-----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, Ny7EZVnNg0mOlZVV85RMenO2/eFaJ2cd6SN0iL4JeLltK1gfgWw6LymUwBuY0OLQ rEGiYqUI2cIwN0yYPC9PhQ== 0000912057-97-009075.txt : 19970318 0000912057-97-009075.hdr.sgml : 19970318 ACCESSION NUMBER: 0000912057-97-009075 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970317 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11129 FILM NUMBER: 97557872 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-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE --- ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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, including area code: (606) 432-1414 Securities registered pursuant to Section 12 (b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, $5.00 PAR VALUE (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] The aggregate market value of voting stock held by non-affiliates of the registrant as of February 28, 1997 was $250,343,000. The number of shares outstanding of the Registrant's Common Stock as of February 28, 1997 was 9,144,950. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the Form 10-K part indicated Document Form 10-K -------- --------- (1) Proxy statement for the annual meeting Part III of shareholders to be held April 22, 1997 PART I ITEM 1. BUSINESS Community Trust Bancorp, Inc. (the "Corporation") is a bank holding company registered with the Board of Governors of the Federal Reserve System pursuant to section 5 (a) of the Bank Holding Company Act of 1956, as amended. The Corporation was incorporated August 12, 1980, under the laws of the Commonwealth of Kentucky for the purpose of becoming a bank holding company. On July 1, 1981, pursuant to a Merger Agreement dated May 30, 1981, the merger of Pikeville National Bank and Trust Company ("PNB") as a subsidiary of the Corporation was consummated, whereby PNB became a wholly-owned subsidiary of the Corporation through an exchange of one share of common stock of PNB for two shares of common stock of the Corporation. Prior to the date the merger became effective, the Corporation conducted no active business operations. Since the merger, the business of the Corporation has been to act as a holding company for affiliate financial institutions. The Corporation currently owns all the capital stock of two commercial banks, one thrift and one trust company, serving small and mid-sized communities in eastern, central and south central Kentucky. The commercial banks are Community Trust Bank, NA, Pikeville and Commercial Bank, West Liberty. The Corporation's thrift is Community Trust Bank, FSB, Campbellsville. The trust company, Trust Company of Kentucky, Ashland, purchased the trust operations of its subsidiary banks and has additional offices in Pikeville, Lexington and Louisville, Kentucky. The trust subsidiary commenced business operations on January 1, 1994. At December 31, 1996, the Corporation had total consolidated assets of $1.8 billion and total consolidated deposits of $1.5 billion, making it one of the larger bank holding companies headquartered in the Commonwealth of Kentucky. Effective January 1, 1997, the Corporation 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 $1.5 billion in assets and forty-two offices in twelve Kentucky counties. The Corporation's thrift and trust subsidiaries, Community Trust Bank, FSB and Trust Company of Kentucky, remain subsidiaries of the Corporation and will continue to operate as independent entities. The Corporation excluded its subsidiary Commercial Bank, West Liberty, Kentucky ("West Liberty") from the merger of its commercial bank subsidiaries into the Bank. The Corporation has entered into a definitive agreement, subject to regulatory approval, to sell West Liberty to Commercial Bancshares, Inc., of West Liberty, Kentucky for cash of $10.2 million. West Liberty has $73 million in assets, constituting 4% of the Corporation's total consolidated assets. Consistent with the Corporation's strategic plan, the funds generated by the sale of West Liberty will provide the Corporation with the opportunity to expand in existing or enter into new markets through either internal expansion or acquisitions. On February 2, 1995, the Corporation acquired all outstanding shares of Community Bank of Lexington, Inc., Lexington, Kentucky ("Community Bank") with assets of $61 million. The Corporation issued 366,000 shares of common stock with a market price of $24 per share in the acquisition. The transaction was accounted for as a purchase with $6.3 million of goodwill recognized. The offices of Community Bank became branches of the Bank on March 31, 1995. On May 31, 1995, the Corporation acquired Woodford Bancorp, Inc., Versailles, Kentucky ("Woodford") with assets of $103 million for 967,000 shares of its common stock. Woodford was the parent company of The Woodford Bank and Trust Company until its dissolution at the date of acquisition. The transaction was accounted for as a pooling-of-interests, and all prior period financial information was restated to give effect to the transaction. On June 30, 1995, the Corporation acquired Commercial Bank, Middlesboro, Kentucky ("Middlesboro") with assets of $99 million for $14.4 million in cash. The transaction was accounted for as a purchase, and goodwill of $4.3 million was recognized. Funds of $13.5 million were borrowed in connection with the acquisition. On November 3, 1995, the Corporation acquired United Whitley Corporation, Williamsburg, Kentucky ("Williamsburg"), and its subsidiary, Bank of Williamsburg, with assets of $37 million for 172,000 shares of its common stock. The transaction was accounted for as a pooling but without restatement of prior period financial statements due to lack of materiality. Bank of Williamsburg was merged into Farmers National Bank (now merged into the Bank) and United Whitley Corporation was dissolved on the date of acquisition. Through the merger transaction, the Corporation was able to move the bank charter of the merged institution to adjacent Laurel County and now has a branch in London, Kentucky. Through its subsidiaries, the Corporation engages in a wide range of commercial and personal banking activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes and providing funds transfer services. The lending activities of the Corporation's subsidiaries include making commercial, construction, mortgage, 2 personal and credit card loans. Also available are lease financing, lines of credit, revolving credits, term loans and other specialized loans including asset-based financing. Various corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as registrars, transfer agents and paying agents for bond and stock issues and as depositories for securities. COMPETITION The Corporation's subsidiaries face substantial competition for deposit, credit and trust relationships, as well as other sources of funding in the communities they serve. Competing providers include other national and state banks, thrifts and trust companies, insurance companies, mortgage banking operations, credit unions, finance companies, money market funds and other financial and non-financial companies which may offer products functionally equivalent to those offered by the Corporation's subsidiaries. Many of these providers offer services within and outside the market areas served by the Corporation's subsidiaries. The Corporation's subsidiaries strive to offer competitively priced products along with quality customer service to build banking relationships in the communities they serve. Since July 1989, banking legislation in Kentucky places no limits on the number of banks or bank holding companies which a bank holding company may acquire. Interstate acquisitions are allowed where reciprocity exists between the laws of Kentucky and the home state of the acquiring bank holding company. Bank holding companies continue to be limited to control of less than 15% of deposits held by banks in the state (exclusive of inter-bank and foreign deposits). No material portion of the business of the Corporation is seasonal. The business of the Corporation is not dependent upon any one customer or a few customers, and the loss of any one or a few customers would not have a materially adverse effect on the Corporation. No operations in foreign countries are engaged in by the Corporation. EMPLOYEES As of December 31, 1996, the Corporation and its subsidiaries had 792 full-time equivalent employees. Employees are provided with a variety of employee benefits. A retirement plan, employee stock ownership plan, group life, hospitalization, major medical insurance and an annual management incentive compensation plan are available to eligible personnel. SUPERVISION AND REGULATION The Corporation, as a registered bank holding company, is restricted to those activities permissible under the Bank Holding Company Act of 1956, as amended, and is subject to actions of the Board of Governors of the Federal Reserve System thereunder. It is required to file an annual report with the Federal Reserve Board and is subject to an annual examination by the Board. The Bank is a national bank subsidiary subject to federal banking law and to regulation and periodic examinations by the Comptroller of the Currency under the National Bank Act and to the restrictions, including dividend restrictions, thereunder. The Bank is also a member of the Federal Reserve System and is subject to certain restrictions imposed by and to examination and supervision under, the Federal Reserve Act. The Corporation's state bank, West Liberty is subject to similar regulations and supervision by the Kentucky Department of Financial Institutions ("KDFI"). The Corporation's thrift subsidiary, Community Trust Bank, FSB, is regulated and examined by the Office of Thrift Supervision. The trust company subsidiary, Trust Company of Kentucky, is regulated by the Federal Reserve Board and the Office of the Comptroller of the Currency. Deposits of the Corporation's subsidiary banks are insured by the Federal Deposit Insurance Corporation Bank Insurance Fund, which subjects the banks to regulation and examination under the provisions of the Federal Deposit Insurance Act. Insofar as the Corporation's thrift subsidiary is concerned, its deposits are insured by the Federal Deposit Insurance Corporation Savings Association Insurance Fund. The operations of the Corporation and its subsidiaries also are affected by other banking legislation and policies and practices of various regulatory authorities. Such legislation and policies include statutory maximum rates on some loans, reserve requirements, domestic monetary and fiscal policy and limitations on the kinds of services which may be offered. 3 CAUTIONARY STATEMENT Information provided herein by the Corporation contains, and from time to time the Corporation may disseminate materials and make statements which may contain "forward-looking" information, as that term is defined by the Private Securities Litigation Reform Act of 1995 (the "Act"). These cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. The Corporation cautions investors that any forward-looking statements made by the Corporation are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to, the following: (1) the increase or decrease of interest rates as a whole (2) the condition of the national and local economies of the communities served, including unemployment rates (3) the ability of the company to improve operating efficiency through consolidation of service and economies of scale and (4) any regulatory or law changes which may affect the operating environment of the Corporation or any of its affiliates. 4 SELECTED STATISTICAL INFORMATION The following tables set forth certain statistical information relating to the Corporation and its subsidiaries on a consolidated basis and should be read together with the consolidated financial statements of the Corporation.
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND YIELDS/RATES - ------------------------------------------------------------------------------------------ 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Average Average Average Average Average Average (in thousands) Balances Interest Rate Balances Interest Rate Balances Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- EARNING ASSETS Loans, net of unearned (1) (2) (3) $1,215,243 $119,370 9.82% $1,021,637 $101,511 9.94% $ 872,045 $ 78,911 9.05% Securities U. S. Treasuries and agencies 277,641 17,641 6.35 301,263 19,123 6.35 316,552 18,794 5.94 State & political subdivisions (3) 57,652 4,568 7.92 55,263 4,668 8.45 52,344 4,692 8.96 Other securities 72,610 4,655 6.41 78,510 5,011 6.38 73,951 4,370 5.91 Federal funds sold 8,490 483 5.69 50,398 3,057 6.07 47,488 1,996 4.20 Interest bearing deposits 896 56 6.25 1,469 112 7.62 3,370 207 6.14 - ----------------------------------------------------------------------------------------------------------------------------------- Total earning assets $1,632,532 $146,773 8.99% $1,508,540 $133,482 8.86% $1,365,750 $108,970 7.98% Less: Allowance for loan losses (17,637) (15,336) (13,444) - ----------------------------------------------------------------------------------------------------------------------------------- 1,614,895 1,493,204 1,352,306 NON-EARNING ASSETS Cash and due from banks 54,120 50,846 45,173 Premises and equipment, net 46,460 43,725 38,403 Other assets 46,534 43,148 34,748 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $1,762,009 $1,630,923 $1,470,630 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST BEARING LIABILITIES Deposits Savings and demand deposits $ 422,158 $ 12,722 3.01% $ 386,956 $ 12,166 3.14% $ 392,784 $ 11,446 2.91% Time deposits 861,566 47,854 5.55 804,884 44,507 5.53 671,863 28,443 4.23 Federal funds purchased and securities sold under repurchase agreements 25,363 1,258 4.96 25,934 1,435 5.53 30,208 1,234 4.09 Other short-term borrowings 17 1 5.88 1,443 78 5.41 2,935 90 3.07 Advances from Federal Home Loan Bank 90,666 5,356 5.91 71,917 4,506 6.27 68,022 4,132 6.07 Long-term debt 22,795 1,901 8.34 27,328 2,300 8.42 26,739 2,025 7.57 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities $1,422,565 $ 69,092 4.86% $1,318,462 $ 64,992 4.93% $1,192,551 $ 47,370 3.97% - ----------------------------------------------------------------------------------------------------------------------------------- NONINTEREST BEARING LIABILITIES Demand deposits 184,071 168,108 151,897 Other liabilities 16,448 13,573 10,017 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,623,084 1,500,143 1,354,465 Shareholders' equity 138,925 130,780 116,165 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,762,009 $1,630,923 $1,470,630 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 77,681 $ 68,490 $ 61,600 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net interest spread 4.13% 3.93% 4.01% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Benefit of interest free funding 0.63% 0.61% 0.50% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net interest margin 4.76% 4.54% 4.51% - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
(1) Interest includes fees on loans of $4,289, $3,203 and $2,300 in 1996, 1995 and 1994, respectively. (2) Loan balances include principal balances on nonaccrual loans. (3) Tax exempt income on securities and loans is reported on a fully taxable equivalent basis using a 35% rate. 5 NET INTEREST DIFFERENTIAL The following table illustrates the approximate effect on net interest differentials of volume and rate changes between 1996 and 1995 and also between 1995 and 1994.
Total Change Change Due to Total Change Change Due to ------------ ------------- ------------ ------------- (in thousands) 1996/1995 Volume Rate 1995/1994 Volume Rate - ---------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $17,859 $19,030 $(1,171) $ 22,600 $14,380 $ 8,220 U. S. Treasury and federal agencies (1,482) (1,482) 0 329 (931) 1,260 Tax exempt state and political subdivisions (100) 197 (297) (24) 255 (279) Other securities (356) (379) 23 641 278 363 Federal funds sold (2,574) (2,395) (179) 1,061 130 931 Interest bearing deposits (56) (39) (17) (95) (137) 42 - --------------------------------------------------------------------------------------------------------------------------- Total interest income 13,291 14,932 (1,641) 24,512 13,975 10,537 INTEREST EXPENSE Savings and demand deposits 556 1,075 (519) 720 (171) 891 Time deposits 3,347 3,146 201 16,064 6,309 9,755 Federal funds purchased and securities sold under repurchase agreements (177) (31) (146) 201 (192) 393 Other short-term borrowings (77) (119) 42 (12) (60) 48 Advances from Federal Home Loan Bank 850 1,120 (270) 374 241 133 Long-term debt (399) (378) (21) 275 46 229 - --------------------------------------------------------------------------------------------------------------------------- Total interest expense 4,100 4,813 (713) 17,622 6,173 11,449 - --------------------------------------------------------------------------------------------------------------------------- Net interest income $ 9,191 $10,119 $ (928) $ 6,890 $7,802 $ (912) - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
For purposes of the above table, changes which are not solely due to rate or volume are allocated based on a percentage basis, using the absolute values of rate and volume variance as a basis for percentages. Income is stated at a fully taxable equivalent basis, assuming a 35% tax rate. INVESTMENT PORTFOLIO The maturity distribution and weighted average interest rates of securities at December 31, 1996 is as follows:
Estimated Maturity at December 31, 1996 Total Amortized Within 1 year 1-5 years 5-10 years After 10 years Fair Value Cost (in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount - ---------------------------------------------------------------------------------------------------------------------------------- Available-for-sale U. S. Treasury $ 16,205 6.23% $ 21,186 6.39% $ 0 0.00% $ 0 0.00% $ 37,391 6.28% $ 37,139 U. S. government agencies and corporations 10,874 6.99 105,501 7.06 10,228 6.60 7,314 10.41 133,917 7.20 134,217 State and municipal obligations 0 0.00 15 7.57 0 0.00 0 0.00 15 7.57 15 Other securities 27,656 5.97 5,561 6.62 11,968 6.44 13,444 6.73 58,629 6.30 59,562 - ---------------------------------------------------------------------------------------------------------------------------------- Total $ 54,735 6.25% $132,263 6.93% $ 22,196 6.51% $ 20,758 8.03% $229,952 6.82% $230,933 - ---------------------------------------------------------------------------------------------------------------------------------- Total Fair Within 1 year 1-5 years 5-10 years After 10 years Amortized Cost Value (in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount - ---------------------------------------------------------------------------------------------------------------------------------- Held-to-maturity U. S. government agencies and corporations $ 3,414 4.67% $ 57,160 5.82% $ 11,498 4.53% $ 0 0.00% $ 72,072 5.56% $ 69,495 State and municipal obligations 1,241 9.00 20,211 7.28 21,058 7.08 11,581 8.93 54,091 7.59 54,563 Other securities 0 0.00 11,570 5.86 0 0.00 0 0.00 11,570 5.86 11,325 - ---------------------------------------------------------------------------------------------------------------------------------- Total $ 4,655 5.82% $ 88,941 6.16% $ 32,556 6.18% $ 11,581 8.93% $137,733 6.38% 135,383 - ---------------------------------------------------------------------------------------------------------------------------------- Total Securities $ 59,390 6.22% $221,204 6.62% $ 54,752 6.32% $ 32,339 8.35% $367,685 6.66% - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
The calculations of the weighted average interest rates for each maturity category are based on yield weighted by the respective costs of the securities. The weighted average rates on state and political subdivisions are computed on a taxable equivalent basis using a 35% tax rate. For purposes of the above presentation, maturities of mortgage-backed pass through certificates and collateralized mortgage obligations are based on estimated maturities. 6 Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies of the U.S. Government, there were no securities of any one issuer which exceeded 10% of the shareholder's equity of the Corporation at December 31, 1996. SECURITIES The book value of securities available-for-sale and securities held-to-maturity as of December 31, 1996 and 1995 are presented in footnote 4. The book value of securities at December 31, 1994 is presented below: (in thousands) Available-for-sale Held-to-maturity - -------------------------------------------------------------------------------- U. S. Treasury and government agencies $ 34,431 $ 87,808 State and political subdivisions - 55,509 U. S. agency mortgage-backed pass through certificates 14,267 176,920 Collateralized mortgage obligations 2,696 35,750 Other debt securities 5,100 7,559 - -------------------------------------------------------------------------------- Total debt securities 56,494 363,546 Equity securities 30,921 - - -------------------------------------------------------------------------------- $ 87,415 $ 363,546 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOAN PORTFOLIO
December 31 - ------------------------------------------------------------------------------------------------------ (in thousands) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------ Commercial: Secured by real estate $ 270,315 $ 258,541 $ 235,611 $ 210,514 $ 221,646 Other 234,793 192,127 183,533 196,296 175,850 - ------------------------------------------------------------------------------------------------------ Total commercial 505,108 450,668 419,144 406,810 397,496 - ------------------------------------------------------------------------------------------------------ Real estate construction 79,069 51,539 45,308 34,241 26,058 Real estate mortgage 411,067 398,288 290,998 274,017 291,318 Consumer 310,582 208,662 143,085 128,995 124,569 Equipment lease financing 3,797 5,911 7,919 9,872 14,130 - ------------------------------------------------------------------------------------------------------ Total loans $1,309,623 $1,115,068 $ 906,454 $ 853,935 $ 853,661 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ Percent of total year-end loans Commercial: Secured by real estate 20.64% 23.19% 25.99% 24.65% 25.96% Other 17.93 17.23 20.25 22.99 20.60 - ------------------------------------------------------------------------------------------------------ Total commercial 38.57 40.42 46.24 47.64 46.56 Real estate construction 6.04 4.62 5.00 4.01 3.05 Real estate mortgage 31.39 35.72 32.10 32.09 34.13 Consumer 23.71 18.71 15.79 15.10 14.60 Equipment lease financing 0.29 0.53 0.87 1.16 1.66 - ------------------------------------------------------------------------------------------------------ Total loans 100.00% 100.00% 100.00% 100.00% 100.00% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------
The total loans above are net of unearned income. 7 The following table shows the amounts of loans (excluding residential mortgages of 1-4 family residences, consumer loans and lease financing) which, based on the remaining scheduled repayments of principal are due in the periods indicated. Also, the amounts are classified according to sensitivity to changes in interest rates (fixed, variable).
Maturity at December 31, 1996 - ----------------------------------------------------------------------------------------- After one Within but within After (in thousands) one year five years five years Total - ----------------------------------------------------------------------------------------- Commercial, financial and agricultural $138,073 $164,337 $202,698 $505,108 Real estate- construction 24,097 28,664 26,308 79,069 - ----------------------------------------------------------------------------------------- $162,170 $193,001 $229,006 $584,177 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Rate sensitivity Predetermined rate $ 38,819 $ 59,547 $ 47,059 $145,425 Adjustable rate 123,351 133,454 181,947 438,752 - ----------------------------------------------------------------------------------------- $162,170 $193,001 $229,006 $584,177 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- NONPERFORMING ASSETS December 31 - ------------------------------------------------------------------------------------------------------ (in thousands) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------ Nonaccrual loans $10,156 $ 9,433 $ 8,829 $11,186 $ 5,417 Restructured loans 630 918 - - 4,022 90 days or past due and still accruing interest 5,800 3,947 3,401 3,637 4,875 - ------------------------------------------------------------------------------------------------------ Total nonperforming loans 16,586 14,298 12,230 14,823 14,314 Foreclosed properties 1,059 1,927 4,320 3,635 7,061 - ------------------------------------------------------------------------------------------------------ Total nonperforming assets $17,645 $16,225 $16,550 $18,458 $21,375 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ Nonperforming assets to total loans plus foreclosed properties 1.35% 1.45% 1.83% 2.18% 2.51% Allowance to nonperforming loans 113.50 112.47 106.12 90.04 95.96
Nonaccrual, past due and restructured loans
As a % of As a % of As a % of loan loan Accruing loans loan Nonaccrual balances Restructured balances past due 90 balances (in thousands) loans by category loans by category days or more by category Balances - --------------------------------------------------------------------------------------------------------------------------------- December 31, 1996 Commercial loans-real estate secured $ 4,817 1.78% $ 409 0.15% $ 1,266 0.47% $ 270,315 Commercial loans- other 3,217 1.35 221 0.09 1,398 0.59 238,590 Consumer loans- real estate secured 1,690 0.34 - - 2,225 0.45 490,136 Consumer loans- other 432 0.14 - - 911 0.29 310,582 - -------------------------------------------------------------------------------------------------------------------------------- Total $10,156 0.78% $ 630 0.05% $ 5,800 0.44% $1,309,623 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- December 31, 1995 Commercial loans- real estate secured $3,264 1.26% $ 918 0.36% $1,428 0.55% $ 258,541 Commercial loans- other 3,048 1.54% - - 237 0.12 198,038 Consumer loans- real estate secured 2,873 0.64% - - 1,335 0.30 449,827 Consumer loans- other 248 0.12% - - 947 0.45 208,662 - -------------------------------------------------------------------------------------------------------------------------------- Total $9,433 0.85% $ 918 0.08% $3,947 0.35% $1,115,068 - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
The allowance for loan losses balance is maintained by management at a level considered adequate to cover anticipated losses that are based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. In 1996, gross interest income that would have been recorded on nonaccrual loans had the loans been current in accordance with their original terms amounted to $1.1 million. Interest income actually recorded and included in net income for the period was $0.3 million, leaving $0.8 million of interest income not recognized during the period. 8 Discussion of the Nonaccrual Policy The accrual of interest income on loans is discontinued when the collection of interest and principal in full is not expected. When interest accruals are discontinued, interest income accrued in the current period is reversed. Any loans past due 90 days or more must be well secured and in the process of collection to continue accruing interest. Potential Problem Loans When management has serious doubts as to the ability of borrowers to comply with repayment terms, the loans are placed on nonaccrual status. Management, therefore, believes that no additional potential problem loans exist which would result in disclosure pursuant to Item III.C.1. Foreign Outstandings None Loan Concentrations The Corporation has no concentration of loans exceeding 10% of total loans which is not otherwise disclosed at December 31, 1996. Other Interest-Bearing Assets The Corporation has no other interest-bearing assets that would be required to be disclosed under Item III.C.1 or 2, if such assets were loans, other than $0.3 million held as other real estate owned, included above in foreclosed properties. 9
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (in thousands) 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- Allowance for loan losses, beginning of year $ 16,082 $ 12,978 $ 13,346 $ 13,736 $ 11,530 Loans charged off: Commercial, secured by real estate 378 1,278 1,442 1,538 1,831 Commercial, other 1,136 1,646 3,902 2,140 2,210 Real Estate Mortgage 880 514 407 598 1,005 Consumer loans 4,594 2,594 1,786 1,606 1,377 - --------------------------------------------------------------------------------------------------------------------- Total charge-offs 6,988 6,032 7,537 5,882 6,423 Recoveries of loans previously charged off: Commercial, secured by real estate 174 159 12 147 152 Commercial, other 609 331 395 333 503 Real Estate Mortgage 312 44 66 58 135 Consumer loans 1,351 740 630 512 528 - --------------------------------------------------------------------------------------------------------------------- Total recoveries 2,446 1,274 1,103 1,050 1,318 Net charge-offs: Commercial, secured by real estate 204 1,119 1,430 1,391 1,679 Commercial, other 527 1,315 3,507 1,807 1,707 Real Estate Mortgage 568 470 341 540 870 Consumer loans 3,243 1,854 1,156 1,094 849 - --------------------------------------------------------------------------------------------------------------------- Total net charge-offs 4,542 4,758 6,434 4,832 5,105 Allowance of acquired banks 0 2,004 0 0 0 Provisions charged against operations 7,285 5,858 6,066 4,442 7,311 - --------------------------------------------------------------------------------------------------------------------- Balance, end of year $ 18,825 $ 16,082 $ 12,978 $ 13,346 $ 13,736 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Allocation of allowance, end of year Commercial, secured by real estate $ 3,305 $ 3,095 $ 3,649 $ 2,650 $ 2,812 Commercial, other 2,870 2,300 2,349 1,921 2,130 Real Estate Construction 152 135 93 57 186 Real Estate Mortgage 790 1,044 905 1,659 1,945 Consumer 2,248 1,574 1,291 1,271 1,475 Equipment lease financing 46 71 108 91 147 Unallocated 9,414 7,863 4,583 5,697 5,041 - --------------------------------------------------------------------------------------------------------------------- Balance, end of year $ 18,825 $ 16,082 $ 12,978 $ 13,346 $ 13,736 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Average loans outstanding, net of unearned interest $ 1,215,243 $ 1,021,637 $ 872,045 $ 849,202 $ 857,532 Loans outstanding at end of year, net of unearned interest $ 1,309,623 $ 1,115,068 $ 906,454 $ 853,935 $ 853,661 Net charge-offs to average loan type Commercial, secured by real estate 0.08% 0.39% 0.60% 0.59% 0.95% Commercial, other 0.24% 0.66% 0.94% 0.96% 0.80% Real Estate Mortgage 0.12% 0.13% 0.13% 0.18% 0.41% Consumer loans 1.27% 1.02% 0.78% 0.62% 0.57% Total 0.37% 0.47% 0.74% 0.57% 0.60% Other ratios Allowance to net loans, end of year 1.44% 1.44% 1.43% 1.56% 1.61% Provision for loan losses to average loans 0.60% 0.57% 0.70% 0.82% 0.84%
Management uses an internal analysis to determine the adequacy of the loan loss reserve and charges to the provision for loan losses. This analysis is based on net charge-off experience for prior years, current delinquency levels and risk factors based on the local economy and relative experience of the lending staff. This analysis is completed quarterly and forms the basis for allocation of the loan loss reserve and what charges to provision may be required. 10 AVERAGE DEPOSITS AND OTHER BORROWED FUNDS (in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------- DEPOSITS: Non-interest bearing deposits $ 184,071 $ 168,108 $ 151,897 NOW accounts 170,410 151,781 132,270 Money market deposits 94,653 82,733 76,053 Savings 157,094 152,442 184,461 Certificates of deposit > $100,000 265,005 242,081 174,532 Certificates of deposit < $100,000 and other time deposits 596,560 562,803 497,331 - ------------------------------------------------------------------------------- Total Deposits 1,467,793 1,359,948 1,216,544 OTHER BORROWED FUNDS: Federal funds purchased and securities sold under repurchase agreements 25,363 25,934 30,208 Other short-term borrowings 17 1,443 2,935 Advances from Federal Home Loan Bank 90,666 71,917 68,022 Long-term debt 22,795 27,328 26,739 - ------------------------------------------------------------------------------- Total Other Borrowed Funds 138,841 126,622 127,904 - ------------------------------------------------------------------------------- Total Deposits and Other Borrowed Funds $1,606,634 $1,486,570 $1,344,448 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Maturities of time deposits of $100,000 or more outstanding at December 31, 1996 are summarized as follows: Certificates Time (in thousands) of Deposit Deposits Total - ------------------------------------------------------------------------------- 3 months or less $ 70,360 $ 0 $ 70,360 Over 3 through 6 months 65,493 4,796 70,289 Over 6 through 12 months 66,390 0 66,390 Over 12 through 60 months 54,451 0 54,451 Over 60 months 4,906 0 4,906 - ------------------------------------------------------------------------------- $ 261,600 $ 4,796 $ 266,396 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHORT-TERM BORROWINGS The Corporation did not have any category of short-term borrowings for which the average balance outstanding during the reported periods was 30% or more of shareholders' equity at the end of the reported periods. 11 ITEM 2. PROPERTIES The Corporation's and Community Trust Bank, NA's main offices are located at 208 North Mayo Trail, Pikeville, Kentucky, 41501 which is owned by Community Trust Bank, NA ("CTB, NA"). CTB, NA is divided into twelve regions: Pike County, Floyd County, Knott County, Fayette County, Letcher County, Montgomery County, Whitley County, Laurel County, Fleming County, Boyd County, Woodford County, and Bell County. CTB, NA presently has nine branch offices in the Pike County Region, one branch office in the Floyd County Region, and one branch office in the Knott County Region in addition to its main office. All of these branches including the main office are doing business as Pikeville National Bank and Trust Company. CTB, NA owns six of these branch banking offices and leases the remaining five branch offices. The Fayette County Region has four branch offices. Two of these branches are in-store branches which are located in Winn Dixie supermarkets. CTB, NA owns one branch office and leases the other three branch offices. The Letcher County Region currently has five branch offices. CTB, NA owns three of these branch offices and leases two branch offices, one of which is leased under an obligation accounted for as a capital lease. There is also a branch under construction in the Letcher County Region. The Montgomery County Region has three branch offices, one of which is an in-store branch located in a Wal-Mart superstore. CTB, NA owns two of the branch offices and leases the in-store site, the land for its ATM site and the land adjacent to one of its branch offices for parking and a drive up window. The Whitley County Region has two branch offices which are both owned by CTB, NA. The Laurel County Region has one branch office which is leased by CTB, NA. The Fleming County Region has four branch offices. CTB, NA owns all of these branch offices and also owns real property located in this Region which is leased to outside parties. The Boyd County Region has five branch offices. CTB, NA owns three of these branch offices and leases the remaining two. In the Boyd County Region there are also two other properties which are leased, the 16th Street Properties which is sub-leased, and the Old Meade Station Branch property from which CTB, NA also receives tenant income. In addition to these two properties, CTB, NA receives income from office space leased to tenants which is located in one of the branch offices as well as The Arcade which adjoins the same branch office. Of the office space in The Arcade a portion is used for Bank premises. The Woodford County Region has two branch locations. CTB, NA owns one of these branch offices and leases one branch office. The Bell County Region has four branch locations. Of the four branch offices, three are owned and one is leased by CTB, NA. West Liberty owns its only banking premises at 550 Main Street, West Liberty, Kentucky, 41472. West Liberty also owns land which is rented without lease agreements. Community Trust Bank, FSB's main office is located at 1218 East Broadway, Campbellsville, Kentucky, 42718. It has a branch office in each of the following locations: Campbellsville, Columbia, Greensburg, Somerset (2), Lebanon and Jamestown, Kentucky. Community Trust Bank, FSB, owns all of its locations with the exception of the Lending Annex located next to the main office and its supermarket branches located in Somerset and Lebanon. The building which is used by the Community Trust Bank, FSB Somerset Branch contains additional office space which is leased to outside parties. Trust Company of Kentucky's main office is located at 1544 Winchester Avenue, Ashland, Kentucky, 41101, in space leased from CTB, NA. It also has leased offices in CTB, NA's main office, Community Trust Bank, FSB's main office and in Lexington, Kentucky. See notes 7 and 13 to the consolidated financial statements included herein for the year ended December 31, 1996 for additional information relating to commitments and amounts invested in premises and equipment. The Corporation has $300,500 of investments in real property, all in other real estate. 12 ITEM 3. LEGAL PROCEEDINGS The Corporation's banking subsidiaries and certain officers are named defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes these actions are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Corporation's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through solicitation of proxies or otherwise, during the fourth quarter of 1996. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the executive officers of the Corporation, their positions with the Corporation and the year in which they first became an executive officer or director.
POSITIONS AND DATE FIRST OFFICES BECAME DIRECTOR PRESENT CURRENTLY OR EXECUTIVE PRINCIPAL NAME AND AGE (1) HELD OFFICER OCCUPATION - ---------------- ---- ------- ----------- Burlin Coleman; 67 Chairman of 1980 Chairman Board, President of Board CEO & Director President & CEO Brandt Mullins; 69 Vice Chairman 1980 Vice of Board & Director Chairman Jean R. Hale; 50 Executive Vice 1992 (2) President & President, CEO of CTB, NA Secretary & Director Richard M. Levy; 38 Executive Vice 1995 (3) Executive Vice President, CFO President, CFO & Treasurer & Treasurer Ralph Weickel, 39 Executive Vice 1995 (4) Executive Vice President, Sales & Marketing President, Sales & Marketing Ronald M. Holt; 49 Executive Vice 1996 (5) President and CEO President, Trust of Trust Company of Kentucky Mark Gooch; 38 Executive Vice 1997 (6) Executive Vice President , Operations President , Operations John Shropshire, 48 Executive Vice 1997 (7) Executive Vice President & Senior Lender President & Senior Lender
(1) The ages listed for the Corporation's executive officers are as of February 28, 1997. (2) Prior to becoming an executive officer, Ms. Hale served as Vice President of the Corporation and as an executive officer of PNB since 1988. (3) Mr. Levy served as Senior Vice President and Controller of Bank of America Texas, N.A. prior to joining the Corporation. 13 (4) Mr. Weickel served as Vice President of the Corporation prior to becoming an executive officer. Mr. Weickel served as Vice President, Manager of Investments, for Boatmen's National Bank of Des Moines, NA, prior to joining the Corporation in 1993. (5) Mr. Holt served as Executive Vice President and Trust Manager of Bank One Kentucky Corporation prior to joining the Corporation. (6) Mr. Gooch served as President and Chief Executive Officer of First Security Bank & Trust Co., Whitesburg, Kentucky, an affiliate of the Corporation prior to becoming an executive officer. (7) Mr. Shropshire served as President and Chief Executive Officer of Farmers-Deposit Bank, Flemingsburg, Kentucky, an affiliate of the Corporation prior to becoming an executive officer. 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Corporation's common stock is listed on the NASDAQ National Market System under the symbol CTBI. Robinson Humphrey Co., Inc., Atlanta, Georgia; Morgan, Keegan and Company, Memphis, Tennessee; J.J.B. Hilliard, W.L. Lyons, Inc., Louisville, Kentucky; Bear, Stearns & Co., Inc., New York, New York; Herzog, Heine, Geduld, Inc., New York, New York; and J.C. Bradford & Co., Louisville, Kentucky are primary market makers. QUARTERLY FINANCIAL DATA
(in thousands except per share amounts) Three Months Ended December 31 September 30 June 30 March 31 - ---------------------------------------------------------------------------------------------------------- 1996 Net interest income $ 19,945 $ 19,123 $ 18,537 $ 17,750 Net interest income, taxable equivalent basis 20,490 19,703 19,142 18,346 Provision for loan losses 2,108 2,003 1,686 1,488 Noninterest income 3,822 3,696 3,662 3,259 Noninterest expense 14,427 13,700 13,639 13,477 Net income 4,949 4,906 4,737 4,203 Per common share: Net income, primary $ 0.54 $ 0.54 $ 0.52 $ 0.46 Net income, fully diluted 0.54 0.54 0.52 0.46 Dividends declared 0.20 0.18 0.18 0.18 Common stock price: High $ 26.00 $ 23.75 $ 23.75 $ 22.00 Low 20.25 20.75 20.00 18.50 Last trade 24.50 22.25 21.75 22.00 Selected ratios: Return on average assets, annualized 1.10% 1.09% 1.09% 0.98% Return on average common equity, annualized 13.69% 13.92% 13.98% 12.42% Net interest margin, annualized 4.89% 4.73% 4.78% 4.62% 1995 Net interest income $ 17,437 $ 16,894 $ 16,134 $ 15,569 Net interest income, taxable equivalent basis 18,051 17,620 16,721 16,098 Provision for loan losses 1,850 1,615 1,322 1,071 Noninterest income 3,342 2,412 2,696 2,666 Noninterest expense 15,869 13,755 13,070 13,177 Net income 2,266 2,734 2,840 2,973 Per common share: Net income, primary $ 0.25 $ 0.30 $ 0.32 $ 0.34 Net income, fully diluted 0.25 0.30 0.32 0.34 Dividends declared 0.18 0.16 0.16 0.16 Common stock price: High $ 21.50 $ 23.00 $ 23.50 $ 25.25 Low 19.00 19.50 19.50 22.50 Last trade 19.25 20.25 20.75 22.50 Selected ratios: Return on average assets, annualized 0.53% 0.65% 0.72% 0.77% Return on average common equity, annualized 6.96% 8.39% 8.78% 9.56% Net interest margin, annualized 4.57% 4.47% 4.57% 4.52%
There were approximately 3,200 holders of outstanding common shares of the Corporation at February 28, 1997. 15 DIVIDENDS The annual dividend was increased from $0.66 per share to $0.74 per share during 1996. The Corporation has adopted a conservative policy of cash dividends with periodic stock dividends. Dividends are typically paid on a quarterly basis. Future dividends are subject to the discretion of the Corporation's Board of Directors, cash needs, general business conditions, dividends from the subsidiaries and applicable governmental regulations and policies. For information concerning restrictions on dividends from subsidiary banks to the Corporation, see Note 18 to the consolidated financial statements included herein for the year ended December 31, 1996. 16 ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data 1992-1996 - --------------------------------- (in thousands except per share amounts) Year Ended December 31 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------ Interest income $ 144,447 $ 131,026 $ 106,560 $ 104,929 $ 109,946 Interest expense 69,092 64,992 47,370 46,616 53,746 - ------------------------------------------------------------------------------------------------------------------------ Net interest income 75,355 66,034 59,190 58,313 56,200 Provision for loan losses 7,285 5,858 6,066 4,442 7,311 Noninterest income 14,439 11,116 9,653 12,069 11,427 Noninterest expense 55,243 55,871 52,287 45,571 42,140 - ------------------------------------------------------------------------------------------------------------------------ Income before income taxes 27,266 15,421 10,490 20,369 18,176 Income taxes 8,471 4,608 2,278 5,533 5,072 - ------------------------------------------------------------------------------------------------------------------------ Net income $ 18,795 $ 10,813 $ 8,212 $ 14,836 $ 13,104 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Per common share: Earnings per share $ 2.06 $ 1.21 $ 0.95 $ 1.80 $ 1.63 Cash Dividends Declared - 0.74 0.66 0.61 0.55 0.51 As a percentage of net income 35.92% 54.55% 64.21% 30.56% 31.29% Book value, end of year 15.86 14.66 13.57 13.44 12.08 Market price, end of year 24.50 19.25 26.25 29.33 21.00 Market value to book value, end of year 1.54x 1.31x 1.93x 2.18x 1.74x Price/earnings ratio, end of year 11.9x 15.9x 27.6x 16.5x 13.1x Cash dividend yield, end of year 3.27% 3.74% 2.44% 2.05% 2.54% At year end: Total assets $ 1,815,660 $ 1,730,170 $ 1,499,434 $ 1,464,039 $ 1,390,910 Long-term debt 19,136 27,873 24,944 35,277 36,340 Shareholders' equity 144,754 133,795 116,636 107,371 96,406 Averages: Assets $ 1,762,009 $ 1,630,922 $ 1,470,630 $ 1,415,441 $ 1,354,655 Deposits 1,467,794 1,359,947 1,216,544 1,181,347 1,173,305 Earning assets 1,632,532 1,508,539 1,365,750 1,313,064 1,253,475 Loans 1,215,243 1,021,637 872,045 849,202 857,532 Shareholders' equity 138,925 130,780 116,165 102,445 90,594 Profitability ratios: Return on average assets 1.07% 0.66% 0.56% 1.05% 0.97% Return on average common equity 13.53% 8.27% 7.07% 14.48% 14.46% Capital ratios: Equity to assets, end of year 7.97% 7.73% 7.78% 7.33% 6.93% Average equity to average assets 7.88% 8.02% 7.90% 7.24% 6.69% Risk-based capital ratios Leverage ratio 7.05% 6.44% 7.19% 6.36% 5.89% Tier I Capital 9.71% 10.24% 11.08% 10.10% 9.34% Total Capital 10.96% 11.51% 12.33% 12.23% 11.53% Other significant ratios: Allowance to net loans, end of year 1.44% 1.44% 1.43% 1.58% 1.63% Allowance to nonperforming loans, end of year 113.50% 119.99% 106.12% 90.04% 95.96% Nonperforming assets to loans and foreclosed properties, end of year 1.35% 1.37% 1.83% 2.18% 2.51% Net interest margin 4.76% 4.54% 4.51% 4.60% 4.68% Other statistics: Average common shares outstanding 9,138 8,960 8,601 8,246 8,024 Number of full-time equivalent employees, end of year 792 757 655 699 675
17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Community Trust Bancorp, Inc. ("the Corporation") reported record earnings of $18.8 million for 1996, an increase of 74% over the $10.8 million for 1995 and an increase of 129% over the $8.2 million for 1994. Earnings per share for 1996 increased to $2.06 per share, compared to $1.21 for 1995 and $0.95 for 1994. Earnings for 1996 reflected increases in net interest income and noninterest income and decreases in noninterest expense. The Corporation's return on average assets for 1996 increased to 1.07% from 0.56% and 0.66% in 1994 and 1995, respectively, and the return on average equity for 1996 increased to 13.53% as compared to 7.07% and 8.27% for 1994 and 1995, respectively. Total assets as of December 31, 1996 were $1.82 billion, an increase of 5.2% as compared to total assets of $1.73 billion as of December 31, 1995. Total loans as of December 31, 1996 were $1.31 billion compared to $1.12 billion as of December 31, 1995, an increase of 17.0%. Total deposits increased marginally from $1.47 billion at December 31, 1995 to $1.48 billion at December 31, 1996. Effective January 1, 1997, the Corporation 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 $1.5 billion in assets and forty-two offices in twelve Kentucky counties. The Corporation's thrift and trust subsidiaries, Community Trust Bank, FSB and Trust Company of Kentucky, remain subsidiaries of the Corporation and will continue to operate as independent entities. The Corporation excluded its subsidiary Commercial Bank, West Liberty, Kentucky ("West Liberty") from the merger of its commercial bank subsidiaries into the Bank. The Corporation has entered into a definitive agreement, subject to regulatory approval, to sell West Liberty to Commercial Bancshares, Inc., of West Liberty, Kentucky for cash of $10.2 million. West Liberty has $73 million in assets, constituting 4% of the Corporation's total consolidated assets. Consistent with the Corporation's strategic plan, the funds generated by the sale of West Liberty will provide the Corporation with the opportunity to expand in existing or enter into new markets through either internal expansion or acquisitions. After fourteen years of service, including as President and CEO from January 1, 1995 Terry Coleman resigned effective November 1, 1996 to pursue other interests. Burlin Coleman, the CEO from 1979 through 1994 and current chairman, came out of retirement to take over as President and CEO. The Corporation intends to continue the direction undertaken during Terry Coleman's tenure and does not expect his departure to have significant adverse consequences on the Corporation. The Corporation reached a settlement in a dispute with a former software vendor in January 1997. The settlement will increase 1997 earnings by $3.2 million, net of tax and will be reported as an extraordinary item in the 1997 consolidated financial statements. ACQUISITIONS While no acquisitions were completed in 1996, the Corporation acquired all of the outstanding stock of four Kentucky banks during 1995, giving the Corporation additional economies of scale and new markets in which to deliver its existing products. On February 2, 1995, the Corporation acquired Community Bank of Lexington, Inc., Lexington, Kentucky ("Community Bank"), which had assets of $61 million. The Corporation issued 366,000 shares of common stock with a market price of $24 per share to fund the acquisition. The transaction was accounted for as a purchase, with $6.3 million of goodwill recognized. The offices of Community Bank became branches of the Bank on March 31, 1995. While the Corporation had already been active in lending in the Lexington-Fayette County market through its loan production office, this acquisition has given the Corporation offices in which to provide deposit products and other financial services in one of Kentucky's fastest growing markets. On May 31, 1995, the Corporation acquired Woodford Bancorp, Inc., Versailles, Kentucky ("Woodford"), which had assets of $103 million for 967,000 shares of its common stock. The transaction was accounted for as a pooling-of-interests, and all prior period financial information was restated to give effect to the transaction. This acquisition gives the Corporation another presence in the central Kentucky area, which has one of the highest per capita incomes and lowest unemployment rates in Kentucky. On June 30, 1995, the Corporation acquired Commercial Bank, Middlesboro, Kentucky ("Middlesboro"), which had assets of $99 million for $14.4 million in cash. The transaction was accounted for as a purchase, and goodwill of $4.3 million was recognized. The Corporation borrowed $13.5 million to fund the acquisition. Middlesboro is located on the Kentucky-Virginia-Tennessee border and is a growing market with a thriving tourism industry. On November 3, 1995, the Corporation acquired United Whitley Corporation, Williamsburg, Kentucky ("Williamsburg"), and its subsidiary, Bank of Williamsburg, which had assets of $37 million, for 172,000 shares of its common stock. The transaction was 18 accounted for as a pooling, but without restatement of prior period financial information, due to lack of materiality. Bank of Williamsburg was merged into Farmers National Bank, Williamsburg, Kentucky, already owned by the Corporation on the date of acquisition. Through the acquisition, the Corporation increased the deposit base of an existing affiliate substantially while increasing its operating costs only marginally. Through the merger transaction, the Corporation was able to move the bank charter of the merged institution to adjacent Laurel County and now has a branch in London, Kentucky, which is among the fastest growing areas in Kentucky. RESULTS OF OPERATIONS 1996 Compared to 1995 Net income for 1996 was $18.8 million compared to $10.8 million for 1995. Earnings per share for 1996 was $2.06 per share compared to $1.21 per share for 1995. All information has been restated due to the acquisition of Woodford Bancorp, Inc., on May 31, 1995, which was accounted for as a pooling-of-interests. Net interest income for 1996 increased 14.2% as compared to 1995, rising from $66.0 million in 1995 to $75.4 million in 1996. Noninterest income increased 29.7% from $11.1 million in 1995 to $14.4 million in 1996 while noninterest expense decreased 1.3% from $55.9 million in 1995 to $55.2 million in 1996. Return on average assets increased from 0.66% in 1995 to 1.07% in 1996 and return on average equity increased from 8.27% in 1994 to 13.53% in 1996. Net interest income Net interest income increased 14.2% from 1995 to 1996 and was a major contributing factor to the Corporation's increase in net income. Net interest income increased from $66.0 million in 1995 to $75.4 million in 1996. The increase was primarily due to the increase in average earning assets and the increase in loans as a percentage of total assets which allowed the Corporation to increase its yield on average earning assets while its cost of interest bearing funds declined slightly. The Corporation's average earning assets increased from $1.51 billion in 1995 to $1.63 billion in 1996. Average interest bearing liabilities also increased during the period, from $1.32 billion in 1995 to $1.42 billion in 1996. Average interest bearing liabilities as a percentage of average earning assets remained fairly stable, going from 87.4% in 1995 to 87.1% in 1996. The taxable equivalent yield on average interest earning assets increased from 8.86% in 1995 to 8.99% in 1996. The cost of average interest bearing liabilities declined from 4.93% to 4.86% during the same period. As a result of the thirteen basis point increase in yield on average earning assets and the seven basis point reduction in cost of interest bearing funds, the net interest margin increased from 4.54% in 1995 to 4.76% in 1996. The Corporation was able to increase its yield on average earning assets through investing more of its assets in loans, its highest yielding asset. Loans accounted for 71.1% of total assets as of December 31, 1996 compared to 63.5% as of December 31, 1995. Most of the loan growth came from consumer loans generated from the indirect consumer lending program, which began late in 1995. As of the end of 1996, the Corporation's indirect consumer loan portfolio exceeded $100 million. The Corporation was also able to reduce the cost of interest bearing liabilities during the year. This was achieved by implementation of strict adherence to deposit pricing standards, which enabled the Corporation to reduce the cost of savings and NOW accounts by thirteen basis points while the cost of time deposits increased by only two basis points. By more closely managing its borrowings, the company was also able to reduce its borrowing cost on Federal Home Loan Bank advances by thirty-six basis points. Provision for loan losses The provision for loan losses increased from $5.9 million in 1995 to $7.3 million in 1996. Average loans were significantly higher in 1996 increasing 19.6% from $1.02 billion in 1995 to $1.22 billion in 1996. Charge-offs, net of recoveries, as a percentage of average loans outstanding declined from 0.47% in 1995 to 0.37% in 1996 as outstanding loans increased, but net charge-offs increased by a proportionately less amount. The allowance for loan losses increased significantly, rising from $16.1 million at December 31, 1995 to $18.8 million at December 31, 1996. The increase in the reserve is due to provision in excess of loan charge-offs to increase the reserve proportionally to the increase in loans outstanding. 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. 19 Noninterest income Noninterest income increased 29.7% from $11.1 million in 1995 to $14.4 million in 1996. Service charges on deposit accounts was the largest component of noninterest income and increased from $5.2 million in 1995 to $6.3 million in 1996 as the Corporation introduced new policies which reduced the amount of fees that were waived. Trust income increased from $1.3 million in 1995 to $1.6 million in 1996 as the trust assets managed increased during the year. Gains on sale of residential mortgage loans increased from $462 thousand to $1.7 million as increased loan demand enabled the Company to sell larger volume of loans. Other noninterest income increased from $4.1 million in 1995 to $4.7 million in 1996. The largest component of other noninterest income was insurance commissions, which increased 22.2% from $1.1 million in 1995 to $1.6 million in 1996, mainly due to increases in loans. Loans accounted for 71.1% of total assets at December 31, 1996 compared to 63.5% of total assets at December 31, 1995. Securities gains and losses were not a factor in the increase as the Corporation incurred net securities gains of $88 thousand in 1996 and $12 thousand in 1995. Noninterest expense Noninterest expense decreased from $55.9 million in 1995 to $55.2 million in 1996. Salaries and employee benefits increased from $24.6 million in 1995 to $28.2 million in 1996 as the number of full-time equivalent employees increased due to acquisitions of new banks and opening of new branches. Occupancy expense increased marginally from $3.9 million in 1995 to $4.0 million in 1996, and equipment costs remained level at $3.7 million for both 1995 and 1996. Data processing costs declined from $2.8 million in 1995 to $2.6 million in 1996 and stationery and printing costs decined from $1.9 million in 1995 to $1.7 million in 1996. Taxes other than payroll, property and income, which consists mainly of Kentucky Franchise taxes on the equity of the affiliate banks, increased slightly from $2.0 million in 1995 to $2.1 million in 1996. FDIC Insurance declined from $3.0 million to $113 thousand as the FDIC reduced premium rates to "well-capitalized" institutions, of which all of the Corporation's affiliates qualify. Other noninterest expense declined from $13.9 million in 1995 to $12.8 million in 1996, consistent with the Corporation's cost containment measures introduced late in 1995. 1995 Compared to 1994 Net income for 1995 was $10.8 million compared to $8.2 million for 1994. Earnings per share for 1995 was $1.21 per share compared to $0.95 for 1994. Net interest income rose from $59.2 million in 1994 to $66.0 million in 1995. The increase in net interest income was due to a higher level of average earning assets and rising interest rates during 1995. The yield on interest earning assets and the cost of interest bearing liabilities both increased during 1995 as compared to 1994. The taxable equivalent yield on average interest earning assets increased from 7.98% in 1994 to 8.86% in 1995. The cost of average interest bearing liabilities increased from 3.97% to 4.93% during the same period. As a result of this the net interest margin increased from 4.51% in 1994 to 4.54% in 1995. Noninterest income increased 15.2% from $9.7 million in 1994 to $11.1 million in 1995. Service charges on deposit accounts, the largest component, increased from $4.7 million in 1994 to $5.2 million in 1995. During the same period, other noninterest income increased from $2.7 million to $4.1 million and trust income decreased from $1.6 million to $1.3 million. Net gains from the sale of residential mortgage loans decreased from $784 thousand in 1994 to $462 thousand in 1995, due to the rising interest rates in effect during 1995. Securities gains and losses were minimal in both periods, as the Corporation incurred net securities losses of $45 thousand in 1994 and net securities gains of $12 thousand in 1995. Noninterest expense increased from $52.3 million in 1994 to $55.9 million in 1994. Except for two unusual items which decreased significantly, all other categories increased as would be expected in a period of acqusitions. The increases in assets, employees and operational facilities from the 1995 acquisitions all contributed to across the board increases in noninterest expenses. Salaries and benefits increased from $23.0 million in 1994 to $24.6 million in 1995, occupancy expense increased from $3.3 million to $3.9 million, data processing increased from $2.1 million to $2.8 million, stationery & printing costs increased from $1.5 million to $1.9 million and other taxes increased from $1.7 million to $2.0 million while other noninterest expense items increased from $11.1 million in 1994 to $13.9 million in 1995. The two items which decreased significantly were losses associated with mortgage-backed derivative securities and restructuring and reengineering costs. Mortgage-backed derivatives had been purchased for certain trust accounts administered by the Corporation's affiliates. While these securities are guaranteed by either the Federal Home Loan Mortgage or the Federal National Mortgage Association, and therefore, pose very little, if any credit risk, they exhibited an excessive volatility which led to a significant decline in their market value in 1994 which represented the difference between the book value carried in the customer accounts and the actual market value. The Corporation purchased the securities from the trust accounts during 1994 and because of the government guarantees, management expects to collect the full face value over time. The securities are carried at market value as available-for-sale and currently no default on payments or additional market value declines have been suffered to date. During the latter part of 1993 and continuing through 1994, the Corporation intensively examined ways to improve its performance through restructuring its operations and reengineering its work flow processes. As a result of this, the Corporation 20 downsized its workforce by approximately 9% of total employment. Severance and other related costs of downsizing in the amount of $0.9 million were recognized in 1994. LIQUIDITY The Corporation's objectives are to ensure that funds are available at the subsidiary banks to meet deposit withdrawals and credit demands without unduly penalizing profitability, and to ensure that funding is available for the parent company to meet the ongoing cash needs while maximizing profitability. The Corporation continues to identify ways to provide for liquidity on both a current and long-term basis. On a long-term basis, the subsidiary banks rely mainly on core deposits, certificates of deposit of $100,000 or more, repayment of principal and interest on loans and securities, as well as federal funds sold and purchased. 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 marginally from $1.47 billion at December 31, 1995 to $1.48 billion at December 31, 1996. In order to compensate for the lack of funding from deposit growth, the Corporation increased its borrowings of federal funds purchased and other short-term borrowings from $20.4 million as of December 31, 1995 to $44.6 million at December 31, 1996 and also increased its Federal Home Loan Bank borrowings during the same period. The Bank is also preparing for a securitization of its automobile retail loan portfolio during the second quarter of 1997 to provide additional funding and liquidity. The lack of deposit funding has not affected the Corporation's ability to fund loans or service its debt obligations. Due to the nature of the markets served by the Corporation's lending institutions, management believes that the majority of its certificates of deposit 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 two correspondent banks for the purchase of federal funds on an unsecured basis, up to an aggregate of $98 million, if necessary, to meet the Corporation's liquidity needs. The Corporation owns $230 million of securities designated as available-for-sale and valued at market which are 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. Often the Corporation matches the maturity of these advances with pools of residential mortgage loans which are not sold in the secondary market, some of which have maturities of ten to fifteen years. Federal Home Loan Bank advances increased from $63.6 million at December 31, 1995 to $111.0 million at December 31, 1996. 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 the issuance of long-term debt. The Corporation has a $17.5 million credit line available which expires June 29, 1997, in the form of a revolving line of credit of which the entire line was available as of December 31, 1996 (see long-term debt footnote to the consolidated financial statements). The Corporation's primary investing activities include purchases of investment 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 the use of 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. 21 The Corporation's static interest rate gap position as of December 31, 1996 is presented below: INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1996 0-3 3-12 Total Over (in thousands) Months Months 1 Year 1 Year Total - --------------------------------------------------------------------------------------------------------------------------- Interest earning assets Securities and deposits $ 87,951 $ 149,753 $ 237,704 $ 130,817 $ 368,521 Loans 519,047 283,094 802,141 507,482 1,309,623 - --------------------------------------------------------------------------------------------------------------------------- Total earning assets $ 606,998 $ 432,847 $ 1,039,845 $ 638,299 $ 1,678,144 Interest bearing liabilities NOW, money market and savings accounts $ 268,063 $ 147,651 $ 415,714 $ - $ 415,714 Time deposits 236,981 442,824 679,805 185,081 864,886 Federal funds purchased and other short- term borrowings 44,585 - 44,585 - 44,585 Advances from FHLB 61,804 5,123 66,927 44,043 110,970 Long-term debt 1,641 - 1,641 17,495 19,136 - --------------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities $ 613,074 $ 595,598 $ 1,208,672 $ 246,619 $ 1,455,291 - --------------------------------------------------------------------------------------------------------------------------- Interest sensitivity gap For the period $ (6,076) $ (162,751) $ (168,827) $ 391,680 $ 222,853 Cumulative (6,076) (168,827) (168,827) 222,853 222,853 Cumulative as a percent of earning assets (0.36)% (10.06)% (10.06)% 13.28% 13.28%
The Corporation now uses, on a limited basis, interest rate swaps as an additional tool in managing interest rate risk. As of December 31, 1996, there was outstanding $10 million in notional principal value of interest rate swaps. 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 has agreed to pay a floating interest rate based on LIBOR and receive a fixed interest rate in return. The impact on operations of interest rate swaps was not significant during 1996 and is not expected to be significant during 1997. CAPITAL RESOURCES Total shareholders' equity increased from $133.8 million at December 31, 1995 to $144.8 million at December 31, 1996. The primary source of capital of the Corporation is retained earnings. Cash dividends per share were $0.74 per share for 1996 and $0.66 per share for 1995. The Corporation retained 64% of its earnings for 1996 and 45% for 1995. Regulatory guidelines require bank holding companies, commercial banks, and thrifts to maintain certain minimum ratios and define companies as "well capitalized" that sufficiently exceed the minimum ratios. The banking regulators may alter minimum capital requirements as a result of revising their internal policies and their ratings of individual institutions. To be "well capitalized" banks and bank holding companies must maintiain a Tier 1 leverage ratio of no less than 5.0%, a Tier 1 risk based ratio of no less than 6.0% and a total risk based ratio of no less than 10.0%. The Corporation's ratios as of December 31, 1996 were 7.05%, 9.71% and 10.96%, respectively. Community Trust Bancorp, Inc. and all banking affiliates met the criteria for "well capitalized" at December 31, 1996. As of December 31, 1996, management is not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse impact on the Corporation's liquidity, capital resources, or operations. 22 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 investments in nonmonetary assets, such as fixed assets and inventories. However, inflation does have an important impact on the growth of assets in the banking industry and on the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation also affects other expenses, which tend to rise during periods of general inflation. Management believes the most significant impact on financial and operating results is the Corporation's ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities in order to protect against the effects of wide interest rate fluctuations. 23 ITEM 8. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts) December 31 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and balances due from banks $ 63,884 $ 67,457 Federal funds sold - 39,555 Securities available-for-sale 229,952 279,717 Securities held-to-maturity (fair value of $135,383 and $150,315, respectively) 137,733 150,721 Loans 1,309,623 1,115,068 Allowance for loan losses (18,825) (16,082) - --------------------------------------------------------------------------------------------------------------------------- Net loans 1,290,798 1,098,986 Premises and equipment, net 46,275 47,553 Excess of cost over net assets acquired (net of accumulated amortization of $6,674 and $5,469, respectively) 19,822 20,110 Other assets 27,196 26,071 - --------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,815,660 $ 1,730,170 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $ 200,222 $ 186,829 Interest bearing 1,280,600 1,280,614 - --------------------------------------------------------------------------------------------------------------------------- Total deposits 1,480,822 1,467,443 Federal funds purchased and other short-term borrowings 44,585 20,383 Other liabilities 15,394 17,047 Advances from Federal Home Loan Bank 110,969 63,629 Long-term debt 19,136 27,873 - --------------------------------------------------------------------------------------------------------------------------- Total Liabilities 1,670,906 1,596,375 Shareholders' equity: Preferred stock, 300,000 shares authorized and unissued Common stock, $5 par value, shares authorized 25,000,000; shares issued and outstanding, 1996 - 9,128,814; 1995 - 9,124,314 45,644 45,622 Capital surplus 27,915 27,883 Retained earnings 71,976 59,934 Net unrealized appreciation (depreciation) on securities available- for-sale, net of tax (781) 356 - --------------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 144,754 133,795 - --------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 1,815,660 $ 1,730,170 - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 24 CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts) Year Ended December 31 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $118,640 $100,686 $ 78,143 Interest and dividends on securities - Taxable 22,304 22,503 23,164 Tax exempt 2,964 4,668 3,050 Other 539 3,169 2,203 - ---------------------------------------------------------------------------------------------------------- Total interest income 144,447 131,026 106,560 INTEREST EXPENSE: Interest on deposits 60,576 56,673 39,889 Interest on federal funds purchased and other short-term borrowings 1,259 1,513 1,324 Interest on advances from Federal Home Loan Bank 5,356 4,506 4,132 Interest on long-term debt 1,901 2,300 2,025 - ---------------------------------------------------------------------------------------------------------- Total interest expense 69,092 64,992 47,370 - ---------------------------------------------------------------------------------------------------------- Net interest income 75,355 66,034 59,190 Provision for loan losses 7,285 5,858 6,066 - ---------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 68,070 60,176 53,124 NONINTEREST INCOME: Service charges on deposit accounts 6,282 5,224 4,651 Gains on sale of loans, net 1,735 462 784 Trust income 1,592 1,341 1,600 Securities gains (losses), net 88 12 (45) Other 4,742 4,077 2,663 - ---------------------------------------------------------------------------------------------------------- Total noninterest income 14,439 11,116 9,653 NONINTEREST EXPENSE: Salaries and employee benefits 28,229 24,639 23,033 Occupancy, net 3,992 3,934 3,250 Equipment 3,734 3,706 3,173 Data processing 2,644 2,808 2,084 Stationery, printing and office supplies 1,656 1,919 1,496 Taxes other than payroll, property and income 2,084 1,980 1,682 FDIC insurance 113 2,990 2,715 Losses associated with mortgage-backed derivative securities - - 2,793 Restructuring and reengineering costs - - 945 Other 12,791 13,895 11,116 - ---------------------------------------------------------------------------------------------------------- Total noninterest expense 55,243 55,871 52,287 - ---------------------------------------------------------------------------------------------------------- Income before income taxes 27,266 15,421 10,490 Income taxes 8,471 4,608 2,278 - ---------------------------------------------------------------------------------------------------------- Net income $ 18,795 $ 10,813 $ 8,212 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- Earnings per share $ 2.06 $ 1.21 $ 0.95 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- Average shares outstanding 9,138 8,960 8,601 - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 25 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Net Unrealized Appreciation (Depreciation) on Securities Common Capital Retained Available-for-Sale, (in thousands except per share amounts) Stock Surplus Earnings Net of Tax Total - --------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1994 $ 28,233 $ 15,009 $ 64,157 $ 521 $ 107,920 Net income for 1994 8,212 8,212 Cash dividends declared ($.61 per share) (4,747) (4,747) Issuance of 19,382 shares common stock 97 387 484 Issuance of 581,963 shares common stock in conjunction with debenture redemption 1,940 5,398 7,338 Common stock split including purchase of fractional shares 12,691 (6) (12,694) (9) Net change in unrealized appreciation/depreciation on securities available-for- sale, net of tax of $727 (2,562) (2,562) - --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 42,961 20,788 54,928 (2,041) 116,636 Net income for 1995 10,813 10,813 Cash dividends declared ($.66 per share) (5,807) (5,807) Issuance of 26,885 shares common stock 135 180 315 Issuance of 505,223 shares common stock in conjunction with acquisitions 2,526 6,915 9,441 Net change in unrealized appreciation/(depreciation) on securities available-for-sale, net of tax of $944 2,397 2,397 - --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 45,622 27,883 59,934 356 133,795 Net income for 1996 18,795 18,795 Cash dividends declared ($.74 per share) (6,753) (6,753) Issuance of 4,500 shares common stock 22 32 54 Net change in unrealized appreciation/(depreciation) on securities available-for-sale, net of tax of $739 (1,137) (1,137) - --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $ 45,644 $ 27,915 $ 71,976 $ (781) $144,754 - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 26 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 18,795 $ 10,813 $ 8,212 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 4,877 3,874 3,539 Provision for loan and other real estate losses 7,364 6,273 7,092 Deferred income taxes 444 219 (423) Securities (gains) losses, net (88) (12) 45 Gains on sale of loans, net (1,735) (462) (784) Net amortization of securities premiums 548 532 1,595 Changes in: Other assets 230 (1,214) (318) Other liabilities (1,837) 3,908 515 Loans held for sale (68,641) (3,507) 7,397 - -------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (40,043) 20,424 26,870 Cash flows from investing activities: Payments to acquire net assets of subsidiaries - (14,918) - Proceeds from: Sale of securities available-for-sale 7,561 18,058 3,949 Maturity of securities available-for-sale 87,419 53,474 29,326 Maturity of securities held-to-maturity 13,930 32,709 55,652 Principal payments of mortgage-backed securities 3,433 135,518 34,278 Purchase of: Securities available-for-sale (47,224) (28,250) (45,958) Securities held-to-maturity (4,669) (40,179) (29,113) Mortgage-backed securities - (110,522) (62,230) Net change in loans (130,074) (75,147) (68,753) Net change in premises and equipment (3,130) (4,795) (4,374) Other - 5,921 1,878 - -------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (72,754) (28,131) (85,345) Cash flows from financing activities: Net change in deposits 13,379 50,175 32,369 Net change in federal funds purchased and other short-term borrowings 24,202 (15,771) (1,119) Advances from Federal Home Loan Bank 61,364 1,595 16,058 Repayments of advances from Federal Home Loan Bank (14,024) (16,783) (11,526) Proceeds from long-term debt 1,000 13,526 - Payments on long-term debt (9,737) (10,597) (10,363) Issuance and repurchase of common stock, net 54 315 7,813 Dividends paid (6,569) (5,385) (4,581) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 69,669 17,075 28,651 Net (decrease) increase in cash and cash equivalents (43,128) 9,368 (29,824) Cash and cash equivalents at beginning of year 107,012 80,098 109,922 Cash and cash equivalents of acquired banks - 17,546 - - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 63,884 $ 107,012 $ 80,098 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES BASIS OF PRESENTATION - The consolidated financial statements include Community Trust Bancorp, Inc. (the "Corporation") and all its subsidiaries, including its principal subsidiary, Community Trust Bank, NA. Material intercompany transactions and accounts have been eliminated in consolidation. In preparing financial statements, management must make certain estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues and expenses, as well as affecting the disclosures provided. Future results could differ from the current estimates. NATURE OF OPERATIONS - Substantially all assets, liabilities, revenues, and expenses are related to banking operations, including lending, investing of funds and obtaining of deposits and other financing. All of the Corporation's business offices and the majority of its business is located in eastern and central Kentucky. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits in other financial institutions and federal funds sold. Generally, federal funds are sold for one day periods. Cash flows are reported net for customer loan transactions, deposit transactions, and other short-term borrowings. SECURITIES - Management determines the classification of securities at purchase. On January 1, 1994 the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The Corporation now classifies securities into held-to-maturity or 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 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 and losses included as a separate component of shareholders' equity, net of tax. If declines in fair value are not temporary, the carrying value of the securities are written down to fair value as a realized loss. Gains or losses on disposition of securities are computed by specific identification for all securities except for shares in mutual funds, which are computed by average cost. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings. LOANS - Loans are reported at the carrying value of unpaid principal reduced by unearned interest and an allowance for loan losses. Income is recorded on the level yield basis. Interest accrual is discontinued when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized in a valuation allowance by charges to income. The provision for loan losses charged to operating expenses is an amount sufficient to maintain the allowance for loan losses at an adequate level to absorb future loan losses based on management's best estimate of loan losses, using such considerations as the current condition and volume of the loan portfolio, economic conditions within the service area, review of specific problem loans, and any other known factors influencing loan collectibility. For loss provisions and valuation allowances, the amount provided is management's estimate of probable losses. Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan". Under this Statement, impaired loans are measured at the present value of estimated future cash flows of the loan using the loan rate or at the fair value of collateral. PREMISES AND EQUIPMENT - Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method over the estimated useful lives or the shorter of the estimated useful lives or terms of the related leases. Maintenance, repairs and minor improvements are expensed as incurred. OTHER REAL ESTATE - Real estate acquired by foreclosure is carried at the lower of the investment in the property or its fair value. An allowance for estimated losses on real estate is provided by a charge to operating expense when a subsequent decline in value occurs. Operating expenses of such properties, net of related income, and gains and losses on disposition are included in other expenses. PURCHASE ACCOUNTING - At date of purchase, net assets of subsidiaries acquired are recorded at fair value. Any excess of cost over net assets acquired (goodwill) is amortized by the straight-line method over fifteen to twenty-five years. Management reviews the earnings of the operations acquired for evidence of impairment of the unamortized amount. INCOME TAXES - Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax consequences of temporary differences between carrying amounts and tax basis of assets and liabilities, using enacted tax rates. 28 EARNINGS PER SHARE - Earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding and the number of shares of common stock under the treasury-stock method for stock options, when dilutive. (See Note 19.) RECLASSIFICATION - Certain reclassifications have been made in the prior financial statements to conform to current classifications. 2. BUSINESS COMBINATIONS During 1995 the Corporation completed four acquisitions which resulted in the addition of $300 million in assets as detailed in the following table:
Date Purchase Assets Accounting (in millions) Completed Price Acquired Method - ---------------------------------------------------------------------------------------- Community Bank 2/2/95 $ 9.2 $ 61 Purchase Woodford 5/31/95 20.3 103 Pooling Middlesboro 6/30/95 14.4 99 Purchase Williamsburg 11/3/95 3.6 37 Pooling
The Corporation's consolidated financial statements have not been restated to include the acquisition of Williamsburg due to lack of materiality. Presented below are the separate results of operations of the Corporation and Woodford for the three months ended March 31, 1995 and the year ended December 31, 1994. (In thousands) Community Trust Bancorp, Inc. Woodford Consolidated - -------------------------------------------------------------------------------- 1995 Net interest income $ 14,498 $ 1,071 $ 15,569 Net income 2,426 547 2,973 1994 Net interest income 54,399 4,791 59,190 Net income 7,477 735 8,212 Unaudited pro forma condensed results of operations for the years ended December 31, 1995 and 1994, as if Community Bank and Middlesboro had been acquired January 1, 1994 are presented below. The results are not necessarily indicative of future consolidated operations. (In thousands) 1995 1994 ---------------------------------------------------------------- Revenue $146,739 $128,821 Income before extraordinary items 10,948 8,038 Net income 10,948 8,038 Earnings per share 1.22 0.90 3. CASH AND DUE FROM BANKS Included in cash and due from banks are noninterest bearing deposits that are held at the Federal Reserve or maintained in vault cash in accordance with regulatory reserve requirements. The balance requirement was $16.2 million at December 31, 1996, and $15.1 million at December 31, 1995. Cash paid during the years ended 1996, 1995 and 1994 for interest was $68.2 million, $64.2 million and $46.8 million, respectively. Cash paid during the same periods for income taxes was $8.1 million, $2.9 million and $3.4 million, respectively. 29 4. SECURITIES Amortized cost and fair value of securities at December 31, 1996 are as follows:
Gross Gross Available-for-sale Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury and government agencies $ 49,541 $ 449 $ (183) $ 49,807 U.S. agency mortgage-backed pass through certificates 76,440 525 (675) 76,290 Collateralized mortgage obligations 65,643 326 (759) 65,210 Other debt securities 2,886 - (81) 2,805 - ------------------------------------------------------------------------------------------------------------------------------ Total debt securities 194,510 1,300 (1,698) 194,112 Marketable equity securities 36,423 10 (593) 35,840 - ------------------------------------------------------------------------------------------------------------------------------ $230,933 $1,310 $(2,291) $229,952 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Held-to-maturity Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury and government agencies $ 23,841 $ 48 $ (1,342) $ 22,547 States and political subdivisions 50,380 784 (714) 50,450 U.S. agency mortgage-backed pass through certificates 48,172 100 (980) 47,292 Collateralized mortgage obligations 15,340 13 (259) 15,094 - ------------------------------------------------------------------------------------------------------------------------------ $137,733 $ 945 $ (3,295) $135,383 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
Amortized cost and fair value of securities at December 31, 1995 are as follows:
Gross Gross Available-for-sale Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury and government agencies $ 80,165 $ 1,184 $ (227) $ 81,122 U. S. agency mortgage-backed pass through certificates 136,236 1,573 (717) 137,092 Collateralized mortgage obligations 25,714 48 (314) 25,448 Other debt securities 3,177 6 (107) 3,076 - ------------------------------------------------------------------------------------------------------------------------------ Total debt securities 245,292 2,811 (1,365) 246,738 Marketable equity securities 33,563 10 (594) 32,979 - ------------------------------------------------------------------------------------------------------------------------------ $278,855 $ 2,821 $ (1,959) $279,717 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Held-to-maturity Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury and government agencies $ 28,820 $ 153 $ (226) $ 28,747 States and political subdivisions 56,425 1,094 (417) 57,102 U.S. agency mortgage-backed pass through certificates 50,284 3 (735) 49,552 Collateralized mortgage obligations 13,200 - (278) 12,922 Other debt securities 1,992 - - 1,992 - ------------------------------------------------------------------------------------------------------------------------------ $150,721 $ 1,250 $ (1,656) $150,315 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
30 The amortized cost and fair value of securities at December 31, 1996, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-sale Held-to-maturity ------------------ ---------------- Amortized Fair Amortized Fair (in thousands) Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $ 20,032 $ 20,094 $ 2,024 $ 2,528 Due after one through five years 34,144 34,401 27,333 25,445 Due after five through ten years 17,565 17,397 33,885 32,902 Due after ten years 25,479 25,591 14,689 15,366 Mortgage-backed pass through certificates and collateralized mortgage obligations 94,404 93,825 59,802 59,142 Other securities 2,886 2,804 - - ------------------------------------------------------ 194,510 194,112 137,733 135,383 Marketable equity securities 36,423 35,840 - - ------------------------------------------------------ $230,933 $229,952 $137,733 $135,383 ------------------------------------------------------ ------------------------------------------------------
Gross gains of $177 thousand and gross losses of $89 thousand were realized on sales and calls in 1996 and gross gains of $18 thousand and gross losses of $6 thousand were realized on such sales and calls in 1995. During 1995, the Financial Accounting Standards Board issued implementation guidance related to Statement No. 115 to allow for a one-time transfer of securities from held-to-maturity to available-for-sale without calling into question management's intent and ability to hold securities to maturity. The Corporation transferred securities with an amortized cost of $195.3 million from held-to-maturity to available-for-sale to better manage its liquidity position as a result of this. This transfer did not have a material impact on the Corporation's equity position. Securities in the amount of $145 million and $175 million at December 31, 1996 and 1995, respectively, were pledged to secure public deposits, trust funds, securities sold under repurchase agreements, and advances from the Federal Home Loan Bank. 5. LOANS Major classifications of loans, net of unearned income, are summarized as follows: December 31 (in thousands) 1996 1995 ----------------------- Commercial, secured by real estate $ 270,315 $ 258,541 Commercial, other 234,793 192,127 Real estate - commercial construction 67,267 40,140 Real estate - residential construction 11,802 11,399 Real estate - consumer mortgage 411,067 398,288 Consumer 310,582 208,662 Equipment lease financing 3,797 5,911 ------------------------------ $ 1,309,623 $ 1,115,068 ------------------------------ ------------------------------ Included in loan balances are loans held for sale in the amount of $78.4 million and $8.1 million at December 31, 1996 and December 31, 1995, respectively. The amount of loans on a non-accruing income status was $10.2 million and $9.4 million at December 31, 1996 and 1995, respectively. Additional interest which would have been recorded during 1996, 1995 and 1994 if such loans had been accruing interest was approximately $0.8 million, $1.1 million, and $0.9 million, respectively. In the ordinary course of business, the Corporation's banking subsidiaries have made loans at prevailing interest rates and terms to directors and executive officers of the Corporation or its banking subsidiaries, including their associates (as defined by the Securities and Exchange Commission). Management believes such loans were made on substantially the same terms, including interest rate and collateral, as those prevailing at the same time for comparable transactions with other persons. The aggregate amount such loans at January 1, 1996 was $ 29.8 million. During 1996, activity with respect to these loans included new loans of $1.9 million, repayments of $6.3 million, and a net increase of $3.6 million due to changes in the status of executive officers and directors. As a result of these activities, the aggregate balance of these loans was $29.0 million at December 31, 1996. 31 At December 31, 1996 and 1995, the recorded investment in impaired loans was $8.4 million and $7.6 million, respectively. Included in these amounts at December 31, 1996 and December 31, 1995, respectively are $3.3 million and $2.4 million of impaired loans for which specific reserves for loan losses are carried in the amounts of $893 thousand and $462 thousand. The average investment in impaired loans for 1996 and 1995 was $8.8 million and $7.0 million, respectively while interest income of $305 thousand and $539 thousand was recognized on cash payments of $305 thousand and $515 thousand. 6. ALLOWANCE FOR LOSSES Activity in the allowance for loan losses is as follows: (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Balance, beginning of year $ 16,082 $ 12,978 $ 13,346 Balances of acquired banks - 2,004 - Provisions charged to operations 7,285 5,858 6,066 Recoveries 2,446 1,274 1,103 Charge-offs (6,988) (6,032) (7,537) - -------------------------------------------------------------------------------- Balance, end of year $ 18,825 $ 16,082 $ 12,978 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Activity in the allowance for other real estate losses is as follows: (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Balance, beginning of year $ 624 $ 1,852 $ 846 Provisions charged to operations 79 415 1,026 Charge-offs (86) (1,643) (20) - -------------------------------------------------------------------------------- Balance, end of year $ 617 $ 624 $ 1,852 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Other real estate owned by the Corporation, net of reserves, at December 31, 1996 and 1995 was $1.8 million and $1.9 million, respectively. 7. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows: December 31 (in thousands) 1996 1995 - -------------------------------------------------------------------------------- Land and buildings $ 45,477 $ 46,727 Leasehold improvements 3,702 3,191 Furniture, fixtures and equipment 26,375 24,537 Construction in progress 315 530 - -------------------------------------------------------------------------------- $ 75,869 $ 74,985 Less accumulated depreciation and amortization (29,594) (27,432) - -------------------------------------------------------------------------------- $ 46,275 $ 47,553 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Depreciation and amortization of premises and equipment for 1996, 1995 and 1994 was $3.7 million, $3.4 million, and $2.7 million, respectively. 8. DEPOSITS Interest expense on deposits is categorized as follows: (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Savings, NOW and money market accounts $ 12,721 $ 12,167 $ 11,446 Certificates of deposit of $100 thousand or more 15,531 14,148 8,308 Other time deposits 32,324 30,358 20,135 - -------------------------------------------------------------------------------- $ 60,576 $ 56,673 $ 39,889 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Time certificates of deposit outstanding in denominations of $100 thousand or more were $262 million and $265 million at December 31, 1996 and 1995, respectively. 32 9. LONG-TERM DEBT Long-term debt is categorized as follows:
December 31 (in thousands) 1996 1995 - ----------------------------------------------------------------------------------------------------------- Parent Company: Revolving bank note, interest at prime minus 88 basis points $ - $ 5,700 Bank note, 6.30% interest payable quarterly; principal payment - 2,000 Six Year Senior Notes, 7.375% interest 5,000 5,000 Ten Year Senior Notes, 8.25% interest 12,230 12,230 Subsidiaries: Other 1,906 2,943 - ----------------------------------------------------------------------------------------------------------- $ 19,136 $ 27,873 - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
The Six and Ten Year Senior Notes are redeemable, in whole or in part, at the option of the Company at any time on or after January 1, 1997, and January 1, 1999, respectively, at prices beginning at 102% of par and decreasing annually until scheduled final maturity. The Bank note and related loan agreements require the maintenance of certain capital and operational ratios for the Corporation and for the subsidiary bank whose stock is pledged as collateral, all of which have been complied with at December 31, 1996. The maximum amount available under the revolving bank note is $17.5 million. Principal payments due on long-term debt during the five years subsequent to December 31, 1996, are as follows: 1997 - $0.3 million; 1998 - $0.2 million; 1999 - $5.2 million; 2000 - $0.1 million; 2001 - $0.1 million. 10. ADVANCES FROM FEDERAL HOME LOAN BANK The advances from the Federal Home Loan Bank are due for repayment as follows: December 31 (in thousands) 1996 1995 - ------------------------------------------------------------------------- Due in one year or less $ 5,896 $ 11,118 Due in one to five years 89,455 23,547 Due in five to ten years 14,517 25,242 Due after ten years 1,101 3,722 - ----------------------------------------------------------------------- $ 110,969 $ 63,629 - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- These advances generally require monthly principal payments and are collateralized by Federal Home Loan Bank stock of $12.5 million and $166.5 million of certain first mortgage loans as of December 31, 1996. Fixed rates advances total $50.0 million and have interest rates ranging from 1.00% to 9.05%. Variable rate advances total $61.0 million with rates immediately adjustable based on LIBOR. 11. FEDERAL INCOME TAXES The components of the provision for income taxes are as follows: (in thousands) 1996 1995 1994 - ----------------------------------------------------------------------- Currently payable $ 8,027 $ 4,641 $ 2,116 Deferred 444 219 (423) Increase in valuation allowance - (252) 585 - -------------------------------------------------------------------- $ 8,471 $ 4,608 $ 2,278 - -------------------------------------------------------------------- - -------------------------------------------------------------------- 33 The components of the net deferred tax asset as of December 31 are as follows: (in thousands) 1996 1995 - -------------------------------------------------------------------------- Deferred Tax Assets Allowance for loan losses $ 5,783 $ 4,684 Allowance for other real estate losses 216 942 Net unrealized depreciation on securities available-for-sale 312 - Accrued expenses 320 718 Deferred compensation 207 209 Other 965 1,405 - ------------------------------------------------------------------------- Total deferred tax assets $ 7,803 $ 7,958 Deferred Tax Liabilities Depreciation $ (3,569) $ (4,055) Net unrealized appreciation on securities available-for-sale - (302) FHLB stock dividends (949) (658) Other (854) (613) - ------------------------------------------------------------------------- Total deferred tax liabilities $ (5,372) $ (5,628) Valuation allowance (948) (803) - ------------------------------------------------------------------------- Net deferred tax asset $ 1,483 $ 1,527 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- The valuation allowance is provided based on management's estimate of future taxable income and on availability of refund of prior taxes paid. The change in the valuation allowance relates to unrealized losses on securities available-for-sale and had no impact on income tax expense. A reconciliation between federal income tax at the statutory rate and income tax expense is as follows: (in thousands) 1996 1995 1994 - ------------------------------------------------------------------------- Tax at statutory rate $ 9,543 $ 5,398 $ 3,672 Tax-exempt interest (1,295) (1,349) (1,301) Other, net 223 559 (93) - ------------------------------------------------------------------------- $ 8,471 $ 4,608 $ 2,278 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- 12. EMPLOYEE BENEFITS The Corporation has a KSOP plan covering substantially all employees. Half of the first 8% of wages contributed by an employee is matched and goes into the savings and retirement portion of the plan. Employees may contribute additional non-matched amounts up to maximum limits provided by IRS regulations, and the Corporation may at its discretion, contribute an additional percentage of covered employees' gross wages. The Corporation currently contributes 4% of covered employees gross wages to the employee stock ownership plan (ESOP) portion of the plan. The ESOP uses the contribution to acquire shares of the Corporation's common stock. The ESOP owned 428,350 shares of Corporation stock at December 31, 1996. Substantially all shares owned by the ESOP were allocated to employees' accounts at December 31, 1996. The market price of the shares at the date of allocation is essentially the same as the market price at the date of purchase. The total retirement plan expense, including ESOP expense above, for 1996, 1995 and 1994 was $1.2 million, $1.1 million, and $1.1 million, respectively. The Corporation maintains an incentive stock option plan covering key employees. Approximately 450,000 shares have been authorized under the plan, 194,624 of which were available at December 31, 1996 for future grants. All options granted have a maximum term of ten years. Options granted as management retention options vest after five years, all other options vest ratably over four years. The Corporation has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options because the alternative fair value 34 accounting provided for under FASB Statement No. 123, "Accounting for Stock- Based Compensation", requires use of option valuation models that were not designed for use in valuing employee stock options. Under APB 25, because the exercise price of all employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. The Corporation's stock option activity and related information for the periods ended December 31, 1996, and December 31, 1995, is summarized as follows: December 31,1996 December 31, 1995 ---------------- ---------------- Weighted- Weighted- Average Average Options Exercise Options Exercise Price Price - -------------------------------------------------------------------------------- Outstanding at beginning of period 68,067 $16.79 68,593 $15.28 Granted 171,989 20.53 8,854 22.02 Exercised (4,500) 12.00 (6,818) 11.46 Forfeited/Expired (3,435) 24.24 (2,562) 21.76 - -------------------------------------------------------------------------------- Outstanding at end of period 232,121 $19.78 68,067 $16.79 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Exercisable at end of period 47,189 $15.52 41,331 $14.25 The weighted-average fair value of options granted during the years 1995 and 1996 was $4.68 and $5.07 per share, respectively. Exercise prices for options outstanding as of December 31, 1996 ranged from $10.67 to $34.50. The weighted-average remaining contractual life of these options is 9.1 years. The fair value of the options presented above was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.75% and 6.25%; dividend yields of 3.27% and 3.74%; volatility factors of the expected market price of the Corporation's common stock of .230 and .219 and a weighted average expected option life of 6.0 years. Because the effect of applying Statement 123's fair value method to the Corporation's stock options results in net income and earnings per share amounts that are not materially different from those reported in the consolidated statements of income, pro forma information has not been provided. 13. OPERATING LEASES Certain premises and equipment are leased under operating leases. Minimum rental payments are as follows: (in thousands) - ---------------------------------------- 1997 $ 750 1998 664 1999 579 2000 414 2001 231 Thereafter 3,727 - ---------------------------------------- $ 6,365 - ---------------------------------------- - ---------------------------------------- Rental expense under operating leases was $0.8 million, $1.2 million, and $1.2 million in 1996, 1995 and 1994, respectively. 35 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents - The carrying amount approximates fair value. Securities - Fair values are based on quoted market prices or dealer quotes. Loans and Loans Held for Sale - The fair value of fixed rate loans and variable rate mortgage loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. For other variable rate loans, the carrying amount approximates fair value. Deposits - The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Short-Term Borrowings - The carrying amount approximates fair value. Advances from Federal Home Loan Bank - The fair value of these fixed-maturity advances is estimated by discounting future cash flows using the rates currently offered for advances of similar remaining maturities. Long-Term Debt - The interest rate on the Corporation's long-term debt is variable or approximates current market rates for similar instruments and therefore the carrying amount approximates fair value. Other Financial Instruments - The estimated fair value for other financial instruments and off-balance sheet loan commitments approximates cost at December 31, 1996 and 1995 and is not considered significant. 1996 1995 Estimated Estimated Carrying Fair Carrying Fair December 31 (in thousands) Amount Value Amount Value - ------------------------------------------------------------------------------- Financial assets: Cash and cash equivalents $ 63,884 $ 63,884 $ 107,012 $ 107,012 Securities 367,685 365,335 430,438 430,032 Loans 1,309,623 1,323,615 1,115,068 1,119,240 Less: allowance for loan losses (18,825) (18,825) (16,082) (16,082) - ------------------------------------------------------------------------------- $1,722,367 $1,734,009 $1,636,436 $1,640,202 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Financial liabilities: Deposits $1,480,822 $1,489,020 $1,467,443 $1,469,866 Short-term borrowings 44,584 44,584 20,383 20,383 Advances from Federal Home Loan Bank 110,969 111,939 63,629 63,802 Long-term debt 19,136 19,136 27,873 27,873 - ------------------------------------------------------------------------------- $1,655,511 $1,664,679 $1,579,328 $1,581,924 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 15. OFF-BALANCE SHEET TRANSACTIONS The Corporation's banking subsidiaries are a party to transactions with off-balance sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include standby letters of credit and commitments to extend credit in the form of unused lines of credit. The Corporation's banking subsidiaries use the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments and include these commitments and conditional obligations in their calculations as to the adequacy of their allowances for loan losses. At December 31, the Banks had the following financial instruments, whose approximate contract amounts represent credit risk: (in thousands) 1996 1995 ------------------------------------------------------------ Standby letters of credit $ 16,047 $ 16,854 Commitments to extend credit 145,292 118,958 Standby letters of credit represent conditional commitments to guarantee the performance of a third party. The credit risk involved is essentially the same as the risk involved in making loans. 36 Fixed rate loan commitments at December 31, 1996 of $7.4 million have interest rates ranging predominately from 5.8% to 12.0% and are for terms up to 5 years. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Banks evaluate each customer's credit-worthiness on a case-by-case basis. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. A portion of the commitments are to extend credit at fixed rates. These credit commitments are based on prevailing rates, terms and conditions applicable to other loans being made at December 31, 1996. Collateral held varies but may include accounts receivable, inventory, property and equipment and income-producing properties. During 1994, the Corporation entered into a 3 year interest rate swap as a hedge for its fixed rate long-term debt. Semiannually, the Corporation receives interest at a fixed rate of 5.5% and pays interest at LIBOR. Interest is computed on a notional amount of $10 million. During 1996, the Corporation recognized $16 thousand as expense on this agreement. LIBOR may change substantially in the future due to market factors. The fair value of this financial instrument for its remaining term is not material. 16. CONCENTRATION OF CREDIT RISK The Corporation's banking subsidiaries grant commercial, residential and consumer related loans to customers primarily located in eastern and central Kentucky. Although the Corporation's banking subsidiaries have diverse loan portfolios, a certain portion of the debtors' ability to perform is somewhat dependent upon the coal industry. 17. COMMITMENTS AND CONTINGENCIES The Corporation's banking subsidiaries and certain officers are named defendants in legal actions from normal business activities. Management, after consultation with legal counsel, believes these actions are without merit or that the ultimate liability, if any, will not materially affect the Corporation's consolidated financial position or results of operations. 18. LIMITATION ON SUBSIDIARY BANK DIVIDENDS The Corporation's principal source of funds is dividends received from the subsidiary banks. Regulations limit the amount of dividends that may be paid by the Corporation's banking subsidiaries without prior approval. During 1997, approximately $3.4 million plus any 1997 net profits can be paid by the Corporation's banking subsidiaries without prior regulatory approval. 37 19. REGULATORY MATTERS The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material adverse effect on the Corporation's financial statements. Under capital adequacy and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I Capital (as defined) to average assets (as defined). These measures also define banks and bank holding companies as "well-capitalized" which meet or exceed higher minimum amounts and ratios (also set forth in the table below.) Management believes, as of December 31, 1996, that the Corporation meets all capital adequacy requirements for which it is subject to be defined as well-capitalized.
To be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions (in thousands) Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------ AS OF DECEMBER 31, 1996 Total Capital (to Risk Weighted Assets) $141,339 10.96% $103,152 8.00% $128,940 10.00% Tier I Capital (to Risk Weighted Assets) 125,188 9.71% 51,576 4.00% 77,364 6.00% Tier I Capital (to Average Assets) 125,188 7.05% 71,052 4.00% 88,815 5.00% AS OF DECEMBER 31, 1995 Total Capital (to Risk Weighted Assets) $126,788 11.51% $88,103 8.00% $110,129 10.00% Tier I Capital (to Risk Weighted Assets) 112,745 10.24% 44,051 4.00% 66,077 6.00% Tier I Capital (to Average Assets) 112,745 6.44% 70,011 4.00% 87,514 5.00%
38 20. PARENT COMPANY FINANCIAL STATEMENTS CONDENSED BALANCE SHEETS December 31 (in thousands) 1996 1995 - -------------------------------------------------------------------------------- ASSETS Cash on deposit $ 2,085 $ 3,336 Securities available-for-sale 5,001 4,319 Investment in and advances to subsidiary banks 147,276 141,472 Excess of cost over net assets acquired (net of accumulated amortization) 8,069 8,543 Other assets 6,205 6,994 - -------------------------------------------------------------------------------- Total Assets $ 168,636 $ 164,664 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings $ 2,531 $ 2,531 Long-term debt 17,230 24,930 Other liabilities 4,121 3,408 - -------------------------------------------------------------------------------- Total liabilities 23,882 30,869 Shareholders' equity 144,754 133,795 - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 168,636 $ 164,664 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF INCOME Year Ended December 31 (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Income: Dividends from subsidiary banks $ 22,999 $ 21,038 $ 13,472 Other income 8,358 3,771 1,886 - -------------------------------------------------------------------------------- Total income 31,357 24,809 15,358 Expenses: Interest expense 1,874 2,216 1,784 Amortization expense 474 467 459 Other expenses 12,519 10,206 10,031 - -------------------------------------------------------------------------------- Total expenses 14,867 12,889 12,274 - -------------------------------------------------------------------------------- Income before income taxes and equity in undistributed income of subsidiaries 16,490 11,920 3,084 Income tax benefit (2,415) (2,993) (3,475) - -------------------------------------------------------------------------------- Income before equity in undistributed income of subsidiaries 18,905 14,913 6,559 Equity in undistributed income of subsidiaries (110) (4,100) 1,653 - -------------------------------------------------------------------------------- Net Income $ 18,795 $ 10,813 $ 8,212 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 39 CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31 (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $ 18,795 $ 10,813 $ 8,212 Adjustments to reconcile net income to net cash provided by operating activities: Amortization, net 474 199 489 Equity in undistributed earnings of subsidiaries 110 4,100 (1,653) Change in other assets and liabilities, net (4,934) 1,449 110 - -------------------------------------------------------------------------------- Net cash provided by operating activities 14,445 16,561 7,158 Cash Flows From Investing Activities: Change in securities available-for-sale (481) (150) (3,860) Investments in and advances to subsidiaries (1,000) (14,918) - - -------------------------------------------------------------------------------- Net cash used in investing activities (1,481) (15,068) (3,860) Cash Flows From Financing Activities: Dividends paid (6,569) (5,385) (4,580) Net proceeds from issuance of common stock 54 315 7,813 Net change in short-term borrowings - 531 2,000 Repayment of long-term debt (8,700) (9,800) (9,490) Proceeds from long-term debt 1,000 13,500 - - -------------------------------------------------------------------------------- Net cash used in financing activities (14,215) (839) (4,257) - -------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (1,251) 654 (959) Cash and cash equivalents at beginning of year 3,336 2,682 3,641 - -------------------------------------------------------------------------------- Cash and Cash Equivalents At End of Year $ 2,085 $ 3,336 $ 2,682 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 40 Report of Management The management of Community Trust Bancorp, Inc. has the responsibility for the preparation, integrity and reliability of the financial statements and related financial information contained in this annual report. Management believes the consolidated financial statements and related financial information reflect fairly the substance of the transactions and present fairly the Corporation's financial position and results of operations in conformity with generally accepted accounting principles and prevailing practices within the banking industry including necessary judgments and estimates as required. In meeting its responsibilities for the reliability of the financial statements and related financial information, management has established and is responsible for maintaining a system of internal accounting controls. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and recorded to facilitate preparation of financial statements which present fairly the financial position and results of operations of the Corporation in accordance with generally accepted accounting principles. Although internal accounting controls are designed to achieve these objectives, it must be recognized that errors or irregularities may nonetheless occur. Management believes that its system of internal accounting controls provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a reasonable period of time in the normal course of business. A vital part of the system is a continual and thorough internal audit program. The board of directors of the Corporation has an audit committee composed of six directors who are not officers or employees of the Corporation. The committee meets periodically with management, internal auditors and the independent public accountants to review audit results and to assure that the audit and internal control functions are being properly discharged. Ernst & Young LLP, independent public accountants have been engaged to render an independent professional opinion on the Corporation's financial statements. Their audit is conducted in accordance with generally accepted auditing standards and forms the basis for their reports as to the fair presentation of the Corporation's financial position and results of operations contained in this annual report. Management has made an assessment of the Corporation's internal control structure and procedures over financial reporting using the criteria described in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organization of the Treadway Commission. Based on that assessment, management believes that the Corporation maintained an effective system of internal control for financial reporting as of December 31, 1996 Burlin Coleman Chairman, President and Chief Executive Officer Richard M. Levy Executive Vice President and Chief Financial Officer 41 Report of Ernst & Young LLP, Independent Auditors To the Board of Directors and Shareholders Community Trust Bancorp, Inc. We have audited the accompanying consolidated balance sheet of Community Trust Bancorp, Inc. and subsidiaries at December 31,1996 and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with general accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Community Trust Bancorp, Inc., and subsidiaries at December 31, 1996 and consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. January 13, 1997 Ernst & Young LLP Columbus, Ohio 42 Report of Independent Auditors Board of Directors and Shareholders Community Trust Bancorp, Inc. Pikeville, Kentucky We have audited the accompanying consolidated balance sheet of Community Trust Bancorp, Inc. (formerly Pikeville National Corporation) as of December 31, 1995 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1995 and 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Community Trust Bancorp, Inc. as of December 31, 1995 and the results of its operations and its cash flows for the years ended December 31, 1995 and 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Corporation changed its method of accounting for impaired loans effective January 1, 1995, and for securities effective January 1, 1994. Crowe, Chizek and Company LLP South Bend, Indiana January 13, 1996 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Corporation's Audit Committee replaced Crowe, Chizek and Company LLP with Ernst & Young LLP as its independent auditors for 1996. Crowe, Chizek and Company LLP had issued an unqualified opinion on the Corporation's 1995 consolidated financial statements. There were no disagreements with the present or former accountants on any matter of accounting principles or practices, financial statement disclosure, or scope of auditing procedures. The Corporation has authorized the former accountant to respond fully to the inquiries of the successor accountant. For further information, refer to the Corporation's 8-K filed with the Securities and Exchange Commission for the event of January 23, 1996. PART III ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by these Items other than the information set forth above under Part I, "Executive Officers of Registrant", is omitted because the Corporation is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information. The required information contained in the Corporation's proxy statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: Financial Statements and Financial Statement Schedules- See Index to consolidated Financial statements at Item 8 of this report. Exhibit No. Description of Exhibits 2.1 Agreement and Plan of Reorganization dated September 27, 1994 between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc. (Incorporated by reference to registration statement no. 33-90448). 2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated September 27, 1994 between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc., as amended February 7, 1995 (Incorporated by reference to registration statement no. 33-90448). 2.3 Amendment No. 2 to Agreement and Plan of Reorganization dated September 27, 1994 between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc., as amended March 2, 1995 (Incorporated by reference to registration statement no. 33-90448). 3.1 Articles of Incorporation and all amendments thereto (Incorporated by reference to registration statement no. 33-35138). 3.2 By-laws of the Corporations, as amended July 25,1995 (Incorporated by reference to registration statement no. 33-61891). 10.1 Community Trust Bancorp, Inc. Savings and Employee Stock Ownership Plan (Incorporated by reference to registration statement no. 33-18961). 10.2 Second restated Community Trust Bancorp, Inc. 1989 Stock Option Plan (Incorporated by reference to registration statement no. 33-36165). 21 List of subsidiaries. 23 Consent of Crowe, Chizek and Company LLP, Independent Public Accountants. 23.1 Consent of Ernst & Young LLP, Independent Public Accountants. 27 Financial Data Schedule. 44 (b) Reports on Form 8-K required to be filed during the last quarter of 1996 The Corporation incorporates by reference Forms 8-K filed with the Commission on November 5, 1996 and December 9, 1996. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules None. 45 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf the undersigned, thereunto duly authorized. COMMUNITY TRUST BANCORP, INC. March 21, 1997 By: Richard M. Levy ----------------------------------- Richard M. Levy Executive Vice President Principal Financial Officer 46 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Corporation and in the capacities and on the date indicated. Chairman of the Board, President, Chief Executive February 25, 1997 Burlin Coleman Officer and Director -- ----------------------------- Burlin Coleman February 25, 1997 Charles J. Baird Director -- ----------------------------- Charles J. Baird February 25, 1997 Nick A. Cooley Director -- ----------------------------- Nick A. Cooley February 25, 1997 William A. Graham, Jr. Director -- ----------------------------- William A. Graham, Jr. February 25, 1997 Jean R. Hale Secretary & Director -- ------------------------ Jean R. Hale February , 1997 Vice Chairman & Director -- ------------------------ Brandt Mullins February 25, 1997 M. Lynn Parrish Director -- ------------------------ M. Lynn Parrish February 25, 1997 E. M. Rogers Director -- ------------------------ E. M. Rogers February 25, 1997 Porter P. Welch Director -- ------------------------ Porter P. Welch 47 COMMUNITY TRUST BANCORP, INC. AND SUBSIDIARIES INDEX TO EXHIBITS Exhibit No. ----------- 2.1 Agreement and plan of reorganization dated September 27, 1994 between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc., incorporated herein by reference. 2.2 Amendment No. 1 to Agreement and Plan of reorganization dated September 27, 1994 between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc., as amended February 7, 1995 and incorporated herein by reference. 2.3 Amendment No. 2 to Agreement and Plan of reorganization dated September 27, 1994 between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc., as amended March 2, 1995 and incorporated herein by reference. 3.1 Articles of Incorporation for the Company, incorporated herein by reference. 3.2 By-laws of the Company as amended through the date of this filing, incorporated herein by reference. 10.1 Community Trust Bancorp, Inc. Savings and Employee Stock Ownership Plan, incorporated herein by reference. 10.2 Second restated Community Trust Bancorp, Inc. 1989 stock option plan, incorporated herein by reference. 21 List of subsidiaries. 23 Consent of Crowe, Chizek and Company LLP, Independent Public Accountants. 23.1 Consent of Ernst & Young LLP, Independent Public Accountants. 51 EX-21 2 EXHIBIT 21 EXHIBIT 21 Subsidiaries of the Registrant The Corporation has four subsidiaries as of January 1, 1997.
Percent Voting Stock Jurisdiction of Shares Owned held by Organization By Corporation Corporation ---------------- --------------- ------------- Community Trust Bank, NA United States 285,000 Common 100% Pikeville, Kentucky Commercial Bank Kentucky 5,670 Common 100% West Liberty, Kentucky Community Trust Bank, FSB United States 100 Common 100% Campbellsville, Kentucky Trust Company of Kentucky 500 Common 100% Kentucky Ashland, Kentucky
All shares of Community Trust Bank, FSB are pledged as collateral on the bank note outstanding to Star Bank, Cincinnati, Ohio. 48 EX-23 3 EXHIBIT 23 EXHIBIT 23 Consent of Independent Public Accountants We hereby consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-36165) pertaining to the Community Trust Bancorp, Inc. 1989 Stock Option Plan of our report dated January 13, 1996 with respect to the consolidated financial statements of Community Trust Bancorp, Inc. (formerly Pikeville National Corporation) included in the Annual Report (Form 10-K) for the year ended December 31, 1995. Crowe, Chizek and Company LLP South Bend, Indiana March 14, 1997 49 EX-23.1 4 EXHIBIT 23.1 EXHIBIT 23.1 Consent of Independent Public Accountants We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-36165) pertaining to the Community Trust Bancorp, Inc. 1989 Stock Option Plan of our report dated January 13, 1997 with respect to the consolidated financial statements of Community Trust Bancorp, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. Ernst & Young LLP Columbus, Ohio March 14, 1997 50 EX-27 5 EXHIBIT 27
9 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 63,884 0 0 0 229,952 137,733 135,383 1,309,623 (18,825) 1,815,660 1,480,822 44,585 15,394 130,105 0 0 45,644 99,110 1,815,660 118,640 25,268 539 144,447 60,576 69,092 75,355 (7,285) 88 12,791 27,266 18,795 0 0 18,795 2.06 2.06 8.99 10,156 5,800 630 0 16,082 6,988 2,446 18,825 9,411 0 9,414
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