrease in value due to loans that paid off during the period.

(3) Represents change in value resulting from market-driven changes in interest rates.

The fair values of capitalized MSRs were $8.5 million, $6.8 million, and $4.1 million at December 31, 2022, 2021, and 2020, respectively. Fair values for the years ended December 31, 2022, 2021, and 2020 were determined by third-party valuations with a resulting 10.0% average discount rate in 2022 compared to the 10.1% average discount rate over the prior two years, respectively, and weighted average default rates of 1.24%, 1.39%, and 1.67%, respectively. Prepayment speeds generated using the Andrew Davidson Prepayment Model averaged 7.1%, 10.0%, and 15.7% at December 31, 2022, 2021, and 2020, respectively. MSR values are very sensitive to movement in interest rates as expected future net servicing income depends on the projected balance of the underlying loans, which can be greatly impacted by the level of prepayments. CTBI does not currently hedge against changes in the fair value of our MSR portfolio.

44

## 6. Related Party Transactions

In the ordinary course of business, CTB has made extensions of credit and had transactions with certain directors and executive officers of CTBI or our subsidiaries, including their associates (as defined by the Securities and Exchange Commission). We believe such extensions of credit and transactions were made on substantially the same terms, including interest rate and collateral, as those prevailing at the same time for comparable transactions with other persons.

Activity for related party extensions of credit during 2022 and 2021 is as follows:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| Related party extensions of credit, beginning of year | $45,022 | $38,061 |
| New loans and advances on lines of credit | 1,813 | 10,952 |
| Repayments | (4,749) | (3,055) |
| Decrease due to changes in related parties | (19) | (936) |
| Related party extensions of credit, end of year | $42,067 | $45,022 |

The aggregate balances of related party deposits at December 31, 2022 and 2021 were $27.9 million and $24.9 million, respectively.

A director of CTBI is a shareholder in a law firm that provided services to CTBI and our subsidiaries during the years 2022, 2021, and 2020. Approximately $0.4 million in legal fees and $0.1 million in expenses, $0.5 million total, were paid during 2022. Approximately $0.4 million in legal fees and $0.1 million in expenses, $0.5 million total, were paid during 2021. Approximately $0.8 million in legal fees and $0.1 million in expenses paid on behalf of CTBI, $0.9 million total, were paid to this law firm during 2020. A refund was issued for several years of adjustments reducing the total paid in 2020 to $0.6 million.

## 7. Premises and Equipment

Premises and equipment are summarized as follows:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| December 31 |  |  |
| Land and buildings | $81,345 | $80,015 |
| Leasehold improvements | 4,797 | 4,829 |
| Furniture, fixtures, and equipment | 43,531 | 40,835 |
| Construction in progress | 589 | 1,475 |
| Total premises and equipment | 130,262 | 127,154 |
| Less accumulated depreciation and amortization | (87,629) | (86,675) |
| Premises and equipment, net | $42,633 | $40,479 |

Depreciation and amortization of premises and equipment for 2022, 2021, and 2020 was $3.3 million, $3.2 million, and $3.5 million, respectively.

## 8. Other Real Estate Owned

Activity for other real estate owned was as follows:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| Beginning balance of other real estate owned | $3,486 | $7,694 |
| New assets acquired | 2,433 | 1,166 |
| Capitalized costs | 73 | 0 |
| Fair value adjustments | (285) | (857) |
| Sale of assets | (2,036) | (4,517) |
| Ending balance of other real estate owned | $3,671 | $3,486 |

Carrying costs and fair value adjustments associated with foreclosed properties were $0.5 million, $1.4 million, and $2.7 million for 2022, 2021, and 2020, respectively. See note 1 for a description of our accounting policies relative to foreclosed properties and other real estate owned.

The major classifications of foreclosed properties are shown in the following table:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| December 31 |  |  |
| 1-4 family | $859 | $1,130 |
| Construction/land development/other | 867 | 480 |
| Multifamily | 0 | 88 |
| Non-farm/non-residential | 1,945 | 1,788 |
| Total foreclosed properties | $3,671 | $3,486 |

45

## 9. Deposits

Major classifications of deposits are categorized as follows:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| December 31 |  |  |
| Noninterest bearing deposits | $1,394,915 | $1,331,103 |
| Interest bearing demand deposits | 112,265 | 97,064 |
| Money market deposits | 1,348,809 | 1,206,401 |
| Savings | 654,380 | 632,645 |
| Certificates of deposit and other time deposits of $100,000 or more | 531,424 | 654,325 |
| Certificates of deposit and other time deposits less than $100,000 | 384,350 | 422,754 |
| Total deposits | $4,426,143 | $4,344,292 |

Certificates of deposit and other time deposits of $250,000 or more at December 31, 2022 and 2021 were $203.7 million and $261.0 million, respectively.

Maturities of certificates of deposits and other time deposits are presented below:

| (in thousands) | Maturities by Period at December 31, 2022 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Total | Within 1 Year | 2 Years | 3 Years | 4 Years | 5 Years | After 5 Years |
| Certificates of deposit and other time deposits of $100,000 or more | $531,424 | $397,480 | $96,745 | $19,199 | $10,789 | $7,057 | $154 |
| Certificates of deposit and other time deposits less than $100,000 | 384,350 | 300,646 | 51,991 | 12,525 | 9,955 | 9,023 | 210 |
| Total maturities | $915,774 | $698,126 | $148,736 | $31,724 | $20,744 | $16,080 | $364 |

## 10. Borrowings

Short-term debt is categorized as follows:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| December 31 |  |  |
| Repurchase agreements | $215,431 | $271,088 |
| Federal funds purchased | 500 | 500 |
| Total short-term debt | $215,931 | $271,588 |

All federal funds purchased mature and reprice daily. See note 11 for information regarding the maturities of our repurchase agreements. The average rates paid for federal funds purchased and repurchase agreements on December 31, 2022 were 4.07% and 2.75%, respectively.

The maximum balance for repurchase agreements at any month-end during 2022 occurred at February 28, 2022, with a month-end balance of $277.4 million. The average balance of repurchase agreements for the year was $242.4 million.

Long-term debt is categorized as follows:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| December 31 |  |  |
| Junior subordinated debentures, 6.35%, due 6/1/37 | $57,841 | $57,841 |

On March 30, 2007, CTBI issued $61.3 million in junior subordinated debentures to a newly formed unconsolidated Delaware statutory trust subsidiary which in turn issued $59.5 million of capital securities in a private placement to institutional investors. The debentures, which mature in 30 years but are redeemable at par at CTBI's option after five years, were issued at a rate of 6.52% until June 1, 2012, and thereafter at a floating rate based on the three-month LIBOR plus 1.59%. The underlying capital securities were issued at the equivalent rates and terms. The proceeds of the debentures were used to fund the redemption on April 2, 2007 of all CTBI's outstanding 9.0% and 8.25% junior subordinated debentures in the total amount of $61.3 million. In May 2017, CTBI was able to purchase $2.0 million of the junior subordinated debentures in the open market at a purchase price of $1.4 million, resulting in a gain of $0.6 million. In August 2019, an additional $1.5 million was purchased in the open market at a price of $1.3 million, resulting in a gain of $0.2 million. The junior subordinated debentures will be retained by CTBI until maturity, and CTBI will continue to report the junior subordinated debentures at the net amount outstanding of $57.8 million.

On March 15, 2022, the President of the United States of America signed into law the Adjustable Interest Rate (LIBOR) Act (as implemented by the Final Regulations (defined below), the 'LIBOR Act'). Under the LIBOR Act, on the first London banking day after June 30, 2023 (the 'LIBOR Replacement Date'), a benchmark replacement recommended by the Board of Governors of the Federal Reserve System (the 'Board') will replace LIBOR in certain contracts. These contracts are those which, after giving effect to other parts of the LIBOR Act, (i) contain no fallback provisions (including contracts which contain no fallback provisions after giving effect to certain parts of the LIBOR Act) or (ii) contain fallback provisions that identify neither a specific non-LIBOR based benchmark replacement nor a person with the authority, right or obligation to determine a benchmark replacement. Other parts of the LIBOR Act require that fallback provisions which (i) are based in any way on any LIBOR value, except to account for the difference between LIBOR and the benchmark replacement or (ii) require that a person (other than a benchmark administrator) conduct a poll, survey or inquiries for quotes or information concerning interbank lending or deposit rates be disregarded and deemed null and void. The Board-recommended benchmark replacement is based on the Secured Overnight Financing Rate ('SOFR') published by the Federal Reserve Bank of New York, including any recommended spread adjustment and benchmark replacement conforming changes. In addition, the LIBOR Act creates a safe harbor protecting from liability any person (including any person with the authority to determine a benchmark replacement under the junior subordinated debentures and the related trust preferred securities (the 'TRUPS Documents')) for the selection or use of the Board-recommended benchmark replacement or the implementation of certain technical, administrative or operational changes relating to the implementation, administration and calculation of the Board-recommended benchmark replacement.

46

Under the LIBOR Act, the Board was required to promulgate regulations implementing the LIBOR Act. On December 16, 2022, the Board issued its final regulations (the “Final Regulations”) implementing the LIBOR Act. The Final Regulations: (i) address the applicability of the LIBOR Act to various LIBOR contracts, (ii) identify the Board-selected benchmark replacements for various types of LIBOR contracts, (iii) include certain benchmark replacement conforming changes, (iv) address the issue of preemption and (v) provide other clarifications, definitions and information.

On January 27, 2023, CTBI received notice from the trustee of the trust subsidiary, that based on their review of the TRUPS Documents, after application of the LIBOR Act and the Final Regulations, the TRUPS Documents issued by the trust subsidiary do not provide a replacement rate for Applicable LIBOR (a “Replacement Rate”) or include other fallback provisions which would apply on the LIBOR Replacement Date. Absent an amendment to the TRUPS Documents, some other change in applicable law, rule, regulation, or some other development, the LIBOR Act as implemented by the Final Regulations provides that (i) on and after the LIBOR Replacement Date, 3-month CME Term SOFR or 6-month CME Term SOFR (as defined in the Final Regulations) as adjusted by the relevant spread adjustment, which is 0.26161 percent or 0.42826 percent, shall be the benchmark replacement for the Applicable LIBOR in the TRUPS Documents and (ii) all applicable benchmark replacement conforming changes (as specified in the Final Regulations) will become an integral part of the TRUPS Documents, without any action by any party.

On November 29, 2022, the coupon rate was set at 6.35% for the March 1, 2023 distribution date, which was based on the three-month LIBOR rate as of November 29, 2022 of 4.76% plus 1.59%.

## 11. Repurchase Agreements

We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and provide additional funding to our balance sheet. Repurchase agreements are transactions whereby we offer to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates CTBI to repurchase the security on an agreed upon date at an agreed upon repurchase price plus interest at an agreed upon rate. Securities sold under agreements to repurchase are recorded at the amount of cash received in connection with the transaction and are reflected in the accompanying consolidated balance sheets.

We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities. The primary risk with our repurchase agreements is market risk associated with the securities securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The carrying value of investment securities available-for-sale pledged as collateral under repurchase agreements totaled $273.8 million and $317.1 million at December 31, 2022 and December 31, 2021, respectively.

The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in the accompanying consolidated balance sheets as of December 31, 2022 and December 31, 2021 is presented in the following tables:

| December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
| Remaining Contractual Maturity of the Agreements |  |  |  |  |  |
| (in thousands) | Overnight and Continuous | Up to 30 days | 30-90 days | Greater Than 90 days | Total |
| Repurchase agreements and repurchase-to-maturity transactions: |  |  |  |  |  |
| U.S. Treasury and government agencies | $21,679 | $34 | $2,979 | $1,832 | $26,524 |
| State and political subdivisions | 96,627 | 466 | 9,634 | 2,140 | 108,867 |
| U.S. government sponsored agency mortgage-backed securities | 17,964 | 0 | 52,387 | 9,385 | 79,736 |
| Asset-backed securities | 304 | 0 | 0 | 0 | 304 |
| Total | $136,574 | $500 | $65,000 | $13,357 | $215,431 |

| December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
| Remaining Contractual Maturity of the Agreements |  |  |  |  |  |
| (in thousands) | Overnight and Continuous | Up to 30 days | 30-90 days | Greater Than 90 days | Total |
| Repurchase agreements and repurchase-to-maturity transactions: |  |  |  |  |  |
| U.S. Treasury and government agencies | $3,176 | $16 | $5,400 | $10,040 | $18,632 |
| State and political subdivisions | 83,375 | 484 | 13,633 | 9,427 | 106,919 |
| U.S. government sponsored agency mortgage-backed securities | 24,689 | 0 | 85,967 | 34,881 | 145,537 |
| Asset-backed securities | 0 | 0 | 0 | 0 | 0 |
| Total | $111,240 | $500 | $105,000 | $54,348 | $271,088 |

## 12. Advances from Federal Home Loan Bank

Federal Home Loan Bank (“FHLB”) advances consisted of the following monthly amortizing borrowings at December 31:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| Monthly amortizing | $355 | $375 |
| Total FHLB advances | $355 | $375 |

The advances from the FHLB that require monthly principal payments were due for repayment as follows:

| Principal Payments Due by Period at December 31, 2022 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| (in thousands) | Total | Within 1 Year | 2 Years | 3 Years | 4 Years | 5 Years | After 5 Years |
| Outstanding advances, weighted average interest rate - 0.05% | $355 | $22 | $20 | $21 | $20 | $21 | $251 |

47

At December 31, 2022, CTBI had monthly amortizing FHLB advances totaling $0.4 million at a weighted average interest rate of 0.05%.

Advances totaling $0.4 million at December 31, 2022 were collateralized by FHLB stock of $6.7 million and a blanket lien on qualifying 1-4 family first mortgage loans. As of December 31, 2022, CTBI had a $501.4 million FHLB borrowing capacity with $0.4 million in advances leaving $501.0 million available for additional advances. The advances had fixed interest rates of 0.00% and 2.00% with a weighted average rate of 0.05%. The advances are subject to restrictions or penalties in the event of prepayment.

### 13. Income Taxes

The components of the provision for income taxes, exclusive of tax effect of unrealized AFS securities gains and losses, are as follows:

| (in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Current federal income tax expense | $14,882 | $16,160 | $12,884 |
| Current state income tax expense | 1,096 | 4,214 | 786 |
| Deferred federal income tax expense (benefit) | 194 | 1,138 | (2,900) |
| Deferred state income tax expense | 3,056 | 1,192 | 0 |
| Effect of Kentucky tax legislation benefit | 0 | 0 | (9) |
| Total income tax expense | $19,228 | $22,704 | $10,761 |

A reconciliation of income tax expense at the statutory rate to our actual income tax expense is shown below:

| (in thousands) | 2022 | 2021 | 2020 |  |
| --- | --- | --- | --- | --- |
| Computed at the statutory rate | $21,219 | $21.00% | $23,235 |  |
| Adjustments resulting from: |  |  |  |  |
| Tax-exempt interest | (717) | (0.70) | (690) |  |
| Housing and new markets credits | (3,105) | (3.07) | (3,939) |  |
| Bank owned life insurance | (367) | (0.36) | (382) | (277) |
| ESOP dividend deduction | (240) | (0.24) | (233) | (0.21) |
| Stock option exercises and restricted stock vesting | (1) | 0.00 | 25 | 0.02 |
| Effect of KY tax legislation | 0 | 0.00 | 0 | 0.00 |
| State income taxes | 3,281 | 3.25 | 4,270 | 3.86 |
| Split dollar life insurance | (184) | (0.19) | 212 | 0.19 |
| Other | (658) | (0.66) | 206 | 0.19 |
| Total | $19,228 | $19.03% | $22,704 | $20.52% |

The components of the net deferred tax asset (liability) as of December 31 are as follows:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| Deferred tax assets: |  |  |
| Allowance for credit losses | $11,472 | $10,418 |
| Interest on nonaccrual loans | 362 | 547 |
| Accrued expenses | 2,969 | 2,960 |
| Unrealized losses on AFS securities | 45,339 | 1,664 |
| Allowance for other real estate owned | 223 | 268 |
| State net operating loss carryforward | 0 | 2,308 |
| Lease liabilities | 4,398 | 3,245 |
| Other | 485 | 973 |
| Total deferred tax assets | 65,248 | 22,383 |
| Deferred tax liabilities: |  |  |
| Depreciation and amortization | (14,859) | (14,604) |
| FHLB stock dividends | (827) | (961) |
| Loan fee income | (1,136) | (621) |
| Mortgage servicing rights | (2,113) | (1,690) |
| Limited partnership investments | (710) | (648) |
| Right of use assets | (4,259) | (3,031) |
| Other | (1,466) | (1,374) |
| Total deferred tax liabilities | (25,370) | (22,929) |
| Net deferred tax asset (liability) | $39,878 | $(546) |

CTBI had a deferred tax asset for the Kentucky net operating loss carryforward. The losses were utilized as CTBI began filing a consolidated Kentucky income tax return with CTB and CTIC beginning with the 2021 tax year. The loss deduction for 2022 was $58.4 million and for 2021 was $42.2 million. No carryforward remains.

CTBI accounts for income taxes in accordance with income tax accounting guidance (ASC 740, *Income Taxes*). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. CTBI determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

48

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management's judgment.

With a few exceptions, CTBI is no longer subject to U.S. federal tax examinations by tax authorities for years before 2019, and state and local income tax examinations by tax authorities for years before 2018. For federal tax purposes, CTBI recognizes interest and penalties on income taxes as a component of income tax expense. CTBI files consolidated income tax returns with our subsidiaries.

## 14. Employee Benefits

CTBI maintains two separate retirement savings plans, a 401(k) Plan and an Employee Stock Ownership Plan ('ESOP').

The 401(k) Plan is available to all employees (age 21 and over) who are credited with one year of service (12 consecutive month period with at least 1,000 hours). The year of service requirement for participant contributions was changed in 2022 to 90 days of service effective January 1, 2023. The company match will continue to begin with one year of credited service. Participants in the plan have the option to contribute from 1% to 20% of their annual compensation. CTBI matches 50% of participant contributions up to 8% of gross pay. CTBI may, at our discretion, contribute an additional percentage of covered employees' compensation. CTBI's matching contributions were $1.2 million, $1.1 million, and $1.2 million for the three years ended December 31, 2022, 2021, and 2020, respectively. The 401(k) Plan owned 348,859, 445,562, and 479,489 shares of CTBI's common stock at December 31, 2022, 2021, and 2020, respectively. Substantially all shares owned by the 401(k) Plan were allocated to employee accounts on those dates. The market price of the shares at the date of allocation is essentially the same as the market price at the date of purchase.

The ESOP is available to all employees (age 21 and over) who are credited with one year of service (12 consecutive month period with at least 1,000 hours). CTBI currently contributes 4% of covered employees' compensation to the ESOP. The ESOP uses the contributions to acquire shares of CTBI's common stock. CTBI's contributions to the ESOP were $1.7 million, $1.8 million, and $1.8 million for the three years ended December 31, 2022, 2021, and 2020, respectively. The ESOP owned 734,677, 774,562, and 778,269 shares of CTBI's common stock at December 31, 2022, 2021, and 2020, respectively. Substantially all shares owned by the ESOP were allocated to employee accounts on those dates. The market price of the shares at the date of allocation is essentially the same as the market price at the date of purchase.

### Stock-Based Compensation:

As of December 31, 2022, CTBI maintained one active and one inactive incentive stock ownership plans covering key employees. The 2015 Stock Ownership Incentive Plan ('2015 Plan') was approved by the Board of Directors and the Shareholders in 2015. The 2006 Stock Ownership Incentive Plan ('2006 Plan') was approved by the Board of Directors and the Shareholders in 2006. The 2006 Plan was rendered inactive as of April 28, 2015. The 2015 Plan has 550,000 shares authorized, 400,221 of which were available at December 31, 2022. Shares issuable pursuant to awards which were granted under the prior plans on or before their respective expiration or termination dates will be issued from the remaining shares reserved for issuance under the prior plans. The shares of common stock reserved for issuance under the prior plans in excess of the number of shares as to which options or other benefits are awarded thereunder, and any shares as to which options or other benefits granted under the prior plans may lapse, expire, terminate, or be canceled, will not be reserved and available for issuance or reissuance under the 2015 Plan. The following table provides detail of the number of shares to be issued upon exercise of outstanding stock-based awards and remaining shares available for future issuance under all of CTBI's equity compensation plans as of December 31, 2022:

| Plan Category (shares in thousands) | Number of Shares to Be Issued Upon Exercise | Weighted Average Price | Shares Available for Future Issuance |
| --- | --- | --- | --- |
| Equity compensation plans approved by shareholders: |  |  |  |
| Stock options | 20 | $32.27 | 400(a) |
| Restricted stock | (c) | (b) | (a) |
| Performance units | (d) | (b) | (a) |
| Stock appreciation rights ('SARs') | (e) | (b) | (a) |
| Total |  |  | 400 |

(a) Under the 2015 Plan, 550,000 shares are authorized for issuance; 154,084 have been issued as of December 31, 2022. In January of 2016, 18,069 restricted stock shares were issued under the terms of the 2015 Plan pursuant to awards granted under the 2006 Plan. Additional shares will not be issued pursuant to awards granted from prior plans.

(b) Not applicable.

(c) The maximum number of shares of restricted stock that may be granted is 550,000 shares, and the maximum that may be granted to a participant during any calendar year is 75,000 shares.

(d) No performance units payable in stock had been issued as of December 31, 2022. The maximum payment that can be made pursuant to performance units granted to any one participant in any calendar year is $1,000,000.

(e) No SARs have been issued. The maximum number of shares with respect to which SARs may be granted to a participant during any calendar year is 100,000 shares.

The following table details the shares available for future issuance under the 2015 Plan at December 31, 2022.

| Plan Category | Shares Available for Future Issuance |
| --- | --- |
| Shares available at January 1, 2022 | 450,659 |
| Stock option grants | 0 |
| Restricted stock grants | (50,438) |
| Forfeitures | 0 |
| Shares available for future issuance at December 31, 2022 | 400,221 |

There were no stock options granted in 2022, 2021, or 2020.

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## The 2015 Plan:

There was no stock option activity for the 2015 Plan for the years ended December 31, 2022, 2021, and 2020.

The following table shows restricted stock activity for the 2015 Plan for the years ended December 31, 2022, 2021, and 2020:

| December 31 | 2022 |  | 2021 |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Grants | Weighted Average Fair Value at Grant | Grants | Weighted Average Fair Value at Grant | Grants | Weighted Average Fair Value at Grant |
| Outstanding at beginning of year | 47,063 | $42.90 | 55,551 | $44.04 | 50,992 | $43.08 |
| Granted | 50,438 | 45.15 | 9,193 | 38.70 | 21,544 | 44.64 |
| Vested | (29,364) | 43.92 | (17,681) | 44.31 | (16,985) | 41.92 |
| Forfeited | 0 | - | 0 | - | 0 | - |
| Outstanding at end of year | 68,137 | $44.13 | 47,063 | $42.90 | 55,551 | $44.04 |

## The 2006 Plan:

CTBI's stock option activity for the 2006 Plan for the years ended December 31, 2022, 2021, and 2020 is summarized as follows:

| December 31 | 2022 |  | 2021 |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price |
| Outstanding at beginning of year | 20,000 | $32.27 | 20,000 | $32.27 | 20,495 | $32.04 |
| Granted | 0 | 0 | 0 | 0 | 0 | 0 |
| Exercised | 0 | 0 | 0 | 0 | (495) | 22.81 |
| Forfeited/expired | 0 | 0 | 0 | 0 | 0 | 0 |
| Outstanding at end of year | 20,000 | $32.27 | 20,000 | $32.27 | 20,000 | $32.27 |
| Exercisable at end of year | 20,000 | $32.27 | 20,000 | $32.27 | 20,000 | $32.27 |

There were no nonvested options at December 31, 2022. Incentive stock options are exercisable four years from grant date, and management retention stock options are exercisable five years from grant date. All outstanding options as of December 31, 2022 are management retention stock options. Stock options expire 10 years from the grant date if not exercised within that timeframe.

The weighted average remaining contractual term in years of the options outstanding at December 31, 2022 was 2.1 years.

There were no options granted from the 2006 Plan during the years 2022, 2021, and 2020.

The following table shows the intrinsic values of options exercised, exercisable, and outstanding for the 2006 Plan for the years ended December 31, 2022, 2021, and 2020:

| (in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Options exercised | $0 | $0 | $11 |
| Options exercisable | 273 | 227 | 96 |
| Outstanding options | 273 | 227 | 96 |

There was no restricted stock activity for the 2006 Plan for the years ended December 31, 2022, 2021, and 2020.

The following table shows the unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans at December 31, 2022, 2021, and 2020 and the total grant-date fair value of shares vested, cash received from option exercises under all share-based payment arrangements, and the actual tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements for the years ended December 31, 2022, 2021, and 2020.

| (in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Unrecognized compensation cost of nonvested share-based compensation arrangements granted under the plan at year-end | $2,108 | $1,093 | $1,512 |
| Total fair value of shares vested for the year | 1,306 | 664 | 887 |
| Cash received from option exercises under all share-based payment arrangements for the year | 0 | 0 | 11 |
| Tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements for the year | 0 | 0 | 1 |

The unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans at December 31, 2022 is expected to be recognized over a weighted-average period of 3.2 years.

## 15. Leases

CTBI has one finance lease for property but no material sublease or leasing arrangements for which it is the lessor of property or equipment. CTBI has operating leases for banking and ATM locations. These leases have original remaining lease terms of 1 year to 45 years, some of which include options to renew the leases for up to 5 years. We evaluated the original lease terms for each operating lease, some of which include options to extend the leases for up to 5 years, using hindsight. These options, some of which include variable costs related to rent escalations based on recent financial indices, such as the Consumer Price Index, where CTBI estimates future rent increases, are included in the calculation of the lease liability and right-of-use asset when management determines it is reasonably certain the option will be exercised. CTBI determines this on each lease by considering all relevant contract-based, asset-based, market-based, and entity-based economic

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factors. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate, on a collateralized basis, over a similar term, at the lease commencement date. Right-of-use assets are further adjusted for prepaid rent, lease incentives, and initial direct costs, if any.

The components of lease expense for the year ended December 31, 2022 were as follows:

| (in thousands) | Year Ended December 31, 2022 | Year Ended December 31, 2021 |
| --- | --- | --- |
| Finance lease cost: |  |  |
| Amortization of right-of-use assets - finance leases | $64 | $52 |
| Interest on lease liabilities - finance leases | 70 | 55 |
| Total finance lease cost | 134 | 107 |
| Short-term lease cost | 85 | 181 |
| Operating lease cost | 1,838 | 1,760 |
| Total lease cost | 2,057 | 2,048 |
| Sublease income | (249) | (253) |
| Net lease cost | $1,808 | $1,795 |

Supplemental cash flow information related to CTBI's operating and finance leases for the year ended December 31, 2022 was as follows:

| (in thousands) | Year Ended December 31, 2022 | Year Ended December 31, 2021 |
| --- | --- | --- |
| Finance lease - operating cash flows | $67 | $53 |
| Finance lease - financing cash flows | $24 | $19 |
| Operating lease - operating cash flows (fixed payments) | $1,760 | $1,693 |
| Operating lease - operating cash flows (liability reduction) | $1,424 | $948 |
| New right-of-use assets - operating leases | $3,469 | $0 |
| New right-of-use assets - finance leases | $2,070 | $0 |
| Weighted average lease term - financing leases | 27.10 years | 24.02 years |
| Weighted average lease term - operating leases | 13.84 years | 13.39 years |
| Weighted average discount rate - financing leases | 4.90% | 3.70% |
| Weighted average discount rate - operating leases | 3.55% | 3.11% |

Maturities of lease liabilities as of December 31, 2022 are as follows:

| (in thousands) | Operating Leases | Finance Leases |
| --- | --- | --- |
| 2023 | $1,878 | $151 |
| 2024 | 1,853 | 155 |
| 2025 | 1,748 | 160 |
| 2026 | 1,731 | 171 |
| 2027 | 1,620 | 175 |
| Thereafter | 9,393 | 6,362 |
| Total lease payments | 18,223 | 7,174 |
| Less imputed interest | (4,063) | (3,706) |
| Total | $14,160 | $3,468 |

## 16. Fair Value of Financial Assets and Liabilities

### Fair Value Measurements

ASC 820, *Fair Value Measurements*, defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. In this standard, the FASB clarifies the principle that fair value should be based on the exit price when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 Inputs - Quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in determining an exit price for the assets or liabilities.

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## Recurring Measurements

The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of December 31, 2022 and December 31, 2021 and indicate the level within the fair value hierarchy of the valuation techniques.

| (in thousands) | Fair Value Measurements at December 31, 2022 Using |  |  |  |
| --- | --- | --- | --- | --- |
|  | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Assets measured - recurring basis |  |  |  |  |
| Available-for-sale securities: |  |  |  |  |
| U.S. Treasury and government agencies | $381,932 | $346,265 | $35,667 | $0 |
| State and political subdivisions | 265,102 | 0 | 265,102 | 0 |
| U.S. government sponsored agency mortgage-backed securities | 520,085 | 0 | 520,085 | 0 |
| Asset-backed securities | 89,107 | 0 | 89,107 | 0 |
| Equity securities at fair value | 2,166 | 0 | 0 | 2,166 |
| Mortgage servicing rights | 8,468 | 0 | 0 | 8,468 |

| (in thousands) | Fair Value Measurements at December 31, 2021 Using |  |  |  |
| --- | --- | --- | --- | --- |
|  | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Assets measured - recurring basis |  |  |  |  |
| Available-for-sale securities: |  |  |  |  |
| U.S. Treasury and government agencies | $295,770 | $242,214 | $53,556 | $0 |
| State and political subdivisions | 334,203 | 0 | 334,203 | 0 |
| U.S. government sponsored agency mortgage-backed securities | 730,809 | 0 | 730,809 | 0 |
| Asset-backed securities | 94,647 | 0 | 94,647 | 0 |
| Equity securities at fair value | 2,253 | 0 | 0 | 2,253 |
| Mortgage servicing rights | 6,774 | 0 | 0 | 6,774 |

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. These valuation methodologies were applied to all of CTBI's financial assets carried at fair value. CTBI had no liabilities measured and recorded at fair value as of December 31, 2022 and December 31, 2021. There have been no significant changes in the valuation techniques during the year ended December 31, 2022. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

### Available-for-Sale Securities

Securities classified as AFS are reported at fair value on a recurring basis. U.S. Treasury and government agencies are classified as Level 1 of the valuation hierarchy where quoted market prices are available in the active market on which the individual securities are traded.

If quoted market prices are not available, CTBI obtains fair value measurements from an independent pricing service, such as Interactive Data, which utilizes pricing models to determine fair value measurement. CTBI reviews the pricing quarterly to verify the reasonableness of the pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond's terms and conditions, among other factors. U.S. Treasury and government agencies, state and political subdivisions, U.S. government sponsored agency mortgage-backed securities, and asset-backed securities are classified as Level 2 inputs.

In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements are estimated on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States.

### Equity Securities at Fair Value

As of December 31, 2022 and December 31, 2021, the only securities owned by CTBI that were valued using Level 3 criteria are Visa Class B Stock (included in equity securities at fair value). Fair value for Visa Class B Stock is determined by an independent third party utilizing assumptions about factors such as quarterly common stock dividend payments, the conversion of the securities to the relevant Class A Stock shares subject to the prevailing conversion rate and conversion date. We have concluded the third party assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset. See the table below for inputs and valuation techniques used for Level 3 equity securities.

### Mortgage Servicing Rights

MSRs do not trade in an active, open market with readily observable prices. CTBI reports MSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value.

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In determining fair value, CTBI utilizes the expertise of an independent third party. Accordingly, fair value is determined by the independent third party by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends, and industry demand. Due to the nature of the valuation inputs, MSRs are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements of MSRs are tested for impairment on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States. We have reviewed the assumptions, processes, and conclusions of the third party provider. We have determined these assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset. See the table below for inputs and valuation techniques used for Level 3 MSRs.

### Level 3 Reconciliation

Following is a reconciliation of the beginning and ending balances of recurring fair value measurements, for the periods indicated, using significant unobservable (Level 3) inputs:

| (in thousands) | 2022 |  | 2021 |  |
| --- | --- | --- | --- | --- |
|  | Equity Securities at Fair Value | Mortgage Servicing Rights | Equity Securities at Fair Value | Mortgage Servicing Rights |
| Beginning balance | $2,253 | $6,774 | $2,471 | $4,068 |
| Total unrealized gains (losses) |  |  |  |  |
| Included in net income | (87) | 1,948 | (218) | 1,274 |
| Issues | 0 | 625 | 0 | 2,278 |
| Settlements | 0 | (879) | 0 | (846) |
| Ending balance | $2,166 | $8,468 | $2,253 | $6,774 |
| Total gains (losses) for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date | $(87) | $1,948 | $(218) | $1,274 |

Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as follows:

### Noninterest Income

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| Total gains (losses) | $982 | $210 |

### Nonrecurring Measurements

The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of December 31, 2022 and December 31, 2021 and indicate the level within the fair value hierarchy of the valuation techniques.

| (in thousands) | Fair Value Measurements at December 31, 2022 Using |  |  |  |
| --- | --- | --- | --- | --- |
|  | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Assets measured - nonrecurring basis |  |  |  |  |
| Collateral dependent loans | $2,703 | $0 | $0 | $2,703 |
| Other real estate owned | 570 | 0 | 0 | 570 |

| (in thousands) | Fair Value Measurements at December 31, 2021 Using |  |  |  |
| --- | --- | --- | --- | --- |
|  | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Assets measured - nonrecurring basis |  |  |  |  |
| Collateral dependent loans | $1,238 | $0 | $0 | $1,238 |
| Other real estate owned | 1,487 | 0 | 0 | 1,487 |

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

### Collateral Dependent Loans

The estimated fair value of collateral-dependent loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy.

CTBI considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the Chief Credit Officer. Appraisals are reviewed for accuracy and consistency by the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Chief Credit Officer by comparison to historical results.

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Loans considered collateral-dependent are loans 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 in accordance with ASC 326-20-35-5. Fair value adjustments on collateral-dependent loans disclosed above were $1.0 million and $0.7 million for the years ended December 31, 2022 and December 31, 2021, respectively.

### Other Real Estate Owned

In accordance with the provisions of ASC 360, *Property, Plant, and Equipment*, other real estate owned (“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral. Fair value adjustments on other real estate owned disclosed above were $0.2 million and $0.3 million for the years ended December 31, 2022 and December 31, 2021, respectively.

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. Appraisers are selected from the list of approved appraisers maintained by management.

### Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at December 31, 2022 and December 31, 2021.

| (in thousands) | Quantitative Information about Level 3 Fair Value Measurements |  |  |  |
| --- | --- | --- | --- | --- |
|  | Fair Value at December 31, 2022 | Valuation Technique(s) | Unobservable Input | Range (Weighted Average) |
| Equity securities at fair value | $2,166 | Discount cash flows, computer pricing model | Discount rate | 8.0% - 12.0% (10.0%) |
|  |  |  | Conversion date | Dec 2025 - Dec 2029 (Dec 2027) |
| Mortgage servicing rights | $8,468 | Discount cash flows, computer pricing model | Constant prepayment rate | 6.5% - 28.0% (7.1%) |
|  |  |  | Probability of default | 0.0% - 100.0% (1.2%) |
|  |  |  | Discount rate | 9.5% - 12.0% (10.0%) |
| Collateral-dependent loans | $2,703 | Market comparable properties | Marketability discount | 52.0% - 52.0% (52.0%) |
| Other real estate owned | $570 | Market comparable properties | Comparability adjustments | 10.0% - 30.6% (10.9%) |

| (in thousands) | Quantitative Information about Level 3 Fair Value Measurements |  |  |  |
| --- | --- | --- | --- | --- |
|  | Fair Value at December 31, 2021 | Valuation Technique(s) | Unobservable Input | Range (Weighted Average) |
| Equity securities at fair value | $2,253 | Discount cash flows, computer pricing model | Discount rate | 8.0% - 12.0% (10.0%) |
|  |  |  | Conversion date | Dec 2024 - Dec 2028 (Dec 2026) |
| Mortgage servicing rights | $6,774 | Discount cash flows, computer pricing model | Constant prepayment rate | 7.0% - 26.7% (10.0%) |
|  |  |  | Probability of default | 0.0% - 75.0% (1.4%) |
|  |  |  | Discount rate | 10.0% - 11.5% (10.1%) |
| Collateral-dependent loans | $1,238 | Market comparable properties | Marketability discount | 20.0% - 62.0% (41.0%) |
| Other real estate owned | $1,487 | Market comparable properties | Comparability adjustments | 10.0% - 45.5% (15.1%) |

### Uncertainty of Fair Value Measurements

The following is a discussion of the uncertainty of fair value measurements, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement, and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

### Equity Securities at Fair Value

Fair value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock, and the prevailing conversion rate at the conversion date. The most recent conversion rate of 1.6059 and the most recent dividend rate of 0.7227 were used to derive the fair value estimate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate.

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## Mortgage Servicing Rights

Fair value for MSRs is derived based on unobservable inputs, such as prepayment speeds of the underlying loans generated using the Andrew Davidson Prepayment Model, FHLMC/FNMA guidelines, the weighted average life of the loan, the discount rate, the weighted average coupon, and the weighted average default rate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for prepayment speeds is accompanied by a directionally opposite change in the assumption for interest rates.

## Fair Value of Financial Instruments

The following table presents estimated fair value of CTBI's financial instruments as of December 31, 2022 and indicates the level within the fair value hierarchy of the valuation techniques. In accordance with the adoption of ASU 2016-01, the fair values as of December 31, 2022 were measured using an exit price notion.

| (in thousands) | Fair Value Measurements at December 31, 2022 Using |  |  |  |
| --- | --- | --- | --- | --- |
|  | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Financial assets: |  |  |  |  |
| Cash and cash equivalents | $128,686 | $128,686 | $0 | $0 |
| Certificates of deposit in other banks | 245 | 0 | 245 | 0 |
| Debt securities available-for-sale | 1,256,226 | 346,265 | 909,961 | 0 |
| Equity securities at fair value | 2,166 | 0 | 0 | 2,166 |
| Loans held for sale | 109 | 112 | 0 | 0 |
| Loans, net | 3,663,309 | 0 | 0 | 3,511,810 |
| Federal Home Loan Bank stock | 6,676 | 0 | 6,676 | 0 |
| Federal Reserve Bank stock | 4,887 | 0 | 4,887 | 0 |
| Accrued interest receivable | 19,592 | 0 | 19,592 | 0 |
| Financial liabilities: |  |  |  |  |
| Deposits | $4,426,143 | $1,394,915 | $3,050,144 | $0 |
| Repurchase agreements | 215,431 | 0 | 0 | 215,542 |
| Federal funds purchased | 500 | 0 | 500 | 0 |
| Advances from Federal Home Loan Bank | 355 | 0 | 380 | 0 |
| Long-term debt | 57,841 | 0 | 0 | 55,860 |
| Accrued interest payable | 2,237 | 0 | 2,237 | 0 |
| Unrecognized financial instruments: |  |  |  |  |
| Letters of credit | $0 | $0 | $0 | $0 |
| Commitments to extend credit | 0 | 0 | 0 | 0 |
| Forward sale commitments | 0 | 0 | 0 | 0 |

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The following table presents estimated fair value of CTBI's financial instruments as of December 31, 2021 and indicates the level within the fair value hierarchy of the valuation techniques.

| (in thousands) | Fair Value Measurements at December 31, 2021 Using |  |  |  |
| --- | --- | --- | --- | --- |
|  | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Financial assets: |  |  |  |  |
| Cash and cash equivalents | $311,756 | $311,756 | $0 | $0 |
| Certificates of deposit in other banks | 245 | 0 | 245 | 0 |
| Debt securities available-for-sale | 1,455,429 | 242,214 | 1,213,215 | 0 |
| Equity securities at fair value | 2,253 | 0 | 0 | 2,253 |
| Loans held for sale | 2,632 | 2,693 | 0 | 0 |
| Loans, net | 3,367,057 | 0 | 0 | 3,480,803 |
| Federal Home Loan Bank stock | 8,139 | 0 | 8,139 | 0 |
| Federal Reserve Bank stock | 4,887 | 0 | 4,887 | 0 |
| Accrued interest receivable | 15,415 | 0 | 15,415 | 0 |
| Financial liabilities: |  |  |  |  |
| Deposits | $4,344,292 | $1,331,103 | $3,043,339 | $0 |
| Repurchase agreements | 271,088 | 0 | 0 | 271,186 |
| Federal funds purchased | 500 | 0 | 500 | 0 |
| Advances from Federal Home Loan Bank | 375 | 0 | 400 | 0 |
| Long-term debt | 57,841 | 0 | 0 | 45,854 |
| Accrued interest payable | 1,016 | 0 | 1,016 | 0 |
| Unrecognized financial instruments: |  |  |  |  |
| Letters of credit | $0 | $0 | $0 | $0 |
| Commitments to extend credit | 0 | 0 | 0 | 0 |
| Forward sale commitments | 0 | 0 | 0 | 0 |

## 17. Off-Balance Sheet Transactions and Guarantees

CTBI is a party to transactions with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include standby letters of credit and commitments to extend credit in the form of unused lines of credit. CTBI uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At December 31, 2022, CTBI had the following off-balance sheet financial instruments, whose approximate contract amounts represent additional credit risk to CTBI:

| (in thousands) | 2022 | 2021 |
| --- | --- | --- |
| Standby letters of credit | $34,721 | $32,676 |
| Commitments to extend credit | 839,549 | 710,225 |
| Total off-balance sheet financial instruments | $874,270 | $742,901 |

Standby letters of credit represent conditional commitments to guarantee the performance of a third party. The credit risk involved is essentially the same as the risk involved in making loans. At December 31, 2022, we maintained a credit loss reserve recorded in other liabilities of approximately $0.7 million relating to these financial standby letters of credit. The reserve coverage calculation was determined using essentially the same methodology as used for the allowance for credit losses. Approximately 68% of the total standby letters of credit are secured, with $19.5 million of the total $23.5 million secured by cash. Collateral for the remaining secured standby letters of credit varies but is comprised primarily of accounts receivable, inventory, property, equipment, and income-producing properties.

Commitments to extend credit are agreements to originate loans to customers as long as there is no violation of any condition of the contract. At December 31, 2022, a credit loss reserve recorded in other liabilities of $0.7 million was maintained relating to these commitments. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate. A portion of the commitments is to extend credit at fixed rates. Fixed rate loan commitments at December 31, 2022 of $119.2 million had interest rates ranging predominantly from 4.0% to 6.50% and terms predominantly one year or less. These credit commitments were based on prevailing rates, terms, and conditions applicable to other loans being made at December 31, 2022.

Included in our commitments to extend credit are mortgage loans in the process of origination which are intended for sale to investors in the secondary market. These forward sale commitments are on an individual loan basis that CTBI originates as part of our mortgage banking activities. CTBI commits to sell the loans at specified prices in a future period, typically within 60 days. These commitments are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale since CTBI is exposed to interest rate risk during the period between issuing a loan commitment and the sale of the loan into the secondary market. Total mortgage loans in the process of origination amounted to $1.8 million and $3.6 million at December 31, 2022 and 2021, respectively, and mortgage loans held for sale amounted to $0.1 million and $2.6 million for the years ended December 31, 2022 and 2021, respectively.

## 18. Concentrations of Credit Risk

CTBI's banking activities include granting commercial, residential, and consumer loans to customers primarily located in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. CTBI is continuing to manage all components of our portfolio mix in a manner to reduce risk

56

from changes in economic conditions. Concentrations of credit, as defined for regulatory purposes, are reviewed quarterly by management to ensure that internally established limits based on Tier 1 Capital plus the allowance for credit losses are not exceeded. At December 31, 2022 and 2021, our concentrations of hospitality industry credits were 60% and 44% of Tier 1 Capital plus the allowance for credit losses, respectively. Lessors of residential buildings and dwellings were 41% for each period end and lessors of non-residential buildings credits were 35% for each period end. These percentages are within our internally established limits regarding concentrations of credit.

## 19. Commitments and Contingencies

CTBI and our subsidiaries, and from time to time, our officers, are named defendants in legal actions arising from ordinary business activities. Management, after consultation with legal counsel, believes any pending actions at December 31, 2022 are without merit or that the ultimate liability, if any, will not materially affect our consolidated financial position or results of operations.

## 20. Regulatory Matters

CTBI's principal source of funds is dividends received from our banking subsidiary, CTB. Regulations limit the amount of dividends that may be paid by CTB without prior approval. During 2023, approximately $111.5 million plus any 2023 net profits can be paid by CTB without prior regulatory approval.

CTBI and CTB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material adverse effect on CTBI's financial statements. Under regulatory capital adequacy guidelines, CTBI and CTB must meet specific capital guidelines that involve quantitative measures of CTBI's and CTB's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Additionally, CTB must meet specific capital guidelines to be considered well capitalized per the regulatory framework for prompt corrective action. CTBI's and CTB's capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

CTBI and CTB must maintain certain minimum capital ratios as set forth in the table below for capital adequacy purposes. 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. Management elected to use the CBLR framework for CTBI and CTB.

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 was increased to 8.5% for the calendar year before returning to 9% in calendar year 2022. CTBI's and CTB's CBLR ratios as of December 31, 2022 are disclosed below.

### Consolidated Capital Ratios

| (in thousands) | Actual |  | For Capital Adequacy Purposes |  |
| --- | --- | --- | --- | --- |
|  | Amount | Ratio | Amount | Ratio |
| As of December 31, 2022: |  |  |  |  |
| CBLR | $750,159 | 13.55% | $498,148 | 9.00% |
| As of December 31, 2021: |  |  |  |  |
| CBLR | $696,828 | 13.00% | $455,594 | 8.50% |

### Community Trust Bank, Inc.'s Capital Ratios

| (in thousands) | Actual |  | For Capital Adequacy Purposes |  |
| --- | --- | --- | --- | --- |
|  | Amount | Ratio | Amount | Ratio |
| As of December 31, 2022: |  |  |  |  |
| CBLR | $714,727 | 12.98% | $495,727 | 9.00% |
| As of December 31, 2021: |  |  |  |  |
| CBLR | $662,125 | 12.42% | $453,185 | 8.50% |

57

## 21. Parent Company Financial Statements

### Condensed Balance Sheets

(in thousands)

December 31

|  | 2022 | 2021 |
| --- | --- | --- |
| Assets: |  |  |
| Cash on deposit | $2,933 | $3,263 |
| Investment in and advances to subsidiaries | 679,425 | 749,002 |
| Goodwill | 4,973 | 4,973 |
| Premises and equipment, net | 133 | 114 |
| Deferred tax asset | 260 | 890 |
| Other assets | 4,808 | 5,427 |
| Total assets | $692,532 | $763,669 |
| Liabilities and shareholders' equity: |  |  |
| Long-term debt | $61,341 | $61,341 |
| Other liabilities | 3,144 | 4,126 |
| Total liabilities | 64,485 | 65,467 |
| Shareholders' equity | 628,047 | 698,202 |
| Total liabilities and shareholders' equity | $692,532 | $763,669 |

### Condensed Statements of Income and Comprehensive Income (Loss)

(in thousands)

Year Ended December 31

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Income: |  |  |  |
| Dividends from subsidiaries | $31,544 | $33,319 | $29,593 |
| Other income | 710 | 482 | 476 |
| Total income | 32,254 | 33,801 | 30,069 |
| Expenses: |  |  |  |
| Interest expense | 2,060 | 1,090 | 1,519 |
| Depreciation expense | 75 | 70 | 112 |
| Other expenses | 4,833 | 5,878 | 3,302 |
| Total expenses | 6,968 | 7,038 | 4,933 |
| Income before income taxes and equity in undistributed income of subsidiaries | 25,286 | 26,763 | 25,136 |
| Income tax benefit | (1,808) | (1,700) | (576) |
| Income before equity in undistributed income of subsidiaries | 27,094 | 28,463 | 25,712 |
| Equity in undistributed income of subsidiaries | 54,720 | 59,476 | 33,792 |
| Net income | $81,814 | $87,939 | $59,504 |
| Other comprehensive income (loss): |  |  |  |
| Unrealized holding gains (losses) on debt securities available-for-sale: |  |  |  |
| Unrealized holding gains (losses) arising during the period | (168,060) | (24,827) | 13,839 |
| Less: Reclassification adjustments for realized gains (losses) included in net income | (81) | 60 | 1,251 |
| Tax expense (benefit) | (43,675) | (6,471) | 3,273 |
| Other comprehensive income (loss), net of tax | (124,304) | (18,416) | 9,315 |
| Comprehensive income (loss) | $(42,490) | $69,523 | $68,819 |

58

## Condensed Statements of Cash Flows

(in thousands)

| Year Ended December 31 | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Cash flows from operating activities: |  |  |  |
| Net income | $81,814 | $87,939 | $59,504 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
| Depreciation | 76 | 69 | 112 |
| Equity in undistributed earnings of subsidiaries | (54,720) | (59,476) | (33,792) |
| Deferred taxes | 630 | 3,759 | 451 |
| Stock-based compensation | 1,366 | 850 | 944 |
| Changes in: |  |  |  |
| Other assets | 611 | (5,403) | (115) |
| Other liabilities | (1,115) | 1,037 | (318) |
| Net cash provided by operating activities | 28,662 | 28,775 | 26,786 |
| Cash flows from investing activities: |  |  |  |
| Net purchases of premises and equipment | (95) | (66) | (55) |
| Net cash used in investing activities | (95) | (66) | (55) |
| Cash flows from financing activities: |  |  |  |
| Issuance of common stock | 1,041 | 965 | 926 |
| Repurchase of common stock | 0 | 0 | (1,099) |
| Dividends paid | (29,938) | (27,916) | (27,142) |
| Net cash used in financing activities | (28,897) | (26,951) | (27,315) |
| Net increase (decrease) in cash and cash equivalents | (330) | 1,758 | (584) |
| Cash and cash equivalents at beginning of year | 3,263 | 1,505 | 2,089 |
| Cash and cash equivalents at end of year | $2,933 | $3,263 | $1,505 |

## 22. Revenue Recognition

CTBI's primary source of revenue is interest income generated from loans and investment securities. Interest income is recognized according to the terms of the financial instrument agreement over the life of the loan or investment security unless it is determined that the counterparty is unable to continue making interest payments. Interest income also includes prepaid interest fees from commercial customers, which approximates the interest foregone on the balance of the loan prepaid.

CTBI's additional source of income, also referred to as noninterest income, includes service charges on deposit accounts, gains on sales of loans, trust and wealth management income, loan related fees, brokerage revenue, and other miscellaneous income and is largely based on contracts with customers. In these cases, CTBI recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. CTBI considers a customer to be any party to which we will provide goods or services that are an output of CTBI's ordinary activities in exchange for consideration. There is little seasonality with regards to revenue from contracts with customers and all inter-company revenue is eliminated when CTBI's financial statements are consolidated.

Generally, CTBI enters into contracts with customers that are short-term in nature where the performance obligations are fulfilled and payment is processed at the same time. Such examples include revenue related to merchant fees, interchange fees, and investment services income. In addition, revenue generated from existing customer relationships such as deposit accounts are also considered short-term in nature, because the relationship may be terminated at any time and payment is processed at the time performance obligations are fulfilled. As a result, CTBI does not have contract assets, contract liabilities, or related receivable accounts for contracts with customers. In cases where collectability is a concern, CTBI does not record revenue.

Generally, the pricing of transactions between CTBI and each customer is either (i) established within a legally enforceable contract between the two parties, as is the case with loan sales, or (ii) disclosed to the customer at a specific point in time, as is the case when a deposit account is opened or before a new loan is underwritten. Fees are usually fixed at a specific amount or as a percentage of a transaction amount. No judgment or estimates by management are required to record revenue related to these transactions and pricing is clearly identified within these contracts.

CTBI primarily operates in Kentucky and contiguous areas. Therefore, all significant operating decisions are based upon analysis of CTBI as one operating segment.

We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we believe it best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. Noninterest income not generated from customers during CTBI's ordinary activities primarily relates to mortgage servicing rights, gains/losses on the sale of investment securities, gains/losses on the sale of other real estate owned, gains/losses on the sale of property, plant and equipment, and income from bank owned life insurance.

For more information related to our components of noninterest income, see the Consolidated Statements of Income and Comprehensive Income above.

59

## 23. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

| Year Ended December 31 (in thousands except per share data) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Numerator: |  |  |  |
| Net income | $81,814 | $87,939 | $59,504 |
| Denominator: |  |  |  |
| Basic earnings per share: |  |  |  |
| Weighted average shares | 17,836 | 17,786 | 17,748 |
| Diluted earnings per share: |  |  |  |
| Dilutive effect of equity grants | 15 | 18 | 8 |
| Adjusted weighted average shares | 17,851 | 17,804 | 17,756 |
| Earnings per share: |  |  |  |
| Basic earnings per share | $4.59 | $4.94 | $3.35 |
| Diluted earnings per share | 4.58 | 4.94 | 3.35 |

There were no options to purchase common shares that were excluded from the diluted calculations above for the years ended December 31, 2022, 2021, and 2020. In addition to in-the-money stock options, unvested restricted stock grants were also used in the calculation of diluted earnings per share based on the treasury method.

## 24. Accumulated Other Comprehensive Income (Loss)

### Unrealized gains (losses) on AFS securities

Amounts reclassified from accumulated other comprehensive income (loss) ('AOCI') and the affected line items in the statements of income during the years ended December 31, 2022, 2021, and 2020 were:

| Year Ended December 31 (in thousands) | Amounts Reclassified from AOCI |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Affected line item in the statements of income |  |  |  |
| Securities gains (losses) | $(81) | $60 | $1,251 |
| Tax expense (benefit) | (21) | 16 | 325 |
| Total reclassifications out of AOCI | $(60) | $44 | $926 |

60

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders, Board of Directors, and Audit Committee
Community Trust Bancorp, Inc.
Pikeville, Kentucky

# Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Community Trust Bancorp, Inc. (Company) as of December 31, 2022 and 2021, the related consolidated statements of income and comprehensive income (loss), changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion thereon.

# Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

# Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

# Allowance for Credit Losses

The Company's loan portfolio totaled $3.7 billion as of December 31, 2022, and the associated allowance for credit losses was $46.0 million. As more fully described in Notes 1 and 4 to the consolidated financial statements, the Company estimates the allowance for credit losses (ACL) at a level that is appropriate to cover estimated credit losses on individually evaluated loans, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The determination of the ACL requires significant judgment reflecting the Company's best estimate of expected credit losses. Expected credit losses are measured on a collective (pool) basis using a combination of loss-rate methods when the financial assets share similar risk characteristics. Loans that do not share similar risk characteristics are evaluated on an individual basis. Historical loss rates reflecting estimated life of loan losses are analyzed and applied to their respective loan segments comprised of loans not subject to individual evaluation. Historical loss rates are adjusted for significant factors that, in management's judgment, reflect the impact of any current conditions on loss recognition, as well as for certain known model limitations. Forecast factors are developed based on information obtained from external sources, as well as consideration of other internal information, and are included in the ACL model for a reasonable and supportable 12-month forecast period, with loss factors immediately reverting back to historic loss rates. Management continually reevaluates the other subjective and forecast factors included in its ACL analysis.

We identified the valuation of the ACL as a critical audit matter. The primary reason for our determination that the ACL is a critical audit matter is that auditing the estimated ACL involved significant judgment and complex review. Auditing the ACL involved a high degree of subjectivity in evaluating management's estimates, such as evaluating management's model selections, segmentation, weighted average life calculations, assessment of economic conditions and other environmental factors, assessment of forecast factors, evaluating the adequacy of specific allowances associated with individually evaluated loans and assessing the appropriateness of loan grades.

Our audit procedures related to the estimated ACL included the following procedures, among others.

- Obtaining an understanding of the Company's process for establishing the ACL, including the qualitative and forecast factor adjustments of the ACL and any limitations of the model
- Testing the design and operating effectiveness of internal controls, including those related to technology, over the ACL calculation including data completeness and accuracy, verification of historical net loss data and calculated net loss rates, the establishment of qualitative and forecast adjustments, grading and risk classification of loans by segment, including internal independent loan review functions, establishment of reserves on individually evaluated loans and management's review controls over the ACL
- Testing of completeness and accuracy of the information utilized in the calculation of the ACL, including reports used in management review controls over the ACL
- Assessing the relevance and reliability of assumptions and data
- Testing clerical and computational accuracy of the formulas within the calculation
- Evaluating the inherent limitations of the models selected by the Company and need for and level of qualitative factor adjustments
- Evaluating how historical losses for each segment are analyzed using a model that is appropriate for the related loan segment, and applied to their respective outstanding balances
- Evaluating segmentation of the loan portfolio for reasonableness based on risk characteristics of the pooled loans
- Evaluating the qualitative factor adjustments, including assessing the basis for the adjustments and the reasonableness of the significant assumptions

61

- Evaluating the forecast adjustments, including assessing the information sources, basis for the adjustments, and the reasonableness of the significant assumptions
- Evaluating management's risk ratings of loans through utilizing internal professionals to assist us in evaluating the appropriateness of loan grades
- Evaluating specific reserves on individually analyzed loans
- Evaluating overall reasonableness of estimated reserve by considering past performance of the Company's loan portfolio, trends in credit quality of the loan portfolio and trends in the credit quality of peer institutions and comparing the trends to the Company's ACL trends for directional consistency compared to previous years

**FORVIS, LLP**
(Formerly BKD, LLP)

We have served as Community Trust Bancorp, Inc.'s auditor since 2006.

Louisville, Kentucky
February 28, 2023

62

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders, Board of Directors, and Audit Committee

## *Opinion on the Internal Control over Financial Reporting*

We have audited Community Trust Bancorp, Inc.'s (Company) internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control-Integrated Framework: (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control-Integrated Framework: (2013)* issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the three years in the period ended December 31, 2022, and our report dated February 28, 2023, expressed an unqualified opinion on those financial statements.

## *Basis for Opinion*

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report on internal control. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

## *Definitions and Limitations of Internal Control over Financial Reporting*

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

**FORVIS, LLP** (Formerly BKD, LLP)

Louisville, Kentucky February 28, 2023

63

## MANAGEMENT REPORT ON INTERNAL CONTROL

We, as management of Community Trust Bancorp, Inc. and its subsidiaries (“CTBI”), are responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Because of the inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, projections of the effectiveness to future periods are subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.

Management has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the control criteria in the 2013 COSO Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that CTBI’s internal control over financial reporting is effective as of December 31, 2022.

The effectiveness of CTBI’s internal control over financial reporting as of December 31, 2022 has been audited by FORVIS, LLP (formerly BKD, LLP), an independent registered public accounting firm that audited CTBI’s consolidated financial statements included in this annual report.

February 28, 2023

Mark A. Gooch
Vice Chairman, President, and Chief Executive Officer

Kevin J. Stumbo
Executive Vice President, Chief Financial Officer,
and Treasurer

64

## **CAUTIONARY STATEMENT**
**REGARDING FORWARD LOOKING STATEMENTS**

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Community Trust Bancorp, Inc.'s ("CTBI") actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," and "could." These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; the effects of epidemics, pandemics or other infectious disease outbreaks, including the continuation of the COVID-19 pandemic; results of various investment activities; the effects of competitors' pricing policies, changes in laws and regulations, competition, and demographic changes on target market populations' savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements or cost savings at levels or within the time frames originally anticipated or unforeseen integration difficulties; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary, operational, and fiscal policies and regulations, which include, but are not limited to, those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and state regulators, whose policies, regulations, and enforcement actions could affect CTBI's results. These statements are representative only on the date hereof, and CTBI undertakes no obligation to update any forward-looking statements made.

### **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 this annual report. The MD&A includes the following sections:

- Our Business
- Financial Goals and Performance
- Results of Operations and Financial Condition
- Liquidity and Market Risk
- Interest Rate Risk
- Capital Resources
- Impact of Inflation, Changing Prices, and Economic Conditions
- Stock Repurchase Program
- Critical Accounting Policies and Estimates

#### **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-nine 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 our annual report on Form 10-K for the year ended December 31, 2022.

65

## 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.”

|  | 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' equity | $733.5 - $763.4 million | $628.0 million | $686.5 - $714.5 million |

## 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.

### 2022 Highlights

- ❖ 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.
- ❖ 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.
- ❖ Our loan portfolio increased $300.5 million, or 8.8%, from December 31, 2021. Loans excluding Paycheck Protection Program (“PPP”) loans increased $347.0 million during the year.
- ❖ 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.
- ❖ 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.
- ❖ Deposits, including repurchase agreements, increased $26.2 million, or 0.6%, from December 31, 2021.
- ❖ 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.
- ❖ 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.

### Income Statement Review

(dollars in thousands)

| Year Ended December 31 | Change 2022 vs. 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | 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% |

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

66

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

| (in thousands) | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 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' equity | 642,423 |  |  | 682,697 |  |  |
| Total liabilities and shareholders' 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% |

(1) Interest includes fees on loans of $1,723 and $1,763 in 2022 and 2021, respectively.

(2) Loan balances include deferred loan origination costs and principal balances on nonaccrual loans.

(3) Tax exempt income on securities and loans is reported on a fully taxable equivalent basis using a 24.95% rate.

67

## Net Interest Differential

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

| (in thousands) | Total Change | Change Due to |  |
| --- | --- | --- | --- |
|  | 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 |

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.

## Net Interest Income

(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)% |

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.

68

## 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

| (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)% |

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.

### Noninterest Expense

| (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% |

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%.

69

# **Loans**

(dollars in thousands)

| Loan Category | Balance | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  | 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 |

(dollars in thousands)

| Loan Category | Balance | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  | 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 |

# **Total Deposits and Repurchase Agreements**

(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% |

70

## Average Deposits and Other Borrowed Funds

| (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 |

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.

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.

71

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

(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 |

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.

#### 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.

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').

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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

| (in thousands) | Estimated Maturity at December 31, 2022 |  |  |  |  |  |  |  |  |  | Amortized Cost |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Within 1 Year |  | 1-5 Years |  | 5-10 Years |  | After 10 Years |  | Total Fair Value |  |  |
|  | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield |  |
| 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 |

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.

### 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.

| (in thousands) | Maturity at December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Within one year | After one but within five years | After 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 |

### Deposit Maturities

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

| (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 |

### 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

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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.

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

| 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)% |

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

| 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)% |

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.

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:

|  | 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 |

*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.

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.

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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.

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 homogeneous 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.

**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.

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**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.

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