COMMUNITY TRUST BANCORP INC /KY/ [CTBI] Filings

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 ☑

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 ☑

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.

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 2022 – 17,884,106; 2021 – 17,843,081		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.

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.

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.

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.

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 Reporting. In 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 Instruments—Credit 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.

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.