Community Trust Bancorp, Inc. Reports Increased Earnings For The Year 2011

Community Trust Bancorp, Inc. (NASDAQ:CTBI):
                     
Earnings Summary          
(in thousands except per share data)   4Q

2011
  3Q

2011
  4Q

2010
 

Year

2011
 

Year

2010
Net income $ 9,888 $ 10,665 $ 9,240 $ 38,827 $ 33,034
Earnings per share $ 0.64 $ 0.70 $ 0.61 $ 2.54 $ 2.17
Earnings per share—diluted $ 0.64 $ 0.70 $ 0.60 $ 2.53 $ 2.16
 
Return on average assets 1.09% 1.20% 1.11% 1.11% 1.03%
Return on average equity 10.71% 11.75% 10.71% 10.91% 9.90%
Efficiency ratio 60.15% 58.10% 58.50% 60.23% 59.45%
Tangible common equity 8.52% 8.44% 8.26% 8.52% 8.26%
 
Dividends declared per share $ 0.31 $ 0.31 $ 0.305 $ 1.23 $ 1.21
Book value per share $ 23.78 $ 23.44 $ 22.08 $ 23.78 $ 22.08
 
Weighted average shares 15,332 15,318 15,265 15,313 15,234
Weighted average shares—diluted     15,357     15,339     15,294     15,337     15,259
 

Community Trust Bancorp, Inc. (NASDAQ:CTBI) reports earnings of $9.9 million, or $0.64 per basic share, compared to $9.2 million, or $0.61 per basic share, earned during the fourth quarter of 2010 and $10.7 million, or $0.70 per basic share, earned during the third quarter 2011. Earnings for the year ended December 31, 2011 increased 17.5% to $38.8 million, or $2.54 per basic share, from the $33.0 million, or $2.17 per basic share, earned during the year ended December 31, 2010.

Fourth Quarter and Year 2011 Highlights

  • CTBI's basic earnings per share for the quarter increased $0.03 per share from fourth quarter 2010 but were $0.06 per share below third quarter 2011. Earnings per share for the year 2011 increased $0.37 per share from prior year with increased net interest income and noninterest income and decreased provision for loan loss partially offset by increased noninterest expense.
  • Noninterest expense was significantly impacted by a $3.2 million decrease in the carrying value of two groups of foreclosed properties that were vandalized. Claims have been filed with the insurance carriers and discussions are ongoing. Since no agreement has been reached, the amount of recovery is uncertain. Accordingly, the entire decrease in the carrying value of the properties has been charged against earnings and no estimate of insurance recovery is reflected at December 31, 2011.
  • Due to increased liquidity and changes in earning asset mix, CTBI’s quarterly net interest margin of 3.98% was a decrease from 4.15% for the quarter ended December 31, 2010 and 4.11% for prior quarter. Net interest margin for the year 2011 of 4.13% was a 6 basis point increase from prior year.
  • Nonperforming loans at $37.3 million decreased from the $62.0 million at December 31, 2010 and the $37.5 million at September 30, 2011. Nonperforming assets at $93.9 million decreased $11.2 million from prior year and $1.7 million from prior quarter.
  • Our loan loss provision for the quarter decreased $0.9 million from prior year fourth quarter but increased $0.5 million from prior quarter. Loan loss provision for the year 2011 was $3.2 million below 2010.
  • Net loan charge-offs for the quarter ended December 31, 2011 of $4.9 million, or 0.75% of average loans annualized, was an increase from the $3.4 million, or 0.54%, experienced for the fourth quarter 2010 and from prior quarter’s $2.7 million, or 0.41%.
  • Our loan loss reserve as a percentage of total loans outstanding at December 31, 2011 decreased to 1.30% compared to 1.34% at December 31, 2010 and 1.36% at September 30, 2011. Our reserve coverage (allowance for loan loss reserve to nonperforming loans) of 93.3% at September 30, 2011 began to show improvement from the 59.0% and 56.1% at June 30, 2011 and December 31, 2010, respectively. Our December 31, 2011 reserve coverage of 89.0% evidenced two consecutive quarters of continued improvement. Several of the matrices and factors utilized in evaluating the adequacy of our loan loss reserve also show significant improvement, including level of past dues, nonperforming loans, and nonaccrual loans, and after two consecutive quarters of continued improvement, we determined that our loan loss reserve of 1.30% was adequate. The allowance-to-legacy loan ratio, which excludes acquired loans, was 1.34%, 1.40%, and 1.41%, respectively, at December 31, 2011, December 31, 2010, and September 30, 2011.
  • Noninterest income increased 4.6% for the quarter ended December 31, 2011 compared to same period 2010 and 5.6% compared to prior quarter. Noninterest income for the year ended December 31, 2011 increased 7.1% from prior year, primarily due to increased gains on sales of loans, deposit service charges, and trust revenue.
  • Our loan portfolio decreased $48.6 million from prior year and $17.0 million from prior quarter.
  • Our investment portfolio increased $188.7 million from prior year and $63.8 million during the quarter.
  • Deposits, including repurchase agreements, increased $201.1 million from prior year and $57.7 million from prior quarter.
  • Our tangible common equity/tangible assets ratio remains strong at 8.52%.

Net Interest Income

CTBI experienced a 6 basis point improvement in its net interest margin for the year 2011 compared to prior year. Net interest income for the year increased 10.2% from prior year. Our quarterly net interest margin, however, decreased 17 basis points from prior year and 13 basis points from prior quarter. Net interest income for the fourth quarter 2011 increased 5.3% from prior year fourth quarter but decreased 0.6% from prior quarter with average earning assets increasing 9.8% and 2.7%, respectively, for the same periods. The yield on average earning assets decreased 47 basis points from prior year fourth quarter and 20 basis points from prior quarter. The decline in yield on earning assets is the result of a change in our earning asset mix. Loans represented 77.3% of our average earning assets for the quarter ended December 31, 2011, compared to 83.5% and 79.7% for the quarters ended December 31, 2010 and September 30, 2011, respectively. As deposits, including repurchase agreements, have increased and loan demand has slowed, management has chosen to invest the excess liquidity in our investment portfolio resulting in increased net interest income while decreasing our net interest margin. The cost of interest bearing funds decreased 39 basis points and 9 basis points, respectively, for the same periods, primarily the result of the repricing of our CD products.

Noninterest Income

Noninterest income for the quarter ended December 31, 2011 increased 4.6% from prior year fourth quarter and 5.6% from prior quarter. Noninterest income for the year ended December 31, 2011 increased 7.1% from prior year. The year over year increase was primarily attributable to increased gains on sales of loans, deposit service charges, and trust revenue partially offset by decreased loan related fees.

Noninterest Expense

Noninterest expense for the quarter increased 7.7% from prior year fourth quarter and 4.0% from prior quarter. The quarter over quarter increase from December 31, 2010 is primarily a result of increased other real estate owned expense partially offset by declines in personnel expense, due to the reversal of a performance based incentive, and FDIC insurance premiums, due to a change in the assessment base. Noninterest expense for the year ended December 31, 2011 increased 10.8% from prior year, primarily as a result of increased personnel expense, including health insurance; repossession expense; and other real estate owned expense, including adjustments to reflect declines in the values of foreclosed properties, as well as expected losses in investments in limited partnerships that were offset by tax credits. Other real estate owned expense during the quarter of $3.6 million was significantly impacted by a $3.2 million decrease in the carrying value of two groups of foreclosed properties that were vandalized. Claims have been filed with the insurance carriers, and discussions are ongoing. Since no agreement has been reached, the amount of recovery is uncertain. Accordingly, the entire decrease in the carrying value of the properties has been charged against earnings and no estimate of insurance recovery is reflected at December 31, 2011.

Balance Sheet Review

CTBI’s total assets at $3.6 billion increased $235.3 million, or 7.0%, from December 31, 2010 and $34.5 million, or an annualized 3.9%, during the quarter. Loans outstanding at December 31, 2011 were $2.6 billion, decreasing $48.6 million, or 1.9%, year over year, and $17.0 million, or an annualized 2.6%, during the quarter. Loan growth during the quarter of $9.0 million in the residential loan portfolio was offset by declines of $11.2 million in the commercial loan portfolio and $14.8 million in the consumer loan portfolio. CTBI's investment portfolio increased $188.7 million, or 55.5%, from December 31, 2010 and $63.8 million, or an annualized 54.4%, during the quarter. Deposits, including repurchase agreements, at $3.1 billion increased $201.1 million, or 6.9%, from December 31, 2010 and $57.7 million, or an annualized 7.5%, from prior quarter.

Shareholders’ equity at December 31, 2011 was $366.9 million compared to $338.6 million at December 31, 2010 and $361.3 million at September 30, 2011. CTBI's annualized dividend yield to shareholders as of December 31, 2011 was 4.21%.

Asset Quality

CTBI's total nonperforming loans were $37.3 million at December 31, 2011, a 39.9% decrease from the $62.0 million at December 31, 2010 and a 0.7% decrease from the $37.5 million at September 30, 2011. The decrease for the quarter included a $2.2 million decrease in nonaccrual loans offset by a $2.0 million increase in the 90+ days past due category. Loans 30-89 days past due at $21.7 million is a decline of $6.7 million from December 31, 2010 and a $4.5 million decline from prior quarter. 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, at December 31, 2011 totaled $47.4 million, compared to $56.0 million at September 30, 2011. Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired. At December 31, 2011, CTBI had $18.9 million in commercial loans secured by real estate, $5.5 million in commercial real estate construction loans, $2.4 million in commercial other loans, and $0.3 million in consumer loans that were modified in troubled debt restructurings and impaired. Included in these amounts are troubled debt restructurings that were performing in accordance with their modified terms of $16.1 million in commercial loans secured by real estate, $1.3 million in commercial real estate construction loans, $0.4 million in commercial other loans, and $0.2 million in consumer loans. Management evaluates all impaired loans for impairment and provides specific reserves when necessary.

Our level of foreclosed properties at $56.5 million at December 31, 2011 was an increase from the $42.9 million at December 31, 2010 but a decrease from the $58.0 million at prior quarter-end. Sales of foreclosed properties for the year ended December 31, 2011 totaled $11.8 million while new foreclosed properties totaled $31.5 million. At December 31, 2011, eleven properties with a book value of $2.2 million were under contracts to sell; however, the closings had not occurred at quarter-end. The proceeds of these sales per the contracts is $2.3 million, representing 106% of the book value of those properties.

When foreclosed properties are acquired, appraisals are obtained and the properties are booked at the current market value less expected sales expense. Additionally, periodic updated appraisals are obtained on unsold foreclosed properties. When an updated appraisal reflects a market value below the current book value, a charge is booked to current earnings to reduce the property to its new market value less expected sales expense. Charges to earnings to reflect the decrease in current market values of foreclosed properties totaled $3.6 million, including a $3.2 million charge due to the decrease in the carrying value of two groups of foreclosed properties that were vandalized. There were 28 properties reappraised during the fourth quarter of 2011, excluding those vandalized, totaling $6.7 million. Of these, fourteen were written down by a total of $0.4 million or 7.0%. Charges during the quarters ended December 31, 2010 and September 30, 2011 were $0.2 million and $0.7 million, respectively. The charges for the years ended December 31, 2011 and 2010 were $6.4 million and $0.7 million, respectively. Our policy for determining the frequency of periodic reviews is based upon consideration of the specific properties and the known or perceived market fluctuations in a particular market and is typically between 12 and 18 months. Ninety percent of our OREO properties have been reappraised within the past 12 months. Our nonperforming loans and foreclosed properties remain primarily concentrated in our Central Kentucky Region. Management anticipates that our foreclosed properties will remain elevated as we work through current market conditions.

Net loan charge-offs for the quarter were $4.9 million, or 0.75% of average loans annualized, an increase from prior year fourth quarter's $3.4 million, or 0.54%, and prior quarter’s $2.7 million, or 0.41%. Of the total net charge-offs for the quarter, $3.2 million were in commercial loans, $0.8 million were in indirect auto loans, and $0.4 million were in residential real estate mortgage loans. Specific reserves covered 90.3% of the commercial loan charge-offs. Allocations to loan loss reserves were $3.0 million for the quarter ended December 31, 2011 compared to $4.0 million for the quarter ended December 31, 2010 and $2.5 million for the quarter ended September 30, 2011. Our loan loss reserve as a percentage of total loans outstanding at December 31, 2011 was 1.30% compared to 1.34% at December 31, 2010 and 1.36% at September 30, 2011. Our reserve coverage (allowance for loan loss reserve to nonperforming loans) of 93.3% at September 30, 2011 began to show improvement from the 59.0% and 56.1% at June 30, 2011 and December 31, 2010, respectively. Our December 31, 2011 reserve coverage of 89.0% evidenced two consecutive quarters of continued improvement. Several of the matrices and factors utilized in evaluating the adequacy of our loan loss reserve also show significant improvement, including level of past dues, nonperforming loans, and nonaccrual loans, and after two consecutive quarters of continued improvement, we determined that our loan loss reserve of 1.30% was adequate. Generally accepted accounting principles require that expected credit losses associated with loans obtained in an acquisition be reflected in the estimation of loan fair value as of the acquisition date and prohibits any carryover of an allowance for credit losses. Excluding amounts related to loans obtained in the fourth quarter 2010 acquisition of LaFollette, the allowance-to-legacy loan ratio was 1.34%, 1.40%, and 1.41%, respectively, at December 31, 2011, December 31, 2010, and September 30, 2011.

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 $3.6 billion, is headquartered in Pikeville, Kentucky and has 70 banking locations across eastern, northeastern, central, and south central Kentucky, six banking locations in southern West Virginia, four banking locations in Tennessee, and four trust offices across Kentucky.

Additional information follows.
 
Community Trust Bancorp, Inc.
Financial Summary (Unaudited)
December 31, 2011
(in thousands except per share data and # of employees)
           
Three Three Three Twelve Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
December 31, 2011 September 30, 2011 December 31, 2010 December 31, 2011 December 31, 2010
Interest income $ 39,051 $ 39,708 $ 39,255 $ 158,460 $ 154,511
Interest expense   6,143     6,613     8,001     27,005     35,257  
Net interest income 32,908 33,095 31,254 131,455 119,254
Loan loss provision 3,040 2,515 3,980 13,262 16,484
 
Gains on sales of loans 583 438 288 1,749 1,642
Deposit service charges 6,577 6,681 6,089 25,576 23,255
Trust revenue 1,564 1,597 1,472 6,354 5,846
Loan related fees 763 250 1,499 2,372 3,247
Securities gains 218 - - 218 -
Other noninterest income   1,854     1,976     1,698     7,563     6,936  
Total noninterest income 11,559 10,942 11,046 43,832 40,926
 
Personnel expense 11,754 12,240 12,627 48,795 47,264
Occupancy and equipment 2,855 3,021 2,823 11,679 10,923
FDIC insurance premiums 638 591 1,153 3,192 4,410
Amortization of core deposit intangible 53 53 40 213 430
Other noninterest expense   11,567     9,922     8,313     42,508     33,023  
Total noninterest expense   26,867     25,827     24,956     106,387     96,050  
 
Net income before taxes 14,560 15,695 13,364 55,638 47,646
Income taxes   4,672     5,030     4,124     16,811     14,612  
Net income $ 9,888   $ 10,665   $ 9,240   $ 38,827   $ 33,034  
 
Memo: TEQ interest income $ 39,468 $ 40,122 $ 39,610 $ 160,037 $ 155,887
 
Average shares outstanding 15,332 15,318 15,265 15,313 15,234
Diluted average shares outstanding 15,357 15,339 15,294 15,337 15,259
Basic earnings per share $ 0.64 $ 0.70 $ 0.61 $ 2.54 $ 2.17
Diluted earnings per share $ 0.64 $ 0.70 $ 0.60 $ 2.53 $ 2.16
Dividends per share $ 0.31 $ 0.31 $ 0.305 $ 1.23 $ 1.21
 
Average balances:
Loans $ 2,566,047 $ 2,577,585 $ 2,525,256 $ 2,580,351 $ 2,461,225
Earning assets 3,320,294 3,232,322 3,025,155 3,221,648 2,961,971
Total assets 3,611,517 3,516,394 3,295,719 3,505,903 3,220,087
Deposits 2,868,998 2,819,166 2,634,055 2,811,333 2,574,961
Interest bearing liabilities 2,593,362 2,542,397 2,392,413 2,540,317 2,341,272
Shareholders' equity 366,352 360,273 342,380 355,773 333,645
 
Performance ratios:
Return on average assets 1.09 % 1.20 % 1.11 % 1.11 % 1.03 %
Return on average equity 10.71 % 11.75 % 10.71 % 10.91 % 9.90 %
Yield on average earning assets (tax equivalent) 4.72 % 4.92 % 5.19 % 4.97 % 5.26 %
Cost of interest bearing funds (tax equivalent) 0.94 % 1.03 % 1.33 % 1.06 % 1.51 %
Net interest margin (tax equivalent) 3.98 % 4.11 % 4.15 % 4.13 % 4.07 %
Efficiency ratio (tax equivalent) 60.15 % 58.10 % 58.50 % 60.23 % 59.45 %
 
Loan charge-offs $ 5,446 $ 3,360 $ 4,254 $ 17,534 $ 17,636
Recoveries   (578 )   (692 )   (841 )   (2,638 )   (3,314 )
Net charge-offs $ 4,868 $ 2,668 $ 3,413 $ 14,896 $ 14,322
 
Market Price:
High $ 29.99 $ 28.82 $ 29.91 $ 30.35 $ 31.56
Low 22.28 22.64 26.52 22.28 22.15
Close 29.42 23.29 28.96 29.42 28.96
 
 
Community Trust Bancorp, Inc.
Financial Summary (Unaudited)
December 31, 2011
(in thousands except per share data and # of employees)
 
          As of   As of   As of
December 31, 2011 September 30, 2011 December 31, 2010
Assets:
Loans $ 2,556,548 $ 2,573,557 $ 2,605,180
Loan loss reserve   (33,171 )   (34,999 )   (34,805 )
Net loans 2,523,377 2,538,558 2,570,375
Loans held for sale 536 826 455
Securities AFS 527,398 463,610 338,675
Securities HTM 1,662 1,662 1,662
Other equity investments 30,556 30,556 30,107
Other earning assets 182,484 192,300 113,037
Cash and due from banks 69,723 73,236 62,559
Premises and equipment 54,297 55,168 55,343
Goodwill and core deposit intangible 66,607 66,660 66,841
Other assets   134,539     134,085     116,818  
Total Assets $ 3,591,179   $ 3,556,661   $ 3,355,872  
 
Liabilities and Equity:
NOW accounts $ 19,113 $ 19,701 $ 33,641
Savings deposits 821,036 734,660 679,755
CD's >=$100,000 647,557 631,991 609,930
Other time deposits   805,918     820,409     857,313  
Total interest bearing deposits 2,293,624 2,206,761 2,180,639
Noninterest bearing deposits   584,735     602,061     525,478  
Total deposits 2,878,359 2,808,822 2,706,117
Repurchase agreements 217,177 229,000 188,275
Other interest bearing liabilities 96,054 99,344 92,259
Noninterest bearing liabilities   32,723     58,217     30,583  
Total liabilities 3,224,313 3,195,383 3,017,234
Shareholders' equity   366,866     361,278     338,638  
Total Liabilities and Equity $ 3,591,179   $ 3,556,661   $ 3,355,872  
 
Ending shares outstanding 15,430 15,415 15,334
Memo: Market value of HTM securities $ 1,661 $ 1,663 $ 1,662
 
30 - 89 days past due loans $ 21,721 $ 26,177 $ 28,425
90 days past due loans 11,515 9,543 17,014
Nonaccrual loans 25,753 27,986 45,021
Restructured loans (excluding 90 days past due and nonaccrual) 19,305 21,347 5,690
Foreclosed properties 56,545 58,004 42,935
Other repossessed assets 58 58 129
 
Tier 1 leverage ratio 9.89 % 10.00 % 10.16 %
Tier 1 risk based ratio 13.88 % 13.65 % 12.90 %
Total risk based ratio 15.14 % 14.92 % 14.10 %
Tangible equity to tangible assets ratio 8.52 % 8.44 % 8.26 %
FTE employees 1,015 1,019 1,041
 
 
Community Trust Bancorp, Inc.
Financial Summary (Unaudited)
December 31, 2011
(in thousands except per share data and # of employees)
         
Community Trust Bancorp, Inc. reported earnings for the three and twelve months ending December 31, 2011 and 2010 as follows:
 
Three Months Ended Twelve Months Ended
December 31 December 31
2011 2010 2011 2010
Net income $ 9,888 $ 9,240 $ 38,827 $ 33,034
 
Basic earnings per share $ 0.64 $ 0.61 $ 2.54 $ 2.17
 
Diluted earnings per share $ 0.64 $ 0.60 $ 2.53 $ 2.16
 
Average shares outstanding 15,332 15,265 15,313 15,234
 
Total assets (end of period) $ 3,591,179 $ 3,355,872
 
Return on average equity 10.71 % 10.71 % 10.91 % 9.90 %
 
Return on average assets 1.09 % 1.11 % 1.11 % 1.03 %
 
Provision for loan losses $ 3,040 $ 3,980 $ 13,262 $ 16,484
 
Gains on sales of loans $ 583 $ 288 $ 1,749 $ 1,642

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