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. ("CTBI"), our operations, and our present business environment. The MD&A is provided as a supplement to-and should be read in conjunction with-our condensed consolidated financial statements and the accompanying notes thereto contained in Part I, Item 1 of this quarterly report, as well as our consolidated financial statements, the accompanying notes thereto, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December, 31, 2022. 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 March 31, 2023, we had total consolidated assets of $5.5 billion and total consolidated deposits, including repurchase agreements, of $4.8 billion. Total shareholders' equity at March 31, 2023 was $656.8 million. Trust assets under management at March 31, 2023 were $3.3 billion, including CTB's investment portfolio totaling $1.2 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. 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.



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Results of Operations and Financial Condition

We reported earnings for the first quarter 2023 of $19.3 million, or $1.08 per basic share, compared to $22.4 million, or $1.26 per basic share, earned during the fourth quarter 2022 and $19.7 million, or $1.11 per basic share, earned during the first quarter 2022. Total revenue was $0.9 million below prior quarter but $2.6 million above prior year same quarter. Net interest revenue decreased $0.8 million compared to prior quarter but increased $3.9 million compared to prior year same quarter, and noninterest income decreased $0.1 million compared to prior quarter and $1.3 million compared to prior year same quarter. Our provision for credit losses for the quarter was $1.1 million compared to $1.5 million for the quarter ended December 31, 2022 and $0.9 million for the first quarter 2022. Noninterest expense increased $1.6 million compared to prior quarter and $2.5 million compared to prior year same quarter. Net income was also impacted quarter over quarter by a $1.0 million increase in income taxes as a result of tax credits taken in the fourth quarter 2022.

As a result of the recent bank failures and turmoil in the banking sector, management has thoroughly reviewed our financial condition, liquidity position, and interest rate risk to ensure there are no issues which raise concern. We are a conservative bank holding company which prudently manages our risk profile to ensure a safe and secure environment. We are very well-capitalized, and our liquidity position is strong. We have not seen a decline in deposit balances as a result of the recent turmoil in the banking industry, nor did we realize loan growth as a direct result of the turmoil. Our deposit growth has remained strong. We are focused on balance sheet strength and stability and intend to maintain our portfolio by remaining competitive in loan and deposit pricing. We have no wholesale funding, and there has been no change in our wholesale debt. We did experience loan growth during the quarter; however, none of this growth could be directly attributable to the current environment. There have been no changes to our underwriting standards, yet we have seen a decrease in delinquencies. We feel comfortable with the conservative nature of our investment portfolio, and we do not expect to make significant changes to the composition of our portfolio or the management of it. The effective duration of our investment portfolio remains low at 4.05 years at March 31, 2023 compared to 4.11 years at December 31, 2022 and 4.16 years at March 31, 2022. We also see no need to raise capital, as our liquidity position is strong, and we do not anticipate any stock repurchases or change in our cash dividend policy in 2023. We have a community bank leverage ratio ("CBLR") ratio as of March 31, 2023 of 13.71% compared to the required 9.00%.

The Bank Term Funding Program ("BTFP") was created by the Federal Reserve to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. We have registered and are eligible to use the newly created BTFP, but we do not intend to do so.

Quarterly Highlights

? Net interest income for the quarter of $43.9 million was $0.8 million below

prior quarter but $3.9 million above prior year same quarter, as our net

interest margin decreased 2 basis points from prior quarter but increased 31

basis points from prior year same quarter.

? Provision for credit losses for the quarter decreased $0.4 million from prior

quarter but increased $0.2 million from prior year same quarter.

? Our loan portfolio increased $68.1 million, an annualized 7.4%, from December

31, 2022 and $261.8 million, or 7.4%, from March 31, 2022.

? We had net loan charge-offs of $414 thousand, or 0.04% of average loans

annualized for the first quarter 2023 compared to a net recovery of loan

charge-offs for the fourth quarter 2022 of $9 thousand and net loan charge-offs

of $322 thousand, or 0.04% of average loans annualized, for the quarter ended

March 31, 2022.



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? Our total nonperforming loans decreased to $12.2 million at March 31, 2023 from

$15.3 million at December 31, 2022 and $13.7 million at March 31, 2022.

Nonperforming assets at $15.0 million decreased $4.0 million from December 31,

2022 and $1.0 million from March 31, 2022.

? Deposits, including repurchase agreements, at $4.8 billion increased $110.6

million, or an annualized 9.7%, from December 31, 2022 and $69.3 million, or

1.5%, from March 31, 2022.

? Shareholders' equity at $656.8 million increased $28.8 million, or an

annualized 18.6%, during the quarter and $3.5 million, or 0.5%, from March 31,

2022.

? Noninterest income for the quarter ended March 31, 2023 of $13.7 million was

$0.1 million, or 0.6%, below prior quarter and $1.3 million, or 8.6%, below

prior year same quarter.

? Noninterest expense for the quarter ended March 31, 2023 of $31.9 million was

$1.6 million, or 5.4%, above prior quarter and $2.5 million, or 8.6%, above

prior year same quarter.

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