<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-11129
COMMUNITY TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)
KENTUCKY 61-0979818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
208 NORTH MAYO TRAIL
PIKEVILLE, KENTUCKY 41501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 432-1414
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $5.00 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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.[ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 28, 1997 was $250,343,000. The number of shares
outstanding of the Registrant's Common Stock as of February 28, 1997 was
9,144,950. For the purpose of the foregoing calculation only, all directors and
executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
Form 10-K part indicated
Document Form 10-K
-------- ---------
(1) Proxy statement for the annual meeting Part III
of shareholders to be held April 22, 1997
<PAGE>
PART I
ITEM 1. BUSINESS
Community Trust Bancorp, Inc. (the "Corporation") 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. The
Corporation was incorporated August 12, 1980, under the laws of the Commonwealth
of Kentucky for the purpose of becoming a bank holding company. On July 1,
1981, pursuant to a Merger Agreement dated May 30, 1981, the merger of Pikeville
National Bank and Trust Company ("PNB") as a subsidiary of the Corporation was
consummated, whereby PNB became a wholly-owned subsidiary of the Corporation
through an exchange of one share of common stock of PNB for two shares of common
stock of the Corporation. Prior to the date the merger became effective, the
Corporation conducted no active business operations. Since the merger, the
business of the Corporation has been to act as a holding company for affiliate
financial institutions. The Corporation currently owns all the capital stock of
two commercial banks, one thrift and one trust company, serving small and
mid-sized communities in eastern, central and south central Kentucky. The
commercial banks are Community Trust Bank, NA, Pikeville and Commercial Bank,
West Liberty. The Corporation's thrift is Community Trust Bank, FSB,
Campbellsville. The trust company, Trust Company of Kentucky, Ashland,
purchased the trust operations of its subsidiary banks and has additional
offices in Pikeville, Lexington and Louisville, Kentucky. The trust subsidiary
commenced business operations on January 1, 1994. At December 31, 1996, the
Corporation had total consolidated assets of $1.8 billion and total consolidated
deposits of $1.5 billion, making it one of the larger bank holding companies
headquartered in the Commonwealth of Kentucky.
Effective January 1, 1997, the Corporation changed its name from Pikeville
National Corporation to Community Trust Bancorp, Inc., changed the name of its
lead bank from Pikeville National Bank and Trust Company to Community Trust
Bank, National Association (the "Bank") and merged seven of its other commercial
bank subsidiaries into the Bank. As a result of these transactions, the Bank
has $1.5 billion in assets and forty-two offices in twelve Kentucky counties.
The Corporation's thrift and trust subsidiaries, Community Trust Bank, FSB and
Trust Company of Kentucky, remain subsidiaries of the Corporation and will
continue to operate as independent entities.
The Corporation excluded its subsidiary Commercial Bank, West Liberty,
Kentucky ("West Liberty") from the merger of its commercial bank subsidiaries
into the Bank. The Corporation has entered into a definitive agreement, subject
to regulatory approval, to sell West Liberty to Commercial Bancshares, Inc., of
West Liberty, Kentucky for cash of $10.2 million. West Liberty has $73 million
in assets, constituting 4% of the Corporation's total consolidated assets.
Consistent with the Corporation's strategic plan, the funds generated by the
sale of West Liberty will provide the Corporation with the opportunity to expand
in existing or enter into new markets through either internal expansion or
acquisitions.
On February 2, 1995, the Corporation acquired all outstanding shares of
Community Bank of Lexington, Inc., Lexington, Kentucky ("Community Bank") with
assets of $61 million. The Corporation issued 366,000 shares of common stock
with a market price of $24 per share in the acquisition. The transaction was
accounted for as a purchase with $6.3 million of goodwill recognized. The
offices of Community Bank became branches of the Bank on March 31, 1995.
On May 31, 1995, the Corporation acquired Woodford Bancorp, Inc.,
Versailles, Kentucky ("Woodford") with assets of $103 million for 967,000 shares
of its common stock. Woodford was the parent company of The Woodford Bank and
Trust Company until its dissolution at the date of acquisition. The transaction
was accounted for as a pooling-of-interests, and all prior period financial
information was restated to give effect to the transaction.
On June 30, 1995, the Corporation acquired Commercial Bank, Middlesboro,
Kentucky ("Middlesboro") with assets of $99 million for $14.4 million in cash.
The transaction was accounted for as a purchase, and goodwill of $4.3 million
was recognized. Funds of $13.5 million were borrowed in connection with the
acquisition.
On November 3, 1995, the Corporation acquired United Whitley Corporation,
Williamsburg, Kentucky ("Williamsburg"), and its subsidiary, Bank of
Williamsburg, with assets of $37 million for 172,000 shares of its common stock.
The transaction was accounted for as a pooling but without restatement of prior
period financial statements due to lack of materiality. Bank of Williamsburg
was merged into Farmers National Bank (now merged into the Bank) and United
Whitley Corporation was dissolved on the date of acquisition. Through the
merger transaction, the Corporation was able to move the bank charter of the
merged institution to adjacent Laurel County and now has a branch in London,
Kentucky.
Through its subsidiaries, the Corporation engages in a wide range of
commercial and personal banking 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 the Corporation's
subsidiaries include making commercial, construction, mortgage,
2
<PAGE>
personal and credit card loans. Also available are lease financing, lines of
credit, revolving credits, term loans and other specialized loans including
asset-based financing. Various 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 and as depositories for securities.
COMPETITION
The Corporation's subsidiaries face substantial competition for deposit,
credit and trust relationships, as well as other sources of funding in the
communities they serve. Competing providers include other national and state
banks, thrifts and trust companies, insurance companies, mortgage banking
operations, credit unions, finance companies, money market funds and other
financial and non-financial companies which may offer products functionally
equivalent to those offered by the Corporation's subsidiaries. Many of these
providers offer services within and outside the market areas served by the
Corporation's subsidiaries. The Corporation's subsidiaries strive to offer
competitively priced products along with quality customer service to build
banking relationships in the communities they serve.
Since July 1989, banking legislation in Kentucky places no limits on the
number of banks or bank holding companies which a bank holding company may
acquire. Interstate acquisitions are allowed where reciprocity exists between
the laws of Kentucky and the home state of the acquiring bank holding company.
Bank holding companies continue to be limited to control of less than 15% of
deposits held by banks in the state (exclusive of inter-bank and foreign
deposits).
No material portion of the business of the Corporation is seasonal. The
business of the Corporation is not dependent upon any one customer or a few
customers, and the loss of any one or a few customers would not have a
materially adverse effect on the Corporation.
No operations in foreign countries are engaged in by the Corporation.
EMPLOYEES
As of December 31, 1996, the Corporation and its subsidiaries had 792
full-time equivalent employees. Employees are provided with a variety of
employee benefits. A retirement plan, employee stock ownership plan, group
life, hospitalization, major medical insurance and an annual management
incentive compensation plan are available to eligible personnel.
SUPERVISION AND REGULATION
The Corporation, as a registered bank holding company, is restricted to
those activities permissible under the Bank Holding Company Act of 1956, as
amended, and is subject to actions of the Board of Governors of the Federal
Reserve System thereunder. It is required to file an annual report with the
Federal Reserve Board and is subject to an annual examination by the Board.
The Bank is a national bank subsidiary subject to federal banking law and
to regulation and periodic examinations by the Comptroller of the Currency under
the National Bank Act and to the restrictions, including dividend restrictions,
thereunder. The 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. The Corporation's state bank, West Liberty is
subject to similar regulations and supervision by the Kentucky Department of
Financial Institutions ("KDFI"). The Corporation's thrift subsidiary, Community
Trust Bank, FSB, is regulated and examined by the Office of Thrift Supervision.
The trust company subsidiary, Trust Company of Kentucky, is regulated by the
Federal Reserve Board and the Office of the Comptroller of the Currency.
Deposits of the Corporation's subsidiary banks are insured by the Federal
Deposit Insurance Corporation Bank Insurance Fund, which subjects the banks to
regulation and examination under the provisions of the Federal Deposit Insurance
Act. Insofar as the Corporation's thrift subsidiary is concerned, its deposits
are insured by the Federal Deposit Insurance Corporation Savings Association
Insurance Fund.
The operations of the Corporation and its subsidiaries also are 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 which may be offered.
3
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CAUTIONARY STATEMENT
Information provided herein by the Corporation contains, and from time to
time the Corporation may disseminate materials and make statements which may
contain "forward-looking" information, as that term is defined by the Private
Securities Litigation Reform Act of 1995 (the "Act"). These cautionary
statements are being made pursuant to the provisions of the Act and with the
intention of obtaining the benefits of the "safe harbor" provisions of the Act.
The Corporation cautions investors that any forward-looking statements made by
the Corporation are not guarantees of future performance and that actual results
may differ materially from those in the forward-looking statements as a result
of various factors, including but not limited to, the following: (1) the
increase or decrease of interest rates as a whole (2) the condition of the
national and local economies of the communities served, including unemployment
rates (3) the ability of the company to improve operating efficiency through
consolidation of service and economies of scale and (4) any regulatory or law
changes which may affect the operating environment of the Corporation or any of
its affiliates.
4
<PAGE>
SELECTED STATISTICAL INFORMATION
The following tables set forth certain statistical information relating to
the Corporation and its subsidiaries on a consolidated basis and should be read
together with the consolidated financial statements of the Corporation.
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND YIELDS/RATES
- ------------------------------------------------------------------------------------------
1996 1995 1994
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Average Average Average Average Average Average
(in thousands) Balances Interest Rate Balances Interest Rate Balances Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans, net of unearned (1) (2) (3) $1,215,243 $119,370 9.82% $1,021,637 $101,511 9.94% $ 872,045 $ 78,911 9.05%
Securities
U. S. Treasuries and agencies 277,641 17,641 6.35 301,263 19,123 6.35 316,552 18,794 5.94
State & political subdivisions (3) 57,652 4,568 7.92 55,263 4,668 8.45 52,344 4,692 8.96
Other securities 72,610 4,655 6.41 78,510 5,011 6.38 73,951 4,370 5.91
Federal funds sold 8,490 483 5.69 50,398 3,057 6.07 47,488 1,996 4.20
Interest bearing deposits 896 56 6.25 1,469 112 7.62 3,370 207 6.14
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets $1,632,532 $146,773 8.99% $1,508,540 $133,482 8.86% $1,365,750 $108,970 7.98%
Less:
Allowance for loan losses (17,637) (15,336) (13,444)
- -----------------------------------------------------------------------------------------------------------------------------------
1,614,895 1,493,204 1,352,306
NON-EARNING ASSETS
Cash and due from banks 54,120 50,846 45,173
Premises and equipment, net 46,460 43,725 38,403
Other assets 46,534 43,148 34,748
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,762,009 $1,630,923 $1,470,630
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- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES
Deposits
Savings and demand deposits $ 422,158 $ 12,722 3.01% $ 386,956 $ 12,166 3.14% $ 392,784 $ 11,446 2.91%
Time deposits 861,566 47,854 5.55 804,884 44,507 5.53 671,863 28,443 4.23
Federal funds purchased and securities
sold under repurchase agreements 25,363 1,258 4.96 25,934 1,435 5.53 30,208 1,234 4.09
Other short-term borrowings 17 1 5.88 1,443 78 5.41 2,935 90 3.07
Advances from Federal Home Loan Bank 90,666 5,356 5.91 71,917 4,506 6.27 68,022 4,132 6.07
Long-term debt 22,795 1,901 8.34 27,328 2,300 8.42 26,739 2,025 7.57
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $1,422,565 $ 69,092 4.86% $1,318,462 $ 64,992 4.93% $1,192,551 $ 47,370 3.97%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST BEARING LIABILITIES
Demand deposits 184,071 168,108 151,897
Other liabilities 16,448 13,573 10,017
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Total liabilities 1,623,084 1,500,143 1,354,465
Shareholders' equity 138,925 130,780 116,165
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Total liabilities and
shareholders' equity $1,762,009 $1,630,923 $1,470,630
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Net interest income $ 77,681 $ 68,490 $ 61,600
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Net interest spread 4.13% 3.93% 4.01%
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Benefit of interest free funding 0.63% 0.61% 0.50%
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Net interest margin 4.76% 4.54% 4.51%
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</TABLE>
(1) Interest includes fees on loans of $4,289, $3,203 and $2,300 in 1996, 1995
and 1994, respectively.
(2) Loan balances 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.
5
<PAGE>
NET INTEREST DIFFERENTIAL
The following table illustrates the approximate effect on net interest
differentials of volume and rate changes between 1996 and 1995 and also between
1995 and 1994.
<TABLE>
<CAPTION>
Total Change Change Due to Total Change Change Due to
------------ ------------- ------------ -------------
(in thousands) 1996/1995 Volume Rate 1995/1994 Volume Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $17,859 $19,030 $(1,171) $ 22,600 $14,380 $ 8,220
U. S. Treasury and federal agencies (1,482) (1,482) 0 329 (931) 1,260
Tax exempt state and political subdivisions (100) 197 (297) (24) 255 (279)
Other securities (356) (379) 23 641 278 363
Federal funds sold (2,574) (2,395) (179) 1,061 130 931
Interest bearing deposits (56) (39) (17) (95) (137) 42
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 13,291 14,932 (1,641) 24,512 13,975 10,537
INTEREST EXPENSE
Savings and demand deposits 556 1,075 (519) 720 (171) 891
Time deposits 3,347 3,146 201 16,064 6,309 9,755
Federal funds purchased and securities
sold under repurchase agreements (177) (31) (146) 201 (192) 393
Other short-term borrowings (77) (119) 42 (12) (60) 48
Advances from Federal Home Loan Bank 850 1,120 (270) 374 241 133
Long-term debt (399) (378) (21) 275 46 229
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 4,100 4,813 (713) 17,622 6,173 11,449
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $ 9,191 $10,119 $ (928) $ 6,890 $7,802 $ (912)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of the above table, changes which are not solely due to rate
or 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, 1996 is as follows:
<TABLE>
<CAPTION>
Estimated Maturity at December 31, 1996
Total Amortized
Within 1 year 1-5 years 5-10 years After 10 years Fair Value Cost
(in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
U. S. Treasury $ 16,205 6.23% $ 21,186 6.39% $ 0 0.00% $ 0 0.00% $ 37,391 6.28% $ 37,139
U. S. government agencies
and corporations 10,874 6.99 105,501 7.06 10,228 6.60 7,314 10.41 133,917 7.20 134,217
State and municipal obligations 0 0.00 15 7.57 0 0.00 0 0.00 15 7.57 15
Other securities 27,656 5.97 5,561 6.62 11,968 6.44 13,444 6.73 58,629 6.30 59,562
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Total $ 54,735 6.25% $132,263 6.93% $ 22,196 6.51% $ 20,758 8.03% $229,952 6.82% $230,933
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Total Fair
Within 1 year 1-5 years 5-10 years After 10 years Amortized Cost Value
(in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount
- ----------------------------------------------------------------------------------------------------------------------------------
Held-to-maturity
U. S. government agencies
and corporations $ 3,414 4.67% $ 57,160 5.82% $ 11,498 4.53% $ 0 0.00% $ 72,072 5.56% $ 69,495
State and municipal obligations 1,241 9.00 20,211 7.28 21,058 7.08 11,581 8.93 54,091 7.59 54,563
Other securities 0 0.00 11,570 5.86 0 0.00 0 0.00 11,570 5.86 11,325
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Total $ 4,655 5.82% $ 88,941 6.16% $ 32,556 6.18% $ 11,581 8.93% $137,733 6.38% 135,383
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Total Securities $ 59,390 6.22% $221,204 6.62% $ 54,752 6.32% $ 32,339 8.35% $367,685 6.66%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The calculations of the weighted average interest rates for each maturity
category are based on 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. For purposes of the above
presentation, maturities of mortgage-backed pass through certificates and
collateralized mortgage obligations are based on estimated maturities.
6
<PAGE>
Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies of the U.S. Government, there were no securities
of any one issuer which exceeded 10% of the shareholder's equity of the
Corporation at December 31, 1996.
SECURITIES
The book value of securities available-for-sale and securities
held-to-maturity as of December 31, 1996 and 1995 are presented in footnote 4.
The book value of securities at December 31, 1994 is presented below:
(in thousands) Available-for-sale Held-to-maturity
- --------------------------------------------------------------------------------
U. S. Treasury and government agencies $ 34,431 $ 87,808
State and political subdivisions - 55,509
U. S. agency mortgage-backed pass
through certificates 14,267 176,920
Collateralized mortgage obligations 2,696 35,750
Other debt securities 5,100 7,559
- --------------------------------------------------------------------------------
Total debt securities 56,494 363,546
Equity securities 30,921 -
- --------------------------------------------------------------------------------
$ 87,415 $ 363,546
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LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial:
Secured by real estate $ 270,315 $ 258,541 $ 235,611 $ 210,514 $ 221,646
Other 234,793 192,127 183,533 196,296 175,850
- ------------------------------------------------------------------------------------------------------
Total commercial 505,108 450,668 419,144 406,810 397,496
- ------------------------------------------------------------------------------------------------------
Real estate construction 79,069 51,539 45,308 34,241 26,058
Real estate mortgage 411,067 398,288 290,998 274,017 291,318
Consumer 310,582 208,662 143,085 128,995 124,569
Equipment lease financing 3,797 5,911 7,919 9,872 14,130
- ------------------------------------------------------------------------------------------------------
Total loans $1,309,623 $1,115,068 $ 906,454 $ 853,935 $ 853,661
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Percent of total year-end loans
Commercial:
Secured by real estate 20.64% 23.19% 25.99% 24.65% 25.96%
Other 17.93 17.23 20.25 22.99 20.60
- ------------------------------------------------------------------------------------------------------
Total commercial 38.57 40.42 46.24 47.64 46.56
Real estate construction 6.04 4.62 5.00 4.01 3.05
Real estate mortgage 31.39 35.72 32.10 32.09 34.13
Consumer 23.71 18.71 15.79 15.10 14.60
Equipment lease financing 0.29 0.53 0.87 1.16 1.66
- ------------------------------------------------------------------------------------------------------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
The total loans above are net of unearned income.
7
<PAGE>
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).
<TABLE>
<CAPTION>
Maturity at December 31, 1996
- -----------------------------------------------------------------------------------------
After one
Within but within After
(in thousands) one year five years five years Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $138,073 $164,337 $202,698 $505,108
Real estate- construction 24,097 28,664 26,308 79,069
- -----------------------------------------------------------------------------------------
$162,170 $193,001 $229,006 $584,177
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Rate sensitivity
Predetermined rate $ 38,819 $ 59,547 $ 47,059 $145,425
Adjustable rate 123,351 133,454 181,947 438,752
- -----------------------------------------------------------------------------------------
$162,170 $193,001 $229,006 $584,177
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<CAPTION>
NONPERFORMING ASSETS
December 31
- ------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $10,156 $ 9,433 $ 8,829 $11,186 $ 5,417
Restructured loans 630 918 - - 4,022
90 days or past due and still accruing
interest 5,800 3,947 3,401 3,637 4,875
- ------------------------------------------------------------------------------------------------------
Total nonperforming loans 16,586 14,298 12,230 14,823 14,314
Foreclosed properties 1,059 1,927 4,320 3,635 7,061
- ------------------------------------------------------------------------------------------------------
Total nonperforming assets $17,645 $16,225 $16,550 $18,458 $21,375
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Nonperforming assets to total loans
plus foreclosed properties 1.35% 1.45% 1.83% 2.18% 2.51%
Allowance to nonperforming loans 113.50 112.47 106.12 90.04 95.96
</TABLE>
Nonaccrual, past due and restructured loans
<TABLE>
<CAPTION>
As a % of As a % of As a % of
loan loan Accruing loans loan
Nonaccrual balances Restructured balances past due 90 balances
(in thousands) loans by category loans by category days or more by category Balances
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996
Commercial loans-real estate secured $ 4,817 1.78% $ 409 0.15% $ 1,266 0.47% $ 270,315
Commercial loans- other 3,217 1.35 221 0.09 1,398 0.59 238,590
Consumer loans- real estate secured 1,690 0.34 - - 2,225 0.45 490,136
Consumer loans- other 432 0.14 - - 911 0.29 310,582
- --------------------------------------------------------------------------------------------------------------------------------
Total $10,156 0.78% $ 630 0.05% $ 5,800 0.44% $1,309,623
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1995
Commercial loans- real estate secured $3,264 1.26% $ 918 0.36% $1,428 0.55% $ 258,541
Commercial loans- other 3,048 1.54% - - 237 0.12 198,038
Consumer loans- real estate secured 2,873 0.64% - - 1,335 0.30 449,827
Consumer loans- other 248 0.12% - - 947 0.45 208,662
- --------------------------------------------------------------------------------------------------------------------------------
Total $9,433 0.85% $ 918 0.08% $3,947 0.35% $1,115,068
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The allowance for loan losses balance is maintained by management at a
level considered adequate to cover anticipated losses that are 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.
In 1996, gross interest income that would have been recorded on nonaccrual
loans had the loans been current in accordance with their original terms
amounted to $1.1 million. Interest income actually recorded and included in net
income for the period was $0.3 million, leaving $0.8 million of interest income
not recognized during the period.
8
<PAGE>
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. 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
When management has serious doubts as to the ability of borrowers to comply
with repayment terms, the loans are placed on nonaccrual status. Management,
therefore, believes that no additional potential problem loans exist which would
result in disclosure pursuant to Item III.C.1.
Foreign Outstandings
None
Loan Concentrations
The Corporation has no concentration of loans exceeding 10% of total loans
which is not otherwise disclosed at December 31, 1996.
Other Interest-Bearing Assets
The Corporation has no other interest-bearing assets that would be required
to be disclosed under Item III.C.1 or 2, if such assets were loans, other than
$0.3 million held as other real estate owned, included above in foreclosed
properties.
9
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of year $ 16,082 $ 12,978 $ 13,346 $ 13,736 $ 11,530
Loans charged off:
Commercial, secured by real estate 378 1,278 1,442 1,538 1,831
Commercial, other 1,136 1,646 3,902 2,140 2,210
Real Estate Mortgage 880 514 407 598 1,005
Consumer loans 4,594 2,594 1,786 1,606 1,377
- ---------------------------------------------------------------------------------------------------------------------
Total charge-offs 6,988 6,032 7,537 5,882 6,423
Recoveries of loans previously charged off:
Commercial, secured by real estate 174 159 12 147 152
Commercial, other 609 331 395 333 503
Real Estate Mortgage 312 44 66 58 135
Consumer loans 1,351 740 630 512 528
- ---------------------------------------------------------------------------------------------------------------------
Total recoveries 2,446 1,274 1,103 1,050 1,318
Net charge-offs:
Commercial, secured by real estate 204 1,119 1,430 1,391 1,679
Commercial, other 527 1,315 3,507 1,807 1,707
Real Estate Mortgage 568 470 341 540 870
Consumer loans 3,243 1,854 1,156 1,094 849
- ---------------------------------------------------------------------------------------------------------------------
Total net charge-offs 4,542 4,758 6,434 4,832 5,105
Allowance of acquired banks 0 2,004 0 0 0
Provisions charged against operations 7,285 5,858 6,066 4,442 7,311
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 18,825 $ 16,082 $ 12,978 $ 13,346 $ 13,736
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Allocation of allowance, end of year
Commercial, secured by real estate $ 3,305 $ 3,095 $ 3,649 $ 2,650 $ 2,812
Commercial, other 2,870 2,300 2,349 1,921 2,130
Real Estate Construction 152 135 93 57 186
Real Estate Mortgage 790 1,044 905 1,659 1,945
Consumer 2,248 1,574 1,291 1,271 1,475
Equipment lease financing 46 71 108 91 147
Unallocated 9,414 7,863 4,583 5,697 5,041
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 18,825 $ 16,082 $ 12,978 $ 13,346 $ 13,736
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Average loans outstanding, net of
unearned interest $ 1,215,243 $ 1,021,637 $ 872,045 $ 849,202 $ 857,532
Loans outstanding at end of year, net of
unearned interest $ 1,309,623 $ 1,115,068 $ 906,454 $ 853,935 $ 853,661
Net charge-offs to average loan type
Commercial, secured by real estate 0.08% 0.39% 0.60% 0.59% 0.95%
Commercial, other 0.24% 0.66% 0.94% 0.96% 0.80%
Real Estate Mortgage 0.12% 0.13% 0.13% 0.18% 0.41%
Consumer loans 1.27% 1.02% 0.78% 0.62% 0.57%
Total 0.37% 0.47% 0.74% 0.57% 0.60%
Other ratios
Allowance to net loans, end of year 1.44% 1.44% 1.43% 1.56% 1.61%
Provision for loan losses to average loans 0.60% 0.57% 0.70% 0.82% 0.84%
</TABLE>
Management uses an internal analysis to determine the adequacy of the loan
loss reserve and charges to the provision for loan losses. This analysis is
based on net charge-off experience for prior years, current delinquency levels
and risk factors based on the local economy and relative experience of the
lending staff. This analysis is completed quarterly and forms the basis for
allocation of the loan loss reserve and what charges to provision may be
required.
10
<PAGE>
AVERAGE DEPOSITS AND OTHER BORROWED FUNDS
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
DEPOSITS:
Non-interest bearing deposits $ 184,071 $ 168,108 $ 151,897
NOW accounts 170,410 151,781 132,270
Money market deposits 94,653 82,733 76,053
Savings 157,094 152,442 184,461
Certificates of deposit > $100,000 265,005 242,081 174,532
Certificates of deposit < $100,000
and other time deposits 596,560 562,803 497,331
- -------------------------------------------------------------------------------
Total Deposits 1,467,793 1,359,948 1,216,544
OTHER BORROWED FUNDS:
Federal funds purchased
and securities sold under
repurchase agreements 25,363 25,934 30,208
Other short-term borrowings 17 1,443 2,935
Advances from Federal Home
Loan Bank 90,666 71,917 68,022
Long-term debt 22,795 27,328 26,739
- -------------------------------------------------------------------------------
Total Other Borrowed Funds 138,841 126,622 127,904
- -------------------------------------------------------------------------------
Total Deposits and Other
Borrowed Funds $1,606,634 $1,486,570 $1,344,448
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Maturities of time deposits of $100,000 or more outstanding at December 31, 1996
are summarized as follows:
Certificates Time
(in thousands) of Deposit Deposits Total
- -------------------------------------------------------------------------------
3 months or less $ 70,360 $ 0 $ 70,360
Over 3 through 6 months 65,493 4,796 70,289
Over 6 through 12 months 66,390 0 66,390
Over 12 through 60 months 54,451 0 54,451
Over 60 months 4,906 0 4,906
- -------------------------------------------------------------------------------
$ 261,600 $ 4,796 $ 266,396
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
The Corporation did not have any category of short-term borrowings for
which the average balance outstanding during the reported periods was 30% or
more of shareholders' equity at the end of the reported periods.
11
<PAGE>
ITEM 2. PROPERTIES
The Corporation's and Community Trust Bank, NA's main offices are located
at 208 North Mayo Trail, Pikeville, Kentucky, 41501 which is owned by Community
Trust Bank, NA ("CTB, NA").
CTB, NA is divided into twelve regions: Pike County, Floyd County, Knott
County, Fayette County, Letcher County, Montgomery County, Whitley County,
Laurel County, Fleming County, Boyd County, Woodford County, and Bell County.
CTB, NA presently has nine branch offices in the Pike County Region, one
branch office in the Floyd County Region, and one branch office in the Knott
County Region in addition to its main office. All of these branches including
the main office are doing business as Pikeville National Bank and Trust Company.
CTB, NA owns six of these branch banking offices and leases the remaining five
branch offices.
The Fayette County Region has four branch offices. Two of these branches
are in-store branches which are located in Winn Dixie supermarkets. CTB, NA
owns one branch office and leases the other three branch offices.
The Letcher County Region currently has five branch offices. CTB, NA owns
three of these branch offices and leases two branch offices, one of which is
leased under an obligation accounted for as a capital lease. There is also a
branch under construction in the Letcher County Region.
The Montgomery County Region has three branch offices, one of which is an
in-store branch located in a Wal-Mart superstore. CTB, NA owns two of the
branch offices and leases the in-store site, the land for its ATM site and the
land adjacent to one of its branch offices for parking and a drive up window.
The Whitley County Region has two branch offices which are both owned by
CTB, NA.
The Laurel County Region has one branch office which is leased by CTB, NA.
The Fleming County Region has four branch offices. CTB, NA owns all of
these branch offices and also owns real property located in this Region which is
leased to outside parties.
The Boyd County Region has five branch offices. CTB, NA owns three of
these branch offices and leases the remaining two. In the Boyd County Region
there are also two other properties which are leased, the 16th Street Properties
which is sub-leased, and the Old Meade Station Branch property from which CTB,
NA also receives tenant income. In addition to these two properties, CTB, NA
receives income from office space leased to tenants which is located in one of
the branch offices as well as The Arcade which adjoins the same branch office.
Of the office space in The Arcade a portion is used for Bank premises.
The Woodford County Region has two branch locations. CTB, NA owns one of
these branch offices and leases one branch office.
The Bell County Region has four branch locations. Of the four branch
offices, three are owned and one is leased by CTB, NA.
West Liberty owns its only banking premises at 550 Main Street, West
Liberty, Kentucky, 41472. West Liberty also owns land which is rented without
lease agreements.
Community Trust Bank, FSB's main office is located at 1218 East Broadway,
Campbellsville, Kentucky, 42718. It has a branch office in each of the
following locations: Campbellsville, Columbia, Greensburg, Somerset (2),
Lebanon and Jamestown, Kentucky. Community Trust Bank, FSB, owns all of its
locations with the exception of the Lending Annex located next to the main
office and its supermarket branches located in Somerset and Lebanon. The
building which is used by the Community Trust Bank, FSB Somerset Branch contains
additional office space which is leased to outside parties.
Trust Company of Kentucky's main office is located at 1544 Winchester
Avenue, Ashland, Kentucky, 41101, in space leased from CTB, NA. It also has
leased offices in CTB, NA's main office, Community Trust Bank, FSB's main office
and in Lexington, Kentucky.
See notes 7 and 13 to the consolidated financial statements included herein
for the year ended December 31, 1996 for additional information relating to
commitments and amounts invested in premises and equipment. The Corporation has
$300,500 of investments in real property, all in other real estate.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Corporation's banking subsidiaries and certain officers are named
defendants in legal actions arising from normal business activities.
Management, after consultation with legal counsel, believes these actions are
without merit or that the ultimate liability, if any, resulting from them will
not materially affect the Corporation's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of the Corporation, their
positions with the Corporation and the year in which they first became an
executive officer or director.
<TABLE>
<CAPTION>
POSITIONS AND DATE FIRST
OFFICES BECAME DIRECTOR PRESENT
CURRENTLY OR EXECUTIVE PRINCIPAL
NAME AND AGE (1) HELD OFFICER OCCUPATION
- ---------------- ---- ------- -----------
<S> <C> <C> <C>
Burlin Coleman; 67 Chairman of 1980 Chairman
Board, President of Board
CEO & Director President & CEO
Brandt Mullins; 69 Vice Chairman 1980 Vice
of Board & Director Chairman
Jean R. Hale; 50 Executive Vice 1992 (2) President &
President, CEO of CTB, NA
Secretary &
Director
Richard M. Levy; 38 Executive Vice 1995 (3) Executive Vice
President, CFO President, CFO
& Treasurer & Treasurer
Ralph Weickel, 39 Executive Vice 1995 (4) Executive Vice
President, Sales & Marketing President, Sales & Marketing
Ronald M. Holt; 49 Executive Vice 1996 (5) President and CEO
President, Trust of Trust Company
of Kentucky
Mark Gooch; 38 Executive Vice 1997 (6) Executive Vice
President , Operations President , Operations
John Shropshire, 48 Executive Vice 1997 (7) Executive Vice
President & Senior Lender President & Senior Lender
</TABLE>
(1) The ages listed for the Corporation's executive officers are as of February
28, 1997.
(2) Prior to becoming an executive officer, Ms. Hale served as Vice President
of the Corporation and as an executive officer of PNB since 1988.
(3) Mr. Levy served as Senior Vice President and Controller of Bank of America
Texas, N.A. prior to joining the Corporation.
13
<PAGE>
(4) Mr. Weickel served as Vice President of the Corporation prior to becoming
an executive officer. Mr. Weickel served as Vice President, Manager of
Investments, for Boatmen's National Bank of Des Moines, NA, prior to
joining the Corporation in 1993.
(5) Mr. Holt served as Executive Vice President and Trust Manager of Bank One
Kentucky Corporation prior to joining the Corporation.
(6) Mr. Gooch served as President and Chief Executive Officer of First Security
Bank & Trust Co., Whitesburg, Kentucky, an affiliate of the Corporation
prior to becoming an executive officer.
(7) Mr. Shropshire served as President and Chief Executive Officer of
Farmers-Deposit Bank, Flemingsburg, Kentucky, an affiliate of the
Corporation prior to becoming an executive officer.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Corporation's common stock is listed on the NASDAQ National Market
System under the symbol CTBI. Robinson Humphrey Co., Inc., Atlanta, Georgia;
Morgan, Keegan and Company, Memphis, Tennessee; J.J.B. Hilliard, W.L. Lyons,
Inc., Louisville, Kentucky; Bear, Stearns & Co., Inc., New York, New York;
Herzog, Heine, Geduld, Inc., New York, New York; and J.C. Bradford & Co.,
Louisville, Kentucky are primary market makers.
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Three Months Ended December 31 September 30 June 30 March 31
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Net interest income $ 19,945 $ 19,123 $ 18,537 $ 17,750
Net interest income, taxable equivalent basis 20,490 19,703 19,142 18,346
Provision for loan losses 2,108 2,003 1,686 1,488
Noninterest income 3,822 3,696 3,662 3,259
Noninterest expense 14,427 13,700 13,639 13,477
Net income 4,949 4,906 4,737 4,203
Per common share:
Net income, primary $ 0.54 $ 0.54 $ 0.52 $ 0.46
Net income, fully diluted 0.54 0.54 0.52 0.46
Dividends declared 0.20 0.18 0.18 0.18
Common stock price:
High $ 26.00 $ 23.75 $ 23.75 $ 22.00
Low 20.25 20.75 20.00 18.50
Last trade 24.50 22.25 21.75 22.00
Selected ratios:
Return on average assets, annualized 1.10% 1.09% 1.09% 0.98%
Return on average common equity, annualized 13.69% 13.92% 13.98% 12.42%
Net interest margin, annualized 4.89% 4.73% 4.78% 4.62%
1995
Net interest income $ 17,437 $ 16,894 $ 16,134 $ 15,569
Net interest income, taxable equivalent basis 18,051 17,620 16,721 16,098
Provision for loan losses 1,850 1,615 1,322 1,071
Noninterest income 3,342 2,412 2,696 2,666
Noninterest expense 15,869 13,755 13,070 13,177
Net income 2,266 2,734 2,840 2,973
Per common share:
Net income, primary $ 0.25 $ 0.30 $ 0.32 $ 0.34
Net income, fully diluted 0.25 0.30 0.32 0.34
Dividends declared 0.18 0.16 0.16 0.16
Common stock price:
High $ 21.50 $ 23.00 $ 23.50 $ 25.25
Low 19.00 19.50 19.50 22.50
Last trade 19.25 20.25 20.75 22.50
Selected ratios:
Return on average assets, annualized 0.53% 0.65% 0.72% 0.77%
Return on average common equity, annualized 6.96% 8.39% 8.78% 9.56%
Net interest margin, annualized 4.57% 4.47% 4.57% 4.52%
</TABLE>
There were approximately 3,200 holders of outstanding common shares of the
Corporation at February 28, 1997.
15
<PAGE>
DIVIDENDS
The annual dividend was increased from $0.66 per share to $0.74 per share
during 1996. The Corporation has adopted a conservative policy of cash
dividends with periodic stock dividends. Dividends are typically paid on a
quarterly basis. Future dividends are subject to the discretion of the
Corporation's Board of Directors, cash needs, general business conditions,
dividends from the subsidiaries and applicable governmental regulations and
policies. For information concerning restrictions on dividends from subsidiary
banks to the Corporation, see Note 18 to the consolidated financial statements
included herein for the year ended December 31, 1996.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Selected Financial Data 1992-1996
- ---------------------------------
(in thousands except per share amounts)
Year Ended December 31 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 144,447 $ 131,026 $ 106,560 $ 104,929 $ 109,946
Interest expense 69,092 64,992 47,370 46,616 53,746
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 75,355 66,034 59,190 58,313 56,200
Provision for loan losses 7,285 5,858 6,066 4,442 7,311
Noninterest income 14,439 11,116 9,653 12,069 11,427
Noninterest expense 55,243 55,871 52,287 45,571 42,140
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 27,266 15,421 10,490 20,369 18,176
Income taxes 8,471 4,608 2,278 5,533 5,072
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 18,795 $ 10,813 $ 8,212 $ 14,836 $ 13,104
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Per common share:
Earnings per share $ 2.06 $ 1.21 $ 0.95 $ 1.80 $ 1.63
Cash Dividends Declared - 0.74 0.66 0.61 0.55 0.51
As a percentage of net income 35.92% 54.55% 64.21% 30.56% 31.29%
Book value, end of year 15.86 14.66 13.57 13.44 12.08
Market price, end of year 24.50 19.25 26.25 29.33 21.00
Market value to book value, end of year 1.54x 1.31x 1.93x 2.18x 1.74x
Price/earnings ratio, end of year 11.9x 15.9x 27.6x 16.5x 13.1x
Cash dividend yield, end of year 3.27% 3.74% 2.44% 2.05% 2.54%
At year end:
Total assets $ 1,815,660 $ 1,730,170 $ 1,499,434 $ 1,464,039 $ 1,390,910
Long-term debt 19,136 27,873 24,944 35,277 36,340
Shareholders' equity 144,754 133,795 116,636 107,371 96,406
Averages:
Assets $ 1,762,009 $ 1,630,922 $ 1,470,630 $ 1,415,441 $ 1,354,655
Deposits 1,467,794 1,359,947 1,216,544 1,181,347 1,173,305
Earning assets 1,632,532 1,508,539 1,365,750 1,313,064 1,253,475
Loans 1,215,243 1,021,637 872,045 849,202 857,532
Shareholders' equity 138,925 130,780 116,165 102,445 90,594
Profitability ratios:
Return on average assets 1.07% 0.66% 0.56% 1.05% 0.97%
Return on average common equity 13.53% 8.27% 7.07% 14.48% 14.46%
Capital ratios:
Equity to assets, end of year 7.97% 7.73% 7.78% 7.33% 6.93%
Average equity to average assets 7.88% 8.02% 7.90% 7.24% 6.69%
Risk-based capital ratios
Leverage ratio 7.05% 6.44% 7.19% 6.36% 5.89%
Tier I Capital 9.71% 10.24% 11.08% 10.10% 9.34%
Total Capital 10.96% 11.51% 12.33% 12.23% 11.53%
Other significant ratios:
Allowance to net loans, end of year 1.44% 1.44% 1.43% 1.58% 1.63%
Allowance to nonperforming loans, end of year 113.50% 119.99% 106.12% 90.04% 95.96%
Nonperforming assets to loans and
foreclosed properties, end of year 1.35% 1.37% 1.83% 2.18% 2.51%
Net interest margin 4.76% 4.54% 4.51% 4.60% 4.68%
Other statistics:
Average common shares outstanding 9,138 8,960 8,601 8,246 8,024
Number of full-time equivalent employees,
end of year 792 757 655 699 675
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Community Trust Bancorp, Inc. ("the Corporation") reported record earnings
of $18.8 million for 1996, an increase of 74% over the $10.8 million for 1995
and an increase of 129% over the $8.2 million for 1994. Earnings per share for
1996 increased to $2.06 per share, compared to $1.21 for 1995 and $0.95 for
1994.
Earnings for 1996 reflected increases in net interest income and
noninterest income and decreases in noninterest expense. The Corporation's
return on average assets for 1996 increased to 1.07% from 0.56% and 0.66% in
1994 and 1995, respectively, and the return on average equity for 1996 increased
to 13.53% as compared to 7.07% and 8.27% for 1994 and 1995, respectively.
Total assets as of December 31, 1996 were $1.82 billion, an increase of
5.2% as compared to total assets of $1.73 billion as of December 31, 1995.
Total loans as of December 31, 1996 were $1.31 billion compared to $1.12 billion
as of December 31, 1995, an increase of 17.0%. Total deposits increased
marginally from $1.47 billion at December 31, 1995 to $1.48 billion at December
31, 1996.
Effective January 1, 1997, the Corporation changed its name from Pikeville
National Corporation to Community Trust Bancorp, Inc., changed the name of its
lead bank from Pikeville National Bank and Trust Company to Community Trust
Bank, National Association (the "Bank") and merged seven of its other commercial
bank subsidiaries into the Bank. As a result of these transactions, the Bank
has $1.5 billion in assets and forty-two offices in twelve Kentucky counties.
The Corporation's thrift and trust subsidiaries, Community Trust Bank, FSB and
Trust Company of Kentucky, remain subsidiaries of the Corporation and will
continue to operate as independent entities.
The Corporation excluded its subsidiary Commercial Bank, West Liberty,
Kentucky ("West Liberty") from the merger of its commercial bank subsidiaries
into the Bank. The Corporation has entered into a definitive agreement, subject
to regulatory approval, to sell West Liberty to Commercial Bancshares, Inc., of
West Liberty, Kentucky for cash of $10.2 million. West Liberty has $73 million
in assets, constituting 4% of the Corporation's total consolidated assets.
Consistent with the Corporation's strategic plan, the funds generated by the
sale of West Liberty will provide the Corporation with the opportunity to expand
in existing or enter into new markets through either internal expansion or
acquisitions.
After fourteen years of service, including as President and CEO from
January 1, 1995 Terry Coleman resigned effective November 1, 1996 to pursue
other interests. Burlin Coleman, the CEO from 1979 through 1994 and current
chairman, came out of retirement to take over as President and CEO. The
Corporation intends to continue the direction undertaken during Terry Coleman's
tenure and does not expect his departure to have significant adverse
consequences on the Corporation.
The Corporation reached a settlement in a dispute with a former software
vendor in January 1997. The settlement will increase 1997 earnings by $3.2
million, net of tax and will be reported as an extraordinary item in the 1997
consolidated financial statements.
ACQUISITIONS
While no acquisitions were completed in 1996, the Corporation acquired all
of the outstanding stock of four Kentucky banks during 1995, giving the
Corporation additional economies of scale and new markets in which to deliver
its existing products.
On February 2, 1995, the Corporation acquired Community Bank of Lexington,
Inc., Lexington, Kentucky ("Community Bank"), which had assets of $61 million.
The Corporation issued 366,000 shares of common stock with a market price of $24
per share to fund the acquisition. The transaction was accounted for as a
purchase, with $6.3 million of goodwill recognized. The offices of Community
Bank became branches of the Bank on March 31, 1995. While the Corporation had
already been active in lending in the Lexington-Fayette County market through
its loan production office, this acquisition has given the Corporation offices
in which to provide deposit products and other financial services in one of
Kentucky's fastest growing markets.
On May 31, 1995, the Corporation acquired Woodford Bancorp, Inc.,
Versailles, Kentucky ("Woodford"), which had assets of $103 million for 967,000
shares of its common stock. The transaction was accounted for as a
pooling-of-interests, and all prior period financial information was restated to
give effect to the transaction. This acquisition gives the Corporation another
presence in the central Kentucky area, which has one of the highest per capita
incomes and lowest unemployment rates in Kentucky.
On June 30, 1995, the Corporation acquired Commercial Bank, Middlesboro,
Kentucky ("Middlesboro"), which had assets of $99 million for $14.4 million in
cash. The transaction was accounted for as a purchase, and goodwill of $4.3
million was recognized. The Corporation borrowed $13.5 million to fund the
acquisition. Middlesboro is located on the Kentucky-Virginia-Tennessee border
and is a growing market with a thriving tourism industry.
On November 3, 1995, the Corporation acquired United Whitley Corporation,
Williamsburg, Kentucky ("Williamsburg"), and its subsidiary, Bank of
Williamsburg, which had assets of $37 million, for 172,000 shares of its common
stock. The transaction was
18
<PAGE>
accounted for as a pooling, but without restatement of prior period financial
information, due to lack of materiality. Bank of Williamsburg was merged into
Farmers National Bank, Williamsburg, Kentucky, already owned by the Corporation
on the date of acquisition. Through the acquisition, the Corporation increased
the deposit base of an existing affiliate substantially while increasing its
operating costs only marginally. Through the merger transaction, the
Corporation was able to move the bank charter of the merged institution to
adjacent Laurel County and now has a branch in London, Kentucky, which is among
the fastest growing areas in Kentucky.
RESULTS OF OPERATIONS
1996 Compared to 1995
Net income for 1996 was $18.8 million compared to $10.8 million for 1995.
Earnings per share for 1996 was $2.06 per share compared to $1.21 per share for
1995. All information has been restated due to the acquisition of Woodford
Bancorp, Inc., on May 31, 1995, which was accounted for as a
pooling-of-interests.
Net interest income for 1996 increased 14.2% as compared to 1995, rising
from $66.0 million in 1995 to $75.4 million in 1996. Noninterest income
increased 29.7% from $11.1 million in 1995 to $14.4 million in 1996 while
noninterest expense decreased 1.3% from $55.9 million in 1995 to $55.2 million
in 1996.
Return on average assets increased from 0.66% in 1995 to 1.07% in 1996 and
return on average equity increased from 8.27% in 1994 to 13.53% in 1996.
Net interest income
Net interest income increased 14.2% from 1995 to 1996 and was a major
contributing factor to the Corporation's increase in net income. Net interest
income increased from $66.0 million in 1995 to $75.4 million in 1996. The
increase was primarily due to the increase in average earning assets and the
increase in loans as a percentage of total assets which allowed the Corporation
to increase its yield on average earning assets while its cost of interest
bearing funds declined slightly.
The Corporation's average earning assets increased from $1.51 billion in
1995 to $1.63 billion in 1996. Average interest bearing liabilities also
increased during the period, from $1.32 billion in 1995 to $1.42 billion in
1996. Average interest bearing liabilities as a percentage of average earning
assets remained fairly stable, going from 87.4% in 1995 to 87.1% in 1996.
The taxable equivalent yield on average interest earning assets increased
from 8.86% in 1995 to 8.99% in 1996. The cost of average interest bearing
liabilities declined from 4.93% to 4.86% during the same period. As a result of
the thirteen basis point increase in yield on average earning assets and the
seven basis point reduction in cost of interest bearing funds, the net interest
margin increased from 4.54% in 1995 to 4.76% in 1996.
The Corporation was able to increase its yield on average earning assets
through investing more of its assets in loans, its highest yielding asset.
Loans accounted for 71.1% of total assets as of December 31, 1996 compared to
63.5% as of December 31, 1995. Most of the loan growth came from consumer loans
generated from the indirect consumer lending program, which began late in 1995.
As of the end of 1996, the Corporation's indirect consumer loan portfolio
exceeded $100 million.
The Corporation was also able to reduce the cost of interest bearing
liabilities during the year. This was achieved by implementation of strict
adherence to deposit pricing standards, which enabled the Corporation to reduce
the cost of savings and NOW accounts by thirteen basis points while the cost of
time deposits increased by only two basis points. By more closely managing its
borrowings, the company was also able to reduce its borrowing cost on Federal
Home Loan Bank advances by thirty-six basis points.
Provision for loan losses
The provision for loan losses increased from $5.9 million in 1995 to $7.3
million in 1996. Average loans were significantly higher in 1996 increasing
19.6% from $1.02 billion in 1995 to $1.22 billion in 1996.
Charge-offs, net of recoveries, as a percentage of average loans
outstanding declined from 0.47% in 1995 to 0.37% in 1996 as outstanding loans
increased, but net charge-offs increased by a proportionately less amount. The
allowance for loan losses increased significantly, rising from $16.1 million at
December 31, 1995 to $18.8 million at December 31, 1996. The increase in the
reserve is due to provision in excess of loan charge-offs to increase the
reserve proportionally to the increase in loans outstanding. The Corporation
does not believe there are currently any trends, events or uncertainties that
are reasonably likely to have a material effect on the volume of its
non-performing loans.
19
<PAGE>
Noninterest income
Noninterest income increased 29.7% from $11.1 million in 1995 to $14.4
million in 1996. Service charges on deposit accounts was the largest component
of noninterest income and increased from $5.2 million in 1995 to $6.3 million in
1996 as the Corporation introduced new policies which reduced the amount of fees
that were waived. Trust income increased from $1.3 million in 1995 to $1.6
million in 1996 as the trust assets managed increased during the year. Gains on
sale of residential mortgage loans increased from $462 thousand to $1.7 million
as increased loan demand enabled the Company to sell larger volume of loans.
Other noninterest income increased from $4.1 million in 1995 to $4.7 million in
1996. The largest component of other noninterest income was insurance
commissions, which increased 22.2% from $1.1 million in 1995 to $1.6 million in
1996, mainly due to increases in loans. Loans accounted for 71.1% of total
assets at December 31, 1996 compared to 63.5% of total assets at December 31,
1995. Securities gains and losses were not a factor in the increase as the
Corporation incurred net securities gains of $88 thousand in 1996 and $12
thousand in 1995.
Noninterest expense
Noninterest expense decreased from $55.9 million in 1995 to $55.2 million
in 1996. Salaries and employee benefits increased from $24.6 million in 1995 to
$28.2 million in 1996 as the number of full-time equivalent employees increased
due to acquisitions of new banks and opening of new branches. Occupancy expense
increased marginally from $3.9 million in 1995 to $4.0 million in 1996, and
equipment costs remained level at $3.7 million for both 1995 and 1996. Data
processing costs declined from $2.8 million in 1995 to $2.6 million in 1996 and
stationery and printing costs decined from $1.9 million in 1995 to $1.7 million
in 1996. Taxes other than payroll, property and income, which consists mainly
of Kentucky Franchise taxes on the equity of the affiliate banks, increased
slightly from $2.0 million in 1995 to $2.1 million in 1996. FDIC Insurance
declined from $3.0 million to $113 thousand as the FDIC reduced premium rates to
"well-capitalized" institutions, of which all of the Corporation's affiliates
qualify. Other noninterest expense declined from $13.9 million in 1995 to $12.8
million in 1996, consistent with the Corporation's cost containment measures
introduced late in 1995.
1995 Compared to 1994
Net income for 1995 was $10.8 million compared to $8.2 million for 1994.
Earnings per share for 1995 was $1.21 per share compared to $0.95 for 1994.
Net interest income rose from $59.2 million in 1994 to $66.0 million in
1995. The increase in net interest income was due to a higher level of average
earning assets and rising interest rates during 1995. The yield on interest
earning assets and the cost of interest bearing liabilities both increased
during 1995 as compared to 1994. The taxable equivalent yield on average
interest earning assets increased from 7.98% in 1994 to 8.86% in 1995. The cost
of average interest bearing liabilities increased from 3.97% to 4.93% during the
same period. As a result of this the net interest margin increased from 4.51%
in 1994 to 4.54% in 1995.
Noninterest income increased 15.2% from $9.7 million in 1994 to $11.1
million in 1995. Service charges on deposit accounts, the largest component,
increased from $4.7 million in 1994 to $5.2 million in 1995. During the same
period, other noninterest income increased from $2.7 million to $4.1 million and
trust income decreased from $1.6 million to $1.3 million. Net gains from the
sale of residential mortgage loans decreased from $784 thousand in 1994 to $462
thousand in 1995, due to the rising interest rates in effect during 1995.
Securities gains and losses were minimal in both periods, as the Corporation
incurred net securities losses of $45 thousand in 1994 and net securities gains
of $12 thousand in 1995.
Noninterest expense increased from $52.3 million in 1994 to $55.9 million
in 1994. Except for two unusual items which decreased significantly, all other
categories increased as would be expected in a period of acqusitions. The
increases in assets, employees and operational facilities from the 1995
acquisitions all contributed to across the board increases in noninterest
expenses. Salaries and benefits increased from $23.0 million in 1994 to $24.6
million in 1995, occupancy expense increased from $3.3 million to $3.9 million,
data processing increased from $2.1 million to $2.8 million, stationery &
printing costs increased from $1.5 million to $1.9 million and other taxes
increased from $1.7 million to $2.0 million while other noninterest expense
items increased from $11.1 million in 1994 to $13.9 million in 1995. The two
items which decreased significantly were losses associated with mortgage-backed
derivative securities and restructuring and reengineering costs.
Mortgage-backed derivatives had been purchased for certain trust accounts
administered by the Corporation's affiliates. While these securities are
guaranteed by either the Federal Home Loan Mortgage or the Federal National
Mortgage Association, and therefore, pose very little, if any credit risk, they
exhibited an excessive volatility which led to a significant decline in their
market value in 1994 which represented the difference between the book value
carried in the customer accounts and the actual market value. The Corporation
purchased the securities from the trust accounts during 1994 and because of the
government guarantees, management expects to collect the full face value over
time. The securities are carried at market value as available-for-sale and
currently no default on payments or additional market value declines have been
suffered to date.
During the latter part of 1993 and continuing through 1994, the Corporation
intensively examined ways to improve its performance through restructuring its
operations and reengineering its work flow processes. As a result of this, the
Corporation
20
<PAGE>
downsized its workforce by approximately 9% of total employment. Severance and
other related costs of downsizing in the amount of $0.9 million were recognized
in 1994.
LIQUIDITY
The Corporation's objectives are to ensure that funds are available at the
subsidiary banks to meet deposit withdrawals and credit demands without unduly
penalizing profitability, and to ensure that funding is available for the parent
company to meet the ongoing cash needs while maximizing profitability. The
Corporation continues to identify ways to provide for liquidity on both a
current and long-term basis. On a long-term basis, the subsidiary banks rely
mainly on core deposits, certificates of deposit of $100,000 or more, repayment
of principal and interest on loans and securities, as well as federal funds sold
and purchased. The subsidiary banks also rely on the sale of securities under
repurchase agreements, securities available-for-sale and Federal Home Loan Bank
borrowings.
Deposits increased marginally from $1.47 billion at December 31, 1995 to
$1.48 billion at December 31, 1996. In order to compensate for the lack of
funding from deposit growth, the Corporation increased its borrowings of federal
funds purchased and other short-term borrowings from $20.4 million as of
December 31, 1995 to $44.6 million at December 31, 1996 and also increased its
Federal Home Loan Bank borrowings during the same period. The Bank is also
preparing for a securitization of its automobile retail loan portfolio during
the second quarter of 1997 to provide additional funding and liquidity. The
lack of deposit funding has not affected the Corporation's ability to fund loans
or service its debt obligations.
Due to the nature of the markets served by the Corporation's lending
institutions, management believes that the majority of its certificates of
deposit of $100,000 or more are no more volatile than its core deposits. During
the periods of low interest rates, these deposit balances remained stable as a
percentage of total deposits. In addition, arrangements have been made with two
correspondent banks for the purchase of federal funds on an unsecured basis, up
to an aggregate of $98 million, if necessary, to meet the Corporation's
liquidity needs.
The Corporation owns $230 million of securities designated as
available-for-sale and valued at market which are available to meet liquidity
needs on a continuing basis. The Corporation also relies on Federal Home Loan
Bank advances for both liquidity and management of its asset/liability position.
Often the Corporation matches the maturity of these advances with pools of
residential mortgage loans which are not sold in the secondary market, some of
which have maturities of ten to fifteen years. Federal Home Loan Bank advances
increased from $63.6 million at December 31, 1995 to $111.0 million at December
31, 1996.
The Corporation generally relies upon net inflows of cash from financing
activities, supplemented by net inflows of cash from operating activities, to
provide cash for its investing activities. As is typical of many financial
institutions, significant financing activities include deposit gathering, use of
short-term borrowing facilities such as federal funds purchased and securities
sold under repurchase agreements, and the issuance of long-term debt. The
Corporation has a $17.5 million credit line available which expires June 29,
1997, in the form of a revolving line of credit of which the entire line was
available as of December 31, 1996 (see long-term debt footnote to the
consolidated financial statements). The Corporation's primary investing
activities include purchases of investment securities and loan originations.
In conjunction with maintaining a satisfactory level of liquidity,
management monitors the degree of interest rate risk assumed on the balance
sheet. The Corporation monitors its interest rate risk by the use of static and
dynamic gap models at the one year interval. The static gap model monitors the
difference in interest rate sensitive assets and interest rate sensitive
liabilities as a percentage of total assets that mature within the specified
time frame. The dynamic gap model goes further in that it assumes that interest
rate sensitive assets and liabilities will be reinvested. The Corporation uses
the Sendero system to monitor its interest rate risk. The Corporation desires
an interest sensitivity gap of not more than fifteen percent of total assets at
the one year interval.
21
<PAGE>
The Corporation's static interest rate gap position as of December 31, 1996
is presented below:
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
December 31, 1996 0-3 3-12 Total Over
(in thousands) Months Months 1 Year 1 Year Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest earning assets
Securities and deposits $ 87,951 $ 149,753 $ 237,704 $ 130,817 $ 368,521
Loans 519,047 283,094 802,141 507,482 1,309,623
- ---------------------------------------------------------------------------------------------------------------------------
Total earning assets $ 606,998 $ 432,847 $ 1,039,845 $ 638,299 $ 1,678,144
Interest bearing liabilities
NOW, money market and savings
accounts $ 268,063 $ 147,651 $ 415,714 $ - $ 415,714
Time deposits 236,981 442,824 679,805 185,081 864,886
Federal funds purchased
and other short-
term borrowings 44,585 - 44,585 - 44,585
Advances from FHLB 61,804 5,123 66,927 44,043 110,970
Long-term debt 1,641 - 1,641 17,495 19,136
- ---------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities $ 613,074 $ 595,598 $ 1,208,672 $ 246,619 $ 1,455,291
- ---------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap
For the period $ (6,076) $ (162,751) $ (168,827) $ 391,680 $ 222,853
Cumulative (6,076) (168,827) (168,827) 222,853 222,853
Cumulative as a percent
of earning assets (0.36)% (10.06)% (10.06)% 13.28% 13.28%
</TABLE>
The Corporation now uses, on a limited basis, interest rate swaps as an
additional tool in managing interest rate risk. As of December 31, 1996, there
was outstanding $10 million in notional principal value of interest rate swaps.
Interest rate swaps involve an exchange of cash flows based on the notional
principal amount and agreed upon fixed and variable interest rates. In this
transaction, the Corporation has agreed to pay a floating interest rate based on
LIBOR and receive a fixed interest rate in return. The impact on operations of
interest rate swaps was not significant during 1996 and is not expected to be
significant during 1997.
CAPITAL RESOURCES
Total shareholders' equity increased from $133.8 million at December 31,
1995 to $144.8 million at December 31, 1996. The primary source of capital of
the Corporation is retained earnings. Cash dividends per share were $0.74 per
share for 1996 and $0.66 per share for 1995. The Corporation retained 64% of
its earnings for 1996 and 45% for 1995.
Regulatory guidelines require bank holding companies, commercial banks, and
thrifts to maintain certain minimum 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 maintiain 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%. The Corporation's ratios as of
December 31, 1996 were 7.05%, 9.71% and 10.96%, respectively. Community Trust
Bancorp, Inc. and all banking affiliates met the criteria for "well capitalized"
at December 31, 1996.
As of December 31, 1996, management is 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 the Corporation's liquidity, capital resources, or operations.
22
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The majority of the Corporation's assets and liabilities are monetary in
nature. Therefore, the Corporation differs greatly from most commercial and
industrial companies that have significant investments 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.
Management believes the most significant impact on financial and operating
results is the Corporation's ability to react to changes in interest rates.
Management seeks to maintain an essentially balanced position between interest
sensitive assets and liabilities in order to protect against the effects of wide
interest rate fluctuations.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands except per share amounts)
December 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and balances due from banks $ 63,884 $ 67,457
Federal funds sold - 39,555
Securities available-for-sale 229,952 279,717
Securities held-to-maturity (fair value of $135,383
and $150,315, respectively) 137,733 150,721
Loans 1,309,623 1,115,068
Allowance for loan losses (18,825) (16,082)
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 1,290,798 1,098,986
Premises and equipment, net 46,275 47,553
Excess of cost over net assets acquired (net of accumulated
amortization of $6,674 and $5,469, respectively) 19,822 20,110
Other assets 27,196 26,071
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,815,660 $ 1,730,170
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 200,222 $ 186,829
Interest bearing 1,280,600 1,280,614
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 1,480,822 1,467,443
Federal funds purchased and other short-term borrowings 44,585 20,383
Other liabilities 15,394 17,047
Advances from Federal Home Loan Bank 110,969 63,629
Long-term debt 19,136 27,873
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,670,906 1,596,375
Shareholders' equity:
Preferred stock, 300,000 shares authorized and unissued
Common stock, $5 par value, shares authorized 25,000,000; shares
issued and outstanding, 1996 - 9,128,814; 1995 - 9,124,314 45,644 45,622
Capital surplus 27,915 27,883
Retained earnings 71,976 59,934
Net unrealized appreciation (depreciation) on securities available-
for-sale, net of tax (781) 356
- ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 144,754 133,795
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,815,660 $ 1,730,170
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Year Ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $118,640 $100,686 $ 78,143
Interest and dividends on securities -
Taxable 22,304 22,503 23,164
Tax exempt 2,964 4,668 3,050
Other 539 3,169 2,203
- ----------------------------------------------------------------------------------------------------------
Total interest income 144,447 131,026 106,560
INTEREST EXPENSE:
Interest on deposits 60,576 56,673 39,889
Interest on federal funds purchased and other
short-term borrowings 1,259 1,513 1,324
Interest on advances from Federal Home Loan Bank 5,356 4,506 4,132
Interest on long-term debt 1,901 2,300 2,025
- ----------------------------------------------------------------------------------------------------------
Total interest expense 69,092 64,992 47,370
- ----------------------------------------------------------------------------------------------------------
Net interest income 75,355 66,034 59,190
Provision for loan losses 7,285 5,858 6,066
- ----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 68,070 60,176 53,124
NONINTEREST INCOME:
Service charges on deposit accounts 6,282 5,224 4,651
Gains on sale of loans, net 1,735 462 784
Trust income 1,592 1,341 1,600
Securities gains (losses), net 88 12 (45)
Other 4,742 4,077 2,663
- ----------------------------------------------------------------------------------------------------------
Total noninterest income 14,439 11,116 9,653
NONINTEREST EXPENSE:
Salaries and employee benefits 28,229 24,639 23,033
Occupancy, net 3,992 3,934 3,250
Equipment 3,734 3,706 3,173
Data processing 2,644 2,808 2,084
Stationery, printing and office supplies 1,656 1,919 1,496
Taxes other than payroll, property and income 2,084 1,980 1,682
FDIC insurance 113 2,990 2,715
Losses associated with mortgage-backed derivative
securities - - 2,793
Restructuring and reengineering costs - - 945
Other 12,791 13,895 11,116
- ----------------------------------------------------------------------------------------------------------
Total noninterest expense 55,243 55,871 52,287
- ----------------------------------------------------------------------------------------------------------
Income before income taxes 27,266 15,421 10,490
Income taxes 8,471 4,608 2,278
- ----------------------------------------------------------------------------------------------------------
Net income $ 18,795 $ 10,813 $ 8,212
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Earnings per share $ 2.06 $ 1.21 $ 0.95
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Average shares outstanding 9,138 8,960 8,601
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
(Depreciation)
on Securities
Common Capital Retained Available-for-Sale,
(in thousands except per share amounts) Stock Surplus Earnings Net of Tax Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 28,233 $ 15,009 $ 64,157 $ 521 $ 107,920
Net income for 1994 8,212 8,212
Cash dividends declared
($.61 per share) (4,747) (4,747)
Issuance of 19,382 shares
common stock 97 387 484
Issuance of 581,963 shares common
stock in conjunction with
debenture redemption 1,940 5,398 7,338
Common stock split including
purchase of fractional shares 12,691 (6) (12,694) (9)
Net change in unrealized
appreciation/depreciation
on securities available-for-
sale, net of tax of $727 (2,562) (2,562)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 42,961 20,788 54,928 (2,041) 116,636
Net income for 1995 10,813 10,813
Cash dividends declared
($.66 per share) (5,807) (5,807)
Issuance of 26,885 shares
common stock 135 180 315
Issuance of 505,223 shares
common stock in conjunction
with acquisitions 2,526 6,915 9,441
Net change in unrealized
appreciation/(depreciation)
on securities available-for-sale,
net of tax of $944 2,397 2,397
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 45,622 27,883 59,934 356 133,795
Net income for 1996 18,795 18,795
Cash dividends declared
($.74 per share) (6,753) (6,753)
Issuance of 4,500 shares
common stock 22 32 54
Net change in unrealized
appreciation/(depreciation)
on securities available-for-sale,
net of tax of $739 (1,137) (1,137)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 45,644 $ 27,915 $ 71,976 $ (781) $144,754
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 18,795 $ 10,813 $ 8,212
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 4,877 3,874 3,539
Provision for loan and other real estate losses 7,364 6,273 7,092
Deferred income taxes 444 219 (423)
Securities (gains) losses, net (88) (12) 45
Gains on sale of loans, net (1,735) (462) (784)
Net amortization of securities premiums 548 532 1,595
Changes in:
Other assets 230 (1,214) (318)
Other liabilities (1,837) 3,908 515
Loans held for sale (68,641) (3,507) 7,397
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (40,043) 20,424 26,870
Cash flows from investing activities:
Payments to acquire net assets of subsidiaries - (14,918) -
Proceeds from:
Sale of securities available-for-sale 7,561 18,058 3,949
Maturity of securities available-for-sale 87,419 53,474 29,326
Maturity of securities held-to-maturity 13,930 32,709 55,652
Principal payments of mortgage-backed securities 3,433 135,518 34,278
Purchase of:
Securities available-for-sale (47,224) (28,250) (45,958)
Securities held-to-maturity (4,669) (40,179) (29,113)
Mortgage-backed securities - (110,522) (62,230)
Net change in loans (130,074) (75,147) (68,753)
Net change in premises and equipment (3,130) (4,795) (4,374)
Other - 5,921 1,878
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (72,754) (28,131) (85,345)
Cash flows from financing activities:
Net change in deposits 13,379 50,175 32,369
Net change in federal funds purchased and
other short-term borrowings 24,202 (15,771) (1,119)
Advances from Federal Home Loan Bank 61,364 1,595 16,058
Repayments of advances from Federal Home Loan Bank (14,024) (16,783) (11,526)
Proceeds from long-term debt 1,000 13,526 -
Payments on long-term debt (9,737) (10,597) (10,363)
Issuance and repurchase of common stock, net 54 315 7,813
Dividends paid (6,569) (5,385) (4,581)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 69,669 17,075 28,651
Net (decrease) increase in cash and cash equivalents (43,128) 9,368 (29,824)
Cash and cash equivalents at beginning of year 107,012 80,098 109,922
Cash and cash equivalents of acquired banks - 17,546 -
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 63,884 $ 107,012 $ 80,098
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include
Community Trust Bancorp, Inc. (the "Corporation") and all its subsidiaries,
including its principal subsidiary, Community Trust Bank, NA. Material
intercompany transactions and accounts have been eliminated in consolidation.
In preparing 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.
NATURE OF OPERATIONS - Substantially all assets, liabilities, revenues, and
expenses are related to banking operations, including lending, investing of
funds and obtaining of deposits and other financing. All of the Corporation's
business offices and the majority of its business is located in eastern and
central Kentucky.
CASH AND 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. Cash flows are reported net for customer loan transactions,
deposit transactions, and other short-term borrowings.
SECURITIES - Management determines the classification of securities at
purchase. On January 1, 1994 the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". The Corporation now classifies securities into
held-to-maturity or available-for-sale categories. Held-to-maturity securities
are those which the Corporation has the positive intent and ability to hold to
maturity, and are reported at amortized cost. Available-for-sale securities are
those the Corporation 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 and losses included as a separate
component of shareholders' equity, net of tax. If declines in fair value are
not temporary, the carrying value of the securities are written down to fair
value as a realized loss.
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.
LOANS - Loans are reported at the carrying value of unpaid principal
reduced by unearned interest and an allowance for loan losses. Income is
recorded on the level yield basis. Interest accrual is discontinued when
management believes, after considering economic and business conditions 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.
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 are recognized in a valuation allowance by charges to income.
The provision for loan losses charged to operating expenses is an amount
sufficient to maintain the allowance for loan losses at an adequate level to
absorb future loan losses based on management's best estimate of loan losses,
using such considerations as the current condition and volume of the loan
portfolio, economic conditions within the service area, review of specific
problem loans, and any other known factors influencing loan collectibility. For
loss provisions and valuation allowances, the amount provided is management's
estimate of probable losses.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan". Under this Statement, impaired loans are measured at the present value
of estimated future cash flows of the loan using the loan rate or at the fair
value of collateral.
PREMISES AND EQUIPMENT - Premises, equipment and leasehold improvements are
stated at cost less accumulated depreciation and amortization. Depreciation is
computed primarily on the straight-line method over the estimated useful lives
or the shorter of the estimated useful lives or terms of the related leases.
Maintenance, repairs and minor improvements are expensed as incurred.
OTHER REAL ESTATE - Real estate acquired by foreclosure is carried at the
lower of the investment in the property or its fair value. An allowance for
estimated losses on real estate is provided by a charge to operating expense
when a subsequent decline in value occurs. Operating expenses of such
properties, net of related income, and gains and losses on disposition are
included in other expenses.
PURCHASE ACCOUNTING - At date of purchase, net assets of subsidiaries
acquired are recorded at fair value. Any excess of cost over net assets
acquired (goodwill) is amortized by the straight-line method over fifteen to
twenty-five years. Management reviews the earnings of the operations acquired
for evidence of impairment of the unamortized amount.
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
consequences of temporary differences between carrying amounts and tax basis of
assets and liabilities, using enacted tax rates.
28
<PAGE>
EARNINGS PER SHARE - Earnings per share is calculated by dividing net
income by the weighted average number of shares of common stock outstanding and
the number of shares of common stock under the treasury-stock method for stock
options, when dilutive. (See Note 19.)
RECLASSIFICATION - Certain reclassifications have been made in the prior
financial statements to conform to current classifications.
2. BUSINESS COMBINATIONS
During 1995 the Corporation completed four acquisitions which resulted in
the addition of $300 million in assets as detailed in the following table:
<TABLE>
<CAPTION>
Date Purchase Assets Accounting
(in millions) Completed Price Acquired Method
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Community Bank 2/2/95 $ 9.2 $ 61 Purchase
Woodford 5/31/95 20.3 103 Pooling
Middlesboro 6/30/95 14.4 99 Purchase
Williamsburg 11/3/95 3.6 37 Pooling
</TABLE>
The Corporation's consolidated financial statements have not been restated
to include the acquisition of Williamsburg due to lack of materiality.
Presented below are the separate results of operations of the Corporation
and Woodford for the three months ended March 31, 1995 and the year ended
December 31, 1994.
(In thousands) Community Trust Bancorp, Inc. Woodford Consolidated
- --------------------------------------------------------------------------------
1995
Net interest income $ 14,498 $ 1,071 $ 15,569
Net income 2,426 547 2,973
1994
Net interest income 54,399 4,791 59,190
Net income 7,477 735 8,212
Unaudited pro forma condensed results of operations for the years ended
December 31, 1995 and 1994, as if Community Bank and Middlesboro had been
acquired January 1, 1994 are presented below. The results are not necessarily
indicative of future consolidated operations.
(In thousands) 1995 1994
----------------------------------------------------------------
Revenue $146,739 $128,821
Income before extraordinary items 10,948 8,038
Net income 10,948 8,038
Earnings per share 1.22 0.90
3. CASH AND DUE FROM BANKS
Included in cash and due from banks are noninterest bearing deposits that
are held at the Federal Reserve or maintained in vault cash in accordance with
regulatory reserve requirements. The balance requirement was $16.2 million at
December 31, 1996, and $15.1 million at December 31, 1995. Cash paid during the
years ended 1996, 1995 and 1994 for interest was $68.2 million, $64.2 million
and $46.8 million, respectively. Cash paid during the same periods for income
taxes was $8.1 million, $2.9 million and $3.4 million, respectively.
29
<PAGE>
4. SECURITIES
Amortized cost and fair value of securities at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Available-for-sale Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 49,541 $ 449 $ (183) $ 49,807
U.S. agency mortgage-backed pass through certificates 76,440 525 (675) 76,290
Collateralized mortgage obligations 65,643 326 (759) 65,210
Other debt securities 2,886 - (81) 2,805
- ------------------------------------------------------------------------------------------------------------------------------
Total debt securities 194,510 1,300 (1,698) 194,112
Marketable equity securities 36,423 10 (593) 35,840
- ------------------------------------------------------------------------------------------------------------------------------
$230,933 $1,310 $(2,291) $229,952
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Held-to-maturity Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 23,841 $ 48 $ (1,342) $ 22,547
States and political subdivisions 50,380 784 (714) 50,450
U.S. agency mortgage-backed pass through certificates 48,172 100 (980) 47,292
Collateralized mortgage obligations 15,340 13 (259) 15,094
- ------------------------------------------------------------------------------------------------------------------------------
$137,733 $ 945 $ (3,295) $135,383
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amortized cost and fair value of securities at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Available-for-sale Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 80,165 $ 1,184 $ (227) $ 81,122
U. S. agency mortgage-backed pass through certificates 136,236 1,573 (717) 137,092
Collateralized mortgage obligations 25,714 48 (314) 25,448
Other debt securities 3,177 6 (107) 3,076
- ------------------------------------------------------------------------------------------------------------------------------
Total debt securities 245,292 2,811 (1,365) 246,738
Marketable equity securities 33,563 10 (594) 32,979
- ------------------------------------------------------------------------------------------------------------------------------
$278,855 $ 2,821 $ (1,959) $279,717
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Held-to-maturity Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 28,820 $ 153 $ (226) $ 28,747
States and political subdivisions 56,425 1,094 (417) 57,102
U.S. agency mortgage-backed pass through certificates 50,284 3 (735) 49,552
Collateralized mortgage obligations 13,200 - (278) 12,922
Other debt securities 1,992 - - 1,992
- ------------------------------------------------------------------------------------------------------------------------------
$150,721 $ 1,250 $ (1,656) $150,315
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
The amortized cost and fair value of securities at December 31, 1996, 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.
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
------------------ ----------------
Amortized Fair Amortized Fair
(in thousands) Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 20,032 $ 20,094 $ 2,024 $ 2,528
Due after one through five years 34,144 34,401 27,333 25,445
Due after five through ten years 17,565 17,397 33,885 32,902
Due after ten years 25,479 25,591 14,689 15,366
Mortgage-backed pass through certificates
and collateralized mortgage obligations 94,404 93,825 59,802 59,142
Other securities 2,886 2,804 - -
------------------------------------------------------
194,510 194,112 137,733 135,383
Marketable equity securities 36,423 35,840 - -
------------------------------------------------------
$230,933 $229,952 $137,733 $135,383
------------------------------------------------------
------------------------------------------------------
</TABLE>
Gross gains of $177 thousand and gross losses of $89 thousand were realized
on sales and calls in 1996 and gross gains of $18 thousand and gross losses of
$6 thousand were realized on such sales and calls in 1995.
During 1995, the Financial Accounting Standards Board issued implementation
guidance related to Statement No. 115 to allow for a one-time transfer of
securities from held-to-maturity to available-for-sale without calling into
question management's intent and ability to hold securities to maturity. The
Corporation transferred securities with an amortized cost of $195.3 million from
held-to-maturity to available-for-sale to better manage its liquidity position
as a result of this. This transfer did not have a material impact on the
Corporation's equity position.
Securities in the amount of $145 million and $175 million at December 31,
1996 and 1995, respectively, were pledged to secure public deposits, trust
funds, securities sold under repurchase agreements, and advances from the
Federal Home Loan Bank.
5. LOANS
Major classifications of loans, net of unearned income, are summarized as
follows:
December 31 (in thousands) 1996 1995
-----------------------
Commercial, secured by real estate $ 270,315 $ 258,541
Commercial, other 234,793 192,127
Real estate - commercial construction 67,267 40,140
Real estate - residential construction 11,802 11,399
Real estate - consumer mortgage 411,067 398,288
Consumer 310,582 208,662
Equipment lease financing 3,797 5,911
------------------------------
$ 1,309,623 $ 1,115,068
------------------------------
------------------------------
Included in loan balances are loans held for sale in the amount of $78.4
million and $8.1 million at December 31, 1996 and December 31, 1995,
respectively. The amount of loans on a non-accruing income status was $10.2
million and $9.4 million at December 31, 1996 and 1995, respectively.
Additional interest which would have been recorded during 1996, 1995 and 1994 if
such loans had been accruing interest was approximately $0.8 million, $1.1
million, and $0.9 million, respectively.
In the ordinary course of business, the Corporation's banking subsidiaries
have made loans at prevailing interest rates and terms to directors and
executive officers of the Corporation or its banking subsidiaries, including
their associates (as defined by the Securities and Exchange Commission).
Management believes such loans 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. The aggregate amount such loans at
January 1, 1996 was $ 29.8 million. During 1996, activity with respect to these
loans included new loans of $1.9 million, repayments of $6.3 million, and a net
increase of $3.6 million due to changes in the status of executive officers and
directors. As a result of these activities, the aggregate balance of these
loans was $29.0 million at December 31, 1996.
31
<PAGE>
At December 31, 1996 and 1995, the recorded investment in impaired loans
was $8.4 million and $7.6 million, respectively. Included in these amounts at
December 31, 1996 and December 31, 1995, respectively are $3.3 million and $2.4
million of impaired loans for which specific reserves for loan losses are
carried in the amounts of $893 thousand and $462 thousand. The average
investment in impaired loans for 1996 and 1995 was $8.8 million and $7.0
million, respectively while interest income of $305 thousand and $539 thousand
was recognized on cash payments of $305 thousand and $515 thousand.
6. ALLOWANCE FOR LOSSES
Activity in the allowance for loan losses is as follows:
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Balance, beginning of year $ 16,082 $ 12,978 $ 13,346
Balances of acquired banks - 2,004 -
Provisions charged to operations 7,285 5,858 6,066
Recoveries 2,446 1,274 1,103
Charge-offs (6,988) (6,032) (7,537)
- --------------------------------------------------------------------------------
Balance, end of year $ 18,825 $ 16,082 $ 12,978
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Activity in the allowance for other real estate losses is as follows:
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Balance, beginning of year $ 624 $ 1,852 $ 846
Provisions charged to operations 79 415 1,026
Charge-offs (86) (1,643) (20)
- --------------------------------------------------------------------------------
Balance, end of year $ 617 $ 624 $ 1,852
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other real estate owned by the Corporation, net of reserves, at December
31, 1996 and 1995 was $1.8 million and $1.9 million, respectively.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Land and buildings $ 45,477 $ 46,727
Leasehold improvements 3,702 3,191
Furniture, fixtures and equipment 26,375 24,537
Construction in progress 315 530
- --------------------------------------------------------------------------------
$ 75,869 $ 74,985
Less accumulated depreciation and
amortization (29,594) (27,432)
- --------------------------------------------------------------------------------
$ 46,275 $ 47,553
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Depreciation and amortization of premises and equipment for 1996, 1995 and
1994 was $3.7 million, $3.4 million, and $2.7 million, respectively.
8. DEPOSITS
Interest expense on deposits is categorized as follows:
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Savings, NOW and money market accounts $ 12,721 $ 12,167 $ 11,446
Certificates of deposit of $100 thousand
or more 15,531 14,148 8,308
Other time deposits 32,324 30,358 20,135
- --------------------------------------------------------------------------------
$ 60,576 $ 56,673 $ 39,889
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Time certificates of deposit outstanding in denominations of $100 thousand
or more were $262 million and $265 million at December 31, 1996 and 1995,
respectively.
32
<PAGE>
9. LONG-TERM DEBT
Long-term debt is categorized as follows:
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
Revolving bank note, interest at prime minus 88 basis points $ - $ 5,700
Bank note, 6.30% interest payable quarterly; principal payment - 2,000
Six Year Senior Notes, 7.375% interest 5,000 5,000
Ten Year Senior Notes, 8.25% interest 12,230 12,230
Subsidiaries:
Other 1,906 2,943
- -----------------------------------------------------------------------------------------------------------
$ 19,136 $ 27,873
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Six and Ten Year Senior Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after January 1, 1997, and January
1, 1999, respectively, at prices beginning at 102% of par and decreasing
annually until scheduled final maturity.
The Bank note and related loan agreements require the maintenance of
certain capital and operational ratios for the Corporation and for the
subsidiary bank whose stock is pledged as collateral, all of which have been
complied with at December 31, 1996.
The maximum amount available under the revolving bank note is $17.5
million.
Principal payments due on long-term debt during the five years subsequent
to December 31, 1996, are as follows: 1997 - $0.3 million; 1998 - $0.2 million;
1999 - $5.2 million; 2000 - $0.1 million; 2001 - $0.1 million.
10. ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank are due for repayment as
follows:
December 31 (in thousands) 1996 1995
- -------------------------------------------------------------------------
Due in one year or less $ 5,896 $ 11,118
Due in one to five years 89,455 23,547
Due in five to ten years 14,517 25,242
Due after ten years 1,101 3,722
- -----------------------------------------------------------------------
$ 110,969 $ 63,629
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
These advances generally require monthly principal payments and are
collateralized by Federal Home Loan Bank stock of $12.5 million and $166.5
million of certain first mortgage loans as of December 31, 1996. Fixed rates
advances total $50.0 million and have interest rates ranging from 1.00% to
9.05%. Variable rate advances total $61.0 million with rates immediately
adjustable based on LIBOR.
11. FEDERAL INCOME TAXES
The components of the provision for income taxes are as follows:
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------
Currently payable $ 8,027 $ 4,641 $ 2,116
Deferred 444 219 (423)
Increase in valuation allowance - (252) 585
- --------------------------------------------------------------------
$ 8,471 $ 4,608 $ 2,278
- --------------------------------------------------------------------
- --------------------------------------------------------------------
33
<PAGE>
The components of the net deferred tax asset as of December 31 are as
follows:
(in thousands) 1996 1995
- --------------------------------------------------------------------------
Deferred Tax Assets
Allowance for loan losses $ 5,783 $ 4,684
Allowance for other real estate losses 216 942
Net unrealized depreciation on securities
available-for-sale 312 -
Accrued expenses 320 718
Deferred compensation 207 209
Other 965 1,405
- -------------------------------------------------------------------------
Total deferred tax assets $ 7,803 $ 7,958
Deferred Tax Liabilities
Depreciation $ (3,569) $ (4,055)
Net unrealized appreciation on securities
available-for-sale - (302)
FHLB stock dividends (949) (658)
Other (854) (613)
- -------------------------------------------------------------------------
Total deferred tax liabilities $ (5,372) $ (5,628)
Valuation allowance (948) (803)
- -------------------------------------------------------------------------
Net deferred tax asset $ 1,483 $ 1,527
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
The valuation allowance is provided based on management's estimate of
future taxable income and on availability of refund of prior taxes paid. The
change in the valuation allowance relates to unrealized losses on securities
available-for-sale and had no impact on income tax expense.
A reconciliation between federal income tax at the statutory rate and
income tax expense is as follows:
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------
Tax at statutory rate $ 9,543 $ 5,398 $ 3,672
Tax-exempt interest (1,295) (1,349) (1,301)
Other, net 223 559 (93)
- -------------------------------------------------------------------------
$ 8,471 $ 4,608 $ 2,278
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
12. EMPLOYEE BENEFITS
The Corporation has a KSOP plan covering substantially all employees. Half
of the first 8% of wages contributed by an employee is matched and goes into the
savings and retirement portion of the plan. Employees may contribute additional
non-matched amounts up to maximum limits provided by IRS regulations, and the
Corporation may at its discretion, contribute an additional percentage of
covered employees' gross wages.
The Corporation currently contributes 4% of covered employees gross wages
to the employee stock ownership plan (ESOP) portion of the plan. The ESOP uses
the contribution to acquire shares of the Corporation's common stock. The ESOP
owned 428,350 shares of Corporation stock at December 31, 1996. Substantially
all shares owned by the ESOP were allocated to employees' accounts at December
31, 1996. 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 total retirement plan expense, including ESOP expense above, for 1996,
1995 and 1994 was $1.2 million, $1.1 million, and $1.1 million, respectively.
The Corporation maintains an incentive stock option plan covering key
employees. Approximately 450,000 shares have been authorized under the plan,
194,624 of which were available at December 31, 1996 for future grants. All
options granted have a maximum term of ten years. Options granted as management
retention options vest after five years, all other options vest ratably over
four years.
The Corporation has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value
34
<PAGE>
accounting provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation", requires use of option valuation models that were not
designed for use in valuing employee stock options. Under APB 25, because the
exercise price of all employee stock options equals the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized.
The Corporation's stock option activity and related information for the
periods ended December 31, 1996, and December 31, 1995, is summarized as
follows:
December 31,1996 December 31, 1995
---------------- ----------------
Weighted- Weighted-
Average Average
Options Exercise Options Exercise
Price Price
- --------------------------------------------------------------------------------
Outstanding at beginning of period 68,067 $16.79 68,593 $15.28
Granted 171,989 20.53 8,854 22.02
Exercised (4,500) 12.00 (6,818) 11.46
Forfeited/Expired (3,435) 24.24 (2,562) 21.76
- --------------------------------------------------------------------------------
Outstanding at end of period 232,121 $19.78 68,067 $16.79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exercisable at end of period 47,189 $15.52 41,331 $14.25
The weighted-average fair value of options granted during the years 1995
and 1996 was $4.68 and $5.07 per share, respectively. Exercise prices for
options outstanding as of December 31, 1996 ranged from $10.67 to $34.50. The
weighted-average remaining contractual life of these options is 9.1 years.
The fair value of the options presented above was estimated at the date of
the grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1996 and 1995, respectively: risk-free interest rates
of 6.75% and 6.25%; dividend yields of 3.27% and 3.74%; volatility factors of
the expected market price of the Corporation's common stock of .230 and .219 and
a weighted average expected option life of 6.0 years. Because the effect of
applying Statement 123's fair value method to the Corporation's stock options
results in net income and earnings per share amounts that are not materially
different from those reported in the consolidated statements of income, pro
forma information has not been provided.
13. OPERATING LEASES
Certain premises and equipment are leased under operating leases. Minimum
rental payments are as follows:
(in thousands)
- ----------------------------------------
1997 $ 750
1998 664
1999 579
2000 414
2001 231
Thereafter 3,727
- ----------------------------------------
$ 6,365
- ----------------------------------------
- ----------------------------------------
Rental expense under operating leases was $0.8 million, $1.2 million, and
$1.2 million in 1996, 1995 and 1994, respectively.
35
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
Securities - Fair values are based on quoted market prices or dealer
quotes.
Loans and Loans Held for Sale - 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.
Deposits - The fair value of demand deposits, savings accounts and money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Short-Term Borrowings - 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 the
rates currently offered for advances of similar remaining maturities.
Long-Term Debt - The interest rate on the Corporation's long-term debt is
variable or approximates current market rates for similar instruments and
therefore 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, 1996 and 1995 and is not considered significant.
1996 1995
Estimated Estimated
Carrying Fair Carrying Fair
December 31 (in thousands) Amount Value Amount Value
- -------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 63,884 $ 63,884 $ 107,012 $ 107,012
Securities 367,685 365,335 430,438 430,032
Loans 1,309,623 1,323,615 1,115,068 1,119,240
Less: allowance for
loan losses (18,825) (18,825) (16,082) (16,082)
- -------------------------------------------------------------------------------
$1,722,367 $1,734,009 $1,636,436 $1,640,202
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Financial liabilities:
Deposits $1,480,822 $1,489,020 $1,467,443 $1,469,866
Short-term borrowings 44,584 44,584 20,383 20,383
Advances from Federal Home
Loan Bank 110,969 111,939 63,629 63,802
Long-term debt 19,136 19,136 27,873 27,873
- -------------------------------------------------------------------------------
$1,655,511 $1,664,679 $1,579,328 $1,581,924
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15. OFF-BALANCE SHEET TRANSACTIONS
The Corporation's banking subsidiaries are a party to transactions with
off-balance sheet risk in the normal course of business to meet the financing
needs of their customers. These financial instruments include standby letters
of credit and commitments to extend credit in the form of unused lines of
credit. The Corporation's banking subsidiaries use the same credit policies in
making commitments and conditional obligations as they do for on-balance sheet
instruments and include these commitments and conditional obligations in their
calculations as to the adequacy of their allowances for loan losses.
At December 31, the Banks had the following financial instruments, whose
approximate contract amounts represent credit risk:
(in thousands) 1996 1995
------------------------------------------------------------
Standby letters of credit $ 16,047 $ 16,854
Commitments to extend credit 145,292 118,958
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.
36
<PAGE>
Fixed rate loan commitments at December 31, 1996 of $7.4 million have
interest rates ranging predominately from 5.8% to 12.0% and are for terms up to
5 years. Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
The Banks evaluate 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 are to extend credit at fixed rates.
These credit commitments are based on prevailing rates, terms and conditions
applicable to other loans being made at December 31, 1996. Collateral held
varies but may include accounts receivable, inventory, property and equipment
and income-producing properties.
During 1994, the Corporation entered into a 3 year interest rate swap as a
hedge for its fixed rate long-term debt. Semiannually, the Corporation receives
interest at a fixed rate of 5.5% and pays interest at LIBOR. Interest is
computed on a notional amount of $10 million. During 1996, the Corporation
recognized $16 thousand as expense on this agreement. LIBOR may change
substantially in the future due to market factors. The fair value of this
financial instrument for its remaining term is not material.
16. CONCENTRATION OF CREDIT RISK
The Corporation's banking subsidiaries grant commercial, residential and
consumer related loans to customers primarily located in eastern and central
Kentucky. Although the Corporation's banking subsidiaries have diverse loan
portfolios, a certain portion of the debtors' ability to perform is somewhat
dependent upon the coal industry.
17. COMMITMENTS AND CONTINGENCIES
The Corporation's banking subsidiaries and certain officers are named
defendants in legal actions from normal business activities. Management, after
consultation with legal counsel, believes these actions are without merit or
that the ultimate liability, if any, will not materially affect the
Corporation's consolidated financial position or results of operations.
18. LIMITATION ON SUBSIDIARY BANK DIVIDENDS
The Corporation's principal source of funds is dividends received from the
subsidiary banks. Regulations limit the amount of dividends that may be paid by
the Corporation's banking subsidiaries without prior approval. During 1997,
approximately $3.4 million plus any 1997 net profits can be paid by the
Corporation's banking subsidiaries without prior regulatory approval.
37
<PAGE>
19. REGULATORY MATTERS
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory --
and possibly additional discretionary -- actions by regulators that, if
undertaken, could have a direct material adverse effect on the Corporation's
financial statements. Under capital adequacy and the regulatory framework for
prompt corrective action, the Corporation must meet specific capital guidelines
that involve quantitative measures of the Corporation's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Corporation's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I Capital (as defined) to average
assets (as defined). These measures also define banks and bank holding
companies as "well-capitalized" which meet or exceed higher minimum amounts and
ratios (also set forth in the table below.) Management believes, as of December
31, 1996, that the Corporation meets all capital adequacy requirements for which
it is subject to be defined as well-capitalized.
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
(in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital
(to Risk Weighted Assets) $141,339 10.96% $103,152 8.00% $128,940 10.00%
Tier I Capital
(to Risk Weighted Assets) 125,188 9.71% 51,576 4.00% 77,364 6.00%
Tier I Capital
(to Average Assets) 125,188 7.05% 71,052 4.00% 88,815 5.00%
AS OF DECEMBER 31, 1995
Total Capital
(to Risk Weighted Assets) $126,788 11.51% $88,103 8.00% $110,129 10.00%
Tier I Capital
(to Risk Weighted Assets) 112,745 10.24% 44,051 4.00% 66,077 6.00%
Tier I Capital
(to Average Assets) 112,745 6.44% 70,011 4.00% 87,514 5.00%
</TABLE>
38
<PAGE>
20. PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash on deposit $ 2,085 $ 3,336
Securities available-for-sale 5,001 4,319
Investment in and advances to subsidiary banks 147,276 141,472
Excess of cost over net assets acquired (net of
accumulated amortization) 8,069 8,543
Other assets 6,205 6,994
- --------------------------------------------------------------------------------
Total Assets $ 168,636 $ 164,664
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 2,531 $ 2,531
Long-term debt 17,230 24,930
Other liabilities 4,121 3,408
- --------------------------------------------------------------------------------
Total liabilities 23,882 30,869
Shareholders' equity 144,754 133,795
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 168,636 $ 164,664
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Income:
Dividends from subsidiary banks $ 22,999 $ 21,038 $ 13,472
Other income 8,358 3,771 1,886
- --------------------------------------------------------------------------------
Total income 31,357 24,809 15,358
Expenses:
Interest expense 1,874 2,216 1,784
Amortization expense 474 467 459
Other expenses 12,519 10,206 10,031
- --------------------------------------------------------------------------------
Total expenses 14,867 12,889 12,274
- --------------------------------------------------------------------------------
Income before income taxes and equity
in undistributed income of subsidiaries 16,490 11,920 3,084
Income tax benefit (2,415) (2,993) (3,475)
- --------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 18,905 14,913 6,559
Equity in undistributed income
of subsidiaries (110) (4,100) 1,653
- --------------------------------------------------------------------------------
Net Income $ 18,795 $ 10,813 $ 8,212
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
39
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 18,795 $ 10,813 $ 8,212
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization, net 474 199 489
Equity in undistributed earnings of
subsidiaries 110 4,100 (1,653)
Change in other assets and liabilities, net (4,934) 1,449 110
- --------------------------------------------------------------------------------
Net cash provided by operating activities 14,445 16,561 7,158
Cash Flows From Investing Activities:
Change in securities available-for-sale (481) (150) (3,860)
Investments in and advances to subsidiaries (1,000) (14,918) -
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,481) (15,068) (3,860)
Cash Flows From Financing Activities:
Dividends paid (6,569) (5,385) (4,580)
Net proceeds from issuance of common stock 54 315 7,813
Net change in short-term borrowings - 531 2,000
Repayment of long-term debt (8,700) (9,800) (9,490)
Proceeds from long-term debt 1,000 13,500 -
- --------------------------------------------------------------------------------
Net cash used in financing activities (14,215) (839) (4,257)
- --------------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (1,251) 654 (959)
Cash and cash equivalents at beginning of year 3,336 2,682 3,641
- --------------------------------------------------------------------------------
Cash and Cash Equivalents At End of Year $ 2,085 $ 3,336 $ 2,682
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
40
<PAGE>
Report of Management
The management of Community Trust Bancorp, Inc. has the responsibility for
the preparation, integrity and reliability of the financial statements and
related financial information contained in this annual report. Management
believes the consolidated financial statements and related financial information
reflect fairly the substance of the transactions and present fairly the
Corporation's financial position and results of operations in conformity with
generally accepted accounting principles and prevailing practices within the
banking industry including necessary judgments and estimates as required.
In meeting its responsibilities for the reliability of the financial
statements and related financial information, management has established and is
responsible for maintaining a system of internal accounting controls. The
system is designed to provide reasonable assurance that assets are safeguarded
and that transactions are properly authorized and recorded to facilitate
preparation of financial statements which present fairly the financial position
and results of operations of the Corporation in accordance with generally
accepted accounting principles. Although internal accounting controls are
designed to achieve these objectives, it must be recognized that errors or
irregularities may nonetheless occur. Management believes that its system of
internal accounting controls provides reasonable assurance that errors or
irregularities that could be material to the financial statements are prevented
or would be detected within a reasonable period of time in the normal course of
business. A vital part of the system is a continual and thorough internal audit
program.
The board of directors of the Corporation has an audit committee composed
of six directors who are not officers or employees of the Corporation. The
committee meets periodically with management, internal auditors and the
independent public accountants to review audit results and to assure that the
audit and internal control functions are being properly discharged.
Ernst & Young LLP, independent public accountants have been engaged to
render an independent professional opinion on the Corporation's financial
statements. Their audit is conducted in accordance with generally accepted
auditing standards and forms the basis for their reports as to the fair
presentation of the Corporation's financial position and results of operations
contained in this annual report.
Management has made an assessment of the Corporation's internal control
structure and procedures over financial reporting using the criteria described
in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring
Organization of the Treadway Commission. Based on that assessment, management
believes that the Corporation maintained an effective system of internal control
for financial reporting as of December 31, 1996
Burlin Coleman
Chairman, President and Chief Executive Officer
Richard M. Levy
Executive Vice President and Chief Financial Officer
41
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Shareholders
Community Trust Bancorp, Inc.
We have audited the accompanying consolidated balance sheet of Community Trust
Bancorp, Inc. and subsidiaries at December 31,1996 and the related consolidated
statements of income, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with general accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Community Trust Bancorp, Inc., and subsidiaries at December 31, 1996 and
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
January 13, 1997 Ernst & Young LLP
Columbus, Ohio
42
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Community Trust Bancorp, Inc.
Pikeville, Kentucky
We have audited the accompanying consolidated balance sheet of Community
Trust Bancorp, Inc. (formerly Pikeville National Corporation) as of December 31,
1995 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the years ended December 31, 1995 and 1994. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 Community
Trust Bancorp, Inc. as of December 31, 1995 and the results of its operations
and its cash flows for the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation changed its method of accounting for impaired loans effective
January 1, 1995, and for securities effective January 1, 1994.
Crowe, Chizek and Company LLP
South Bend, Indiana
January 13, 1996
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Corporation's Audit Committee replaced Crowe, Chizek and Company LLP
with Ernst & Young LLP as its independent auditors for 1996. Crowe, Chizek and
Company LLP had issued an unqualified opinion on the Corporation's 1995
consolidated financial statements. There were no disagreements with the present
or former accountants on any matter of accounting principles or practices,
financial statement disclosure, or scope of auditing procedures. The
Corporation has authorized the former accountant to respond fully to the
inquiries of the successor accountant. For further information, refer to the
Corporation's 8-K filed with the Securities and Exchange Commission for the
event of January 23, 1996.
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by these Items other than the information set
forth above under Part I, "Executive Officers of Registrant", is omitted because
the Corporation 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 the Corporation's proxy statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules- See Index to
consolidated Financial statements at Item 8 of this report.
Exhibit
No. Description of Exhibits
2.1 Agreement and Plan of Reorganization dated September 27, 1994
between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc.
(Incorporated by reference to registration statement no.
33-90448).
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
September 27, 1994 between Community Trust Bancorp, Inc. and
Woodford Bancorp, Inc., as amended February 7, 1995 (Incorporated
by reference to registration statement no. 33-90448).
2.3 Amendment No. 2 to Agreement and Plan of Reorganization dated
September 27, 1994 between Community Trust Bancorp, Inc. and
Woodford Bancorp, Inc., as amended March 2, 1995 (Incorporated by
reference to registration statement no. 33-90448).
3.1 Articles of Incorporation and all amendments thereto
(Incorporated by reference to registration statement no.
33-35138).
3.2 By-laws of the Corporations, as amended July 25,1995
(Incorporated by reference to registration statement no.
33-61891).
10.1 Community Trust Bancorp, Inc. Savings and Employee Stock
Ownership Plan (Incorporated by reference to registration
statement no. 33-18961).
10.2 Second restated Community Trust Bancorp, Inc. 1989 Stock Option
Plan (Incorporated by reference to registration statement no.
33-36165).
21 List of subsidiaries.
23 Consent of Crowe, Chizek and Company LLP, Independent Public
Accountants.
23.1 Consent of Ernst & Young LLP, Independent Public Accountants.
27 Financial Data Schedule.
44
<PAGE>
(b) Reports on Form 8-K required to be filed during the last quarter of 1996
The Corporation incorporates by reference Forms 8-K filed with the
Commission on November 5, 1996 and December 9, 1996.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedules
None.
45
<PAGE>
SIGNATURES
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.
March 21, 1997 By: Richard M. Levy
-----------------------------------
Richard M. Levy
Executive Vice President
Principal Financial Officer
46
<PAGE>
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 Corporation and
in the capacities and on the date indicated.
Chairman of the Board,
President, Chief Executive
February 25, 1997 Burlin Coleman Officer and Director
-- -----------------------------
Burlin Coleman
February 25, 1997 Charles J. Baird Director
-- -----------------------------
Charles J. Baird
February 25, 1997 Nick A. Cooley Director
-- -----------------------------
Nick A. Cooley
February 25, 1997 William A. Graham, Jr. Director
-- -----------------------------
William A. Graham, Jr.
February 25, 1997 Jean R. Hale Secretary & Director
-- ------------------------
Jean R. Hale
February , 1997 Vice Chairman & Director
-- ------------------------
Brandt Mullins
February 25, 1997 M. Lynn Parrish Director
-- ------------------------
M. Lynn Parrish
February 25, 1997 E. M. Rogers Director
-- ------------------------
E. M. Rogers
February 25, 1997 Porter P. Welch Director
-- ------------------------
Porter P. Welch
47
<PAGE>
COMMUNITY TRUST BANCORP, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No.
-----------
2.1 Agreement and plan of reorganization dated September 27, 1994
between Community Trust Bancorp, Inc. and Woodford Bancorp, Inc.,
incorporated herein by reference.
2.2 Amendment No. 1 to Agreement and Plan of reorganization dated
September 27, 1994 between Community Trust Bancorp, Inc. and
Woodford Bancorp, Inc., as amended February 7, 1995 and
incorporated herein by reference.
2.3 Amendment No. 2 to Agreement and Plan of reorganization dated
September 27, 1994 between Community Trust Bancorp, Inc. and
Woodford Bancorp, Inc., as amended March 2, 1995 and incorporated
herein by reference.
3.1 Articles of Incorporation for the Company, incorporated herein by
reference.
3.2 By-laws of the Company as amended through the date of this
filing, incorporated herein by reference.
10.1 Community Trust Bancorp, Inc. Savings and Employee Stock
Ownership Plan, incorporated herein by reference.
10.2 Second restated Community Trust Bancorp, Inc. 1989 stock option
plan, incorporated herein by reference.
21 List of subsidiaries.
23 Consent of Crowe, Chizek and Company LLP, Independent Public
Accountants.
23.1 Consent of Ernst & Young LLP, Independent Public Accountants.
51
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
The Corporation has four subsidiaries as of January 1, 1997.
<TABLE>
<CAPTION>
Percent
Voting Stock
Jurisdiction of Shares Owned held by
Organization By Corporation Corporation
---------------- --------------- -------------
<S> <C> <C> <C>
Community Trust Bank, NA United States 285,000 Common 100%
Pikeville, Kentucky
Commercial Bank Kentucky 5,670 Common 100%
West Liberty,
Kentucky
Community Trust Bank, FSB United States 100 Common 100%
Campbellsville,
Kentucky
Trust Company of Kentucky 500 Common 100%
Kentucky
Ashland, Kentucky
</TABLE>
All shares of Community Trust Bank, FSB are pledged as collateral on the
bank note outstanding to Star Bank, Cincinnati, Ohio.
48
<PAGE>
EXHIBIT 23
Consent of Independent Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-36165) pertaining to the Community Trust Bancorp,
Inc. 1989 Stock Option Plan of our report dated January 13, 1996 with respect to
the consolidated financial statements of Community Trust Bancorp, Inc. (formerly
Pikeville National Corporation) included in the Annual Report (Form 10-K) for
the year ended December 31, 1995.
Crowe, Chizek and Company LLP
South Bend, Indiana
March 14, 1997
49
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-36165) pertaining to the Community Trust Bancorp, Inc. 1989 Stock
Option Plan of our report dated January 13, 1997 with respect to the
consolidated financial statements of Community Trust Bancorp, Inc. included in
the Annual Report (Form 10-K) for the year ended December 31, 1996.
Ernst & Young LLP
Columbus, Ohio
March 14, 1997
50
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 63,884
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 229,952
<INVESTMENTS-CARRYING> 137,733
<INVESTMENTS-MARKET> 135,383
<LOANS> 1,309,623
<ALLOWANCE> (18,825)
<TOTAL-ASSETS> 1,815,660
<DEPOSITS> 1,480,822
<SHORT-TERM> 44,585
<LIABILITIES-OTHER> 15,394
<LONG-TERM> 130,105
0
0
<COMMON> 45,644
<OTHER-SE> 99,110
<TOTAL-LIABILITIES-AND-EQUITY> 1,815,660
<INTEREST-LOAN> 118,640
<INTEREST-INVEST> 25,268
<INTEREST-OTHER> 539
<INTEREST-TOTAL> 144,447
<INTEREST-DEPOSIT> 60,576
<INTEREST-EXPENSE> 69,092
<INTEREST-INCOME-NET> 75,355
<LOAN-LOSSES> (7,285)
<SECURITIES-GAINS> 88
<EXPENSE-OTHER> 12,791
<INCOME-PRETAX> 27,266
<INCOME-PRE-EXTRAORDINARY> 18,795
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,795
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 2.06
<YIELD-ACTUAL> 8.99
<LOANS-NON> 10,156
<LOANS-PAST> 5,800
<LOANS-TROUBLED> 630
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,082
<CHARGE-OFFS> 6,988
<RECOVERIES> 2,446
<ALLOWANCE-CLOSE> 18,825
<ALLOWANCE-DOMESTIC> 9,411
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,414
</TABLE>
