Community Trust Bancorp, Inc. Reports Earnings for the Third Quarter 2014

PIKEVILLE, Ky.--()--Community Trust Bancorp, Inc. (NASDAQ:CTBI):

                               
Earnings Summary                    
(in thousands except per share data)     3Q

2014

   

2Q

2014

    3Q

2013

    9 Months

2014

    9 Months

2013

Net income $10,924 $12,195 $12,653 $33,259 $36,415
Earnings per share $0.63 $0.70 $0.74 $1.92 $2.13
Earnings per share - diluted $0.63 $0.70 $0.73 $1.91 $2.12
 
Return on average assets 1.18% 1.33% 1.38% 1.21% 1.33%
Return on average equity 9.89% 11.32% 12.39% 10.31% 11.99%
Efficiency ratio 56.82% 56.96% 54.80% 58.55% 55.89%
Tangible common equity 10.33% 10.26% 9.57%
 
Dividends declared per share $0.300 $0.290 $0.291 $0.881 $0.863
Book value per share $25.14 $24.90 $23.67
 
Weighted average shares 17,326 17,318 17,154 17,317 17,123
Weighted average shares - diluted     17,402     17,393     17,257     17,395     17,212
 

Community Trust Bancorp, Inc. (NASDAQ:CTBI) reports earnings for the third quarter 2014 of $10.9 million, or $0.63 per basic share, compared to $12.7 million, or $0.74 per basic share, earned during the third quarter 2013 and $12.2 million, or $0.70 per basic share, earned during the second quarter 2014. Net income for the quarter was adversely impacted by an increase in our loan loss provision. Year-to-date earnings for the nine months ended September 30, 2014 were $33.3 million, or $1.92 per basic share, compared to $36.4 million, or $2.13 per basic share earned during the first nine months of 2013. The variance from prior year is due to decreased net interest income and noninterest income, partially offset by a decrease in our provision for loan losses.

3rd Quarter 2014 Highlights

  • CTBI’s basic earnings per share for the quarter decreased $0.11 from prior year third quarter and $0.07 from second quarter 2014. Year-to-date basic earnings per share decreased $0.21 from prior year.
  • Net interest income for the quarter decreased 3.4% from prior year third quarter but increased 0.5% from prior quarter as our net interest margin decreased 19 basis points and 4 basis points, respectively. Average earning assets increased 1.6% from third quarter 2013 and 0.4% from prior quarter while our yield on average earning assets decreased 24 basis points and 4 basis points, respectively. The cost of interest bearing funds decreased 5 basis points and 1 basis point, respectively, during these time periods. Net interest income for the nine months ended September 30, 2014 decreased 2.1% from prior year.
  • Nonperforming loans at $48.6 million increased $6.3 million from September 30, 2013 and $4.0 million from June 30, 2014. Nonperforming assets at $81.3 million decreased $3.4 million from September 30, 2013 but increased $3.7 million from June 30, 2014.
  • Net loan charge-offs for the quarter ended September 30, 2014 were $2.8 million, or 0.42% of average loans annualized, compared to $1.7 million, or 0.26%, experienced for the third quarter 2013 and $0.7 million, or 0.11%, for the second quarter 2014. Year-to-date net charge-offs declined from 0.34% of average loans to 0.27%.
  • Our loan loss provision for the quarter increased $1.2 million from prior year third quarter and $2.6 million from prior quarter. Year-to-date provision decreased $2.0 million. The quarterly increase in our provision was due to an increase in net charge-offs and loan portfolio growth. Our year-to-date loan loss provision remains lower than prior year due to the year-to-date decline in net losses to average loans.
  • Noninterest income decreased 0.5% for the quarter ended September 30, 2014 compared to the same period in 2013 but increased 9.4% from prior quarter. The increase from prior quarter was primarily due to increased deposit service charges, trust revenue, and loan related fees. Noninterest income for the first nine months of 2014 decreased 11.3% from prior year. The decrease from prior year was primarily attributable to decreases in gains on sales of loans, deposit service charges, loan related fees resulting from the fluctuation in the fair value of our mortgage servicing rights, and other noninterest income due to the prior year death benefits received in bank owned life insurance.
  • Noninterest expense for the quarter ended September 30, 2014 increased 1.1% from prior year third quarter and 2.4% from prior quarter. Noninterest expense for the first nine months of 2014 increased 0.1% from prior year. Increases in personnel expense and data processing expense were partially offset by decreases in net other real estate owned expense and repossession expense, as well as adjustments totaling $0.8 million to reduce the accrual for the Federal Reserve determination which was previously disclosed in our annual report on Form 10-K for the year ended December 31, 2013.
  • Our loan portfolio increased $67.5 million from September 30, 2013 and $51.3 million during the quarter.
  • Our investment portfolio decreased $30.3 million from September 30, 2013 and $14.0 million during the quarter.
  • Deposits, including repurchase agreements, increased $33.2 million from September 30, 2013 and $17.1 million during the quarter.
  • Our tangible common equity/tangible assets ratio increased to 10.33%.

Net Interest Income

Net interest income for the quarter decreased $1.2 million, or 3.4%, from prior year third quarter but increased $0.2 million, or 0.5% from prior quarter as our net interest margin decreased 19 basis points and 4 basis points, respectively, for those time periods. The current low rate environment continues to have a negative impact on our net interest margin. Average earning assets increased 1.6% from third quarter 2013 and 0.4% from prior quarter while our yield on average earning assets decreased 24 basis points and 4 basis points, respectively. Loans represented 77.5% of our average earning assets for the quarter ended September 30, 2014 compared to 77.0% for the quarter ended September 30, 2013 and 76.3% for the quarter ended June 30, 2014. At September 30, 2014, loans represented 78.7% of our earning assets, reflecting the change in earning asset mix resulting from the $51 million in loan growth during the quarter. While interest income increased slightly during the quarter, the new loan growth was at a lower yield than our previous average book yield. Consequently, the yield on the loan portfolio decreased as did the net interest margin. The cost of interest bearing funds decreased 5 basis points from prior year third quarter and 1 basis point from prior quarter. Net interest income for the nine months ended September 30, 2014 decreased $2.1 million, or 2.1%, from prior year. Assuming our cost of funds continues to plateau, pressure will be placed on our margin as our loan portfolio continues to reprice at lower rates.

Noninterest Income

Noninterest income decreased $0.1 million, or 0.5%, for the quarter ended September 30, 2014 compared to the same period in 2013 but increased $1.0 million, or 9.4%, from prior quarter. The increase from prior quarter was primarily due to increased deposit service charges, trust revenue, and loan related fees. Noninterest income for the first nine months of 2014 decreased 11.3% from prior year. The decrease from prior year was primarily attributable to decreases in gains on sales of loans, deposit service charges, loan related fees, and other noninterest income. The decrease in gains on sales of loans from prior year was reflective of the decline in secondary market residential real estate mortgage activity, and the decrease in deposit service charges from prior year was a result of the change in our processing of overdrafts. However, gains on sales of loans and deposit service charges have increased for the past two quarters. Deposit service charges increased $0.3 million from prior quarter with increases in overdraft revenue and Visa debit fee income. Loan related fees were impacted by the fluctuation in the fair value of our mortgage servicing rights. The decrease in other noninterest income was due to the prior year death benefits received in bank owned life insurance of $0.9 million.

Noninterest Expense

Noninterest expense for the quarter ended September 30, 2014 increased 1.1% from prior year third quarter and 2.4% from prior quarter. Noninterest expense for the first nine months of 2014 increased 0.1% from prior year. Increases in personnel expense and data processing expense were partially offset by decreases in net other real estate owned expense and repossession expense, as well as adjustments totaling $0.8 million to reduce the accrual for the Federal Reserve determination which was previously disclosed in our annual report on Form 10-K for the year ended December 31, 2013. The increase in personnel expense in the third quarter 2014 was the result of an increased loss experience in our health insurance plan partially offset by a decrease in the accrual for our annual performance based bonus.

Balance Sheet Review

CTBI’s total assets at $3.7 billion increased $26.2 million, or 0.7%, from September 30, 2013 and $17.5 million, or an annualized 1.9%, during the quarter. Loans outstanding at September 30, 2014 were $2.7 billion, increasing $67.5 million, or 2.6%, from September 30, 2013 and $51.3 million, or an annualized 7.7%, during the quarter. We experienced growth during the quarter in all loan portfolios. The commercial loan portfolio increased $26.5 million, the indirect loan portfolio increased $16.2 million, the residential loan portfolio increased $6.9 million, and the consumer direct loan portfolio increased $1.8 million. CTBI’s investment portfolio decreased $30.3 million, or 4.6%, from September 30, 2013 and $14.0 million, or an annualized 8.5%, during the quarter. Deposits, including repurchase agreements, at $3.1 billion increased $33.2 million, or 1.1%, from September 30, 2013 and $17.1 million, or an annualized 2.2%, from prior quarter.

Shareholders’ equity at September 30, 2014 was $438.2 million compared to $408.7 million at September 30, 2013 and $433.9 million at June 30, 2014. CTBI’s annualized dividend yield to shareholders as of September 30, 2014 was 3.57%.

Asset Quality

CTBI’s total nonperforming loans were $48.6 million at September 30, 2014, a 14.9% increase from the $42.3 million at September 30, 2013 and a 9.0% increase from the $44.5 million at June 30, 2014. Nonaccrual loans increased $3.2 million for the quarter and loans 90+ days past due increased $0.8 million. The increase in nonaccrual loans for the quarter included one hotel credit totaling $2.9 million which was previously identified as impaired. The year over year increase of $11.8 million also includes a $7.4 million income producing commercial real estate loan relationship that was put on nonaccrual in the first quarter 2014. The increase in loans 90+ days past due consists of an increase of $1.9 million in mortgage loans, partially offset by a decrease of $1.1 million in commercial loans. These credits, in addition to all loans in the 90+ days past due category, are reviewed by management and are considered to be well secured and in the process of collection; therefore, these loans require no specific reserves to the allowance for loan and lease losses. Loans 30-89 days past due at $20.9 million was a decrease of $2.4 million from September 30, 2013 and $0.6 million from June 30, 2014. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss. Impaired loans, loans not expected to meet contractual principal and interest payments other than insignificant delays, at September 30, 2014 totaled $67.0 million, compared to $63.3 million at September 30, 2013 and $66.2 million at June 30, 2014.

We continued to experience improvement in other real estate owned. Our level of foreclosed properties at $32.7 million at September 30, 2014 was a decrease from $42.5 million at September 30, 2013 and $33.1 million at June 30, 2014. Sales of foreclosed properties for the quarter ended September 30, 2014 totaled $1.9 million while new foreclosed properties totaled $1.8 million. At September 30, 2014, the book value of properties under contracts to sell was $3.2 million; however, the closings had not occurred at quarter-end.

Net loan charge-offs for the quarter ended September 30, 2014 were $2.8 million, or 0.42% of average loans annualized, compared to $1.7 million, or 0.26%, experienced for the third quarter 2013 and $0.7 million, or 0.11%, for the second quarter 2014. Significant increases in charge-offs quarter over quarter were recognized in both the commercial loan portfolio (41 basis points) and the consumer loan portfolio (44 basis points) while there was a modest increase in the residential loan portfolio (5 basis points). The commercial portfolio charge-offs were impacted by a $0.5 million charge-off of a commercial real estate loan and a $0.7 million charge-off of a commercial loan to a heavy duty equipment retailer. Management believes the increase in charge-offs in the consumer portfolio is more a reflection of the unusually low level of charge-offs in the second quarter of 2014 and not an indication of a significant change in asset quality in the consumer portfolio. Of the total net charge-offs for the quarter, $1.6 million were in commercial loans, $0.5 million were in indirect auto loans, and $0.3 million were in residential real estate mortgage loans. Year-to-date net charge-offs declined from 0.34% of average loans to 0.27%. Allocations to loan loss reserves were $3.3 million for the quarter ended September 30, 2014 compared to $2.1 million for the quarter ended September 30, 2013 and $0.7 million for the quarter ended June 30, 2014. Loan loss provision for the nine months ended September 30, 2014 decreased $2.0 million. The quarterly increase in our provision was due to increases in net charge-offs and to fund new loan growth. Our year-to-date loan loss provision remains lower than prior year, primarily due to the year-to-date decline in net losses to average loans. Our reserve coverage (allowance for loan and lease loss reserve to nonperforming loans) at September 30, 2014 was 70.2% compared to 80.5% at September 30, 2013 and 75.5% at June 30, 2014. Our loan loss reserve as a percentage of total loans outstanding decreased to 1.27% from the 1.30% at September 30, 2013 and 1.28% at June 30, 2014.

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. CTBI’s 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, the performance of coal and coal related industries, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various investment activities; the effects of competitors’ pricing policies, of changes in laws and regulations on competition and of 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; the adoption by CTBI of an FFIEC policy that provides guidance on the reporting of delinquent consumer loans and the timing of associated credit charge-offs for financial institution subsidiaries; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and state regulators, whose policies and regulations 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.

Community Trust Bancorp, Inc., with assets of $3.7 billion, is headquartered in Pikeville, Kentucky and has 71 banking locations across eastern, northeastern, central, and south central Kentucky, six banking locations in southern West Virginia, four banking locations in northeastern Tennessee, four trust offices across Kentucky, and one trust office in Tennessee.

Additional information follows.

 
Community Trust Bancorp, Inc.
Financial Summary (Unaudited)
September 30, 2014
(in thousands except per share data and # of employees)
                   
Three Three Three Nine Nine
Months Months Months Months Months
Ended Ended Ended Ended Ended
September 30, 2014 June 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013
Interest income $ 35,957 $ 35,811 $ 37,455 $ 107,461 $ 111,014
Interest expense   2,969     2,978     3,305     8,890     10,325  
Net interest income 32,988 32,833 34,150 98,571 100,689
Loan loss provision 3,300 735 2,129 5,380 7,349
 
Gains on sales of loans 303 288 653 781 2,805
Deposit service charges 6,321 5,987 6,349 17,739 18,298
Trust revenue 2,395 2,199 2,005 6,703 6,028
Loan related fees 1,128 766 1,088 2,573 3,532
Securities gains (losses) (34 ) (51 ) (23 ) (145 ) (31 )
Other noninterest income   1,893     1,783     1,999     5,392     6,633  
Total noninterest income 12,006 10,972 12,071 33,043 37,265
 
Personnel expense 13,465 13,274 13,248 40,156 39,444
Occupancy and equipment 2,838 2,875 2,865 8,777 8,730
Data processing expense 2,017 1,933 1,850 5,875 5,438
FDIC insurance premiums 575 558 624 1,782 1,863
Other noninterest expense   6,968     6,616     7,004     21,390     22,402  
Total noninterest expense 25,863 25,256 25,591 77,980 77,877
 
Net income before taxes 15,831 17,814 18,501 48,254 52,728
Income taxes   4,907     5,619     5,848     14,995     16,313  
Net income $ 10,924   $ 12,195   $ 12,653   $ 33,259   $ 36,415  
 
Memo: TEQ interest income $ 36,444 $ 36,298 $ 37,905 $ 108,883 $ 112,356
 
Average shares outstanding 17,326 17,318 17,154 17,317 17,123
Diluted average shares outstanding 17,402 17,393 17,257 17,395 17,212
Basic earnings per share $ 0.63 $ 0.70 $ 0.74 $ 1.92 $ 2.13
Diluted earnings per share $ 0.63 $ 0.70 $ 0.73 $ 1.91 $ 2.12
Dividends per share $ 0.300 $ 0.290 $ 0.291 $ 0.881 $ 0.863
 
Average balances:
Loans $ 2,656,523 $ 2,604,064 $ 2,596,805 $ 2,618,995 $ 2,572,096
Earning assets 3,426,195 3,413,628 3,372,755 3,409,905 3,386,571
Total assets 3,677,142 3,670,820 3,638,742 3,665,607 3,654,547
Deposits, including repurchase agreements 3,127,372 3,129,289 3,121,466 3,123,659 3,132,032
Interest bearing liabilities 2,544,960 2,554,122 2,578,567 2,548,602 2,591,766
Shareholders' equity 438,399 432,211 405,043 431,317 405,930
 
Performance ratios:
Return on average assets 1.18 % 1.33 % 1.38 % 1.21 % 1.33 %
Return on average equity 9.89 % 11.32 % 12.39 % 10.31 % 11.99 %
Yield on average earning assets (tax equivalent) 4.22 % 4.26 % 4.46 % 4.27 % 4.44 %
Cost of interest bearing funds (tax equivalent) 0.46 % 0.47 % 0.51 % 0.47 % 0.53 %
Net interest margin (tax equivalent) 3.88 % 3.92 % 4.07 % 3.92 % 4.03 %
Efficiency ratio (tax equivalent) 56.82 % 56.96 % 54.80 % 58.55 % 55.89 %
 
Loan charge-offs $ 3,470 $ 1,629 $ 2,519 $ 7,644 $ 8,822
Recoveries   (643 )   (896 )   (802 )   (2,346 )   (2,241 )
Net charge-offs $ 2,827 $ 733 $ 1,717 $ 5,298 $ 6,581
 
Market Price:
High $ 36.35 $ 38.60 $ 37.76 $ 41.13 $ 37.76
Low $ 33.47 $ 32.33 $ 32.55 $ 32.33 $ 29.23
Close $ 33.63 $ 34.22 $ 36.90 $ 33.63 $ 36.90
 
 
Community Trust Bancorp, Inc.
Financial Summary (Unaudited)
September 30, 2014
(in thousands except per share data and # of employees)
           
As of As of As of
September 30, 2014 June 30, 2014 September 30, 2013
Assets:
Loans $ 2,683,905 $ 2,632,609 $ 2,616,365
Loan loss reserve   (34,090 )   (33,617 )   (34,013 )
Net loans 2,649,815 2,598,992 2,582,352
Loans held for sale 367 895 768
Securities AFS 633,572 647,536 663,916
Securities HTM 1,662 1,662 1,662
Other equity investments 22,814 22,814 30,559
Other earning assets 66,971 76,653 46,156
Cash and due from banks 62,510 72,637 74,252
Premises and equipment 50,604 50,552 51,898
Goodwill and core deposit intangible 66,020 66,074 66,234
Other assets   115,751     114,787     126,057  
Total Assets $ 3,670,086   $ 3,652,602   $ 3,643,854  
 
Liabilities and Equity:
NOW accounts $ 33,208 $ 28,851 $ 26,889
Savings deposits 930,225 911,073 864,073
CD's >=$100,000 592,684 601,602 627,347
Other time deposits   685,964     694,075     739,179  
Total interest bearing deposits 2,242,081 2,235,601 2,257,488
Noninterest bearing deposits   660,100     651,588     616,796  
Total deposits 2,902,181 2,887,189 2,874,284
Repurchase agreements 220,095 217,979 214,755
Other interest bearing liabilities 73,654 77,774 106,590
Noninterest bearing liabilities   35,918     35,782     39,548  
Total liabilities 3,231,848 3,218,724 3,235,177
Shareholders' equity   438,238     433,878     408,677  
Total Liabilities and Equity $ 3,670,086   $ 3,652,602   $ 3,643,854  
 
Ending shares outstanding 17,431 17,421 17,267
Memo: Market value of HTM securities $ 1,631 $ 1,632 $ 1,614
 
30 - 89 days past due loans $ 20,877 $ 21,466 $ 23,274
90 days past due loans 19,607 18,807 25,133
Nonaccrual loans 28,951 25,725 17,131
Restructured loans (excluding 90 days past due and nonaccrual) 44,926 45,756 42,630
Foreclosed properties 32,747 33,062 42,481
Other repossessed assets 5 5 -
 
Tier 1 leverage ratio 11.97 % 11.83 % 11.29 %
Tier 1 risk based ratio 16.57 % 16.66 % 15.71 %
Total risk based ratio 17.82 % 17.91 % 16.96 %
Tangible equity to tangible assets ratio 10.33 % 10.26 % 9.57 %
FTE employees 1,013 1,016 1,026
 
 
Community Trust Bancorp, Inc.
Financial Summary (Unaudited)
September 30, 2014
(in thousands except per share data and # of employees)
               
Community Trust Bancorp, Inc. reported earnings for the three and nine months ending September 30, 2014 and 2013 as follows:
 
Three Months Ended Nine Months Ended
September 30 September 30
2014 2013 2014 2013
Net income $ 10,924 $ 12,653 $ 33,259 $ 36,415
 
Basic earnings per share $ 0.63 $ 0.74 $ 1.92 $ 2.13
 
Diluted earnings per share $ 0.63 $ 0.73 $ 1.91 $ 2.12
 
Average shares outstanding 17,326 17,154 17,317 17,123
 
Total assets (end of period) $ 3,670,086 $ 3,643,854
 
Return on average equity 9.89 % 12.39 % 10.31 % 11.99 %
 
Return on average assets 1.18 % 1.38 % 1.21 % 1.33 %
 
Provision for loan losses $ 3,300 $ 2,129 $ 5,380 $ 7,349
 
Gains on sales of loans $ 303 $ 653 $ 781 $ 2,805

Contacts

Community Trust Bancorp, Inc.
Jean R. Hale, 606-437-3294
Chairman, President, and C.E.O.

Contacts

Community Trust Bancorp, Inc.
Jean R. Hale, 606-437-3294
Chairman, President, and C.E.O.