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Section 1: 10-Q (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 June 30, 2020
 
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 – 17,802,012 shares outstanding at July 31, 2020




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, 2019 for further information in this regard.


1

Community Trust Bancorp, Inc.
Condensed Consolidated Balance Sheets

(dollars in thousands)
 
(unaudited)
June 30
2020
   
December 31
2019
 
Assets:
           
Cash and due from banks
 
$
63,194
   
$
58,680
 
Interest bearing deposits
   
414,891
     
206,003
 
Cash and cash equivalents
   
478,085
     
264,683
 
                 
Certificates of deposit in other banks
   
245
     
245
 
Debt securities available-for-sale at fair value (amortized cost of $725,392 and $593,945, respectively)
   
740,479
     
599,844
 
Debt securities held-to-maturity at amortized cost (fair value of $0 and $517, respectively)
   
0
     
517
 
Equity securities at fair value
   
2,094
     
1,953
 
Loans held for sale
   
28,987
     
1,167
 
                 
Loans
   
3,538,770
     
3,248,664
 
Allowance for credit losses*
   
(46,634
)
   
(35,096
)
Net loans
   
3,492,136
     
3,213,568
 
                 
Premises and equipment, net
   
42,810
     
44,046
 
Right-of-use asset
   
13,867
     
14,550
 
Federal Home Loan Bank stock
   
10,408
     
10,474
 
Federal Reserve Bank stock
   
4,887
     
4,887
 
Goodwill
   
65,490
     
65,490
 
Bank owned life insurance
   
69,945
     
69,269
 
Mortgage servicing rights
   
2,518
     
3,263
 
Other real estate owned
   
17,675
     
19,480
 
Accrued interest receivable
   
14,858
     
14,836
 
Other assets
   
38,357
     
37,731
 
Total assets
 
$
5,022,841
   
$
4,366,003
 
                 
Liabilities and shareholders’ equity:
               
Deposits:
               
Noninterest bearing
 
$
1,109,873
   
$
865,760
 
Interest bearing
   
2,862,436
     
2,539,812
 
Total deposits
   
3,972,309
     
3,405,572
 
                 
Repurchase agreements
   
296,007
     
226,917
 
Federal funds purchased
   
1,000
     
7,906
 
Advances from Federal Home Loan Bank
   
405
     
415
 
Long-term debt
   
57,841
     
57,841
 
Deferred taxes
   
4,678
     
5,110
 
Operating lease liability
   
13,101
     
13,729
 
Finance lease liability
   
1,449
     
1,456
 
Accrued interest payable
   
4,508
     
2,839
 
Other liabilities
   
39,696
     
29,332
 
Total liabilities
   
4,390,994
     
3,751,117
 
                 
Shareholders’ equity:
               
Preferred stock, 300,000 shares authorized and unissued
   
-
     
-
 
Common stock, $5 par value, shares authorized 25,000,000; shares outstanding 2020 – 17,794,598; 2019 – 17,793,165
   
88,973
     
88,966
 
Capital surplus
   
224,688
     
224,907
 
Retained earnings
   
307,134
     
296,760
 
Accumulated other comprehensive income, net of tax
   
11,052
     
4,253
 
Total shareholders’ equity
   
631,847
     
614,886
 
                 
Total liabilities and shareholders’ equity
 
$
5,022,841
   
$
4,366,003
 

*Effective January 1, 2020, the allowance for loan and lease losses became the allowance for credit losses with the implementation of ASU 2016-13, commonly referred to as CECL.

See notes to condensed consolidated financial statements.

2


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

 
Three Months Ended
June 30
   
Six Months Ended
June 30
 
(in thousands except per share data)
 
2020
   
2019
   
2020
   
2019
 
Interest income:
                       
Interest and fees on loans, including loans held for sale
 
$
41,264
   
$
41,318
   
$
81,729
   
$
82,228
 
Interest and dividends on securities
                               
Taxable
   
2,867
     
3,089
     
5,913
     
6,252
 
Tax exempt
   
596
     
580
     
1,123
     
1,258
 
Interest and dividends on Federal Reserve Bank and Federal Home Loan Bank stock
   
138
     
261
     
278
     
557
 
Interest on Federal Reserve Bank deposits
   
88
     
1,525
     
584
     
2,311
 
Other, including interest on federal funds sold
   
15
     
44
     
40
     
100
 
Total interest income
   
44,968
     
46,817
     
89,667
     
92,706
 
                                 
Interest expense:
                               
Interest on deposits
   
5,312
     
8,956
     
12,254
     
17,031
 
Interest on repurchase agreements and federal funds purchased
   
777
     
1,191
     
1,781
     
2,347
 
Interest on advances from Federal Home Loan Bank
   
0
     
0
     
0
     
39
 
Interest on long-term debt
   
417
     
643
     
926
     
1,279
 
Total interest expense
   
6,506
     
10,790
     
14,961
     
20,696
 
                                 
Net interest income
   
38,462
     
36,027
     
74,706
     
72,010
 
Provision for credit losses*
   
(49
)
   
1,563
     
12,658
     
1,753
 
Net interest income after provision for credit losses
   
38,511
     
34,464
     
62,048
     
70,257
 
                                 
Noninterest income:
                               
Service charges on deposit accounts
   
4,967
     
6,525
     
10,883
     
12,645
 
Gains on sales of loans, net
   
1,753
     
518
     
2,236
     
848
 
Trust and wealth management income
   
2,569
     
2,765
     
5,453
     
5,340
 
Loan related fees
   
822
     
440
     
917
     
1,013
 
Bank owned life insurance
   
564
     
689
     
1,137
     
1,247
 
Brokerage revenue
   
313
     
299
     
685
     
560
 
Securities gains
   
937
     
204
     
1,186
     
560
 
Other noninterest income
   
954
     
812
     
1,903
     
2,209
 
Total noninterest income
   
12,879
     
12,252
     
24,400
     
24,422
 
                                 
Noninterest expense:
                               
Officer salaries and employee benefits
   
3,104
     
3,297
     
5,855
     
6,671
 
Other salaries and employee benefits
   
12,049
     
12,790
     
24,329
     
25,375
 
Occupancy, net
   
1,938
     
1,812
     
3,923
     
3,863
 
Equipment
   
686
     
749
     
1,407
     
1,488
 
Data processing
   
1,875
     
1,789
     
3,853
     
3,552
 
Bank franchise tax
   
1,812
     
1,683
     
3,624
     
3,398
 
Legal fees
   
496
     
424
     
973
     
854
 
Professional fees
   
514
     
546
     
1,083
     
1,077
 
Advertising and marketing
   
568
     
874
     
1,202
     
1,666
 
FDIC insurance
   
294
     
369
     
441
     
546
 
Other real estate owned provision and expense
   
601
     
1,024
     
1,470
     
1,795
 
Repossession expense
   
175
     
112
     
310
     
489
 
Amortization of limited partnership investments
   
920
     
1,166
     
1,808
     
1,943
 
Other noninterest expense
   
2,877
     
3,395
     
5,852
     
6,396
 
Total noninterest expense
   
27,909
     
30,030
     
56,130
     
59,113
 
                                 
Income before income taxes
   
23,481
     
16,686
     
30,318
     
35,566
 
Income taxes
   
3,829
     
(1,638
)
   
4,087
     
2,303
 
Net income
   
19,652
     
18,324
     
26,231
     
33,263
 
                                 
Other comprehensive income:
                               
Unrealized holding gains on debt securities available-for-sale:
                               
Unrealized holding gains arising during the period
   
8,086
     
6,522
     
10,233
     
12,646
 
Less: Reclassification adjustments for realized gains included in net income
   
564
     
5
     
1,045
     
6
 
Tax expense
   
1,956
     
1,690
     
2,389
     
2,976
 
Other comprehensive income, net of tax
   
5,566
     
4,827
     
6,799
     
9,664
 
Comprehensive income
 
$
25,218
   
$
23,151
   
$
33,030
   
$
42,927
 
                                 
Basic earnings per share
 
$
1.11
   
$
1.03
   
$
1.48
   
$
1.88
 
Diluted earnings per share
 
$
1.11
   
$
1.03
   
$
1.48
   
$
1.88
 
                                 
Weighted average shares outstanding-basic
   
17,739
     
17,721
     
17,746
     
17,717
 
Weighted average shares outstanding-diluted
   
17,742
     
17,733
     
17,753
     
17,728
 

*Effective January 1, 2020, the provision for loan losses became the provision for credit losses with the implementation of ASU 2016-13, commonly referred to as CECL.

See notes to condensed consolidated financial statements.
3


Consolidated Statements of Changes in Shareholders’ Equity
Quarterly

(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, March 31, 2020
   
17,787,274
     
88,936
     
224,277
     
294,223
     
5,486
     
612,922
 
Net income
                           
19,652
             
19,652
 
Other comprehensive income, net of tax of
 $1,956
                                   
5,566
     
5,566
 
Cash dividends declared ($0.38 per share)
                           
(6,741
)
           
(6,741
)
Issuance of common stock
   
7,585
     
38
     
187
                     
225
 
Vesting of restricted stock
   
(261
)
   
(1
)
   
1
                     
0
 
Stock-based compensation
                   
223
                     
223
 
Balance, June 30, 2020
   
17,794,598
   
$
88,973
   
$
224,688
   
$
307,134
   
$
11,052
   
$
631,847
 

(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, March 31, 2019
   
17,767,594
     
88,839
     
223,426
     
267,016
     
(1,774
)
   
577,507
 
Net income
                           
18,324
             
18,324
 
Other comprehensive income, net of tax of
 $1,690
                                   
4,827
     
4,827
 
Cash dividends declared ($0.36 per share)
                           
(6,380
)
           
(6,380
)
Issuance of common stock
   
5,718
     
28
     
188
                     
216
 
Vesting of restricted stock
   
(474
)
   
(2
)
   
2
                     
0
 
Forfeiture of restricted stock
   
(529
)
   
(3
)
   
3
                     
0
 
Stock-based compensation
                   
214
                     
214
 
Balance, June 30, 2019
   
17,772,309
   
$
88,862
   
$
223,833
   
$
278,960
   
$
3,053
   
$
594,708
 

See notes to condensed consolidated financial statements.
4

 
Consolidated Statements of Changes in Shareholders’ Equity
 
Year-to-Date

(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, December 31, 2019
   
17,793,165
   
$
88,966
   
$
224,907
   
$
296,760
   
$
4,253
   
$
614,886
 
Implementation of ASU 2016-13
                           
(2,366
)
           
(2,366
)
Balance, January 1, 2020
   
17,793,165
     
88,966
     
224,907
     
294,394
     
4,253
     
612,520
 
Net income
                           
26,231
             
26,231
 
Other comprehensive income, net of tax of $2,389
                                   
6,799
     
6,799
 
Cash dividends declared ($0.76 per share)
                           
(13,491
)
           
(13,491
)
Issuance of common stock
   
29,538
     
148
     
309
                     
457
 
Repurchase of common stock
   
(32,664
)
   
(164
)
   
(935
)
                   
(1,099
)
Issuance of restricted stock
   
21,544
     
108
     
(108
)
                   
0
 
Vesting of restricted stock
   
(16,985
)
   
(85
)
   
85
                     
0
 
Stock-based compensation
                   
430
                     
430
 
Balance, June 30, 2020
   
17,794,598
   
$
88,973
   
$
224,688
   
$
307,134
   
$
11,052
   
$
631,847
 

(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, December 31, 2018
   
17,732,853
   
$
88,665
   
$
223,161
   
$
258,935
   
$
(6,611
)
 
$
564,150
 
Implementation of ASU 2016-02
                           
(480
)
   
0
     
(480
)
Balance, January 1, 2019
   
17,732,853
     
88,665
     
223,161
     
258,455
     
(6,611
)
   
563,670
 
Net income
                           
33,263