COMMUNITY TRUST BANCORP INC /KY/ - Annual Report: 2010 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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For the fiscal year ended December 31, 2010
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Or
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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For the transition period from _____________ to _____________
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Commission file number 0-11129
COMMUNITY TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Kentucky
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61-0979818
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(State or other jurisdiction of incorporation or organization)
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IRS Employer Identification No.
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346 North Mayo Trail
Pikeville, Kentucky
(address of principal executive offices)
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41501
(Zip Code)
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(606) 432-1414
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5.00 par value
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes
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No ü
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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Yes
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No ü
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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.
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Yes ü
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to be submitted and posted 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 and post such files.)
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Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer ü
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes
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No ü
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Based upon the closing price of the Common Shares of the Registrant on the NASDAQ-Stock Market LLC – Global Select Market, the aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2010 was $361.5 million. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates. The number of shares outstanding of the Registrant’s Common Stock as of February 28, 2011 was 15,296,519.
TABLE OF CONTENTS
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Portions of the following documents are incorporated by reference into the Form 10-K part indicated:
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Document
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Form 10-K
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(1) Proxy statement for the annual meeting of shareholders to be held April 26, 2011
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Part III
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Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company registered with the Board of Governors of the Federal Reserve System pursuant to Section 5(a) of the Bank Holding Company Act of 1956, as amended. CTBI was incorporated August 12, 1980, under the laws of the Commonwealth of Kentucky for the purpose of becoming a bank holding company. Currently, CTBI owns all the capital stock of one commercial bank and one trust company, serving small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. The commercial bank is Community Trust Bank, Inc., Pikeville, Kentucky and the trust company is Community Trust and Investment Company, Lexington, Kentucky.
On June 8, 2010, CTBI entered into an Agreement and Plan of Share Exchange 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”). On November 17, 2010, CTBI completed the acquisition of LaFollette Corporation and LaFollette Bank, acquiring all outstanding shares of LaFollette Corporation in a share exchange for $650 per share, or a total of approximately $16.1 million. In addition, CTBI paid $1.2 million to retire a debt owed by LaFollette Corporation. Immediately following the share exchange, LaFollette Corporation was merged into CTBI. LaFollette Bank was merged into Community Trust Bank, Inc. (the “Bank”) on January 21, 2011. All references to the “Bank” included herein shall be deemed to include both Community Trust Bank, Inc. and LaFollette Bank unless otherwise noted.
At December 31, 2010, CTBI had total consolidated assets of $3.4 billion and total consolidated deposits, including repurchase agreements, of $2.9 billion, making it the largest bank holding company based on total deposits headquartered in the Commonwealth of Kentucky.
Through its subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services. The lending activities of our Bank include making commercial, construction, mortgage, and personal loans. Lease-financing, lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available. Our corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as registrars, transfer agents, and paying agents for bond and stock issues, as depositories for securities, and as providers of full service brokerage services.
COMPETITION
CTBI’s subsidiaries face substantial competition for deposit, credit, trust, and brokerage relationships in the communities we serve. Competing providers include state banks, national banks, thrifts, trust companies, insurance companies, mortgage banking operations, credit unions, finance companies, brokerage companies, and other financial and non-financial companies which may offer products functionally equivalent to those offered by our subsidiaries. Many of these providers offer services within and outside the market areas served by our subsidiaries. We strive to offer competitively priced products along with quality customer service to build customer relationships in the communities we serve.
The United States and global markets, as well as general economic conditions, have been disruptive and volatile. Some financial institutions have failed and others have been forced to seek acquisition partners. Larger financial institutions, some of whom may benefit from partial nationalization, could strengthen their competitive position as a result of ongoing consolidation within the financial services industry.
Since July 1989, banking legislation in Kentucky places no limits on the number of banks or bank holding companies that a bank holding company may acquire. Interstate acquisitions are allowed where reciprocity exists between the laws of Kentucky and the home state of the bank or bank holding company to be acquired. Bank holding companies continue to be limited to control of less than 15% of deposits held by banks in the states where they do business (exclusive of inter-bank and foreign deposits).
The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) has expanded the permissible activities of a bank holding company. The GLB Act allows qualifying bank holding companies to elect to be treated as financial holding companies. A financial holding company may engage in activities that are financial in nature or are incidental or complementary to financial activities. We have not yet elected to be treated as a financial holding company. The GLB Act also eliminated restrictions imposed by the Glass-Steagall Financial Services Law, adopted in the 1930s, which prevented banking, insurance, and securities firms from fully entering each other’s business. This legislation has resulted in further consolidation in the financial services industry. In addition, removal of these restrictions has increased the number of entities providing banking services and thereby created additional competition.
No material portion of our business is seasonal. We are not dependent upon any one customer or a few customers, and the loss of any one or a few customers would not have a material adverse effect on us. See note 19 to the consolidated financial statements for additional information regarding concentrations of credit.
We do not engage in any operations in foreign countries.
EMPLOYEES
As of December 31, 2010, CTBI and subsidiaries had 1,041 full-time equivalent employees. Our employees are provided with a variety of employee benefits. A retirement plan, an employee stock ownership plan, group life insurance, major medical insurance, a cafeteria plan, and annual management and employee incentive compensation plans are available to all eligible personnel.
SUPERVISION AND REGULATION
General
We, as a registered bank holding company, are restricted to those activities permissible under the Bank Holding Company Act of 1956, as amended, and are subject to actions of the Board of Governors of the Federal Reserve System thereunder. We are required to file an annual report with the Federal Reserve Board and are subject to an annual examination by the Board.
Community Trust Bank, Inc. is a state-chartered bank subject to state and federal banking laws and regulations and periodic examination by the Kentucky Department of Financial Institutions and the restrictions, including dividend restrictions, thereunder. Our Bank is also a member of the Federal Reserve System and is subject to certain restrictions imposed by and to examination and supervision under the Federal Reserve Act. Community Trust and Investment Company is also regulated by the Kentucky Department of Financial Institutions and the Federal Reserve. Prior to the merger of LaFollette Bank into Community Trust Bank, Inc., LaFollette Bank was a national bank regulated by the Office of the Comptroller of the Currency.
Deposits of our Bank are insured by the Federal Deposit Insurance Corporation (FDIC), which subjects banks to regulation and examination under the provisions of the Federal Deposit Insurance Act.
The operations of CTBI and our subsidiaries are also affected by other banking legislation and policies and practices of various regulatory authorities. Such legislation and policies include statutory maximum rates on some loans, reserve requirements, domestic monetary and fiscal policy, and limitations on the kinds of services that may be offered.
CTBI’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our website at www.ctbi.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission. CTBI’s Code of Business Conduct and Ethics is also available on our website. Copies of our annual report will be made available free of charge upon written request.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, President Obama signed the Dodd-Frank Act into law. This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.
Certain provisions of the Dodd-Frank Act that are relevant to us will:
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Broaden the base for FDIC insurance assessments, eliminate the ceiling and increase the size of the floor of the Deposit Insurance Fund, and offset the impact of the minimum floor on institutions with less than $10 billion in assets. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution.
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Remove the federal prohibition on payment of interest on demand deposits, thereby permitting businesses to have interest bearing checking accounts.
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Require new capital regulations to be adopted within 18 months. These regulations must be at least as stringent as, and may call for higher levels of capital than, current regulations. The same leverage and risk based capital requirements that apply to depository institutions will apply to holding companies. New issuances of trust preferred securities will no longer be eligible to qualify as Tier 1 capital. However, CTBI’s currently outstanding trust preferred securities are grandfathered and will still be considered in Tier 1 capital under the regulations. Under Dodd-Frank, and previously under Federal Reserve policy, we are required to act as a source of financial strength for our bank subsidiary and to commit sufficient resources to support it.
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Create a new agency, the Consumer Financial Protection Bureau, responsible for the implementation of federal consumer protection laws. The Bureau will have broad rule-making authority for a wide range of consumer protection laws that apply to all banks, including the authority to prohibit "unfair, deceptive or abusive" acts and practices. The Bureau will have examination and enforcement authority over all banks with more than $10 billion in assets. Although CTBI does not have assets of more than $10 billion, any change in regulatory environment may have a negative impact on all financial institutions.
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Permanently increase the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, with noninterest bearing transaction accounts and IOLTA accounts having unlimited deposit insurance through December 31, 2012.
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Increase the authority of the Federal Reserve Board to examine CTBI and its non-bank subsidiaries and give the Federal Reserve Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. The Federal Reserve Board recently proposed capping such fees at seven to 12 cents, subject to adjustment for fraud prevention costs. Although this requirement does not apply to CTBI, it may impact our ability to generate revenue at the same level as we have in the past.
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Restrict proprietary trading by banks, bank holding companies and others, and their acquisition and retention of ownership interests in and sponsorship of hedge funds and private equity funds, subject to an exception allowing a bank to organize and offer hedge funds and private equity funds to customers if certain conditions are met, including, among others, a requirement that the bank limit its ownership interest in any single fund to 3%, and its aggregate investment in all funds to 3%, of Tier 1 capital, with no director or employee of the bank holding an ownership interest in the fund unless he or she provides services directly to the funds.
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Require publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called "golden parachute" payments in mergers and acquisitions, and authorize the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own director candidates using a company's proxy materials. The legislation also directs the federal banking regulators to issue rules prohibiting incentive compensation that encourages inappropriate risks.
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Impose new restrictions related to mortgage lending, such as new minimum underwriting standards, require certain loan provision qualifications, limitations on mortgage terms and additional disclosures to mortgage borrowers, and prohibit certain yield-spread compensation to mortgage originators.
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Permit banks to establish de novo interstate branches at a location where a bank based in that state could establish a branch, and require banks and bank holding companies to be well-capitalized and well-managed in order to acquire banks outside their home state.
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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. 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, 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, 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; the adoption by CTBI of a Federal Financial Institutions Examination Council (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.
An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors. See also, “Cautionary Statement Regarding Forward-Looking Statements.” If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.
Economic Risk
CTBI may continue to be adversely affected by current economic and market conditions.
The national and global economic downturn has resulted in unprecedented levels of financial market volatility and has in general adversely impacted the market value of financial institutions, limited access to capital and had an adverse effect on the financial condition or results of operations of banking companies in general, including CTBI. In some cases, the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers’ underlying financial strength. From early 2008 to the middle of 2010, CTBI experienced significant challenges, credit quality deteriorated, and net income and results of operations were adversely impacted. While there has been some improvement in economic conditions in our markets starting in the second half of 2010, we believe that we will continue to experience a challenging environment in 2011. CTBI is a part of the financial system and a continuation of the systemic lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets, and reduced business activity could materially and adversely impact CTBI’s business, financial condition, and results of operations. In addition, the possible duration and severity of the adverse economic cycle is unknown and may exacerbate financial service providers’, including CTBI’s, exposure to credit risk. Actions by Congress, Treasury, the FDIC and other governmental agencies and regulators have been initiated to address economic stabilization, yet the efficacy of these programs in stabilizing the economy and the banking system is uncertain. There can be no assurance that these actions will not have an adverse effect on the financial position or results of operations of financial service providers including CTBI.
Economy of Our Markets
Our business may continue to be adversely affected by continued weaknesses in the local economies on which we depend.
Our loan portfolio is concentrated primarily in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. Our profits depend on providing products and services to clients in these local regions. These regions have experienced an increase in unemployment and a decrease in real estate values. Further increases in unemployment, additional decreases in real estate values, or increases in interest rates could weaken the local economies in which we operate. Typically, our market area lags behind the national economy in the recovery from economic downturns. The improvement of certain economic indicators such as unemployment and real estate asset values, may continue to lag behind improvement in the overall economy. These economic indicators typically affect certain industries, such as real estate and financial services, more significantly. A continuation of high levels of unemployment and depressed real estate asset values in the markets we serve would likely prolong the economic recovery period in our market area. Weakness in our market area could depress our earnings and consequently our financial condition because:
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Clients may not want, need, or qualify for our products and services;
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Borrowers may not be able to repay their loans;
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The value of the collateral securing our loans to borrowers may decline; and
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The quality of our loan portfolio may decline.
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Interest Rate Risk
Changes in interest rates could adversely affect our earnings and financial condition.
Our earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest-rate spreads, meaning the difference between the interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect our earnings and financial condition. Interest rates are highly sensitive to many factors, including:
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The rate of inflation;
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The rate of economic growth;
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Employment levels;
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Monetary policies; and
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Instability in domestic and foreign financial markets.
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Changes in market interest rates will also affect the level of voluntary prepayments on our loans and the receipt of payments on our mortgage-backed securities resulting in the receipt of proceeds that may be reinvested at a lower rate than the loan or mortgage-backed security being prepaid.
We originate residential loans for sale and for our portfolio. The origination of loans for sale is designed to meet client financing needs and earn fee income. The origination of loans for sale is highly dependent upon the local real estate market and the level and trend of interest rates. Increasing interest rates may reduce the origination of loans for sale and consequently the fee income we earn. While our commercial banking, construction, and income property business lines remain a significant portion of our activities, high interest rates may reduce our mortgage-banking activities and thereby our income. In contrast, decreasing interest rates have the effect of causing clients to refinance mortgage loans faster than anticipated. This causes the value of assets related to the servicing rights on loans sold to be lower than originally anticipated. If this happens, we may need to write down our servicing assets faster, which would accelerate our expense and lower our earnings.
We consider interest rate risk one of our most significant market risks. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. Consistency of our net interest revenue is largely dependent upon the effective management of interest rate risk. We employ a variety of measurement techniques to identify and manage our interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain financial assets and liabilities. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.
Liquidity Risk
CTBI is subject to liquidity risk.
CTBI requires liquidity to meet its deposit and debt obligations as they come due and to fund loan demands. CTBI’s access to funding sources in amounts adequate to finance its activities or on terms that are acceptable to it could be impaired by factors that affect it specifically or the financial services industry or economy in general. Factors that could reduce its access to liquidity sources include a downturn in the market, difficult credit markets, or adverse regulatory actions against CTBI. CTBI’s access to deposits may also be affected by the liquidity needs of its depositors. In particular, a substantial majority of CTBI’s liabilities are demand, savings, interest checking, and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of its assets are loans, which cannot be called or sold in the same time frame. Although CTBI historically has been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future, especially if a large number of its depositors sought to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could have a material adverse effect on our financial condition and results of operations.
Banking Reform
Our business may be adversely affected by “banking reform” legislation.
On July 21, 2010, President Obama signed the Dodd-Frank Act into law. This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years. This legislation includes, among other things: (i) changes in the manner in which the FDIC deposit insurance assessments will be computed and an increase in the minimum designated reserve ratio for the Deposit Insurance Fund; (ii) authorization of interest-bearing demand deposits; (iii) requirements for new capital regulations applicable to banks and bank holding companies which may call for higher levels of capital; (iv) creation of the Consumer Financial Protection Bureau, responsible for implementation of federal consumer protection laws which affect banks and bank holding companies; (v) a permanent increase in the maximum amount of deposit insurance for banks; (vi) a prohibition of certain proprietary trading and equity investment activities by banks; (vii) new restrictions related to mortgage lending; (viii) allowance of de novo interstate branching; and (ix) additional corporate governance provisions relating to non-binding shareholder votes on executive compensation and new rules prohibiting incentive compensation that encourages inappropriate risks.
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on CTBI. However, compliance with this new law and its implementing regulations will result in additional operating costs that could have a material adverse effect on our financial condition and results of operations.
Government Policies
Our business may be adversely affected by changes in government policies.
The earnings of banks and bank holding companies such as ours are affected by the policies of regulatory authorities, including the Federal Reserve Board, which regulates the money supply. Among the methods employed by the Federal Reserve Board are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial and savings banks in the past and are expected to continue to do so in the future.
Many states and municipalities are experiencing financial stress due to the economy. As a result, various levels of government could seek to increase their tax revenues through increased tax levies, which could have an adverse impact on our results of operations.
Federal banking regulators are increasing regulatory scrutiny, and additional limitations (including those contained in the Dodd-Frank Act) on financial institutions have been proposed or adopted by regulators and by Congress. The banking industry is highly regulated and changes in federal and state banking regulations as well as policies and administration guidelines may affect our practices, growth prospects, and earnings. In particular, there is no assurance that recent governmental actions designed to stabilize the economy and banking system will not adversely affect the financial position or results of operations of CTBI.
Credit Risk
Our earnings and reputation may be adversely affected if we fail to effectively manage our credit risk.
Originating and underwriting loans are integral to the success of our business. This business requires us to take “credit risk,” which is the risk of losing principal and interest income because borrowers fail to repay loans. Collateral values and the ability of borrowers to repay their loans may be affected at any time by factors such as:
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The length and severity of downturns in the local economies in which we operate or the national economy;
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The length and severity of downturns in one or more of the business sectors in which our customers operate, particularly the automobile, hotel/motel, coal, and residential development industries; or
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A rapid increase in interest rates.
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Our loan portfolio includes loans with a higher risk of loss.
We originate commercial real estate loans, construction and development loans, consumer loans, and residential mortgage loans, primarily within our market area. Commercial real estate, commercial, and construction and development loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are most susceptible to a risk of loss during a downturn in the business cycle. These loans also have historically had a greater credit risk than other loans for the following reasons:
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Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risks because they are generally not fully amortizing over a loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property. As of December 31, 2010, commercial real estate loans, including multi-family loans, comprised approximately 31% of our total loan portfolio.
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Other Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business. As of December 31, 2010, other commercial loans comprised approximately 15% of our total loan portfolio.
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Construction and Development Loans. The risk of loss is largely dependent on our initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. As of December 31, 2010, construction and development loans comprised approximately 7% of our total loan portfolio.
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Consumer loans may carry a higher degree of repayment risk than residential mortgage loans, particularly when the consumer loan is unsecured. Repayment of a consumer loan typically depends on the borrower’s financial stability, and it is more likely to be affected adversely by job loss, illness, or personal bankruptcy. In addition, federal and state bankruptcy, insolvency, and other laws may limit the amount we can recover when a consumer client defaults. As of December 31, 2010, consumer loans comprised approximately 19% of our total loan portfolio.
A significant part of our lending business is focused on small to medium-sized business which may be impacted more severely during periods of economic weakness.
A significant portion of our commercial loan portfolio is tied to small to medium-sized businesses in our markets. During periods of economic weakness, small to medium-sized businesses may be impacted more severely than larger businesses. As a result, the ability of smaller businesses to repay their loans may deteriorate, particularly if economic challenges persist over a period of time, and such deterioration would adversely impact our results of operations and financial condition.
A large percentage of our loan portfolio is secured by real estate, in particular commercial real estate. Continued weakness in the real estate market or other segments of our loan portfolio would lead to additional losses, which could have a material adverse effect on our business, financial condition, and results of operations.
As of December 31, 2010, approximately 66% of our loan portfolio is secured by real estate, the majority of which is commercial real estate. Although our level of net charge-offs decreased in 2010, ongoing high levels of commercial and consumer delinquencies or further declines in real estate market values would require increased net charge-offs and increases in the allowance for loan and lease losses, which could have a material adverse effect on our business, financial condition, and results of operations and prospects.
Our level of other real estate owned has increased, primarily as a result of foreclosures. To the extent that we continue to hold a higher level of real estate owned, related real estate expense would likely increase.
During the recent economic downturn, we experienced an increase in non-performing real estate loans. As a result, we have experienced an increase in the level of foreclosed properties. Foreclosed real estate expense consists of maintenance costs, valuation adjustments to appraisal values and gains or losses on disposition. If our levels of other real estate owned increase or are sustained and local real estate values decline, our foreclosed real estate expense will increase, which would adversely impact our results of operations.
Environmental Liability Risk
We are subject to environmental liability risk associated with lending activity.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.
Competition
Strong competition within our market area may reduce our ability to attract and retain deposits and originate loans.
We face competition both in originating loans and in attracting deposits. Competition in the financial services industry is intense. We compete for clients by offering excellent service and competitive rates on our loans and deposit products. The type of institutions we compete with include commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms. Competition arises from institutions located within and outside our market areas. As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer. The recent economic crisis is likely to result in increased consolidation in the financial industry and larger financial institutions, some of whom may benefit from partial nationalization, may strengthen their competitive positions. In addition, to stay competitive in our markets we may need to adjust the interest rates on our products to match the rates offered by our competitors, which could adversely affect our net interest margin. As a result, our profitability depends upon our continued ability to successfully compete in our market areas while achieving our investment objectives.
Acquisition Risk
We may have difficulty in the future continuing to grow through acquisitions.
Due to consolidation within the banking industry, the number of suitable acquisition targets has decreased and there is intense competition for attractive acquisitions. As a result, we may experience difficulty in making acquisitions on acceptable terms.
Any future acquisitions or mergers by CTBI or its banking subsidiary are subject to approval by the appropriate federal and state banking regulators. The banking regulators evaluate a number of criteria in making their approval decisions, such as:
|
·
|
Safety and soundness guidelines;
|
|
·
|
Compliance with all laws including the USA Patriot Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act, the Sarbanes-Oxley Act and the related rules and regulations promulgated under such Act or the Exchange Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, and all other applicable fair lending laws and other laws relating to discriminatory business practices; and
|
|
·
|
Anti-competitive concerns with the proposed transaction.
|
If the banking regulators or a commenter on our regulatory application raise concerns about any of these criteria at the time a regulatory application is filed, the banking regulators may deny, delay, or condition their approval of a proposed transaction.
We have grown, and intend to continue to grow, through acquisitions of banks and other financial institutions. After these acquisitions, we may experience adverse changes in results of operations of acquired entities, unforeseen liabilities, asset quality problems of acquired entities, loss of key personnel, loss of clients because of change of identity, difficulties in integrating data processing and operational procedures, and deterioration in local economic conditions. These various acquisition risks can be heightened in larger transactions.
Integration Risk
We may not be able to achieve the expected integration and cost savings from our ongoing bank acquisition activities.
We have a long history of acquiring financial institutions and we expect this acquisition activity to continue in the future. Difficulties may arise in the integration of the business and operations of the financial institutions that agree to merge with and into CTBI and, as a result, we may not be able to achieve the cost savings and synergies that we expect will result from the merger activities. Achieving cost savings is dependent on consolidating certain operational and functional areas, eliminating duplicative positions and terminating certain agreements for outside services. Additional operational savings are dependent upon the integration of the banking businesses of the acquired financial institution with that of CTBI, including the conversion of the acquired entity’s core operating systems, data systems and products to those of CTBI and the standardization of business practices. Complications or difficulties in the conversion of the core operating systems, data systems, and products of these other banks to those of CTBI may result in the loss of clients, damage to our reputation within the financial services industry, operational problems, one-time costs currently not anticipated by us, and/or reduced cost savings resulting from the merger activities.
Operational Risk
An extended disruption of vital infrastructure or a security breach could negatively impact our business, results of operations, and financial condition.
Our operations depend upon, among other things, our infrastructure, including equipment and facilities. Extended disruption of vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking or viruses, terrorist activity or the domestic and foreign response to such activity, or other events outside of our control could have a material adverse impact on the financial services industry as a whole and on our business, results of operations, cash flows, and financial condition in particular. Our business recovery plan may not work as intended or may not prevent significant interruption of our operations. The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in the loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have an adverse effect on our financial condition and results of operation.
Market Risk
Community Trust Bancorp, Inc.'s stock price is volatile.
Our stock price has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future. These factors include:
|
·
|
Actual or anticipated variations in earnings;
|
|
·
|
Changes in analysts' recommendations or projections;
|
|
·
|
CTBI's announcements of developments related to our businesses;
|
|
·
|
Operating and stock performance of other companies deemed to be peers;
|
|
·
|
New technology used or services offered by traditional and non-traditional competitors; and
|
|
·
|
News reports of trends, concerns, and other issues related to the financial services industry.
|
Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to CTBI's performance. The recent financial crisis has resulted in a lack of investor confidence in the financial institutions sector. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
Technology Risk
CTBI continually encounters technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Counterparty Risk
The soundness of other financial institutions could adversely affect CTBI.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional counterparties. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our businesses, financial condition, or results of operations.
None.
The following tables set forth certain statistical information relating to CTBI and subsidiaries on a consolidated basis and should be read together with our consolidated financial statements.
Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates
|
2010
|
2009
|
2008
|
||||||||||||||||||||||||||||||||||
|
(in thousands)
|
Average
Balances
|
Interest
|
Average
Rate
|
Average
Balances
|
Interest
|
Average
Rate
|
Average
Balances
|
Interest
|
Average
Rate
|
|||||||||||||||||||||||||||
|
Earning assets:
|
||||||||||||||||||||||||||||||||||||
|
Loans (1)(2)(3)
|
$ | 2,461,225 | $ | 142,519 | 5.79 | % | $ | 2,383,875 | $ | 139,677 | 5.86 | % | $ | 2,283,180 | $ | 150,413 | 6.59 | % | ||||||||||||||||||
|
Loans held for sale
|
1,040 | 111 | 10.67 | % | 1,580 | 359 | 22.72 | % | 1,752 | 171 | 9.76 | % | ||||||||||||||||||||||||
|
Securities:
|
||||||||||||||||||||||||||||||||||||
|
U.S. Treasury and agencies
|
249,835 | 7,983 | 3.20 | % | 237,641 | 8,792 | 3.70 | % | 249,515 | 10,912 | 4.37 | % | ||||||||||||||||||||||||
|
Tax exempt state and political subdivisions (3)
|
43,128 | 2,456 | 5.69 | % | 47,801 | 2,839 | 5.94 | % | 45,146 | 2,875 | 6.37 | % | ||||||||||||||||||||||||
|
Other securities
|
36,927 | 951 | 2.58 | % | 20,812 | 777 | 3.73 | % | 32,842 | 1,723 | 5.25 | % | ||||||||||||||||||||||||
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
29,183 | 1,351 | 4.63 | % | 29,047 | 1,402 | 4.83 | % | 28,549 | 1,559 | 5.46 | % | ||||||||||||||||||||||||
|
Federal funds sold
|
89,598 | 234 | 0.26 | % | 66,619 | 193 | 0.29 | % | 53,816 | 1,083 | 2.01 | % | ||||||||||||||||||||||||
|
Interest bearing deposits
|
37,989 | 85 | 0.22 | % | 24,203 | 54 | 0.22 | % | 6,297 | 121 | 1.92 | % | ||||||||||||||||||||||||
|
Other investments
|
11,190 | 77 | 0.69 | % | 17,267 | 131 | 0.76 | % | 100 | 3 | 3.00 | % | ||||||||||||||||||||||||
|
Investment in unconsolidated subsidiaries
|
1,856 | 120 | 6.47 | % | 1,856 | 120 | 6.47 | % | 1,857 | 120 | 6.46 | % | ||||||||||||||||||||||||
|
Total earning assets
|
2,961,971 | $ | 155,887 | 5.26 | % | 2,830,701 | $ | 154,344 | 5.45 | % | 2,703,054 | $ | 168,980 | 6.25 | % | |||||||||||||||||||||
|
Allowance for loan and lease losses
|
(35,741 | ) | (32,599 | ) | (29,901 | ) | ||||||||||||||||||||||||||||||
| 2,926,230 | 2,798,102 | 2,673,153 | ||||||||||||||||||||||||||||||||||
|
Nonearning assets:
|
||||||||||||||||||||||||||||||||||||
|
Cash and due from banks
|
66,740 | 59,940 | 74,264 | |||||||||||||||||||||||||||||||||
|
Premises and equipment, net
|
49,468 | 50,843 | 52,559 | |||||||||||||||||||||||||||||||||
|
Other assets
|
177,649 | 138,215 | 121,241 | |||||||||||||||||||||||||||||||||
|
Total assets
|
$ | 3,220,087 | $ | 3,047,100 | $ | 2,921,217 | ||||||||||||||||||||||||||||||
|
Interest bearing liabilities:
|
||||||||||||||||||||||||||||||||||||
|
Deposits:
|
||||||||||||||||||||||||||||||||||||
|
Savings and demand deposits
|
$ | 668,255 | $ | 3,074 | 0.46 | % | $ | 666,874 | $ | 4,002 | 0.60 | % | $ | 655,577 | $ | 7,885 | 1.20 | % | ||||||||||||||||||
|
Time deposits
|
1,392,510 | 26,078 | 1.87 | % | 1,271,072 | 35,791 | 2.82 | % | 1,204,550 | 45,964 | 3.82 | % | ||||||||||||||||||||||||
|
Repurchase agreements and federal funds purchased
|
198,880 | 2,027 | 1.02 | % | 180,044 | 2,457 | 1.36 | % | 170,231 | 4,424 | 2.60 | % | ||||||||||||||||||||||||
|
Advances from Federal Home Loan Bank
|
20,286 | 79 | 0.39 | % | 47,434 | 1,291 | 2.72 | % | 49,001 | 1,701 | 3.47 | % | ||||||||||||||||||||||||
|
Long-term debt
|
61,341 | 3,999 | 6.52 | % | 61,341 | 3,999 | 6.52 | % | 61,341 | 4,000 | 6.52 | % | ||||||||||||||||||||||||
|
Total interest bearing liabilities
|
2,341,272 | $ | 35,257 | 1.51 | % | 2,226,765 | $ | 47,540 | 2.13 | % | 2,140,700 | $ | 63,974 | 2.99 | % | |||||||||||||||||||||
|
Noninterest bearing liabilities:
|
||||||||||||||||||||||||||||||||||||
|
Demand deposits
|
514,196 | 471,902 | 443,593 | |||||||||||||||||||||||||||||||||
|
Other liabilities
|
30,974 | 30,722 | 28,523 | |||||||||||||||||||||||||||||||||
|
Total liabilities
|
2,886,442 | 2,729,389 | 2,612,816 | |||||||||||||||||||||||||||||||||
|
Shareholders’ equity
|
333,645 | 317,711 | 308,401 | |||||||||||||||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 3,220,087 | $ | 3,047,100 | $ | 2,921,217 | ||||||||||||||||||||||||||||||
|
Net interest income
|
$ | 120,630 | $ | 106,804 | $ | 105,006 | ||||||||||||||||||||||||||||||
|
Net interest spread
|
3.75 | % | 3.32 | % | 3.26 | % | ||||||||||||||||||||||||||||||
|
Benefit of interest free funding
|
0.32 | % | 0.45 | % | 0.62 | % | ||||||||||||||||||||||||||||||
|
Net interest margin
|
4.07 | % | 3.77 | % | 3.88 | % | ||||||||||||||||||||||||||||||
(1) Interest includes fees on loans of $1,766, $1,741, and $1,679 in 2010, 2009, and 2008, respectively.
(2) Loan balances are net of unearned income and include principal balances on nonaccrual loans.
(3) Tax exempt income on securities and loans is reported on a fully taxable equivalent basis using a 35% rate.
Net Interest Differential
The following table illustrates the approximate effect of volume and rate changes on net interest differentials between 2010 and 2009 and also between 2009 and 2008.
|
Total Change
|
Change Due to
|
Total Change
|
Change Due to
|
|||||||||||||||||||||
|
(in thousands)
|
2010/2009 |
Volume
|
Rate
|
2009/2008 |
Volume
|
Rate
|
||||||||||||||||||
|
Interest income
|
||||||||||||||||||||||||
|
Loans
|
$ | 2,842 | $ | 4,493 | $ | (1,651 | ) | $ | (10,736 | ) | $ | 6,424 | $ | (17,160 | ) | |||||||||
|
Loans held for sale
|
(248 | ) | (148 | ) | (100 | ) | 188 | (15 | ) | 203 | ||||||||||||||
|
U.S. Treasury and agencies
|
(809 | ) | 434 | (1,243 | ) | (2,120 | ) | (538 | ) | (1,582 | ) | |||||||||||||
|
Tax exempt state and political subdivisions
|
(383 | ) | (286 | ) | (97 | ) | (36 | ) | 164 | (200 | ) | |||||||||||||
|
Other securities
|
174 | 468 | (294 | ) | (946 | ) | (733 | ) | (213 | ) | ||||||||||||||
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
(51 | ) | 7 | (58 | ) | (157 | ) | 27 | (184 | ) | ||||||||||||||
|
Federal funds sold
|
41 | 61 | (20 | ) | (890 | ) | 210 | (1,100 | ) | |||||||||||||||
|
Interest bearing deposits
|
31 | 31 | 0 | (67 | ) | 112 | (179 | ) | ||||||||||||||||
|
Other investments
|
(54 | ) | (49 | ) | (5 | ) | 128 | 132 | (4 | ) | ||||||||||||||
|
Investment in unconsolidated subsidiaries
|
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
Total interest income
|
1,543 | 5,011 | (3,468 | ) | (14,636 | ) | 5,783 | (20,419 | ) | |||||||||||||||
|
Interest expense
|
||||||||||||||||||||||||
|
Savings and demand deposits
|
(928 | ) | 8 | (936 | ) | (3,883 | ) | 134 | (4,017 | ) | ||||||||||||||
|
Time deposits
|
(9,713 | ) | 3,165 | (12,878 | ) | (10,173 | ) | 2,423 | (12,596 | ) | ||||||||||||||
|
Repurchase agreements and federal funds purchased
|
(430 | ) | 238 | (668 | ) | (1,967 | ) | 242 | (2,209 | ) | ||||||||||||||
|
Advances from Federal Home Loan Bank
|
(1,212 | ) | (992 | ) | (220 | ) | (410 | ) | (56 | ) | (354 | ) | ||||||||||||
|
Long-term debt
|
0 | 0 | 0 | (1 | ) | 0 | (1 | ) | ||||||||||||||||
|
Total interest expense
|
(12,283 | ) | 2,419 | (14,702 | ) | (16,434 | ) | 2,743 | (19,177 | ) | ||||||||||||||
|
Net interest income
|
$ | 13,826 | $ | 2,592 | $ | 11,234 | $ | 1,798 | $ | 3,040 | $ | (1,242 | ) | |||||||||||
For purposes of the above table, changes which are due to both rate and volume are allocated based on a percentage basis, using the absolute values of rate and volume variance as a basis for percentages. Income is stated at a fully taxable equivalent basis, assuming a 35% tax rate.
Investment Portfolio
The maturity distribution and weighted average interest rates of securities at December 31, 2010 are as follows:
Available-for-sale
|
Estimated Maturity at December 31, 2010
|
||||||||||||||||||||||||||||||||||||||||||||
|
Within 1 Year
|
1-5 Years
|
5-10 Years
|
After 10 Years
|
Total Fair Value
|
Amortized Cost
|
|||||||||||||||||||||||||||||||||||||||
|
(in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
|||||||||||||||||||||||||||||||||
|
U.S. Treasury, government agencies, and government sponsored agencies
|
$ | 9,480 | 4.62 | % | $ | 230,006 | 3.52 | % | $ | 25,650 | 3.09 | % | $ | 1,361 | 4.06 | % | $ | 266,497 | 3.52 | % | $ | 260,059 | ||||||||||||||||||||||
|
State and municipal obligations
|
3,372 | 5.25 | 14,570 | 4.83 | 12,457 | 4.95 | 21,466 | 5.56 | 51,865 | 5.19 | 52,017 | |||||||||||||||||||||||||||||||||
|
Other securities
|
0 | 0.00 | 20,052 | 3.27 | 0 | 0.00 | 261 | 3.66 | 20,313 | 3.28 | 20,582 | |||||||||||||||||||||||||||||||||
|
Total
|
$ | 12,852 | 4.78 | % | $ | 264,628 | 3.58 | % | $ | 38,107 | 3.70 | % | $ | 23,088 | 5.45 | % | $ | 338,675 | 3.76 | % | $ | 332,658 | ||||||||||||||||||||||
Held-to-maturity
|
Estimated Maturity at December 31, 2010
|
||||||||||||||||||||||||||||||||||||||||||||
|
Within 1 Year
|
1-5 Years
|
5-10 Years
|
After 10 Years
|
Total
Amortized Cost
|
Fair
Value
|
|||||||||||||||||||||||||||||||||||||||
|
(in thousands)
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
|||||||||||||||||||||||||||||||||
|
State and municipal obligations
|
$ | 0 | 0.00 | % | $ | 0 | 0.00 | % | $ | 1,182 | 4.45 | % | $ | 0 | 0.00 | % | $ | 1,182 | 4.45 | % | $ | 1,182 | ||||||||||||||||||||||
|
Other securities
|
0 | 0.00 | 480 | 2.82 | 0 | 0.00 | 0 | 0.00 | 480 | 2.82 | 480 | |||||||||||||||||||||||||||||||||
|
Total
|
$ | 0 | 0.00 | % | $ | 480 | 2.82 | % | $ | 1,182 | 4.45 | % | $ | 0 | 0.00 | % | $ | 1,662 | 3.98 | % | $ | 1,662 | ||||||||||||||||||||||
|
Total securities
|
$ | 12,852 | 4.78 | % | $ | 265,108 | 3.57 | % | $ | 39,289 | 3.72 | % | $ | 23,088 | 5.45 | % | $ | 340,337 | 3.76 | % | $ | 334,320 | ||||||||||||||||||||||
The calculations of the weighted average interest rates for each maturity category are based upon yield weighted by the respective costs of the securities. The weighted average rates on state and political subdivisions are computed on a taxable equivalent basis using a 35% tax rate.
Excluding those holdings of the investment portfolio in U.S. Treasury securities, government agencies, and government sponsored agencies, there were no securities of any one issuer that exceeded 10% of our shareholders’ equity at December 31, 2010.
The book values of securities available-for-sale and securities held-to-maturity as of December 31, 2010 and 2009 are presented in note 4 to the consolidated financial statements.
The book value of securities at December 31, 2008 is presented below:
|
(in thousands)
|
Available-for-Sale
|
Held-to-Maturity
|
||||||
|
U.S. Treasury and government agencies
|
$ | 18,330 | $ | 0 | ||||
|
State and political subdivisions
|
39,738 | 1,576 | ||||||
|
U.S. government sponsored agencies
|
187,390 | 24,021 | ||||||
|
Collateralized mortgage obligations
|
1 | 0 | ||||||
|
Total debt securities
|
245,459 | 25,597 | ||||||
|
Marketable equity securities
|
20,540 | 0 | ||||||
|
Total securities
|
$ | 265,999 | $ | 25,597 | ||||
Loan Portfolio
|
(in thousands)
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Commercial:
|
||||||||||||||||||||
|
Construction
|
$ | 135,091 | $ | 141,440 | $ | 156,425 | $ | 143,773 | $ | 133,902 | ||||||||||
|
Secured by real estate
|
807,049 | 707,500 | 663,663 | 640,574 | 632,881 | |||||||||||||||
|
Equipment lease financing
|
14,151 | 20,048 | 12,343 | 5,817 | 11,524 | |||||||||||||||
|
Other commercial
|
388,746 | 373,829 | 365,685 | 333,774 | 337,075 | |||||||||||||||
|
Total commercial
|
1,345,037 | 1,242,817 | 1,198,116 | 1,123,938 | 1,115,382 | |||||||||||||||
|
Residential:
|
||||||||||||||||||||
|
Real estate construction
|
56,910 | 51,311 | 56,298 | 69,021 | 50,588 | |||||||||||||||
|
Real estate mortgage
|
623,851 | 528,592 | 524,827 | 511,458 | 481,857 | |||||||||||||||
|
Home equity
|
85,103 | 82,135 | 84,567 | 88,207 | 97,340 | |||||||||||||||
|
Total residential
|
765,864 | 662,038 | 665,692 | 668,686 | 629,785 | |||||||||||||||
|
Consumer:
|
||||||||||||||||||||
|
Consumer direct
|
126,046 | 115,555 | 117,186 | 119,971 | 120,975 | |||||||||||||||
|
Consumer indirect
|
368,233 | 415,350 | 367,657 | 315,302 | 301,316 | |||||||||||||||
|
Total consumer
|
494,279 | 530,905 | 484,843 | 435,273 | 422,291 | |||||||||||||||
|
Total loans
|
$ | 2,605,180 | $ | 2,435,760 | $ | 2,348,651 | $ | 2,227,897 | $ | 2,167,458 | ||||||||||
|
Percent of total year-end loans
|
||||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||
|
Construction
|
5.19 | % | 5.80 | % | 6.65 | % | 6.45 | % | 6.18 | % | ||||||||||
|
Secured by real estate
|
30.98 | 29.05 | 28.26 | 28.75 | 29.20 | |||||||||||||||
|
Equipment lease financing
|
0.54 | 0.82 | 0.53 | 0.26 | 0.53 | |||||||||||||||
|
Other commercial
|
14.92 | 15.35 | 15.57 | 14.98 | 15.55 | |||||||||||||||
|
Total commercial
|
51.63 | 51.02 | 51.01 | 50.44 | 51.46 | |||||||||||||||
|
Residential:
|
||||||||||||||||||||
|
Real estate construction
|
2.18 | 2.11 | 2.40 | 3.10 | 2.34 | |||||||||||||||
|
Real estate mortgage
|
23.95 | 21.70 | 22.35 | 22.96 | 22.23 | |||||||||||||||
|
Home equity
|
3.27 | 3.37 | 3.60 | 3.96 | 4.49 | |||||||||||||||
|
Total residential
|
29.40 | 27.18 | 28.35 | 30.02 | 29.06 | |||||||||||||||
|
Consumer:
|
||||||||||||||||||||
|
Consumer direct
|
4.84 | 4.74 | 4.99 | 5.38 | 5.58 | |||||||||||||||
|
Consumer indirect
|
14.13 | 17.06 | 15.65 | 14.16 | 13.90 | |||||||||||||||
|
Total consumer
|
18.97 | 21.80 | 20.64 | 19.54 | 19.48 | |||||||||||||||
|
Total loans
|
100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||
The total loans above are net of deferred loan fees and costs.
The following table shows the amounts of loans (excluding residential mortgages of 1-4 family residences, consumer loans and lease financing) which, based on the remaining scheduled repayments of principal are due in the periods indicated. Also, the amounts are classified according to sensitivity to changes in interest rates (fixed, variable).
|
Maturity at December 31, 2010
|
||||||||||||||||
|
(in thousands)
|
Within One Year
|
After One but Within Five Years
|
After Five Years
|
Total
|
||||||||||||
|
Commercial secured by real estate and commercial other
|
$ | 251,999 | $ | 274,750 | $ | 669,046 | $ | 1,195,795 | ||||||||
|
Commercial and real estate construction
|
119,552 | 18,639 | 53,810 | 192,001 | ||||||||||||
| $ | 371,551 | $ | 293,389 | $ | 722,856 | $ | 1,387,796 | |||||||||
|
Rate sensitivity:
|
||||||||||||||||
|
Fixed rate
|
$ | 80,865 | $ | 45,679 | $ | 55,974 | $ | 182,518 | ||||||||
|
Adjustable rate
|
290,686 | 247,710 | 666,882 | 1,205,278 | ||||||||||||
| $ | 371,551 | $ | 293,389 | $ | 722,856 | $ | 1,387,796 | |||||||||
Nonperforming Assets
|
(in thousands)
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Nonaccrual loans
|
$ | 45,021 | $ | 32,247 | $ | 40,945 | $ | 22,230 | $ | 9,863 | ||||||||||
|
90 days or more past due and still accruing interest
|
17,014 | 9,067 | 11,245 | 9,622 | 4,294 | |||||||||||||||
|
Total nonperforming loans
|
62,035 | 41,314 | 52,190 | 31,859 | 14,157 | |||||||||||||||
|
Other repossessed assets
|
129 | 276 | 239 | 241 | 3 | |||||||||||||||
|
Foreclosed properties
|
42,935 | 37,333 | 10,425 | 7,851 | 4,524 | |||||||||||||||
|
Total nonperforming assets
|
$ | 105,099 | $ | 78,923 | $ | 62,854 | $ | 39,951 | $ | 18,684 | ||||||||||
|
Nonperforming assets to total loans and foreclosed properties/assets
|
3.97 | % | 3.19 | % | 2.66 | % | 1.79 | % | 0.86 | % | ||||||||||
|
Allowance to nonperforming loans
|
56.10 | % | 79.01 | % | 59.06 | % | 88.06 | % | 194.43 | % | ||||||||||
Nonaccrual and Past Due Loans
|
(in thousands)
|
Nonaccrual loans
|
As a % of Loan Balances by Category
|
Accruing Loans Past Due 90 Days or More
|
As a % of Loan Balances by Category
|
Balances
|
|||||||||||||||
|
December 31, 2010
|
||||||||||||||||||||
|
Commercial construction
|
$ | 13,138 | 9.73 | % | $ | 1,178 | 0.87 | % | $ | 135,091 | ||||||||||
|
Commercial secured by real estate
|
15,608 | 1.93 | 9,641 | 1.19 | 807,049 | |||||||||||||||
|
Equipment lease financing
|
0 | 0.00 | 0 | 0.00 | 14,151 | |||||||||||||||
|
Commercial other
|
9,338 | 2.40 | 1,692 | 0.44 | 388,746 | |||||||||||||||
|
Real estate construction
|
636 | 1.12 | 372 | 0.65 | 56,910 | |||||||||||||||
|
Real estate mortgage
|
6,137 | 0.98 | 3,337 | 0.53 | 623,851 | |||||||||||||||
|
Home equity
|
164 | 0.19 | 226 | 0.27 | 85,103 | |||||||||||||||
|
Consumer direct
|
0 | 0.00 | 70 | 0.06 | 126,046 | |||||||||||||||
|
Consumer indirect
|
0 | 0.00 | 498 | 0.14 | 368,233 | |||||||||||||||
|
Total
|
$ | 45,021 | 1.73 | % | $ | 17,014 | 0.65 | % | $ | 2,605,180 | ||||||||||
|
December 31, 2009
|
||||||||||||||||||||
|
Commercial construction
|
$ | 12,312 | 8.70 | % | $ | 865 | 0.61 | % | $ | 141,440 | ||||||||||
|
Commercial secured by real estate
|
9,803 | 1.39 | 5,640 | 0.80 | 707,500 | |||||||||||||||
|
Equipment lease financing
|
0 | 0.00 | 0 | 0.00 | 20,048 | |||||||||||||||
|
Commercial other
|
4,489 | 1.20 | 286 | 0.08 | 373,829 | |||||||||||||||
|
Real estate construction
|
1,244 | 2.42 | 0 | 0.00 | 51,311 | |||||||||||||||
|
Real estate mortgage
|
3,781 | 0.72 | 1,540 | 0.29 | 528,592 | |||||||||||||||
|
Home equity
|
618 | 0.75 | 158 | 0.19 | 82,135 | |||||||||||||||
|
Consumer direct
|
0 | 0.00 | 160 | 0.14 | 115,555 | |||||||||||||||
|
Consumer indirect
|
0 | 0.00 | 418 | 0.10 | 415,350 | |||||||||||||||
|
Total
|
$ | 32,247 | 1.32 | % | $ | 9,067 | 0.37 | % | $ | 2,435,760 | ||||||||||
In 2010, gross interest income that would have been recorded on nonaccrual loans had the loans been current in accordance with their original terms amounted to $2.5 million. Interest income actually received and included in net income for the period was $0.5 million, leaving $2.0 million of interest income not recognized during the period.
Discussion of the Nonaccrual Policy
The accrual of interest income on loans is discontinued when the collection of interest and principal in full is not expected. When interest accruals are discontinued, interest income accrued in the current period is reversed and interest income accrued in prior periods is charged to the allowance for loan losses. Any loans past due 90 days or more must be well secured and in the process of collection to continue accruing interest.
Potential Problem Loans
Interest accrual is discontinued when we believe, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful.
Foreign Outstandings
None
Loan Concentrations
We had no concentration of loans exceeding 10% of total loans at December 31, 2010. See note 19 to the consolidated financial statements for further information.
Analysis of the Allowance for Loan and Lease Losses
|
(in thousands)
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Allowance for loan and lease losses, beginning of year
|
$ | 32,643 | $ | 30,821 | $ | 28,054 | $ | 27,526 | $ | 29,506 | ||||||||||
|
Loans charged off:
|
||||||||||||||||||||
|
Commercial construction
|
1,695 | 3,435 | 1,491 | 273 | 23 | |||||||||||||||
|
Commercial secured by real estate
|
3,826 | 3,192 | 914 | 1,106 | 872 | |||||||||||||||
|
Commercial other
|
5,184 | 4,342 | 2,080 | 2,134 | 3,816 | |||||||||||||||
|
Real estate construction
|
22 | 330 | 125 | 32 | 56 | |||||||||||||||
|
Real estate mortgage
|
684 | 858 | 458 | 414 | 538 | |||||||||||||||
|
Home equity
|
358 | 223 | 288 | 133 | 34 | |||||||||||||||
|
Consumer direct
|
1,256 | 1,892 | 1,891 | 1,602 | 1,657 | |||||||||||||||
|
Consumer indirect
|
4,611 | 4,587 | 4,051 | 2,738 | 2,434 | |||||||||||||||
|
Total charge-offs
|
17,636 | 18,859 | 11,298 | 8,432 | 9,430 | |||||||||||||||
|
Recoveries of loans previously charged off:
|
||||||||||||||||||||
|
Commercial construction
|
6 | 204 | 25 | 0 | 0 | |||||||||||||||
|
Commercial secured by real estate
|
163 | 415 | 177 | 180 | 132 | |||||||||||||||
|
Commercial other
|
688 | 350 | 534 | 428 | 689 | |||||||||||||||
|
Real estate construction
|
19 | 7 | 5 | 1 | 0 | |||||||||||||||
|
Real estate mortgage
|
99 | 132 | 50 | 242 | 192 | |||||||||||||||
|
Home equity
|
23 | 18 | 10 | 8 | 18 | |||||||||||||||
|
Consumer direct
|
635 | 792 | 654 | 680 | 848 | |||||||||||||||
|
Consumer indirect
|
1,681 | 1,295 | 1,158 | 881 | 1,266 | |||||||||||||||
|
Total recoveries
|
3,314 | 3,213 | 2,613 | 2,420 | 3,145 | |||||||||||||||
|
Net charge-offs:
|
||||||||||||||||||||
|
Commercial construction
|
1,689 | 3,231 | 1,466 | 273 | 23 | |||||||||||||||
|
Commercial secured by real estate
|
3,663 | 2,777 | 737 | 926 | 740 | |||||||||||||||
|
Commercial other
|
4,496 | 3,992 | 1,546 | 1,706 | 3,127 | |||||||||||||||
|
Real estate construction
|
3 | 323 | 120 | 31 | 56 | |||||||||||||||
|
Real estate mortgage
|
585 | 726 | 408 | 172 | 346 | |||||||||||||||
|
Home equity
|
335 | 205 | 278 | 125 | 16 | |||||||||||||||
|
Consumer direct
|
621 | 1,100 | 1,237 | 922 | 809 | |||||||||||||||
|
Consumer indirect
|
2,930 | 3,292 | 2,893 | 1,857 | 1,168 | |||||||||||||||
|
Total net charge-offs
|
14,322 | 15,646 | 8,685 | 6,012 | 6,285 | |||||||||||||||
|
Provisions charged against operations
|
16,484 | 17,468 | 11,452 | 6,540 | 4,305 | |||||||||||||||
|
Balance, end of year
|
$ | 34,805 | $ | 32,643 | $ | 30,821 | $ | 28,054 | $ | 27,526 | ||||||||||
|
Allocation of allowance, end of year:
|
||||||||||||||||||||
|
Commercial construction
|
$ | 4,332 | $ | 3,381 | $ | 3,645 | $ | 3,194 | $ | 2,059 | ||||||||||
|
Commercial secured by real estate
|
12,327 | 10,961 | 11,304 | 9,081 | 7,224 | |||||||||||||||
|
Commercial other
|
7,392 | 7,472 | 5,782 | 4,817 | 4,335 | |||||||||||||||
|
Equipment lease financing
|
148 | 221 | 191 | 76 | 126 | |||||||||||||||
|
Real estate construction
|
271 | 291 | 281 | 335 | 206 | |||||||||||||||
|
Real estate mortgage
|
2,982 | 3,041 | 2,616 | 2,479 | 1,957 | |||||||||||||||
|
Home equity
|
407 | 455 | 422 | 428 | 395 | |||||||||||||||
|
Consumer direct
|
1,169 | 1,258 | 1,590 | 1,387 | 1,228 | |||||||||||||||
|
Consumer indirect
|
5,777 | 5,563 | 4,990 | 3,647 | 3,060 | |||||||||||||||
|
Unallocated
|
0 | 0 | 0 | 2,610 | 6,936 | |||||||||||||||
|
Balance, end of year
|
$ | 34,805 | $ | 32,643 | $ | 30,821 | $ | 28,054 | $ | 27,526 | ||||||||||
|
Average loans outstanding, net of deferred loan costs and fees
|
$ | 2,461,225 | $ | 2,383,875 | $ | 2,283,180 | $ | 2,205,431 | $ | 2,131,649 | ||||||||||
|
Loans outstanding at end of year, net of deferred loan costs and fees
|
$ | 2,605,180 | $ | 2,435,760 | $ | 2,348,651 | $ | 2,227,897 | $ | 2,167,458 | ||||||||||
|
Net charge-offs to average loan type:
|
||||||||||||||||||||
|
Commercial construction
|
1.20 | % | 2.22 | % | 0.98 | % | 0.19 | % | 0.02 | % | ||||||||||
|
Commercial secured by real estate
|
0.48 | 0.40 | 0.11 | 0.14 | 0.11 | |||||||||||||||
|
Commercial other
|
1.24 | 1.07 | 0.43 | 0.51 | 0.99 | |||||||||||||||
|
Real estate construction
|
0.01 | 0.64 | 0.19 | 0.05 | 0.11 | |||||||||||||||
|
Real estate mortgage
|
0.11 | 0.14 | 0.08 | 0.03 | 0.08 | |||||||||||||||
|
Home equity
|
0.40 | 0.25 | 0.33 | 0.14 | 0.02 | |||||||||||||||
|
Consumer direct
|
0.53 | 0.95 | 1.04 | 0.76 | 0.67 | |||||||||||||||
|
Consumer indirect
|
0.75 | 0.84 | 0.87 | 0.60 | 0.39 | |||||||||||||||
|
Total
|
0.58 | % | 0.66 | % | 0.38 | % | 0.27 | % | 0.29 | % | ||||||||||
|
Other ratios:
|
||||||||||||||||||||
|
Allowance to net loans, end of year
|
1.34 | % | 1.34 | % | 1.31 | % | 1.26 | % | 1.27 | % | ||||||||||
|
Allowance to net legacy loans, end of year
|
1.40 | % | 1.34 | % | 1.31 | % | 1.26 | % | 1.27 | % | ||||||||||
|
Provision for loan losses to average loans
|
0.67 | % | 0.73 | % | 0.50 | % | 0.30 | % | 0.20 | % | ||||||||||
The allowance for loan and lease losses balance is maintained at a level considered adequate to cover anticipated probable losses based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. This analysis is completed quarterly and forms the basis for allocation of the loan loss reserve and what charges to the provision may be required. The allowance to net legacy loans excludes loans acquired in the acquisition of LaFollette Bank. See notes 1, 5, and 8 to the consolidated financial statements for further information.
Average Deposits and Other Borrowed Funds
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Deposits:
|
||||||||||||
|
Noninterest bearing deposits
|
$ | 514,196 | $ | 471,902 | $ | 443,593 | ||||||
|
NOW accounts
|
20,919 | 19,478 | 19,601 | |||||||||
|
Money market accounts
|
422,329 | 430,818 | 436,895 | |||||||||
|
Savings accounts
|
225,007 | 216,578 | 199,081 | |||||||||
|
Certificates of deposit of $100,000 or more
|
576,382 | 480,653 | 443,020 | |||||||||
|
Certificates of deposit < $100,000 and other time deposits
|
816,128 | 790,419 | 761,530 | |||||||||
|
Total deposits
|
2,574,961 | 2,409,848 | 2,303,720 | |||||||||
|
Other borrowed funds:
|
||||||||||||
|
Repurchase agreements and federal funds purchased
|
198,880 | 180,044 | 170,231 | |||||||||
|
Advances from Federal Home Loan Bank
|
20,286 | 47,434 | 49,001 | |||||||||
|
Long-term debt
|
61,341 | 61,341 | 61,341 | |||||||||
|
Total other borrowed funds
|
280,507 | 288,819 | 280,573 | |||||||||
|
Total deposits and other borrowed funds
|
$ | 2,855,468 | $ | 2,698,667 | $ | 2,584,293 | ||||||
The maximum balance for federal funds purchased and repurchase agreements at any month-end during 2010 occurred at November 30, 2010, with a month-end balance of $210.7 million. The maximum balance for federal funds purchased and repurchase agreements at any month-end during 2009 occurred at November 30, 2009, with a month-end balance of $192.8 million. The maximum balance for federal funds purchased and repurchase agreements at any month-end during 2008 occurred at May 31, 2008, with a month-end balance of $182.7 million.
Maturities and/or repricing of time deposits of $100,000 or more outstanding at December 31, 2010 are summarized as follows:
|
(in thousands)
|
Certificates of Deposit
|
Other Time Deposits
|
Total
|
|||||||||
|
Three months or less
|
$ | 202,517 | $ | 13,791 | $ | 216,308 | ||||||
|
Over three through six months
|
102,529 | 8,083 | 110,612 | |||||||||
|
Over six through twelve months
|
279,114 | 17,196 | 296,310 | |||||||||
|
Over twelve through sixty months
|
25,770 | 4,434 | 30,204 | |||||||||
|
Over sixty months
|
0 | 195 | 195 | |||||||||
| $ | 609,930 | $ | 43,699 | $ | 653,629 | |||||||
Our main office, which is owned by Community Trust Bank, Inc., is located at 346 North Mayo Trail, Pikeville, Kentucky 41501. Following is a schedule of properties owned and leased by CTBI and its subsidiaries as of December 31, 2010:
|
Location
|
Owned
|
Leased
|
Total
|
||
|
Banking locations:
|
|||||
|
Community Trust Bank, Inc.
|
|||||
|
*
|
Pikeville Market (lease land to 3 owned locations)
|
9
|
1
|
10
|
|
|
10 locations in Pike County, Kentucky
|
|||||
|
Floyd/Knott/Johnson Market (lease land to 1 owned location)
|
3
|
1
|
4
|
||
|
2 locations in Floyd County, Kentucky, 1 location in Knott County, Kentucky, and 1 location in Johnson County, Kentucky
|
|||||
|
Tug Valley Market (lease land to 1 owned location)
|
2
|
0
|
2
|
||
|
1 location in Pike County, Kentucky, 1 location in Mingo County, West Virginia
|
|||||
|
Whitesburg Market
|
4
|
1
|
5
|
||
|
5 locations in Letcher County, Kentucky
|
|||||
|
Hazard Market (lease land to 2 owned locations)
|
4
|
0
|
4
|
||
|
4 locations in Perry County, Kentucky
|
|||||
|
*
|
Lexington Market (lease land to 2 owned locations)
|
3
|
2
|
5
|
|
|
5 locations in Fayette County, Kentucky
|
|||||
|
Winchester Market
|
2
|
0
|
2
|
||
|
2 locations in Clark County, Kentucky
|
|||||
|
Richmond Market (lease land to 1 owned location)
|
3
|
0
|
3
|
||
|
3 locations in Madison County, Kentucky
|
|||||
|
Mt. Sterling Market
|
2
|
0
|
2
|
||
|
2 locations in Montgomery County, Kentucky
|
|||||
|
*
|
Versailles Market (lease land to 2 owned locations)
|
3
|
2
|
5
|
|
|
2 locations in Woodford County, Kentucky, 2 locations in Franklin County, Kentucky, and 1 location in Scott County, Kentucky
|
|||||
|
Danville Market (lease land to 1 owned location)
|
3
|
0
|
3
|
||
|
2 locations in Boyle County, Kentucky and 1 location in Mercer County, Kentucky
|
|||||
|
*
|
Ashland Market (lease land to 1 owned location)
|
5
|
0
|
5
|
|
|
4 locations in Boyd County, Kentucky and 1 location in Greenup County, Kentucky
|
|||||
|
Flemingsburg Market
|
3
|
0
|
3
|
||
|
3 locations in Fleming County, Kentucky
|
|||||
|
Advantage Valley Market
|
3
|
1
|
4
|
||
|
2 locations in Lincoln County, West Virginia, 1 location in Wayne County, West Virginia, and 1 location in Cabell County, West Virginia
|
|||||
|
Summersville Market
|
1
|
0
|
1
|
||
|
1 location in Nicholas County, West Virginia
|
|||||
|
*
|
Middlesboro Market (lease land to 1 owned location)
|
3
|
0
|
3
|
|
|
3 locations in Bell County, Kentucky
|
|||||
|
Williamsburg Market
|
5
|
0
|
5
|
||
|
2 locations in Whitley County, Kentucky and 3 locations in Laurel County, Kentucky
|
|||||
|
Campbellsville Market (lease land to 2 owned locations)
|
8
|
0
|
8
|
||
|
2 locations in Taylor County, Kentucky, 2 locations in Pulaski County, Kentucky, 1 location in Adair County, Kentucky, 1 location in Green County, Kentucky, 1 location in Russell County, Kentucky, and 1 location in Marion County, Kentucky
|
|||||
|
Mt. Vernon Market
|
2
|
0
|
2
|
||
|
2 locations in Rockcastle County, Kentucky
|
|||||
|
First National Bank of LaFollette
|
3
|
1
|
4
|
||
|
3 locations in Campbell County, Tennessee and 1 location in Anderson County, Tennessee
|
|||||
|
Total banking locations
|
71
|
9
|
80
|
||
|
Operational locations:
|
|||||
|
Community Trust Bank, Inc.
|
|||||
|
Pikeville (Pike County, Kentucky) (lease land to 1 owned location)
|
1
|
0
|
1
|
||
|
Lexington (Fayette County, Kentucky)
|
0
|
1
|
1
|
||
|
Total operational locations
|
1
|
1
|
2
|
||
|
Other:
|
|||||
|
Community Trust Bank, Inc.
|
|||||
|
Flemingsburg (Fleming County, Kentucky)
|
1
|
0
|
1
|
||
|
Ashland (Boyd County, Kentucky)
|
0
|
1
|
1
|
||
|
Total other locations
|
1
|
1
|
2
|
||
|
Total locations
|
73
|
11
|
84
|
||
*Community Trust and Investment Company has leased offices in the main office locations in these markets.
See notes 9 and 16 to the consolidated financial statements included herein for the year ended December 31, 2010, for additional information relating to lease commitments and amounts invested in premises and equipment.
CTBI and subsidiaries, and from time to time, our officers, are named defendants in legal actions arising from ordinary business activities. Management, after consultation with legal counsel, believes any pending actions are without merit or that the ultimate liability, if any, will not materially affect our consolidated financial position or results of operations.
Our common stock is listed on The NASDAQ-Stock Market LLC – Global Select Market under the symbol CTBI. As of February 28, 2011, there were approximately 3,174 holders of record of our outstanding common shares. Additional information required by this item is included in the Quarterly Financial Data below:
Quarterly Financial Data
(Unaudited)
|
(in thousands except per share amounts)
|
||||||||||||||||
|
Three Months Ended
|
December 31
|
September 30
|
June 30
|
March 31
|
||||||||||||
|
2010
|
||||||||||||||||
|
Net interest income
|
$ | 31,254 | $ | 29,377 | $ | 29,278 | $ | 29,345 | ||||||||
|
Net interest income, taxable equivalent basis
|
31,609 | 29,721 | 29,614 | 29,686 | ||||||||||||
|
Provision for loan losses
|
3,980 | 3,676 | 3,106 | 5,722 | ||||||||||||
|
Noninterest income
|
11,046 | 10,597 | 9,542 | 9,741 | ||||||||||||
|
Noninterest expense
|
24,956 | 23,998 | 23,655 | 23,441 | ||||||||||||
|
Net income
|
9,240 | 8,450 | 8,553 | 6,791 | ||||||||||||
|
Per common share:
|
||||||||||||||||
|
Basic earnings per share
|
$ | 0.61 | $ | 0.55 | $ | 0.56 | $ | 0.45 | ||||||||
|
Diluted earnings per share
|
0.60 | 0.55 | 0.56 | 0.45 | ||||||||||||
|
Dividends declared
|
0.305 | 0.305 | 0.30 | 0.30 | ||||||||||||
|
Common stock price:
|
||||||||||||||||
|
High
|
$ | 29.91 | $ | 28.00 | $ | 31.56 | $ | 28.32 | ||||||||
|
Low
|
26.52 | 24.50 | 24.89 | 22.15 | ||||||||||||
|
Last trade
|
28.96 | 27.09 | 25.10 | 27.07 | ||||||||||||
|
Selected ratios:
|
||||||||||||||||
|
Return on average assets, annualized
|
1.11 | % | 1.04 | % | 1.06 | % | 0.88 | % | ||||||||
|
Return on average common equity, annualized
|
10.71 | 9.95 | 10.40 | 8.47 | ||||||||||||
|
Net interest margin, annualized
|
4.15 | 3.95 | 4.00 | 4.20 | ||||||||||||
|
(in thousands except per share amounts)
|
||||||||||||||||
|
Three Months Ended
|
December 31
|
September 30
|
June 30
|
March 31
|
||||||||||||
|
2009
|
||||||||||||||||
|
Net interest income
|
$ | 28,582 | $ | 27,045 | $ | 25,409 | $ | 24,474 | ||||||||
|
Net interest income, taxable equivalent basis
|
28,912 | 27,386 | 25,741 | 24,765 | ||||||||||||
|
Provision for loan losses
|
5,193 | 5,772 | 4,522 | 1,981 | ||||||||||||
|
Noninterest income
|
10,486 | 9,226 | 10,955 | 10,753 | ||||||||||||
|
Noninterest expense
|
23,847 | 22,579 | 23,578 | 23,797 | ||||||||||||
|
Net income
|
6,958 | 5,584 | 5,937 | 6,580 | ||||||||||||
|
Per common share:
|
||||||||||||||||
|
Basic earnings per share
|
$ | 0.46 | $ | 0.37 | $ | 0.39 | $ | 0.44 | ||||||||
|
Diluted earnings per share
|
0.46 | 0.37 | 0.39 | 0.43 | ||||||||||||
|
Dividends declared
|
0.30 | 0.30 | 0.30 | 0.30 | ||||||||||||
|
Common stock price:
|
||||||||||||||||
|
High
|
$ | 27.08 | $ | 28.49 | $ | 31.29 | $ | 37.17 | ||||||||
|
Low
|
22.41 | 25.15 | 25.62 | 22.55 | ||||||||||||
|
Last trade
|
24.45 | 26.17 | 26.75 | 26.75 | ||||||||||||
|
Selected ratios:
|
||||||||||||||||
|
Return on average assets, annualized
|
0.90 | % | 0.72 | % | 0.78 | % | 0.89 | % | ||||||||
|
Return on average common equity, annualized
|
8.58 | 6.94 | 7.54 | 8.51 | ||||||||||||
|
Net interest margin, annualized
|
4.06 | 3.81 | 3.62 | 3.61 | ||||||||||||
Dividends
The annual dividend paid to our stockholders was increased from $1.20 per share to $1.21 per share during 2010. We have adopted a conservative policy of cash dividends by maintaining an average annual cash dividend ratio of less than 45%, with periodic stock dividends. The current year cash dividend ratio was 55.76%. The higher dividend ratio reflects the Board of Directors decision to continue to pay increased dividends to our shareholders despite the current economy as CTBI has continued to outperform its peers during this recessionary time. Dividends are typically paid on a quarterly basis. Future dividends are subject to the discretion of CTBI’s Board of Directors, cash needs, general business conditions, dividends from our subsidiaries, and applicable governmental regulations and policies. For information concerning restrictions on dividends from the subsidiary bank to CTBI, see note 21 to the consolidated financial statements included herein for the year ended December 31, 2010.
Stock Repurchases
CTBI did not acquire any shares of common stock through the stock repurchase program during the years 2010 and 2009. We repurchased 93,500 shares of common stock during 2008, leaving 288,519 shares remaining under CTBI's current repurchase authorization. For further information, see the Liquidity and Market Risk section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Common Stock Performance
The following graph shows the cumulative return experienced by CTBI's shareholders during the last five years compared to the NASDAQ Stock Market (U.S.) and the NASDAQ Bank Stock Index. The graph assumes the investment of $100 on December 31, 2005 in CTBI's common stock and in each index and the reinvestment of all dividends paid during the five-year period.
Comparison of 5 Year Cumulative Total Return
among Community Trust Bancorp, Inc., NASDAQ Stock Market (U.S.),
and NASDAQ Bank Stocks
|
Fiscal Year Ending December 31 ($)
|
||||||
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
|
|
Community Trust Bancorp, Inc.
|
100.00
|
138.47
|
95.46
|
131.49
|
91.77
|
113.24
|
|
NASDAQ Stock Market (U.S.)
|
100.00
|
109.84
|
119.14
|
57.41
|
82.53
|
97.95
|
|
NASDAQ Bank Stocks
|
100.00
|
112.23
|
88.95
|
64.86
|
54.35
|
64.28
|
|
(in thousands except ratios, per share amounts and # of employees)
|
||||||||||||||||||||
|
Year Ended December 31
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Interest income
|
$ | 154,511 | $ | 153,050 | $ | 167,611 | $ | 196,864 | $ | 189,305 | ||||||||||
|
Interest expense
|
35,257 | 47,540 | 63,974 | 90,832 | 81,538 | |||||||||||||||
|
Net interest income
|
119,254 | 105,510 | 103,637 | 106,032 | 107,767 | |||||||||||||||
|
Provision for loan losses
|
16,484 | 17,468 | 11,452 | 6,540 | 4,305 | |||||||||||||||
|
Noninterest income
|
40,926 | 41,420 | 21,767 | 36,608 | 32,559 | |||||||||||||||
|
Noninterest expense
|
96,050 | 93,801 | 82,532 | 83,055 | 80,407 | |||||||||||||||
|
Income before income taxes
|
47,646 | 35,661 | 31,420 | 53,045 | 55,614 | |||||||||||||||
|
Income taxes
|
14,612 | 10,602 | 8,347 | 16,418 | 16,550 | |||||||||||||||
|
Net income
|
$ | 33,034 | $ | 25,059 | $ | 23,073 | $ | 36,627 | $ | 39,064 | ||||||||||
|
Per common share:
|
||||||||||||||||||||
|
Basic earnings per share
|
$ | 2.17 | $ | 1.66 | $ | 1.54 | $ | 2.42 | $ | 2.59 | ||||||||||
|
Cash dividends declared-
|
$ | 1.21 | $ | 1.20 | $ | 1.17 | $ | 1.10 | $ | 1.05 | ||||||||||
|
as a % of net income
|
55.76 | % | 72.29 | % | 75.97 | % | 45.45 | % | 40.54 | % | ||||||||||
|
Book value, end of year
|
$ | 22.16 | $ | 21.17 | $ | 20.46 | $ | 20.03 | $ | 18.63 | ||||||||||
|
Market price, end of year
|
$ | 28.96 | $ | 24.45 | $ | 36.75 | $ | 27.53 | $ | 41.53 | ||||||||||
|
Market to book value, end of year
|
1.31 | x | 1.15 | x | 1.80 | x | 1.37 | x | 2.23 | x | ||||||||||
|
Price/earnings ratio, end of year
|
13.35 | x | 14.73 | x | 23.86 | x | 11.38 | x | 16.03 | x | ||||||||||
|
Cash dividend yield, end of year
|
4.18 | % | 4.91 | % | 3.18 | % | 4.00 | % | 2.53 | % | ||||||||||
|
At year-end:
|
||||||||||||||||||||
|
Total assets
|
$ | 3,355,872 | $ | 3,086,659 | $ | 2,954,531 | $ | 2,902,684 | $ | 2,969,761 | ||||||||||
|
Long-term debt
|
61,341 | 61,341 | 61,341 | 61,341 | 61,341 | |||||||||||||||
|
Shareholders’ equity
|
338,638 | 321,457 | 308,206 | 301,355 | 282,375 | |||||||||||||||
|
Averages:
|
||||||||||||||||||||
|
Assets
|
$ | 3,220,087 | $ | 3,047,100 | $ | 2,921,217 | $ | 2,980,713 | $ | 2,942,892 | ||||||||||
|
Deposits
|
2,574,961 | 2,409,848 | 2,303,720 | 2,352,902 | 2,294,385 | |||||||||||||||
|
Earning assets
|
2,961,971 | 2,830,701 | 2,703,054 | 2,760,014 | 2,717,325 | |||||||||||||||
|
Loans
|
2,461,225 | 2,383,875 | 2,283,180 | 2,205,431 | 2,131,649 | |||||||||||||||
|
Shareholders’ equity
|
333,645 | 317,711 | 308,401 | 294,106 | 269,202 | |||||||||||||||
|
Profitability ratios:
|
||||||||||||||||||||
|
Return on average assets
|
1.03 | % | 0.82 | % | 0.79 | % | 1.23 | % | 1.33 | % | ||||||||||
|
Return on average equity
|
9.90 | 7.89 | 7.48 | 12.45 | 14.51 | |||||||||||||||
|
Capital ratios:
|
||||||||||||||||||||
|
Equity to assets, end of year
|
10.09 | % | 10.41 | % | 10.43 | % | 10.38 | % | 9.51 | % | ||||||||||
|
Average equity to average assets
|
10.36 | 10.43 | 10.56 | 9.87 | 9.15 | |||||||||||||||
|
Risk based capital ratios:
|
||||||||||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||
|
(to average assets)
|
10.15 | % | 10.38 | % | 10.37 | % | 10.32 | % | 9.58 | % | ||||||||||
|
Tier 1 capital
|
||||||||||||||||||||
|
(to risk weighted assets)
|
12.90 | 12.90 | 13.05 | 13.24 | 12.21 | |||||||||||||||
|
Total capital
|
||||||||||||||||||||
|
(to risk weighted assets)
|
14.10 | 14.15 | 14.30 | 14.49 | 13.43 | |||||||||||||||
|
Other significant ratios:
|
||||||||||||||||||||
|
Allowance to net loans, end of year
|
1.34 | % | 1.34 | % | 1.31 | % | 1.26 | % | 1.27 | % | ||||||||||
|
Allowance to net legacy loans, end of year
|
1.40 | 1.34 | 1.31 | 1.26 | 1.27 | |||||||||||||||
|
Allowance to nonperforming loans, end of year
|
56.10 | 79.01 | 59.06 | 88.06 | 194.43 | |||||||||||||||
|
Nonperforming assets to loans and foreclosed properties, end of year
|
3.97 | 3.19 | 2.66 | 1.79 | 0.86 | |||||||||||||||
|
Net interest margin
|
4.07 | 3.77 | 3.88 | 3.90 | 4.02 | |||||||||||||||
|
Other statistics:
|
||||||||||||||||||||
|
Average common shares outstanding
|
15,234 | 15,129 | 15,017 | 15,150 | 15,086 | |||||||||||||||
|
Number of full-time equivalent employees, end of year
|
1,041 | 982 | 986 | 1,011 | 1,021 | |||||||||||||||
Overview
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Community Trust Bancorp, Inc., our operations, and our present business environment. The MD&A is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes thereto contained in Item 8 of this annual report. The MD&A includes the following sections:
|
v
|
Our Business
|
|
v
|
Critical Accounting Policies and Estimates
|
|
v
|
Results of Operations
|
|
v
|
Liquidity and Market Risk
|
|
v
|
Stock Repurchase Program
|
|
v
|
Interest Rate Risk
|
|
v
|
Capital Resources
|
|
v
|
Impact of Inflation, Changing Prices, and Economic Conditions
|
|
v
|
Contractual Obligations and Commitments
|
Our Business
Community Trust Bancorp, Inc. (“CTBI”) is a bank holding company headquartered in Pikeville, Kentucky. Currently, CTBI owns one commercial bank and one trust company. Through its subsidiaries, CTBI has eighty banking locations in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee, and five trust offices across Kentucky. At December 31, 2010, CTBI had total consolidated assets of $3.4 billion and total consolidated deposits, including repurchase agreements, of $2.9 billion, making it the largest bank holding company based on total deposits headquartered in the Commonwealth of Kentucky. Total shareholders’ equity at December 31, 2010 was $338.6 million.
On June 8, 2010, CTBI entered into an Agreement and Plan of Share Exchange with LaFollette First National Corporation, a Tennessee corporation (“LaFollette Corporation”) and First National Bank of LaFollette (“LaFollette Bank”), the wholly-owned subsidiary of LaFollette Corporation. On November 17, 2010, CTBI completed the acquisition of LaFollette Corporation and LaFollette Bank, acquiring all outstanding shares of LaFollette Corporation in a share exchange for $650 per share, or a total of approximately $16.1 million. In addition, CTBI paid $1.2 million to retire a debt owed by LaFollette Corporation. Immediately following the share exchange, LaFollette Corporation was merged into CTBI. LaFollette Bank was merged into Community Trust Bank, Inc. (the “Bank”) on January 21, 2011. All references to the “Bank” included herein shall be deemed to include both Community Trust Bank, Inc. and LaFollette Bank unless otherwise noted.
Through its subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services. The lending activities of our Bank include making commercial, construction, mortgage, and personal loans. Lease-financing, lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available. Our corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as registrars, transfer agents, and paying agents for bond and stock issues, as depositories for securities, and as providers of full service brokerage services. For further information, see Item 1 of this annual report.
Critical Accounting Policies and Estimates
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 the consolidated financial statements.
We believe the application of accounting policies and the estimates required therein are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
Our accounting policies are described in note 1 to the consolidated financial statements. We have identified the following critical accounting policies:
Cash and Cash Equivalents – CTBI considers all liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits in other financial institutions, and federal funds sold. Generally, federal funds are sold for one-day periods.
Certificates of deposit in other banks – Certificates of deposit in other banks generally mature within 18 months and are carried at cost.
Investments – Management determines the classification of securities at purchase. We classify securities into held-to-maturity, trading, or available-for-sale categories. Held-to-maturity securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, Investment Securities, investments in debt securities that are not classified as held-to-maturity and equity securities that have readily determinable fair values shall be classified in one of the following categories and measured at fair value in the statement of financial position:
a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturity securities) shall be classified as available-for-sale securities.
We do not have any securities that are classified as trading securities. Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders’ equity, net of tax. If declines in fair value are other than temporary, the carrying value of the securities is written down to fair value as a realized loss with a charge to income for the portion attributable to credit losses and a charge to other comprehensive income for the portion that is not credit related.
Gains or losses on disposition of securities are computed by specific identification for all securities except for shares in mutual funds, which are computed by average cost. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings.
When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair market value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other than temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the CTBI’s results of operations and financial condition.
Available-for-Sale Securities – Available-for-sale securities are valued using the following valuation techniques:
U.S. Treasury and government agencies, State and political subdivision, U.S. government sponsored agencies, Marketable equity securities – Level 2 Inputs. For these securities, CTBI obtains fair value measurements from an independent pricing service, which utilizes pricing models to determine fair value measurements. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.
Marketable equity securities – Level 3 Inputs. The securities owned by CTBI that were measured using Level 3 criteria are auction rate securities issued by FNMA. These securities were valued using an independent third party. For these securities, the valuation methods used were (1) a discounted cash flow model valuation, where the expected cash flows of the securities are discounted to the present using a yield that incorporates compensation for illiquidity and (2) a market comparables method, where the securities are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar securities. Using these methods, the auction rate securities are classified as Level 3.
Loans – Loans with the ability and the intent to be held until maturity and/or payoff are reported at the carrying value of unpaid principal reduced by unearned interest, an allowance for loan and lease losses, and unamortized deferred fees or costs. Income is recorded on the level yield basis. Interest accrual is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest. Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured. Loans are not reclassified as accruing until principal and interest payments remain current for a period of time, generally six months, and future payments appear reasonably certain. Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired. A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.
Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans, leases, or commitments as a yield adjustment.
Allowance for Loan and Lease Losses – We maintain an allowance for loan and lease losses (“ALLL”) at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Since arriving at an appropriate ALLL involves a high degree of management judgment, we use an ongoing quarterly analysis to develop a range of estimated losses. In accordance with accounting principles generally accepted in the United States, we use our best estimate within the range of potential credit loss to determine the appropriate ALLL. Credit losses are charged and recoveries are credited to the ALLL.
We utilize an internal risk grading system for commercial credits. Those larger commercial credits that exhibit probable or observed credit weaknesses are subject to individual review. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. The review of individual loans includes those loans that are impaired as defined by ASC 310-35, Impairment of a Loan. We evaluate the collectability of both principal and interest when assessing the need for loss provision. Historical loss rates are analyzed and applied to other commercial loans not subject to specific allocations. The ALLL allocation for this pool of commercial loans is established based on the historical average, maximum, minimum, and median loss ratios.
A loan is considered impaired when, based on current information and events, it is probable that CTBI will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded. The associated ALLL for these loans is measured under ASC 450, Contingencies.
Historical loss rates for commercial and retail loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. We generally review the historical loss rates over eight quarters and four quarters on a rolling average basis. Factors that we consider include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge offs, trend in loan losses, industry concentrations and their relative strengths, amount of unsecured loans and underwriting exceptions. Based upon management’s judgment, “best case,” “worst case,” and “most likely” scenarios are determined. The total of each of these weighted factors is then applied against the applicable portion of the portfolio and the ALLL is adjusted accordingly.
Loans Held for Sale – Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses, if any, are recognized in a valuation allowance by charges to income.
Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization. Capital leases are included in premises and equipment at the capitalized amount less accumulated amortization. Premises and equipment are evaluated for impairment on a quarterly basis.
Depreciation and amortization are computed primarily using the straight-line method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years for furniture, fixtures, and equipment, and up to the lease term for leasehold improvements. Capitalized leased assets are amortized on a straight-line basis over the lives of the respective leases.
Other Real Estate – Real estate acquired by foreclosure is carried at the lower of the investment in the property or its fair value less estimated cost to sell. Periodically, but not less frequently than bi-annually, an updated appraisal is obtained for each property owned and any decline in the fair value is recognized by a charge to income. All revenues and expenses related to the carrying of other real estate owned are recognized by a charge to income.
Goodwill and Core Deposit Intangible – We evaluate total goodwill and core deposit intangible for impairment, based upon ASC 350, Intangibles-Goodwill and Other, using fair value techniques including multiples of price/equity. Goodwill and core deposit intangible are evaluated for impairment on an annual basis or as other events may warrant.
The activity to goodwill and core deposit intangible for the year 2010 is shown below.
|
(in thousands)
|
Goodwill
|
Core Deposit Intangible
|
||||||
|
Beginning balance, January 1
|
$ | 65,059 | $ | 648 | ||||
|
Amortization
|
0 | (430 | ) | |||||
|
Acquired through acquisition
|
440 | 1,124 | ||||||
|
Ending balance, December 31
|
$ | 65,499 | $ | 1,342 | ||||
Amortization of core deposit intangible is estimated at approximately $0.2 million annually for years one through seven.
Transfers of Financial Assets -- Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from CTBI—put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) CTBI does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.
Earnings Per Share (“EPS”) – Basic EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding, excluding restricted shares.
Diluted EPS adjusts the number of weighted average shares of common stock outstanding by the dilutive effect of stock options, including restricted shares, as prescribed in ASC 718, Share-Based Payment.
Segments – Management analyzes the operation of CTBI assuming one operating segment, community banking services. CTBI, through its operating subsidiaries, offers a wide range of consumer and commercial community banking services. These services include: (i) residential and commercial real estate loans; (ii) checking accounts; (iii) regular and term savings accounts and savings certificates; (iv) full service securities brokerage services; (v) consumer loans; (vi) debit cards; (vii) annuity and life insurance products; (viii) Individual Retirement Accounts and Keogh plans; (ix) commercial loans; (x) trust services; and (xi) commercial demand deposit accounts.
Bank Owned Life Insurance – CTBI’s bank owned life insurance policies are carried at their cash surrender value. We recognize tax-free income from the periodic increases in cash surrender value of these policies and from death benefits.
Mortgage Servicing Rights – Mortgage servicing rights (“MSRs”) are carried at fair market value with the implementation of ASC 860-50, Servicing Assets and Liabilities, in January 2007. MSRs are valued using Level 3 inputs as defined in ASC 820, Fair Value Measurements. The fair value is determined quarterly based on an independent third-party valuation using a discounted cash flow analysis and calculated using a computer pricing model. The computer valuation is based on key economic assumptions including the prepayment speeds of the underlying loans, the weighted-average life of the loan, the discount rate, the weighted-average coupon, and the weighted-average default rate, as applicable. Along with the gains received from the sale of loans, fees are received for servicing loans. These fees include late fees, which are recorded in interest income, and ancillary fees and monthly servicing fees, which are recorded in noninterest income. Costs of servicing loans are charged to expense as incurred. Changes in fair market value of the MSRs are reported in mortgage banking income.
Stock Options – At December 31, 2010 and 2009, CTBI had a share-based employee compensation plan, which is described more fully in note 15 to the consolidated financial statements. CTBI accounts for this plan under the recognition and measurement principles of ASC 718, Share-Based Payment.
Comprehensive Income – Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities and unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other than temporary impairment has been recognized in income.
Reclassifications – Certain reclassifications considered to be immaterial have been made in the prior year condensed consolidated financial statements to conform to current year classifications. These reclassifications had no effect on net income.
New Accounting Standards –
Ø Improving Disclosures about Fair Value Measurements – In January 2010, the FASB released Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Subtopic 820, Fair Value Measurements and Disclosures, and Subtopic 715-20, Compensation—Retirement Benefits—Defined Benefit Plans. The new standard expands the existing fair value disclosures required by these two subtopics. Additional disclosures required by the new standard must be made for each period beginning after the effective date. Expansion of disclosures for prior periods to include those required by the ASU is optional.
Disclosure changes made by ASU 2010-06 include:
|
·
|
The amounts of and reasons for significant transfers in and out of Level 1, Level 2 and Level 3 fair value measurements and the accounting policy for the date used to recognize such transfers, e.g., actual transaction date, beginning of reporting period date or end of reporting period date
|
|
·
|
Presentation of purchases, sales, issuances and settlements as separate lines, rather than one net number, in the table reconciling activity for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs
|
|
·
|
Provision of fair value measurement disclosures for each class of assets and liabilities with a class often being a subset of assets or liabilities within a balance sheet line item. Class should be determined on the basis of the nature and risks of investments in debt and equity securities and generally will not require change from the classifications already employed in disclosures for those investments
|
|
·
|
Provision of explanations about the valuation techniques and inputs used to determine fair value for both recurring and nonrecurring fair value measurements falling in either Level 2 or Level 3
|
|
·
|
Revision of the existing disclosures made by a plan sponsor about fair value for assets of defined benefit pension and other postretirement benefit plans to require those disclosures be made by asset class instead of asset category
|
ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, with early adoption permitted. The one exception involves reporting certain items gross instead of net in the existing activity table for items measured at fair value on a recurring basis using Level 3 inputs, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years and may be adopted earlier if desired. Except for the Level 3 table item, each SEC issuer must apply the ASU starting with its first interim period beginning after December 15, 2009. CTBI did not elect to early adopt the provisions which are effective for years beginning after December 15, 2009 or the December 15, 2010 provisions. ASU 2010-06 has not and is not expected to have a material impact on CTBI’s consolidated financial statements.
Ø Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force – In April 2010, the FASB issued ASU No. 2010-18, Receivables (Topic 310) – Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 provides guidance on account for acquired loans that have evidence of credit deterioration upon acquisition. It allows acquired assets with common risk characteristics to be accounted for in the aggregate as a pool. ASU 2010-18 is effective for modifications of loans accounted for within pools under Subtopic 310-30 in the first interim or annual reporting period ending on or after July 15, 2010. ASU 2010-18 did not have an impact on our financial condition, results of operations, or disclosures.
Ø Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses – In July 2010, the FASB released ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The standard will help investors assess the credit risk of a company's receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures. Companies will be required to provide more information about the credit quality of their financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.
The standard requires CTBI to expand disclosures about the credit quality of our loans and the related reserves against them. The additional disclosures include details on our past due loans, credit quality indicators, and modifications of loans, and are included in notes 4 and 8 to the consolidated financial statements. CTBI adopted the standard beginning with our December 31, 2010 financial statements.
Ø Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings – In January 2011, the FASB released ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings. The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 discussed above. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.
Results of Operations
2010 Compared to 2009
CTBI’s earnings for the year 2010 increased 31.8% to $33.0 million, or $2.17 per basic share, compared to $25.1 million, or $1.66 per basic share, for the year ended December 31, 2009. Average shares outstanding increased from 15.1 million for the year ended December 31, 2009 to 15.2 million for the year ended December 31, 2010.
|
v
|
CTBI's earnings per share for the year 2010 increased $0.51 per share from prior year. Earnings for the year 2010 were positively impacted by increased net interest income and decreased provision for loan loss, partially offset by decreased noninterest income and increased noninterest expense. The acquisition of LaFollette Corporation increased earnings by $0.02 per basic share.
|
|
v
|
CTBI experienced significant improvement in our net interest margin year over year increasing from 3.77% for the year ended December 31, 2009 to 4.07% for the year ended December 31, 2010 as deposit expense decreased significantly.
|
|
v
|
As problem loans continued to work through the collection process, nonperforming loans increased from the $41.3 million at December 31, 2009 to $62.0 million at December 31, 2010. December 31, 2010 information includes $2.2 million in nonperforming loans for First National Bank of LaFollette. Nonperforming assets increased $26.1 million from prior year.
|
|
v
|
The loan loss provision for the year ended December 31, 2010 decreased $1.0 million from prior year.
|
|
v
|
Net loan charge-offs for the year 2010 decreased from $15.6 million for the year 2009 to $14.3 million for the year 2010.
|
|
v
|
Our loan loss reserve as a percentage of total loans outstanding was 1.34% at December 31, 2010 and 2009. 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 1.40% and 1.34%, respectively, at December 31, 2010 and 2009.
|
|
v
|
Noninterest income for the year 2010 decreased $0.5 million from prior year due to declines in gains on sales of loans and the fair value of our mortgage servicing rights, partially offset by increases in trust and brokerage revenue and deposit service charges.
|
|
v
|
Our loan portfolio increased $169.4 million year over year, including a $119.1 million increase resulting from the acquisition of LaFollette.
|
|
v
|
Our investment portfolio increased $55.8 million from prior year, including the $29.2 million increase from the LaFollette acquisition.
|
|
v
|
Our tangible common equity/tangible assets ratio remains strong at 8.27%. The acquisition of LaFollette was an all cash transaction and decreased our tangible common equity/tangible assets ratio by 56 basis points.
|
|
v
|
Return on average assets for the year 2010 was 1.03% compared to 0.82% for the year 2009. Return on average equity was 9.90% compared to 7.89%.
|
Net Interest Income:
We saw improvement in our net interest margin of 30 basis points for the year 2010 compared to 2009. Net interest income increased 13.0% with a 4.6% increase in average earning assets. The yield on average earnings assets for the year 2010 decreased 19 basis points in comparison to the 62 basis point decline in the cost of interest bearing funds.
Provision for Loan Losses and Allowance for Loan and Lease Losses:
The provision for loan losses that was added to the allowance for 2010 decreased $1.0 million from prior year. This provision represented a charge against current earnings in order to maintain the allowance at an appropriate level determined using the accounting estimates described in the Critical Accounting Policies and Estimates section. Our loan loss reserve as a percentage of total loans outstanding was 1.34% at December 31, 2010 and 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. 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 1.40% and 1.34%, respectively, at December 31, 2010 and 2009.
CTBI's total nonperforming loans were $62.0 million at December 31, 2010, an increase from the $41.3 million at December 31, 2009. Nonperforming loans include an increase of $2.2 million from the acquisition of LaFollette. Also included in the increased nonperforming loans was a $5.6 million automobile floor plan loan, three loans totaling $8.2 million which were secured by hotel properties, and one commercial real estate relationship totaling $4.1 million related to the restaurant industry. Loans past-due 30-89 days at December 31, 2010 at $28.4 million increased from the $24.8 at December 31, 2009, including a $3.2 million increase from the LaFollette acquisition. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.
Impaired loans at December 31, 2010 totaled $63.3 million, an increase from the $37.7 million at December 31, 2009. Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired. At December 31, 2010, the Bank had $0.4 million in commercial other, $0.1 million in commercial secured by real estate, and $1.3 million in commercial real estate construction loans that were modified in troubled debt restructurings and impaired. In addition to the troubled debt restructurings included in the impaired loans above, the Bank had troubled debt restructurings that were performing in accordance with their modified terms at December 31, 2010 of $0.8 million in commercial other, $2.4 million in commercial secured by real estate, and $1.6 million in commercial real estate construction loans.
For further information regarding nonperforming and impaired loans, see note 5 to the consolidated financial statements.
CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.
Foreclosed properties increased to $42.9 million at December 31, 2010 compared to $37.3 million at December 31, 2009. The increase in foreclosed properties includes $2.7 million from the acquisition of LaFollette. Sales of foreclosed properties for the year ended December 31, 2010 totaled $8.5 million. Net loss on sales of foreclosed properties in 2010 totaled $134 thousand. New foreclosed properties totaled $11.8 million and are carried at the lesser of book value or appraised value less cost to sell. Our nonperforming loans and foreclosed properties remain primarily concentrated in our Central Kentucky Region. The major classifications of other real estate owned are shown in the following table:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
1-4 family
|
$ | 18,792 | $ | 18,388 | ||||
|
Agricultural/farmland
|
58 | 128 | ||||||
|
Construction/land development/other
|
10,207 | 7,414 | ||||||
|
Multifamily
|
4,594 | 4,117 | ||||||
|
Non-farm/non-residential
|
9,284 | 7,286 | ||||||
|
Total other real estate owned
|
$ | 42,935 | $ | 37,333 | ||||
Net loan charge-offs for the year 2010 were $14.3 million, or 0.58% of average loans, compared to prior year's $15.6 million, or 0.66% of average loans. Of the total net charge-offs, $9.8 million was in commercial loans, $2.9 million was in indirect auto loans, and $0.9 million was in residential real estate mortgage loans.
Noninterest Income:
Noninterest income for the year 2010 declined 1.2% 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 $0.8 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 year 2010 increased 2.4% from 2009 as increased personnel expenses were partially offset by a decrease in FDIC insurance premiums and special assessment.
Balance Sheet Review:
CTBI’s total assets at $3.4 billion increased $269.2 million, or 8.7%, from prior year-end, including an increase of $193.7 million from the acquisition of LaFollette Bank. Loans outstanding at December 31, 2010 were $2.6 billion, increasing $169.4 million, or 7.0%, from December 31, 2009, including a $119.1 million increase resulting from the acquisition of LaFollette Bank. Loan growth of $102.3 million in the commercial loan portfolio and $103.2 million in the residential loan portfolio was partially offset by a decline in the consumer loan portfolio of $36.1 million. CTBI's investment portfolio increased $55.8 million, or 19.6%, from prior year, including the $29.2 million increase from LaFollette Bank. Deposits, including repurchase agreements, at $2.9 billion increased $251.7 million, or 9.5%, from prior year, including $174.5 million from the acquisition of LaFollette Bank. The deposit (including repurchase agreements) to FTE (full-time equivalent) ratio increased to $2.8 million at December 31, 2010 from $2.7 million at December 31, 2009. Shareholders’ equity at December 31, 2010 was $338.6 million compared to $321.5 million at December 31, 2009.
2009 Compared to 2008
CTBI’s earnings increased for the year 2009. Earnings per basic share for the year 2009 were $1.66 compared to $1.54 for the same period in 2008. Average shares outstanding increased from 15.0 million for the year ended December 31, 2008 to 15.1 million for the year ended December 31, 2009.
|
v
|
Year over year basic earnings per share increased $0.12 per share. 2009 earnings were impacted by increased provision for loan losses ($0.26 per share impact after-tax), increased FDIC insurance premiums and special FDIC assessment ($0.23 per share impact after-tax), and increased noninterest income compared to 2008 which was impacted by the other than temporary impairment (OTTI) charges on investment securities of $14.6 million ($0.62 per share impact after-tax).
|
|
v
|
The significant increase in provision for loan losses was driven by increased charge-offs in 1-4 family commercial real estate loans with specific reserves and to a lesser extent consumer loans, and it supported loan growth of $87.1 million for the year.
|
|
v
|
Net loan charge-offs for the year 2009 increased $7.0 million from prior year.
|
|
v
|
Noninterest income was impacted by increased gains on sales of loans and loan related fees due to the refinancing of mortgage loans and an increase in the fair value of mortgage servicing rights.
|
|
v
|
Noninterest expense increased year over year as a result of increases in legal fees, net expenses related to other real estate owned, and repossession expense as CTBI worked through its problem real estate loans resulting from the decline in the housing market and consumers and small businesses were being impacted by current economic conditions. CTBI also experienced increased FDIC insurance premiums including the special FDIC assessment and increased personnel expense.
|
|
v
|
Our net interest margin for the year was 11 basis points below prior year.
|
|
v
|
Our loan portfolio grew $87.1 million or 3.7% with growth in the commercial and consumer loan portfolios offset by a decline in the residential loan portfolio.
|
|
v
|
Nonperforming loans decreased to $41.3 million compared to $52.2 million at December 31, 2008. The year over year decrease in nonperforming loans was in both the 90 day and accruing and the nonaccrual classifications. Nonperforming assets increased $16.1 million from prior year-end, December 31, 2008, as a result of increased other real estate owned.
|
|
v
|
Our investment portfolio declined $8.4 million year over year.
|
|
v
|
Our tangible common equity/tangible assets ratio remained strong at 8.47%.
|
|
v
|
Return on average assets for the year was 0.82% compared to 0.79% for the year 2008. Return on average equity was 7.89% compared to 7.48%.
|
Net Interest Income:
Our net interest margin decreased 11 basis points compared to the year ended December 31, 2008. Net interest income for the year 2009 increased 1.8% with a 4.7% increase in average earning assets compared to 2008. The yield on average earnings assets for the year 2009 decreased 80 basis points in comparison to the 86 basis point decline in the cost of interest bearing funds.
Provision for Loan Losses and Allowance for Loan and Lease Losses:
The provision for loan losses that was added to the allowance for 2009 increased $6.0 million from the year 2008. This provision represented a charge against current earnings in order to maintain the allowance at an appropriate level determined using the accounting estimates described in the Critical Accounting Policies and Estimates section. Our loan loss reserve as a percentage of total loans outstanding at December 31, 2009 increased to 1.34% compared to 1.31% at December 31, 2008. The adequacy of our loan loss reserves is analyzed quarterly and adjusted as necessary with a focus on maintaining appropriate reserves for potential losses.
CTBI's total nonperforming loans were $41.3 million at December 31, 2009, a decrease from the $52.2 million at December 31, 2008. Loans past-due 30-89 days at December 31, 2009 were $24.8 million, a decrease of $2.9 million from the $27.7 million at December 31, 2008. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.
CTBI generally does not offer high risk loans such as option ARM products, high loan to value ratio mortgages, interest-only loans, loans with initial teaser rates, or loans with negative amortizations, and therefore, CTBI would have no significant exposure to these products.
Foreclosed properties increased to $37.3 million from the $10.4 million at December 31, 2008, as problem real estate loans were working their way through the legal system, which remained strained due to current economic conditions, and CTBI continued working through a prolonged foreclosure process. Sales of foreclosed properties for the year ended December 31, 2009 totaled $7.0 million. Net loss on sales of foreclosed properties in 2009 totaled $45 thousand. New foreclosed properties, carried at the lesser of book value or appraised value less cost to sell, totaled $33.3 million. Our nonperforming loans and foreclosed properties remained primarily concentrated in our Central Kentucky Region. The major classifications of other real estate owned are shown in the following table:
|
(in thousands)
December 31
|
2009
|
2008
|
||||||
|
1-4 family
|
$ | 18,388 | $ | 8,003 | ||||
|
Agricultural/farmland
|
128 | 111 | ||||||
|
Construction/land development/other
|
7,414 | 1,084 | ||||||
|
Multifamily
|
4,117 | 0 | ||||||
|
Non-farm/non-residential
|
7,286 | 1,227 | ||||||
|
Total other real estate owned
|
$ | 37,333 | $ | 10,425 | ||||
Net loan charge-offs for the year 2009 were $15.6 million, or 0.66% of average loans, compared to prior year's $8.7 million, or 0.38% of average loans. Of the total net charge-offs, $9.4 million was in commercial loans with specific reserve allocations, $3.3 million was in indirect auto loans, and $1.3 million was in residential real estate mortgage loans. Specific reserves covered 88.8% of the commercial loan charge-offs. Specific reserves are not allocated for indirect auto loans or residential real estate mortgage loans during the credit review process. Indirect auto loans are charged-off within 90 days of becoming past due.
Noninterest Income:
Noninterest income for the year 2009 increased 14.0% over 2008 after normalizing for the $14.5 million in other than temporary impairment charges taken in 2008. The year over year increase included a $2.7 million increase in gains on sales of mortgage loans and a $1.8 million increase in loan related fees driven primarily by a $1.2 million change in the fair value of our mortgage servicing rights.
Noninterest Expense:
Noninterest expense for the year 2009 increased 13.7% from 2008 with increases in FDIC insurance premiums and personnel costs, along with increased legal fees, repossession expenses, and other real estate owned expenses as CTBI continued to work through nonperforming assets primarily associated with the decline in the real estate market in Central Kentucky.
Balance Sheet Review:
CTBI’s total assets at $3.1 billion increased 4.5% from prior year-end. Loans outstanding at December 31, 2009 were $2.4 billion with a 3.7% growth from December 31, 2008. Year over year loan growth occurred in the commercial and consumer loan portfolios with commercial loans increasing $44.7 million and consumer loans increasing $46.1 million. The residential loan portfolio declined by $3.7 million during 2009 due to significant refinancing of portfolio mortgage loans into the long-term fixed rate secondary market. CTBI’s investment portfolio decreased 2.9% from prior year. Deposits, including repurchase agreements, at $2.6 billion increased 6.2% from prior year. Other interest bearing liabilities declined from prior year resulting from the payoff of a $40 million FHLB advance. The deposit (including repurchase agreements) to FTE (full-time equivalent) ratio increased to $2.7 million at December 31, 2009 from $2.5 million at December 31, 2008.
Shareholders’ equity at December 31, 2009 was $321.5 million compared to $308.2 million at December 31, 2008. CTBI's annualized dividend yield to shareholders as of December 31, 2009 was 4.91%.
Liquidity and Market Risk
The objective of CTBI’s Asset/Liability management function is to maintain consistent growth in net interest income within our policy limits. This objective is accomplished through management of our consolidated balance sheet composition, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates, and customer preferences. The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or deposit withdrawals. This is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities, sufficient unused borrowing capacity, and growth in core deposits. As of December 31, 2010, we had approximately $159.0 million in cash and cash equivalents and approximately $338.7 million in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis. Additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans. In addition to core deposit funding, we also have a variety of other short-term and long-term funding sources available. We also rely on Federal Home Loan Bank advances for both liquidity and management of our asset/liability position. Federal Home Loan Bank advances were $21.2 million at December 31, 2010 compared to $20.7 million at December 31, 2009. As of December 31, 2010, we had a $239.3 million available borrowing position with the Federal Home Loan Bank. We generally rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash for our investing activities. As is typical of many financial institutions, significant financing activities include deposit gathering, use of short-term borrowing facilities such as repurchase agreements and federal funds purchased, and issuance of long-term debt. At December 31, 2010, we had a $12 million revolving line of credit, all of which is currently available to meet any future cash needs. Our primary investing activities include purchases of securities and loan originations. We do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs.
Stock Repurchase Program
CTBI’s stock repurchase program began in December 1998 with the authorization to acquire up to 500,000 shares and was increased by an additional 1,000,000 shares in July 2000. CTBI issued a press release on May 13, 2003 announcing its intention to repurchase up to 1,000,000 additional shares. As of December 31, 2010, a total of 2,211,481 shares have been repurchased through this program. The following table shows Board authorizations and repurchases made through the stock repurchase program for the years 1998 through 2010:
|
Board Authorizations
|
Repurchases*
|
Shares Available for Repurchase
|
||
|
Average Price ($)
|
# of Shares
|
|||
|
1998
|
500,000
|
-
|
0
|
|
|
1999
|
0
|
15.89
|
131,517
|
|
|
2000
|
1,000,000
|
11.27
|
694,064
|
|
|
2001
|
0
|
14.69
|
444,945
|
|
|
2002
|
0
|
19.48
|
360,287
|
|
|
2003
|
1,000,000
|
21.58
|
235,668
|
|
|
2004
|
0
|
25.45
|
55,000
|
|
|
2005
|
0
|
-
|
0
|
|
|
2006
|
0
|
-
|
0
|
|
|
2007
|
0
|
31.42
|
196,500
|
|
|
2008
|
0
|
28.08
|
93,500
|
|
|
2009
|
0
|
-
|
0
|
|
|
2010
|
0
|
-
|
0
|
|
|
Total
|
2,500,000
|
17.52
|
2,211,481
|
288,519
|
*Repurchased shares and average prices have been restated to reflect stock dividends that have occurred; however, board authorized shares have not been adjusted.
Interest Rate Risk
We consider interest rate risk one of our most significant market risks. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. Consistency of our net interest revenue is largely dependent upon the effective management of interest rate risk. We employ a variety of measurement techniques to identify and manage our interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.
CTBI’s Asset/Liability Management Committee (ALCO), which includes executive and senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk within Board-approved policy limits. Our current exposure to interest rate risks is determined by measuring the anticipated change in net interest income spread evenly over the twelve-month period.
The following table shows our estimated earnings sensitivity profile as of December 31, 2010:
|
Change in Interest Rates
(basis points)
|
Percentage Change in Net Interest Income
(12 Months)
|
|
+400
|
2.48%
|
|
+300
|
1.45%
|
|
+200
|
0.58%
|
|
+100
|
0.22%
|
|
-25
|
(0.09)%
|
The following table shows CTBI’s estimated earnings sensitivity profile as of December 31, 2009:
|
Change in Interest Rates
(basis points)
|
Percentage Change in Net Interest Income
(12 Months)
|
|
+400
|
3.50%
|
|
+300
|
2.37%
|
|
+200
|
1.29%
|
|
+100
|
0.53%
|
|
-25
|
(0.15)%
|
The simulation model used the yield curve spread evenly over a twelve-month period. The measurement at December 31, 2010 estimates that our net interest income in an up-rate environment would increase by 2.48% at a 400 basis point change, 1.45% increase at a 300 basis point change, 0.58% increase at a 200 basis point change, and a 0.22% increase at a 100 basis point change. In a down-rate environment, a 25 basis point decrease in interest rates would decrease net interest income by 0.09% over one year. In order to reduce the exposure to interest rate fluctuations and to manage liquidity, we have developed sale procedures for several types of interest-sensitive assets. Virtually all long-term, fixed rate single family residential mortgage loans underwritten according to Federal Home Loan Mortgage Corporation guidelines are sold for cash upon origination. Periodically, additional assets such as commercial loans are also sold. In 2010 and 2009, $82.3 million and $217.5 million, respectively, was realized on the sale of fixed rate residential mortgages. We focus our efforts on consistent net interest revenue and net interest margin growth through each of the retail and wholesale business lines. We do not currently engage in trading activities.
The preceding analysis was prepared using a rate ramp analysis which attempts to spread changes evenly over a specified time period as opposed to a rate shock which measures the impact of an immediate change. Had these measurements been prepared using the rate shock method, the results would vary.
Our Static Repricing GAP as of December 31, 2010 is presented below. In the 12 month repricing GAP, rate sensitive liabilities (“RSL”) exceeded rate sensitive assets (“RSA”) by $96.7 million.
|
1-3 Months
|
4-6 Months
|
7-9 Months
|
10-12 Months
|
2-3 Years
|
4-5 Years
|
> 5 Years
|
||||||||||||||||||||||
|
Assets
|
$ | 1,495,743 | $ | 224,431 | $ | 169,203 | $ | 172,452 | $ | 548,335 | $ | 174,799 | $ | 570,909 | ||||||||||||||
|
Liabilities and Equity
|
923,981 | 304,889 | 329,270 | 600,422 | 697,893 | 14,228 | 485,189 | |||||||||||||||||||||
|
Repricing difference
|
571,762 | (80,458 | ) | (160,067 | ) | (427,970 | ) | (149,558 | ) | 160,570 | 85,720 | |||||||||||||||||
|
Cumulative GAP
|
571,672 | 491,304 | 331,238 | (96,732 | ) | (246,290 | ) | (85,720 | ) | 0 | ||||||||||||||||||
|
RSA/RSL
|
1.62 | x | 0.74 | x | 0.51 | x | 0.29 | x | 0.79 | x | 12.29 | x | 1.18 | x | ||||||||||||||
|
Cumulative GAP to total assets
|
17.04 | % | 14.64 | % | 9.87 | % | (2.88 | )% | (7.34 | )% | (2.55 | )% | 0.00 | % | ||||||||||||||
Capital Resources
We continue to grow our shareholders’ equity while also providing an annual dividend yield for the year 2010 of 4.18% to shareholders. Shareholders’ equity increased 5.3% from December 31, 2009 to $338.6 million at December 31, 2010. Our primary source of capital growth is the retention of earnings. Cash dividends were $1.21 per share for 2010 and $1.20 per share for 2009. We retained 44.2% of our earnings in 2010 compared to 27.7% in 2009.
Regulatory guidelines require bank holding companies, commercial banks, and savings banks to maintain certain minimum capital ratios and define companies as “well-capitalized” that sufficiently exceed the minimum ratios. The banking regulators may alter minimum capital requirements as a result of revising their internal policies and their ratings of individual institutions. To be “well-capitalized” banks and bank holding companies must maintain a Tier 1 leverage ratio of no less than 5.0%, a Tier 1 risk based ratio of no less than 6.0%, and a total risk based ratio of no less than 10.0%. Our ratios as of December 31, 2010 were 10.15%, 12.90%, and 14.10%, respectively, all exceeding the threshold for meeting the definition of “well-capitalized.” See note 21 to the consolidated financial statements for further information.
As of December 31, 2010, we are not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse impact on our liquidity, capital resources, or operations, except as provided for in the Dodd-Frank Act which is discussed in the Supervision and Regulation section of Item 1. Business.
Deposit Insurance
Substantially all of the deposits of CTBI are insured up to applicable limits by the Deposit Insurance Fund (DIF) of the FDIC and are subject to deposit insurance assessments to maintain the DIF. The FDIC utilizes a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory rating (“CAMELS rating”). The risk matrix utilizes four risk categories which are distinguished by capital levels and supervisory ratings.
In December 2008, the FDIC issued a final rule that raised the then current assessment rates uniformly by seven basis points for the first quarter of 2009 assessment, which resulted in annualized assessment rates for institutions in the highest risk category (“Risk Category 1 institutions”) ranging from 12 to 14 basis points (basis points representing cents per $100 of assessable deposits). In February 2009, the FDIC issued final rules to amend the DIF restoration plan, change the risk-based assessment system and set assessment rates for Risk Category 1 institutions beginning in the second quarter of 2009. For Risk Category 1 institutions that have long-term debt issuer ratings, the FDIC determines the initial base assessment rate using a combination of weighted average CAMELS component ratings, long-term debt issuer ratings (converted to numbers and averaged) and the financial ratios method assessment rate (as defined), each equally weighted. The initial base assessment rates for Risk Category 1 institutions range from 12 to 16 basis points, on an annualized basis. After the effect of potential base-rate adjustments, total base assessment rates range from 7 to 24 basis points. The potential adjustments to a Risk Category 1 institution’s initial base assessment rate include (i) a potential decrease of up to five basis points for long-term unsecured debt, including senior and subordinated debt and (ii) a potential increase of up to eight basis points for secured liabilities in excess of 25% of domestic deposits.
In May 2009, the FDIC issued a final rule which levied a special assessment applicable to all insured depository institutions totaling five basis points of each institution’s total assets less Tier 1 capital as of June 30, 2009, not to exceed 10 basis points of domestic deposits. The special assessment was part of the FDIC’s efforts to rebuild the DIF. Deposit insurance expense during 2009 included $1.3 million recognized in the second quarter related to the special assessment.
In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform three-basis point increase in assessment rates effective on January 1, 2011. In December 2009, CTBI paid $14.2 million in prepaid risk-based assessment, which included $0.9 million related to the fourth quarter of 2009 that would have otherwise been payable in the first quarter of 2010. This amount is included in deposit insurance expense for 2009. The remaining $13.3 million in prepaid deposit insurance is included in accrued interest receivable and other assets in the accompanying consolidated balance sheet as of December 31, 2009. During 2010, $3.9 million was expensed as a component of FDIC insurance, leaving $9.4 million in the prepaid.
FDIC insurance expense totaled $4.4 million, $5.8 million, and $0.3 million in 2010, 2009, and 2008. FDIC insurance expense includes deposit insurance assessments and Financing Corporation (ICO) assessments.
On July 21, 2010, President Obama signed the Dodd-Frank Act into law. This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.
Among many other provisions, the Dodd-Frank Act broadens the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and noninterest bearing transaction accounts and IOLTA accounts have unlimited deposit insurance through December 31, 2012. See the Supervision and Regulation section of Item 1. Business for further information on the provisions of the Dodd-Frank Act.
Impact of Inflation, Changing Prices, and Economic Conditions
The majority of our assets and liabilities are monetary in nature. Therefore, CTBI differs greatly from most commercial and industrial companies that have significant investment in nonmonetary assets, such as fixed assets and inventories. However, inflation does have an important impact on the growth of assets in the banking industry and on the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation also affects other expenses, which tend to rise during periods of general inflation.
We believe one of the most significant impacts on financial and operating results is our ability to react to changes in interest rates. We seek to maintain an essentially balanced position between interest rate sensitive assets and liabilities in order to protect against the effects of wide interest rate fluctuations.
Our success is dependent on the general economic conditions of the communities we serve. Unlike larger banks that are more geographically diversified, we provide financial and banking services primarily to eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. The economic conditions in these areas have a significant impact on loan demand, the ability of borrowers to repay loans, and the value of the collateral securing loans. A significant decline in general economic conditions will affect these local economic conditions and will negatively affect the financial results of our banking operations. Factors influencing general conditions include inflation, recession, unemployment, and other factors beyond our control.
The national and global economic downturn has resulted in unprecedented levels of financial market volatility and has in general adversely impacted the market value of financial institutions, limited access to capital and had an adverse effect on the financial condition and results of operations of banking companies in general, including CTBI. From early 2008 to the middle of 2010, CTBI experienced significant challenges, credit quality deteriorated, and net income and results of operations were adversely impacted. While there has been some improvement in economic conditions in our markets starting in the second half of 2010, we believe that we will continue to experience a challenging environment in 2011. CTBI is a part of the financial system and a continuation of systemic lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets, and reduced business activity could materially and adversely impact CTBI’s business, financial condition and results of operations.
Contractual Obligations and Commitments
As disclosed in the notes to the consolidated financial statements, we have certain obligations and commitments to make future payments under contracts. At December 31, 2010, the aggregate contractual obligations and commitments are:
|
Contractual Obligations:
|
Payments Due by Period
|
||||||||||||||||
|
(in thousands)
|
Total
|
1 Year
|
2-5 Years
|
After 5 Years
|
|||||||||||||
|
Deposits without stated maturity
|
$ | 1,238,874 | $ | 1,238,874 | $ | 0 | $ | 0 | |||||||||
|
Certificates of deposit and other time deposits
|
1,467,243 | 1,362,259 | 91,828 | 13,156 | |||||||||||||
|
Repurchase agreements and other short-term borrowings
|
197,955 | 197,955 | 0 | 0 | |||||||||||||
|
Advances from Federal Home Loan Bank
|
21,238 | 20,199 | 470 | 569 | |||||||||||||
|
Interest on advances from Federal Home Loan Bank*
|
215 | 83 | 111 | 21 | |||||||||||||
|
Long-term debt
|
61,341 | 0 | 0 | 61,341 | |||||||||||||
|
Interest on long-term debt*
|
105,985 | 3,999 | 15,998 | 85,988 | |||||||||||||
|
Annual rental commitments under leases
|
8,448 | 1,653 | 3,772 | 3,023 | |||||||||||||
|
Total
|
$ | 3,101,299 | $ | 2,825,022 | $ | 112,179 | $ | 164,098 | |||||||||
*The amounts provided as interest on advances from Federal Home Loan Bank and interest on long-term debt assume the liabilities will not be prepaid and interest is calculated to their individual maturities.
|
Other Commitments:
|
Amount of Commitment - Expiration by Period
|
|||||||||||||||
|
(in thousands)
|
Total
|
1 Year
|
2-5 Years
|
After 5 Years
|
||||||||||||
|
Standby letters of credit
|
$ | 54,690 | $ | 43,129 | $ | 11,561 | $ | 0 | ||||||||
|
Commitments to extend credit
|
376,858 | 300,185 | 69,830 | 6,843 | ||||||||||||
|
Total
|
$ | 431,548 | $ | 343,314 | $ | 81,391 | $ | 6,843 | ||||||||
Commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.
CTBI currently does not engage in any hedging activity or any derivative activity which management considers material. Analysis of CTBI’s interest rate sensitivity can be found in the Liquidity and Market Risk section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Community Trust Bancorp, Inc.
Consolidated Balance Sheets
|
(dollars in thousands)
December 31
|
2010
|
2009
|
||||||
|
Assets:
|
||||||||
|
Cash and due from banks
|
$ | 62,559 | $ | 62,720 | ||||
|
Interest bearing deposits
|
70,086 | 31,814 | ||||||
|
Federal funds sold
|
26,338 | 47,595 | ||||||
|
Cash and cash equivalents
|
158,983 | 142,129 | ||||||
|
Certificates of deposit in other banks
|
14,762 | 100 | ||||||
|
Securities available-for-sale at fair value
|
||||||||
|
(amortized cost of $332,658 and $263,756, respectively)
|
338,675 | 270,237 | ||||||
|
Securities held-to-maturity at amortized cost
|
||||||||
|
(fair value of $1,662 and $14,435, respectively)
|
1,662 | 14,336 | ||||||
|
Loans held for sale
|
455 | 1,818 | ||||||
|
Loans
|
2,605,180 | 2,435,760 | ||||||
|
Allowance for loan losses
|
(34,805 | ) | (32,643 | ) | ||||
|
Net loans
|
2,570,375 | 2,403,117 | ||||||
|
Premises and equipment, net
|
55,343 | 49,242 | ||||||
|
Federal Home Loan Bank stock
|
25,673 | 24,700 | ||||||
|
Federal Reserve Bank stock
|
4,434 | 4,348 | ||||||
|
Goodwill
|
65,499 | 65,059 | ||||||
|
Core deposit intangible (net of accumulated amortization of $7,260 and
|
||||||||
|
$6,857, respectively)
|
1,342 | 648 | ||||||
|
Bank owned life insurance
|
39,697 | 38,117 | ||||||
|
Mortgage servicing rights
|
3,161 | 3,406 | ||||||
|
Other real estate owned
|
42,935 | 37,333 | ||||||
|
Other assets
|
32,876 | 32,069 | ||||||
|
Total assets
|
$ | 3,355,872 | $ | 3,086,659 | ||||
|
Liabilities and shareholders’ equity:
|
||||||||
|
Deposits
|
||||||||
|
Noninterest bearing
|
$ | 525,478 | $ | 490,809 | ||||
|
Interest bearing
|
2,180,639 | 1,971,400 | ||||||
|
Total deposits
|
2,706,117 | 2,462,209 | ||||||
|
Repurchase agreements
|
188,275 | 180,471 | ||||||
|
Federal funds purchased
|
9,680 | 12,205 | ||||||
|
Advances from Federal Home Loan Bank
|
21,238 | 20,671 | ||||||
|
Long-term debt
|
61,341 | 61,341 | ||||||
|
Other liabilities
|
30,583 | 28,305 | ||||||
|
Total liabilities
|
3,017,234 | 2,765,202 | ||||||
|
Shareholders’ equity:
|
||||||||
|
Preferred stock, 300,000 shares authorized and unissued
|
- | - | ||||||
|
Common stock, $5 par value, shares authorized 25,000,000;
|
||||||||
|
shares outstanding 2010 – 15,281,576; 2009 – 15,183,987
|
76,408 | 75,920 | ||||||
|
Capital surplus
|
154,880 | 152,484 | ||||||
|
Retained earnings
|
103,439 | 88,840 | ||||||
|
Accumulated other comprehensive income, net of tax
|
3,911 | 4,213 | ||||||
|
Total shareholders’ equity
|
338,638 | 321,457 | ||||||
|
Total liabilities and shareholders’ equity
|
$ | 3,355,872 | $ | 3,086,659 | ||||
See notes to consolidated financial statements.
Consolidated Statements of Income
|
(in thousands except per share data)
Year Ended December 31
|
2010
|
2009
|
2008
|
|||||||||
|
Interest income:
|
||||||||||||
|
Interest and fees on loans, including loans held for sale
|
$ | 142,109 | $ | 139,736 | $ | 150,221 | ||||||
|
Interest and dividends on securities
|
||||||||||||
|
Taxable
|
8,934 | 9,569 | 12,635 | |||||||||
|
Tax exempt
|
1,601 | 1,845 | 1,869 | |||||||||
|
Interest and dividends on Federal Reserve Bank and Federal Home
|
||||||||||||
|
Loan Bank stock
|
1,351 | 1,402 | 1,559 | |||||||||
|
Interest on fed funds sold
|
234 | 193 | 1,083 | |||||||||
|
Other interest income
|
282 | 305 | 244 | |||||||||
|
Total interest income
|
154,511 | 153,050 | 167,611 | |||||||||
|
Interest expense:
|
||||||||||||
|
Interest on deposits
|
29,152 | 39,793 | 53,849 | |||||||||
|
Interest on repurchase agreements and other short-term borrowings
|
2,027 | 2,457 | 4,424 | |||||||||
|
Interest on advances from Federal Home Loan Bank
|
79 | 1,291 | 1,701 | |||||||||
|
Interest on long-term debt
|
3,999 | 3,999 | 4,000 | |||||||||
|
Total interest expense
|
35,257 | 47,540 | 63,974 | |||||||||
|
Net interest income
|
119,254 | 105,510 | 103,637 | |||||||||
|
Provision for loan losses
|
16,484 | 17,468 | 11,452 | |||||||||
|
Net interest income after provision for loan losses
|
102,770 | 88,042 | 92,185 | |||||||||
|
Noninterest income:
|
||||||||||||
|
Service charges on deposit accounts
|
23,255 | 21,970 | 21,886 | |||||||||
|
Gains on sales of loans, net
|
1,642 | 4,324 | 1,583 | |||||||||
|
Trust income
|
5,846 | 5,047 | 4,929 | |||||||||
|
Loan related fees
|
3,247 | 3,817 | 2,045 | |||||||||
|
Bank owned life insurance
|
1,676 | 1,241 | 1,008 | |||||||||
|
Securities gains and losses
|
0 | 654 | (50 | ) | ||||||||
|
Other than temporary impairment
|
0 | 0 | (14,514 | ) | ||||||||
|
Other noninterest income
|
5,260 | 4,367 | 4,880 | |||||||||
|
Total noninterest income
|
40,926 | 41,420 | 21,767 | |||||||||
|
Noninterest expense:
|
||||||||||||
|
Officer salaries and employee benefits
|
8,244 | 8,169 | 7,763 | |||||||||
|
Other salaries and employee benefits
|
39,020 | 35,392 | 34,460 | |||||||||
|
Occupancy, net
|
7,058 | 6,836 | 6,787 | |||||||||
|
Equipment
|
3,865 | 4,679 | 4,356 | |||||||||
|
Data processing
|
6,889 | 6,064 | 5,634 | |||||||||
|
Bank franchise tax
|
4,065 | 3,684 | 3,596 | |||||||||
|
Legal fees
|
2,727 | 2,395 | 1,772 | |||||||||
|
Professional fees
|
1,199 | 1,350 | 1,294 | |||||||||
|
FDIC insurance
|
4,410 | 5,795 | 328 | |||||||||
|
Other real estate owned provision and expense
|
2,626 | 3,281 | 722 | |||||||||
|
Other noninterest expense
|
15,947 | 16,156 | 15,820 | |||||||||
|
Total noninterest expense
|
96,050 | 93,801 | 82,532 | |||||||||
|
Income before income taxes
|
47,646 | 35,661 | 31,420 | |||||||||
|
Income taxes
|
14,612 | 10,602 | 8,347 | |||||||||
|
Net income
|
$ | 33,034 | $ | 25,059 | $ | 23,073 | ||||||
|
Basic earnings per share
|
$ | 2.17 | $ | 1.66 | $ | 1.54 | ||||||
|
Diluted earnings per share
|
2.16 | 1.65 | 1.52 | |||||||||
See notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders’ Equity
|
(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, 2008
|
15,044,124 | $ | 75,221 | $ | 149,005 | $ | 78,251 | $ | (1,122 | ) | $ | 301,355 | ||||||||||||
|
Net income
|
23,073 | 23,073 | ||||||||||||||||||||||
|
Net change in unrealized gain/loss on securities available-for-sale, net of tax of ($1,086)
|
2,017 | 2,017 | ||||||||||||||||||||||
|
Comprehensive income
|
25,090 | |||||||||||||||||||||||
|
Cumulative effect – application of new accounting standards (EITF 06-4)
|
(1,820 | ) | (1,820 | ) | ||||||||||||||||||||
|
Cash dividends declared ($1.17 per share)
|
(17,561 | ) | (17,561 | ) | ||||||||||||||||||||
|
Issuance of common stock
|
115,624 | 578 | 2,153 | 2,731 | ||||||||||||||||||||
|
Purchase of common stock
|
(93,500 | ) | (468 | ) | (2,163 | ) | (2,631 | ) | ||||||||||||||||
|
Stock-based compensation and related excess tax benefits
|
1,042 | 1,042 | ||||||||||||||||||||||
|
Balance, December 31, 2008
|
15,066,248 | 75,331 | 150,037 | 81,943 | 895 | 308,206 | ||||||||||||||||||
|
Net income
|
25,059 | 25,059 | ||||||||||||||||||||||
|
Net change in unrealized gain/loss on securities available-for-sale, net of tax of ($1,786)
|
3,318 | 3,318 | ||||||||||||||||||||||
|
Comprehensive income
|
28,377 | |||||||||||||||||||||||
|
Cash dividends declared ($1.20 per share)
|
(18,162 | ) | (18,162 | ) | ||||||||||||||||||||
|
Issuance of common stock
|
117,739 | 589 | 1,703 | 2,292 | ||||||||||||||||||||
|
Stock-based compensation and related excess tax benefits
|
947 | 947 | ||||||||||||||||||||||
|
Other adjustments
|
(203 | ) | (203 | ) | ||||||||||||||||||||
|
Balance, December 31, 2009
|
15,183,987 | 75,920 | 152,484 | 88,840 | 4,213 | 321,457 | ||||||||||||||||||
|
Net income
|
33,034 | 33,034 | ||||||||||||||||||||||
|
Net change in unrealized gain/loss on securities available-for-sale, net of tax of $162
|
(302 | ) | (302 | ) | ||||||||||||||||||||
|
Comprehensive income
|
32,732 | |||||||||||||||||||||||
|
Cash dividends declared ($1.21 per share)
|
(18,435 | ) | (18,435 | ) | ||||||||||||||||||||
|
Issuance of common stock
|
97,589 | 488 | 1,504 | 1,992 | ||||||||||||||||||||
|
Stock-based compensation and related excess tax benefits
|
1,009 | 1,009 | ||||||||||||||||||||||
|
Vesting of restricted stock
|
(117 | ) | (117 | ) | ||||||||||||||||||||
|
Balance, December 31, 2010
|
15,281,576 | $ | 76,408 | $ | 154,880 | $ | 103,439 | $ | 3,911 | $ | 338,638 | |||||||||||||
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
|
(in thousands)
Year Ended December 31
|
2010
|
2009
|
2008
|
|||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 33,034 | $ | 25,059 | $ | 23,073 | ||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
4,377 | 5,239 | 5,106 | |||||||||
|
Deferred taxes
|
219 | 2,918 | (5,774 | ) | ||||||||
|
Stock-based compensation
|
804 | 556 | 712 | |||||||||
|
Excess tax benefits of stock-based compensation
|
205 | 391 | 330 | |||||||||
|
Dividends on restricted stock
|
74 | 20 | 13 | |||||||||
|
Provision for loan and other real estate losses
|
17,173 | 18,836 | 11,718 | |||||||||
|
Securities (gains)/losses
|
0 | (654 | ) | 50 | ||||||||
|
Other than temporary impairment charges
|
0 | 0 | 14,514 | |||||||||
|
Gains on sale of mortgage loans held for sale
|
(1,642 | ) | (4,324 | ) | (1,584 | ) | ||||||
|
Losses on sale of assets, net
|
139 | 56 | 370 | |||||||||
|
Proceeds from sale of mortgage loans held for sale
|
82,324 | 217,458 | 83,678 | |||||||||
|
Funding of mortgage loans held for sale
|
(79,319 | ) | (214,328 | ) | (80,383 | ) | ||||||
|
Amortization/(accretion) of securities premiums and discounts, net
|
2,422 | 2,121 | (156 | ) | ||||||||
|
Change in cash surrender value of bank owned life insurance
|
(1,580 | ) | (1,037 | ) | (850 | ) | ||||||
|
Mortgage servicing rights:
|
||||||||||||
|
Fair value adjustments
|
769 | 107 | 1,503 | |||||||||
|
New servicing assets created
|
(524 | ) | (1,345 | ) | (413 | ) | ||||||
|
Changes in:
|
||||||||||||
|
Other assets
|
1,259 | (13,605 | ) | 4,894 | ||||||||
|
Other liabilities
|
1,570 | 221 | (2,013 | ) | ||||||||
|
Net cash provided by operating activities
|
61,304 | 37,689 | 54,762 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Certificates of deposit in other banks:
|
||||||||||||
|
Purchase of certificates of deposit
|
(16,363 | ) | (29,400 | ) | 0 | |||||||
|
Maturity of certificates of deposit
|
1,701 | 29,400 | 0 | |||||||||
|
Securities available-for-sale:
|
||||||||||||
|
Purchase of securities
|
(168,612 | ) | (139,999 | ) | (57,271 | ) | ||||||
|
Proceeds from sales
|
0 | 43,415 | 30,100 | |||||||||
|
Proceeds from prepayments and maturities
|
127,072 | 97,397 | 72,597 | |||||||||
|
Securities held-to-maturity:
|
||||||||||||
|
Purchase of securities
|
(480 | ) | (480 | ) | 0 | |||||||
|
Proceeds from prepayments and maturities
|
13,154 | 11,705 | 7,408 | |||||||||
|
Change in loans, net
|
(75,996 | ) | (135,211 | ) | (136,464 | ) | ||||||
|
Purchase of premises and equipment
|
(2,426 | ) | (2,265 | ) | (3,184 | ) | ||||||
|
Proceeds from sale of premises and equipment
|
9 | 24 | 14 | |||||||||
|
Additional investment in equity securities
|
(23 | ) | (11 | ) | (980 | ) | ||||||
|
Redemption of equity securities
|
0 | 3 | 0 | |||||||||
|
Proceeds from sale of other real estate and repossessed assets
|
7,480 | 5,999 | 4,447 | |||||||||
|
Additional investment in other real estate owned
|
(225 | ) | (1,928 | ) | (130 | ) | ||||||
|
Additional investment in bank owned life insurance
|
0 | (12,945 | ) | 0 | ||||||||
|
Net cash received in acquisition
|
2,906 | 0 | 0 | |||||||||
|
Net cash used in investing activities
|
(111,803 | ) | (134,296 | ) | (83,463 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Change in deposits, net
|
79,794 | 130,375 | 38,670 | |||||||||
|
Change in repurchase agreements, federal funds purchased, and other short-term borrowings, net
|
4,853 | 23,762 | (8,430 | ) | ||||||||
|
Advances from Federal Home Loan Bank
|
40,000 | 20,000 | 20,000 | |||||||||
|
Payments on advances from Federal Home Loan Bank
|
(40,632 | ) | (60,056 | ) | (179 | ) | ||||||
|
Issuance of common stock
|
1,992 | 2,292 | 2,731 | |||||||||
|
Purchase of common stock
|
0 | 0 | (2,631 | ) | ||||||||
|
Vesting of restricted stock
|
(117 | ) | 0 | 0 | ||||||||
|
Excess tax benefits of stock-based compensation
|
(205 | ) | (391 | ) | (330 | ) | ||||||
|
Dividends paid
|
(18,332 | ) | (18,124 | ) | (17,402 | ) | ||||||
|
Net cash provided by financing activities
|
67,353 | 97,858 | 32,429 | |||||||||
|
Net increase in cash and cash equivalents
|
16,854 | 1,251 | 3,728 | |||||||||
|
Cash and cash equivalents at beginning of year
|
142,129 | 140,878 | 137,150 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 158,983 | $ | 142,129 | $ | 140,878 | ||||||
|
Supplemental disclosures:
|
||||||||||||
|
Income taxes paid
|
$ | 15,820 | $ | 6,695 | $ | 16,428 | ||||||
|
Interest paid
|
36,095 | 49,424 | 65,240 | |||||||||
|
Non-cash activities
|
||||||||||||
|
Loans to facilitate the sale of other real estate owned and other repossessed assets
|
1,209 | 946 | 970 | |||||||||
|
Common stock dividends accrued, paid in subsequent quarter
|
4,677 | 4,561 | 4,523 | |||||||||
|
Real estate acquired in settlement of loans
|
11,806 | 33,301 | 7,995 | |||||||||
|
Other than temporary impairment of investment securities
|
0 | 0 | 14,514 | |||||||||
See notes to consolidated financial statements.
1. Accounting Policies
Basis of Presentation – The consolidated financial statements include Community Trust Bancorp, Inc. (“CTBI”) and its subsidiaries, including its principal subsidiary, Community Trust Bank, Inc. (“CTB”). Intercompany transactions and accounts have been eliminated in consolidation.
Nature of Operations – Substantially all assets, liabilities, revenues, and expenses are related to banking operations, including lending, investing of funds, obtaining of deposits, trust operations, full service brokerage operations, and other financing activities. All of our business offices and the majority of our business are located in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee.
Use of Estimates – In preparing the consolidated financial statements, management must make certain estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues, and expenses, as well as affecting the disclosures provided. Future results could differ from the current estimates. Such estimates include, but are not limited to, the allowance for loan and lease losses, valuation of other real estate owned, fair value of securities and mortgage servicing rights, and goodwill (the excess of cost over net assets acquired).
The current protracted economic decline continues to present financial institutions with circumstances and challenges, which in some cases have resulted in large and unanticipated declines in the fair values of investments and other assets, constraints on liquidity and capital, and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans.
The accompanying financial statements have been prepared using values and information currently available to CTBI.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses, and capital.
Cash and Cash Equivalents – CTBI considers all liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits in other financial institutions, and federal funds sold. Generally, federal funds are sold for one-day periods.
Certificates of deposit in other banks – Certificates of deposit in other banks generally mature within 18 months and are carried at cost.
Investments – Management determines the classification of securities at purchase. We classify securities into held-to-maturity, trading, or available-for-sale categories. Held-to-maturity securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, Investment Securities, investments in debt securities that are not classified as held-to-maturity and equity securities that have readily determinable fair values shall be classified in one of the following categories and measured at fair value in the statement of financial position:
a. Trading securities. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) shall be classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
b. Available-for-sale securities. Investments not classified as trading securities (nor as held-to-maturity securities) shall be classified as available-for-sale securities.
We do not have any securities that are classified as trading securities. Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders’ equity, net of tax. If declines in fair value are other than temporary, the carrying value of the securities is written down to fair value as a realized loss with a charge to income for the portion attributable to credit losses and a charge to other comprehensive income for the portion that is not credit related.
Gains or losses on disposition of securities are computed by specific identification for all securities except for shares in mutual funds, which are computed by average cost. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings.
When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair market value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other than temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the CTBI’s results of operations and financial condition.
Available-for-Sale Securities – Available-for-sale securities are valued using the following valuation techniques:
U.S. Treasury and government agencies, State and political subdivision, U.S. government sponsored agencies, Marketable equity securities – Level 2 Inputs. For these securities, CTBI obtains fair value measurements from an independent pricing service, which utilizes pricing models to determine fair value measurements. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.
Marketable equity securities – Level 3 Inputs. The securities owned by CTBI that were measured using Level 3 criteria are auction rate securities issued by FNMA. These securities were valued using an independent third party. For these securities, the valuation methods used were (1) a discounted cash flow model valuation, where the expected cash flows of the securities are discounted to the present using a yield that incorporates compensation for illiquidity and (2) a market comparables method, where the securities are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar securities. Using these methods, the auction rate securities are classified as Level 3.
Loans – Loans with the ability and the intent to be held until maturity and/or payoff are reported at the carrying value of unpaid principal reduced by unearned interest, an allowance for loan and lease losses, and unamortized deferred fees or costs. Income is recorded on the level yield basis. Interest accrual is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest. Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured. Loans are not reclassified as accruing until principal and interest payments remain current for a period of time, generally six months, and future payments appear reasonably certain.
Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans, leases, or commitments as a yield adjustment.
Allowance for Loan and Lease Losses – We maintain an allowance for loan and lease losses (“ALLL”) at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Since arriving at an appropriate ALLL involves a high degree of management judgment, we use an ongoing quarterly analysis to develop a range of estimated losses. In accordance with accounting principles generally accepted in the United States, we use our best estimate within the range of potential credit loss to determine the appropriate ALLL. Credit losses are charged and recoveries are credited to the ALLL.
We utilize an internal risk grading system for commercial credits. Those larger commercial credits that exhibit probable or observed credit weaknesses are subject to individual review. The borrower’s cash flow, adequacy of collateral coverage, and other options available to CTBI, including legal remedies, are evaluated. The review of individual loans includes those loans that are impaired as defined by ASC 310-35, Impairment of a Loan. We evaluate the collectability of both principal and interest when assessing the need for loss provision. Historical loss rates are analyzed and applied to other commercial loans not subject to specific allocations. The ALLL allocation for this pool of commercial loans is established based on the historical average, maximum, minimum, and median loss ratios.
A loan is considered impaired when, based on current information and events, it is probable that CTBI will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired. A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.
Homogenous loans, such as consumer installment, residential mortgages, and home equity lines are not individually risk graded. The associated ALLL for these loans is measured under ASC 450, Contingencies.
Historical loss rates for commercial and retail loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. We generally review the historical loss rates over eight quarters and four quarters on a rolling average basis. Factors that we consider include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge offs, trend in loan losses, industry concentrations and their relative strengths, amount of unsecured loans and underwriting exceptions. Based upon management’s judgment, “best case,” “worst case,” and “most likely” scenarios are determined. The total of each of these weighted factors is then applied against the applicable portion of the portfolio and the ALLL is adjusted accordingly.
Loans Held for Sale – Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses, if any, are recognized in a valuation allowance by charges to income.
Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization. Capital leases are included in premises and equipment at the capitalized amount less accumulated amortization. Premises and equipment are evaluated for impairment on a quarterly basis.
Depreciation and amortization are computed primarily using the straight-line method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years for furniture, fixtures, and equipment, and up to the lease term for leasehold improvements. Capitalized leased assets are amortized on a straight-line basis over the lives of the respective leases.
Other Real Estate – Real estate acquired by foreclosure is carried at the lower of the investment in the property or its fair value less estimated cost to sell. Periodically, but not less frequently than bi-annually, an updated appraisal is obtained for each property owned and any decline in the fair value is recognized by a charge to income. All revenues and expenses related to the carrying of other real estate owned are recognized by a charge to income.
Goodwill and Core Deposit Intangible – We evaluate total goodwill and core deposit intangible for impairment, based upon ASC 350, Intangibles-Goodwill and Other, using fair value techniques including multiples of price/equity. Goodwill and core deposit intangible are evaluated for impairment on an annual basis or as other events may warrant.
The activity to goodwill and core deposit intangible for the year 2010 is shown below.
|
(in thousands)
|
Goodwill
|
Core Deposit Intangible
|
||||||
|
Beginning balance, January 1
|
$ | 65,059 | $ | 648 | ||||
|
Amortization
|
0 | (430 | ) | |||||
|
Acquired through acquisition
|
440 | 1,124 | ||||||
|
Ending balance, December 31
|
$ | 65,499 | $ | 1,342 | ||||
Amortization of core deposit intangible is estimated at approximately $0.2 million annually for years one through seven.
Transfers of Financial Assets -- Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from CTBI—put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) CTBI does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes based on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.
Earnings Per Share (“EPS”) – Basic EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding, excluding restricted shares.
Diluted EPS adjusts the number of weighted average shares of common stock outstanding by the dilutive effect of stock options, including restricted shares, as prescribed in ASC 718, Share-Based Payment.
Segments – Management analyzes the operation of CTBI assuming one operating segment, community banking services. CTBI, through its operating subsidiaries, offers a wide range of consumer and commercial community banking services. These services include: (i) residential and commercial real estate loans; (ii) checking accounts; (iii) regular and term savings accounts and savings certificates; (iv) full service securities brokerage services; (v) consumer loans; (vi) debit cards; (vii) annuity and life insurance products; (viii) Individual Retirement Accounts and Keogh plans; (ix) commercial loans; (x) trust services; and (xi) commercial demand deposit accounts.
Bank Owned Life Insurance – CTBI’s bank owned life insurance policies are carried at their cash surrender value. We recognize tax-free income from the periodic increases in cash surrender value of these policies and from death benefits.
Mortgage Servicing Rights – Mortgage servicing rights (“MSRs”) are carried at fair market value with the implementation of ASC 860-50, Servicing Assets and Liabilities, in January 2007. MSRs are valued using Level 3 inputs as defined in ASC 820, Fair Value Measurements. The fair value is determined quarterly based on an independent third-party valuation using a discounted cash flow analysis and calculated using a computer pricing model. The computer valuation is based on key economic assumptions including the prepayment speeds of the underlying loans, the weighted-average life of the loan, the discount rate, the weighted-average coupon, and the weighted-average default rate, as applicable. Along with the gains received from the sale of loans, fees are received for servicing loans. These fees include late fees, which are recorded in interest income, and ancillary fees and monthly servicing fees, which are recorded in noninterest income. Costs of servicing loans are charged to expense as incurred. Changes in fair market value of the MSRs are reported in mortgage banking income.
Stock Options – At December 31, 2010 and 2009, CTBI had a share-based employee compensation plan, which is described more fully in note 15 to the consolidated financial statements. CTBI accounts for this plan under the recognition and measurement principles of ASC 718, Share-Based Payment.
Comprehensive Income – Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities and unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other than temporary impairment has been recognized in income.
Reclassifications – Certain reclassifications considered to be immaterial have been made in the prior year condensed consolidated financial statements to conform to current year classifications. These reclassifications had no effect on net income.
New Accounting Standards –
Ø Improving Disclosures about Fair Value Measurements – In January 2010, the FASB released Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Subtopic 820, Fair Value Measurements and Disclosures, and Subtopic 715-20, Compensation—Retirement Benefits—Defined Benefit Plans. The new standard expands the existing fair value disclosures required by these two subtopics. Additional disclosures required by the new standard must be made for each period beginning after the effective date. Expansion of disclosures for prior periods to include those required by the ASU is optional.
Disclosure changes made by ASU 2010-06 include:
|
·
|
The amounts of and reasons for significant transfers in and out of Level 1, Level 2 and Level 3 fair value measurements and the accounting policy for the date used to recognize such transfers, e.g., actual transaction date, beginning of reporting period date or end of reporting period date
|
|
·
|
Presentation of purchases, sales, issuances and settlements as separate lines, rather than one net number, in the table reconciling activity for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs
|
|
·
|
Provision of fair value measurement disclosures for each class of assets and liabilities with a class often being a subset of assets or liabilities within a balance sheet line item. Class should be determined on the basis of the nature and risks of investments in debt and equity securities and generally will not require change from the classifications already employed in disclosures for those investments
|
|
·
|
Provision of explanations about the valuation techniques and inputs used to determine fair value for both recurring and nonrecurring fair value measurements falling in either Level 2 or Level 3
|
|
·
|
Revision of the existing disclosures made by a plan sponsor about fair value for assets of defined benefit pension and other postretirement benefit plans to require those disclosures be made by asset class instead of asset category
|
ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, with early adoption permitted. The one exception involves reporting certain items gross instead of net in the existing activity table for items measured at fair value on a recurring basis using Level 3 inputs, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years and may be adopted earlier if desired. Except for the Level 3 table item, each SEC issuer must apply the ASU starting with its first interim period beginning after December 15, 2009. CTBI did not elect to early adopt the provisions which are effective for years beginning after December 15, 2009 or the December 15, 2010 provisions. ASU 2010-06 has not and is not expected to have a material impact on CTBI’s consolidated financial statements.
Ø Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force – In April 2010, the FASB issued ASU No. 2010-18, Receivables (Topic 310) – Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 provides guidance on account for acquired loans that have evidence of credit deterioration upon acquisition. It allows acquired assets with common risk characteristics to be accounted for in the aggregate as a pool. ASU 2010-18 is effective for modifications of loans accounted for within pools under Subtopic 310-30 in the first interim or annual reporting period ending on or after July 15, 2010. ASU 2010-18 did not have an impact on our financial condition, results of operations, or disclosures.
Ø Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses – In July 2010, the FASB released ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The standard will help investors assess the credit risk of a company's receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures. Companies will be required to provide more information about the credit quality of their financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.
The standard requires CTBI to expand disclosures about the credit quality of our loans and the related reserves against them. The additional disclosures include details on our past due loans, credit quality indicators, and modifications of loans, and are included in notes 4 and 8. CTBI adopted the standard beginning with our December 31, 2010 financial statements.
Ø Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings – In January 2011, the FASB released ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings. The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 discussed above. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.
2. Business Combinations
On June 8, 2010, CTBI entered into an Agreement and Plan of Share Exchange with LaFollette First National Corporation, a Tennessee corporation (“LaFollette Corporation”) and First National Bank of LaFollette (“LaFollette Bank”), the wholly-owned subsidiary of LaFollette Corporation. On November 17, 2010, CTBI completed the acquisition of LaFollette Corporation and LaFollette Bank, acquiring all outstanding shares of LaFollette Corporation in a share exchange for $650 per share, or a total of approximately $16.1 million. In addition, CTBI paid $1.2 million to retire a debt owed by LaFollette Corporation. Immediately following the share exchange, LaFollette Corporation was merged into CTBI. LaFollette Bank was merged into Community Trust Bank, Inc. (the “Bank”) on January 21, 2011. All references to the “Bank” included herein shall be deemed to include both Community Trust Bank, Inc. and LaFollette Bank unless otherwise noted.
This acquisition was accounted for under ASC 805, Business Combinations. Accordingly, assets and liabilities acquired were recorded at their estimated fair values, net of applicable income tax effects. The excess cost over fair value of net assets acquired was recorded as goodwill. Pro forma results of operations of LaFollette Corporation for the year ended December 31, 2010 are not included as the acquisition did not have a material impact on CTBI’s consolidated financial statements. Total assets acquired were approximately 5% of CTBI’s total consolidated assets. The following table summarizes the consideration paid for the purchase of LaFollette Corporation and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:
|
(in thousands)
|
||||
|
Fair value of consideration
|
||||
|
Cash paid (24,759 shares @ $650)
|
$ | 16,093 | ||
|
Payoff of LaFollette Corporation debt
|
1,213 | |||
|
Total consideration paid
|
17,306 | |||
|
Assets acquired
|
||||
|
Cash
|
20,212 | |||
|
Loans, net of purchase discounts
|
118,602 | |||
| Federal Reserve Bank and Federal Home Loan Bank stock | 1,036 | |||
|
Securities
|
29,784 | |||
|
Other real estate owned
|
2,726 | |||
|
Premises and equipment
|
7,622 | |||
|
Accrued interest receivable
|
708 | |||
|
Core deposit intangible
|
1,124 | |||
|
Other assets
|
1,824 | |||
|
Total assets acquired
|
183,638 | |||
|
Liabilities assumed
|
||||
|
Deposits
|
164,114 | |||
|
Repurchase agreements
|
426 | |||
|
Federal Home Loan Bank advances
|
1,199 | |||
|
Accrued interest payable
|
158 | |||
|
Other liabilities
|
875 | |||
|
Total liabilities assumed
|
166,772 | |||
|
Net assets acquired
|
16,866 | |||
|
Goodwill
|
$ | 440 | ||
3. Cash and Due from Banks and Interest Bearing Deposits
Included in cash and due from banks and interest bearing deposits are amounts required to be held at the Federal Reserve or maintained in vault cash in accordance with regulatory reserve requirements. The balance requirements were $46.1 million and $43.1 million at December 31, 2010 and 2009, respectively.
4. Securities
Securities are classified into held-to-maturity and available-for-sale categories. Held-to-maturity securities are those that CTBI has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities are those that CTBI may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.
The amortized cost and fair value of securities at December 31, 2010 are summarized as follows:
Available-for-Sale
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
||||||||||||
|
U.S. Treasury and government agencies
|
$ | 29,154 | $ | 330 | $ | (230 | ) | $ | 29,254 | |||||||
|
State and political subdivisions
|
52,017 | 690 | (842 | ) | 51,865 | |||||||||||
|
U.S. government sponsored agencies
|
230,905 | 6,690 | (352 | ) | 237,243 | |||||||||||
|
Total debt securities
|
312,076 | 7,710 | (1,424 | ) | 318,362 | |||||||||||
|
Marketable equity securities
|
20,582 | 41 | (310 | ) | 20,313 | |||||||||||
|
Total available-for-sale securities
|
$ | 332,658 | $ | 7,751 | $ | (1,734 | ) | $ | 338,675 | |||||||
Held-to-Maturity
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
||||||||||||
|
State and political subdivisions
|
$ | 1,182 | $ | 0 | $ | 0 | $ | 1,182 | ||||||||
|
Other debt securities
|
480 | 0 | 0 | 480 | ||||||||||||
|
Total held-to-maturity securities
|
$ | 1,662 | $ | 0 | $ | 0 | $ | 1,662 | ||||||||
The amortized cost and fair value of securities at December 31, 2009 are summarized as follows:
Available-for-Sale
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
||||||||||||
|
U.S. Treasury and government agencies
|
$ | 16,994 | $ | 20 | $ | (283 | ) | $ | 16,731 | |||||||
|
State and political subdivisions
|
44,529 | 1,222 | (94 | ) | 45,657 | |||||||||||
|
U.S. government sponsored agencies
|
181,693 | 5,787 | (83 | ) | 187,397 | |||||||||||
|
Total debt securities
|
243,216 | 7,029 | (460 | ) | 249,785 | |||||||||||
|
Marketable equity securities
|
20,540 | 97 | (185 | ) | 20,452 | |||||||||||
|
Total available-for-sale securities
|
$ | 263,756 | $ | 7,126 | $ | (645 | ) | $ | 270,237 | |||||||
Held-to-Maturity
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
||||||||||||
|
State and political subdivisions
|
$ | 1,576 | $ | 6 | $ | 0 | $ | 1,582 | ||||||||
|
U.S. government sponsored agencies
|
12,280 | 93 | 0 | 12,373 | ||||||||||||
|
Other debt securities
|
480 | 0 | 0 | 480 | ||||||||||||
|
Total held-to-maturity securities
|
$ | 14,336 | $ | 99 | $ | 0 | $ | 14,435 | ||||||||
The amortized cost and fair value of securities at December 31, 2010 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
Available-for-Sale
|
Held-to-Maturity
|
|||||||||||||||
|
(in thousands)
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
||||||||||||
|
Due in one year or less
|
$ | 3,335 | $ | 3,372 | $ | 0 | $ | 0 | ||||||||
|
Due after one through five years
|
21,561 | 21,817 | 0 | 0 | ||||||||||||
|
Due after five through ten years
|
33,491 | 33,676 | 1,182 | 1,182 | ||||||||||||
|
Due after ten years
|
22,784 | 22,254 | 0 | 0 | ||||||||||||
|
U.S. government sponsored agencies
|
230,905 | 237,243 | 0 | 0 | ||||||||||||
|
Other securities
|
0 | 0 | 480 | 480 | ||||||||||||
|
Total debt securities
|
312,076 | 318,362 | 1,662 | 1,662 | ||||||||||||
|
Marketable equity securities
|
20,582 | 20,313 | 0 | 0 | ||||||||||||
|
Total securities
|
$ | 332,658 | $ | 338,675 | $ | 1,662 | $ | 1,662 | ||||||||
There were no pre-tax gains or losses as of December 31, 2010. There was a combined gain of $658 thousand realized in 2009 due to sales of six securities and a loss of $4 thousand realized due to sales of two securities. There was a combined loss of $14.5 million realized in 2008 due to other than temporary impairment charges on auction rate securities and one $50 thousand loss realized on the sale of auction rate securities.
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $106.2 million at December 31, 2010 and $89.2 million at December 31, 2009.
The carrying value of securities sold under agreements to repurchase amounted to $188.3 million at December 31, 2010 and $180.5 million at December 31, 2009.
CTBI evaluates its investment portfolio on a quarterly basis for impairment. The analysis performed as of December 31, 2010 indicates that all impairment is considered temporary, market driven, and not credit-related. The percentage of total investments with unrealized losses as of December 31, 2010 was 18.9% compared to 8.5% as of December 31, 2009. The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2010 that are not deemed to be other than temporarily impaired.
Available-for-Sale
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized Losses
|
Fair Value
|
|||||||||
|
Less Than 12 Months
|
||||||||||||
|
U.S. Treasury and government agencies
|
$ | 10,384 | $ | (230 | ) | $ | 10,154 | |||||
|
State and political subdivisions
|
24,624 | (826 | ) | 23,798 | ||||||||
|
U.S. government sponsored agencies
|
30,016 | (352 | ) | 29,664 | ||||||||
|
Total debt securities
|
65,024 | (1,408 | ) | 63,616 | ||||||||
|
Marketable equity securities
|
42 | (17 | ) | 25 | ||||||||
|
Total securities
|
65,066 | (1,425 | ) | 63,641 | ||||||||
|
12 Months or More
|
||||||||||||
|
U.S. Treasury and government agencies
|
0 | 0 | 0 | |||||||||
|
State and political subdivisions
|
590 | (16 | ) | 574 | ||||||||
|
U.S. government sponsored agencies
|
0 | 0 | 0 | |||||||||
|
Total debt securities
|
590 | (16 | ) | 574 | ||||||||
|
Marketable equity securities
|
329 | (293 | ) | 36 | ||||||||
|
Total securities
|
919 | (309 | ) | 610 | ||||||||
|
Total
|
||||||||||||
|
U.S. Treasury and government agencies
|
10,384 | (230 | ) | 10,154 | ||||||||
|
State and political subdivisions
|
25,214 | (842 | ) | 24,372 | ||||||||
|
U.S. government sponsored agencies
|
30,016 | (352 | ) | 29,664 | ||||||||
|
Total debt securities
|
65,614 | (1,424 | ) | 64,190 | ||||||||
|
Marketable equity securities
|
371 | (310 | ) | 61 | ||||||||
|
Total securities
|
$ | 65,985 | $ | (1,734 | ) | $ | 64,251 | |||||
As of December 31, 2010, there were no held-to-maturity securities with unrealized losses.
The analysis performed as of December 31, 2009 indicated that all impairment was considered temporary, market driven, and not credit-related. The following tables provide the amortized cost, gross unrealized losses, and fair market value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of December 31, 2009 that are not deemed to be other than temporarily impaired.
Available-for-Sale
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized Losses
|
Fair Value
|
|||||||||
|
Less Than 12 Months
|
||||||||||||
|
U.S. Treasury and government agencies
|
$ | 14,992 | $ | (283 | ) | $ | 14,709 | |||||
|
State and political subdivisions
|
2,567 | (55 | ) | 2,512 | ||||||||
|
U.S. government sponsored agencies
|
5,013 | (83 | ) | 4,930 | ||||||||
|
Total debt securities
|
22,572 | (421 | ) | 22,151 | ||||||||
|
Marketable equity securities
|
540 | (185 | ) | 355 | ||||||||
|
Total securities
|
23,112 | (606 | ) | 22,506 | ||||||||
|
12 Months or More
|
||||||||||||
|
U.S. Treasury and government agencies
|
0 | 0 | 0 | |||||||||
|
State and political subdivisions
|
1,601 | (39 | ) | 1,562 | ||||||||
|
U.S. government sponsored agencies
|
0 | 0 | 0 | |||||||||
|
Total debt securities
|
1,601 | (39 | ) | 1,562 | ||||||||
|
Marketable equity securities
|
0 | 0 | 0 | |||||||||
|
Total securities
|
1,601 | (39 | ) | 1,562 | ||||||||
|
Total
|
||||||||||||
|
U.S. Treasury and government agencies
|
14,992 | (283 | ) | 14,709 | ||||||||
|
State and political subdivisions
|
4,168 | (94 | ) | 4,074 | ||||||||
|
U.S. government sponsored agencies
|
5,013 | (83 | ) | 4,930 | ||||||||
|
Total debt securities
|
24,173 | (460 | ) | 23,713 | ||||||||
|
Marketable equity securities
|
540 | (185 | ) | 355 | ||||||||
|
Total securities
|
$ | 24,713 | $ | (645 | ) | $ | 24,068 | |||||
As of December 31, 2009, there were no held-to-maturity securities with unrealized losses.
5. Loans
Major classifications of loans, net of unearned income and deferred loan origination costs, are summarized as follows:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Commercial construction
|
$ | 135,091 | $ | 141,440 | ||||
|
Commercial secured by real estate
|
807,049 | 707,500 | ||||||
|
Equipment lease financing
|
14,151 | 20,048 | ||||||
|
Commercial other
|
388,746 | 373,829 | ||||||
|
Real estate construction
|
56,910 | 51,311 | ||||||
|
Real estate mortgage
|
623,851 | 528,592 | ||||||
|
Home equity
|
85,103 | 82,135 | ||||||
|
Consumer direct
|
126,046 | 115,555 | ||||||
|
Consumer indirect
|
368,233 | 415,350 | ||||||
| $ | 2,605,180 | $ | 2,435,760 | |||||
Not included in the loan balances above were loans held for sale in the amount of $0.5 million and $1.8 million at December 31, 2010 and 2009, respectively. The amount of capitalized fees and costs under ASC 310-20, included in the above loan totals were $0.8 million and $0.6 million at December 31, 2010 and 2009, respectively.
CTBI acquired loans in a transfer during the year ended December 31, 2010. At acquisition, the transferred loans with evidence of deterioration of credit quality since origination were not significant; therefore, none of the loans acquired were accounted for under the guidance in ASC 310-30.
Credit discounts representing principal losses expected over the life of the loans are a component of the initial fair value for purchased loans acquired that are not deemed impaired at acquisition. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Subsequent to the acquisition date, the methods used to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Bank records a provision for loan losses only when the required allowance exceeds any remaining credit discounts. The remaining difference between the purchase price and the unpaid principal balance at the date of acquisition is recorded in interest income over the life of the loans. Management estimated the cash flows expected to be collected at acquisition using a third party that incorporated estimates of current key assumptions, such as default rates, severity, and prepayment speeds. The carrying amount of those loans is included in the balance sheet at December 31, 2010 is $115.7 million.
Changes in accretable yield during the year is as follows:
|
(in thousands)
|
||||
|
Balance at January 1, 2010
|
$ | 0 | ||
|
Additions
|
3,152 | |||
|
Accretion
|
(126 | ) | ||
|
Disposals
|
(31 | ) | ||
|
Balance at December 31, 2010
|
$ | 2,995 | ||
The amount of loans on a non-accruing income status was $45.0 million, $32.2 million, and $40.9 million at December 31, 2010, December 31, 2009, and December 31, 2008, respectively. The total of loans on nonaccrual that were in homogeneous pools and not evaluated individually for impairment were $7.6 million, $5.6 million, and $4.3 million at December 31, 2010, December 31, 2009, and December 31, 2008, respectively. Additional interest which would have been recorded during 2010, 2009, and 2008 if such loans had been accruing interest was approximately $2.5 million, $2.3 million, and $3.5 million, respectively. Any loan greater than 90 days past due must be well secured and in the process of collection to continue accruing interest. The amount of loans 90 days past due and still accruing interest was $17.0 million, $9.1 million, and $11.2 million at December 31, 2010, December 31, 2009, and December 31, 2008, respectively. See note 1 for further discussion on our nonaccrual policy. Year end nonaccrual loans, segregated by class, were as follows:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Commercial:
|
||||||||
|
Commercial construction
|
$ | 13,138 | $ | 12,312 | ||||
|
Commercial secured by real estate
|
15,608 | 9,803 | ||||||
|
Commercial other
|
9,338 | 4,489 | ||||||
|
Residential:
|
||||||||
|
Real estate construction
|
636 | 1,244 | ||||||
|
Real estate mortgage
|
6,137 | 3,781 | ||||||
|
Home equity
|
164 | 618 | ||||||
|
Total nonaccrual loans
|
$ | 45,021 | $ | 32,247 | ||||
The following tables present the Bank’s loan portfolio aging analysis, segregated by class, as of December 31, 2010 and 2009:
|
2010
|
||||||||||||||||||||||||||||
|
(in thousands)
|
30-59 Days Past Due
|
60-89 Days Past Due
|
90+ Days Past Due
|
Total Past Due
|
Current
|
Total Loans
|
90+ and Accruing*
|
|||||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||||||
|
Commercial construction
|
$ | 1,826 | $ | 545 | $ | 14,290 | $ | 16,661 | $ | 118,430 | $ | 135,091 | $ | 1,178 | ||||||||||||||
|
Commercial secured by real estate
|
6,861 | 8,618 | 22,195 | 37,674 | 769,375 | 807,049 | 9,641 | |||||||||||||||||||||
|
Equipment lease financing
|
0 | 0 | 0 | 0 | 14,151 | 14,151 | 0 | |||||||||||||||||||||
|
Commercial other
|
6,737 | 539 | 5,039 | 12,315 | 376,431 | 388,746 | 1,692 | |||||||||||||||||||||
|
Residential:
|
||||||||||||||||||||||||||||
|
Real estate construction
|
109 | 767 | 1,009 | 1,885 | 55,025 | 56,910 | 372 | |||||||||||||||||||||
|
Real estate mortgage
|
1,912 | 3,764 | 8,844 | 14,520 | 609,331 | 623,851 | 3,337 | |||||||||||||||||||||
|
Home equity
|
920 | 276 | 295 | 1,491 | 83,612 | 85,103 | 226 | |||||||||||||||||||||
|
Consumer:
|
||||||||||||||||||||||||||||
|
Consumer direct
|
1,569 | 242 | 70 | 1,881 | 124,165 | 126,046 | 70 | |||||||||||||||||||||
|
Consumer indirect
|
2,851 | 684 | 498 | 4,033 | 364,200 | 368,233 | 498 | |||||||||||||||||||||
|
Total
|
$ | 22,785 | $ | 15,435 | $ | 52,240 | $ | 90,460 | $ | 2,514,720 | $ | 2,605,180 | $ | 17,014 | ||||||||||||||
|
2009
|
||||||||||||||||||||||||||||
|
(in thousands)
|
30-59 Days
Past Due
|
60-89 Days
Past Due
|
90+ Days
Past Due
|
Total Past Due
|
Current
|
Total Loans
|
90+ and Accruing*
|
|||||||||||||||||||||
|
Commercial:
|
||||||||||||||||||||||||||||
|
Commercial construction
|
$ | 375 | $ | 4,458 | $ | 10,899 | $ | 15,732 | $ | 125,708 | $ | 141,440 | $ | 865 | ||||||||||||||
|
Commercial secured by real estate
|
2,634 | 860 | 14,911 | 18,405 | 689,095 | 707,500 | 5,640 | |||||||||||||||||||||
|
Equipment lease financing
|
0 | 0 | 0 | 0 | 20,048 | 20,048 | 0 | |||||||||||||||||||||
|
Commercial other
|
3,741 | 3,780 | 3,657 | 11,178 | 362,651 | 373,829 | 286 | |||||||||||||||||||||
|
Residential:
|
||||||||||||||||||||||||||||
|
Real estate construction
|
307 | 1,236 | 0 | 1,543 | 49,768 | 51,311 | 0 | |||||||||||||||||||||
|
Real estate mortgage
|
997 | 3,861 | 5,022 | 9,880 | 518,712 | 528,592 | 1,540 | |||||||||||||||||||||
|
Home equity
|
721 | 123 | 600 | 1,444 | 80,691 | 82,135 | 158 | |||||||||||||||||||||
|
Consumer:
|
||||||||||||||||||||||||||||
|
Consumer direct
|
1,292 | 249 | 160 | 1,701 | 113,854 | 115,555 | 160 | |||||||||||||||||||||
|
Consumer indirect
|
4,669 | 1,118 | 418 | 6,205 | 409,145 | 415,350 | 418 | |||||||||||||||||||||
|
Total
|
$ | 14,736 | $ | 15,685 | $ | 35,667 | $ | 66,088 | $ | 2,369,672 | $ | 2,435,760 | $ | 9,067 | ||||||||||||||
*90+ and Accruing are also included in 90+ Days Past Due column.
The Bank utilizes an internal risk grading system on all commercial credits, based on regulatory guidelines. A description of the general characteristics of the risk grades is as follows:
|
Ø
|
Pass grades include investment grade, low risk, moderate risk, and acceptable risk loans. The loans range from loans that have no chance of resulting in a loss to loans that have a limited chance of resulting in a loss. Customers in this grade have excellent to fair credit ratings. The cash flows are adequate to meet required debt repayments.
|
|
Ø
|
Watch graded loans are loans that warrant extra management attention but are not currently criticized. Loans on the watch list may be potential troubled credits or may warrant “watch” status for a reason not directly related to the asset quality of the credit. The watch grade is a management tool to identify credits which may be candidates for future classification or may temporarily warrant extra management monitoring.
|
|
Ø
|
Other assets especially mentioned (OAEM) reflects loans that are currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in the Bank’s credit position at some future date. The loans may be adversely affected by economic or market conditions.
|
|
Ø
|
Substandard grading indicates that the loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. These loans have a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt with the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
|
|
Ø
|
Doubtful graded loans have the weaknesses inherent in the substandard grading with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The probability of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the Bank’s advantage or strengthen the asset(s), its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.
|
|
Ø
|
A loss grading applies to loans that are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery value, but rather it is not practical or desirable to defer writing off the asset. Losses must be taken in the period in which they surface as uncollectible.
|
The following tables present the credit risk profile of the Bank’s commercial loan portfolio based on loan grade for commercial loans and payment activity, segregated by class, as of December 31, 2010 and 2009:
|
(in thousands)
|
Real Estate Commercial Construction
|
Commercial Secured by Real Estate
|
Commercial Other
|
Equipment Leases
|
||||||||||||
|
December 31, 2010
|
||||||||||||||||
|
Pass
|
$ | 80,064 | $ | 651,281 | $ | 313,444 | $ | 14,151 | ||||||||
|
Watch
|
27,510 | 80,128 | 57,716 | 0 | ||||||||||||
|
OAEM
|
853 | 8,163 | 731 | 0 | ||||||||||||
|
Substandard
|
13,987 | 53,141 | 7,348 | 0 | ||||||||||||
|
Doubtful
|
12,506 | 13,813 | 7,456 | 0 | ||||||||||||
|
Loss
|
171 | 523 | 2,051 | 0 | ||||||||||||
|
Total
|
$ | 135,091 | $ | 807,049 | $ | 388,746 | $ | 14,151 | ||||||||
|
December 31, 2009
|
||||||||||||||||
|
Pass
|
$ | 87,964 | $ | 582,561 | $ | 298,208 | $ | 20,048 | ||||||||
|
Watch
|
21,288 | 67,885 | 54,931 | 0 | ||||||||||||
|
OAEM
|
8,215 | 18,305 | 4,243 | 0 | ||||||||||||
|
Substandard
|
11,331 | 29,210 | 12,676 | 0 | ||||||||||||
|
Doubtful
|
12,472 | 9,426 | 2,168 | 0 | ||||||||||||
|
Loss
|
170 | 113 | 1,603 | 0 | ||||||||||||
|
Total
|
$ | 141,440 | $ | 707,500 | $ | 373,829 | $ | 20,048 | ||||||||
The following tables present the credit risk profile of the Bank’s residential real estate and consumer loan portfolios based on performing or nonperforming status, segregated by class, as of December 31, 2010 and 2009:
|
(in thousands)
|
Real Estate Consumer Construction
|
Real Estate Mortgage
|
Home Equity
|
Consumer Direct
|
Consumer
Indirect
|
|||||||||||||||
|
December 31, 2010
|
||||||||||||||||||||
|
Performing
|
$ | 55,902 | $ | 614,377 | $ | 84,713 | $ | 125,976 | $ | 367,735 | ||||||||||
|
Nonperforming
|
1,008 | 9,474 | 390 | 70 | 498 | |||||||||||||||
|
Total
|
$ | 56,910 | $ | 623,851 | $ | 85,103 | $ | 126,046 | $ | 368,233 | ||||||||||
|
December 31, 2009
|
||||||||||||||||||||
|
Performing
|
$ | 50,067 | $ | 523,271 | $ | 81,359 | $ | 115,395 | $ | 414,932 | ||||||||||
|
Nonperforming
|
1,244 | 5,321 | 776 | 160 | 418 | |||||||||||||||
|
Total
|
$ | 51,311 | $ | 528,592 | $ | 82,135 | $ | 115,555 | $ | 415,350 | ||||||||||
A loan is considered nonperforming if it is 90 days or more past due or on nonaccrual.
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
The following tables present impaired loans for the years ended December 31, 2010 and 2009:
|
2010
|
||||||||||||||||||||
|
(in thousands)
|
Recorded Balance
|
Unpaid Principal Balance
|
Specific Allowance
|
Average Investment in Impaired Loans
|
Interest Income Recognized
|
|||||||||||||||
|
Loans without a specific valuation allowance
|
||||||||||||||||||||
|
Commercial construction
|
$ | 6,313 | $ | 6,313 | $ | 0 | $ | 6,262 | $ | 43 | ||||||||||
|
Commercial secured by real estate
|
23,503 | 24,034 | 0 | 23,629 | 330 | |||||||||||||||
|
Commercial other
|
4,357 | 4,616 | 0 | 4,407 | 71 | |||||||||||||||
|
Real estate construction
|
790 | 790 | 0 | 790 | 0 | |||||||||||||||
|
Real estate mortgage
|
950 | 950 | 0 | 950 | 0 | |||||||||||||||
|
Loans with a specific valuation allowance
|
||||||||||||||||||||
|
Commercial construction
|
9,528 | 10,813 | 2,554 | 9,686 | 0 | |||||||||||||||
|
Commercial secured by real estate
|
9,188 | 9,358 | 2,575 | 9,191 | 2 | |||||||||||||||
|
Commercial other
|
8,680 | 10,338 | 3,093 | 8,090 | 85 | |||||||||||||||
|
Commercial
|
61,569 | 65,472 | 8,222 | 61,265 | 531 | |||||||||||||||
|
Residential
|
1,740 | 1,740 | 0 | 1,740 | 0 | |||||||||||||||
|
Total
|
$ | 63,309 | $ | 67,212 | $ | 8,222 | $ | 63,005 | $ | 531 | ||||||||||
|
2009
|
||||||||||||||||||||
|
(in thousands)
|
Recorded Balance
|
Unpaid Principal Balance
|
Specific Allowance
|
Average Investment in Impaired Loans
|
Interest Income Recognized
|
|||||||||||||||
|
Loans without a specific valuation allowance
|
||||||||||||||||||||
|
Commercial construction
|
$ | 5,855 | $ | 6,080 | $ | 0 | $ | 5,512 | $ | 117 | ||||||||||
|
Commercial secured by real estate
|
2,910 | 2,977 | 0 | 2,654 | 53 | |||||||||||||||
|
Commercial other
|
4,009 | 5,010 | 0 | 4,424 | 117 | |||||||||||||||
|
Real estate construction
|
1,244 | 1,396 | 0 | 1,134 | 0 | |||||||||||||||
|
Real estate mortgage
|
3,781 | 3,823 | 0 | 3,452 | 0 | |||||||||||||||
|
Home equity
|
618 | 620 | 0 | 566 | 0 | |||||||||||||||
|
Loans with a specific valuation allowance
|
||||||||||||||||||||
|
Commercial construction
|
8,422 | 8,852 | 3,104 | 7,679 | 135 | |||||||||||||||
|
Commercial secured by real estate
|
6,893 | 7,158 | 2,060 | 6,287 | 51 | |||||||||||||||
|
Commercial other
|
3,922 | 5,481 | 1,434 | 3,692 | 35 | |||||||||||||||
|
Commercial
|
32,011 | 35,558 | 6,598 | 30,248 | 508 | |||||||||||||||
|
Residential
|
5,643 | 5,839 | 0 | 5,152 | 0 | |||||||||||||||
|
Total
|
$ | 37,654 | $ | 41,397 | $ | 6,598 | $ | 35,400 | $ | 508 | ||||||||||
At December 31, 2008, the recorded investment in impaired loans was $36.6 million. Included in this amount was $22.1 million of impaired loans for which specific reserves for loan losses were carried in the amount of $8.4 million. The average investment in impaired loans at December 31, 2008 was $37.2 million, while interest income of $0.7 million was recognized.
Included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired. At December 31, 2010, the Bank had $0.4 million in commercial other, $0.1 million in commercial secured by real estate, and $1.3 million in commercial real estate construction loans that were modified in troubled debt restructurings and impaired. In addition to these amounts, the Bank had troubled debt restructurings that were performing in accordance with their modified terms of $0.8 million in commercial other, $2.4 million in commercial secured by real estate, and $1.6 million in commercial real estate construction loans of the total $389 million in commercial other loans, $807 million in commercial secured by real estate loans, and $135 million in commercial real estate construction loans at December 31, 2010.
6. Mortgage Banking Activities
Mortgage banking activities primarily include residential mortgage originations and servicing. As discussed in note 1 above, mortgage servicing rights (“MSRs”) are carried at fair market value. The fair value is determined quarterly based on an independent third-party valuation using a discounted cash flow analysis and calculated using a computer pricing model. The computer valuation is based on key economic assumptions including the prepayment speeds of the underlying loans, the weighted-average life of the loan, the discount rate, the weighted-average coupon, and the weighted-average default rate, as applicable. Along with the gains received from the sale of loans, fees are received for servicing loans. These fees include late fees, which are recorded in interest income, and ancillary fees and monthly servicing fees, which are recorded in noninterest income. Costs of servicing loans are charged to expense as incurred. Changes in fair market value of the MSRs are reported as an increase or decrease to mortgage banking income.
The following table presents the components of mortgage banking income:
|
(in thousands)
Year Ended December 31
|
2010
|
2009
|
2008
|
|||||||||
|
Net gain on sale of loans held for sale
|
$ | 1,642 | $ | 4,324 | $ | 1,583 | ||||||
|
Net loan servicing income (expense)
|
||||||||||||
|
Servicing fees
|
1,110 | 1,040 | 888 | |||||||||
|
Late fees
|
74 | 72 | 59 | |||||||||
|
Ancillary fees
|
269 | 512 | 165 | |||||||||
|
Fair value adjustments
|
(769 | ) | (107 | ) | (1,503 | ) | ||||||
|
Net loan servicing income (expense)
|
684 | 1,517 | (391 | ) | ||||||||
|
Mortgage banking income
|
$ | 2,326 | $ | 5,841 | $ | 1,192 | ||||||
Mortgage loans serviced for others are not included in the accompanying balance sheets. At December 31, 2010, 2009, and 2008, loans serviced for the benefit of others (primarily FHLMC) totaled $425 million, $431 million, and $349 million, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and processing foreclosures. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were approximately $0.5 million, $0.6 million, and $0.4 million at December 31, 2010, 2009, and 2008, respectively.
Activity for capitalized mortgage servicing rights using the fair value method is as follows:
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Fair value, beginning of period
|
$ | 3,406 | $ | 2,168 | $ | 3,258 | ||||||
|
New servicing assets created
|
524 | 1,345 | 413 | |||||||||
|
Change in fair value during the period due to:
|
||||||||||||
|
Time decay (1)
|
(161 | ) | (136 | ) | (117 | ) | ||||||
|
Payoffs (2)
|
(190 | ) | (579 | ) | (352 | ) | ||||||
|
Changes in valuation inputs or assumptions (3)
|
(418 | ) | 608 | (1,034 | ) | |||||||
|
Fair value, end of period
|
$ | 3,161 | $ | 3,406 | $ | 2,168 | ||||||
|
(1)
|
Represents decrease in value due to regularly scheduled loan principal payments and partial loan paydowns.
|
|
(2)
|
Represents decrease in value due to loans that paid off during the period.
|
|
(3)
|
Represents change in value resulting from market-driven changes in interest rates.
|
The fair values of capitalized mortgage servicing rights were $3.2 million, $3.4 million, and $2.2 million at December 31, 2010, 2009, and 2008, respectively. Fair values for the years ended December 31, 2010, 2009, and 2008 were determined by third-party valuations using discount rate of 10.00% for each year, respectively, and weighted average default rates of 2.0%, 1.9%, and 1.7%, respectively. The prepayment speeds applied in 2010, 2009, and 2008 were generated by the Andrew Davidson Prepayment Model. The speeds ranged from 7.4% to 21.5% in 2010, from 6.1% to 22.6% in 2009, and from 7.2% to 31.7% in 2008, depending on the stratifications of the specific rights. MSR values are very sensitive to movement in interest rates as expected future net servicing income depends on the projected balance of the underlying loans, which can be greatly impacted by the level of prepayments. CTBI does not currently hedge against changes in the fair value of its MSR portfolio.
7. Related Party Transactions
In the ordinary course of business, CTB has made extensions of credit and had transactions with certain directors and executive officers of CTBI or our subsidiaries, including their associates (as defined by the Securities and Exchange Commission). We believe such extensions of credit and transactions were made on substantially the same terms, including interest rate and collateral, as those prevailing at the same time for comparable transactions with other persons.
Activity for related party transactions during 2010 and 2009 is as follows:
|
(in thousands)
|
2010
|
2009
|
||||||
|
Related party extensions of credit, beginning of period
|
$ | 18,393 | $ | 20,789 | ||||
|
New loans
|
2,794 | 4,706 | ||||||
|
Repayments
|
(1,946 | ) | (1,188 | ) | ||||
|
Decrease due to changes in related parties
|
(352 | ) | (5,914 | ) | ||||
|
Related party extensions of credit, end of period
|
$ | 18,889 | $ | 18,393 | ||||
The aggregate balances of related party deposits at December 31, 2010 and 2009 were $13.8 million and $25.9 million, respectively.
8. Allowance for Loan and Lease Losses
Activity in the allowance for loan and lease losses was as follows:
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Balance, beginning of year
|
$ | 32,643 | $ | 30,821 | $ | 28,054 | ||||||
|
Provision charged to operations
|
16,484 | 17,468 | 11,452 | |||||||||
|
Recoveries
|
3,314 | 3,213 | 2,613 | |||||||||
|
Charge-offs
|
(17,636 | ) | (18,859 | ) | (11,298 | ) | ||||||
|
Balance, end of year
|
$ | 34,805 | $ | 32,643 | $ | 30,821 | ||||||
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2010 and 2009:
|
(in thousands)
|
Commercial Construction
|
Commercial Secured by Real Estate
|
Commercial Other
|
Equipment Lease Financing
|
Real Estate Construction
|
Real Estate Mortgage
|
Home Equity
|
Consumer Direct
|
Consumer Indirect
|
Total
|
||||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||||||||||
|
Allowance for loan losses
|
||||||||||||||||||||||||||||||||||||||||
|
Balance, beginning of year
|
$ | 3,381 | $ | 10,961 | $ | 7,472 | $ | 221 | $ | 291 | $ | 3,041 | $ | 455 | $ | 1,258 | $ | 5,563 | $ | 32,643 | ||||||||||||||||||||
|
Provision charged to expense
|
2,640 | 5,029 | 4,416 | (73 | ) | (17 | ) | 526 | 287 | 532 | 3,144 | 16,484 | ||||||||||||||||||||||||||||
|
Losses charged off
|
1,695 | 3,826 | 5,184 | 0 | 22 | 684 | 358 | 1,256 | 4,611 | 17,636 | ||||||||||||||||||||||||||||||
|
Recoveries
|
6 | 163 | 688 | 0 | 19 | 99 | 23 | 635 | 1,681 | 3,314 | ||||||||||||||||||||||||||||||
|
Balance, end of year
|
$ | 4,332 | $ | 12,327 | $ | 7,392 | $ | 148 | $ | 271 | $ | 2,982 | $ | 407 | $ | 1,169 | $ | 5,777 | $ | 34,805 | ||||||||||||||||||||
|
Ending balance:
|
||||||||||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment
|
$ | 2,554 | $ | 2,575 | $ | 3,093 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 8,222 | ||||||||||||||||||||
|
Collectively evaluated for impairment
|
$ | 1,778 | $ | 9,752 | $ | 4,299 | $ | 148 | $ | 271 | $ | 2,982 | $ | 407 | $ | 1,169 | $ | 5,777 | $ | 26,583 | ||||||||||||||||||||
|
Loans:
|
||||||||||||||||||||||||||||||||||||||||
|
Ending balance:
|
||||||||||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment
|
$ | 15,841 | $ | 32,691 | $ | 13,037 | $ | 0 | $ | 790 | $ | 950 | $ | 0 | $ | 0 | $ | 0 | $ | 63,309 | ||||||||||||||||||||
|
Collectively evaluated for impairment
|
$ | 119,250 | $ | 774,358 | $ | 375,709 | $ | 14,151 | $ | 56,120 | $ | 622,901 | $ | 85,103 | $ | 126,046 | $ | 368,233 | $ | 2,541,871 | ||||||||||||||||||||
|
(in thousands)
|
Commercial Construction
|
Commercial Secured by Real Estate
|
Commercial Other
|
Equipment Lease Financing
|
Real Estate Construction
|
Real Estate Mortgage
|
Home Equity
|
Consumer Direct
|
Consumer Indirect
|
Total
|
||||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||||||||||
|
Allowance for loan losses
|
||||||||||||||||||||||||||||||||||||||||
|
Balance, beginning of year
|
$ | 3,645 | $ | 11,304 | $ | 5,782 | $ | 191 | $ | 281 | $ | 2,616 | $ | 422 | $ | 1,590 | $ | 4,990 | $ | 30,821 | ||||||||||||||||||||
|
Provision charged to expense
|
2,967 | 2,434 | 5,682 | 30 | 333 | 1,151 | 238 | 768 | 3,865 | 17,468 | ||||||||||||||||||||||||||||||
|
Losses charged off
|
3,435 | 3,192 | 4,342 | 0 | 330 | 858 | 223 | 1,892 | 4,587 | 18,859 | ||||||||||||||||||||||||||||||
|
Recoveries
|
204 | 415 | 350 | 0 | 7 | 132 | 18 | 792 | 1,295 | 3,213 | ||||||||||||||||||||||||||||||
|
Balance, end of year
|
$ | 3,381 | $ | 10,961 | $ | 7,472 | $ | 221 | $ | 291 | $ | 3,041 | $ | 455 | $ | 1,258 | $ | 5,563 | $ | 32,643 | ||||||||||||||||||||
|
Ending balance:
|
||||||||||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment
|
$ | 3,104 | $ | 2,060 | $ | 1,434 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 6,598 | ||||||||||||||||||||
|
Collectively evaluated for impairment
|
$ | 277 | $ | 8,901 | $ | 6,038 | $ | 221 | $ | 291 | $ | 3,041 | $ | 455 | $ | 1,258 | $ | 5,563 | $ | 26,045 | ||||||||||||||||||||
|
Loans:
|
||||||||||||||||||||||||||||||||||||||||
|
Ending balance:
|
||||||||||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment
|
$ | 14,277 | $ | 9,803 | $ | 7,932 | $ | 0 | $ | 1,244 | $ | 3,781 | $ | 618 | $ | 0 | $ | 0 | $ | 37,655 | ||||||||||||||||||||
|
Collectively evaluated for impairment
|
$ | 127,163 | $ | 697,697 | $ | 365,897 | $ | 20,048 | $ | 50,067 | $ | 524,811 | $ | 81,517 | $ | 115,555 | $ | 415,350 | $ | 2,398,105 | ||||||||||||||||||||
9. Premises and Equipment
Premises and equipment are summarized as follows:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Land and buildings
|
$ | 75,319 | $ | 67,785 | ||||
|
Leasehold improvements
|
5,022 | 5,114 | ||||||
|
Furniture, fixtures, and equipment
|
43,967 | 42,320 | ||||||
|
Construction in progress
|
928 | 50 | ||||||
| 125,236 | 115,269 | |||||||
|
Less accumulated depreciation and amortization
|
(69,893 | ) | (66,027 | ) | ||||
| $ | 55,343 | $ | 49,242 | |||||
Depreciation and amortization of premises and equipment for 2010, 2009, and 2008 was $4.0 million, $4.6 million, and $4.5 million, respectively.
10. Other Real Estate Owned
Activity for foreclosed properties was as follows:
|
(in thousands)
|
2010
|
2009
|
||||||
|
Beginning balance
|
$ | 37,333 | $ | 10,425 | ||||
|
Transfers in at lower of cost or fair value less estimated costs to sell
|
11,806 | 33,301 | ||||||
|
Additional investment
|
225 | 1,908 | ||||||
|
Provision charged to expense
|
(689 | ) | (1,350 | ) | ||||
|
Sale of assets
|
(8,466 | ) | (6,951 | ) | ||||
|
Properties acquired through acquisition
|
2,726 | 0 | ||||||
|
Ending balance
|
$ | 42,935 | $ | 37,333 | ||||
Carrying costs and fair value adjustments associated with foreclosed properties were $2.6 million, $3.3 million, and $0.7 million for 2010, 2009, and 2008, respectively. See note 1 for a description of our accounting policies relative to foreclosed properties.
11. Deposits
Major classifications of deposits are categorized as follows:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Noninterest bearing deposits
|
$ | 525,478 | $ | 490,809 | ||||
|
NOW accounts
|
33,641 | 17,389 | ||||||
|
Money market deposits
|
450,289 | 422,458 | ||||||
|
Savings
|
229,466 | 215,792 | ||||||
|
Certificates of deposit and other time deposits of $100,000 or more
|
653,629 | 555,810 | ||||||
|
Certificates of deposit and other time deposits less than $100,000
|
813,614 | 759,951 | ||||||
| $ | 2,706,117 | $ | 2,462,209 | |||||
Interest expense on deposits is categorized as follows:
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Savings, NOW, and money market accounts
|
$ | 3,074 | $ | 4,002 | $ | 7,885 | ||||||
|
Certificates of deposit and other time deposits of $100,000 or more
|
11,695 | 15,059 | 18,715 | |||||||||
|
Certificates of deposit and other time deposits less than $100,000
|
14,383 | 20,732 | 27,249 | |||||||||
| $ | 29,152 | $ | 39,793 | $ | 53,849 | |||||||
Maturities of certificates of deposits and other time deposits are presented below:
|
Maturities by Period at December 31, 2010
|
||||||||||||||||||||||||||||
|
(in thousands)
|
Total
|
Within 1 Year
|
2 Years
|
3 Years
|
4 Years
|
5 Years
|
After 5 Years
|
|||||||||||||||||||||
|
Certificates of deposit and other time deposits of $100,000 or more
|
$ | 653,629 | $ | 623,230 | $ | 19,520 | $ | 5,596 | $ | 3,570 | $ | 1,518 | $ | 195 | ||||||||||||||
|
Certificates of deposit and other time deposits less than $100,000
|
813,614 | 739,675 | 40,959 | 12,225 | 4,656 | 3,990 | 12,109 | |||||||||||||||||||||
| $ | 1,467,243 | $ | 1,362,905 | $ | 60,479 | $ | 17,821 | $ | 8,226 | $ | 5,508 | $ | 12,304 | |||||||||||||||
12. Advances from Federal Home Loan Bank
Federal Home Loan Bank (“FHLB”) advances consisted of the following monthly amortizing and term borrowings at December 31:
|
(in thousands)
|
2010
|
2009
|
||||||
|
Monthly amortizing
|
$ | 1,238 | $ | 671 | ||||
|
Term
|
20,000 | 20,000 | ||||||
| $ | 21,238 | $ | 20,671 | |||||
The advances from the FHLB that require monthly principal payments were due for repayment as follows:
|
Principal Payments Due by Period at December 31, 2010
|
||||||||||||||||||||||||||||
|
(in thousands)
|
Total
|
Within 1 Year
|
2 Years
|
3 Years
|
4 Years
|
5 Years
|
After 5 Years
|
|||||||||||||||||||||
|
Outstanding advances, weighted average interest rate – 3.51%
|
$ | 1,238 | $ | 199 | $ | 159 | $ | 119 | $ | 97 | $ | 95 | $ | 569 | ||||||||||||||
|
Principal Payments Due by Period at December 31, 2009
|
||||||||||||||||||||||||||||
|
(in thousands)
|
Total
|
Within 1 Year
|
2 Years
|
3 Years
|
4 Years
|
5 Years
|
After 5 Years
|
|||||||||||||||||||||
|
Outstanding advances, weighted average interest rate – 3.76%
|
$ | 671 | $ | 617 | $ | 8 | $ | 8 | $ | 8 | $ | 8 | $ | 22 | ||||||||||||||
The term advances that require the total payment to be made at maturity follow:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Advance #156, 0.43%, due 1/29/10
|
$ | 0 | $ | 20,000 | ||||
|
Advance #158, 0.37%, due 1/24/11
|
20,000 | 0 | ||||||
| $ | 20,000 | $ | 20,000 | |||||
Advances totaling $21.2 million at December 31, 2010 were collateralized by FHLB stock of $25.7 million and a blanket lien on qualifying first mortgage loans. As of December 31, 2010, CTBI had a $354.6 million FHLB borrowing capacity with $21.2 million in advances and $94.1 million in letters of credit used for public fund pledging leaving $239.3 million available for additional advances. The advances had fixed interest rates ranging from 0.37% to 7.75% with a weighted average rate of 0.55%. The advances are subject to restrictions or penalties in the event of prepayment.
Advance #158, which matured on January 24, 2011, was refinanced at a rate of 0.33% with a maturity date of July 22, 2011.
13. Borrowings
Short-term debt is categorized as follows:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Subsidiaries:
|
||||||||
|
Repurchase agreements
|
$ | 188,275 | $ | 180,471 | ||||
|
Federal funds purchased
|
9,680 | 12,205 | ||||||
| $ | 197,955 | $ | 192,676 | |||||
All federal funds purchased and the majority of repurchase agreements mature and reprice daily. The average rates paid for federal funds purchased and repurchase agreements on December 31, 2010 were 0.15% and 0.96%, respectively.
The maximum balance for repurchase agreements at any month-end during 2010 occurred at October 31, 2010, with a month-end balance of $192.6 million. The average balance of repurchase agreements for the year was $184.5 million.
Long-term debt is categorized as follows:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Parent:
|
||||||||
|
Junior subordinated debentures, 6.52%, due 6/1/37
|
$ | 61,341 | $ | 61,341 | ||||
On March 31, 2007, CTBI issued $61.3 million in junior subordinated debentures to a newly formed unconsolidated Delaware statutory trust subsidiary which in turn issued $59.5 million of capital securities in a private placement to institutional investors. The debentures, which mature in 30 years but are redeemable at par at CTBI's option after five years, were issued at a rate of 6.52% until June 1, 2012, and thereafter at a floating rate based on the three-month LIBOR plus 1.59%. The underlying capital securities were issued at the equivalent rates and terms. The proceeds of the debentures were used to fund the redemption on April 2, 2007 of all CTBI's outstanding 9.0% and 8.25% junior subordinated debentures in the total amount of $61.3 million.
On October 28, 2010, Community Trust Bancorp, Inc. entered into a revolving credit promissory note for a line of credit in the amount of $12 million at a floating interest rate of 2.25% in excess of the one-month LIBOR Rate. An unused commitment fee of 0.15% has been established. Currently, all $12 million remain available for general corporate purposes. The agreement, which was effective October 28, 2010, replaced the agreement dated October 29, 2009, and will mature on October 27, 2011.
14. Income Taxes
The components of the provision for income taxes, exclusive of tax effect of unrealized securities gains, are as follows:
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Current income taxes
|
$ | 14,393 | $ | 7,684 | $ | 14,121 | ||||||
|
Deferred income taxes
|
219 | 2,918 | (5,774 | ) | ||||||||
| $ | 14,612 | $ | 10,602 | $ | 8,347 | |||||||
A reconciliation of income tax expense at the statutory rate to our actual income tax expense is shown below:
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||||||||||||||
|
Computed at the statutory rate
|
$ | 16,818 | 35.71 | % | $ | 12,577 | 35.41 | % | $ | 10,898 | 34.52 | % | ||||||||||||
|
Decrease resulting from
|
||||||||||||||||||||||||
|
Tax-exempt interest
|
(806 | ) | (1.71 | ) | (739 | ) | (2.08 | ) | (771 | ) | (2.44 | ) | ||||||||||||
|
Housing and new markets credits
|
(507 | ) | (1.08 | ) | (654 | ) | (1.84 | ) | (532 | ) | (1.68 | ) | ||||||||||||
|
Dividends received deduction
|
(172 | ) | (0.36 | ) | (188 | ) | (0.53 | ) | (422 | ) | (1.34 | ) | ||||||||||||
|
Bank owned life insurance
|
(477 | ) | (1.01 | ) | (342 | ) | (0.96 | ) | (277 | ) | (0.88 | ) | ||||||||||||
|
Other, net
|
(244 | ) | (0.52 | ) | (52 | ) | (0.15 | ) | (549 | ) | (1.74 | ) | ||||||||||||
|
Total
|
$ | 14,612 | 31.03 | % | $ | 10,602 | 29.85 | % | $ | 8,347 | 26.44 | % | ||||||||||||
The components of the net deferred tax liability as of December 31 are as follows:
|
(in thousands)
|
2010
|
2009
|
||||||
|
Deferred tax assets
|
||||||||
|
Allowance for loan and lease losses
|
$ | 12,852 | $ | 11,425 | ||||
|
Interest on nonperforming loans
|
1,427 | 1,264 | ||||||
|
Accrued expenses
|
582 | 310 | ||||||
|
Dealer reserve valuation
|
1,119 | 1,213 | ||||||
|
Allowance for other real estate owned
|
1,755 | 1,213 | ||||||
|
Write-down of auction rate securities
|
4,162 | 3,006 | ||||||
|
Other
|
688 | 403 | ||||||
|
Total deferred tax assets
|
22,585 | 18,834 | ||||||
|
Deferred tax liabilities
|
||||||||
|
Depreciation and amortization
|
(14,624 | ) | (13,461 | ) | ||||
|
FHLB stock dividends
|
(4,985 | ) | (4,767 | ) | ||||
|
Loan fee income
|
(1,288 | ) | (1,037 | ) | ||||
|
Mortgage servicing rights
|
(1,106 | ) | (1,192 | ) | ||||
|
Capitalized lease obligations
|
(2,275 | ) | (2,436 | ) | ||||
|
Unrealized gains on AFS securities
|
(2,710 | ) | (2,268 | ) | ||||
|
Purchase accounting adjustments
|
(354 | ) | 0 | |||||
|
Other
|
(1,460 | ) | (794 | ) | ||||
|
Total deferred tax liabilities
|
(28,802 | ) | (25,955 | ) | ||||
|
Net deferred tax liability
|
$ | (6,217 | ) | $ | (7,121 | ) | ||
CTBI adopted the provisions of ASC 740, Income Taxes, on January 1, 2007. The cumulative effect of applying the provisions of this statement was recognized as a $0.6 million adjustment to the beginning balance of retained earnings. The ASC 740 liability is carried in other liabilities in the condensed consolidated balance sheet as of December 31, 2010 and 2009. CTBI is subject to taxation in the United States and various state and local jurisdictions. For federal tax purposes, CTBI’s tax years for 2008, 2009, and 2010 are subject to examination by the tax authorities. For state and local tax purposes, CTBI’s tax years for 2006 through 2010 are subject to examination by the tax authorities. CTBI currently recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits under ASC 740 is shown below:
|
(in thousands)
|
2010
|
2009
|
||||||
|
Balance at January 1
|
$ | 409 | $ | 662 | ||||
|
Additions based on tax positions related to current year
|
70 | |||||||
|
Additions for tax positions of prior years
|
20 | 16 | ||||||
|
Reductions for tax positions of prior years
|
(266 | ) | (339 | ) | ||||
|
Balance at December 31
|
$ | 163 | $ | 409 | ||||
15. Employee Benefits
CTBI maintains two separate retirement savings plans, a 401(k) Plan and an Employee Stock Ownership Plan (“ESOP”).
The 401(k) Plan is available to all employees (age 21 and over) with one year of service and who work at least 1,000 hours per year. Participants in the plan have the option to contribute from 1% to 15% of their annual compensation. CTBI matches 50% of participant contributions up to 4% of gross pay. CTBI may at its discretion, contribute an additional percentage of covered employees’ compensation. CTBI’s matching contributions were $0.9 million for each of the years ended December 31, 2010, 2009, and 2008. The 401(k) Plan owned 507,932, 533,473, and 504,722 shares of CTBI’s common stock at December 31, 2010, 2009, and 2008, respectively. Substantially all shares owned by the 401(k) were allocated to employee accounts on those dates. The market price of the shares at the date of allocation is essentially the same as the market price at the date of purchase.
The ESOP Plan has the same entrance requirements as the 401(k) Plan above. CTBI currently contributes 4% of covered employees’ gross compensation to the ESOP. The ESOP uses the contributions to acquire shares of CTBI’s common stock. CTBI’s contributions to the ESOP were $1.3 million, $1.3 million, and $1.2 million for the years ending December 31, 2010, 2009, and 2008, respectively. The ESOP owned 647,158, 623,392, and 573,297 shares of CTBI’s common stock at December 31, 2010, 2009, and 2008, respectively. Substantially all shares owned by the ESOP were allocated to employee accounts on those dates. The market price of the shares at the date of allocation is essentially the same as the market price at the date of purchase.
Stock-Based Compensation:
We currently maintain one active and one inactive incentive stock option plans covering key employees. The 2006 Stock Ownership Incentive Plan (“2006 Plan”) was approved by the Board of Directors and the Shareholders in 2006. The 1998 Stock Option Plan (“1998 Plan”) was approved by the Board of Directors and the Shareholders in 1998. The 1998 Plan was rendered inactive as of April 26, 2006. The 2006 Plan had 1,500,000 shares authorized, 1,265,567 of which were available at December 31, 2010 for future grants. In addition, any shares reserved for issuance under the 1998 Stock Option Plan (“1998 Plan”) in excess of the number of shares as to which options or other benefits are awarded thereunder, plus any shares as to which options or other benefits granted under the 1998 Plan may lapse, expire, terminate or be canceled, shall also be reserved and available for issuance or reissuance under the 2006 Plan. As of December 31, 2010, the 1998 Plan had 1,046,831 shares authorized, 155,211 of which were transferred to the 2006 Plan. The total shares available for issuance under the 2006 Plan as of December 31, 2010 was 1,420,778. The following table provides detail of the number of shares to be issued upon exercise of outstanding stock-based awards and remaining shares available for future issuance under all of CTBI’s equity compensation plans as of December 31, 2010:
|
Plan Category (shares in thousands)
|
Number of Shares to Be Issued Upon Exercise/Vesting
|
Weighted Average Price
|
Shares Available for Future Issuance
|
|
|
Equity compensation plans approved by shareholders
|
||||
|
Stock options
|
548
|
$29.50
|
1,421 (a)
|
|
|
Restricted stock
|
53 (c)
|
26.10
|
(a)
|
|
|
Performance units
|
(d)
|
(b)
|
(a)
|
|
|
Stock appreciation rights (“SARs”)
|
(e)
|
(b)
|
(a)
|
|
|
Total
|
1,421
|
|||
|
(a)
|
Under the 2006 Plan, 1.5 million shares (plus any shares reserved for issuance under the 1998 Stock Option Plan) were authorized for issuance as nonqualified and incentive stock options, SARS, restricted stock and performance units. As of December 31, 2010, the above shares remained available for issuance.
|
|
(b)
|
Not applicable
|
|
(c)
|
The maximum number of shares of Restricted Stock that may be granted is 400,000 shares, and the maximum that may be granted to a participant during any calendar year is 40,000 shares.
|
|
(d)
|
No performance units have been issued. The maximum payment that can be made pursuant to Performance Units granted to any one Participant in any calendar year shall be $250,000.
|
|
(e)
|
No SARS have been issued. The maximum number of shares with respect to which SARs may be granted to a Participant during any calendar year shall be 100,000 shares.
|
The following table details the shares available for future issuance under the 2006 Plan at December 31, 2010.
|
Plan Category (shares in thousands)
|
Shares Available for Future Issuance
|
|||
|
Shares available at January 1, 2010
|
1,462,823 | |||
|
1998 Plan forfeitures in 2010
|
924 | |||
|
2006 Plan stock option issuances in 2010
|
(3,525 | ) | ||
|
2006 Plan restricted stock issuances in 2010
|
(45,996 | ) | ||
|
2006 Plan forfeitures in 2010
|
6,552 | |||
|
Shares available for future issuance
|
1,420,778 | |||
CTBI uses a Black-Scholes option pricing model with the following weighted average assumptions, which are evaluated and revised as necessary, in estimating the grant-date fair value of each option grant for the year end:
|
2010
|
2009
|
2008
|
||||||||||
|
Expected option life (in years)
|
7.5 | 7.5 | 7.5 | |||||||||
|
Expected volatility
|
0.391 | 0.371 | 0.310 | |||||||||
|
Expected dividend yield
|
4.78 | % | 4.02 | % | 4.10 | % | ||||||
|
Risk-free interest rate
|
3.139 | % | 2.23 | % | 3.23 | % | ||||||
The expected option life is derived from the “safe-harbor” rules for estimating option life in ASC 718, Share-Based Payment. The expected volatility is based on historical volatility of the stock using a historical look back that approximates the expected life of the option grant. The interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. CTBI’s stock-based compensation expense for the years 2010, 2009, and 2008 was $0.9 million, $0.6 million, and $0.7 million, respectively.
CTBI’s stock option activity for the 2006 Plan for the years ended December 31, 2010, 2009, and 2008 is summarized as follows:
|
December 31
|
2010
|
2009
|
2008
|
|||||||||||||||||||||
|
Options
|
Weighted Average Exercise Price
|
Options
|
Weighted Average Exercise Price
|
Options
|
Weighted Average Exercise Price
|
|||||||||||||||||||
|
Outstanding at beginning of year
|
174,678 | $ | 34.85 | 165,678 | $ | 35.12 | 107,595 | $ | 38.95 | |||||||||||||||
|
Granted
|
4,525 | 25.09 | 9,000 | 29.82 | 63,700 | 28.32 | ||||||||||||||||||
|
Exercised
|
0 | -- | 0 | -- | 0 | -- | ||||||||||||||||||
|
Forfeited/expired
|
2,078 | 33.83 | 0 | -- | (5,617 | ) | 31.38 | |||||||||||||||||
|
Outstanding at end of year
|
177,125 | $ | 34.61 | 174,678 | $ | 34.85 | 165,678 | $ | 35.12 | |||||||||||||||
|
Exercisable at end of year
|
90,962 | $ | 37.70 | 55,717 | $ | 38.43 | 26,488 | $ | 38.95 | |||||||||||||||
A summary of the status of CTBI’s 2006 Plan for nonvested shares as of December 31, 2010, and changes during the year ended December 31, 2010, is presented as follows:
|
Nonvested Shares
|
Shares
|
Weighted Average Grant Date Fair Value
|
||||||
|
Nonvested at January 1, 2010
|
118,961 | $ | 9.33 | |||||
|
Granted
|
4,525 | 6.53 | ||||||
|
Vested
|
(35,245 | ) | 11.52 | |||||
|
Forfeited
|
2,078 | 9.69 | ||||||
|
Nonvested at December 31, 2010
|
86,163 | $ | 8.35 | |||||
The 2006 Plan had options with the following remaining lives at December 31, 2010:
|
2006 Option Plan
|
||||||||
|
Remaining Life
|
Outstanding Options
|
Weighted Average Price
|
||||||
|
Six years
|
104,900 | $ | 38.95 | |||||
|
Seven years
|
58,700 | 28.32 | ||||||
|
Eight years
|
9,000 | 29.82 | ||||||
|
Nine years
|
4,525 | 25.09 | ||||||
|
Total outstanding
|
177,125 | |||||||
|
Weighted average price
|
$ | 34.61 | ||||||
The weighted-average fair value of options granted from the 2006 Plan during the years 2010, 2009, and 2008 was $0.03 million or $6.53 per share, $0.10 million or $7.69 per share, and $0.40 million or $6.41 per share, respectively.
There was no intrinsic value of options exercised, exercisable, or outstanding for the years ended December 31, 2010, 2009, and 2008 in the 2006 Plan, as the strike price exceeded the year-end fair value of the stock.
The following table shows restricted stock activity for the years ended December 31, 2010, 2009, and 2008:
|
December 31
|
2010
|
2009
|
2008
|
|||||||||||||||||||||
|
Grants
|
Weighted
Average Fair
Value
|
Grants
|
Weighted
Average Fair
Value
|
Grants
|
Weighted
Average Fair
Value
|
|||||||||||||||||||
|
Outstanding at beginning of year
|
16,786 | $ | 28.83 | 11,076 | $ | 28.32 | 0 | $ | -- | |||||||||||||||
|
Granted
|
44,996 | 25.09 | 5,710 | 29.82 | 11,076 | 28.32 | ||||||||||||||||||
|
Exercised
|
(4,474 | ) | 26.14 | 0 | -- | 0 | -- | |||||||||||||||||
|
Forfeited/expired
|
(4,474 | ) | 26.14 | 0 | -- | 0 | -- | |||||||||||||||||
|
Outstanding at end of year
|
52,834 | $ | 26.10 | 16,786 | $ | 28.83 | 11,076 | $ | 28.32 | |||||||||||||||
|
Exercisable at end of year
|
0 | $ | -- | 0 | $ | -- | 0 | $ | -- | |||||||||||||||
Tracy Little, former Executive Vice President of CTBI and President and Chief Executive Officer of Community Trust and Investment Company, retired effective December 31, 2010. The Compensation Committee of the Board of Directors approved the accelerated vesting of Mr. Little’s regular stock options expiring March 31, 2011, consisting of 5,215 shares with an option price of $38.95 and 3,750 shares with an option price of $28.32, as well as 4,474 restricted stock grants upon his retirement.
CTBI’s stock option activity for the 1998 Plan for the years ended December 31, 2010, 2009, and 2008 is summarized as follows:
|
December 31
|
2010
|
2009
|
2008
|
|||||||||||||||||||||
|
Options
|
Weighted Average Exercise Price
|
Options
|
Weighted Average Exercise Price
|
Options
|
Weighted Average Exercise Price
|
|||||||||||||||||||
|
Outstanding at beginning of year
|
420,731 | $ | 25.64 | 500,454 | $ | 23.91 | 581,413 | $ | 23.52 | |||||||||||||||
|
Granted
|
0 | -- | 0 | -- | 0 | -- | ||||||||||||||||||
|
Exercised
|
(48,730 | ) | 14.66 | (79,723 | ) | 14.75 | (77,983 | ) | 20.79 | |||||||||||||||
|
Forfeited/expired
|
(924 | ) | 32.44 | 0 | -- | (2,976 | ) | 31.54 | ||||||||||||||||
|
Outstanding at end of year
|
371,077 | $ | 27.07 | 420,731 | $ | 25.64 | 500,454 | $ | 23.91 | |||||||||||||||
|
Exercisable at end of year
|
361,077 | $ | 26.92 | 386,498 | $ | 25.03 | 350,113 | $ | 21.24 | |||||||||||||||
The 1998 Plan had options with the following remaining lives at December 31, 2010:
|
1998 Option Plan
|
||||||||
|
Remaining Life
|
Outstanding Options
|
Weighted Average Price
|
||||||
|
One year
|
0 | $ | -- | |||||
|
Two years
|
80,817 | 18.98 | ||||||
|
Three years
|
39,888 | 20.99 | ||||||
|
Four years
|
70,950 | 27.82 | ||||||
|
Five years
|
79,112 | 30.88 | ||||||
|
Six years
|
100,310 | 32.44 | ||||||
|
Total outstanding
|
371,077 | |||||||
|
Weighted average price
|
$ | 27.06 | ||||||
The following table shows the intrinsic values of options exercised, exercisable, and outstanding for the years ended December 31, 2010, 2009, and 2008:
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Options exercised
|
$ | 627 | $ | 1,017 | $ | 1,051 | ||||||
|
Options exercisable
|
1,206 | 1,057 | 5,429 | |||||||||
|
Outstanding options
|
1,206 | 1,057 | 6,430 | |||||||||
A summary of the status of CTBI’s 1998 Plan nonvested shares as of December 31, 2010 and changes during the year ended December 31, 2010 is presented below:
|
Nonvested Shares
|
Shares
|
Weighted Average Grant Date Fair Value
|
||||||
|
Nonvested at January 1, 2010
|
34,233 | $ | 10.51 | |||||
|
Granted
|
0 | -- | ||||||
|
Vested
|
23,309 | 10.51 | ||||||
|
Forfeited
|
924 | 10.51 | ||||||
|
Nonvested at December 31, 2010
|
10,000 | $ | 10.51 | |||||
As of December 31, 2010, there was $1.0 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 2.0 years. The total unrecognized compensation cost related to nonvested share-based compensation arrangements granted as of December 31, 2009 and 2008, respectively, was $0.5 million and $1.1 million. The total grant-date fair value of shares vested during the years ended December 31, 2010, 2009, and 2008, was $0.7 million, $1.3 million and $0.8 million, respectively. Cash received from option exercises under all share-based payment arrangements for the years ended December 31, 2010, 2009, and 2008 was $0.7 million, $1.2 million, and $1.6 million, respectively. The actual tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements totaled $0.2 million, $0.4 million, and $0.3 million, respectively, for the years ended December 31, 2010, 2009, and 2008.
16. Operating Leases
Certain premises and equipment are leased under operating leases. Additionally, certain premises are leased or subleased to third parties. These leases generally contain renewal options and require CTBI to pay all executory costs, such as taxes, maintenance fees, and insurance. Minimum non-cancellable rental payments and rental receipts are as follows:
|
(in thousands)
|
Payments
|
Receipts
|
||||||
|
2011
|
$ | 1,653 | $ | 567 | ||||
|
2012
|
1,332 | 286 | ||||||
|
2013
|
1,175 | 66 | ||||||
|
2014
|
733 | 26 | ||||||
|
2015
|
532 | 3 | ||||||
|
Thereafter
|
3,023 | 0 | ||||||
| $ | 8,448 | $ | 948 | |||||
Rental expense net of rental income under operating leases was $0.7 million for each of the years 2010, 2009, and 2008.
17. Fair Market Value of Financial Instruments
ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Assets Measured on a Recurring Basis
The following tables present information about CTBI’s assets measured at fair value on a recurring basis as of December 31, 2010 and December 31, 2009, and indicates the fair value hierarchy of the valuation techniques and inputs utilized by CTBI to determine such fair value.
|
(in thousands)
|
Fair Value Measurements at
December 31, 2010 Using
|
|||||||||||||||
|
Fair Value
December 31
2010
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
|||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||
|
U.S. Treasury and government agencies
|
$ | 29,254 | $ | 0 | $ | 29,254 | $ | 0 | ||||||||
|
State and political subdivisions
|
51,865 | 0 | 51,865 | 0 | ||||||||||||
|
U.S. government sponsored agencies
|
237,243 | 0 | 237,243 | 0 | ||||||||||||
|
Marketable equity securities
|
20,313 | 0 | 20,102 | 211 | ||||||||||||
|
Mortgage servicing rights
|
3,161 | 0 | 0 | 3,161 | ||||||||||||
|
Total recurring assets measured at fair value
|
$ | 341,836 | $ | 0 | $ | 338,464 | $ | 3,372 | ||||||||
|
(in thousands)
|
Fair Value Measurements at
December 31, 2009 Using
|
|||||||||||||||
|
Fair Value
December 31
2009
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
|||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||
|
U.S. Treasury and government agencies
|
$ | 16,731 | $ | 0 | $ | 16,731 | $ | 0 | ||||||||
|
State and political subdivisions
|
45,657 | 0 | 45,657 | 0 | ||||||||||||
|
U.S. government sponsored agencies
|
187,397 | 0 | 187,397 | 0 | ||||||||||||
|
Marketable equity securities
|
20,452 | 0 | 20,241 | 211 | ||||||||||||
|
Mortgage servicing rights
|
3,406 | 0 | 0 | 3,406 | ||||||||||||
|
Total recurring assets measured at fair value
|
$ | 273,643 | $ | 0 | $ | 270,026 | $ | 3,617 | ||||||||
U.S. Treasury and government agencies, State and political subdivisions, U.S. government sponsored agencies, Marketable equity securities – Level 2 Inputs. For these securities, CTBI obtains fair value measurements from an independent pricing service, which utilizes pricing models to determine fair value measurements. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
Marketable equity securities – Level 3 Inputs. The securities owned by CTBI that were measured using Level 3 criteria are auction rate securities issued by FNMA. These securities were valued using an independent third party. For these securities, the valuation methods used were (1) a discounted cash flow model valuation, where the expected cash flows of the securities are discounted to the present using a yield that incorporates compensation for illiquidity and (2) a market comparables method, where the securities are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar securities. Using these methods, the auction rate securities are classified as Level 3.
Mortgage Servicing Rights – Level 3 Inputs. CTBI records MSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value. In determining fair value, CTBI utilizes the expertise of an independent third party. An estimate of the fair value of CTBI’s MSRs is determined by the independent third party utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. All of CTBI’s MSRs are classified as Level 3. See note 6 for description of significant inputs.
Following is a reconciliation of the beginning and ending balances of recurring fair value measurements using significant unobservable (Level 3) inputs:
|
Marketable Equity Securities (in thousands)
|
2010
|
2009
|
||||||
|
Beginning balance, January 1
|
$ | 211 | $ | 540 | ||||
|
Total realized and unrealized gains and losses
|
||||||||
|
Included in net income
|
0 | 0 | ||||||
|
Transfer of securities from Level 3 to Level 2
|
0 | 0 | ||||||
|
Purchases, issuances, and settlements
|
0 | (329 | ) | |||||
|
Ending balance, December 31
|
$ | 211 | $ | 211 | ||||
|
Mortgage Servicing Rights (in thousands)
|
2010
|
2009
|
||||||
|
Beginning balance
|
$ | 3,406 | $ | 2,168 | ||||
|
Total realized and unrealized gains and losses
|
||||||||
|
Included in net income
|
(418 | ) | 608 | |||||
|
Issuances
|
524 | 1345 | ||||||
|
Settlements
|
(351 | ) | (715 | ) | ||||
|
Ending balance
|
$ | 3,161 | $ | 3,406 | ||||
Assets Measured on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis as of December 31, 2010 and December 31, 2009 are summarized below:
|
(in thousands)
|
Fair Value Measurements at
December 31, 2010 Using
|
|||||||||||||||
|
|
Fair Value
December 31
2010
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
||||||||||||
|
Impaired loans
|
$ | 16,589 | $ | 0 | $ | 0 | $ | 16,589 | ||||||||
|
Other real estate/assets owned
|
4,579 | 0 | 0 | 4,579 | ||||||||||||
|
(in thousands)
|
Fair Value Measurements at
December 31, 2009 Using
|
|||||||||||||||
|
Fair Value
December 31
2009
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
|||||||||||||
|
Impaired loans
|
$ | 8,387 | $ | 0 | $ | 0 | $ | 8,387 | ||||||||
|
Other real estate/assets owned
|
8,331 | 0 | 0 | 8,331 | ||||||||||||
Impaired loans – Level 3 Inputs. Loans considered impaired under ASC 310-35, Impairment of a Loan, are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect subsequent (1) partial write-downs that are based on the observable market price or current appraised value of the collateral or (2) the full charge-off of the loan carrying value. Year-to-date losses on impaired loans were $5.5 million and $5.6 million for the years ended December 31, 2010 and 2009, respectively.
Other real estate/assets owned – Level 3 Inputs. In accordance with the provisions of ASC 360, Property, Plant, and Equipment, long-lived assets held for sale with a carrying amount of $4.6 million were written down to their fair value less costs to sell during the year. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral. Losses on other real estate/assets owned were $0.7 million and $1.4 million, respectively, for the years ended December 31, 2010 and 2009.
The following table presents the carrying amounts and estimated fair values of financial instruments at December 31, 2010 and 2009:
|
(in thousands)
December 31
|
2010
|
2009
|
||||||||||||||
|
Carrying Amount
|
Estimated Fair Value
|
Carrying Amount
|
Estimated Fair Value
|
|||||||||||||
|
Financial assets
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 158,983 | $ | 158,983 | $ | 142,129 | $ | 142,129 | ||||||||
|
Certificates of deposit in other banks
|
14,762 | 14,775 | 100 | 100 | ||||||||||||
|
Securities available-for-sale
|
338,675 | 338,675 | 270,237 | 270,237 | ||||||||||||
|
Securities held-to-maturity
|
1,662 | 1,662 | 14,336 | 14,435 | ||||||||||||
|
Loans, net (including impaired loans)
|
2,570,375 | 2,582,596 | 2,403,117 | 2,407,703 | ||||||||||||
|
Loans held for sale
|
455 | 462 | 1,818 | 1,845 | ||||||||||||
|
Federal Home Loan Bank stock
|
25,673 | 25,673 | 24,700 | 24,700 | ||||||||||||
|
Federal Reserve Bank stock
|
4,434 | 4,434 | 4,348 | 4,348 | ||||||||||||
|
Accrued interest receivable
|
12,574 | 12,574 | 11,936 | 11,936 | ||||||||||||
|
Capitalized mortgage servicing rights
|
3,161 | 3,161 | 3,406 | 3,406 | ||||||||||||
|
Financial liabilities
|
||||||||||||||||
|
Deposits
|
$ | 2,706,117 | $ | 2,690,960 | $ | 2,462,209 | $ | 2,462,676 | ||||||||
|
Repurchase agreements
|
188,275 | 186,989 | 180,471 | 180,776 | ||||||||||||
|
Federal funds purchased
|
9,680 | 9,680 | 12,205 | 12,205 | ||||||||||||
|
Advances from Federal Home Loan Bank
|
21,238 | 21,213 | 20,671 | 20,670 | ||||||||||||
|
Long-term debt
|
61,341 | 30,894 | 61,341 | 29,522 | ||||||||||||
|
Accrued interest payable
|
2,848 | 2,848 | 3,686 | 3,686 | ||||||||||||
|
Unrecognized financial instruments
|
||||||||||||||||
|
Letters of credit
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
|
Commitments to extend credit
|
0 | 0 | 0 | 0 | ||||||||||||
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents – The carrying amount approximates fair value.
Certificates of deposit in other banks – Fair values are based on quoted market prices or dealer quotes.
Securities – Fair values are based on quoted market prices, if available. If a quoted price is not available, fair value is estimated using quoted prices for similar securities.
Loans (net of the allowance for loan and lease losses and including impaired loans) – The fair value of fixed rate loans and variable rate mortgage loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. For other variable rate loans, the carrying amount approximates fair value.
Loans held for sale – The fair value is predetermined at origination based on sale price.
Federal Reserve Bank stock – The carrying value of Federal Reserve Bank stock approximates fair value based on the redemption provisions of the Federal Reserve Bank.
Federal Home Loan Bank stock – The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.
Accrued interest receivable – The carrying amount approximates fair value.
Deposits – The fair value of fixed maturity time deposits is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. For deposits including demand deposits, savings accounts, NOW accounts, and certain money market accounts, the carrying value approximates fair value.
Repurchase agreements – The fair value is estimated by discounting future cash flows using current rates.
Federal funds purchased – The carrying amount approximates fair value.
Advances from Federal Home Loan Bank – The fair value of these fixed-maturity advances is estimated by discounting future cash flows using rates currently offered for advances of similar remaining maturities.
Long-term debt – The fair value is estimated by discounting future cash flows using current rates.
Accrued interest payable – The carrying amount approximates fair value.
Other financial instruments – The estimated fair value for other financial instruments and off-balance sheet loan commitments approximates cost at December 31, 2010 and 2009. Off-balance sheet loan commitments at December 31, 2010 and 2009 were $431.5 million and $425.1 million, respectively.
Letters of credit – The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair value of such letters of credit is not material.
Commitments to extend credit – The fair value of commitments to extend credit is based upon the difference between the interest rate at which we are committed to make the loans and the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for the estimated volume of loan commitments actually expected to close. The fair value of such commitments is not material.
18. Off-Balance Sheet Transactions and Guarantees
The Bank is a party to transactions with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include standby letters of credit and commitments to extend credit in the form of unused lines of credit. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
At December 31, the Bank had the following off-balance sheet financial instruments, whose approximate contract amounts represent additional credit risk to CTBI:
|
(in thousands)
|
2010
|
2009
|
||||||
|
Standby letters of credit
|
$ | 54,690 | $ | 58,641 | ||||
|
Commitments to extend credit
|
376,858 | 366,461 | ||||||
|
Total
|
$ | 431,548 | $ | 425,102 | ||||
Standby letters of credit represent conditional commitments to guarantee the performance of a third party. The credit risk involved is essentially the same as the risk involved in making loans. At December 31, 2010, we maintained a credit loss reserve of approximately $3 thousand relating to these financial standby letters of credit. The reserve coverage calculation was determined using essentially the same methodology as used for the allowance for loan and lease losses. Approximately 91% of the total standby letters of credit are secured, with $42.2 million of the total $54.7 million secured by cash. Collateral for the remaining secured standby letters of credit varies but is comprised primarily of accounts receivable, inventory, property, equipment, and income-producing properties.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of the contract. At December 31, 2010, a credit loss reserve of $188 thousand was maintained relating to these commitments. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s credit-worthiness on a case-by-case basis. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. A portion of the commitments is to extend credit at fixed rates. Fixed rate loan commitments at December 31, 2010 of $11.6 million had interest rates and terms ranging predominantly from 4.00% to 6.99% and 6 months to 1 year. These credit commitments were based on prevailing rates, terms, and conditions applicable to other loans being made at December 31, 2010.
19. Concentrations of Credit Risk
CTBI’s banking activities include granting commercial, residential, and consumer loans to customers primarily located in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. The Bank is continuing to manage all components of its portfolio mix in a manner to reduce risk from changes in economic conditions. Concentrations of credit, as defined for regulatory purposes, are reviewed quarterly by management to ensure that internally established limits based on Tier 1 Capital plus the allowance for loan and lease losses are not exceeded. At December 31, 2010 and 2009, our concentrations of hotel/motel industry credits were 39% and 42% of Tier 1 Capital plus the allowance for loan and lease losses, respectively. Lessors of non-residential buildings were 32% and 24%, respectively. Lessors of residential buildings and dwellings credits were 32% and 29%, respectively. Coal mining and related support industries credits were 28% and 31%, respectively. These percentages are within our internally established limits regarding concentrations of credit.
20. Commitments and Contingencies
CTBI and our subsidiaries, and from time to time, our officers, are named defendants in legal actions arising from ordinary business activities. Management, after consultation with legal counsel, believes any pending actions are without merit or that the ultimate liability, if any, will not materially affect our consolidated financial position or results of operations.
21. Regulatory Matters
Our principal source of funds is dividends received from our subsidiary bank, Community Trust Bank, Inc. (“CTB”). Regulations limit the amount of dividends that may be paid by CTB without prior approval. During 2011, approximately $7.9 million plus any 2011 net profits can be paid by CTB without prior regulatory approval.
The Federal Reserve Bank adopted quantitative measures which assign risk weightings to assets and off-balance sheet items and also define and set minimum regulatory capital requirements (risk based capital ratios). All banks are required to have a minimum Tier 1 (core capital) leverage ratio of 4% of adjusted quarterly average assets, Tier 1 capital of at least 4% of risk-weighted assets, and total capital of at least 8% of risk-weighted assets. Tier 1 capital consists principally of shareholders’ equity including capital-qualifying subordinated debt but excluding unrealized gains and losses on securities available-for-sale, less goodwill and certain other intangibles. Total capital consists of Tier 1 capital plus certain debt instruments and the reserve for credit losses, subject to limitation. Failure to meet certain capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. The regulations also define well-capitalized levels of Tier 1 leverage, Tier 1, and total capital as 5%, 6%, and 10%, respectively. We had Tier 1 leverage, Tier 1, and total capital ratios above the well-capitalized levels at December 31, 2010 and 2009. We believe, as of December 31, 2010, CTBI meets all capital adequacy requirements for which it is subject to be defined as well-capitalized under the regulatory framework for prompt corrective action.
Under the current Federal Reserve Board’s regulatory framework, certain capital securities offered by wholly owned unconsolidated trust preferred entities of CTBI are included as Tier 1 regulatory capital. On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust preferred securities in the Tier 1 capital of bank holding companies (“BHCs”). Under the final rule, trust preferred securities and other restricted core capital elements are subject to stricter quantitative limits. The Board's final rule limits restricted core capital elements to 25 percent of all core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits generally may be included in Tier 2 capital. The final rule provided a five-year transition period, which ended March 31, 2009, for application of the quantitative limits. The requirement for trust preferred securities to include a call option has been eliminated, and standards for the junior subordinated debt underlying trust preferred securities eligible for Tier 1 capital treatment have been clarified. The final rule addresses supervisory concerns, competitive equity considerations, and the accounting for trust preferred securities. The final rule also strengthens the definition of regulatory capital by incorporating longstanding Board policies regarding the acceptable terms of capital instruments included in banking organizations' Tier 1 or Tier 2 capital. The final rule did not have a material impact on our regulatory ratios.
Consolidated Capital Ratios
|
Actual
|
For Capital Adequacy Purposes
|
To Be Well-Capitalized Under Prompt Corrective Action Provision
|
||||||||||||||||||||||
|
(in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
As of December 31, 2010:
|
||||||||||||||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to average assets)
|
$ | 326,896 | 10.15 | % | $ | 128,826 | 4.00 | % | $ | 161,033 | 5.00 | % | ||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
326,896 | 12.90 | 101,363 | 4.00 | 152,045 | 6.00 | ||||||||||||||||||
|
Total capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
357,147 | 14.10 | 202,637 | 8.00 | 253,296 | 10.00 | ||||||||||||||||||
|
As of December 31, 2009:
|
||||||||||||||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to average assets)
|
$ | 310,640 | 10.38 | % | $ | 119,707 | 4.00 | % | $ | 149,634 | 5.00 | % | ||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
310,640 | 12.90 | 96,322 | 4.00 | 144,484 | 6.00 | ||||||||||||||||||
|
Total capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
340,717 | 14.15 | 192,632 | 8.00 | 240,789 | 10.00 | ||||||||||||||||||
Community Trust Bank, Inc.'s Capital Ratios
|
Actual
|
For Capital Adequacy Purposes
|
To Be Well-Capitalized Under Prompt Corrective Action Provision
|
||||||||||||||||||||||
|
(in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
As of December 31, 2010:
|
||||||||||||||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to average assets)
|
$ | 298,614 | 9.58 | % | $ | 124,682 | 4.00 | % | $ | 155,853 | 5.00 | % | ||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
298,614 | 12.36 | 96,639 | 4.00 | 144,958 | 6.00 | ||||||||||||||||||
|
Total capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
328,865 | 13.62 | 193,166 | 8.00 | 241,457 | 10.00 | ||||||||||||||||||
|
As of December 31, 2009:
|
||||||||||||||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to average assets)
|
$ | 298,257 | 9.99 | % | $ | 119,422 | 4.00 | % | $ | 149,278 | 5.00 | % | ||||||||||||
|
Tier 1 capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
298,257 | 12.41 | 96,134 | 4.00 | 144,202 | 6.00 | ||||||||||||||||||
|
Total capital
|
||||||||||||||||||||||||
|
(to risk weighted assets)
|
328,334 | 13.66 | 192,289 | 8.00 | 240,362 | 10.00 | ||||||||||||||||||
22. Parent Company Financial Statements
Condensed Balance Sheets
|
(in thousands)
December 31
|
2010
|
2009
|
||||||
|
Assets:
|
||||||||
|
Cash on deposit
|
$ | 5,805 | $ | 5,949 | ||||
|
Investment in and advances to subsidiaries
|
393,400 | 374,169 | ||||||
|
Goodwill
|
4,973 | 4,973 | ||||||
|
Premises and equipment, net
|
85 | 34 | ||||||
|
Other assets
|
893 | 2,688 | ||||||
|
Total assets
|
$ | 405,156 | $ | 387,813 | ||||
|
Liabilities and shareholders’ equity:
|
||||||||
|
Long-term debt
|
$ | 61,341 | $ | 61,341 | ||||
|
Other liabilities
|
5,177 | 5,015 | ||||||
|
Total liabilities
|
66,518 | 66,356 | ||||||
|
Shareholders’ equity
|
338,638 | 321,457 | ||||||
|
Total liabilities and shareholders’ equity
|
$ | 405,156 | $ | 387,813 | ||||
Condensed Statements of Income
|
(in thousands)
Year Ended December 31
|
2010
|
2009
|
2008
|
|||||||||
|
Income:
|
||||||||||||
|
Dividends from subsidiary banks
|
$ | 34,620 | $ | 18,620 | $ | 20,620 | ||||||
|
Other income
|
34 | 24 | 41 | |||||||||
|
Total income
|
34,654 | 18,644 | 20,661 | |||||||||
|
Expenses:
|
||||||||||||
|
Interest expense
|
3,999 | 3,999 | 4,000 | |||||||||
|
Depreciation expense
|
25 | 12 | 0 | |||||||||
|
Other expenses
|
1,557 | 1,190 | 1,084 | |||||||||
|
Total expenses
|
5,581 | 5,201 | 5,084 | |||||||||
|
Income before income taxes and equity in undistributed income of subsidiaries
|
29,073 | 13,443 | 15,577 | |||||||||
|
Income tax benefit
|
(2,145 | ) | (2,002 | ) | (1,725 | ) | ||||||
|
Income before equity in undistributed income of subsidiaries
|
31,218 | 15,445 | 17,302 | |||||||||
|
Equity in undistributed income of subsidiaries
|
1,816 | 9,614 | 5,771 | |||||||||
|
Net income
|
$ | 33,034 | $ | 25,059 | $ | 23,073 | ||||||
Condensed Statements of Cash Flows
|
(in thousands)
Year Ended December 31
|
2010
|
2009
|
2008
|
|||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 33,034 | $ | 25,059 | $ | 23,073 | ||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation
|
47 | 12 | 0 | |||||||||
|
Equity in undistributed earnings of subsidiaries
|
(1,816 | ) | (9,614 | ) | (5,771 | ) | ||||||
|
Restricted stock expense
|
393 | 70 | 41 | |||||||||
|
Excess tax benefit of stock-based compensation
|
205 | 391 | 330 | |||||||||
|
Dividends on restricted stock
|
74 | 20 | 13 | |||||||||
|
Changes in:
|
||||||||||||
|
Other assets
|
1,795 | (2,432 | ) | (101 | ) | |||||||
|
Other liabilities
|
601 | 3,477 | 1,083 | |||||||||
|
Net cash provided by operating activities
|
34,333 | 16,983 | 18,668 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of premises and equipment
|
(98 | ) | (46 | ) | 0 | |||||||
|
Repayment of investments in and advances to subsidiaries
|
(411 | ) | (466 | ) | (1,158 | ) | ||||||
|
Additional investment in subsidiaries
|
(17,306 | ) | 0 | 0 | ||||||||
|
Net cash used in investing activities
|
(17,815 | ) | (512 | ) | (1,158 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Issuance of common stock
|
1,992 | 2,292 | 2,731 | |||||||||
|
Purchase of common stock
|
0 | 0 | (2,631 | ) | ||||||||
|
Vesting of restricted stock
|
(117 | ) | 0 | 0 | ||||||||
|
Excess tax benefit of stock-based compensation
|
(205 | ) | (391 | ) | (330 | ) | ||||||
|
Dividends paid
|
(18,332 | ) | (18,124 | ) | (17,402 | ) | ||||||
|
Net cash used in financing activities
|
(16,662 | ) | (16,223 | ) | (17,632 | ) | ||||||
|
Net increase (decrease) in cash and cash equivalents
|
(144 | ) | 248 | (122 | ) | |||||||
|
Cash and cash equivalents at beginning of year
|
5,949 | 5,701 | 5,823 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 5,805 | $ | 5,949 | $ | 5,701 | ||||||
23. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
Year Ended December 31
|
2010
|
2009
|
2008
|
|||||||||
|
Numerator:
|
||||||||||||
|
Net income (in thousands)
|
$ | 33,034 | $ | 25,059 | $ | 23,073 | ||||||
|
Denominator:
|
||||||||||||
|
Basic earnings per share:
|
||||||||||||
|
Weighted average shares
|
15,233,858 | 15,128,777 | 15,016,606 | |||||||||
|
Diluted earnings per share:
|
||||||||||||
|
Effect of dilutive securities - stock options
|
24,936 | 40,137 | 143,796 | |||||||||
|
Adjusted weighted average shares
|
15,258,794 | 15,168,914 | 15,160,402 | |||||||||
|
Earnings per share:
|
||||||||||||
|
Basic earnings per share
|
$ | 2.17 | $ | 1.66 | $ | 1.54 | ||||||
|
Diluted earnings per share
|
2.16 | 1.65 | 1.52 | |||||||||
At December 31, 2010, 422,972 stock options at a weighted average price of $32.36 were outstanding and were not used in the computation of diluted earnings per share because their exercise price was greater than the average market value of the common stock. At December 31, 2009, 425,974 stock options at a price of $32.37 were outstanding and were not used in the computation of diluted earnings per share because their exercise price was greater than the average market value of the common stock. At December 31, 2008, 286,324 stock options at a price of $34.42 were outstanding and were not used in the computation of diluted earnings per share because their exercise price was greater than the average market value of the common stock.
24. Accumulated Other Comprehensive Income
CTBI has elected to present the disclosure required by ASC 220, Comprehensive Income, in the consolidated Statements of Changes in Shareholders' Equity. The subtotal Comprehensive income represents total comprehensive income as defined in the statement. Reclassification adjustments, related tax effects allocated to changes in equity, and accumulated other comprehensive income as of and for the years ended December 31, were as follows:
|
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
|
Reclassification adjustment, pretax:
|
||||||||||||
|
Change in unrealized net gains (losses) arising during year
|
$ | (464 | ) | $ | 5,758 | $ | (11,461 | ) | ||||
|
Reclassification adjustment for realized (gains) and losses included in net income
|
0 | (654 | ) | 14,564 | ||||||||
|
Change in unrealized gains (losses) on securities available-for-sale
|
(464 | ) | 5,104 | 3,103 | ||||||||
|
Related tax effects:
|
||||||||||||
|
Change in unrealized net gains (losses) arising during year
|
(162 | ) | 2,015 | (4,011 | ) | |||||||
|
Reclassification adjustment for realized (gains) and losses included in net income
|
0 | (229 | ) | 5,097 | ||||||||
|
Deferred tax expense (benefit)
|
(162 | ) | 1,786 | 1,086 | ||||||||
|
Reclassification adjustment, net of tax:
|
||||||||||||
|
Change in unrealized net gains (losses) arising during year
|
(302 | ) | 3,743 | (7,450 | ) | |||||||
|
Reclassification adjustment for realized (gains) and losses included in net income
|
0 | (425 | ) | 9,467 | ||||||||
|
Change in other comprehensive income
|
$ | (302 | ) | $ | 3,318 | $ | 2,017 | |||||
Audit Committee, Board of Directors and Shareholders
Community Trust Bancorp, Inc.
Pikeville, Kentucky
We have audited Community Trust Bancorp, Inc.’s (Company) internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
As permitted, the Company excluded the operations of First National Bank of LaFollette, acquired on November 17, 2010, from the scope of management’s report on internal control over financial reporting. As such, this entity has also been excluded from the scope of our audit of internal control over financial reporting.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company and our report dated March 15, 2011, expressed an unqualified opinion thereon.
/s/ BKD, LLP
Louisville, Kentucky
March 15, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Shareholders
Community Trust Bancorp, Inc.
Pikeville, Kentucky
We have audited the accompanying consolidated balance sheets of Community Trust Bancorp, Inc. (Company) as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2010. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our audits included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the Unites States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2011, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ BKD, LLP
Louisville, Kentucky
March 15, 2011
None.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
CTBI's management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of December 31, 2010, an evaluation was carried out by CTBI’s management, with the participation of our Chief Executive Officer and the Executive Vice President/Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, management concluded that disclosure controls and procedures as of December 31, 2010 were effective in ensuring material information required to be disclosed in this annual report on Form 10-K was recorded, processed, summarized, and reported on a timely basis.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in CTBI's internal control over financial reporting that occurred during the year ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, CTBI's internal control over financial reporting.
MANAGEMENT REPORT ON INTERNAL CONTROL
We, as management of Community Trust Bancorp, Inc. and its subsidiaries (“CTBI”), are responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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·
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
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·
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
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·
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
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All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
Because of the inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, projections of the effectiveness to future periods are subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.
Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2010 based on the control criteria established in a report entitled Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that CTBI’s internal control over financial reporting is effective as of December 31, 2010.
As more fully disclosed in note 2 to the consolidated financial statements, CTBI acquired First National Bank of LaFollette (“LaFollette Bank”) on November 17, 2010. As permitted, CTBI excluded the operations of LaFollette Bank from the scope of our report on internal control over financial reporting as of December 31, 2010.
The effectiveness of CTBI’s internal control over financial reporting, excluding LaFollette Bank, as of December 31, 2010 has been audited by BKD, LLP, an independent registered public accounting firm that audited the CTBI’s consolidated financial statements included in this annual report.
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Date: March 15, 2011
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/s/ Jean R. Hale | |
| Jean R. Hale | |||
| Chairman, President and Chief Executive Officer | |||
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|
/s/ Kevin J. Stumbo | |
| Kevin J. Stumbo | |||
| Executive Vice President and Treasurer | |||
| (Principal Financial Officer) |
None
The information required by this item other than the information set forth below is omitted because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information. The required information contained in CTBI’s proxy statement is incorporated herein by reference.
Executive Officers of the Registrant
Set forth below are the executive officers of CTBI, their positions with CTBI, and the year in which they first became an executive officer or director.
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Name and Age (1)
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Positions and Offices Currently Held
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Date First Became
Director or
Executive Officer
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Principal Occupation
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Jean R. Hale; 64
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Chairman, President and CEO
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1992
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Chairman, President and CEO of Community Trust Bancorp, Inc.
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|
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Mark A. Gooch; 52
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Executive Vice President and Secretary
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1997
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President and CEO of Community Trust Bank, Inc.
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Larry W. Jones; 64
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Executive Vice President
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2000
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(2)
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Executive Vice President/ Central Kentucky Region President of Community Trust Bank, Inc.
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James B. Draughn; 51
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Executive Vice President
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2001
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Executive Vice President/Operations of Community Trust Bank, Inc.
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Kevin J. Stumbo; 50
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Executive Vice President and Treasurer
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2002
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Executive Vice President/ Controller of Community Trust Bank, Inc.
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Ricky D. Sparkman; 48
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Executive Vice President
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2002
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Executive Vice President/ South Central Region President of Community Trust Bank, Inc.
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Richard W. Newsom; 56
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Executive Vice President
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2002
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Executive Vice President/ Eastern Region President of Community Trust Bank, Inc.
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James J. Gartner; 69
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Executive Vice President
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2002
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Executive Vice President/ Chief Credit Officer of Community Trust Bank, Inc.
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Steven E. Jameson; 54
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Executive Vice President
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2004
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(3)
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Executive Vice President/ Chief Internal Audit & Risk Officer
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D. Andrew Jones; 48
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Executive Vice President
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2010
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(4)
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Executive Vice President/ Northeastern Region President of Community Trust Bank, Inc.
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Andy D. Waters; 45
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Executive Vice President
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2011
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(5)
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President and CEO of Community Trust and Investment Company
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(1)
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The ages listed for CTBI's executive officers are as of February 28, 2011.
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(2)
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Mr. Larry Jones was named Executive Vice President/Central Kentucky Region President of Community Trust Bank, Inc. in November 2010 to replace Michael Wasson who retired. Mr. Larry Jones had served as Executive Vice President/Northeastern Region President since September 2002.
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(3)
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Mr. Jameson is a non-voting member of the Executive Committee.
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(4)
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Mr. Andrew Jones replaced Mr. Larry Jones as Executive Vice President/Northeastern Region President. Mr. Andrew Jones has been employed by Community Trust Bank, Inc. since 1987. His most recent position was Senior Vice President/Senior Lender of the Ashland Market which he had held since 2002.
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(5)
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Mr. Waters has been with Community Trust and Investment Company since 2004, serving as Senior Vice President/Manager of Trust and Estate Services prior to becoming President and CEO effective January 1, 2011. Mr. Waters replaced Tracy Little who retired effective December 31, 2010.
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The information required by this item is omitted because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information. The required information contained in CTBI’s proxy statement is incorporated herein by reference.
The information required by this item other than the information provided below is omitted because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information. The required information contained in CTBI’s proxy statement is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010, with respect to compensation plans under which common shares of CTBI are authorized for issuance to officers or employees in exchange for consideration in the form of services provided to CTBI and/or its subsidiaries. We currently maintain one active and one inactive incentive stock option plans covering key employees. The 2006 Stock Ownership Incentive Plan (“2006 Plan”) was approved by the Board of Directors and the Shareholders in 2006. The 1998 Stock Option Plan (“1998 Plan”) was approved by the Board of Directors and the Shareholders in 1998. The 1998 Plan was rendered inactive as of April 26, 2006. The 2006 Plan had 1,500,000 shares authorized, 1,265,567 of which were available at December 31, 2010 for future grants. In addition, any shares reserved for issuance under the 1998 Stock Option Plan (“1998 Plan”) in excess of the number of shares as to which options or other benefits are awarded thereunder, plus any shares as to which options or other benefits granted under the 1998 Plan may lapse, expire, terminate or be canceled, shall also be reserved and available for issuance or reissuance under the 2006 Plan. As of December 31, 2010, the 1998 Plan had 1,046,831 shares authorized, 155,211 of which were transferred to the 2006 Plan. The total shares available for issuance under the 2006 Plan as of December 31, 2010 was 1,420,778.
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A
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B
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C
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||
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Plan Category
(shares in thousands)
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Number of Common Shares to be Issued Upon Exercise/Vesting
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Weighted Average Price
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Number of Securities Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in Column A)
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Equity compensation plans approved by shareholders:
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|||
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Stock options
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548
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$29.50
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1,421
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Restricted stock
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53
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26.11
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||
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Equity compensation plans not approved by shareholders
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||||
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Total
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1,421
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|||
Additional information regarding CTBI’s stock option plans can be found in notes 1 and 15 to the consolidated financial statements.
The information required by this item is omitted because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information. The required information contained in CTBI’s proxy statement is incorporated herein by reference.
The information required by this item is omitted because CTBI is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report which includes the required information. The required information contained in CTBI’s proxy statement is incorporated herein by reference.
(a) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules
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Exhibit No.
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Description of Exhibits
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3.1
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Articles of Incorporation and all amendments thereto {incorporated by reference to registration statement no. 33-35138}
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3.2
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By-laws of CTBI as amended July 25, 1995 {incorporated by reference to registration statement no. 33-61891}
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3.3
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By-laws of CTBI as amended January 29, 2008 {incorporated by reference to current report on Form 8-K filed January 30, 2008}
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10.1
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Community Trust Bancorp, Inc. Employee Stock Ownership Plan (effective January 1, 2007) {incorporated herein by reference to Form 10-K for the fiscal year ended December 31, 2006 under SEC file no. 000-111-29}
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10.2
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Community Trust Bancorp, Inc. Savings and Employee Stock Ownership Plan (Amendment Number One effective January 1, 2002, Amendment Number Two effective January 1, 2004, Amendment Number Three effective March 28, 2005, and Amendment Number Four effective January 1, 2006) {incorporated herein by reference to Form 10-K for the fiscal year ended December 31, 2006 under SEC file no. 000-111-29}
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10.3
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Second restated Pikeville National Corporation 1989 Stock Option Plan (commonly known as Community Trust Bancorp, Inc. 1989 Stock Option Plan) {incorporated by reference to registration statement no. 33-36165}
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10.4
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Community Trust Bancorp, Inc. 1998 Stock Option Plan {incorporated by reference to registration statement no. 333-74217}
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10.5
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Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated by reference to Proxy Statement dated March 24, 2006}
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10.6
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Form of Severance Agreement between Community Trust Bancorp, Inc. and executive officers (currently in effect with respect to eleven executive officers) {incorporated herein by reference to Form 10-K for the fiscal year ended December 31, 2001 under SEC file no. 000-111-29}
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10.7
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Senior Management Incentive Compensation Plan (2011) {incorporated herein by reference to current report on Form 8-K dated January 25, 2011}
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10.8
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Restricted Stock Agreement {incorporated herein by reference to current report on Form 8-K dated January 29, 2008}
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|
10.9
|
Employee Incentive Compensation Plan (2011) {incorporated herein by reference to current report on Form 8-K date January 25, 2011}
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|
21
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List of subsidiaries
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23.1
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Consent of BKD, LLP, Independent Registered Public Accounting Firm
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|
31.1
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Certification of Principal Executive Officer (Jean R. Hale, Chairman, President and CEO)
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31.2
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Certification of Principal Financial Officer (Kevin J. Stumbo, Executive Vice President and Treasurer)
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32.1
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Certification of Jean R. Hale, Chairman, President and CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification of Kevin J. Stumbo, Executive Vice President and Treasurer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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(b) Exhibits
The response to this portion of Item 15 is submitted as a separate section of this report.
(c) Financial Statement Schedules
None
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf the undersigned, thereunto duly authorized.
| COMMUNITY TRUST BANCORP, INC. | |||
|
Date: March 15, 2011
|
By:
|
/s/ Jean R. Hale | |
| Jean R. Hale | |||
| Chairman, President and Chief Executive Officer | |||
|
|
|
/s/ Kevin J. Stumbo | |
| Kevin J. Stumbo | |||
| Executive Vice President and Treasurer | |||
|
(Principal Financial Officer)
|
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
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March 15, 2011
|
/s/ Jean R. Hale
|
Chairman, President, and Chief Executive Officer
|
|
Jean R. Hale
|
||
|
March 15, 2011
|
/s/ Kevin J. Stumbo
|
Executive Vice President and Treasurer
(Principal Financial Officer)
|
|
Kevin J. Stumbo
|
||
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March 15, 2011
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/s/ Charles J. Baird
|
Director
|
|
Charles J. Baird
|
||
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March 15, 2011
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/s/ Nick Carter
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Director
|
|
Nick Carter
|
||
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March 15, 2011
|
/s/ Nick A. Cooley
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Director
|
|
Nick A. Cooley
|
||
|
March 15, 2011
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/s/ James E. McGhee, II
|
Director
|
|
James E. McGhee II
|
||
|
March 15, 2011
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/s/ M. Lynn Parrish
|
Director
|
|
M. Lynn Parrish
|
||
|
March 15, 2011
|
/s/ James R. Ramsey
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Director
|
|
James R. Ramsey
|
||
|
March 15, 2011
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/s/ Anthony W. St. Charles
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Director
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|
Anthony W. St. Charles
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COMMUNITY TRUST BANCORP, INC. AND SUBSIDIARIES
|
Exhibit No.
|
Description of Exhibits
|
|
3.1
|
Articles of Incorporation for CTBI {incorporated herein by reference}
|
|
3.2
|
By-laws of CTBI as amended July 25, 1995 {incorporated herein by reference}
|
|
3.3
|
By-laws of CTBI as amended January 29, 2008 {incorporated herein by reference}
|
|
10.1
|
Community Trust Bancorp, Inc. Employee Stock Ownership Plan (effective January 1, 2007) {incorporated herein by reference}
|
|
10.2
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Community Trust Bancorp, Inc. Savings and Employee Stock Ownership Plan (Amendment Number One effective January 1, 2002, Amendment Number Two effective January 1, 2004, Amendment Number Three effective March 28, 2005, and Amendment Number Four effective January 1, 2006) {incorporated herein by reference}
|
|
10.3
|
Second restated Pikeville National Corporation 1989 Stock Option Plan (commonly known as Community Trust Bancorp, Inc. 1989 Stock Option Plan) {incorporated herein by reference}
|
|
10.4
|
Community Trust Bancorp, Inc. 1998 Stock Option Plan {incorporated herein by reference}
|
|
10.5
|
Community Trust Bancorp, Inc. 2006 Stock Ownership Incentive Plan {incorporated herein by reference}
|
|
10.6
|
Form of Severance Agreement between Community Trust Bancorp, Inc. and executive officers (currently in effect with respect to eleven executive officers) {incorporated herein by reference}
|
|
10.7
|
Senior Management Incentive Compensation Plan (2011) {incorporated herein by reference}
|
|
10.8
|
Restricted Stock Agreement {incorporated herein by reference}
|
|
10.9
|
Employee Incentive Compensation Plan (2011) {incorporated herein by reference}
|
|
21
|
List of subsidiaries
|
|
23.1
|
Consent of BKD, LLP, Independent Registered Public Accounting Firm
|
|
31.1
|
Certification of Principal Executive Officer (Jean R. Hale, Chairman, President and CEO)
|
|
31.2
|
Certification of Principal Financial Officer (Kevin J. Stumbo, Executive Vice President and Treasurer)
|
|
32.1
|
Certification of Jean R. Hale, Chairman, President and CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification of Kevin J. Stumbo, Executive Vice President and Treasurer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|