19
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 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, 1998
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 (I.R.S. Employer
incorporation or organization) Identification No.)
208 North Mayo Trail
Pikeville, Kentucky 41501
(address of principal executive offices) (Zip Code)
Registrant's telephone number (606) 432-1414
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. Yes X 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 - 10,062,597 shares outstanding at April 30, 1998
PART I - FINANCIAL INFORMATION
Item 1. 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 generally accepted accounting
principles 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, 1997 for
further information in this regard.
Index to consolidated financial statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
2
Consolidated Balance Sheets
March 31 December 31
(In thousands except share data) 1998 1997
Assets:
Cash and due from banks $60,851 $60,611
Interest bearing deposits in
other financial institutions 286 793
Federal funds sold 25,970 0
Securities available-for-sale 149,065 165,611
Securities held-to-maturity (fair value
of $104,645 and
$115,150, respectively) 104,976 115,931
Loans 1,453,054 1,428,429
Allowance for loan losses (20,415) (20,465)
Net loans 1,432,639 1,407,964
Premises and equipment, net 47,913 47,668
Excess of cost over net assets acquired (net of
accumulated amortization of
$7,973 and $7,720, respectively) 17,502 17,746
Other assets 36,972 36,343
Total Assets $1,876,174 $1,852,667
Liabilities and Shareholders' Equity:
Deposits:
Noninterest bearing $190,630 $193,353
Interest bearing 1,289,638 1,271,650
Total deposits 1,480,268 1,465,003
Federal funds purchased and other
short-term borrowings 33,700 57,949
Other liabilities 16,658 16,406
Advances from Federal Home Loan Bank 131,889 101,827
Long-term debt 53,435 53,463
Total Liabilities 1,715,950 1,694,648
Shareholders' Equity:
Preferred stock, 300,000 shares authorized and unissued
Common stock, $5 par value, shares authorized 25,000,000;
shares issued and outstanding,
1998 - 10,062,597; 1997 - 10,062,487 50,313 50,312
Capital surplus 28,037 28,067
Retained earnings 81,160 79,026
Accumulated other comprehensive income 714 614
Total Shareholders' Equity 160,224 158,019
Total Liabilities and
Shareholders' Equity $1,876,174 $1,852,667
The accompanying notes are an integral part of these statements.
3
Consolidated Statements of Income
Three months ended
March 31
(In thousands except per share data) 1998 1997
Interest Income:
Interest and fees on loans $33,704 $31,717
Interest and dividends on securities
Taxable 3,370 4,799
Tax exempt 638 673
Interest on federal funds sold 195 42
Interest on deposits in other financial
institutions 5 12
Total Interest Income 37,912 37,243
Interest Expense:
Interest on deposits 15,845 15,070
Interest on federal funds purchased and
other short-term borrowings 523 302
Interest on advances from Federal
Home Loan Bank 1,762 1,749
Interest on long-term debt 1,192 414
Total Interest Expense 19,322 17,535
Net interest income 18,590 19,708
Provision for loan losses 2,505 1,718
Net interest income after provision
for loan losses 16,085 17,990
Noninterest Income:
Service charges on deposit accounts 1,638 1,692
Gains on sale of loans, net 439 205
Trust income 432 397
Securities gains, net 0 93
Other 1,526 1,057
Total Noninterest Income 4,035 3,444
Noninterest Expense:
Salaries and employee benefits 7,078 7,566
Occupancy, net 1,013 1,015
Equipment 956 981
Data processing 839 675
Stationery, printing and office supplies 380 441
Taxes other than payroll, property
and income 521 526
FDIC insurance 62 35
Other 3,207 3,650
Total Noninterest Expense 14,056 14,889
Income before income taxes and
extraordinary gain 6,064 6,545
Extraordinary gain (loss), net of tax 0 3,085
Income before income taxes 6,064 9,630
Income tax expense 1,900 2,084
Net Income 4,164 7,546
Other comprehensive income, net of tax:
Unrealized holding gains/(losses) arising
during period 100 (931)
Comprehensive income $4,264 $6,615
Basic earnings per share before extra. gain $ 0.41 $ 0.44(1)
Basic earnings per share extra. gain 0.00 0.31(1)
Basic earnings per share after extra. gain 0.41 0.75(1)
Diluted earnings per share before extra. gain 0.41 0.44(1)
Diluted earnings per share extra. gain 0.00 0.31(1)
Diluted earnings per share after extra. gain 0.41 0.75(1)
Average shares outstanding 10,062 10,053(1)
(1) Per share data and average shares outstanding have been
restated to reflect the 10% stock dividend issued on April 15, 1997.
The accompanying notes are an integral part of these statements.
4
Consolidated Statements of Cash Flows
Three months ended
March 31
(In thousands) 1998 1997
Cash flows from operating activities:
Net income $ 4,164 $ 7,547
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,106 1,284
Provision for loan and other real estate losses 2,717 1,743
Securities gains, net 0 (93)
Gain on sale of loans, net (439) (205)
Gain on sale of assets (1) 4
Net amortization of securities premiums 73 164
Net change in loans held for sale (1,030) 53
Changes in:
Other assets (492) 1,716
Other liabilities 235 5,241
Net cash provided by operating activities 6,333 17,463
Cash flows from investing activities:
Proceeds from:
Sale/call of securities available-for-sale 0 29,058
Maturity of securities available-for-sale 16,899 12,170
Maturity of securities held-to-maturity 2,777 1,673
Principal payments on mortgage-backed securities8,176 708
Purchase of:
Securities available-for-sale (260) (2,937)
Securities held-to-maturity 0 0
Mortgage-backed securities 0 0
Net change in loans (26,024) (46,595)
Net change in premises and equipment (1,206) (779)
Other 0 0
Net cash used in investing activities 362 (6,702)
Cash flows from financing activities:
Net change in deposits 15,265 6,423
Net change in federal funds purchased and
other short-term borrowings (24,249) (19,497)
Advances from Federal Home Loan Bank 31,000 20,155
Repayments of advances from Federal
Home Loan Bank (938) (19,328)
Proceeds from long-term debt 0 0
Payments on long-term debt (28) (26)
Payments for redemption of common stock (96) 0
Issuance of common stock 67 196
Dividends paid (2,013) (1,826)
Net cash provided by financing activities 19,008 (13,903)
Net increase (decrease) in cash and
cash equivalents 25,703 (3,142)
Cash and cash equivalents at beginning of year 61,404 63,884
Cash and cash equivalents at end of period $ 87,107 $ 60,742
The accompanying notes are an integral part of these statements.
5
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Community Trust Bancorp,
Inc. (the "Company"), and its subsidiaries on a consolidated basis
conform to generally accepted accounting principles and general
practices within the banking industry.
Principles of Consolidation - The unaudited consolidated
financial statements include the accounts of the Company and its
separate and distinct, wholly owned subsidiaries Community Trust Bank,
NA, Community Trust Bank, FSB, Trust Company of Kentucky, National
Association, CTBI Preferred Capital Trust, and Community Trust Funding
Corporation. All significant intercompany transactions have been
eliminated in consolidation.
6
Note 2 - Securities
Securities are classified into held-to-maturity, available-for-
sale, and trading categories. Held-to-maturity securities are those
which the Company has the positive intent and ability to hold to
maturity and are reported at amortized cost. Available-for-sale
securities are those which the Company may decide to sell if needed
for liquidity, asset-liability management or other reasons. Available-
for- sale securities are reported at fair value, with unrealized gains
or losses included as a separate component of equity, net of tax.
The amortized cost and fair value of securities available-for-
sale as of March 31, 1998 are summarized as follows:
Amortized Fair
(in thousands) Cost Value
U.S. Treasury and government agencies $ 32,294 $ 32,630
Mortgage-backed pass through
certificates 71,993 72,554
Collateralized mortgage obligations 17,514 17,435
Other debt securities 7,225 7,338
Total debt securities 129,026 129,957
Equity securities 18,970 19,108
Total Securities $147,996 $149,065
The amortized cost and fair value of securities held-to-maturity
as of March 31, 1998 are summarized as follows:
Amortized Fair
(in thousands) Cost Value
U.S. Treasury and government agencies $ 18,469 $ 17,195
States and political subdivisions 45,501 46,736
Mortgage-backed pass through
certificates 34,215 34,099
Collateralized mortgage obligations 6,791 6,729
Total Securities $104,976 $104,759
7
Note 3 - Loans
Major classifications of loans are summarized as follows:
March 31 December 31
(in thousands) 1998 1997
Commercial, secured by real estate $ 320,718 $ 310,092
Commercial, other 267,612 260,808
Real Estate Construction 88,655 85,825
Real Estate Mortgage 404,789 407,893
Consumer 369,654 361,927
Equipment Lease Financing 1,627 1,884
$1,453,054 $1,428,429
Note 4 - Long-Term Debt
Long-Term Debt consists of the following:
March 31 December 31
(in thousands) 1998 1997
Trust Preferred Securities * $ 34,500 $ 34,500
Senior Notes 17,230 17,230
Other 1,665 1,733
$ 53,395 $ 53,463
Refer to the Corporation's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31,
1997 for information concerning rates and assets securing long-term
debt.
* In April 1997, CTBI Preferred Capital Trust ("CTBI Trust"), a
trust created under the laws of the State of Delaware, issued $34.5
million of 9.0% cumulative trust preferred securities ("Preferred
Securities"). The Corporation owns all of the beneficial interests
represented by common securities ("Common Securities") of CTBI Trust,
which exists for the sole purpose of issuing the Preferred Securities
and Common Securities and investing the proceeds thereof in an
equivalent amount of 9.0% Subordinated Debentures which were issued by
the Corporation. The Subordinated Debentures will mature on March 31,
2027, and are unsecured obligations of the Corporation. The
Subordinated Debentures are irrevocably and unconditionally guaranteed
by the Corporation and are subordinate and junior in right of payment
to all senior debt and other subordinated debt. There are no payments
due for this debt in the next five years.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Community Trust Bancorp, Inc. (the "Company") is a multi-bank
holding company headquartered in Pikeville, Kentucky. At March 31,
1998 the Company owned one commercial bank, one savings bank and one
trust company. Through its affiliates, the Company has over sixty
banking locations serving 85,000 households in various Eastern and
Central Kentucky counties. The Company had total assets of $1.88
billion and total shareholders' equity of $160 million as of March 31,
1998. The Company'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; J.C. Bradford & Co.,
Louisville, Kentucky; Bear, Stearns & Co., Inc., New York, New York;
Robinson Humphrey Co., Inc., Atlanta, Georgia and Stifel Nicolaus &
Co., Incorporated, St. Louis, Missouri.
Effective January 1, 1997, the Company changed its name from
Pikeville National Corporation to Community Trust Bancorp, Inc.,
changed the name of its lead bank from Pikeville National Bank and
Trust Company to Community Trust Bank, National Association (the
"Bank") and merged seven of its other commercial bank subsidiaries
into the Bank. As a result of these transactions, the Bank has $1.6
billion in assets and numerous locations throughout eastern and
central Kentucky. The Company's thrift and trust subsidiaries,
Community Trust Bank, FSB and Trust Company of Kentucky, N.A., remain
wholly-owned subsidiaries of the Company and will continue to operate
as independent entities.
Commercial Bank, West Liberty
On July 1, 1997 the Company completed the sale of Commercial
Bank, West Liberty, Kentucky, a wholly owned state bank subsidiary for
approximately $10.2 million in cash, which resulted in a pre-tax
operating gain of $3.0 million. West Liberty had $79 million in
assets, constituting 4% of the Company's total consolidated assets.
Consistent with the Company's strategic plan, the funds generated by
the sale of West Liberty will provide the Company with the opportunity
to expand existing or enter into new markets through either internal
expansion or acquisitions.
Acquisitions
While no acquisitions were completed during the first quarter of
1998, in December 1997 the Company announced its intention to enter
the West Virginia market by acquiring several branches from another
financial institution.
Under the terms of the definitive agreement, Community Trust
Bancorp, Inc. will purchase seventeen branches from Banc One
Corporation; these branches currently have deposits totaling
approximately $565 million. The purchase price will include a 9.7%
premium on the deposits plus approximately $4.5 million for fixed
assets, subject to adjustments as provided in the definitive
agreement. Concurrently with this agreement, Community Trust Bancorp,
Inc. entered into an agreement with Premier Financial Bancorp, Inc. of
Georgetown, Kentucky to sell three of the seventeen branches being
acquired from Banc One Corporation. The three branches being sold to
Premier Financial Bancorp, Inc. have total deposits of approximately
$153 million.
9
During January 1998, Community Trust Bancorp, Inc. subsequently
announced that it had entered into a definitive agreement to sell
seven additional branches of the seventeen it will acquire from Banc
One Corporation. Five of these seven branches, having combined
deposits of approximately $125 million, will be purchased by Peoples
Banking and Trust Company, a subsidiary of Peoples Bancorp, Inc. of
Marietta, Ohio. Two of the seven branches, having combined deposits
of approximately $67 million, will be purchased by a subsidiary of
United Bankshares, of Charles Town, West Virginia.
All of the above transactions are subject to regulatory approval.
Upon completion of these transactions, Community Trust Bancorp, Inc.
will be retaining seven of the original seventeen branches, totaling
approximately $220 million in deposits. This acquisition will assist
in growth of the Company outside of Kentucky and provide a new
customer base for generating additional revenues.
Stock Dividend
On February 18, 1997, the Company's Board of Directors declared a
10% stock dividend. This stock dividend, paid on April 15, 1997 to
shareholders of record on March 15, 1997, was in addition to the
regular quarterly cash dividends paid on (1) April 1, 1997 of 18 cents
per share for shareholders of record on March 15, 1997, (2) July 1,
1997 of 18 cents per share for shareholders of record on June 15,
1997, (3) October 1, 1997 of 18 cents per share for shareholders of
record on September 15, 1997, (4) January 1, 1998 of 20 cents per
share for shareholders of record on December 15, 1997 and (5) April 1,
1998 of 20 cents per share for shareholders of record on March 15,
1998. All per share data has been restated to reflect this stock
dividend.
10
Income Statement Review
The Company's net income before extraordinary gains for the three
months ended March 31, 1998 was $4.1 million or $0.41 per share as
compared to $4.4 million or $0.44 per share for the three months ended
March 31, 1997. Total earnings for the period ending March 31, 1997
were $7.5 million or $0.74 per share including an extraordinary item
of $3.0 million or $0.30 per share received in a settlement from a
former vendor. The following table sets forth on an annualized basis
the return on average assets and return on average shareholders'
equity for the three month period ending March 31, 1998 and 1997:
Three months ended
March 31
1998 1997
Return on average shareholders' equity
before extraordinary item 10.53% 12.09%
after extraordinary item 10.53% 20.45%
Return on average assets
before extraordinary item 0.91% 0.99%
after extraordinary item 0.91% 1.68%
The Company's net income before extraordinary gains for the first
quarter of 1998 decreased $297 thousand or 6.7% as compared to the
same period in 1997. Earnings per share before extraordinary gains
decreased $0.03 per share or 6.8% for the three months ended March 31,
1998, as compared to the first quarter of 1997. The decrease in net
income was the result of a decrease in net interest income (5.7%) and
an increase in the provision for loan losses (45.8%). An increase in
noninterest income (17.2%) and a decrease in noninterest expense
(5.6%) offset this. The decrease in net interest income was primarily
the result of the sale of the corporation's West Liberty subsidiary on
July 1, 1997 and the issuance of Trust Preferred Securities on April
16, 1997.
Provision for loan losses for the three months ended March 31,
1998 was $2.5 million, compared to $1.7 million for the same period in
1997. See "Provision For Loan Losses" below for an explanation of the
increase.
Net Interest Income
Net interest income decreased $1.1 million or 5.7% from $19.7
million for the first quarter of 1997 to $18.6 million for the first
quarter of 1998. Interest income and interest expense both increased
for the quarter ending March 31, 1998 as compared to the same period
in 1997, with interest income increasing $0.7 million and interest
expense increasing $1.8 million.
The decrease in net interest income for the three month period
was primarily due to a lower net interest margin from a year-to-year
comparison. The net interest margin has been impacted by the issuance
of $34,500,000 of 9% Trust Preferred securities which the Corporation
issued in April of 1997 for the purpose of financing acquisitions.
11
The yield on interest earning assets decreased 2 basis points for
the first quarter of 1998 as compared to the same period in 1997. The
cost of interest bearing funds increased 36 basis points for the first
quarter of 1998 as compared to the same period in 1997. As a result,
the net interest margin decreased from 4.85% for the first quarter of
1997 to 4.52% for the current quarter.
The Company's loan portfolio, its highest yielding asset,
continues to expand through new market share and internally generated
growth. The Company's loan portfolio increased 5.9% from $1.35
billion for the first quarter of 1997 to $1.43 billion for the first
quarter of 1998. Loans accounted for 89% of total interest income for
the first quarter of 1998 compared to 85% for the first quarter of
1997.
The following table summarizes the annualized net interest spread
and net interest margin for the three months ended March 31, 1998 and
1997.
Three Months Ended
March 31
1998 1997
Yield on interest earning assets 9.07% 9.09%
Cost of interest bearing funds 5.25% 4.89%
Net interest spread 3.82% 4.20%
Net interest margin 4.52% 4.85%
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) 1998 1997
Allowance balance January 1 $20,465 $18,825
Allowance of sold affiliate 0 0
Additions to allowance charged
against operations 2,505 1,718
Recoveries credited to allowance 977 971
Losses charged against allowance (3,532) (2,290)
Allowance balance at March 31 $20,415 $19,224
Allowance for loan losses to
period-end loans 1.40% 1.42%
Average loans, net of unearned income $1,433,092 $1,327,239
Provision for loan losses to
average loans, annualized .71% .52%
Loan charge-offs, net of recoveries to
average loans, annualized .72% .40%
12
The Company increased its provision for loan losses as a result
of the growth in its consumer loan portfolio, a loan category which
traditionally experiences higher charge-offs and higher yields than
other loans; and due to its increase in net charge-offs, measured in
raw dollars. Net charge-offs represent the amount of loans charged
off less amounts recovered on loans previously charged off. Net
charge-offs as a percentage of average loans outstanding increased 32
basis points to 0.72% for the three months ended March 31, 1998 as
compared to the same period in 1997. The Company's non-performing
loans (90 days or more past due and non-accrual) were 1.46% and 1.43%
of outstanding loans at December 31, 1997 and March 31, 1998,
respectively.
Any loans classified as loss, doubtful, substandard or special
mention that are not included in non-performing loans do not (1)
represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results,
liquidity or capital resources or (2) represent material credits about
which management has knowledge of any information which would cause
management to have serious doubts as to the ability of the borrowers
to comply with the loan repayment terms. The Company does not believe
there are currently any trends, events or uncertainties that are
reasonably likely to have a material effect on the volume of its non-
performing loans.
Noninterest Income
The Company's noninterest income increased 17% from $3.44 million
for the three months ended March 31, 1997 to $4.03 million for the
three months ended March 31, 1998. Gains on the sale of loans
represents the largest growth category, increasing 114% for the three
months ended March 31, 1998 as compared to the same period in 1997.
Other noninterest income increased 36% for the three months ended
March 31, 1998 as compared to the same period in 1997 primarily due to
an increase in loan fees. Deposit related fees declined slightly over
the same period, decreasing 3%.
Noninterest Expense
The Company's noninterest expense decreased by 5.6%% from $14.9
million for the three months ended March 31, 1997 to $14.1 million
for the same period in 1998. All major categories of noninterest
expense experienced decreases for the quarter ended March 31, 1998
compared to the same quarter in 1997. The sale of the corporation's
subsidiary, Commercial Bank of West Liberty, accounted for 45% of the
reduction in noninterest expense. However; an aggressive cost
reduction program has allowed the corporation to reduce its overall
operating expenses as well. Personnel costs have decreased by 3.8%
after adjusting for the sale of Commercial Bank of West Liberty; while
other noninterest expense decreased by 10.5% after adjusting for the
sale of Commercial Bank of West Liberty.
Balance Sheet Review
Total asset size was $1.85 billion at December 31, 1997 compared
to $1.88 billion at March 31, 1998. During the last three months,
loans increased from $1.41 billion to $1.43 billion. Federal Funds
Sold increased from a zero balance at December 31, 1997 to $25.97
million at March 31, 1998. The asset category which declined most was
securities available-for-sale; as these securities are sold or mature,
the liquidity is being used to fund the Company's loan portfolio
growth.
13
The Company's largest liability, deposits, increased slightly
from $1.47 billion as of December 31, 1997 to $1.48 billion as of
March 31, 1998. Noninterest bearing deposits declined marginally from
$193.4 million at December 31, 1997 to $190.6 million at March 31,
1998. Interest bearing deposits increased slightly from $1,271.7
million at December 31, 1997 to $1,289.6 million at March 31, 1998.
The Company decreased its federal funds purchased and other short term
borrowings during the period from $57.9 million as of December 31,
1997 to $33.7 million as of March 31, 1998. The Company's advances
from the Federal Home Loan Bank increased from $101.8 million at
December 31, 1997 to $131.9 million at March 31, 1998 as the Company
used this liquidity as a source of funding for loan growth.
Loans
Loans increased from $1.40 billion as of December 31, 1997 to
$1.43 billion as of March 31, 1998, primarily due to the growth of the
Company's commercial loan portfolio. The category of commercial loans
secured by real estate increased from $310.1 million as of December
31, 1997 to $320.7 million as of March 31, 1998 while other commercial
loans increased from $259.7 million as of December 31, 1997 to $266.8
million as of March 31, 1998.
Non-accrual and 90 days past due loans amounted to 1.46% of total
loans outstanding as of December 31, 1997 and 1.43% of total loans
outstanding as of March 31, 1998. Non-accrual loans as a percentage
of total loans outstanding were 0.92% as of December 31, 1997 and at
0.84% at March 31, 1998. During the same period, loans 90 days or
more past due decreased 11 basis points from 0.62% of total loans
outstanding to 0.51%. The allowance for loan losses decreased from
1.42% of total loans outstanding as of December 31, 1997 to 1.40% as
of March 31, 1998. The allowance for loan losses as a percentage of
non-accrual loans and loans past due 90 days or more was 98% at both
December 31, 1997 and March 31, 1998.
The following table summarizes the Company's loans that are non-
accrual or past due 90 days or more as of March 31, 1998 and December
31, 1997.
As a % of Accruing loans As a % of
Non-accrual loan balances past due 90 loan balances
loans by category days or more by category
(in thousands)
March 31, 1998
Commercial loans,
secured by real estate $ 2,305 0.58% $ 151 0.04%
Commercial loans, other 8,780 3.26 2,568 0.95
Consumer loans,
secured by real estate 2,038 0.49 3,361 0.81
Consumer loans, other 281 0.08 1,419 0.38
Total $13,404 0.92% $7,499 0.52%
December 31, 1997
Commercial loans,
secured by real estate $ 3,881 1.25% $2,339 0.75%
Commercial loans, other 6,294 2.40 878 0.33
Consumer loans,
secured by real estate 1,569 0.32 3,857 0.78
Consumer loans, other 314 0.09 1,789 0.49
Total $12,058 0.84% $8,863 0.62%
14
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 Company's allowance adequacy analysis and through a
monthly review of all letters of credit outstanding. The Company'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 Company uses its securities held-to-maturity for production
of income and to manage cash flow needs through expected maturities.
The Company uses its securities available-for-sale for income and
balance sheet liquidity management. The book value of securities
available-for-sale decreased from $165.6 million as of December 31,
1997 to $149.1 million as of March 31, 1998. Securities held-to-
maturity declined from $115.9 million to $105.0 million during the
same period. Total securities as a percentage of total assets were
15.2% as of December 31, 1997 and 13.5% as of March 31, 1998.
Liquidity and Capital Resources
The Company's liquidity objectives are to ensure that funds are
available for the affiliate banks to meet deposit withdrawals and
credit demands without unduly penalizing profitability, and to ensure
that funding is available for the Company to meet ongoing cash needs
while maximizing profitability. The Company continues to identify
ways to provide for liquidity on both a current and long-term basis.
The subsidiary banks rely mainly on core deposits, certificates 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 banks also rely on the sale of securities
under repurchase agreements, securities available-for-sale and Federal
Home Loan Bank borrowings.
Deposits increased from $1.465 billion to $1.480 billion from
December 31, 1997 to March 31, 1998. Noninterest bearing deposits
decreased by $2.72 million while interest bearing deposits increased
by $17.99 million.
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 the periods of low interest rates, these deposit balances
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 Company's liquidity needs.
15
The Company owns $149.1 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 Company also relies on
Federal Home Loan Bank advances for both liquidity and management of
its asset/liability position. These advances have sometimes been
matched against pools of residential mortgage loans which are not sold
in the secondary market, some of which have original maturities of ten
to fifteen years. Federal Home Loan Bank advances increased from
$101.8 million as of December 31, 1997 to $131.9 million as of March
31, 1998.
The Company 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 Company
currently has a $17.5 million revolving line of credit available to
meet any future cash needs. (See long-term debt footnote to the
consolidated financial statements.) The Company's primary investing
activities include purchases of securities and loan originations.
In conjunction with maintaining a satisfactory level of
liquidity, management monitors the degree of interest rate risk
assumed on the balance sheet. The Company 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 Company uses the Sendero system to monitor its interest rate risk.
The Company desires an interest sensitivity gap of not more than
fifteen percent of total assets at the one year interval.
On a limited basis, the Company may use interest rate swaps and
sales of options on securities as additional tools in managing
interest rate risk. Interest rate swaps involve an exchange of cash
flows based on the notional principal amount and agreed upon fixed and
variable interest rates. In this transaction, the Company would
typically agree to pay a floating interest rate based on London Inter-
Bank Offering Rate (LIBOR) and receive a fixed interest rate in
return. On options, the Company would typically sell the right to a
third party to purchase securities the Company currently owns at a
fixed price on a future date. The Company had no options outstanding
at March 31, 1998. The impact on operations of interest rate swaps
and options was not material during the first three months of 1997 or
1998.
The Company's principal source of funds used to pay dividends to
shareholders and service long-term debt is the dividends it receives
from subsidiary banks. Various federal and state 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 Company's dividend policy or its ability to service long-term
debt, nor is it anticipated that they will have any major impact in
the foreseeable future. In addition to the subsidiary banks' 1998
profits, approximately $1.7 million can be paid to the Company as
dividends without prior regulatory approval.
The primary source of capital for the Company is retained
earnings. The Company paid cash dividends of $0.20 per share for the
first three months of 1998 and $0.18 per share for the first three
months of 1997. Earnings per share for the same periods were $0.41
and $0.75, respectively. The Company retained 51% of earnings for the
first three months of 1998.
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Under guidelines issued by banking regulators, the Company and
its subsidiary banks are 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 Company must also maintain a minimum Tier 1 leverage ratio of 4%
as of September 30, 1997. The Company's Tier 1 leverage, Tier 1 risk-
based and total risk-based ratios were 9.79%, 12.30% and 13.55%,
respectively as of March 31, 1998.
As of March 31, 1998, 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 Company's liquidity, capital
resources, or operations.
Impact of Inflation and Changing Prices
The majority of the Company's assets and liabilities are monetary
in nature. Therefore, the Company 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 Company'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.
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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 None
of Security Holders
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
Form 8-K was filed on January 7, 1998 announcing that
Community Trust Bancorp, Inc. has entered into a definitive
agreement with subsidiaries of Banc One Corporation to
acquire seventeen branches of Banc One Corporation's
subsidiaries in West Virginia.
Form 8-K was filed on January 7, 1998 to announce the
resignation of Richard M. Levy, Executive Vice President and
Chief Financial Officer of Community Trust Bancorp, Inc.
effective February 2, 1998.
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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, 1998 Burlin Coleman
Burlin Coleman
Chairman of the Board,
President and
Principal Executive Officer
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