Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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. ("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, 2025.

Our Business

Community Trust Bancorp, Inc. ("CTBI") is a bank holding company headquartered in Pikeville, Kentucky. Currently, we own one commercial bank, Community Trust Bank, Inc. ("CTB") and one trust company, Community Trust and Investment Company. Through our subsidiaries, we have seventy-eight banking locations in eastern, northern, 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, 2026, we had total consolidated assets of $6.7 billion and total consolidated deposits, including repurchase agreements, of $5.7 billion. Total shareholders' equity at March 31, 2026 was $871.2 million. Trust assets under management at March 31, 2026 were $4.3 billion, including CTB's investment portfolio totaling $1.1 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, 2025.

Results of Operations and Financial Condition

We reported earnings for the first quarter 2026 of $27.2 million, or $1.51 per basic earnings per share, compared to $27.3 million, or $1.51 per basic share, earned during the fourth quarter 2025 and $22.0 million, or $1.22 per basic share, earned during the first quarter 2025. Total revenue for the quarter was $0.5 million below prior quarter but $8.0 million above prior year same quarter. Net interest income for the quarter increased $0.7 million compared to prior quarter and $7.5 million compared to prior year same quarter, and noninterest income decreased $1.2 million compared to prior quarter but increased $0.5 million compared to prior year same quarter. Our provision for credit losses for the quarter decreased $0.6 million from prior quarter and $1.3 million from prior year same quarter. Noninterest expense increased $0.1 million compared to prior quarter and $2.3 million compared to prior year same quarter.

Quarterly Highlights

Income Statement Review

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

(1) Interest includes fees on loans of $0.6 million for each of the three months ended March 31, 2026 and March 31, 2025.

(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.

Net Interest Differential

The following table illustrates the approximate effect of volume and rate changes on net interest differentials between the three months ended March 31, 2026 and March 31, 2025.

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 for the quarter of $58.8 million was $0.7 million, or 1.1%, above prior quarter and $7.5 million, or 14.7%, above prior year same quarter, as our net interest margin, on a fully tax equivalent basis, increased 12 basis points from prior quarter and 22 basis points from prior year same quarter. Our quarterly average earning assets increased $5.4 million, an annualized 0.3%, from prior quarter and $479.2 million, or 8.2%, from prior year same quarter. Our yield on average earning assets increased 1 basis point from prior quarter but decreased 6 basis points from prior year same quarter, while our cost of funds decreased 17 basis points from prior quarter and 41 basis points from prior year same quarter. Our ratio of average loans to deposits, including repurchase agreements, was 87.2% for the quarter compared to 84.9% for prior quarter and 85.9% for same quarter prior year.

Provision for Credit Losses

Our provision for credit losses at $2.3 million for the quarter decreased $0.6 million from prior quarter and $1.3 million from prior year same quarter. Of the provision for the quarter, $2.5 million was attributable to the allowance for credit losses, with an expense recovery of $0.2 million recognized in the provision for unfunded commitments.

Noninterest Income

Noninterest Expense

Balance Sheet Review

CTBI's total assets at $6.7 billion increased $57.0 million, or 3.5% annualized, for the quarter and $464.6 million, or 7.4%, from March 31, 2025. Loans outstanding at $5.0 billion increased $95.9 million, an annualized 7.9%, for the quarter and $354.3 million, or 7.6%, from March 31, 2025. The increase in loans for the quarter included a $46.8 million increase in the commercial loan portfolio, a $43.3 million increase in the residential loan portfolio, and an $11.5 million increase in the consumer indirect loan portfolio, partially offset by a $5.7 million decrease in the consumer direct loan portfolio. CTBI's investment portfolio at $1.1 billion decreased $33.0 million, an annualized 11.9%, for the quarter as management allocated investment maturities into the loan portfolio but increased $79.1 million, or 7.8%, from March 31, 2025. Deposits in other banks decreased $33.8 million for the quarter and $5.1 million from March 31, 2025.

Deposits, including repurchase agreements, at $5.7 billion increased $35.1 million, an annualized 2.5%, for the quarter and $375.1 million, or 7.0%, from March 31, 2025. CTBI is not dependent on any one customer or group of customers for their source of deposits. As of March 31, 2026, two customers accounted for over 3% each (3.7% and 3.2%) of our $5.4 billion in deposits. Only these two customer relationships accounted for more than 1% each of our deposits.

Shareholders' equity at $871.2 million increased $15.2 million, an annualized 7.2%, for the quarter and $87.1 million, or 11.1%, from March 31, 2025. Net unrealized losses on securities, net of deferred taxes, were $68.0 million at March 31, 2026, compared to $64.8 million at December 31, 2025 and $86.1 million at March 31, 2025.

Loans

Total Deposits and Repurchase Agreements

Deposit Maturities

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

As of March 31, 2026, we had approximately $1.6 million in uninsured deposits. CTBI has no brokered deposits.

Asset Quality

Our total nonperforming loans at $20.7 million at March 31, 2026 increased $1.6 million for the quarter but decreased $5.8 million from March 31, 2025. Nonaccrual loans at $11.1 million increased $2.6 million from prior quarter but decreased $4.6 million from March 31, 2025. Accruing loans 90+ days past due at $9.6 million decreased $1.0 million from prior quarter and $1.2 million from March 31, 2025. Accruing loans 30-89 days past due at $24.8 million increased $4.6 million from prior quarter and $10.3 million from March 31, 2025. 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, loan modifications for borrowers experiencing financial difficulty, nonaccrual status, and adequate loan loss reserves. The Loan Review Department has annually reviewed on average 97% 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 82% 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 3 to the condensed consolidated financial statements contained herein.

We had net loan charge-offs of $1.3 million, an annualized 0.11% of average loans, for the quarter compared to $1.8 million, an annualized 0.14% of average loans, for prior quarter and $1.6 million, an annualized 0.14% of average loans, for the first quarter 2025. Of the net charge-offs for the quarter, $0.5 million were in commercial loans, $0.2 million were in residential loans, $0.5 million were in consumer indirect loans, and $0.1 million were in consumer direct loans.

Allowance for Credit Losses

Our reserve coverage (allowance for credit losses to nonperforming loans) at March 31, 2026 was 295.8% compared to 314.0% at December 31, 2025 and 214.7% at March 31, 2025. Nonaccrual loans to totals loans were 0.2% at March 31, 2026 and December 31, 2025. The allowance for credit losses to nonaccrual loans were 550.9% at March 31, 2026 compared to 704.6% at December 31, 2025. Our loan loss reserve as a percentage of total loans outstanding at March 31, 2026 remained at 1.23% from December 31, 2025 and March 31, 2025. The table below shows the changes in components of the allowance for credit losses during the first quarter 2026:

See Note 3 to our condensed consolidated financial statements contained herein for additional information regarding our allowance for credit losses.

Dividends

The following schedule shows the quarterly cash dividends paid for the past six quarters:

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 March 31, 2026, we had approximately $358.7 million in cash and cash equivalents and approximately $146.8 million in unpledged securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $363.7 million and $174.7 million, respectively, at December 31, 2025. 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 $0.3 million at March 31, 2026 and December 31, 2025. As of March 31, 2026, we had a $559.7 million available borrowing position with the Federal Home Loan Bank, compared to $546.9 million at December 31, 2025. 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 March 31, 2026 and December 31, 2025, we had $50 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 March 31, 2026 were deposits with the Federal Reserve of $177.9 million, compared to $288.1 million at December 31, 2025. 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 March 31, 2026, available-for-sale ("AFS") securities comprised 99.7% of the total investment portfolio, and the AFS portfolio was 125% of equity capital. Eighty-eight percent of the pledge-eligible portfolio was pledged.

Interest Rate Risk

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

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

Capital Resources

We continue to grow our shareholders' equity while also providing an annual dividend yield to shareholders for the quarter ended March 31, 2026 of 3.49%. Shareholders' equity increased 1.8% for the quarter and 11.1% from March 31, 2025. Our primary source of capital growth is the retention of earnings. Cash dividends were $0.53 per share for the first quarter 2026 compared to $0.47 per share for the first quarter 2025. We retained 64.9% of our earnings for the three months ended March 31, 2026 compared to 61.5% for the three months ended March 31, 2025.

Insured depository institutions are required to meet certain capital level requirements. Management elected to use the community bank leverage ratio ("CBLR") framework for CTBI and CTB. The CBLR 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. A CBLR greater than 9% is 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. CTBI's CBLR ratio as of March 31, 2026 was 13.91%. CTB's CBLR ratio as of March 31, 2026 was 13.42%.

As of March 31, 2026, 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.

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 March 31, 2026, a total of 2,465,294 shares have been repurchased through this program, leaving 1,034,706 shares remaining under our current repurchase authorization.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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 estimates 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 our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2025. We have identified the following critical accounting estimates:

Allowance for Credit Losses - 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 3 to the condensed consolidated financial statements contained herein.

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

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

Larger commercial loans with balances exceeding $1 million that exhibit probable or observed credit weaknesses and (i) have a criticized risk rating, (ii) are on nonaccrual status, (iii) have a borrower experiencing financial difficulty with significant payment delay, 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 loans to borrowers experiencing financial difficulty, 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. CTBI uses a discounted cash flow ("DCF") model for all loan segments. The primary reasons that contributed to this decision were: DCF models allow for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner; the analysis aligns well with other calculations outside of the ACL estimation which will mitigate model risk in other areas; and peer data is available for certain inputs if first party data is not available or meaningful. See Note 3 to the condensed consolidated financial statements contained herein for information on CTBI's risk rating system.

CTBI's expected credit loss models consider historical credit loss experience, peer data, 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 on an input basis. CTBI reverts to a long-run average of the modeled economic factors over four quarters to derive a long-run average probability of default/loss given default. 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.

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.