CTBI Community Trust Bancorp Inc

Community Trust Bancorp, Inc. (NASDAQ: CTBI):

  Earnings Summary (in thousands except per share data)   2Q

2010

  1Q

2010

  2Q

2009

  6 Months

2010

  6 Months

2009

Net income   $ 8,553   $ 6,791   $ 5,937   $ 15,344   $ 12,517 Earnings per share $ 0.56 $ 0.45 $ 0.39 $ 1.01 $ 0.83 Earnings per share--diluted $ 0.56 $ 0.45 $ 0.39 $ 1.01 $ 0.82   Return on average assets 1.06% 0.88% 0.78% 0.98% 0.83% Return on average equity 10.40% 8.47% 7.54% 9.44% 8.02% Efficiency ratio 60.41% 59.45% 64.25% 59.93% 66.08% Tangible common equity 8.43% 8.36% 8.38% 8.43% 8.38%   Dividends declared per share $ 0.30 $ 0.30 $ 0.30 $ 0.60 $ 0.60 Book value per share $ 21.69 $ 21.35 $ 20.80 $ 21.69 $ 20.80   Weighted average shares 15,228 15,202 15,127 15,215 15,101 Weighted average shares--diluted 15,305 15,235 15,219 15,252 15,194  

Community Trust Bancorp, Inc. (NASDAQ-CTBI) reports earnings for the second quarter 2010 of $8.6 million or $0.56 per basic share compared to $6.8 million or $0.45 per basic share earned during the quarter ended March 31, 2010 and $5.9 million or $0.39 per basic share earned during the second quarter of 2009. Earnings for the six months ended June 30, 2010 were $15.3 million or $1.01 per basic share compared to $12.5 million or $0.83 per basic share for the six months ended June 30, 2009.

CTBI continues to maintain a significantly higher level of capital than required by regulatory authorities to be designated as well-capitalized. On June 30, 2010, our Tangible Common Equity/Tangible Assets Ratio remained significantly higher than our peer institutions at 8.43%, our Tier 1 Leverage Ratio of 10.12% was 512 basis points higher than the 5.00% required, our Tier 1 Risk-Based Capital Ratio of 13.20% was 720 basis points higher than the required 6.00%, and our Total Risk-Based Capital Ratio of 14.46% was 446 basis points higher than the 10.00% regulatory requirement for this designation.

Second Quarter 2010 Highlights

• As announced on June 8, 2010, CTBI has entered into an acquisition agreement and plan of share exchange with LaFollette First National Corporation and First National Bank of LaFollette, the wholly-owned subsidiary of LaFollette Corporation.
• CTBI's quarterly basic earnings per share increased $0.11 per share from first quarter 2010 and $0.17 per share from second quarter 2009. Year-to-date basic earnings per share increased $0.18 per share from prior year. Year-to-date earnings were positively impacted by increased net interest income; however, this was partially offset by an increased provision for loan losses.
• CTBI experienced significant improvement in our net interest margin year over year; however, our net interest margin for the quarter decreased 20 basis points from first quarter 2010.
• Nonperforming loans increased $7.4 million during the second quarter 2010 to $62.3 million compared to $54.9 million at prior quarter end and $59.6 million at June 30, 2009. The linked quarter increase in nonperforming loans was in the nonaccrual classification. Nonperforming assets increased $8.7 million from prior quarter-end and $22.5 million from prior year second quarter.
• The loan loss provision for the six months ended June 30, 2010 increased $2.3 million from prior year to support the increase in nonperforming loans year over year per CTBI’s robust loan portfolio management process and loan loss reserve analysis. This increase resulted in an increase in the loan loss reserve ratio to 1.48% from 1.32% at June 30, 2009.
• Net loan charge-offs for the quarter ended June 30, 2010 of $1.8 million, or 0.30% of average loans annualized, was a reduction from prior quarter’s 0.58% and from the 0.63% experienced for the second quarter 2009.
• Noninterest income decreased for the period ended June 30, 2010 compared to same period 2009 as a result of decreased gains on sales of loans and loan related fees. The decrease in loan related fees resulted from a $0.7 million decline in the fair value of our mortgage servicing rights portfolio. The decline in these noninterest income sources, however, was partially offset by increases in trust revenue and deposit service charges.
• Our loan portfolio increased $12.3 million, an annualized rate of 2.0%, during the quarter with increases in the commercial and residential loan portfolios offset partially by a decline in the consumer loan portfolio.
• Our investment portfolio increased $32.9 million during the quarter as deposit growth continued to be stronger than loan demand.
• Our tangible common equity/tangible assets ratio remains strong at 8.43%.

Net Interest Income

CTBI saw improvement in its net interest margin of 49 basis points for the first six months of 2010 and 38 basis points for the second quarter 2010 compared to 2009; however, we saw a 20 basis point decline from prior quarter due to the increase in deposits during a time of weak loan demand and limited alternative investment opportunities. Net interest income for the quarter decreased 0.2% from prior quarter but increased 15.2% from prior year second quarter with average earning assets increasing 3.6% and 4.2%, respectively, for the same periods. The yield on average earning assets decreased 26 basis points from prior quarter and 14 basis points from prior year second quarter as higher yielding investment opportunities are limited. The cost of interest bearing funds decreased 7 basis points and 68 basis points, respectively, for the same periods. Net interest income for the six months ended June 30, 2010 increased 17.5% from prior year.

Noninterest Income

Noninterest income for the quarter ended June 30, 2010 decreased 2.0% and 12.9% from prior quarter and prior year second quarter, respectively. Year-to-date noninterest income declined 11.2% from prior year. The decrease in noninterest income was significantly impacted by decreased gains on sales of loans as 2009 was a period of significant refinancing of residential real estate loans, as well as a $0.7 million decline in the fair value of our mortgage servicing rights. The decline in these noninterest income sources was partially offset by increases in trust and brokerage revenue and deposit service charges.

Noninterest Expense

Noninterest expense for the quarter increased 0.9% from prior quarter and 0.3% from prior year second quarter. Noninterest expense for the first six months 2010, however, decreased 0.6% from 2009 as increased personnel expenses were offset by a decrease in FDIC insurance premiums and special assessment.

Balance Sheet Review

CTBI continues to experience internal growth of its banking franchise. Total assets at $3.2 billion increased an annualized 5.1% during the quarter and 5.7% from the second quarter 2009. Loans outstanding at June 30, 2010 were $2.4 billion with an annualized 2.0% growth from March 31, 2010 and 2.6% growth from prior year. Loan growth during the quarter of $16.9 million in the commercial loan portfolio and $6.9 million in the residential loan portfolio was partially offset by a decline in the consumer loan portfolio of $11.5 million. CTBI's investment portfolio increased $32.9 million over prior quarter and $36.4 million from prior year second quarter as CTBI continues to experience good growth in its deposit base while loan demand remains weak. Deposits, including repurchase agreements, at $2.8 billion increased an annualized 5.5% from prior quarter and 8.2% from June 30, 2009.

Shareholders’ equity at June 30, 2010 was $330.3 million compared to $324.9 million at March 31, 2010 and $314.8 million at June 30, 2009. CTBI's annualized dividend yield to shareholders as of June 30, 2010 was 4.78%.

Asset Quality

CTBI's total nonperforming loans were $62.3 million at June 30, 2010, an increase from the $54.9 million at March 31, 2010 and $59.6 million at June 30, 2009. The $7.4 million increase in nonperforming loans is primarily attributable to three commercial loan relationships, a $4.1 million motel loan, and $2.9 million in two residential real estate development loans in Central Kentucky. Loans 30-89 days past due decreased $12.5 million including the $7.4 million movement of loans into nonperforming status. Loans past-due 30-89 days at June 30, 2010 were $23.7 million, a decrease from the $36.2 million at March 31, 2010 but an increase from the $20.4 million at June 30, 2009. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.

Our level of foreclosed properties increased to $40.1 million for the second quarter 2010 compared to the $38.6 million at March 31, 2010 and $20.4 million at June 30, 2009. Sales of foreclosed properties for the six months ended June 30, 2010 totaled $3.5 million while new foreclosed properties totaled $6.5 million. Our nonperforming loans and foreclosed properties remain primarily concentrated in our Central Kentucky Region.

Net loan charge-offs for the quarter were $1.8 million, or 0.30% of average loans annualized, a decline from prior quarter’s $3.5 million or 0.58% and prior year second quarter's $3.7 million or 0.63%. Of the total net charge-offs for the quarter of $1.8 million, $0.6 million was in commercial loans, $0.5 million was in indirect auto loans, and $0.4 million was in residential real estate mortgage loans. Specific reserves covered 77.0% of the commercial loan charge-offs. Allocations to loan loss reserves were $3.1 million for the quarter ended June 30, 2010 compared to $5.7 million for the quarter ended March 31, 2010 and $4.5 million for the quarter ended June 30, 2009. Our loan loss reserves as a percentage of total loans outstanding at June 30, 2010 increased to 1.48% from 1.44% at March 31, 2010 and 1.32% at June 30, 2009. The adequacy of our loan loss reserves is analyzed quarterly and adjusted as necessary with a focus on maintaining appropriate reserves for potential losses. The analysis includes an individual loan review including current valuation of the collateral. Specific reserves are allocated to address any identified shortfalls in collateral while additional reserves address many other considerations, including but not limited to historical losses, loss trends, and current economic conditions, for an adequate reserve coverage.

Pending Acquisition

On June 8, 2010, CTBI announced that it had entered into an Agreement and Plan of Share Exchange (the “Agreement”) with LaFollette First National Corporation, a Tennessee corporation (“LaFollette Corporation”) and First National Bank of LaFollette, the wholly-owned subsidiary of LaFollette Corporation (“LaFollette Bank”). The Agreement calls for CTBI to acquire all outstanding shares of LaFollette Corporation in a share exchange (“Share Exchange”) for $650 per share, or a total of approximately $16.1 million. Following the Share Exchange, LaFollette Corporation will be merged into CTBI and LaFollette Bank will be merged into Community Trust Bank, Inc., the wholly-owned subsidiary of CTBI. The Agreement is subject to certain conditions, including the receipt of regulatory approval and the approval of LaFollette Corporation shareholders.

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 $3.2 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, and five trust offices across Kentucky.

Additional information follows.

  Community Trust Bancorp, Inc. Financial Summary (Unaudited) June 30, 2010 (in thousands except per share data and # of employees)             Three Three Three Six Six Months Months Months Months Months Ended Ended Ended Ended Ended June 30, 2010 March 31, 2010 June 30, 2009 June 30, 2010 June 30, 2009 Interest income $ 38,444 $ 38,497 $ 37,925 $ 76,941 $ 75,601 Interest expense   9,166     9,152     12,516     18,318     25,718   Net interest income 29,278 29,345 25,409 58,623 49,883 Loan loss provision 3,106 5,722 4,522 8,828 6,503   Gains on sales of loans 337 442 1,309 779 3,240 Deposit service charges 5,949 5,297 5,517 11,246 10,466 Trust revenue 1,458 1,424 1,249 2,882 2,411 Loan related fees 46 840 1,494 886 2,242 Securities gains (losses) - - (4 ) - 515 Other noninterest income   1,752     1,738     1,390     3,490     2,834   Total noninterest income 9,542 9,741 10,955 19,283 21,708   Personnel expense 11,632 11,445 10,650 23,077 21,918 Occupancy and equipment 2,701 2,724 2,983 5,425 5,906 FDIC insurance premiums 1,140 999 2,250 2,139 3,746 Amortization of core deposit intangible 159 159 158 318 317 Other noninterest expense   8,023     8,114     7,537     16,137     15,488   Total noninterest expense   23,655     23,441     23,578     47,096     47,375     Net income before taxes 12,059 9,923 8,264 21,982 17,713 Income taxes   3,506     3,132     2,327     6,638     5,196   Net income $ 8,553   $ 6,791   $ 5,937   $ 15,344   $ 12,517     Memo: TEQ interest income $ 38,780 $ 38,838 $ 38,257 $ 77,618 $ 76,224   Average shares outstanding 15,228 15,202 15,127 15,215 15,101 Diluted average shares outstanding 15,305 15,235 15,219 15,252 15,194 Basic earnings per share $ 0.56 $ 0.45 $ 0.39 $ 1.01 $ 0.83 Diluted earnings per share $ 0.56 $ 0.45 $ 0.39 $ 1.01 $ 0.82 Dividends per share $ 0.30 $ 0.30 $ 0.30 $ 0.60 $ 0.60   Average balances: Loans, net of unearned income $ 2,440,353 $ 2,437,105 $ 2,353,145 $ 2,438,738 $ 2,352,664 Earning assets 2,970,867 2,868,409 2,851,832 2,919,921 2,819,537 Total assets 3,222,645 3,121,801 3,058,241 3,172,502 3,025,292 Deposits 2,582,042 2,493,102 2,407,260 2,537,818 2,385,314 Interest bearing liabilities 2,349,394 2,274,064 2,235,108 2,311,937 2,212,885 Shareholders' equity 329,888 325,317 315,991 327,615 314,837   Performance ratios: Return on average assets 1.06 % 0.88 % 0.78 % 0.98 % 0.83 % Return on average equity 10.40 % 8.47 % 7.54 % 9.44 % 8.02 % Yield on average earning assets (tax equivalent) 5.24 % 5.49 % 5.38 % 5.36 % 5.45 % Cost of interest bearing funds (tax equivalent) 1.56 % 1.63 % 2.25 % 1.60 % 2.34 % Net interest margin (tax equivalent) 4.00 % 4.20 % 3.62 % 4.10 % 3.61 % Efficiency ratio (tax equivalent) 60.41 % 59.45 % 64.25 % 59.93 % 66.08 %   Loan charge-offs $ 2,617 $ 4,316 $ 4,511 $ 6,933 $ 7,570 Recoveries   (793 )   (825 )   (812 )   (1,618 )   (1,668 ) Net charge-offs $ 1,824 $ 3,491 $ 3,699 $ 5,315 $ 5,902   Market Price: High $ 31.56 $ 28.32 $ 31.29 $ 31.56 $ 37.17 Low 24.89 22.15 25.62 22.15 22.55 Close 25.10 27.07 26.75 25.10 26.75    

 

As of As of As of June 30, 2010 March 31, 2010 June 30, 2009 Assets: Loans, net of unearned $ 2,441,222 $ 2,428,934 $ 2,380,255 Loan loss reserve   (36,156 )   (34,874 )   (31,422 ) Net loans 2,405,066 2,394,060 2,348,833 Loans held for sale 1,466 330 600 Securities AFS 352,616 311,038 298,006 Securities HTM 1,662 10,291 19,875 Other equity investments 29,054 29,052 29,048 Other earning assets 122,728 130,193 86,586 Cash and due from banks 71,196 69,534 70,544 Premises and equipment 48,403 49,159 51,096 Goodwill and core deposit intangible 65,390 65,548 66,024 Other assets   111,711     109,851     65,355   Total Assets $ 3,209,292   $ 3,169,056   $ 3,035,967     Liabilities and Equity: NOW accounts $ 18,553 $ 17,481 $ 19,364 Savings deposits 631,990 645,090 644,568 CD's >=$100,000 608,952 551,711 477,467 Other time deposits   816,731     807,250     789,390   Total interest bearing deposits 2,076,226 2,021,532 1,930,789 Noninterest bearing deposits   494,901     508,702     463,164   Total deposits 2,571,127 2,530,234 2,393,953 Repurchase agreements 183,287 186,894 152,290 Other interest bearing liabilities 89,865 99,058 141,749 Noninterest bearing liabilities   34,682     27,991     33,201   Total liabilities 2,878,961 2,844,177 2,721,193 Shareholders' equity   330,331     324,879     314,774   Total Liabilities and Equity $ 3,209,292   $ 3,169,056   $ 3,035,967     Ending shares outstanding 15,228 15,217 15,134 Memo: Market value of HTM securities $ 1,662 $ 10,300 $ 20,409   30 - 89 days past due loans $ 23,677 $ 36,199 $ 20,408 90 days past due loans 16,857 17,589 20,064 Nonaccrual loans 45,435 37,327 39,511 Restructured loans (excluding 90 days past due and nonaccrual) 5,196 528 - Foreclosed properties 40,105 38,612 20,369 Other repossessed assets 226 396 185   Tier 1 leverage ratio 10.12 % 10.30 % 10.23 % Tier 1 risk based ratio 13.20 % 13.02 % 12.92 % Total risk based ratio 14.46 % 14.27 % 14.17 % Tangible equity to tangible assets ratio 8.43 % 8.36 % 8.38 % FTE employees 992 982 1,007   Community Trust Bancorp, Inc. reported earnings for the three and six months ending June 30, 2010 and 2009 as follows:           Three Months Ended Six Months Ended June 30 June 30 2010 2009 2010 2009 Net income $ 8,553 $ 5,937 $ 15,344 $ 12,517   Basic earnings per share $ 0.56 $ 0.39 $ 1.01 $ 0.83   Diluted earnings per share $ 0.56 $ 0.39 $ 1.01 $ 0.82   Average shares outstanding 15,228 15,127 15,215 15,101   Total assets (end of period) $ 3,209,292 $ 3,035,967   Return on average equity 10.40 % 7.54 % 9.44 % 8.02 %   Return on average assets 1.06 % 0.78 % 0.98 % 0.83 %   Provision for loan losses $ 3,106 $ 4,522 $ 8,828 $ 6,503   Gains on sales of loans $ 337 $ 1,309 $ 779 $ 3,240