Community Trust Bancorp, Inc. Reports Second Quarter 2013 Earnings

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

Community Trust Bancorp, Inc. (NASDAQ:CTBI) reports earnings for the second quarter 2013 of $11.9 million, or $0.77 per basic share, compared to $12.2 million, or $0.79 per basic share, earned during the second quarter 2012 and $11.8 million, or $0.76 per basic share, earned during the first quarter 2013. Earnings for the six months ended June 30, 2013 were $23.8 million, or $1.53 per basic share, compared to $24.1 million, or $1.56 per basic share for the six months ended June 30, 2012.

2^nd Quarter 2013 Highlights

• CTBI's basic earnings per share for the quarter decreased $0.02 per share from the second quarter 2012 but increased $0.01 per share from the first quarter 2013. Year-to-date basic earnings per share decreased $0.03 per share from prior year.
• Net interest income for the quarter increased 3.2% from prior year second quarter and 0.4% from prior quarter as our net interest margin increased 6 basis points and decreased 3 basis points, respectively, for those time periods. Average earning assets increased 1.1% from the second quarter 2012 and remained stable from prior quarter. Net interest income for the six months ended June 30, 2013 increased 1.9% from prior year.
• Nonperforming loans at $41.6 million increased $6.3 million from June 30, 2012 and $7.7 million from March 31, 2013. Nonperforming assets at $84.7 million decreased $6.6 million from June 30, 2012 but increased $5.6 million from March 31, 2013.
• Net loan charge-offs for the quarter ended June 30, 2013 were $3.5 million, or 0.54% of average loans annualized, compared to $2.5 million, or 0.39%, experienced for the second quarter 2012 and $1.4 million, or 0.22%, for the first quarter 2013. Year-to-date net charge-offs were $4.9 million, or 0.38%, compared to $3.6 million, or 0.29%, for the six months ended June 30, 2012.
• Our loan loss provision for the quarter increased $1.2 million from prior year second quarter and $2.1 million from prior quarter. Year-to-date provision expense of $5.2 million is $1.6 million higher than 2012.

• Our loan loss reserve as a percentage of total loans outstanding remained at 1.30% from June 30, 2012 to June 30, 2013. Our reserve coverage (allowance for loan loss reserve to nonperforming loans) at June 30, 2013 was 80.8% compared to 93.8% at June 30, 2012 and 98.6% at March 31, 2013, primarily the result of one loan previously identified as impaired migrating from the 30-89 days past due category to 90+ days past due. This credit is well-secured and in the process of collection.

• Noninterest income increased 10.7% for the quarter ended June 30, 2013 compared to the same period in 2012 and 11.4% from prior quarter. Noninterest income for the six months ended June 30, 2013 increased 8.7%. The increase in noninterest income included a $0.9 million increase in bank owned life insurance income, primarily as a result of death benefits received.
• Noninterest expense for the quarter ended June 30, 2013 increased 7.6% from prior year second quarter but decreased 1.2% from prior quarter. Noninterest expense for the six months ended June 30, 2013 increased 4.8% from prior year. The increase from prior year resulted primarily from increases in personnel expense and other real estate owned expense. The decrease from prior quarter includes a $0.7 million decrease in other real estate owned expense.
• Our loan portfolio increased $37.4 million from June 30, 2012 and $21.5 million during the quarter.
• Our investment portfolio increased $58.1 million from June 30, 2012 and $9.9 million during the quarter.
• Deposits, including repurchase agreements, declined $15.7 million from June 30, 2012 and $20.2 million during the quarter.
• Our tangible common equity/tangible assets ratio remains strong at 9.35%.

Net Interest Income

Net interest income for the quarter increased $1.0 million from prior year second quarter and $0.1 million from prior quarter as our net interest margin increased 6 basis points and decreased 3 basis points, respectively. Average earning assets increased 1.1% from the second quarter 2012 and remained stable from prior quarter. The yield on average earning assets decreased 25 basis points and 5 basis points for these time periods. Loans represented 75.6% of our average earning assets for the quarter ended June 30, 2013 compared to 75.8% for the quarter ended June 30, 2012 and 75.2% for the quarter ended March 31, 2013. The cost of interest bearing funds decreased 39 basis points from prior year second quarter and 3 basis points from prior quarter. Net interest income for the six months ended June 30, 2013 increased $1.2 million from prior year with average earning assets increasing 1.7% and our net interest margin increasing 2 basis points.

Noninterest Income

Noninterest income increased 10.7% for the quarter ended June 30, 2013 compared to the same period in 2012 and 11.4% from prior quarter. Noninterest income for the six months ended June 30, 2013 increased 8.7%. The increase in noninterest income included a $0.9 million increase in bank owned life insurance as a result of death benefits received. The increase in noninterest income from prior year also included increased gains on sales of loans, trust revenue, and loan related fees offset partially by a $0.8 million decrease in securities gains. Loan related fees were impacted by a $0.4 million variance in fair value adjustments to our mortgage servicing rights.

Noninterest Expense

Noninterest expense for the second quarter 2013 increased 7.6% from prior year second quarter but decreased 1.2% from prior quarter. The increase from prior year resulted primarily from a $0.8 million increase in personnel expense, a $0.4 million increase in other real estate owned expense, and a $0.3 million increase in repossession expense. The decrease from prior quarter includes a $0.7 million decrease in other real estate owned expense. Noninterest expense for the six months ended June 30, 2013 increased 4.8% from prior year, including a $1.0 million increase in personnel expense and $1.5 million increase in other real estate owned expense.

Balance Sheet Review

CTBI’s total assets at $3.6 billion increased $2.5 million, or 0.1%, from June 30, 2012 but decreased $33.8 million, or an annualized 3.7%, during the quarter. Loans outstanding at June 30, 2013 were $2.6 billion, increasing $37.4 million, or 1.5%, from June 30, 2012 and $21.5 million, or an annualized 3.4%, during the quarter. Loan growth during the quarter of $13.7 million in the commercial loan portfolio and $11.0 in the consumer loan portfolio was partially offset by a $3.2 million decline in the residential loan portfolio. CTBI's investment portfolio increased $58.1 million, or 9.2%, from June 30, 2012 and $9.9 million, or an annualized 5.8%, during the quarter. Deposits, including repurchase agreements, at $3.1 billion decreased $15.7 million, or 0.5%, from June 30, 2012 and $20.2 million, or an annualized 2.6%, from prior quarter. Deposits in other banks declined $60.4 million during the quarter as a result of loan growth and a decline in deposits.

Shareholders’ equity at June 30, 2013 was $400.3 million compared to $387.3 million at June 30, 2012 and $406.6 million at March 31, 2013. The change in shareholders’ equity reflects a $13.9 million change in the market value of our securities portfolio driven by changes in the market rates during the second quarter of 2013. CTBI's annualized dividend yield to shareholders as of June 30, 2013 was 3.54%.

Asset Quality

CTBI's total nonperforming loans were $41.6 million at June 30, 2013, a 17.7% increase from the $35.3 million at June 30, 2012 and a 22.7% increase from the $33.9 million at March 31, 2013. The increase for the quarter included a $7.0 million increase in the 90+ days past due category and a $0.7 million increase in nonaccrual loans. Loans 30-89 days past due at $16.5 million is a decrease of $0.6 million from June 30, 2012 and $9.6 million from March 31, 2013. The increase in our 90+ days past due loans includes $7.7 million for one customer which moved from 30-89 days past due during the quarter. This credit was previously identified as impaired and is well-secured and in the process of collection. Total past due loans declined $2.6 million during the quarter. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss. Impaired loans, loans not expected to meet contractual principal and interest payments other than insignificant delays, at June 30, 2013 totaled $63.4 million, compared to $64.4 million at June 30, 2012 and $66.5 million at March 31, 2013.

Our level of foreclosed properties at $43.1 million at June 30, 2013 was a decrease from $55.9 million at June 30, 2012 and $45.2 million at March 31, 2013. Sales of foreclosed properties for the six months ended June 30, 2013 totaled $6.8 million while new foreclosed properties totaled $4.7 million. At June 30, 2013, the book value of properties under contracts to sell was $8.0 million; however, the closings had not occurred at quarter-end.

Net loan charge-offs for the quarter ended June 30, 2013 were $3.5 million, or 0.54% of average loans annualized, compared to $2.5 million, or 0.39%, experienced for the second quarter 2012 and $1.4 million, or 0.22%, for the first quarter 2013. Of the total net charge-offs for the quarter, $2.7 million were in commercial loans, $0.4 million were in indirect auto loans, and $0.3 million were in residential real estate mortgage loans. Year-to-date net charge-offs were $4.9 million, or 0.38%, compared to $3.6 million, or 0.29%, for the six months ended June 30, 2012. Allocations to loan loss reserves were $3.7 million for the quarter ended June 30, 2013 compared to $2.4 million for the quarter ended June 30, 2012 and $1.6 million for the quarter ended March 31, 2013. Our loan loss reserve as a percentage of total loans outstanding has remained at 1.30% from June 30, 2012 to June 30, 2013.

Forward-Looking Statements

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. CTBI’s actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," and "could." These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, the performance of coal and coal related industries, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various investment activities; the effects of competitors’ pricing policies, of changes in laws and regulations on competition and of demographic changes on target market populations’ savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements or cost savings at levels or within the time frames originally anticipated or unforeseen integration difficulties; the adoption by CTBI of an FFIEC policy that provides guidance on the reporting of delinquent consumer loans and the timing of associated credit charge-offs for financial institution subsidiaries; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and state regulators, whose policies and regulations could affect CTBI’s results. These statements are representative only on the date hereof, and CTBI undertakes no obligation to update any forward-looking statements made.

Community Trust Bancorp, Inc., with assets of $3.6 billion, is headquartered in Pikeville, Kentucky and has 71 banking locations across eastern, northeastern, central, and south central Kentucky, six banking locations in southern West Virginia, four banking locations in northeastern Tennessee, four trust offices across Kentucky, and one trust office in Tennessee.

Additional information follows.