10-Q 1 brhc10037172_10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2022
 
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to _____________

Commission file number 001-31220

COMMUNITY TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)

Kentucky
61-0979818
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
   
346 North Mayo Trail
P.O. Box 2947
Pikeville, Kentucky
41502
(Address of principal executive offices)
(Zip code)

(606) 432-1414
(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock
(Title of class)

CTBI
Nasdaq Global Select Market
(Trading symbol)
(Name of exchange on which registered)

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 
No

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes 
No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
Accelerated Filer 
Non-accelerated Filer 
     
Smaller Reporting Company
Emerging Growth Company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.       

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes
   No

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

Common stock – 17,895,181 shares outstanding at April 30, 2022



CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Community Trust Bancorp, Inc.’s (“CTBI”) actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could.” These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; the effects of the COVID-19 pandemic on our business operations and credit quality and on general economic and financial market conditions, as well as our ability to respond to the related challenges; our participation in the Paycheck Protection Program administered by the Small Business Administration; results of various investment activities; the effects of competitors’ pricing policies, changes in laws and regulations, competition, and demographic changes on target market populations’ savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements or cost savings at levels or within the time frames originally anticipated or unforeseen integration difficulties; and the resolution of legal  proceedings and related matters. In addition, the banking industry in general is subject to various monetary, operational, and fiscal policies and regulations, which include, but are not limited to, those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and state regulators, whose policies, regulations, and enforcement actions could affect CTBI’s results.  These statements are representative only on the date hereof, and CTBI undertakes no obligation to update any forward-looking statements made.

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q should refer to the Registrant’s Form 10-K for the year ended December 31, 2021 for further information in this regard.

1

Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands)
 
(unaudited)
March 31
2022
   
December 31
2021
 
Assets:
           
Cash and due from banks
 
$
58,352
   
$
46,558
 
Interest bearing deposits
   
106,133
     
265,198
 
Cash and cash equivalents
   
164,485
     
311,756
 
                 
Certificates of deposit in other banks
   
245
     
245
 
Debt securities available-for-sale at fair value (amortized cost of $1,588,129 and $1,461,829, respectively)
   
1,503,165
     
1,455,429
 
Equity securities at fair value
   
2,352
     
2,253
 
Loans held for sale
   
1,941
     
2,632
 
                 
Loans
   
3,515,541
     
3,408,813
 
Allowance for credit losses
   
(42,309
)
   
(41,756
)
Net loans
   
3,473,232
     
3,367,057
 
                 
Premises and equipment, net
   
40,738
     
40,479
 
Right-of-use assets
   
11,941
     
12,148
 
Federal Home Loan Bank stock
   
8,139
     
8,139
 
Federal Reserve Bank stock
   
4,887
     
4,887
 
Goodwill
   
65,490
     
65,490
 
Bank owned life insurance
   
91,530
     
91,097
 
Mortgage servicing rights
   
7,748
     
6,774
 
Other real estate owned
   
2,299
     
3,486
 
Deferred tax asset
    19,574       0  
Accrued interest receivable
   
15,024
     
15,415
 
Other assets
   
30,343
     
30,970
 
Total assets
 
$
5,443,133
   
$
5,418,257
 
                 
Liabilities and shareholders’ equity:
               
Deposits:
               
Noninterest bearing
 
$
1,398,529
   
$
1,331,103
 
Interest bearing
   
3,029,775
     
3,013,189
 
Total deposits
   
4,428,304
     
4,344,292
 
                 
Repurchase agreements
   
254,623
     
271,088
 
Federal funds purchased
   
500
     
500
 
Advances from Federal Home Loan Bank
   
370
     
375
 
Long-term debt
   
57,841
     
57,841
 
Deferred tax liability
   
0
     
546
 
Operating lease liability
   
11,380
     
11,583
 
Finance lease liability
   
1,416
     
1,422
 
Accrued interest payable
   
1,306
     
1,016
 
Other liabilities
   
34,022
     
31,392
 
Total liabilities
   
4,789,762
     
4,720,055
 
                 
Shareholders’ equity:
               
Preferred stock, 300,000 shares authorized and unissued
   
-
     
-
 
Common stock, $5.00 par value, shares authorized 25,000,000; shares outstanding 202217,884,106; 202117,843,081
   
89,420
     
89,215
 
Capital surplus
   
227,589
     
227,085
 
Retained earnings
   
399,347
     
386,750
 
Accumulated other comprehensive loss, net of tax
   
(62,985
)
   
(4,848
)
Total shareholders’ equity
   
653,371
     
698,202
 
                 
Total liabilities and shareholders’ equity
 
$
5,443,133
   
$
5,418,257
 

See notes to condensed consolidated financial statements.

2

Community Trust Bancorp, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(unaudited)

 
Three Months Ended
 
   
March 31
 
(in thousands except per share data)
 
2022
   
2021
 
Interest income:
           
Interest and fees on loans, including loans held for sale
 
$
38,167
   
$
40,689
 
Interest and dividends on securities
               
Taxable
   
4,384
     
2,575
 
Tax exempt
   
772
     
739
 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
   
114
     
124
 
Interest on Federal Reserve Bank deposits
   
82
     
76
 
Other, including interest on federal funds sold
   
8
     
8
 
Total interest income
   
43,527
     
44,211
 
                 
Interest expense:
               
Interest on deposits
   
2,954
     
3,387
 
Interest on repurchase agreements and federal funds purchased
   
254
     
304
 
Interest on long-term debt
   
287
     
278
 
Total interest expense
   
3,495
     
3,969
 
                 
Net interest income
   
40,032
     
40,242
 
Provision for credit losses (recovery)
   
875
     
(2,499
)
Net interest income after provision for credit losses (recovery)
   
39,157
     
42,741
 
                 
Noninterest income:
               
Deposit related fees
   
6,746
      6,022  
Gains on sales of loans, net
   
597
     
2,433
 
Trust and wealth management income
   
3,248
     
2,951
 
Loan related fees
   
2,062
     
2,270
 
Bank owned life insurance
   
691
     
573
 
Brokerage revenue
   
590
     
457
 
Securities gains (losses)
   
99
     
(168
)
Other noninterest income
   
932
     
1,039
 
Total noninterest income
   
14,965
     
15,577
 
                 
Noninterest expense:
               
Officer salaries and employee benefits
   
3,882
     
3,738
 
Other salaries and employee benefits
   
13,656
     
13,095
 
Occupancy, net
   
2,245
     
2,195
 
Equipment
   
609
     
633
 
Data processing
   
2,201
     
2,159
 
Bank franchise tax
   
415
     
360
 
Legal fees
   
301
     
352
 
Professional fees
   
566
     
541
 
Advertising and marketing
   
752
     
722
 
FDIC insurance
   
355
     
326
 
Other real estate owned provision and expense
   
353
     
318
 
Repossession expense
   
100
     
199
 
Amortization of limited partnership investments
   
733
     
837
 
Other noninterest expense
   
3,191
     
2,835
 
Total noninterest expense
   
29,359
     
28,310
 
                 
Income before income taxes
   
24,763
     
30,008
 
Income taxes
   
5,035
     
6,390
 
Net income
   
19,728
     
23,618
 
                 
Other comprehensive income (loss):
               
Unrealized holding losses on debt securities available-for-sale:
               
Unrealized holding losses arising during the period
   
(78,564
)
   
(13,456
)
Less: Reclassification adjustments for realized gains included in net income
   
0
     
60
 
Tax benefit
   
(20,427
)
   
(3,514
)
Other comprehensive loss, net of tax
   
(58,137
)
   
(10,002
)
Comprehensive income (loss)
 
$
(38,409
)
 
$
13,616
 
                 
Basic earnings per share
 
$
1.11
   
$
1.33
 
Diluted earnings per share
 
$
1.11
   
$
1.33
 
                 
Weighted average shares outstanding-basic
   
17,820
     
17,774
 
Weighted average shares outstanding-diluted
   
17,832
     
17,787
 

See notes to condensed consolidated financial statements.

3

Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)

(in thousands except per share and share amounts)
 
Common
Shares
   
Common
Stock
   
Capital
Surplus
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
   
Total
 
Balance, January 1, 2022
   
17,843,081
   
$
89,215
   
$
227,085
   
$
386,750
   
$
(4,848
)
 
$
698,202
 
Net income
                           
19,728
             
19,728
 
Other comprehensive loss
                                   
(58,137
)
   
(58,137
)
Cash dividends declared ($0.40 per share)
                           
(7,131
)
           
(7,131
)
Issuance of common stock
   
32,491
     
163
     
85
                     
248
 
Issuance of restricted stock
   
35,438
     
177
     
(177
)
                   
0
 
Vesting of restricted stock
   
(26,904
)
   
(135
)
   
135
                     
0
 
Stock-based compensation
                   
461
                     
461
 
Balance, March 31, 2022
   
17,884,106
   
$
89,420
   
$
227,589
   
$
399,347
   
$
(62,985
)
 
$
653,371
 

(in thousands except per share and share amounts)
 
Common
Shares
   
Common
Stock
   
Capital
Surplus
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
   
Total
 
Balance, January 1, 2021
   
17,810,401
    $
89,052
    $
225,507
    $
326,738
    $
13,568
    $
654,865
 
Net income
                           
23,618
             
23,618
 
Other comprehensive loss
                                   
(10,002
)
   
(10,002
)
Cash dividends declared ($0.385 per share)
                           
(6,845
)
           
(6,845
)
Issuance of common stock
   
24,163
     
121
     
117
                     
238
 
Issuance of restricted stock
   
9,193
     
46
     
(46
)
                   
0
 
Vesting of restricted stock
   
(17,681
)
   
(88
)
   
88
                     
0
 
Stock-based compensation
                   
195
                     
195
 
Balance, March 31, 2021
   
17,826,076
   
$
89,131
   
$
225,861
   
$
343,511
   
$
3,566
   
$
662,069
 

See notes to condensed consolidated financial statements.

4

Community Trust Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)

 
Three Months Ended
March 31
 
(in thousands)
 
2022
   
2021
 
Cash flows from operating activities:
           
Net income
 
$
19,728
   
$
23,618
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
1,286
     
1,265
 
Deferred taxes
   
307
     
(643
)
Stock-based compensation
   
484
     
213
 
Provision for credit losses (recovery)
   
875
     
(2,499
)
Write-downs of other real estate owned and other repossessed assets
   
246
     
154
 
Gains on sale of mortgage loans held for sale
   
(597
)
   
(2,433
)
Securities gains
   
0
     
(60
)
Fair value adjustment in equity securities
   
(99
)
   
228
 
Gains on sale of assets, net
   
(5
)
   
(214
)
Proceeds from sale of mortgage loans held for sale
   
26,257
     
109,014
 
Funding of mortgage loans held for sale
   
(24,969
)
   
(101,070
)
Amortization of securities premiums and discounts, net
   
1,801
     
1,893
 
Change in cash surrender value of bank owned life insurance
   
(434
)
   
(337
)
Payment of operating lease liabilities
   
(469
)
   
(445
)
Mortgage servicing rights:
               
Fair value adjustments
   
(745
)
   
(780
)
New servicing assets created
   
(229
)
   
(736
)
Changes in:
               
Accrued interest receivable
   
391
     
630
 
Other assets
   
627
     
1,634
 
Accrued interest payable
   
290
     
122
 
Other liabilities
   
2,605
     
2,152
 
Net cash provided by operating activities
   
27,350
     
31,706
 
                 
Cash flows from investing activities:
               
Securities available-for-sale (AFS):
               
Purchase of AFS securities
   
(176,730
)
   
(304,167
)
Proceeds from sales of AFS securities
   
0
     
1,080
 
Proceeds from prepayments, calls, and maturities of AFS securities
   
48,630
     
129,804
 
Change in loans, net
   
(106,591
)
   
15,747
 
Purchase of premises and equipment
   
(1,072
)
   
(403
)
Proceeds from sale and retirement of premises and equipment
   
0
     
812
 
Proceeds from sale of stock by Federal Home Loan Bank
   
0
     
77
 
Proceeds from sale of other real estate owned and repossessed assets
   
486
     
762
 
Proceeds from settlement of bank owned life insurance
    1       0  
Net cash used in investing activities
   
(235,276
)
   
(156,288
)
                 
Cash flows from financing activities:
               
Change in deposits, net
   
84,012
     
217,690
 
Change in repurchase agreements and federal funds purchased, net
   
(16,465
)
   
(1,627
)
Payments on advances from Federal Home Loan Bank
   
(5
)
   
(5
)
Payment of finance lease liabilities
   
(6
)
   
(3
)
Issuance of common stock
   
248
     
238
 
Dividends paid
   
(7,129
)
   
(6,841
)
Net cash provided by financing activities
   
60,655
     
209,452
 
Net increase (decrease) in cash and cash equivalents
   
(147,271
)
   
84,870
 
Cash and cash equivalents at beginning of period
   
311,756
     
338,235
 
Cash and cash equivalents at end of period
 
$
164,485
   
$
423,105
 
                 
Supplemental disclosures:
               
Income taxes paid
 
$
50
   
$
87
 
Interest paid
   
3,205
     
3,847
 
Non-cash activities:
               
Loans to facilitate the sale of other real estate owned and repossessed assets
   
597
     
381
 
Common stock dividends accrued, paid in subsequent quarter
   
250
     
242
 
Real estate acquired in settlement of loans
   
137
     
(136
)

See notes to condensed consolidated financial statements.
5

Community Trust Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 - Summary of Significant Accounting Policies


In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring adjustments) necessary, to present fairly the condensed consolidated financial position as of March 31, 2022 and the results of operations, other comprehensive income, changes in shareholders’ equity, and cash flows for the three months ended March 31, 2022 and 2021. In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements. The results of operations, changes in shareholders’ equity, and cash flows for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (“CTBI”) for that period. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2021, included in our annual report on Form 10-K.


Principles of Consolidation – The unaudited condensed consolidated financial statements include the accounts of CTBI and its separate and distinct, wholly owned subsidiaries Community Trust Bank, Inc. (“CTB”) and Community Trust and Investment Company.  All significant intercompany transactions have been eliminated in consolidation.


New Accounting Standards


        Facilitation of the Effects of Reference Rate Reform on Financial Reporting – In April 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial ReportingIn response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation.  The amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and provide optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  This ASU applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.  The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.  An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.  We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition.  At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.


➢         Financial InstrumentsCredit Losses (Topic 326):  Troubled Debt Restructurings and Vintage Disclosures – In February 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.  Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan.   Additionally, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, in the vintage disclosures required by paragraph 326-20-50-6.  The amendments in the ASU are for fiscal periods beginning after December 22, 2022, including interim periods within those fiscal years.  The changes can be early adopted, separately by topic.

6

Significant Accounting Policies –


The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes.  Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates.  Such differences could be material to our consolidated financial statements.