Principles of Consolidation - The unaudited condensed consolidated financial statements include the accounts of the Company and its separate and distinct, wholly owned subsidiaries Community Trust Bank, National Association; Community Trust Bank, FSB; Trust Company of Kentucky, National Association; CTBI Preferred Capital Trust and Community Trust Funding Corporation. All significant intercompany transactions have been eliminated in consolidation.

In September 1998, the Financial Accounting Standards Board issued Statement of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for all fiscal periods beginning after December 15, 1999. In September 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," to amend SFAS No. 133 to be effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities, requiring recognition of all derivatives as either assets or liabilities in the statement of financial condition and measurement of those instruments at fair value. The adoption of SFAS No. 133 on January 1, 2001 is not expected to have a material effect on the Registrant's consolidated statement of financial condition or results of operations.

Securities are classified into held-to-maturity and available-for-sale categories. Held-to-maturity securities are those that the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities are those that the Company may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.

The amortized cost and fair value of securities available-for-sale as of September 30, 2000 are summarized as follows:

The amortized cost and fair value of securities held-to-maturity as of September 30, 2000 are summarized as follows:

The amortized cost and fair value of securities available-for-sale as of December 31, 1999 are summarized as follows:

The amortized cost and fair value of securities held-to-maturity as of December 31, 1999 are summarized as follows:

Refer to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1999 for information concerning rates and assets securing long-term debt. The Company currently has a $21.0 million revolving line of credit; $15.5 million is currently available to meet any future cash needs. Effective with the September 30, 2000 Balance Sheet presentation, this revolving line of credit has been reclassified as short-term debt at both December 31, 1999 and September 30, 2000.

* In April 1997, CTBI Preferred Capital Trust ("CTBI Trust"), a trust created under the laws of the State of Delaware, issued $34.5 million of 9.0% cumulative trust preferred securities ("Preferred Securities"). The Company owns all of the beneficial interests represented by common securities ("Common Securities") of CTBI Trust, which exists for the sole purpose of issuing the Preferred Securities and Common Securities and investing the proceeds thereof in an equivalent amount of 9.0% Subordinated Debentures which were issued by the Company. The Subordinated Debentures will mature on March 31, 2027, and are unsecured obligations of the Company. The Subordinated Debentures are irrevocably and unconditionally guaranteed by the Company and are subordinate and junior in right of payment to all senior debt and other subordinated debt. There are no payments due for this debt in the next five years.

On January 25, 2000, the Company's Board of Directors approved a 10% stock dividend. The stock dividend was paid on April 15, 2000, to shareholders of record on March 20, 2000. On April 15, 1999, there was a 10% stock dividend paid to shareholders of record on March 20, 1999. All per share data has been restated to reflect these stock dividends.

Regular quarterly cash dividends were paid on (1) April 1, 1999 of 17 cents per share for shareholders of record on March 15, 1999, (2) July 1, 1999 of 18 cents per share for shareholders of record on June 15, 1999, (3) October 1, 1999 of 18 cents per share for shareholders of record on September 15, 1999, (4) January 1, 2000 of 18 cents per share for shareholders of record on December 15, 1999, (5) April 1, 2000 of 18 cents per share for shareholders of record on March 15, 2000 and (6) July 1, 2000 of 19 cents per share for shareholders of record on June 15, 2000, and (7) October 1, 2000 of 19 cents per share for shareholders of record on September 15, 2000.

On November 9, 2000 Community Trust Bank, National Association, the Company's lead bank, entered into a definitive agreement with The Bank of Mt.Vernon, Inc., a subsidiary of Premier Financial Bancorp, Inc., (NASDAQ-PFBI) of Georgetown, Kentucky, to acquire its deposits, loans and fixed assets. The Bank of Mt. Vernon, Inc.'s offices are located in Mt. Vernon, Somerset, Richmond, and Berea, Kentucky.

The offices to be acquired currently have deposits totaling approximately $115 million and loans totaling approximately $102 million. The purchase price to be paid by Community Trust Bancorp, Inc. for the offices will be a 9.5% premium on the non-brokered deposits as of the closing date plus approximately $1.9 million for fixed assets, subject to adjustment as provided in the definitive agreement. The agreement is subject to the approval of Federal and State regulatory agencies. Additionally, Community Trust Bank, National Association, filed the required regulatory application on September 29, 2000, for the merger of its affiliate, Community Trust Bank, FSB with the bank.

The Company's net income for the three months ended September 30, 2000 was $5.7 million or $0.48 per share as compared to $5.6 million or $0.46 per share for the three months ended September 30, 1999. Net income for the nine months ended September 30, 2000 was $16.6 million or $1.38 per share as compared to $16.2 million or $1.33 per share for the nine months ended September 30, 1999. The Company had average shares outstanding of 12,023,000 and 12,174,000 for the nine months ended September 30, 2000 and September 30, 1999, respectively. The following table sets forth on an annualized basis the return on average assets and return on average shareholders' equity for the three and nine month periods ending September 30, 2000 and 1999:

The Company's net income for the third quarter of 2000 represents a 2 cents per share increase in earnings compared to the same period last year. The increase in earnings per share is primarily attributable to the reduction in common shares outstanding resulting from the Company's stock repurchase program.

Net interest income decreased $99 thousand or (0.47%) from $21.1 million for the third quarter of 1999 to $21.0 million for the third quarter of 2000. Interest income increased $3.9 million or 9.6% for the quarter ending September 30, 2000 as compared to the same period in 1999, while interest expense increased $4.0 million or 20.4%.

The increase in both interest income and interest expense can be attributed to increases in interest rates experienced since September 30, 1999. The yield on interest earning assets increased 56 basis points for the third quarter of 2000 as compared to the same period in 1999. The cost of interest bearing funds also increased, by 84 basis points, for the third quarter of 2000 as compared to the same period in 1999. Current activities within the economy could continue to put pressure on the Company's interest margin.

The Company's loan portfolio, its highest yielding asset, continues to expand through internally generated growth. The Company's loan portfolio increased 5.7% on an annualized basis from $1.62 billion at December 31, 1999 to $1.69 billion at September 30, 2000.

The following table summarizes the annualized net interest spread and net interest margin for the three and nine months ended September 30, 2000 and 1999.

The Company experienced a $456,000 (23.1%) increase in net charge-offs and a $287,000 (13.1%) increase in loan loss provision expense in the third quarter of 2000 compared to the quarter ended September 30, 1999. Despite this increase in net charge-offs, the Company was able to maintain its policy of funding 100% of its loan losses and funding new loan growth at the rate of 1.5% into the allowance for loan losses.

Net charge-offs represent the amount of loans charged-off less the amounts recovered on loans previously charged-off. Net charge-offs as a percentage of average loans outstanding decreased 15 basis points to 0.48% for the nine months ended September 30, 2000 as compared to the same period in 1999. The Company's non-performing loans (90 days or more past due and non-accrual) were 1.12% and 1.30% of outstanding loans at December 31, 1999 and September 30, 2000, respectively.

Any loans classified as loss, doubtful, substandard or special mention that are not included in non-performing loans do not (1) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources or (2) represent material credits about which management has knowledge of any information which would cause management to have serious doubts as to the ability of the borrowers to comply with the loan repayment terms. The Company does not believe there are currently any trends, events or uncertainties that are reasonably likely to have a material effect on the volume of its non-performing loans.

The Company's noninterest income decreased 13.0% from $5.53 million for the three months ended September 30, 1999 to $4.81 million for the three months ended September 30, 2000. The Company continues to have pressure on its noninterest income resulting from a decline in consumer loan activity and related fees. The decline in noninterest income compared to the same period in 1999 was driven by a $612,000 decline in loan related noninterest income including gains on sales of loans, loan fees and insurance commissions. This is primarily due to the decline in mortgage loan sales and consumer lending activity that accompanies a rising interest rate environment and because the Company has strengthened the underwriting standards of its consumer loan portfolio. The changes in underwriting standards have resulted in a decrease in the volume of new loans booked.

CTBI's noninterest expense for the three months ended September 30, 2000 experienced a decrease of $981,000 or 6.0% from the same period in 1999. The reduction in operating expenses was fueled by significant reductions in Salaries and Employee Benefits expense ($748,000) and in Occupancy and Equipment ($366,000). The reduction in noninterest expense for the nine months ended September 30, 2000 was $1.1 million or 2.3% compared to the nine months ended September 30, 1999.