Fair Value of Financial Assets and Liabilities

3 Months Ended

Mar. 31, 2026

Fair Value of Financial Assets and Liabilities [Abstract]

Fair Value of Financial Assets and Liabilities

Note 5 – Fair Value of Financial Assets and Liabilities

Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the “exit price”). CTBI uses a fair value hierarchy that prioritizes the inputs used in valuation techniques to measure fair value into three broad levels. The following is a brief description of each level:

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

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

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

A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. CTBI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and CTBI considers factors specific to the assets or liabilities. The following is a description of the valuation methodologies used for CTBI’s assets and liabilities measured at fair value on a recurring basis.

Recurring Measurements

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

			Fair Value Measurements at March 31, 2026 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – recurring basis
Available-for-sale securities:
U.S. Treasury and government agencies	$	160,469	$	0	$	160,469	$	0
State and political subdivisions		263,881		0		263,881		0
Agency mortgage-backed securities		641,461		0		641,461		0
Asset-backed securities		22,394		0		22,394		0
Equity securities at fair value		3,666		0		0		3,666
Mortgage servicing rights		6,728		0		0		6,728

			Fair Value Measurements at December 31, 2025 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – recurring basis
Available-for-sale securities:
U.S. Treasury and government agencies	$	235,759	$	0	$	235,759	$	0
State and political subdivisions		266,891		0		266,891		0
Agency mortgage-backed securities		588,262		0		588,262		0
Asset-backed securities		29,807		0		29,807		0
Equity securities at fair value		4,154		0		0		4,154
Mortgage servicing rights		6,751		0		0		6,751

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. These valuation methodologies were applied to all of CTBI’s financial assets carried at fair value. CTBI had no liabilities measured and recorded at fair value as of March 31, 2026 and December 31, 2025. There have been no significant changes in the valuation techniques during the quarter ended March 31, 2026 or the year ended December 31, 2025. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Uncertainty of Fair Value Measurements

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

•	Available-for-Sale Securities

If quoted market prices are not available, the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other factors. U.S. Treasury and government agencies, state and political subdivisions, agency mortgage-backed securities, and asset-backed securities are classified as Level 2 inputs.

•	Equity Securities at Fair Value

Fair value for equity securities is derived based on unobservable inputs, such as the discount rate, quarterly dividends payable to the Visa Class B common stock, and the prevailing conversion rate at the conversion date. The most recent conversion rate of 1.5475 and the most recent dividend rate of 1.0368 were used to derive the fair value estimate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for discount rate is accompanied by a directionally opposite change in the fair value estimate. The weighted averages presented in the tables below are determined by taking the median of the estimates in conversion dates and discount rate.

•	Mortgage Servicing Rights

In determining fair value, CTBI utilizes assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends, and industry demand. Due to the nature of the valuation inputs, mortgage servicing rights (“MSRs”) are classified within Level 3 of the hierarchy. We have determined these assumptions, processes, and conclusions to be reasonable and appropriate in determining the fair value of this asset. See the table below for inputs and valuation techniques used for Level 3 MSRs.

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

Level 3 Reconciliation

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

	Three Months Ended March 31
	2026						2025
(in thousands)	Equity Securities at Fair Value			Mortgage Servicing Rights			Equity Securities at Fair Value		Mortgage Servicing Rights
Beginning balance	$	4,154		$	6,751		$	3,781	$	7,357
Total unrealized gains (losses)
Included in net income		(488	)		146			480		(113	)
Issues		0			22			0		20
Settlements		0			(191	)		0		(171	)
Ending balance	$	3,666		$	6,728		$	4,261	$	7,093

Total gains (losses) for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	(488	)	$	146		$	480	$	(113	)

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

Noninterest Income
	Three Months Ended March 31
(in thousands)	2026			2025
Total gains (losses)	$	(533	)	$	196

Nonrecurring Measurements

The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of March 31, 2026 and December 31, 2025 and indicate the level within the fair value hierarchy of the valuation techniques.

			Fair Value Measurements at March 31, 2026 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – nonrecurring basis
Other real estate owned	$	26	$	0	$	0	$	26

			Fair Value Measurements at December 31, 2025 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured – nonrecurring basis
Collateral dependent loans	$	697	$	0	$	0	$	697
Other real estate owned		13		0		0		13

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet.

Collateral Dependent Loans

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

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

Loans considered collateral-dependent are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. There was no fair value adjustment to collateral-dependent loans during the quarter ended March 31, 2026. Fair value adjustments for the year ended December 31, 2025 were $0.4 million.

Other Real Estate Owned

Estimated fair value of other real estate owned (“OREO”) is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral. There were no fair value adjustments to OREO disclosed above for the quarter ended March 31, 2026. Fair value adjustments to OREO disclosed above for the year ended December 31, 2025 were $38 thousand.

Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months but generally not more than 24 months. Appraisers are selected from the list of approved appraisers maintained by management.

Unobservable (Level 3) Inputs

Unobservable inputs for mortgage servicing rights were weighted by loan amount. Unobservable inputs for equity securities were weighted by security value. Unobservable inputs for OREO were weighted by estimated cost to sell. There were no transfers in or out of Level 3 during the quarter ended March 31, 2026. The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements for the periods indicated.

	Quantitative Information about Level 3 Fair Value Measurements
(in thousands)	Fair Value at March 31, 2026		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Equity securities at fair value	$	3,666	Discounted cash flows	Discount rate	8.0% - 12.0% (10.0%)
				Conversion date	Dec 2027 - Dec 2029 (Dec 2028)

Mortgage servicing rights	$	6,728	Discounted cash flows	Constant prepayment rate	5.5% - 28.9% (6.5%)
				Cost to service	$66 - $450 ($77)
				Probability of default	0.0% - 100.0% (1.5%)
				Discount rate	9.00% - 12.82% (9.7%)

Other real estate owned	$	26	Market comparable properties	Comparability adjustments	10.34% - 10.34% (10.34%)

	Quantitative Information about Level 3 Fair Value Measurements
(in thousands)	Fair Value at December 31, 2025		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Equity securities at fair value	$	4,154	Discounted cash flows	Discount rate	8.0% - 12.0% (10.0%)
				Conversion date	Dec 2027 - Dec 2029 (Dec 2028)

Mortgage servicing rights	$	6,751	Discounted cash flows	Constant prepayment rate	5.5% - 30.4% (6.5%)
				Cost to service	$67 - $817 ($77)
				Probability of default	0.0% - 100.0% (1.5%)
				Discount rate	9.0% - 11.5% (9.7%)

Collateral-dependent loans	$	697	Market comparable properties	Marketability discount	24.2% - 24.2% (24.2%)

Other real estate owned	$	13	Market comparable properties	Comparability adjustments	0.0% - 0.0% (0.0%)

Fair Value of Financial Instruments

The following tables present estimated fair value of CTBI’s financial instruments as of March 31, 2026 and December 31, 2025 and indicate the level within the fair value hierarchy of the valuation techniques.

			Fair Value Measurements at March 31, 2026 Using
(in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	358,655	$	358,655	$	0	$	0
Certificates of deposit in other banks		245		0		245		0
Debt securities available-for-sale		1,088,205		0		1,088,205		0
Equity securities at fair value		3,666		0		0		3,666
Loans held for sale		73		74		0		0
Loans, net		4,929,500		0		0		4,976,103
Federal Home Loan Bank stock		5,200		0		5,200		0
Federal Reserve Bank stock		4,887		0		4,887		0
Mortgage servicing rights		6,728		0		0		6,728
Accrued interest receivable		25,591		0		25,591		0

Financial liabilities:
Deposits	$	5,434,220	$	1,262,835	$	3,966,881	$	0
Repurchase agreements		298,721		0		298,686		0
Federal funds purchased		500		0		500		0
Advances from Federal Home Loan Bank		288		0		299		0
Long-term debt		63,724		0		57,716		0
Accrued interest payable		11,567		0		11,567		0

Unrecognized financial instruments:
Letters of credit	$	0	$	0	$	0	$	0
Commitments to extend credit		0		0		0		0
Forward sale commitments		0		0		0		0

			Fair Value Measurements at December 31, 2025 Using
(in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	363,684	$	363,684	$	0	$	0
Certificates of deposit in other banks		245		0		245		0
Debt securities available-for-sale		1,120,719		0		1,120,719		0
Equity securities at fair value		4,154		0		0		4,154
Loans held for sale		211		214		0		0
Loans, net		4,834,773		0		0		4,918,385
Federal Home Loan Bank stock		5,200		0		5,200		0
Federal Reserve Bank stock		4,887		0		4,887		0
Mortgage servicing rights		6,751		0		0		6,751
Accrued interest receivable		25,957		0		25,957		0

Financial liabilities:
Deposits	$	5,389,058	$	1,263,243	$	3,896,447	$	0
Repurchase agreements		308,799		0		308,769		0
Federal funds purchased		500		0		500		0
Advances from Federal Home Loan Bank		293		0		304		0
Long-term debt		63,784		0		60,483		0
Accrued interest payable		8,535		0		8,535		0

Unrecognized financial instruments:
Letters of credit	$	0	$	0	$	0	$	0
Commitments to extend credit		0		0		0		0
Forward sale commitments		0		0		0		0

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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