Community Trust Bank(CTBI) - 2025 Q2 - Quarterly Report

FORM 10-Q General Information This section provides foundational details about Community Trust Bancorp, Inc. (CTBI), including its SEC filing status and a cautionary statement regarding forward-looking information Registrant Information This section provides the basic identification details for Community Trust Bancorp, Inc. (CTBI), including its SEC filing status as a large accelerated filer and the number of common shares outstanding as of July 31, 2025 - CTBI is a Large Accelerated Filer[4] - The report is a Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2025[5] Common Stock Outstanding | Date | Shares Outstanding | | :----------- | :----------------- | | July 31, 2025 | 18,110,585 | Cautionary Statement Regarding Forward-Looking Statements This statement advises readers that the report contains forward-looking statements, which are subject to various risks and uncertainties, and CTBI does not undertake to update these statements - Forward-looking statements are identified by words like 'believe,' 'expect,' 'anticipate,' 'intend,' 'estimate,' and future or conditional verbs[8] - Risks and uncertainties include economic conditions, portfolio growth and credit performance, financial market performance, inflation and interest rates, regulatory changes, and competition[8] - CTBI undertakes no obligation to update any forward-looking statements[8] PART I - FINANCIAL INFORMATION This part presents CTBI's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements This section presents CTBI's unaudited condensed consolidated financial statements, including the balance sheets, statements of income and comprehensive income, statements of changes in shareholders' equity, and statements of cash flows, along with their accompanying notes - The accompanying information has not been audited by independent registered public accountants but reflects all necessary normal and recurring adjustments for a fair presentation[10] - The statements do not include all disclosures normally required by GAAP for complete annual financial statements; readers should refer to the Form 10-K for the year ended December 31, 2024, for further information[11] Condensed Consolidated Balance Sheets The balance sheet shows a growth in total assets and shareholders' equity from December 31, 2024, to June 30, 2025, primarily driven by an increase in net loans and interest-bearing deposits, alongside a rise in total deposits Condensed Consolidated Balance Sheets (in thousands) | (in thousands except share data) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Assets: | | | | Cash and due from banks | $76,556 | $73,021 | | Interest bearing deposits | 318,734 | 296,484 | | Cash and cash equivalents | 395,290 | 369,505 | | Debt securities available-for-sale at fair value | 994,990 | 1,055,728 | | Loans, net | 4,643,968 | 4,431,669 | | Total assets | $6,390,938 | $6,193,245 | | Liabilities and shareholders' equity: | | | | Total deposits | 5,233,008 | 5,070,189 | | Total liabilities | 5,584,069 | 5,435,661 | | Total shareholders' equity | 806,869 | 757,584 | | Total liabilities and shareholders' equity | $6,390,938 | $6,193,245 | Condensed Consolidated Statements of Income and Comprehensive Income CTBI reported increased net income and comprehensive income for both the three and six months ended June 30, 2025, compared to the prior year, driven by higher total interest income and net interest income, despite an increase in total noninterest expense Condensed Consolidated Statements of Income and Comprehensive Income (in thousands except per share data) | (in thousands except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $85,571 | $76,648 | $167,625 | $151,650 | | Total interest expense | 31,531 | 30,970 | 62,318 | 62,381 | | Net interest income | 54,040 | 45,678 | 105,307 | 89,269 | | Provision for credit losses | 2,094 | 2,972 | 5,662 | 5,628 | | Total noninterest income | 16,171 | 15,708 | 31,068 | 30,842 | | Total noninterest expense | 35,663 | 32,422 | 69,871 | 64,642 | | Net income | 24,899 | 19,499 | 46,871 | 38,178 | | Comprehensive income | $30,347 | $19,265 | $64,623 | $34,398 | | Basic earnings per share | $1.38 | $1.09 | $2.60 | $2.13 | | Diluted earnings per share | $1.38 | $1.09 | $2.60 | $2.13 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased significantly from December 31, 2024, to June 30, 2025, primarily due to net income and other comprehensive income, partially offset by cash dividends declared Consolidated Statements of Changes in Shareholders' Equity (Quarterly, in thousands) | (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, March 31, 2025 | 18,101,765 | $90,510 | $234,355 | $545,372 | $(86,065) | $784,172 | | Net income | | | | 24,899 | | 24,899 | | Other comprehensive income (loss) | | | | | 5,448 | 5,448 | | Cash dividends declared ($0.47 per share) | | | | (8,466) | | (8,466) | | Issuance of common stock | 11,776 | 59 | 397 | | | 456 | | Vesting of restricted stock | (2,608) | (14) | 14 | | | 0 | | Forfeiture of restricted stock | (5,562) | (28) | 28 | | | 0 | | Stock-based compensation | | | 360 | | | 360 | | Balance, June 30, 2025 | 18,105,371 | $90,527 | $235,154 | $561,805 | $(80,617) | $806,869 | Consolidated Statements of Changes in Shareholders' Equity (Year-to-Date, in thousands) | (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, 2024 | 18,057,923 | $90,290 | $233,802 | $531,861 | $(98,369) | $757,584 | | Net income | | | | 46,871 | | 46,871 | | Other comprehensive income (loss) | | | | | 17,752 | 17,752 | | Cash dividends declared ($0.94 per share) | | | | (16,927) | | (16,927) | | Issuance of common stock | 42,578 | 213 | 519 | | | 732 | | Issuance of restricted stock | 38,538 | 193 | (193) | | | 0 | | Vesting of restricted stock | (28,106) | (141) | 141 | | | 0 | | Forfeiture of restricted stock | (5,562) | (28) | 28 | | | 0 | | Stock-based compensation | | | 857 | | | 857 | | Balance, June 30, 2025 | 18,105,371 | $90,527 | $235,154 | $561,805 | $(80,617) | $806,869 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, CTBI experienced a net increase in cash and cash equivalents, primarily driven by strong cash flows from operating and financing activities, which offset significant cash used in investing activities Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $52,513 | $46,155 | | Net cash used in investing activities | (158,059) | (151,260) | | Net cash provided by (used in) financing activities | 131,331 | (4,634) | | Net increase (decrease) in cash and cash equivalents | 25,785 | (109,739) | | Cash and cash equivalents at beginning of period | 369,505 | 271,400 | | Cash and cash equivalents at end of period | $395,290 | $161,661 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on CTBI's accounting policies, financial instruments, and operational segments, offering crucial context to the condensed financial statements - The condensed consolidated financial statements include CTBI and its wholly-owned subsidiaries, Community Trust Bank, Inc. (CTB) and Community Trust and Investment Company, with all significant intercompany transactions eliminated[25] - FASB ASU No. 2023-09 (Income Tax Disclosures) is effective January 1, 2025, affecting annual financial statement disclosure only, with no impact on results of operations or financial condition[26] - The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, introduces regulatory changes, financial product changes, and tax/investment incentives; CTBI is still assessing its implications[28][29][35] Note 1 - Summary of Significant Accounting Policies This note outlines CTBI's critical accounting policies, including principles of consolidation, the impact of new accounting standards, and detailed methodologies for investments, loans, allowance for credit losses (ACL), goodwill, income taxes, and off-balance sheet credit exposures Principles of Consolidation This section details the entities included in CTBI's consolidated financial statements and the treatment of intercompany transactions - The unaudited condensed consolidated financial statements include the accounts of CTBI and its wholly-owned subsidiaries Community Trust Bank, Inc. (CTB) and Community Trust and Investment Company[25] - All significant intercompany transactions have been eliminated in consolidation[25] New Accounting Standards This section discusses the impact and effective dates of recently adopted and future accounting standards, including FASB ASUs and the One Big Beautiful Bill Act (OBBBA) - FASB ASU No. 2023-09 (Income Taxes) became effective January 1, 2025, enhancing income tax disclosures for annual financial statements, with no impact on CTBI's interim results or financial condition[26] - FASB ASU No. 2024-03 (Income Statement Expenses) is effective for fiscal years beginning after December 15, 2026, and is not expected to have a material impact on CTBI's financial statements[27] - The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, introduces CFPB funding cuts, a 1% foreign remittance excise tax, enhanced due diligence for green energy incentives, new tax-advantaged savings accounts (Trump Accounts), agricultural finance expansion, permanent 100% bonus depreciation, and reinstatement of R&E expenditure expensing; CTBI is still assessing its implications[28][29][35] Significant Accounting Policies This section outlines CTBI's key accounting policies for financial instruments, credit losses, goodwill, and off-balance sheet exposures, emphasizing management's use of estimates - AFS debt securities are reported at fair value, with unrealized gains/losses in shareholders' equity; credit-related impairment is recognized as an allowance for credit losses (ACL) on the balance sheet, limited to the amount by which amortized cost exceeds fair value[33][34] - Loans are reported at carrying value, reduced by ACL and unamortized deferred fees/costs; interest accrual is discontinued for loans greater than 90 days past due or when collection is doubtful[39] - ACL for financial assets is measured on a collective basis using discounted cash flow, or individually for loans not sharing risk characteristics; forecasts include GDP, vehicle sales, and housing price index, with a four-quarter forecast period reverting to long-run averages[40][41] - Goodwill is evaluated annually for impairment using fair value techniques, with the balance unchanged at $65.5 million since January 1, 2015[62] - CTBI estimates expected credit losses for off-balance sheet credit exposures (unfunded commitments, lines of credit, standby letters of credit) over their contractual period, recognized as other liabilities and adjusted as an expense in provision for credit losses[64] Note 2 - Stock-Based Compensation This note details CTBI's stock-based compensation, primarily restricted stock grants under the 2015 Stock Ownership Incentive Plan, showing increased expense and remaining unrecognized compensation Restricted Stock Expense (in thousands) | Period | 2025 (in thousands) | 2024 (in thousands) | | :------------------------- | :------------------ | :------------------ | | Three Months Ended June 30 | $403 | $344 | | Six Months Ended June 30 | $947 | $687 | - As of June 30, 2025, there was $3.2 million of unrecognized compensation expense related to restricted stock grants, to be recognized over a weighted average period of 2.9 years[65] - Restricted stock grants generally lapse ratably over four years, subject to continued employment, with a specific management retention award cliff vesting at five years; forfeitures are recognized when they occur[67] - There was no stock option activity or related compensation expense for the periods presented, as all stock option awards have fully vested[68] Note 3 - Securities This note provides a detailed breakdown of CTBI's debt and equity securities, primarily available-for-sale (AFS) debt securities, highlighting a decrease in total AFS securities and an improvement in unrealized losses Available-for-Sale Debt Securities (in thousands) | (in thousands) | Amortized Cost (June 30, 2025) | Fair Value (June 30, 2025) | Amortized Cost (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :------------------------------- | :----------------------------- | :------------------------- | :---------------------------- | :------------------------ | | U.S. Treasury and government agencies | $259,632 | $247,526 | $360,027 | $341,495 | | State and political subdivisions | 303,197 | 257,745 | 304,588 | 253,557 | | Agency mortgage-backed securities | 490,995 | 441,411 | 471,000 | 409,709 | | Asset-backed securities | 48,434 | 48,308 | 51,034 | 50,967 | | Total available-for-sale securities | $1,102,258 | $994,990 | $1,186,649 | $1,055,728 | - The percentage of total debt securities with unrealized losses improved to 90.2% at June 30, 2025, from 95.5% at December 31, 2024[76] - All impairment in the investment portfolio is market and interest rate driven, not credit-related, and CTBI does not intend to sell these investments before recovery of their amortized cost[76][80][81][82][83] Net Securities Gains (Losses) (in thousands) | Period | 2025 (in thousands) | 2024 (in thousands) | | :------------------------- | :------------------ | :------------------ | | Three Months Ended June 30 | $150 | $(474) | | Six Months Ended June 30 | $630 | $(103) | - Equity securities at fair value increased to $4.4 million at June 30, 2025, from $3.8 million at December 31, 2024, due to fair value adjustments[84] Note 4 - Loans This note provides a comprehensive analysis of CTBI's loan portfolio, including major classifications, allowance for credit losses (ACL), nonaccrual and past due loans, credit quality indicators, and loan modifications Major Classifications of Loans, Net (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Commercial loans | $2,382,565 | $2,272,679 | | Residential loans | 1,289,807 | 1,210,826 | | Consumer loans | 1,029,421 | 1,003,132 | | Loans and lease financing (Net Loans) | $4,701,793 | $4,486,637 | - Hotel/motel loans represent a significant concentration (10.1% of total loans) and are susceptible to economic changes[52][87] - The ACL for loans increased to $57.8 million at June 30, 2025, from $54.9 million at December 31, 2024[97][98] - Total nonperforming loans decreased to $24.4 million at June 30, 2025, from $26.7 million at December 31, 2024[99] - Loan modifications for borrowers experiencing financial difficulty included interest rate reductions, term extensions, and payment changes, with a total amortized cost of $7.3 million for interest rate reductions and $4.0 million for term extensions for the three months ended June 30, 2025[113][114] Loan Classifications This section details CTBI's loan portfolio by classification, highlighting concentrations and risk mitigation strategies across various segments Loan Portfolio by Classification (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Hotel/motel | $477,175 | $458,832 | | Commercial real estate residential | 559,906 | 508,310 | | Commercial real estate nonresidential | 913,463 | 865,031 | | Dealer floorplans | 70,270 | 84,956 | | Commercial other | 361,751 | 355,550 | | Real estate mortgage | 1,112,672 | 1,043,401 | | Home equity lines | 177,135 | 167,425 | | Consumer direct | 150,915 | 152,843 | | Consumer indirect | 878,506 | 850,289 | | Total Loans and lease financing | $4,701,793 | $4,486,637 | - CTBI's loan portfolio is segregated into nine segments with similar risk characteristics, serving small and mid-sized communities in Kentucky, West Virginia, and Tennessee[86] - Hotel/motel loans represent 10.1% of total loans and are highly susceptible to economic changes[87] - Dealer floorplans are collateralized under a blanket security agreement and mitigated by monthly inventory audits and additional credit enhancements[90] - Residential real estate loans include fixed and adjustable rate mortgages, with adjustable rate loans typically held and fixed rate loans sold into the secondary market[92] Allowance for Credit Losses (ACL) This section details the movements in the Allowance for Credit Losses (ACL) for loans, including provisions, charge-offs, and recoveries, reflecting management's assessment of credit risk Allowance for Credit Losses for Loans (in thousands) | (in thousands) | Beginning Balance (Mar 31, 2025) | Provision Charged to Expense | Losses Charged Off | Recoveries | Ending Balance (June 30, 2025) | | :------------------------------- | :------------------------------- | :--------------------------- | :----------------- | :--------- | :----------------------------- | | Hotel/motel | $5,594 | $10 | $0 | $0 | $5,604 | | Commercial real estate residential | 6,059 | 457 | (41) | 5 | 6,480 | | Commercial real estate nonresidential | 11,381 | 72 | 0 | 4 | 11,457 | | Dealer floorplans | 551 | (44) | 0 | 0 | 507 | | Commercial other | 3,936 | 220 | (551) | 106 | 3,711 | | Real estate mortgage | 12,322 | 630 | (2) | 3 | 12,953 | | Home equity | 1,309 | 298 | (7) | 4 | 1,604 | | Consumer direct | 2,127 | 104 | (199) | 99 | 2,131 | | Consumer indirect | 13,682 | 470 | (1,728) | 954 | 13,378 | | Total ACL | $56,961 | $2,217 | $(2,528) | $1,175 | $57,825 | - The ACL is maintained at a level appropriate to cover estimated credit losses on individually evaluated loans and inherent losses in the remainder of the portfolio[46] - Credit losses, when deemed uncollectible, are charged to the ACL, and subsequent recoveries are credited to it[46] Nonaccrual Loans and Loans 90 Days Past Due This section presents the balances of nonaccrual loans and loans 90 days past due, indicating a decrease in total nonperforming loans and a significant reduction in recognized interest income from these assets Nonaccrual Loans and Loans 90 Days Past Due (in thousands) | (in thousands) | June 30, 2025 Total Nonperforming Loans | December 31, 2024 Total Nonperforming Loans | | :------------------------------- | :-------------------------------------- | :------------------------------------------ | | Commercial real estate residential | $3,300 | $1,617 | | Commercial real estate nonresidential | 11,343 | 13,154 | | Commercial other | 1,313 | 1,416 | | Real estate mortgage | 6,840 | 8,820 | | Home equity lines | 687 | 648 | | Consumer direct | 224 | 269 | | Consumer indirect | 679 | 762 | | Total Nonperforming Loans | $24,386 | $26,686 | - Interest income recognized on nonaccrual loans decreased significantly to $9.6 thousand at June 30, 2025, from $189.4 thousand at December 31, 2024[99] Loan Portfolio Aging Analysis This section provides an aging analysis of the loan portfolio, detailing the total past due amounts by loan classification Loan Portfolio Aging Analysis (in thousands) | (in thousands) | June 30, 2025 Total Past Due | December 31, 2024 Total Past Due | | :------------------------------- | :--------------------------- | :------------------------------- | | Hotel/motel | $120 | $0 | | Commercial real estate residential | 4,379 | 1,847 | | Commercial real estate nonresidential | 13,077 | 14,357 | | Dealer floorplans | 0 | 0 | | Commercial other | 2,046 | 2,646 | | Real estate mortgage | 12,305 | 11,956 | | Home equity lines | 2,878 | 2,880 | | Consumer direct | 1,325 | 1,251 | | Consumer indirect | 6,257 | 6,730 | | Total Loans and lease financing | $42,387 | $41,667 | Credit Quality Indicators This section outlines CTBI's internal credit risk rating system, categorizing loans based on borrower ability, collateral, and guarantor strength, with regular reviews for deterioration or improvement - CTBI categorizes loans into risk categories (Pass, Watch, OAEM, Substandard, Doubtful) based on borrower ability to service debt, collateral value, and guarantor strength[102] - Loans classified as loss, doubtful, substandard, or special mention are reviewed quarterly for deterioration or improvement[102] - Pass grades indicate excellent to fair credit ratings with adequate cash flows; Watch graded loans warrant extra management attention but are not currently criticized; OAEM loans are potentially weak but currently protected; Substandard loans are inadequately protected and have well-defined weaknesses; Doubtful loans have weaknesses making collection highly questionable, with a high probability of loss[102] Loan Modifications This section details loan modifications granted to borrowers experiencing financial difficulty, categorized by concession type, and notes subsequent defaults Loan Modifications by Concession Granted (Three Months Ended June 30, 2025, in thousands) | (in thousands) | Interest Rate Reduction | Term Extension | Combination – Term Extension and Interest Rate Reduction | Payment Change | | :------------------------------- | :---------------------- | :------------- | :------------------------------------------------------- | :------------- | | Hotel/motel | $0 | $0 | $0 | $0 | | Commercial real estate residential | 0 | 299 | 498 | 0 | | Commercial real estate nonresidential | 7,254 | 0 | 0 | 92 | | Dealer floorplans | 0 | 0 | 0 | 0 | | Commercial other | 0 | 264 | 203 | 29 | | Real estate mortgage | 57 | 3,007 | 560 | 35 | | Home equity lines | 0 | 107 | 49 | 0 | | Consumer direct | 0 | 176 | 0 | 0 | | Consumer indirect | 0 | 121 | 0 | 51 | | Total Loans and lease financing | $7,311 | $3,974 | $1,310 | $207 | - For the three months ended June 30, 2025, commercial real estate nonresidential loans had the largest interest rate reduction ($7.3 million), while real estate mortgage loans had the largest term extension ($3.0 million)[113] - Two loans to borrowers experiencing financial difficulty subsequently defaulted during the quarter ended June 30, 2025, totaling $128 thousand[127][128] Off-Balance Sheet Credit Exposures This section details the Allowance for Credit Losses (ACL) for unfunded commitments, outlining changes due to provisions, charge-offs, and recoveries ACL for Unfunded Commitments (in thousands) | (in thousands) | Beginning Balance (Mar 31, 2025) | Provision Charged to Expense | Losses Charged Off | Recoveries | Ending Balance (June 30, 2025) | | :------------------------------- | :------------------------------- | :--------------------------- | :----------------- | :--------- | :----------------------------- | | Commercial | $1,071 | $(172) | $0 | $0 | $899 | | Real estate mortgage | 372 | 48 | 0 | 0 | 420 | | Consumer | 22 | 1 | 0 | 0 | 23 | | Total unfunded commitment off-balance sheet credit exposure | $1,465 | $(123) | $0 | $0 | $1,342 | - A liability for expected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend credit and the obligation is not unconditionally cancellable[129] Note 5 - Repurchase Agreements This note describes CTBI's use of repurchase agreements for customer needs and funding, which are recorded as secured borrowings, and details the carrying value of pledged investment securities - Repurchase agreements are used to facilitate customer needs and provide additional funding, recorded as secured borrowings[130] - The primary risk is market risk associated with the securities securing the transactions, requiring additional collateral based on fair value changes[131] Carrying Value of Investment Securities Pledged as Collateral (in millions) | Date | Carrying Value (in millions) | | :----------- | :--------------------------- | | June 30, 2025 | $299.0 | | Dec 31, 2024 | $292.2 | Repurchase Agreements Balances (in thousands) | ($ in thousands) | Balance Outstanding as of Quarter End | | :--------------- | :------------------------------------ | | June 30, 2025 | $225,075 | | December 31, 2024 | $240,166 | Note 6 - Fair Value of Financial Assets and Liabilities This note details CTBI's fair value measurements for financial assets and liabilities, categorized into a three-level hierarchy based on input observability, emphasizing Level 3 valuations - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[134][135][136] Fair Value Measurements of Assets (Recurring Basis, June 30, 2025, in thousands) | (in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------- | :--------- | :-------- | :-------- | :-------- | | U.S. Treasury and government agencies | $247,526 | $236,704 | $10,822 | $0 | | State and political subdivisions | 257,745 | 0 | 257,745 | 0 | | Agency mortgage-backed securities | 441,411 | 0 | 441,411 | 0 | | Asset-backed securities | 48,308 | 0 | 48,308 | 0 | | Equity securities at fair value | 4,410 | 0 | 0 | 4,410 | | Mortgage servicing rights | 7,096 | 0 | 0 | 7,096 | - Equity securities at fair value (Visa Class B Stock) and Mortgage Servicing Rights (MSRs) are valued using Level 3 inputs due to unobservable factors like discount rates, conversion dates, and prepayment speeds[144][145][147][148] Level 3 Reconciliation (Three Months Ended June 30, 2025, in thousands) | (in thousands) | Equity Securities at Fair Value | Mortgage Servicing Rights | | :------------- | :------------------------------ | :------------------------ | | Beginning balance | $4,261 | $7,093 | | Total unrealized gains (losses) included in net income | 149 | 157 | | Issues | 0 | 30 | | Settlements | 0 | (184) | | Ending balance | $4,410 | $7,096 | Fair Value of Financial Instruments (June 30, 2025, in thousands) | (in thousands) | Carrying Amount | Level 1 | Level 2 | Level 3 | | :------------------------------- | :-------------- | :------------ | :------------ | :------------ | | Financial assets: | | | | | | Cash and cash equivalents | $395,290 | $395,290 | $0 | $0 | | Debt securities available-for-sale | 994,990 | 236,704 | 758,286 | 0 | | Equity securities at fair value | 4,410 | 0 | 0 | 4,410 | | Loans, net | 4,643,968 | 0 | 0 | 4,590,027 | | Financial liabilities: | | | | | | Deposits | $5,233,008 | $1,258,205 | $3,785,850 | $0 | | Repurchase agreements | 225,075 | 0 | 0 | 225,034 | | Long-term debt | 63,901 | 0 | 0 | 58,297 | Note 7 - Segment Reporting CTBI operates as a single operating segment, community banking services, which encompasses commercial and personal banking, and trust and wealth management activities, with performance evaluated by the Executive Committee - CTBI's principal activity is the ownership and management of its wholly-owned subsidiaries, CTB and Community Trust and Investment Company[166] - Management analyzes CTBI's operations as one operating segment: community banking services, offering a wide range of consumer and commercial banking services[166] - The Executive Committee uses net income, net interest income, and noninterest income for resource allocation and performance evaluation[166] Consolidated Total Assets Reconciliation (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Community banking services assets | $6,384,442 | $6,186,518 | | Holding company assets | 871,431 | 822,851 | | Elimination of subsidiary and parent cash and intercompany receivables | (3,803) | (3,779) | | Elimination of investment in subsidiaries | (861,132) | (812,345) | | Consolidated total assets | $6,390,938 | $6,193,245 | Note 8 - Revenue Recognition This note outlines CTBI's revenue recognition policies, primarily focusing on interest income from loans and securities, and noninterest income from customer contracts and other sources - CTBI's primary revenue source is interest income from loans and investment securities, recognized over the instrument's life[174] - Noninterest income from customer contracts (e.g., deposit fees, loan fees, brokerage revenue) is recognized when performance obligations are satisfied, typically for short-term services with fixed pricing[175][177] - Noninterest income not generated from customer contracts includes MSRs, gains/losses on securities sales, OREO sales, property/plant/equipment sales, and bank-owned life insurance income[179] Note 9 - Earnings Per Share This note presents the computation of basic and diluted earnings per share (EPS) for the three and six months ended June 30, 2025 and 2024, showing an increase in both basic and diluted EPS for the current periods Earnings Per Share (in thousands except per share data) | (in thousands except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $24,899 | $19,499 | $46,871 | $38,178 | | Basic earnings per share | $1.38 | $1.09 | $2.60 | $2.13 | | Diluted earnings per share | $1.38 | $1.09 | $2.60 | $2.13 | - Diluted EPS calculations include the dilutive effect of equity grants and unvested restricted stock grants using the treasury method[181] Note 10 – Accumulated Other Comprehensive Income (Loss) This note reconciles the changes in accumulated other comprehensive income (loss) (AOCI) for the three and six months ended June 30, 2025 and 2024, showing a significant improvement due to unrealized holding gains on debt securities Accumulated Other Comprehensive Income (Loss) Reconciliation (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $(86,065) | $(106,867) | $(98,369) | $(103,321) | | Unrealized holding gains (losses) on debt securities AFS, net of tax | 5,449 | (233) | 17,753 | (3,779) | | Reclassification adjustments for realized gains (losses) included in securities, net of tax | 1 | 1 | 1 | 1 | | Other comprehensive income (loss) | 5,448 | (234) | 17,752 | (3,780) | | Ending balance | $(80,617) | $(107,101) | $(80,617) | $(107,101) | - The ending balance of AOCI improved to a loss of $80.6 million at June 30, 2025, from a loss of $98.4 million at December 31, 2024, primarily due to unrealized holding gains on debt securities AFS[183] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on CTBI's financial performance and condition for the quarter and six months ended June 30, 2025, highlighting record earnings, asset growth, and strategic management of risks - CTBI reported record earnings of $24.9 million ($1.38 per basic share) for the quarter ended June 30, 2025, an increase from $19.5 million ($1.09 per basic share) in the prior year's same quarter[187] - Year-to-date earnings reached $46.9 million ($2.60 per basic share), up $8.7 million ($0.47 per basic share) from the prior year[187] - Total consolidated assets were $6.4 billion and total consolidated deposits, including repurchase agreements, were $5.5 billion at June 30, 2025[185] Overview and Business This section provides an overview of CTBI's business, including its headquarters, operational footprint, and the range of commercial and personal banking services offered - CTBI is a bank holding company headquartered in Pikeville, Kentucky, owning Community Trust Bank, Inc. (CTB) and Community Trust and Investment Company[185] - The company operates 81 banking locations across Kentucky, West Virginia, and Tennessee, with four trust offices in Kentucky and one in Tennessee[185] - CTBI offers commercial and personal banking services, including deposits, secured/unsecured loans, cash management, letters of credit, and trust and wealth management activities[186] Results of Operations and Financial Condition This section summarizes CTBI's financial performance for the six months ended June 30, 2025, highlighting increases in net interest income, loan portfolio, and deposits, alongside a decrease in nonperforming loans Key Financial Highlights (Six Months Ended June 30, in thousands) | (dollars in thousands) | 2025 | 2024 | Change Amount | Percent Change (%) | | :------------------------ | :---------- | :---------- | :------------ | :----------------- | | Net interest income | $105,307 | $89,269 | $16,038 | 18.0 | | Provision for credit losses | 5,662 | 5,628 | 34 | 0.6 | | Noninterest income | 31,068 | 30,842 | 226 | 0.7 | | Noninterest expense | 69,871 | 64,642 | 5,229 | 8.1 | | Income taxes | 13,971 | 11,663 | 2,308 | 19.8 | | Net income | $46,871 | $38,178 | $8,693 | 22.8 | - Net interest income for the quarter increased $2.8 million (5.4%) from prior quarter and $8.4 million (18.3%) from prior year same quarter[190] - The loan portfolio increased $65.3 million (annualized 5.6%) during the quarter and $215.2 million (4.8%) from prior year end[190] - Total nonperforming loans decreased $2.1 million during the quarter and $2.3 million from prior year end[190] - Deposits, including repurchase agreements, increased $100.2 million (annualized 7.5%) during the quarter and $147.7 million (2.8%) from prior year end[190] Quarterly Highlights This section provides key financial highlights for the quarter ended June 30, 2025, including changes in net interest income, provision for credit losses, noninterest income, and noninterest expense - Net interest income for the quarter was $54.0 million, up 5.4% from prior quarter and 18.3% from prior year same quarter[190] - Provision for credit losses decreased $1.5 million from prior quarter and $0.9 million from prior year same quarter[190] - Noninterest income increased $1.3 million (8.6%) from prior quarter and $0.5 million (2.9%) from prior year same quarter[190] - Noninterest expense increased $1.5 million (4.3%) from prior quarter and $3.2 million (10.0%) from prior year same quarter[190] Income Statement Review This section reviews CTBI's income statement for the six months ended June 30, 2025, detailing changes in net interest income, provision for credit losses, noninterest income, noninterest expense, and net income, along with key profitability metrics Income Statement Review (Six Months Ended June 30, in thousands) | (dollars in thousands) | 2025 | 2024 | Change Amount | Percent Change (%) | | :------------------------ | :---------- | :---------- | :------------ | :----------------- | | Net interest income | $105,307 | $89,269 | $16,038 | 18.0 | | Provision for credit losses | 5,662 | 5,628 | 34 | 0.6 | | Noninterest income | 31,068 | 30,842 | 226 | 0.7 | | Noninterest expense | 69,871 | 64,642 | 5,229 | 8.1 | | Income taxes | 13,971 | 11,663 | 2,308 | 19.8 | | Net income | $46,871 | $38,178 | $8,693 | 22.8 | | Average earning assets | $5,915,965 | $5,463,944 | $452,021 | 8.3 | | Yield on average earnings assets, tax equivalent* | 5.73% | 5.60% | 0.13% | 2.3 | | Cost of interest bearing funds | 3.01% | 3.32% | (0.31)% | (9.5) | | Net interest margin, tax equivalent* | 3.61% | 3.31% | 0.30% | 9.1 | Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates This section provides detailed average balance sheets and corresponding interest income/expense and yields/rates for earning assets and interest-bearing liabilities for the three and six months ended June 30, 2025 and 2024 Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates (Three Months Ended June 30, in thousands) | (in thousands) | Average Balances (June 30, 2025) | Interest (June 30, 2025) | Rate (June 30, 2025) | Average Balances (June 30, 2024) | Interest (June 30, 2024) | Rate (June 30, 2024) | | :------------------------------- | :------------------------------- | :----------------------- | :------------------- | :------------------------------- | :----------------------- | :------------------- | | Total earning assets | $5,983,093 | $85,854 | 5.76% | $5,469,813 | $76,940 | 5.66% | | Total interest bearing liabilities | $4,215,573 | $31,531 | 3.00% | $3,776,362 | $30,970 | 3.30% | | Net interest income, tax equivalent | | $54,323 | | | $45,970 | | | Net interest margin | | | 3.64% | | | 3.38% | Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates (Six Months Ended June 30, in thousands) | (in thousands) | Average Balances (June 30, 2025) | Interest (June 30, 2025) | Rate (June 30, 2025) | Average Balances (June 30, 2024) | Interest (June 30, 2024) | Rate (June 30, 2024) | | :------------------------------- | :------------------------------- | :----------------------- | :------------------- | :------------------------------- | :----------------------- | :------------------- | | Total earning assets | $5,915,965 | $168,181 | 5.73% | $5,463,944 | $152,236 | 5.60% | | Total interest bearing liabilities | $4,177,225 | $62,318 | 3.01% | $3,774,937 | $62,381 | 3.32% | | Net interest income, tax equivalent | | $105,863 | | | $89,855 | | | Net interest margin | | | 3.61% | | | 3.31% | Net Interest Differential This section analyzes the approximate effect of volume and rate changes on net interest income, showing positive contributions from both for the six months ended June 30, 2025 Effect of Volume and Rate Changes on Net Interest Differential (Three Months Ended June 30, in thousands) | (in thousands) | Total Change 2025/2024 | Change Due to Volume | Change Due to Rate | | :-------------------- | :--------------------- | :------------------- | :----------------- | | Total interest income | $8,914 | $8,621 | $293 | | Total interest expense | 561 | 3,613 | (3,052) | | Net interest income | $8,353 | $5,008 | $3,345 | Effect of Volume and Rate Changes on Net Interest Differential (Six Months Ended June 30, in thousands) | (in thousands) | Total Change 2025/2024 | Change Due to Volume | Change Due to Rate | | :-------------------- | :--------------------- | :------------------- | :----------------- | | Total interest income | $15,945 | $7,810 | $8,135 | | Total interest expense | (63) | 3,166 | (3,229) | | Net interest income | $16,008 | $4,644 | $11,364 | - Net interest income for the quarter increased by $8.4 million (18.3%) from the prior year, with the net interest margin increasing by 26 basis points to 3.64%[201] Provision for Credit Losses Discussion The provision for credit losses decreased for the quarter ended June 30, 2025, compared to both the prior quarter and prior year, primarily due to funding net charge-offs and changes in loan volume and composition Provision for Credit Losses (in millions) | Period | Provision for Credit Losses (in millions) | | :------------------------- | :---------------------------------------- | | Quarter Ended June 30, 2025 | $2.1 | | Prior Quarter | $3.6 | | Prior Year Same Quarter | $3.0 | - The provision for the quarter included $1.4 million for net charge-offs, $0.6 million for changes in loan volume and composition, and a $123 thousand credit for unfunded commitments[202] - Reserve coverage (ACL to nonperforming loans) was 237.1% at June 30, 2025, compared to 263.0% at June 30, 2024[202] Noninterest Income Discussion Noninterest income increased for the quarter ended June 30, 2025, compared to both the prior quarter and prior year, driven by higher deposit-related fees and loan-related fees Noninterest Income (in thousands) | $(in thousands) | 2Q 2025 | 1Q 2025 | 2Q 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :-------- | :-------- | :-------- | :-------- | :-------- | | Deposit related fees | $7,350 | $6,822 | $7,308 | $14,172 | $14,319 | | Trust and wealth management income | 4,092 | 3,981 | 3,736 | 8,073 | 7,253 | | Gains on sales of loans | 77 | 47 | 119 | 124 | 164 | | Loan related fees | 1,249 | 965 | 1,320 | 2,214 | 2,672 | | Bank owned life insurance revenue | 1,102 | 1,035 | 1,815 | 2,137 | 3,107 | | Brokerage revenue | 526 | 494 | 683 | 1,020 | 1,173 | | Other | 1,775 | 1,553 | 727 | 3,328 | 2,154 | | Total noninterest income | $16,171 | $14,897 | $15,708 | $31,068 | $30,842 | - Quarter-over-quarter increase was primarily due to increases in deposit related fees ($0.5 million) and loan related fees ($0.3 million)[204] - Year-over-year increases in trust and wealth management income ($0.4 million) and securities gains ($0.6 million) were partially offset by a decrease in bank owned life insurance revenue ($0.7 million)[204] Noninterest Expense Discussion Noninterest expense increased for the quarter ended June 30, 2025, compared to both the prior quarter and prior year, mainly due to higher accruals for annual incentive payments and data processing Noninterest Expense (in thousands) | $(in thousands) | 2Q 2025 | 1Q 2025 | 2Q 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :-------- | :-------- | :-------- | :-------- | :-------- | | Salaries | $13,667 | $13,269 | $13,037 | $26,936 | $26,073 | | Employee benefits | 7,987 | 6,849 | 6,554 | 14,836 | 13,640 | | Net occupancy and equipment | 3,172 | 3,440 | 3,089 | 6,612 | 6,117 | | Data processing | 3,326 | 2,859 | 2,669 | 6,185 | 5,187 | | Legal and professional fees | 1,001 | 1,225 | 978 | 2,226 | 1,810 | | Advertising and marketing | 765 | 673 | 856 | 1,438 | 1,433 | | Taxes other than property and payroll | 573 | 529 | 438 | 1,102 | 880 | | Other | 5,172 | 5,364 | 4,801 | 10,536 | 9,502 | | Total noninterest expense | $35,663 | $34,208 | $32,422 | $69,871 | $64,642 | - The quarter-over-quarter increase was primarily due to an increase in the accrual for the annual incentive payment to employees and a $0.5 million increase in data processing expense[206] - The year-over-year increase was primarily due to increases in personnel expense ($2.1 million) and data processing expense ($0.7 million)[206] Balance Sheet Review CTBI's total assets, loans outstanding, and shareholders' equity all increased during the quarter and from prior year-end, with significant growth in commercial and residential loan portfolios and deposits - Total assets increased $114.4 million (annualized 7.3%) during the quarter and $197.7 million (annualized 38.8%) from prior year end, reaching $6.4 billion[207] - Loans outstanding increased $65.3 million (annualized 5.6%) during the quarter and $215.2 million (annualized 58.3%) from prior year end, reaching $4.7 billion[207] - Shareholders' equity increased $22.7 million (annualized 11.6%) during the quarter and $49.3 million (annualized 79.2%) from prior year end, reaching $806.9 million[209] - Net unrealized losses on securities, net of deferred taxes, improved to $80.6 million at June 30, 2025, from $98.4 million at December 31, 2024[209] Loans Discussion CTBI's total loan portfolio grew by 4.8% from prior year-end to $4.7 billion at June 30, 2025, with growth in commercial and residential categories and managed net charge-offs Loan Portfolio Summary (June 30, 2025, in thousands) | Loan Category | Balance (June 30, 2025) | Variance from Prior Year End (%) | Net (Charge Offs)/Recoveries (YTD) | Nonperforming (June 30, 2025) | ACL (June 30, 2025) | | :------------------------------ | :---------------------- | :------------------------------- | :--------------------------------- | :---------------------------- | :------------------ | | Hotel/motel | $477,175 | 4.0 | $0 | $0 | $5,604 | | Commercial real estate residential | 559,906 | 10.2 | (49) | 3,300 | 6,480 | | Commercial real estate nonresidential | 913,463 | 5.6 | 6 | 11,343 | 11,457 | | Dealer floorplans | 70,270 | (17.3) | 0 | 0 | 507 | | Commercial other | 361,751 | 1.7 | (769) | 1,313 | 3,711 | | Real estate mortgage | 1,112,672 | 6.6 | (65) | 6,840 | 12,953 | | Home equity | 177,135 | 5.8 | 6 | 687 | 1,604 | | Consumer direct | 150,915 | (1.3) | (287) | 224 | 2,131 | | Consumer indirect | 878,506 | 3.3 | (1,770) | 679 | 13,378 | | Total loans | $4,701,793 | 4.8 | $(2,928) | $24,386 | $57,825 | - The increase in loans from prior quarter included a $24.9 million increase in commercial loans and a $50.2 million increase in residential loans, partially offset by a $10.1 million decrease in indirect consumer loans[207] Total Deposits and Repurchase Agreements Discussion Total deposits and repurchase agreements increased by 1.9% during the quarter and 2.8% from prior year-end, reaching $5.46 billion, with growth in noninterest-bearing and time deposits Total Deposits and Repurchase Agreements (in thousands) | (dollars in thousands) | 2Q 2025 | 1Q 2025 | YE 2024 | Percent Change 2Q 2025 vs 1Q 2025 (%) | Percent Change 2Q 2025 vs YE 2024 (%) | | :--------------------------------------- | :---------- | :---------- | :---------- | :------------------------------------ | :------------------------------------ | | Noninterest bearing deposits | $1,258,205 | $1,235,544 | $1,242,676 | 1.8 | 1.2 | | Interest checking | 173,795 | 158,968 | 167,736 | 9.3 | 3.6 | | Money market savings | 1,820,230 | 1,828,051 | 1,781,415 | (0.4) | 2.2 | | Savings accounts | 508,467 | 516,379 | 511,378 | (1.5) | (0.6) | | Time deposits | 1,472,311 | 1,372,363 | 1,366,984 | 7.3 | 7.7 | | Repurchase agreements | 225,075 | 246,556 | 240,166 | (8.7) | (6.3) | | Total deposits and repurchase agreements | $5,458,083 | $5,357,861 | $5,310,355 | 1.9 | 2.8 | - CTBI is not dependent on any one customer or group of customers for deposits, with no single customer accounting for more than 3% of total deposits[208] Deposit Maturities This section provides a breakdown of uninsured certificates of deposit and other time deposits by maturity period, with the majority maturing within one year Maturities of Uninsured Certificates of Deposit and Other Time Deposits (June 30, 2025, in thousands) | (in thousands) | Total | Within 1 Year | 2 Years | 3 Years | 4 Years | 5 Years | After 5 Years | | :------------- | :--------- | :------------ | :-------- | :-------- | :-------- | :-------- | :------------ | | Uninsured certificates of deposits and other time deposits greater than $250,000 | $411,915 | $393,919 | $5,346 | $9,192 | $2,950 | $508 | $0 | - As of June 30, 2025, CTBI had approximately $1.5 million in uninsured deposits and no brokered deposits[212] Repurchase Agreements Discussion This section provides information on CTBI's repurchase agreement borrowings, which decreased from December 31, 2024, to June 30, 2025, and are accounted for as secured borrowings Repurchase Agreements Balances (in thousands) | ($ in thousands) | Balance Outstanding as of Quarter End | | :--------------- | :------------------------------------ | | June 30, 2025 | $225,075 | | December 31, 2024 | $240,166 | | June 30, 2024 | $227,576 | - Repurchase agreements are accounted for as secured borrowings[213] Asset Quality Discussion CTBI's asset quality improved, with total nonperforming loans decreasing from prior quarter and prior year-end, while net loan charge-offs remained stable, supported by robust risk management processes - Total nonperforming loans decreased to $24.4 million at June 30, 2025, from $26.7 million at December 31, 2024[214] - Net loan charge-offs for the quarter were $1.4 million (annualized 0.12% of average loans), stable compared to the prior year's same period[215] - The allowance for credit losses to nonaccrual loans was 362.8% at June 30, 2025, compared to 1,017.1% at June 30, 2024[214] - CTBI's risk management includes weekly and monthly delinquent loan review meetings, a Watch List Asset Committee, and a Loan Review Department that annually reviews a high percentage of the loan portfolio[214] - CTBI generally does not offer high-risk loans such as option ARM products, high LTV mortgages, interest-only loans, or loans with negative amortizations[214] Dividends CTBI has consistently paid quarterly cash dividends, with a recent increase declared by the Board of Directors, resulting in an annualized dividend yield of 3.55% as of June 30, 2025 Quarterly Cash Dividends Paid | Pay Date | Record Date | Amount Per Share | | :---------- | :------------ | :--------------- | | July 1, 2025 | June 15, 2025 | $0.47 | | April 1, 2025 | March 15, 2025 | $0.47 | | January 1, 2025 | December 15, 2024 | $0.47 | | October 1, 2024 | September 15, 2024 | $0.47 | | July 1, 2024 | June 15, 2024 | $0.46 | | April 1, 2024 | March 15, 2024 | $0.46 | - On July 22, 2025, the Board declared a quarterly cash dividend of $0.53 per share, representing a 12.8% increase, to be paid on October 1, 2025[216] - The annualized dividend yield to shareholders was 3.55% as of June 30, 2025[209][221] Liquidity and Market Risk CTBI manages liquidity to meet loan demand and deposit withdrawals by maintaining liquid assets, unused borrowing capacity, and core deposit growth, ensuring diverse funding sources - CTBI's objective is to maintain consistent growth in net interest income through effective management of balance sheet composition, liquidity, and interest rate risk[217] - As of June 30, 2025, CTBI had $395.3 million in cash and cash equivalents and $109.4 million in unpledged AFS securities for liquidity needs[217] - CTBI had a $527.0 million available borrowing position with the Federal Home Loan Bank at June 30, 2025, and $50 million in lines of credit with correspondent banks[217] - The investment portfolio consists primarily of investment grade short-term U.S. government and agency issuances, with 99.6% in AFS securities[218] Interest Rate Risk CTBI considers interest rate risk a significant market risk and manages it using an earnings simulation model to analyze net interest income sensitivity, monitored by the Asset/Liability Management Committee (ALCO) - Interest rate risk is managed using an earnings simulation model to analyze net interest income sensitivity to movements in interest rates[219] - A 200 basis point increase in the yield curve is estimated to increase net interest income by 1.41% over one year and 3.76% over two years[243] - A 200 basis point decrease in the yield curve is estimated to decrease net interest income by 2.12% over one year and 5.09% over two years[243] - CTBI's Asset/Liability Management Committee (ALCO) monitors and manages interest rate risk within Board-approved policy limits[220] Capital Resources CTBI's capital growth is primarily driven by retained earnings, with the company and its bank subsidiary meeting the Community Bank Leverage Ratio (CBLR) framework requirements, indicating strong capital levels - CTBI's primary source of capital growth is the retention of earnings, with 63.8% of earnings retained year-to-date, compared to 56.8% in the prior year[221] - CTBI and CTB elected to use the Community Bank Leverage Ratio (CBLR) framework, which requires a leverage ratio greater than 9% for eligible community banks[222] Community Bank Leverage Ratio (CBLR) | Entity | CBLR Ratio (June 30, 2025) | | :----- | :------------------------- | | CTBI | 13.80% | | CTB | 13.33% | Impact of Inflation, Changing Prices, and Economic Conditions CTBI acknowledges that inflation impacts asset growth and the need for increased equity capital, emphasizing its ability to react to interest rate changes as a significant factor influencing financial results - Inflation impacts asset growth in the banking industry, requiring increased equity capital to maintain appropriate equity-to-assets ratios, and also affects other expenses[224] - CTBI considers its ability to react to changes in interest rates as one of the most significant impacts on financial and operating results[225] - The company seeks to maintain a balanced position between interest rate sensitive assets and liabilities to mitigate the effects of wide interest rate fluctuations[225] Stock Repurchase Program CTBI has an ongoing stock repurchase program, which has been increased multiple times since its inception in 1998, with a significant number of shares repurchased and remaining authorization - CTBI's stock repurchase program began in December 1998 and has been increased multiple times, including by an additional 1,000,000 shares in March 2020[226] Stock Repurchase Program Status (June 30, 2025) | Metric | Amount | | :----------------------------------- | :----------- | | Total shares repurchased through program | 2,465,294 | | Shares remaining under authorization | 1,034,706 | Critical Accounting Estimates This section highlights CTBI's critical accounting estimates, primarily the Allowance for Credit Losses (ACL) and Goodwill impairment testing, which require significant management judgment and assumptions about future events - The preparation of consolidated financial statements requires significant estimates and assumptions, which are constantly reevaluated[227][228] - The Allowance for Credit Losses (ACL) is a critical accounting estimate, determined through ongoing quarterly assessments of loan collectability, historical loss experience, current/forecasted economic conditions, and qualitative factors[229][230] - ACL methodology involves collective evaluation for pooled loans using a discounted cash flow (DCF) model with economic forecasts (up to one year) and specific allowances for individually evaluated loans (e.g., collateral-dependent loans)[231][232][233][234] - Goodwill is another critical accounting estimate, tested annually for impairment by comparing its fair value to its carrying amount, involving subjective estimates and judgments related to cash flows and discount rates[239][240][241] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section reiterates CTBI's approach to managing interest rate risk, which is considered a significant market risk, using an earnings simulation model to assess net interest income sensitivity to yield curve changes - Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits[243] - An earnings simulation model is used to analyze net interest income sensitivity to movements in interest rates[243] Estimated Impact of Yield Curve Changes on Net Interest Income | Scenario | Estimated Change in Net Interest Income (1 Year) | Estimated Change in Net Interest Income (2 Years) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | 200 basis point increase | +1.41% | +3.76% | | 200 basis point decrease | -2.12% | -5.09% | Item 4. Controls and Procedures This section confirms the effectiveness of CTBI's disclosure controls and procedures as of June 30, 2025, and states that there were no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate reporting of material information[244] - There were no changes in internal control over financial reporting during the three months ended June 30, 2025, that materially affected or are reasonably likely to materially affect CTBI