-----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, Vgc3HMn9RIDjWLwKjX2KMyt9gZxt4QWmfgc/39ERR7pr1u3Gd42D0BRsPuf3y392 z0uPuWpBUZiCKsVUsS54TA== 0000350852-97-000008.txt : 19971117 0000350852-97-000008.hdr.sgml : 19971117 ACCESSION NUMBER: 0000350852-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIKEVILLE NATIONAL CORP 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: 97718114 BUSINESS ADDRESS: STREET 1: 208 NORTH MAYO TRAIL STREET 2: P O BOX 2947 CITY: PIKEVILLE STATE: KY ZIP: 41502-2947 BUSINESS PHONE: 6064321414 MAIL ADDRESS: STREET 1: 208 NORTH MAYO TRAIL STREET 2: PO BOX 2947 CITY: PIKEVILLE STATE: KY ZIP: 41501 10-Q 1 2 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 September 30, 1997 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 - 10,060,631 shares outstanding at October 31, 1997 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, 1996 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 Consolidated Balance Sheets September 30 December 31 (In thousands except share data) 1997 1996 Assets: Cash and due from banks $52,415 $63,048 Interest bearing deposits in other financial institutions 220 836 Federal funds sold 28,690 0 Securities available-for-sale 170,593 229,952 Securities held-to-maturity (fair value of $120,358 and $137,383, respectively) 120,585 137,733 Loans 1,371,256 1,309,623 Allowance for loan losses (20,359) (18,825) Net loans 1,350,897 1,290,798 Premises and equipment, net 45,172 46,275 Excess of cost over net assets acquired (net of accumulated amortization of $7,467 and $6,674, respectively) 17,991 19,822 Other assets 36,348 27,196 Total Assets $ 1,822,911 $ 1,815,660 Liabilities and Shareholders' Equity: Deposits: Noninterest bearing $ 180,950 $ 200,222 Interest bearing 1,248,648 1,280,600 Total deposits 1,429,598 1,480,822 Federal funds purchased and other short-term borrowings 40,279 44,585 Other liabilities 19,623 15,394 Advances from Federal Home Loan Bank 122,632 110,969 Long-term debt 53,477 19,136 Total Liabilities 1,665,609 1,670,906 Shareholders' Equity: Preferred stock, 300,000 shares authorized and unissued Common stock, $5 par value, shares authorized 25,000,000; shares issued and outstanding, 1997 - 10,060,631; 1996 - 9,128,814 50,303 45,644 Capital surplus 28,058 27,915 Retained earnings 78,467 71,976 Net unrealized appreciation (depreciation) on securities available-for-sale, net of tax 474 (781) Total Shareholders' Equity 157,302 144,754 Total Liabilities and Shareholders' Equity $ 1,822,911 $ 1,815,660 The accompanying notes are an integral part of these statements. Consolidated Statements of Income Three months ended Nine months ended September 30 September 30 (In thousands except per share data) 1997 1996 1997 1996 Interest Income: Interest and fees on loans $32,298 $30,843 $ 96,672 $ 86,972 Interest and dividends on securities Taxable 3,860 5,030 12,963 17,239 Tax exempt 637 741 1,994 2,259 Interest on federal funds sold 292 0 881 450 Interest on deposits in other financial institutions 5 20 23 43 Total Interest Income 37,092 36,634 112,533 106,963 Interest Expense: Interest on deposits 15,480 15,029 46,000 45,375 Interest on federal funds purchased and other short-term borrowings 418 399 1,232 957 Interest on advances from Federal Home Loan Bank 1,234 1,636 4,744 3,728 Interest on long-term debt 1,192 447 2,653 1,493 Total Interest Expense 18,324 17,511 54,629 51,553 Net interest income 18,768 19,123 57,904 55,410 Provision for loan losses 4,069 2,003 7,518 5,177 Net interest income after provision for loan losses 14,699 17,120 50,386 50,233 Noninterest Income: Service charges on deposit accounts 1,696 1,634 5,209 4,517 Gains on sale of loans, net 367 698 814 1,449 Trust income 476 392 1,347 1,190 Securities gains, net 0 5 47 65 Other 4,515 967 6,822 3,396 Total Noninterest Income 7,054 3,696 14,239 10,617 Noninterest Expense: Salaries and employee benefits 7,162 6,989 21,575 21,266 Occupancy, net 1,084 987 3,116 2,937 Equipment 952 926 2,872 2,810 Data processing 831 648 2,206 1,856 Stationery, printing and office supplies 406 322 1,302 1,203 Taxes other than payroll, property and income 520 512 1,591 1,523 FDIC insurance 70 7 184 20 Other 3,874 3,309 11,678 9,201 Total Noninterest Expense 14,899 13,700 44,524 40,816 Income before income taxes and extraordinary gain 6,854 7,116 20,101 20,034 Extraordinary gain (loss), net of tax 0 0 3,085 0 Income before income taxes 6,854 7,116 23,186 20,034 Income tax expense 2,442 2,210 6,672 6,188 Net Income $ 4,412 $ 4,906 $ 16,514 $ 13,846 Net income per share $ 0.44 $ 0.49(1) $ 1.63 $ 1.38(1) Average shares outstanding 10,062 10,053(1) 10,061 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. Consolidated Statements of Cash Flows Nine months ended September 30 (In thousands) 1997 1996 Cash flows from operating activities: Net income $ 16,514 $ 13,846 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,167 3,631 Provision for loan and other real estate losses 7,543 5,240 Securities gains, net (119) (65) Gain on sale of loans, net (814) (1,449) Gain on sale of assets 4 (18) Net amortization of securities premiums 291 427 Net change in loans held for sale 77,652 4,543 Changes in: Other assets (8,141) (9,931) Other liabilities 4,244 1,049 Net cash provided by operating activities 101,341 17,273 Cash flows from investing activities: Proceeds from: Sale/call of securities available-for-sale 44,909 11,797 Maturity of securities available-for-sale 37,395 35,291 Maturity of securities held-to-maturity 13,992 10,239 Principal payments on mortgage- backed securities 4,019 34,824 Purchase of: Securities available-for-sale (21,510) (40,339) Securities held-to-maturity 0 (3,441) Mortgage-backed securities (1,000) (1,228) Net change in loans (144,529) (157,853) Net change in premises and equipment (2,412) (2,018) Other 0 1,570 Net cash used in investing activities (69,136) (111,158) Cash flows from financing activities: Net change in deposits (51,224) (5,465) Net change in federal funds purchased and other short-term borrowings (4,306) 28,038 Advances from Federal Home Loan Bank 120,232 61,145 Repayments of advances from Federal Home Loan Bank (108,569) (12,596) Proceeds from long-term debt 34,500 1,000 Payments on long-term debt (159) (9,704) Issuance of common stock 228 - Dividends paid (5,466) (4,929) Net cash provided by financing activities (14,764) 57,489 Net increase (decrease) in cash and cash equivalents 17,441 (36,396) Cash and cash equivalents at beginning of year 63,884 107,012 Cash and cash equivalents at end of period $ 81,325 $ 70,616 The accompanying notes are an integral part of these statements. 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, Commercial Bank (West Liberty), 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, 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 September 30, 1997 are summarized as follows: Amortized Fair (in thousands) Cost Value U.S. Treasury and government agencies $ 37,255 $ 37,526 Mortgage-backed pass through certificates 77,130 77,370 Collateralized mortgage obligations 17,778 17,698 Other debt securities 19,167 19,173 Total debt securities 151,330 151,767 Equity securities 18,757 18,826 Total Securities $170,087 $170,593 The amortized cost and fair value of securities held-to-maturity as of September 30, 1997 are summarized as follows: Amortized Fair (in thousands) Cost Value U.S. Treasury and government agencies $ 22,958 $ 21,855 States and political subdivisions 46,942 48,025 Mortgage-backed pass through certificates 38,257 38,156 Collateralized mortgage obligations 12,428 12,322 Total Securities $120,585 $120,358 Note 3 - Loans Major classifications of loans are summarized as follows: September 30 December 31 (in thousands) 1997 1996 Commercial, secured by real estate $ 291,291 $ 270,315 Commercial, other 257,738 234,793 Real Estate Construction 83,086 79,069 Real Estate Mortgage 409,013 411,067 Consumer 327,343 310,582 Equipment Lease Financing 2,785 3,797 $1,371,256 $1,309,623 Note 4 - Long-Term Debt Long-Term Debt consists of the following: September 30 December 31 (in thousands) 1997 1996 Trust Preferred Securities * $ 34,500 $ 0 Senior Notes 17,230 17,230 Other 1,747 1,906 $ 53,477 $ 19,136 Refer to the 1996 Securities and Exchange Commission Form 10-K for information concerning rates and assets securing long-term debt. * 9.0% cumulative, payable quarterly, maturing 2027, subordinated to all other liabilities of the Company 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 September 30, 1997 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 $1.82 billion and total shareholders' equity of $157 million as of September 30, 1997. 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 its 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. 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, and (3) October 1, 1997 of 18 cents per share for shareholders of record on September 15, 1997. All per share data has been restated to reflect this stock dividend. Income Statement Review The Company's net income for the three months ended September 30, 1997 was $4.4 million or $0.44 per share as compared to $4.9 million or $0.49 per share for the three months ended September 30, 1996. Total earnings for the nine months ended September 30, 1997 were $16.5 million or $1.63 per share, including a first quarter extraordinary item of $3.0 million or $0.30 per share received in a settlement with 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 and nine month periods ending September 30, 1997 and 1996: Three months ended Nine months ended September 30 September 30 1997 1996 1997 1996 Return on average shareholders' equity before extraordinary item 11.05% 13.92% 11.70% 13.47% after extraordinary item 11.05% 13.92% 14.39% 13.47% Return on average assets before extraordinary item 0.99% 1.09% 0.99% 1.06% after extraordinary item 0.99% 1.09% 1.22% 1.06% The Company's net income for the third quarter of 1997 decreased $494 thousand or 10% as compared to the same period in 1996. Earnings per share decreased $0.05 per share or 10% for the three months ended September 30, 1997, as compared to the third quarter of 1996. The decrease in net income was the result of increases in noninterest expense, including personnel, training, and advertising, which were to a large extent offset by increases in net interest income and higher noninterest income. Training and personnel expenses were the result of planning and implementation of the consolidation of the merged affiliates which occurred on January 1, 1997. Advertising increases occurred so that the Company's name change would be well recognized in our market areas. Noninterest income increased $358 thousand for the quarter, not counting the $3.0 million operating gain on the sale of the West Liberty affiliate, as compared to the third quarter of 1996. Noninterest expense for the quarter increased by $1.2 million as compared to the same period in 1996. See "Noninterest Expense" below for an explanation of the increase. Provision for loan losses for the three months ended September 30, 1997 was $4.0 million, compared to $2.0 million for the same period in 1996. For the nine months ended September 30, 1997 the provision was $7.5 million, a 45% increase over the same period in 1996. See "Provision For Loan Losses" below for an explanation of the increase. Net Interest Income Net interest income decreased $355 thousand or 2% from $19.1 million for the third quarter of 1996 to $18.7 million for the third quarter of 1997. Interest income and interest expense both increased for the quarter ending September 30, 1997 as compared to the same period in 1996, with interest income increasing $5.6 million and interest expense increasing $3.1 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 loan-to-deposit ratio at the end of September 1997 was 92.83% as compared to 85.63% for the end of September 1996, after accounting for the securitization of approximately $81 million in retail installment contracts which were sold in June 1997. The yield on interest earning assets increased 18 basis points for the third quarter of 1997 as compared to the same period in 1996. The cost of interest bearing funds increased 34 basis points for the third quarter of 1997 as compared to the same period in 1996. As a result, the net interest margin decreased from 4.73% for the third quarter of 1996 to 4.67% for the current quarter. For the nine months ended September 30, 1997 the yield on interest earning assets increased 13 basis points from 8.96% in 1996 to 9.09% in 1997. The cost of interest bearing funds increased 18 basis points from 4.86% in 1996 to 5.04% in 1997. As a result, the net interest margin for the nine months ended September 30, 1997 increased 4 basis points to 4.75% from the same period in 1996. 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 7.9% from $1.27 billion for the third quarter of 1996 to $1.37 billion for the third quarter of 1997, after giving effect to a reduction in the loan portfolio resulting from the securitization of approximately $81 million of indirect retail installment loans in June 1997. Loans accounted for 87% of total interest income for the third quarter of 1997 compared to 84% for the third quarter of 1996. The following table summarizes the annualized net interest spread and net interest margin for the three and nine months ended September 30, 1997 and 1996. Three Months Ended Nine months ended September 30 September 30 1997 1996 1997 1996 Yield on interest earning assets 9.12% 8.94% 9.09% 8.96% Cost of interest bearing funds 5.16% 4.82% 5.04% 4.86% Net interest spread 3.96% 4.12% 4.05% 4.10% Net interest margin 4.67% 4.73% 4.75% 4.71% Provision for Loan Losses The analysis of the changes in the allowance for loan losses and selected ratios is set forth below. Nine Months Ended September 30 (in thousands) 1997 1996 Allowance balance January 1 $18,825 $16,082 Allowance of sold affiliate (578) 0 Additions to allowance charged against operations 7,518 5,177 Recoveries credited to allowance 2,540 1,784 Losses charged against allowance (7,946) (4,279) Allowance balance at September 30 $20,359 $18,764 Allowance for loan losses to period-end loans 1.48% 1.48% Average loans, net of unearned income $1,331,744 $1,190,893 Provision for loan losses to average loans, annualized .56% .43% Loan charge-offs, net of recoveries to average loans, annualized .41% .21% 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 to a lesser degree, 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 20 basis points to 0.41% for the nine months ended September 30, 1997 as compared to the same period in 1996. The Company's non-performing loans (90 days or more past due and non- accrual) were 1.22% and 1.44% of outstanding loans at December 31, 1996 and September 30, 1997, 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 91% from $3.70 million for the three months ended September 30, 1996 to $7.05 million for the three months ended September 30, 1997. This increase included a $3.0 million operating gain from the sale of the Company's West Liberty affiliate, which was sold on July 1. Otherwise, deposit-related fees represent the largest category of increase, while gains on the sale of loans declined from the same period in 1996. Noninterest Expense The Company's noninterest expense increased by 9% from $13.7 million for the three months ended September 30, 1996 to $14.9 million for the same period in 1997. Most major categories of noninterest expense experienced increases for the quarter ended September 30, 1997 compared to the same quarter in 1996. The categories showing larger increases were salaries and employee benefits, occupancy and equipment, and data processing. The increases are attributed to: (1) the cost of expansion as the Company has opened additional branches over the past several months and (2) the temporary costs associated with consolidating the processing functions of the seven commercial banks that merged into the Bank on January 1, 1997. Balance Sheet Review Total asset size was $1.82 billion at December 31, 1996 compared to $1.82 billion at September 30, 1997. The Company's total assets were impacted by the sale of Commercial Bank, West Liberty in July 1997, which had assets of $76 million. During the last nine months, loans increased from $1.31 billion to $1.37 billion, excluding the $81 million loan securitization. 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. The Company's largest liability, deposits, declined from $1.48 billion as of December 31, 1996 to $1.43 billion as of September 30, 1997. The decline in deposits was marginal in both interest bearing and noninterest bearing as noninterest bearing deposits declined from $200.2 million at December 31, 1996 to $180.9 million at September 30, 1997. The Company increased its long-term debt during the period from $19.1 million as of December 31, 1996 to $53.5 million as of September 30, 1997, due to the issuance of $34.5 million in Trust Preferred Securities in April 1997. The Company's advances from the Federal Home Loan Bank increased from $111.0 million at December 31, 1996 to $122.6 million at September 30, 1997 as the Company used this liquidity as a source of funding for loan growth. Loans Loans increased from $1.32 billion as of June 30, 1997 to $1.35 billion as of September 30, 1997, primarily due to the growth of the Company's consumer loan portfolio. The category of commercial loans secured by real estate increased from $271.5 million as of June 30, 1997 to $291.3 million as of September 30, 1997. Non-accrual and 90 days past due loans amounted to 1.22% of total loans outstanding as of December 31, 1996 and 1.44% of total loans outstanding as of September 30, 1997. Non-accrual loans as a percentage of total loans outstanding were 0.78% as of December 31, 1996 and at 0.87% at September 30, 1997. During the same period, loans 90 days or more past due increased 13 basis points from 0.44% of total loans outstanding to 0.57%. The allowance for loan losses increased from 1.44% of total loans outstanding as of December 31, 1996 to 1.48% as of September 30, 1997. The allowance for loan losses as a percentage of non-accrual loans and loans past due 90 days or more was 118% at December 31, 1996 and 103% at September 30, 1997. The following table summarizes the Company's loans that are non- accrual or past due 90 days or more as of September 30, 1997 and December 31, 1996. 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) September 30, 1997 Commercial loans, secured by real estate $ 3,167 1.09% $ 2,877 0.99% Commercial loans, other 6,154 2.36 531 0.20 Consumer loans, secured by real estate 2,136 0.43 2,778 0.56 Consumer loans, other 425 0.13 1,695 0.52 Total $11,882 0.87% $ 7,881 0.57% December 31, 1996 Commercial loans, secured by real estate $ 4,802 1.78% $ 1,075 0.40% Commercial loans, other 3,217 1.27 1,424 0.60 Consumer loans, secured by real estate 1,705 0.35 2,416 0.49 Consumer loans, other 432 0.14 885 0.28 Total $10,156 0.78% $ 5,800 0.44% 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 $230.0 million as of December 31, 1996 to $170.6 million as of September 30, 1997. Securities held-to- maturity declined from $137.8 million to $120.6 million during the same period. Total securities as a percentage of total assets were 20.3% as of December 31, 1996 and 16.0% as of September 30, 1997. 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 decreased from $1.48 billion to $1.43 billion from December 31, 1996 to September 30, 1997. Noninterest bearing deposits decreased by $19.3 million while interest bearing deposits decreased by $32.0 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. The Company owns $170.6 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 $111.0 million as of December 31, 1996 to $122.6 million as of September 30, 1997. 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 agreed 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 September 30, 1997. The impact on operations of interest rate swaps and options was not material during the first nine months of 1996 or 1997. 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' 1997 profits, approximately $4.5 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 $0.54 per share for the first nine months of 1997 and $0.48 per share for the first nine months of 1996. Earnings per share for the same periods were $1.63 and $1.38, respectively. The Company retained 75% of earnings for the first nine months of 1997. 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 7.94%, 10.21% and 11.46%, respectively as of September 30, 1997. As of September 30, 1997, 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. 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 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: November 14, 1997 Richard M. Levy Richard M. Levy Executive Vice President Principal Financial Officer EX-27 2
9 sep 97 9-MOS DEC-31-1997 SEP-30-1997 52415 220 28690 0 170593 120585 120358 1371256 20359 1822911 1429598 40279 19623 176109 0 0 50303 106999 1822911 96672 14957 904 112533 46000 54629 57904 7518 47 44524 23186 20101 3085 0 16514 1.63 1.63 6.73 11882 7881 698 0 18825 7946 2540 20359 20359 0 0
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