Community Trust Bancorp, Inc. Reports Earnings for the Fourth Quarter and Year 2014

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

Community Trust Bancorp, Inc. (NASDAQ:CTBI) reports earnings for the fourth quarter 2014 of $10.0 million, or $0.58 per basic share, compared to $8.8 million, or $0.51 per basic share, earned during the fourth quarter 2013 and $10.9 million, or $0.63 per basic share, earned during the third quarter 2014. Net income for the quarter was adversely impacted by a $2.2 million increase in our noninterest expense. The increase in net income from prior year fourth quarter was a result of decreased noninterest expense partially offset by an increase in our provision for loan losses. Earnings for the year ended December 31, 2014 were $43.3 million, or $2.50 per basic share, compared to $45.2 million, or $2.63 per basic share earned during the year 2013. The variance from prior year is due primarily to decreased net interest income and noninterest income.

4^th Quarter 2014 Highlights

• CTBI’s basic earnings per share for the quarter increased $0.07 from prior year fourth quarter but decreased $0.05 from third quarter 2014. Basic earnings per share for the year 2014 decreased $0.13 from prior year.
• Net interest income for the quarter decreased 1.5% from prior year fourth quarter but increased 1.5% from prior quarter as our net interest margin decreased 15 basis points but increased 2 basis points, during the respective time periods. Average earning assets increased 2.4% from fourth quarter 2013 and 1.0% from prior quarter while our yield on average earning assets decreased 18 basis points but increased 1 basis point, respectively. The cost of interest bearing funds decreased 4 basis points and 1 basis point, respectively, during these time periods. Net interest income for the year ended December 31, 2014 decreased 1.9% from prior year.
• Nonperforming loans at $39.0 million decreased $4.6 million from December 31, 2013 and $9.6 million from September 30, 2014. Nonperforming assets at $75.8 million decreased $6.9 million from December 31, 2013 and $5.5 million from September 30, 2014.
• Net loan charge-offs for the quarter ended December 31, 2014 were $3.0 million, or 0.44% of average loans annualized, compared to $1.2 million, or 0.19%, experienced for the fourth quarter 2013 and $2.8 million, or 0.42%, for the third quarter 2014. Net charge-offs for the year 2014 increased to 0.31% of average loans from 0.30% for the year 2013.
• Our loan loss provision for the quarter increased $2.2 million from prior year fourth quarter and $0.1 million from prior quarter. Provision for the year 2014 increased $0.2 million. The increase in our provision was due to an increase in net charge-offs and loan portfolio growth.

• Noninterest income for the quarter ended December 31, 2014 remained flat to the same period in 2013 but increased 0.3% from prior quarter. Increased gains on sales of loans for the quarter was offset by decreases in deposit service charges and loan related fees. Noninterest income for the year 2014 decreased 8.6% from prior year. The decrease from prior year was primarily attributable to a decrease in gains on sales of loans, a decline in deposit service charges, a decline in loan related fees resulting from the fluctuation in the fair value of our mortgage servicing rights, and a decline in other noninterest income due to the prior year death benefits received in bank owned life insurance.
• Noninterest expense for the quarter ended December 31, 2014 decreased 13.5% from prior year fourth quarter but increased 8.3% from prior quarter. The quarterly increase was primarily the result of increased personnel expense, net other real estate owned expense, and repossession expense, along with an accrual for anticipated customer refunds. Noninterest expense for the year 2014 decreased 3.9% from prior year. The decrease from prior year is a result of the accrual booked in the fourth quarter 2013 related to the Federal Reserve determination which was disclosed in our annual report on Form 10-K for the year ended December 31, 2013.
• Our loan portfolio increased $118.5 million from December 31, 2013 and $49.9 million during the quarter.
• Our investment portfolio increased $30.8 million from December 31, 2013 and $6.6 million during the quarter.
• Deposits, including repurchase agreements, increased $46.3 million from December 31, 2013 but decreased $12.8 million during the quarter. Additional funding for loan growth was provided through an increase in FHLB borrowings of $60 million during the quarter.
• Our tangible common equity/tangible assets ratio increased to 10.44% at December 31, 2014.

Net Interest Income

Net interest income for the quarter decreased $0.5 million, or 1.5%, from prior year fourth quarter but increased $0.5 million, or 1.5%, from prior quarter as our net interest margin decreased 15 basis points but increased 2 basis points, respectively. Average earning assets increased 2.4% from fourth quarter 2013 and 1.0% from prior quarter while our yield on average earning assets decreased 18 basis points but increased 1 basis point, respectively. The cost of interest bearing funds decreased 4 basis points and 1 basis point, respectively, during these time periods. Our average loans to deposits, including repurchase agreements, for the quarter ended December 31, 2014 were 86.1% compared to 83.6% for the quarter ended December 31, 2013 and 84.9% for the quarter ended September 30, 2014. Net interest income for the year ended December 31, 2014 decreased $2.6 million, or 1.9%, from prior year.

Noninterest Income

Noninterest income for the quarter ended December 31, 2014 remained flat to the same period in 2013 but increased 0.3% from prior quarter. Increased gains on sales of loans of $0.4 million for the quarter was offset by a $0.2 million decrease in deposit service charges and a $0.2 million decrease in loan related fees. For the quarter, brokerage fees increased $0.2 million, while trust revenue declined $0.1 million. Noninterest income for the year 2014 decreased $4.2 million, or 8.6%, from prior year. The decrease from prior year was primarily attributable to a $1.6 million decrease in gains on sales of loans, a $0.8 million decline in deposit service charges, a $1.2 million decline in loan related fees resulting from the fluctuation in the fair value of our mortgage servicing rights, and a decline in other noninterest income due to the prior year death benefits received in bank owned life insurance of $0.9 million. The decrease in gains on sales of loans from prior year was reflective of the decline in secondary market residential real estate mortgage activity, and the decrease in deposit service charges from prior year was a result of the change in our processing of overdrafts. Trust revenue for the year increased $0.8 million.

Noninterest Expense

Noninterest expense for the quarter ended December 31, 2014 decreased 13.5% from prior year fourth quarter but increased 8.3% from prior quarter. The quarterly increase was primarily the result of a $0.9 million increase in personnel expense, with increases in group medical insurance, bonuses, and other employee benefits, and increased other noninterest expense including a $0.5 million increase in net other real estate owned and repossession expenses and a $0.5 million accrual for anticipated customer refunds. Noninterest expense for the year 2014 decreased 3.9% from prior year. The decrease from prior year is a result of the $6.2 million accrual booked in the fourth quarter 2013 related to the Federal Reserve determination which was disclosed in our annual report on Form 10-K for the year ended December 31, 2013. Adjustments totaling $0.8 million to reduce the accrual were booked during 2014 following the resolution of this matter.

Balance Sheet Review

CTBI’s total assets at $3.7 billion increased $142.0 million, or 4.0%, from December 31, 2013 and $53.7 million, or an annualized 5.8%, during the quarter. Loans outstanding at December 31, 2014 were $2.7 billion, increasing $118.5 million, or 4.5%, from December 31, 2013 and $49.9 million, or an annualized 7.4%, during the quarter. We experienced growth during the quarter in all loan portfolios. The commercial loan portfolio increased $24.2 million, the indirect loan portfolio increased $15.5 million, the residential loan portfolio increased $9.5 million, and the consumer direct loan portfolio increased $0.8 million. CTBI’s investment portfolio increased $30.8 million, or 5.0%, from December 31, 2013 and $6.6 million, or an annualized 4.1%, during the quarter. Deposits, including repurchase agreements, at $3.1 billion increased $46.3 million, or 1.5%, from December 31, 2013 but declined $12.8 million, or an annualized 1.6%, from prior quarter. Additional funding for loan growth was provided through an increase in FHLB borrowings of $60 million during the quarter.

Shareholders’ equity at December 31, 2014 was $447.9 million compared to $412.5 million at December 31, 2013 and $438.2 million at September 30, 2014. CTBI’s annualized dividend yield to shareholders as of December 31, 2014 was 3.28%.

Asset Quality

CTBI’s total nonperforming loans were $39.0 million at December 31, 2014, a 10.6% decrease from the $43.6 million at December 31, 2013 and a 19.8% decrease from the $48.6 million at September 30, 2014. Nonaccrual loans decreased $8.0 million for the quarter and loans 90+ days past due decreased $1.6 million. Loans 30-89 days past due at $15.2 million was a decrease of $5.7 million from September 30, 2014. 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 December 31, 2014 totaled $59.1 million, a $6.2 million decline from the $65.3 million at December 31, 2013 and a $7.8 million decline from the $66.9 million at September 30, 2014.

Our level of foreclosed properties at $36.8 million at December 31, 2014 was a decrease from $39.2 million at December 31, 2013 but increased from the $32.7 million at September 30, 2014. Sales of foreclosed properties for the quarter ended December 31, 2014 totaled $2.6 million while new foreclosed properties totaled $6.9 million. Included in new foreclosed properties was $4.6 million in income producing commercial real estate which was put on nonaccrual in the first quarter 2014. At December 31, 2014, the book value of properties under contracts to sell was $2.0 million; however, the closings had not occurred at quarter-end.

Net loan charge-offs for the quarter ended December 31, 2014 were $3.0 million, or 0.44% of average loans annualized, compared to $1.2 million, or 0.19%, experienced for the fourth quarter 2013 and $2.8 million, or 0.42%, for the third quarter 2014. Of the net charge-offs for the quarter, $1.5 million were in commercial loans, $0.6 million were in indirect auto loans, and $0.6 million were in residential real estate mortgage loans. Net charge-offs for the year 2014 increased to $8.3 million, or 0.31% of average loans, from $7.8 million, or 0.30%, for the year 2013. Allocations to loan loss reserves were $3.4 million for the quarter ended December 31, 2014 compared to $1.2 million for the quarter ended December 31, 2013 and $3.3 million for the quarter ended September 30, 2014. Loan loss provision for the year 2014 increased $0.2 million. The increase in our provision was due to increases in net charge-offs and to fund new loan growth. Our reserve coverage (allowance for loan and lease loss reserve to nonperforming loans) at December 31, 2014 was 88.4% compared to 78.1% at December 31, 2013 and 70.2% at September 30, 2014. Our loan loss reserve as a percentage of total loans outstanding decreased to 1.26% from the 1.30% at December 31, 2013 and 1.27% at September 30, 2014.

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 $3.7 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.