Community Trust Bancorp (CTBI) 10-Q 2001 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2001
	or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____________ to _____________

Commission file number 0-11129

COMMUNITY TRUST BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky	61-0979818
(State or other jurisdiction of incorporation or organization)	IRS Employer Identification No.
346 North Mayo Trail Pikeville, Kentucky (address of principal executive offices)	41501 (Zip Code)

(606) 432-1414

(Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yesü No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.

Common stock - 11,610,158 shares outstanding at April 30, 2001

PART I - FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

The accompanying information has not been audited by independent public accountants; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature.

The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the registrant's annual report on Form 10-K. Accordingly, the reader of the Form 10-Q should refer to the registrant's Form 10-K for the year ended December 31, 2000 for further information in this regard.

Condensed Consolidated Balance Sheets

(in thousands except per share data)			March 31 2001		December 31 2000
Assets:
Cash and due from banks		$	67,824	$	72,725
Federal funds sold			170,170		96,990
Securities available-for-sale at fair value
	(amortized cost of $248,639 and $236,252, respectively)		252,165		236,620
Securities held-to-maturity at amortized cost
	(fair value of $46,335 and $47,053, respectively)		46,170		48,976
Loans			1,776,565		1,694,525
	Allowance for loan losses		26,156		25,886
	Net loans		1,750,409		1,668,639
Premises and equipment, net			49,760		49,029
Excess of cost over net assets acquired
	(net of accumulated amortization of $15,965 and $15,096, respectively)		63,552		56,320
Other assets			32,726		32,676
	Total Assets	$	2,432,776	$	2,261,975
Liabilities and Shareholders' Equity:
Deposits
	Noninterest bearing	$	266,189	$	254,642
	Interest bearing		1,813,579		1,689,274
Total deposits			2,079,768		1,943,916
Federal funds purchased and other short-term borrowings			84,071		58,951
Advances from Federal Home Loan Bank			12,396		13,326
Long-term debt			48,022		48,060
Other liabilities			23,203		15,818
	Total Liabilities		2,247,460		2,080,071
Shareholders' Equity:
Preferred stock, 300,000 shares authorized and unissued
Common stock, $5 par value, shares authorized 25,000,000;
	shares outstanding 2001 - 11,605,115; 2000 - 11,700,895		57,873		58,352
Capital surplus			53,813		54,892
Retained earnings			71,339		68,421
Accumulated other comprehensive income (loss), net of tax			2,291		239
	Total Shareholders' Equity		185,316		181,904
	Total Liabilities and Shareholders' Equity	$	2,432,776	$	2,261,975

Condensed Consolidated Statements of Income

		Three months ended
		March 31
(in thousands except per share data)		2001		2000
Interest Income:
Interest and fees on loans		$	40,568	$	36,982
Interest and dividends on securities
	Taxable		3,497		4,079
	Tax exempt		729		692
Other			1,886		220
	Total Interest Income		46,680		41,973
Interest Expense:
Interest on deposits			23,635		18,784
Interest on federal funds purchased and other short-term borrowings			981		765
Interest on advances from Federal Home Loan Bank			182		236
Interest on long-term debt			1,071		1,071
	Total Interest Expense		25,869		20,856
	Net interest income		20,811		21,117
Provision for loan and lease losses			2,075		2,450
	Net interest income after provision for loan losses		18,736		18,667
Noninterest Income:
Service charges on deposit accounts			2,473		2,341
Gains on sales of loans, net			373		133
Trust income			600		565
Other			1,825		1,613
	Total Noninterest Income		5,271		4,652
Noninterest Expense:
Salaries and employee benefits			7,833		7,754
Occupancy, net			1,388		1,362
Equipment			957		1,060
Data processing			947		921
Stationery, printing, and office supplies			379		410
Taxes other than payroll, property, and income			557		443
FDIC insurance			92		95
Other			4,178		3,803
	Total Noninterest Expense		16,331		15,848
	Income before income taxes		7,676		7,471
Income taxes			2,434		2,352
	Net Income		5,242		5,119
Other comprehensive income, net of tax:
	Unrealized holding gains (losses) arising during period		2,052		(263)
Comprehensive income		$	7,294	$	4,856
Basic earnings per share		$	0.45	$	0.42
Diluted earnings per share		$	0.45	$	0.42
Average shares outstanding			11,668		12,138

Condensed Consolidated Statements of Cash Flows

			Three months ended
			March 31
(in thousands except per share data)			2001		2000
Cash flows from operating activities:
Net income			$	5,242	$	5,119
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			1,859		1,813
	Net change in net deferred tax asset			(2,419)		(50)
	Provision for loan and other real estate losses			2,174		2,487
	Gains on sale of mortgage loans held for sale			(373)		(133)
	(Gains) or losses on sale of assets, net			(11)		(107)
	Proceeds from sale of mortgage loans held for sale			16,837		6,362
	Net amortization of securities premiums			41		86
	Net change in mortgage loans held for sale			(548)		293
	Changes in:
		Other liabilities		6,929		3,065
		Other assets		2,284		1,741
	Net cash provided by operating activities			32,015		20,676
Cash flows from investing activities:
Securities available-for-sale (AFS):
	Proceeds from prepayments and maturities			20,171		16,706
	Purchase of AFS securities			(19,781)		(280)
Securities held-to-maturity (HTM):
	Proceeds from prepayments and maturities			2,799		3,069
	Purchase of HTM securities			0		(390)
Net change in loans				(22,911)		(37,019)
Purchase of premises, equipment, and other real estate				(234)		(112)
Proceeds from sale of premises and equipment				157		409
Proceeds from sale of other real estate				1,283		0
Cash provided from net liabilities acquired				7,971		0
	Net cash used in investing activities			(10,545)		(17,617)
Cash flows from financing activities:
Net change in deposits				26,538		(13,861)
Net change in federal funds purchased and other short-term borrowings				25,120		5,455
Advances from Federal Home Loan Bank				0		89
Payments on short-term debt				(930)		(907)
Payments on long-term debt				(38)		(17)
Issuance of common stock				179		172
Repurchase of common stock				(1,737)		(437)
Dividends paid				(2,323)		(172)
	Net cash provided by (used in) financing activities			46,809		(9,678)
Net increase (decrease) in cash and cash equivalents				68,279		(6,619)
Cash and cash equivalents at beginning of year				169,715		107,457
	Cash and cash equivalents at end of period		$	237,994	$	100,838

Notes to Condensed Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

In the opinion of management, the unaudited Condensed Consolidated Financial Statements include all adjustments (which consist of normal recurring accruals) necessary, to present fairly the consolidated financial position as of March 31, 2001 and 2000, the results of operations for the three months ended March 31, 2001 and 2000 and the statements of cash flows for the three months ended March 31, 2001 and 2000. In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements. Financial information as of December 31, 2000 has been derived from the audited Consolidated Financial Statements of Community Trust Bancorp, Inc. (the "Registrant" or "Corporation"). The results of operations for the three months ended March 31, 2001 and 2000 and statements of cash flows for the three months ended March 31, 2001 and 2000 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Consolidated Financial Statements and footnotes thereto for the year ended December 31, 2000, included in the Registrant's Annual Report on Form 10-K.

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

On January 1, 2001, the Corporation adopted Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that all derivatives, including those embedded in other contracts, be recognized as either assets or liabilities and that those financial instruments be measured at fair value. The accounting for changes in the fair value of derivatives depends on their intended use and designation. Management has reviewed the requirements of SFAS No. 133 and has determined that the Corporation has no freestanding or embedded derivatives. All contracts that contain provisions meeting the definition of a derivative also meet the requirements of, and have been designated as, normal purchases or sales. The Corporation's policy is to not use freestanding derivatives and to not enter into contracts with terms that cannot be designated as normal purchases or sales. This statement did not impact the Corporation's financial position or results of operation.

On January 26, 2001, Community Trust Bank, N.A. acquired certain deposits, loans, and fixed assets of The Bank of Mt.Vernon, Inc. The offices acquired had deposits totaling $109.3 million and loans totaling $79 million. The addition of banking offices in Mt. Vernon, Somerset, Richmond, and Berea, Kentucky represents an in-market acquisition and should provide the corresponding synergies normally associated with this type of acquisition. The acquisition is expected to be accretive to shareholders during 2001.

Note 2 - Securities

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

The amortized cost and fair value of securities available-for-sale as of March 31, 2001 are summarized as follows:

(in thousands)		Amortized Cost		Fair Value
U.S. Treasury and Government agencies		$	56,084	$	57,187
States and political subdivisions			33,798		34,730
Mortgage-backed pass through certificates			106,924		108,159
Collateralized mortgage obligations			13,933		14,122
Other debt securities			11,198		11,294
	Total debt securities		221,937		225,492
Equity securities			26,702		26,673
	Total Securities	$	248,639	$	252,165

The amortized cost and fair value of securities held-to-maturity as of March 31, 2001 are summarized as follows:

(in thousands)		Amortized Cost		Fair Value
U.S. Treasury and Government agencies		$	11,499	$	10,937
States and political subdivisions			25,943		26,649
Mortgage-backed pass through certificates			5,501		5,522
Collateralized mortgage obligations			3,227		3,227
	Total Securities	$	46,170	$	46,335

The amortized cost and fair value of securities available-for-sale as of December 31, 2000 are summarized as follows:

(in thousands)		Amortized Cost		Fair Value
U.S. Treasury and Government agencies		$	28,464	$	28,918
States and political subdivisions			33,799		34,037
Mortgage-backed pass through certificates			117,085		116,829
Collateralized mortgage obligations			15,104		15,103
Other debt securities			35,351		35,327
	Total debt securities		229,804		230,214
Equity securities			6,448		6,407
	Total Securities	$	236,252	$	236,620

The amortized cost and fair value of securities held-to-maturity as of December 31, 2000 are summarized as follows:

(in thousands)		Amortized Cost		Fair Value
U.S. Treasury and Government agencies		$	11,499	$	9,168
States and political subdivisions			27,653		28,123
Mortgage-backed pass through certificates			6,545		6,506
Collateralized mortgage obligations			3,279		3,258
	Total Securities	$	48,976	$	47,053

Note 3 - Loans

Major classifications of loans are summarized as follows:

(in thousands)		March 31 2001		December 31 2000
Commercial, secured by real estate		$	498,118	$	469,646
Commercial, other			319,067		303,141
Real estate construction			94,459		93,191
Real estate mortgage			460,550		435,110
Consumer			397,553		386,504
Equipment lease financing			6,818		6,933
	Total loans	$	1,776,565	$	1,694,525

Note 4 - Borrowings

Short-term debt consists of the following:

(in thousands)		March 31 2001		December 31 2000
Parent Company:
	Revolving line of credit, 6.125% interest due semiannually. The Corporation has a $14 million revolving line of credit; $8.5 million is currently available to meet any future cash needs, expires July 30, 2001.	$	5,500	$	5,500
Subsidiaries:
	Federal funds purchased		29,710		13,833
	Securities sold under agreements to repurchase		48,861		39,618
	Total short-term debt	$	84,071	$	58,951

Generally, federal funds purchased and securities purchased under agreements to resale mature and reprice daily. The average rates paid for federal funds purchased and repurchase agreements as of March 31, 2001 were 5.49% and 5.18%, respectively.

Long-term debt consists of the following:

(in thousands)			March 31 2001		December 31 2000
Parent Company:
	Ten Year Senior Notes, 8.25% interest, due January 1, 2003; interest payable semiannually; redeemable in whole or in part at the option of the Corporation		$	12,230	$	12,230
Subsidiaries:
	Trust Preferred Securities, 9.0% interest, due March 31, 2027; irrevocably and unconditionally guaranteed by the Corporation and subordinate and junior in right of payment to all senior debt. There are no payments due on this debt until maturity on March 31, 2027.			34,500		34,500
	Capital lease obligations, interest at lender's prime rate, payable in quarterly principal and interest installments of $53 thousand, adjusted for prime rate changes through September 2004, secured by real property. The Bank has a purchase option in September 2004 for $921 thousand or a renewal option for five years.			1,253		1,291
Other				39		39
		Total long-term debt	$	48,022	$	48,060

Item 2. Management's Discussion and Analysis of Financial Condition

and Results of Operations

Overview

Community Trust Bancorp, Inc. (the "Corporation") is a multi-bank holding company headquartered in Pikeville, Kentucky. At March 31, 2001, the Corporation owned one commercial bank and one trust company. Through its subsidiaries, the Corporation has over sixty-eight banking locations serving 295,000 households in Eastern and Central Kentucky and West Virginia. The Corporation had total assets of $2.43 billion and total shareholders' equity of $185.3 million as of March 31, 2001. The Corporation's common stock is listed on NASDAQ under the symbol CTBI. Market makers are Herzog, Heine, Geduld, Inc., New York, New York; J.J.B. Hilliard, W.L. Lyons, Inc., Louisville, Kentucky; Morgan, Keegan and Company, Inc., Memphis, Tennessee; Keefe, Bruyette & Woods, Inc., New York, New York; Sandler O'Neill & Partners, New York, New York; Sherwood Securities Corp., New York, New York; Spear, Leeds & Kellogg, New York, New York.

Dividends

Regular quarterly cash dividends were paid on (1) January 1, 2000 of 18 cents per share for shareholders of record on December 15, 1999, (2) April 1, 2000 of 18 cents per share for shareholders of record on March 15, 2000, (3) July 1, 2000 of 19 cents per share for shareholders of record on June 15, 2000, (4) October 1, 2000 of 19 cents per share for shareholders of record on September 15, 2000, (5) January 1, 2001 of 19 cents per share for shareholders of record on December 15, 2000, and (6) April 1, 2001 of 20 cents per share for shareholders of record on March 15, 2001.

Mergers and Acquisitions

On January 26, 2001, Community Trust Bank, N.A. acquired certain deposits, loans, and fixed assets of The Bank of Mt.Vernon, Inc. The offices acquired had deposits totaling $109.3 million and loans totaling $79 million. The addition of banking offices in Mt. Vernon, Somerset, Richmond, and Berea, Kentucky represents an in-market acquisition and should provide the corresponding synergies normally associated with this type of acquisition. The acquisition is expected to be accretive to shareholders during 2001.

Income Statement Review

The Corporation's net income for the three months ended March 31, 2001 was $5.242 million or $0.45 per share as compared to $5.119 million or $0.42 per share for the three months ended March 31, 2000. The Corporation had average shares outstanding of 11,668,180 and 12,137,700 for the three months

ended March 31, 2001 and March 31, 2000, respectively. The following table sets forth on an annualized basis the return on average assets and return on average shareholders' equity for the three-month periods ending March 31, 2001 and 2000:

	Three months ended
	March 31
	2001		2000
Return on average shareholders' equity	11.49	%	11.82	%
Return on average assets	0.90		0.95	%

The Corporation's net income for the first quarter of 2001 represents a 3 cents per share increase in earnings compared to the same period last year. The increase in earnings per share is primarily attributable to the reduction in common shares outstanding resulting from the Corporation's stock repurchase program.

Net Interest Income

Net interest income decreased $306 thousand or (1.5%) from $21.1 million for the first quarter of 2000 to $20.8 million for the first quarter of 2001. Interest income increased $4.71 million or 11% for the quarter ending March 31, 2001 as compared to the same period in 2000, while interest expense increased $5.01 million or 24%.

The net interest margin continues to be negatively impacted by the repricing of assets quicker than liabilities as interest rates have declined and the competitive pressures to retain core deposits continue. The net interest margin for March 31, 2001 was 3.96%, reflecting a decline of 49 basis points from the 4.45% of March 31, 2000. Some of the pressure on the net interest margin has been offset by a 133 basis point increase in average earning assets as a percentage of total assets which were 92.16% on March 31, 2001 compared to 90.83% at March 31, 2000.

The Corporation's loan portfolio, its highest yielding asset, continues to expand. The Corporation's loan portfolio increased 19.2% on an annualized basis from $1.69 billion at December 31, 2000 to $1.78 billion at March 31, 2001.

The following table summarizes the annualized net interest spread and net interest margin for the three months ended March 31, 2001 and 2000.

	Three months ended
	March 31
	2001		2000
Yield on interest earning assets	8.76	%	8.68	%
Cost of interest bearing funds	5.50	%	4.86	%
Net interest spread	3.26	%	3.82	%
Net interest margin	3.96	%	4.45	%

Provision for Loan Losses

The analysis of the changes in the allowance for loan losses and selected ratios is set forth below:

		Three months ended
		March 31
(in thousands)		2001		2000
Allowance balance January 1		$	25,886	$	25,102
	Additions to allowance charged against operations		2,075		2,450
	Recoveries credited to allowance		1,122		1,521
	Losses charged against allowance		(2,927)		(3,947)
Allowance balance at March 31		$	26,156	$	25,126

Allowance for loan losses to period-end loans 1.47 % 1.53 %

Average loans, net of unearned income $ 1,754,894 $ 1,630,319

Provision for loan losses to average loans, annualized 0.48 % 0.60 %

Loan charge-offs net of recoveries, to average loans, annualized 0.42 % 0.60 %

The Corporation experienced a $621,000 (26%) decrease in net charge-offs and a $375,000 (15%) decrease in loan loss provision expense in the first quarter of 2001 compared to the quarter ended March 31, 2000. The Corporation increased loans by $79 million with the Mt. Vernon acquisition for which it did not increase its allocation to the reserve for losses on loans.

Net charge-offs represent the amount of loans charged off less the amounts recovered on loans previously charged off. Net charge-offs as a percentage of average loans outstanding decreased 18 basis points to 0.42% for the three months ended March 31, 2001 as compared to the same period in 2000. The Corporation's non-performing loans (90 days or more past due and non-accrual) were 1.52% and 1.38% of outstanding loans at December 31, 2000 and March 31, 2001, respectively. The increase in non-performing loans is primarily the result of one large commercial relationship for which a specific reserve has been established and resolution is anticipated in the near future.

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

Noninterest Income

The Corporation's noninterest income increased 13% from $4.65 million for the three months ended March 31, 2000 to $5.27 million for the three months ended March 31, 2001. The increase in noninterest income compared to the same period in 2000 was driven by an increase in mortgage activity, which resulted in a $240,000 increase in gain on sale of loans. The $132,000 increase in deposit related fees is a result of the acquired Mt. Vernon deposits.

Noninterest Expense

CTBI's noninterest expense for the three months ended March 31, 2001 experienced an increase of $483,000 or 3% from the same period in 2000. The increase in noninterest expense is primarily due to $260,000 in non-recurring expenses, including $130,000 of costs related to the Mt. Vernon acquisition and $130,000 of legal expenses in connection with the collection of a problem credit. All of the legal expenses associated with the problem credit have subsequently been recovered. Personnel expense increased $531,000, driven by a 39 person increase in staff associated with the acquisition. Goodwill amortization increased $90,000.

Cash Basis Income

		Three months ended
		March 31
				Amortization
(in thousands)		Reported Earnings		Goodwill		Core Deposit Intangible		"Cash" Earnings
Income before income tax expense		$	7,676	$	723	$	145	$	8,544
	Income taxes		2,434		186		51		2,671
Net income		$	5,242	$	537	$	94	$	5,873

These calculations were specifically formulated by the Corporation and may not be comparable to similarly titled measures reported by other companies.

Balance Sheet Review

Total asset size grew 7.6% to $2.43 billion at March 31, 2001 from $2.26 billion at December 31, 2000. The asset growth is primarily attributable to the purchase and acquisition of the assets and liabilities of The Bank of Mt. Vernon, Inc. Internal growth for the first quarter of 2001 was an annualized 12%. The Corporation's largest liability, deposits, increased 7.0% from $1.94 billion as of December 31, 2000 to $2.08 billion as of March 31, 2001. Noninterest bearing deposits increased from $255 million at December 31, 2000 to $266 million at March 31, 2001. Interest bearing deposits increased from $1.69 billion at December 31, 2000 to $1.81 billion at March 31, 2001.

Loans

Loans increased from $1.69 billion as of December 31, 2000 to $1.78 billion as of March 31, 2001, primarily due to the addition of $79 million in loans from the Mt. Vernon acquisition. The Corporation experienced growth in the commercial loan portfolio of $43.68 million and $27.31 million in the real estate mortgage loan portfolio. The category of commercial loans secured by real estate increased from $469.7 million as of December 31, 2000 to $498.1 million as of March 31, 2001, while other commercial loans increased from $303 million as of December 31, 2000 to $319 million as of March 31, 2001. The category of real estate mortgage loans increased from $435 million as of December 31, 2000 to $461 million as of March 31, 2001. The consumer portfolio also increased from $386.5 million to $397.6 million from December 31, 2000 to March 31, 2001.

Non-accrual and 90 days past due loans amounted to 1.52% of total loans outstanding as of December 31, 2000 and 1.38% of total loans outstanding as of March 31, 2001. Non-accrual loans as a percentage of total loans outstanding were 1.34% as of December 31, 2000 and at 1.22% at March 31, 2001. During the same period, loans 90 days or more past due decreased 2 basis points from 0.18% of total loans outstanding to 0.16%. The allowance for loan losses decreased from 1.53% of total loans outstanding as of December 31, 2000 to 1.47% as of March 31, 2001. Specific reserves are established for all large loans where a loss may occur; therefore, no significant losses are anticipated except for those loans with specific reserve allocations. The allowance for loan losses as a percentage of non-accrual loans and loans past due 90 days or more was 100.6% at December 31, 2000 and 106.6% at March 31, 2001.

Loans on non-accrual status decreased from $22.7 million at December 31, 2000 to $21.6 million at March 31, 2001, a decrease of $1.13 million. This decrease was substantially due to a $785 thousand decrease in residential mortgage loans on non-accrual and a $236 thousand decrease resulting from the payoff of one commercial loan.

The following table summarizes the Corporation's loans that are non-accrual or past due 90 days or more as of March 31, 2001 and December 31, 2000.

(in thousands)		Non-accrual loans		As a % of loan balances by category		Accruing loans past due 90 days or more		As a % of loan balances by category
March 31, 2001
Commercial loans secured by real estate		$	6,874	1.19	%	$	963	0.17	%
Commercial loans, other			6,552	2.01			55	0.02
Consumer loans secured by real estate			8,015	1.68			1,131	0.24
Consumer loans, other			160	0.04			777	0.20
	Total	$	21,601	1.22	%	$	2,926	0.16	%

December 31, 2000
Commercial loans secured by real estate		$	7,646	1.39	%	$	463	0.08	%
Commercial loans, other			7,322	2.36			66	0.02
Consumer loans secured by real estate			7,589	1.69			1,550	0.34
Consumer loans, other			174	0.05			921	0.24
	Total	$	22,731	1.34	%	$	3,000	0.18	%

Allowance for loan losses

Management analyzes the adequacy of its allowance for loan losses on a quarterly basis. The loan portfolio of each market region is analyzed by each major loan category, with a review of the following areas: (i) specific allocations based upon a review of selected loans for loss potential; (ii) an allocation which estimates reserves based upon the remaining pool of loans in each category derived from historical net charge-off data, delinquency trends and other relevant factors; and (iii) an unallocated portion of the allowance which provides for a margin of error in estimating the allocations described above and provides for risks inherent in the portfolio which may not be specifically addressed elsewhere.

Off-balance sheet risk is addressed by including letters of credit in the Corporation's allowance adequacy analysis and through a monthly review of all letters of credit outstanding. The Corporation's loan review and problem loan analysis includes evaluation of deteriorating letters of credit. Volume and trends in delinquencies are monitored monthly by management, regional advisory boards, and the boards of directors of the respective banks.

Securities

The Corporation uses its securities held-to-maturity for production of income and to manage cash flow needs through expected maturities. The Corporation uses its securities available-for-sale for income and balance sheet liquidity management. The book value of securities available-for-sale increased from $237 million as of December 31, 2000 to $252 million as of March 31, 2001. Securities held-to-maturity declined from $49 million to $46 million during the same period. Total securities as a percentage of total assets were 12.6% as of December 31, 2000 and 12.3% as of March 31, 2001.

Liquidity and Capital Resources

The Corporation's liquidity objectives are to ensure that funds are available for the subsidiary banks to meet deposit withdrawals and credit demands without unduly penalizing profitability, and to ensure that funding is available for the Corporation to meet ongoing cash needs while maximizing profitability. The Corporation continues to identify ways to provide for liquidity on both a current and long-term basis. The subsidiary bank relies mainly on core deposits, certificates of deposits of $100,000 or more, repayment of principal and interest on loans and securities and federal funds sold and purchased to create long-term liquidity. The subsidiary bank also relies on the sale of securities under repurchase agreements, securities available-for-sale and Federal Home Loan Bank borrowings.

Due to the nature of the markets served by the subsidiary banks, management believes that the majority of its certificates of deposits of $100,000 or more are no more volatile than its core deposits. During periods of interest rate volatility, these deposit balances have remained stable as a percentage of total deposits. In addition, arrangements have been made with correspondent banks for the purchase of federal funds on an unsecured basis, up to an aggregate of nearly $100 million, if necessary, to meet the Corporation's liquidity needs.

The Corporation owns $252 million of securities valued at market price that are designated as available-for-sale and available to meet liquidity needs on a continuing basis. The Corporation also relies on Federal Home Loan Bank advances for both liquidity and management of its asset/liability position. Federal Home Loan Bank advances decreased from $13.3 million as of December 31, 2000 to $12.4 million as of March 31, 2001.

The Corporation generally relies upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash for its investing activities. As is typical of many financial institutions, significant financing activities include deposit gathering, use of short-term borrowing facilities such as federal funds purchased and securities sold under repurchase agreements, and issuance of long-term debt. The Corporation currently has a $14 million revolving line of credit; $8.5 million is currently available to meet any future cash needs. The Corporation's primary investing activities include purchases of securities and loan originations.

During the first quarter, the Corporation continued its stock repurchase program, acquiring 94,300 shares of the Corporation's stock. The Corporation's stock repurchase program continues to be accretive to shareholder value. The Corporation began a program of stock repurchase in December 1998 with the authorization to acquire up to 500,000 shares. The Corporation issued a press release in July 2000 announcing its intention to repurchase up to an additional 1,000,000 shares.

In conjunction with maintaining a satisfactory level of liquidity, management monitors the degree of interest rate risk assumed on the balance sheet. The Corporation monitors its interest rate risk by use of the static and dynamic gap models at the one-year interval. The static gap model monitors the difference in interest rate sensitive assets and interest rate sensitive liabilities as a percentage of total assets that mature within the specified time frame. The dynamic gap model goes further in that it assumes that interest rate sensitive assets and liabilities will be reinvested. The Corporation uses the Sendero system to monitor its interest rate risk. The Corporation desires an interest sensitivity gap of not more than fifteen percent of total assets at the one-year interval.

The Corporation's principal source of funds used to pay dividends to shareholders and service long-term debt is the dividends it receives from the subsidiary bank. Various federal statutory provisions, in addition to regulatory policies and directives, limit the amount of dividends that subsidiary banks can pay without prior regulatory approval. These restrictions have had no major impact on the Corporation's dividend policy or its ability to service long-term debt, nor is it anticipated that they would have any major impact in the foreseeable future. During 2001, approximately $22.1 million plus any 2001 net profits can be paid by the Corporation's banking subsidiary without prior regulatory approval.

The primary source of capital for the Corporation is retained earnings. The Corporation paid cash dividends of $0.20 per share for the first three months of 2001 and $0.18 per share for the first three months of 2000. Earnings per share for the same periods were $0.45 and $0.42, respectively. The Corporation retained 56% of earnings for the first three months of 2001.

Under guidelines issued by banking regulators, the Corporation and its subsidiary bank is required to maintain a minimum Tier 1 risk-based capital ratio of 4% and a minimum total risk-based ratio of 8%. Risk-based capital ratios weight the relative risk factors of all assets and consider the risk associated with off-balance sheet items. The Corporation must also maintain a minimum Tier 1 leverage ratio of 4%. The Corporation's Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios were 6.66%, 8.59%, and 9.84%, respectively as of March 31, 2001.

As of March 31, 2001, management is not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or would be reasonably likely to have, a material adverse impact on the Corporation's liquidity, capital resources, or operations.

Impact of Inflation and Changing Prices

The majority of the Corporation's assets and liabilities are monetary in nature. Therefore, the Corporation 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.

Management believes the most significant impact on financial and operating results is the Corporation's ability to react to changes in interest rates. Management seeks 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.

FORWARD-LOOKING STATEMENTS

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The Corporation's actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," and "could." These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, the performance of coal and coal related industries, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various investment activities; the effects of competitors' pricing policies, of changes in laws and regulations on competition and of demographic changes on target market populations' savings and financial planning needs; the adoption by the Corporation of an FFIEC policy that provides guidance on the reporting of delinquent consumer loans and the timing of associated credit charge-offs for financial institution subsidiaries; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation, and state regulators, whose policies and regulations could affect the Corporation's results. These statements are representative only on the date hereof, and the Corporation undertakes no obligation to update any forward-looking statements made.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Corporation currently does not engage in any derivative or hedging activity. Refer to the Corporation's 2000 Form 10-K for analysis of the interest rate sensitivity.

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	None
Item 2.	Changes in Securities	None
Item 3.	Defaults Upon Senior Securities	None
Item 4.	Submission of Matters to a Vote
	of Security Holders	None
Item 5.	Other Information	None
Item 6.	Exhibits and Reports on Form 8-K	None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COMMUNITY TRUST BANCORP, INC.
	By:
Date: May 15, 2001	/s/ Jean R. Hale
	Jean R. Hale
	President and Chief Executive Officer
	/s/ Kevin Stumbo
	Kevin Stumbo
	Chief Accounting Officer