-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U+c5lTlRIKfGJYflItdV2GxiVhEWvPugVUbfoQWRWlUWkSNZtE5HZCUY41tZjqmr 7Vq9iEoRzY+49U50yDLnbQ== 0000350852-00-000007.txt : 20000515 0000350852-00-000007.hdr.sgml : 20000515 ACCESSION NUMBER: 0000350852-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY TRUST BANCORP INC /KY/ CENTRAL INDEX KEY: 0000350852 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 610979818 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11129 FILM NUMBER: 627856 BUSINESS ADDRESS: STREET 1: 208 NORTH MAYO TRAIL STREET 2: P O BOX 2947 CITY: PIKEVILLE STATE: KY ZIP: 41501 BUSINESS PHONE: 6064321414 MAIL ADDRESS: STREET 1: 346 NORTH MAYO TRAIL STREET 2: PO BOX 2947 CITY: PIKEVILLE STATE: KY ZIP: 41501 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY TRUST BANCORP INC/ DATE OF NAME CHANGE: 19971124 10-Q 1 11 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, 2000 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.) 346 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 - 12,141,127 shares outstanding at April 30, 2000 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, 1999 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) 2000 1999 Assets: Cash and due from banks $ 88,419 $ 99,383 Interest bearing deposits in other financial institutions 459 390 Federal funds sold 11,960 7,684 Securities available-for-sale 253,297 270,281 Securities held-to-maturity (fair value of $55,386 and $58,762, respectively) 57,619 60,307 Loans 1,647,178 1,619,480 Allowance for loan losses (25,126) (25,102) Net loans 1,622,052 1,594,378 Premises and equipment, net 50,830 52,052 Excess of cost over net assets acquired (net of accumulated amortization of $12,965 and $12,187, respectively) 58,655 59,433 Other assets 31,043 32,182 Total Assets $2,174,334 $2,176,090 Liabilities and Shareholders' Equity: Deposits: Noninterest bearing $ 258,783 $ 261,880 Interest bearing 1,604,690 1,615,454 Total deposits 1,863,473 1,877,334 Federal funds purchased and other short-term borrowings 51,081 45,626 Other liabilities 15,213 10,113 Advances from Federal Home Loan Bank 16,106 16,924 Long-term debt 53,657 53,674 Total Liabilities 1,999,530 2,003,671 Shareholders' Equity: Preferred stock, 300,000 shares authorized and unissued Common stock, $5 par value, shares authorized 25,000,000; shares issued 2000-11,028,822; 1999-11,043,201 55,144 55,216 Capital surplus 45,113 45,306 Retained earnings 77,934 75,021 Accumulated other comprehensive income (3,387) (3,124) Total Shareholders' Equity 174,804 172,419 Total Liabilities and Shareholders' Equity $2,174,334 $2,176,090 See notes to consolidated financial statements. 3 Consolidated Statements of Income Three months ended March 31 (In thousands except per share data) 2000 1999 Interest Income: Interest and related fees on loans $36,982 $33,647 Interest and dividends on securities Taxable 4,079 4,686 Tax exempt 692 733 Interest on federal funds sold 218 1,343 Interest on deposits in other financial institutions 2 2 Total Interest Income 41,973 40,411 Interest Expense: Interest on deposits 18,784 18,030 Interest on federal funds purchased and other short-term borrowings 660 482 Interest on advances from Federal Home Loan Bank 236 397 Interest on long-term debt 1,176 1,224 Total Interest Expense 20,856 20,133 Net interest income 21,117 20,278 Provision for loan losses 2,450 2,034 Net interest income after provision for loan losses 18,667 18,244 Noninterest Income: Service charges on deposit accounts 2,341 2,155 Gains on sale of loans, net 133 703 Trust income 565 515 Loan processing & servicing fees 736 825 Other 877 797 Total Noninterest Income 4,652 4,995 Noninterest Expense: Salaries and employee benefits 7,754 7,519 Occupancy, net 1,362 1,176 Equipment 1,060 1,263 Data processing 921 855 Stationery, printing and office supplies 410 365 Taxes other than payroll, property and income 443 441 Goodwill amortization 778 787 Other 3,120 3,420 Total Noninterest Expense 15,848 15,826 Income before income taxes 7,471 7,413 Income tax expense 2,352 2,313 Net Income 5,119 5,100 Other comprehensive income, net of tax: Unrealized holding gains/(losses) arising during period (263) (687) Comprehensive income $ 4,856 $ 4,413 Basic earnings per share 0.42(1) 0.42(1) Diluted earnings per share 0.42(1) 0.42(1) Average shares outstanding 12,138(1) 12,174(1) (1) Per share data and average shares outstanding have been restated to reflect the 10% stock dividend issued on April 15, 1999 and on April 15, 2000. See notes to consolidated financial statements. 4 Consolidated Statements of Cash Flows Three months ended March 31 (In thousands) 2000 1999 Cash flows from operating activities: Net income $ 5,119 $ 5,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,813 1,951 Provision for loan and other real estate losses 2,487 2,040 Gain on sale of loans, net (133) (703) Gain on sale of assets 107 0 Net amortization of securities premiums 86 127 Net change in loans held for sale 293 2,598 Changes in: Other assets 1,691 5,113 Other liabilities 3,065 3,115 Net cash provided by operating activities 14,314 19,341 Cash flows from investing activities: Proceeds from: Sale/call of securities available-for-sale 0 1,178 Maturity of securities available-for-sale 16,706 36,338 Maturity of securities held-to-maturity 1,416 251 Principal payments on mortgage-backed securities1,653 3,678 Purchase of: Securities available-for-sale (280) (27,042) Securities held-to-maturity (390) 0 Mortgage-backed securities 0 (10) Net change in loans (30,657) (10,332) Net change in premises and equipment 297 (317) Net cash provided by (used in) investing activities (11,255) 3,744 Cash flows from financing activities: Net change in deposits (13,861) (47,072) Net change in federal funds purchased and other short-term borrowings 5,455 (2,000) Advances from Federal Home Loan Bank 89 0 Repayments of advances from Federal Home Loan Bank (907) (31,858) Payments on long-term debt (17) (29) Issuance and repurchase of common stock, net (265) (228) Dividends paid (172) (3,969) Net cash (used in) financing activities (9,678) (85,156) Net (decrease) in cash and cash equivalents (6,619) (62,071) Cash and cash equivalents at beginning of period107,457 233,133 Cash and cash equivalents at end of period $ 100,838 $ 171,062 See notes to consolidated financial 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 "Corporation"), 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 Corporation 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. Note 2 - Securities Securities are classified into held-to-maturity and available-for- sale categories. Held-to-maturity securities are those which the Corporation has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities are those which 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, 2000 are summarized as follows: Amortized Fair (in thousands) Cost Value U.S. Treasury and government agencies $ 41,546 $ 41,319 Mortgage-backed pass through certificates 125,077 121,988 Collateralized mortgage obligations 37,750 37,185 Other debt securities 29,040 27,519 Total debt securities 233,413 228,011 Equity securities 25,370 25,286 Total Securities $258,783 $253,297 The amortized cost and fair value of securities held-to-maturity as of March 31, 2000 are summarized as follows: Amortized Fair (in thousands) Cost Value U.S. Treasury and government agencies $ 12,499 $ 10,197 States and political subdivisions 31,094 31,339 Mortgage-backed pass through certificates 10,583 10,459 Collateralized mortgage obligations 3,443 3,391 Total Securities $ 57,619 $ 55,386 6 Note 3 - Loans Major classifications of loans are summarized as follows: March 31 December 31 (in thousands) 2000 1999 Commercial, secured by real estate $ 429,228 $ 406,330 Commercial, other 313,963 293,659 Real Estate Construction 92,134 98,990 Real Estate Mortgage 402,558 397,168 Consumer 401,994 415,935 Equipment Lease Financing 7,302 7,398 $1,647,178 $1,619,480 Note 4 - Long-Term Debt Long-Term Debt consists of the following: March 31 December 31 (in thousands) 2000 1999 Trust Preferred Securities * $ 34,500 $ 34,500 Senior Notes 12,230 12,230 Revolving Bank Note 5,500 5,500 Other 1,427 1,444 $ 53,657 $ 53,674 Refer to the Corporation's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1999 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. 7 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, 2000 the Corporation owned one commercial bank, one savings bank, one trust company and two special purpose Delaware corporations. Through its affiliates, the Corporation has over sixty banking locations serving 85,000 households in various West Virginia and Eastern and Central Kentucky counties. The Corporation had total assets of $2.18 billion and total shareholders' equity of $175 million as of March 31, 2000. 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; Robinson Salomon Smith Barney, Atlanta, Georgia; J.C. Bradford & Co., Louisville, Kentucky; Keefe, Bruyette & Woods, Inc., New York, New York. Dividends On January 25, 2000, the Corporation's Board of Directors approved a 10% stock dividend. The stock dividend was paid on April 15, 2000, to shareholders of record on March 20, 2000. On April 15, 1999, there was a 10% stock dividend paid to shareholders of record on March 20, 1999. All per share data has been restated to reflect these stock dividends. Regular quarterly cash dividends were paid on (1) April 1, 1999 of 17 cents per share for shareholders of record on March 15, 1999, (2) July 1, 1999 of 18 cents per share for shareholders of record on June 15, 1999, (3) October 1, 1999 of 18 cents per share for shareholders of record on September 15, 1999, (4) January 1, 2000 of 18 cents per share for shareholders of record on December 15, 1999 and (5) April 1, 2000 of 18 cents per share for shareholders of record on March 15, 2000. Income Statement Review The Corporation's net income for the three months ended March 31, 2000 was $5.1 million or $0.42 per share as compared to $5.1 million or $0.42 per share for the three months ended March 31, 1999. 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, 2000 and 1999: Three months ended March 31 2000 1999 Return on average shareholders' equity 11.82% 12.35% Return on average assets 0.95% 0.95% Provision for loan losses for the three months ended March 31, 2000 was $2.5 million, compared to $2.0 million for the same period in 1999. See "Provision For Loan Losses" below for an explanation of the increase. Net Interest Income Net interest income increased $0.8 million or 4.1% from $20.3 million for the first quarter of 1999 to $21.1 million for the first quarter of 2000. Interest income and interest expense both increased for the quarter ending March 31, 2000 as compared to the same period in 1999, with interest income increasing $1.6 million and interest expense increasing $0.7 million. 8 The yield on interest earning assets increased 33 basis points for the first quarter of 2000 as compared to the same period in 1999, as a result of (1) funds being redeployed to loans from other financial assets and (2) rising interest rates. The cost of interest bearing funds also increased by 22 basis points for the first quarter of 2000 as compared to the same period in 1999 due to rising interest rates. As a result, the net interest margin increased from 4.27% for the first quarter of 1999 to 4.45% for the current quarter. The Corporation's loan portfolio, its highest yielding asset, continues to expand. The Corporation's loan portfolio increased 9.3% from $1.51 billion for the first quarter of 1999 to $1.65 billion for the first quarter of 2000. The following table summarizes the annualized net interest spread and net interest margin, on a taxable equivalent basis, for the three months ended March 31, 2000 and 1999. Three Months Ended March 31 2000 1999 Yield on interest earning assets 8.68% 8.35% Cost of interest bearing funds 4.86% 4.64% Net interest spread 3.82% 3.71% Net interest margin 4.45% 4.27% 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) 2000 1999 Allowance balance January 1 $25,102 $26,089 Additions to allowance charged against operations 2,450 2,034 Recoveries credited to allowance 1,521 1,670 Losses charged against allowance (3,947) (5,520) Allowance balance at March 31 $25,126 $24,273 Allowance for loan losses to period-end loans 1.53% 1.61% Average loans, net of unearned income $1,630,319 $1,501,450 Provision for loan losses to average loans, annualized .60% .55% Loan charge-offs net of recoveries, to average loans, annualized .60% 1.04% The Corporation increased its provision for loan losses during the first quarter of 2000. This increase is primarily due to the loan growth experienced in the first quarter of 2000. In September 1998, CTBI took a special charge of $7.3 million to clean up problems in the Indirect Loan Portfolio. Six million dollars of this charge was booked as additional Provision for Loan Losses. As a result, losses incurred in the Corporation's pre-1998 Indirect Lending Portfolio are charged against this provision. In the first quarter of 1999, $942 thousand of the net charge-offs were applied to the pre-1998 special reserve. In the first quarter of 2000, this amount decreased to $323 thousand. The 1999 provision was less than the 2000 provision even though gross net charge-offs were greater in 1999, because $942 thousand of the 1999 charge-offs were applied to the special reserve. 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 decreased 44 basis points to 0.60% for the three months ended March 31, 2000 as compared to the same period in 1999. The Corporation's non-performing loans (90 days or more past due and non-accrual) were 1.12% and 1.33% of outstanding loans at December 31, 1999 and March 31, 2000, respectively. 9 Any loans classified as 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 decreased 6.87% from $5.00 million for the three months ended March 31, 1999 to $4.65 million for the three months ended March 31, 2000. This net decrease can primarily be attributed to gains on the sale of loans which decreased from $703 thousand for the three months ended March 31, 1999, to $133 thousand for the three months ended March 31, 2000 and service charges on deposit accounts which increased 8.63%, or $186 thousand, for the three months ended March 31, 2000 as compared to the same period in 1999. Noninterest Expense The Corporation's noninterest expense remained flat at $15.8 million for the three months ended March 31, 2000 and March 31, 1999. Cash Basis Income Quarter Ended March 31, 2000 Amortization Reported Core Deposit "Cash" Earnings Goodwill Intangible Earnings Income before income tax expense $ 7,471 $ 634 $ 145 $8,250 Income tax expense 2,352 205 51 2,608 Net income $ 5,119 $ 429 $ 94 $5,642 Basic earnings per common share $ 0.42 $ 0.04 $ 0.01 $ 0.47 Diluted earnings per common share $ 0.42 $ 0.04 $ 0.01 $ 0.47 These calculations were specifically formulated by the Corporation and may not be comparable to similarly titled measures reported by other companies. Earnings per share calculations have been restated to reflect the 10% stock dividend paid on April 15, 2000. Balance Sheet Review Total assets were $2.18 billion at December 31, 1999 compared to $2.17 billion at March 31, 2000. During the last three months, loans increased 1.7% from $1.62 billion to $1.65 billion. Securities decreased from $331 million at December 31, 1999 to $311 million at March 31, 2000. The Corporation's largest liability, deposits, decreased from $1.88 billion as of December 31, 1999 to $1.86 billion as of March 31, 2000. Noninterest bearing deposits declined from $261.9 million at December 31, 1999 to $258.8 million at March 31, 2000. Interest bearing deposits decreased from $1,615.5 million at December 31, 1999 to $1,604.7 million at March 31, 2000. 10 Loans Loans increased from $1.62 billion as of December 31, 1999 to $1.65 billion as of March 31, 2000, primarily due to the growth of the Corporation's commercial loan portfolio. The category of commercial loans secured by real estate increased from $406.3 million as of December 31, 1999 to $429.2 million as of March 31, 2000 while other commercial loans increased from $293.7 million as of December 31, 1999 to $314.0 million as of March 31, 2000. These increases were partially offset by a decrease in consumer loans of $13.9 million. The Corporation has strengthened the underwriting standards of its consumer loan portfolio. The changes in underwriting standards have resulted in a decrease in the volume of new loans booked. Non-accrual and 90 days past due loans amounted to 1.12% of total loans outstanding as of December 31, 1999 and 1.33% of total loans outstanding as of March 31, 2000. Non-accrual loans as a percentage of total loans outstanding were 0.92% as of December 31, 1999 and at 1.20% at March 31, 2000. During the same period, loans 90 days or more past due decreased 7 basis points from 0.20% of total loans outstanding to 0.13%. The allowance for loan losses decreased from 1.55% of total loans outstanding as of December 31, 1999 to 1.53% as of March 31, 2000. The allowance for loan losses as a percentage of non-accrual loans and loans past due 90 days or more was 138.7% at December 31, 1999 and 114.7% at March 31, 2000. Loans on non-accrual status increased from $14.8 million at December 31, 1999 to $19.7 million at March 31, 2000, an increase of $4.9 million. This increase was substantially due to the additions of two secured commercial loans totaling $4.6 million. Both businesses continue to operate and the sale of both businesses is being actively pursued by their owners. The Corporation does not anticipate a material loss from these two loans. The following table summarizes the Corporation's loans that are non-accrual or past due 90 days or more as of March 31, 2000 and December 31, 1999. 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, 2000 Commercial loans, secured by real estate $ 8,497 1.68% $ 208 0.04% Commercial loans, other 5,866 1.83 61 0.02 Consumer loans, secured by real estate 4,919 1.18 1,152 0.28 Consumer loans, other 425 0.11 783 0.19 Total $19,707 1.20% $ 2,204 0.13% December 31, 1999 Commercial loans, secured by real estate $ 5,887 1.21% $ 271 0.06% Commercial loans, other 3,518 1.17 546 0.18 Consumer loans, secured by real estate 5,098 1.23 1,305 0.31 Consumer loans, other 358 0.09 1,115 0.27 Total $14,861 0.92% $ 3,237 0.20% 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. 11 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 decreased from $270.3 million as of December 31, 1999 to $253.3 million as of March 31, 2000. Securities held-to-maturity declined from $60.3 million to $57.6 million during the same period. Total securities as a percentage of total assets were 15.2% as of December 31, 1999 and 14.3% as of March 31, 2000. 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 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 decreased from $1.877 billion to $1.863 billion from December 31, 1999 to March 31, 2000. Noninterest bearing deposits decreased by $3.1 million while interest-bearing deposits decreased by $10.8 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 Corporation's liquidity needs. The Corporation owns $253.3 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. 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 decreased from $16.9 million as of December 31, 1999 to $16.1 million as of March 31, 2000. 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 $21.0 million revolving line of credit, $15.5 million of which is currently available to meet any future cash needs. (See long-term debt footnote to the consolidated financial 12 statements.) The Corporation'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 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. On a limited basis, the Corporation 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 Corporation 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 Corporation would typically sell the right to a third party to purchase securities the Corporation currently owns at a fixed price on a future date. The Corporation had no swaps or options outstanding at March 31, 2000. The Corporation'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 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. In addition to the subsidiary banks' 2000 profits, approximately $27.4 million can be paid to the Corporation as dividends without prior regulatory approval. The primary source of capital for the Corporation is retained earnings. The Corporation paid cash dividends of $0.18 per share for the first three months of 2000 and $0.17 per share for the first three months of 1999. Earnings per share for the same periods were $0.42 and $0.42, respectively. The Corporation retained 57% of earnings for the first three months of 2000. Under guidelines issued by banking regulators, the Corporation 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 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 7.29%, 9.01% and 10.27%, respectively as of March 31, 2000. As of March 31, 2000, 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. 13 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. 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Corporation currently does not engage in any derivative or hedging activity. Refer the Corporation's 1999 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 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 None 15 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 12, 2000 /s/Jean R. Hale Jean R. Hale President and Principal Executive Officer /s/Kevin Stumbo Kevin Stumbo Chief Accounting Officer EX-27 2
9 3-MOS DEC-31-2000 MAR-31-2000 88419 459 11960 0 253297 57619 58762 1647178 25126 2174334 1863473 51081 15213 69763 0 0 55144 119660 2174334 36982 4771 220 41973 18784 20856 21117 2450 0 15848 7471 7471 0 0 5119 0.42 0.42 8.52 19707 2204 173 0 25102 3947 1521 25126 25126 0 25126
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