<PAGE>
Filed Pursuant to Rule No. 424(B)(1)
Registration Nos. 333-23957, 333-23957-01
PROSPECTUS
1,200,000 PREFERRED SECURITIES
CTBI PREFERRED CAPITAL TRUST
9.0% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
LOGO
--------------
The 9.0% Cumulative Trust Preferred Securities ("Preferred Securities")
offered hereby represent preferred undivided beneficial interests in CTBI
Preferred Capital Trust, a trust created under the laws of the State of
Delaware ("CTBI Trust"). Community Trust Bancorp, Inc., a Kentucky corporation
("Company"), will own all of the beneficial interests represented by common
securities of CTBI Trust ("Common Securities"). State Street Bank and Trust
Company is the Property Trustee of CTBI Trust. CTBI Trust exists for the sole
purpose of issuing the Preferred Securities and Common Securities and
investing the proceeds thereof in an equivalent amount of 9.0% Subordinated
Debentures ("Subordinated Debentures") to be issued by the Company.
(Continued on Next Page)
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE
PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITY COMMISSION, NOR HAS THE
SECURITIES EXCHANGE COMMISSION, OR ANY STATE SECURITY COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
THESE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR SAVINGS ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL GOVERNMENT OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS
PRICE TO AND COMMISSIONS PROCEEDS TO
THE PUBLIC (1)(2)(3) TRUST (1)(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security................ $25.00 (2) $25.00
- --------------------------------------------------------------------------------
Total (4)............................. $30,000,000 (2) $30,000,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Company and CTBI Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(2) Because the proceeds of the sale of the Preferred Securities will be
invested in the Subordinated Debentures, the Company has agreed to pay the
Underwriters, as compensation (the "Underwriters' Compensation") for
arranging the investment therein of such proceeds, $.875 per Preferred
Security (or, in the aggregate, $1,050,000). See "Underwriting."
(3) Expenses of the offering to be paid by the Company are estimated to be
approximately $175,000.
(4) CTBI Trust has granted the underwriters an option for 30 days to purchase
up to an additional 180,000 shares of Preferred Securities on the same
terms set forth above solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public and Proceeds to
CTBI Trust will be $34,500,000 and the aggregate underwriters compensation
will be $1,207,500. See "Underwriting."
--------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that the Preferred Securities will be ready for delivery in book-
entry form only through the facilities of The Depository Trust Company on or
about April 16, 1997, against payment therefor in immediately-available funds.
--------------
MORGAN KEEGAN & COMPANY, INC. J.J.B. HILLIARD, W.L. LYONS, INC.
April 10, 1997
<PAGE>
(continued from previous page)
The Subordinated Debentures will mature on March 31, 2027, which date may be
(1) shortened to a date not earlier than March 31, 2007, or (2) extended to a
date not later than March 31, 2036, in each case if certain conditions are met
(including, in the case of shortening the Stated Maturity (as defined herein),
the Company having received prior approval of the Board of Governors of the
Federal Reserve System ("Federal Reserve") to do so if then required under
applicable capital guidelines or policies of the Federal Reserve). The
Subordinated Debentures will be the unsecured obligations of the Company and
will be subordinate and junior in right of payment to Senior Debt,
Subordinated Debt and, under certain circumstances, Additional Senior
Obligations of the Company, as described herein. See "Description of the
Subordinated Debentures--Subordination" in this Prospectus.
The Preferred Securities will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. See "Description of the
Preferred Securities--Subordination of Common Securities." Holders of
Preferred Securities will be entitled to receive preferential cumulative cash
distributions ("Distributions") accruing from the date of original issuance
and payable quarterly in arrears on the last day of March, June, September and
December of each year (each, a "Distribution Date"), commencing on June 30,
1997, at the annual rate of 9.0% ("Securities Rate") of the Liquidation Amount
of $25 per Preferred Security. The Company has the right to defer payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not to exceed 20 consecutive quarters with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will
also be deferred, and the Company will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to its capital stock or debt securities that rank pari passu with or
junior to the Subordinated Debentures. DURING AN EXTENSION PERIOD, INTEREST ON
THE SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE AMOUNT OF
DISTRIBUTIONS TO WHICH HOLDERS OF THE PREFERRED SECURITIES ARE ENTITLED WILL
ACCUMULATE) AT THE RATE OF 9.0% PER ANNUM, COMPOUNDED QUARTERLY, AND HOLDERS
OF THE PREFERRED SECURITIES WILL BE REQUIRED TO INCLUDE INTEREST INCOME (IN
THE FORM OF ORIGINAL ISSUE DISCOUNT) IN THEIR GROSS INCOME FOR UNITED STATES
FEDERAL INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS
WITH RESPECT TO SUCH DEFERRED INTEREST PAYMENTS. See "Description of
Subordinated Debentures--Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Potential Extension of Interest
Payment Period and Original Issue Discount."
The Company has, through the Guarantee, CTBI Trust Agreement, Subordinated
Debentures, Indenture and other documents (each as defined herein), taken
together, fully, irrevocably and unconditionally guaranteed, on a subordinated
basis, all of CTBI Trust's obligations under the Preferred Securities. See
"Relationship Among the Preferred Securities, the Subordinated Debentures and
the Guarantee--Full and Unconditional Guarantee." The Guarantee of the Company
guarantees the payments of Distributions and payments on liquidation or
redemption of the Preferred Securities, but only in each case to the extent of
funds held by CTBI Trust, as described herein. See "Description of Guarantee."
If the Company does not make interest payments on the Subordinated Debentures
held by CTBI Trust, CTBI Trust will have insufficient funds to pay
Distributions on the Preferred Securities. The Guarantee does not cover
payments of Distributions when CTBI Trust does not have sufficient funds to
pay such Distributions. The obligations of the Company under the Guarantee and
the Preferred Securities are subordinate and junior in right and payment to
all Senior Debt, Subordinated Debt and, under certain circumstances,
Additional Senior Obligations. The Subordinated Debentures will be pari passu
with preferred stock issued by the Company, if any, and senior to the
Company's common stock (each as defined in "Description of Subordinated
Debentures--Subordination").
The Preferred Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debentures at maturity or their
earlier redemption. Subject to Federal Reserve approval, if then required, the
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (1) on or
ii
<PAGE>
after March 31, 2007, in whole at any time or in part from time to time, or
(2) at any time, in whole (but not in part), upon the occurrence and during
the continuance of a Tax Event, an Investment Company Event or a Capital Event
(as described herein), in each case at a redemption price equal to the accrued
and unpaid interest on the Subordinated Debentures so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof. See
"Description of the Preferred Securities--Redemption."
The Company will have the right at any time to terminate the Preferred
Securities and cause the Subordinated Debentures to be distributed to holders
of Preferred Securities in liquidation of the CTBI Trust, subject to the
Company having received prior approval of the Federal Reserve to do so if then
required under applicable capital guidelines or policies of the Federal
Reserve. See "Description of the Preferred Securities--Redemption." The
Subordinated Debentures are unsecured and subordinated to all Senior Debt,
Subordinated Debt and, under certain circumstances, Additional Senior
Obligations.
In the event of the termination of CTBI Trust, after satisfaction of
liabilities to creditors of CTBI Trust as required by applicable law, the
holders of Preferred Securities will be entitled to receive a Liquidation
Amount of $25 per Preferred Security, plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of a like amount of Subordinated Debentures, subject to certain
exceptions. See "Description of the Preferred Securities--Liquidation
Distribution Upon Termination."
The Company and CTBI Trust have applied for quotation of the Preferred
Securities, and expect the Preferred Securities to be traded, on The Nasdaq
Stock Market's National Market within 30 days of the date of this Prospectus
under the symbol "CTBIP."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
NASDAQ OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
iii
<PAGE>
[MAP OF BANK TERRITORY APPEARS HERE]
Ashland
Main Office
1544 Winchester Ave.
Ashland, KY 41101
Express Center (ATM)
344 16th Street
Ashland, KY 41101
South Ashland Branch (ATM)
2101 29th Street
Ashland, KY 41101
Westwood Branch
721 Wheatley Road
Ashland, KY 41101
Summit Branch (ATM)
7100 U.S. Route 60
Ashland, KY 41101
Ashland Town Center (ATM)
500 Winchester Ave.
Ashland, KY 41101
Russell Office
ATM location at Russell Road Supermarket
Campbellsville
Corporate Headquarters & Annex
1218 East Broadway
Campbellsville, KY 42718
Columbia Office
710 Russell Road
Columbia, KY 42728
Greensburg Office
205 South Main St.
P.O. Box 370
Greensburg, KY 42743
First Street Office (ATM)
315 E. First St.
Campbellsville, KY 42719
Somerset Office (ATM)
3809 S. Highway 27
Somerset, KY 42502
Winn Dixie #1602 (ATM)
181 South Highway 27
Somerset, KY 42502
Jamestown Office
U.S. Highway 127N
Jamestown, KY 42629
Lebanon Office (ATM)
507 W. Main St.
Lebanon, KY 40033
Additional ATM Locations:
Wal-Mart: Berea, Corbin, Georgetown, London, Paintsville, Paris, Somerset,
Winchester
Flemingsburg
Main Office
101 N. Main Cross St.
Flemingsburg, KY 41041
South Ridge Plaza
100 Clark Street
Flemingsburg, KY 41041
By-Pass Branch (ATM)
200 Ashbrook Drive
Flemingsburg, KY 41041
Ewing Branch
Ewing, KY 41039
Lexington
Main Street Branch
155 East Main Street
Lexington, KY 40507
iv
<PAGE>
Beaumont Centre Branch (ATM)
901 Beaumont Centre Parkway
Lexington, KY 40513
Winn Dixie Richmond Road
Mist Lake Plaza
Lexington, KY 40517
Winn Dixie Saron Drive
Tales Creek South Shopping Center
Lexington, KY 40515
London
London Banking Office (ATM)
1706 West Highway 192
London, KY 40741
Middlesboro
Main Office
1918 Cumberland Avenue
Middlesboro, KY 40965
West Branch
West Camberland Avenue & 38th St.
Middlesboro, KY 40965
East Branch (ATM)
1206 East Cumberland Avenue
Middlesboro, KY 40965
Pineville Branch (ATM)
US 25 East
Pineville, KY 40977
Mt. Sterling
Main Office
P.O. Box 306
Corner of High & Maysville Streets
Mt. Sterling, KY 40353
North Branch
Evans Drive
Mt. Sterling, KY 40353
Mt. Sterling Plaza - (ATM location only)
Maysville Road
Mt. Sterling, KY 40353
Wal-Mart Superstore Branch (ATM)
196 Indian Mound Drive
Mt. Sterling, KY 40353
ATM Location at Whitesburg Wal-Mart
Pikeville
Main Office (ATM)
208 North Mayo Trail
Pikeville, KY 41501-2947
Elkhorn City Branch
P.O. Box 740
Elkhorn City, KY 41522
Knott County Branch (ATM)
Main Street
Hindman, KY 41822
Floyd County Branch (ATM)
P.O. Box 636
Prestonsburg, KY 41653
Main Street Branch
317-319 Main Street
Pikeville, KY 41501
Marrowbone Branch
P.O. Box 89
Regina, KY 41599
Mouthcard Branch
P.O. Box 39
Mouthcard, KY 41540
Phelps Branch
P.O. Box 86
Phelps, KY 41553
Town and Country Branch
Town and Country Shopping Center
Pikeville, KY 41501
Tug Valley Branch (ATM)
South Williamson, KY 25661
Virgie Branch
Virgie, KY 41572
Weddington Plaza Branch (ATM)
4205 North Mayo Trail
Pikeville, KY 41501
Additional ATM Locations:
Pikeville Wal-Mart
Prestonsburg Wal-Mart
Pikeville Methodist Hospital
Lexington Wal-Mart
Versailles
Main Office (ATM)
101 N. Main St.
480 Lexington Road
Versailles, KY 40383
Woodford Plaza (ATM)
P.O. Box 709
Versailles, KY 40383
West Liberty:
Commercial Bank
550 Main Street
West Liberty, KY 41472
Whitesburg
Main Branch
112 W. Main
Whitesburg, KY 41858
West Whitesburg Branch (ATM)
353 Hazard Road
Whitesburg, KY 41858
Ermine Branch
782 Jenkins Road
Whitesburg, KY 41858
Isom Branch
Jeremiah, KY 41826
Neon Branch
Neon, KY 41840
Williamsburg
Main Office (ATM)
201 N. Third St.
Williamsburg, KY 40769
Cumberland Region Shopping Center (ATM)
895 Hwy 25W South
Williamsburg, KY 40769
ATM Located in Cumberland Shopping Center Wal-Mart store.
Trust Company of Kentucky
Lexington Office:
100 Vine Street-4th Floor
Lexington, KY 40507
Ashland Office:
1544 Winchester Avenue
Ashland, KY 41105
Pikeville Office:
208 North Mayo Trail
Pikeville, KY 41502
Louisville Office:
4350 Brownsboro Road-Suite 170
Louisville, KY 40207
Middlesboro Office:
1918 Cumberland Ave.
Middlesboro, KY 40965
v
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised.
THE COMPANY
Community Trust Bancorp, Inc. is a bank holding company and a thrift holding
company headquartered in Pikeville, Kentucky. The Company currently owns all of
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. As of December 31, 1996, the Company had total consolidated assets of
$1.8 billion and total consolidated deposits of $1.5 billion, making it one of
the largest independent bank holding companies headquartered in the
Commonwealth of Kentucky. Effective January 1, 1997, the Company changed its
name from Pikeville National Corporation to Community Trust Bancorp, Inc. and
changed the name of its lead bank from Pikeville National Bank & Trust Company
to Community Trust Bank, N.A. (the "Lead Bank").
Through its subsidiaries, the Company 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 Banks (as defined
herein) include making commercial, construction, mortgage, personal and
consumer 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.
The Company's long-term strategy is to grow its traditional banking
activities through both acquisition and de novo expansion. The Company is
focused on the continuing growth of its indirect and commercial lending
businesses and the introduction and promotion of enhanced financial products
for both business and individual customers.
CTBI TRUST
CTBI Trust is a Delaware business trust. State Street Bank and Trust Company,
Boston, Massachusetts will serve as the trustee under the Indenture ("Debenture
Trustee"), the property trustee under the CTBI Trust Agreement ("Property
Trustee"), and the trustee under the Guarantee ("Guarantee Trustee"). Richard
M. Levy and Jean R. Hale, both executive officers of the Company, will serve as
the Administrative Trustees of CTBI Trust ("Administrative Trustees").
Wilmington Trust Company will serve as the Delaware trustee under the CTBI
Trust Agreement ("Delaware Trustee"). CTBI Trust's sole purpose will be to
issue the Common Securities and the Preferred Securities and hold the
Subordinated Debentures. The Administrative Trustees, the Property Trustee and
the Delaware Trustee are sometimes collectively referred to herein as the
"Securities Trustees."
1
<PAGE>
THE OFFERING
Securities Offered........ 1,200,000 shares of 9.0% Preferred Securities,
liquidation amount $25 per Preferred Security
("Liquidation Amount"), evidencing preferred
undivided beneficial interests in the assets of
CTBI Trust.
Offering Price............ $25 per Preferred Security.
Distribution Dates........ The last day of each of March, June, September and
December of each year, beginning June 30, 1997.
Stated Maturity........... March 31, 2027, unless extended or shortened as
provided herein.
Subordinated Debentures... CTBI Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of 9.0%
subordinated debentures due March 31, 2027
("Subordinated Debentures"). The Subordinated
Debentures will be subordinate and junior in right
of payment to all current indebtedness for borrowed
money and other obligations of the Company included
in the definition of Senior Debt, Subordinated Debt
and, under certain circumstances, Additional Senior
Obligations. See "Description of the Subordinated
Debentures--Subordination."
Guarantee................. The payment of distributions of the Preferred
Securities is guaranteed by the Company under the
Guarantee, but only to the extent CTBI Trust has
funds legally and immediately available to make
such distributions. If the Company does not make
principal or interest payments of the Subordinated
Debentures, CTBI Trust will not have sufficient
funds to make distributions on the Preferred
Securities, in which event the Guarantee will not
apply to such distributions until CTBI Trust has
sufficient funds legally available therefor. The
obligations of the Company under the Guarantee will
be subordinate and junior in right of payment to
all other liabilities of the Company. The Company
has, through the Guarantee, the Indenture, the
Subordinated Debentures, the CTBI Trust Agreement
and the Agreement as to Expenses and Liabilities
("Agreement as to Expenses and Liabilities"), fully
and unconditionally guaranteed, subject to certain
subordination provisions, all of CTBI Trust's
obligations with respect to the Preferred
Securities. See "Risk Factors--Risk Factors
Relating to the Preferred Securities" and "--
Ranking of Subordinated Obligations Under the
Guarantee and the Subordinated Debentures" "Rights
Under the Guarantee" and "Description of
Guarantee."
Interest Deferral......... The Company has the right to defer payments of
interest on the Subordinated Debentures by
extending the interest payment period on the
Subordinated Debentures, at any time and from time
to time, for up to 20 consecutive quarters (each,
an "Extension Period"). The only restrictions
arising from the Company's deferral of payments of
interest are that during the Extension Period the
Company may not (subject to certain allowances) (i)
pay dividends on or redeem any of its capital stock
or (ii) pay principal or interest on any debt
securities ranking pari
2
<PAGE>
passu or subordinate to the Subordinated
Debentures. See "Description of the Preferred
Securities--Distributions--Extension Period." There
could be multiple Extension Periods of varying
lengths (none exceeding 20 consecutive calendar
quarters) throughout the term of the Subordinated
Debentures. All interest payments deferred during
an Extension Period must be paid prior to a
subsequent election by the Company to institute an
Extension Period.
If interest payments on the Subordinated Debentures
are deferred, distributions on the Preferred
Securities will also be deferred. During an
Extension Period, holders of Preferred Securities
will continue to accrue income for federal income
tax purposes in advance of the receipt of the cash
payments attributable to such deferred interest.
See "Description of the Subordinated Debentures--
Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Considerations--
Potential Extension of Interest Payment Period and
Original Issue Discount" and "--Market Discount and
Acquisition Premium." Deferred interest will bear
interest, compounded quarterly, at a rate per annum
equal to the Securities Rate from the date of
deferral to the date of payment.
Redemption................ The Preferred Securities are subject to mandatory
redemption upon repayment of the Subordinated
Debentures at maturity or their earlier redemption.
The Subordinated Debentures are redeemable by the
Company (in whole or in part), from time to time on
or after March 31, 2007, or at any time in whole
upon the occurrence of a Special Event, as
described below. If a partial redemption of the
Subordinated Debentures would result in the de-
listing of the Preferred Securities, the Company
may only redeem the Subordinated Debentures in
whole. Any partial redemption of the Subordinated
Debentures will be effected by the redemption of an
equivalent amount of Trust Securities, to be
allocated pro rata between Preferred Securities and
the Common Securities unless an Event of Default
shall have occurred and be continuing as of the
applicable Redemption Date or Distribution Date.
See "Description of the Preferred Securities--
Redemption" and "--Tax Event Redemption, Investment
Company Event Redemption or Capital Event
Redemption."
Special Event............. A Special Event means a Tax Event, an Investment
Company Event or a Capital Event. A "Tax Event"
means the receipt by the Company of an opinion of
independent counsel experienced in such matters
(which may be counsel to the Company) to the effect
that, as a result of any amendment to, or change in
(including any announced prospective change), the
laws (or any regulations thereunder) of the United
States or any political subdivision or taxing
authority thereof or therein, or as a result of any
official administrative pronouncement or judicial
decision interpreting or applying such laws or
regulations, which amendment or change is
effective, or which pronouncement or decision is
announced, on or after the date of the issuance of
the Subordinated Debentures under the Indenture,
there is more than an insubstantial risk that (i)
CTBI Trust is, or will be within 90 days after the
date of such
3
<PAGE>
opinion, subject to United States federal income
tax with respect to income accrued or received on
the Subordinated Debentures, (ii) interest payable
by the Company on the Subordinated Debentures is
not, or within 90 days after the date of such
opinion will not be, deductible by the Company, in
whole or in part, for United States federal income
tax purposes, or (iii) CTBI Trust is, or will be
within 90 days after the date of such opinion,
subject to more than a de minimis amount of other
taxes, duties or other governmental charges. An
"Investment Company Event" means the receipt by
CTBI Trust of an opinion of independent counsel
experienced in such matters (which may be counsel
to the Company) to the effect that, as a result of
a change in law or regulation or a change in
interpretation or application of law or regulation
by any legislative body, court, governmental agency
or regulatory authority, there is more than an
insubstantial risk that CTBI Trust is or will be
considered an "investment company" that is required
to be registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), which change
becomes effective on or after the date of original
issuance of the Preferred Securities. A "Capital
Event" means the receipt by CTBI Trust of an
opinion of independent counsel experienced in such
matters (which may be counsel to the Company) that
the Company cannot, or within 90 days after the
date of such opinion of counsel, will not be
permitted by the applicable regulatory authorities,
due to a change in law, regulation, policy or
guideline or interpretation or application of law
or regulation, policy or guideline, to account for
the Preferred Securities as Tier I Capital under
the capital guidelines or policies of the Federal
Reserve.
Redemption Price.......... In the event of the redemption of Trust Securities
or other termination of CTBI Trust without
distribution of the Subordinated Debentures, each
Preferred Security shall be entitled to receive a
liquidation amount of $25 plus accrued and unpaid
distributions thereon (including interest thereon)
to the date of payment.
Distribution of
Subordinated Debentures...
The Company has the right at any time to liquidate
CTBI Trust and cause the Subordinated Debentures to
be distributed to holders of Preferred Securities,
subject to the Company having received prior
approval of the Federal Reserve to do so if then
required under applicable capital guidelines or
policies of the Federal Reserve. See "Description
of Preferred Securities--Redemption."
The Nasdaq Stock Market's
National Market Symbol....
The Preferred Securities have been approved for
quotation on The Nasdaq Stock Market's National
Market under the symbol "CTBIP."
4
<PAGE>
COMMUNITY TRUST BANCORP, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY RESULTS OF
OPERATIONS
Interest Income......... $ 144,447 $ 131,026 $ 106,560 $ 104,929 $ 109,946
Interest Expenses....... 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 federal
income taxes........... 27,266 15,421 10,490 20,369 18,176
Federal income tax
expense................ 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
earnings per share.... 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
Average common shares
outstanding (in
thousands)............. 9,138 8,960 8,601 8,246 8,024
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.... 144,754 133,795 166,636 107,371 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%
Net interest margin..... 4.76% 4.54% 4.51% 4.60% 4.68%
CAPITAL RATIOS:
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 charge-offs to
average loans.......... 0.37% 0.47% 0.74% 0.57% 0.60%
RATIO OF EARNINGS TO
FIXED CHARGES:(2)
Excluding deposit
interest.............. 4.10x 2.77x 2.33x 3.61x 4.85x
Including deposit
interest.............. 1.39x 1.24x 1.22x 1.43x 1.34x
RATIO OF EARNINGS TO
COMBINED FIXED CHARGES
AND PREFERRED STOCK
DIVIDENDS:(2)
Excluding deposit
interest.............. 4.10x 2.77x 2.33x 3.61x 4.85x
Including deposit
interest.............. 1.39x 1.24x 1.22x 1.43x 1.34x
</TABLE>
- --------
(1) The numbers have been adjusted to reflect a 3 for 2 common stock split,
effective February 1, 1994 to shareholders of record on January 5, 1994.
(2) Earnings consist of income before income tax plus interest expense. Fixed
charges consist of interest expense. The Company does not currently have
any preferred stock outstanding.
5
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors in evaluating the Company and its business and CTBI
Trust before purchasing the Preferred Securities offered hereby. This
Prospectus contains "forward-looking" statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act") under the
captions "Prospectus Summary," "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and that actual
results could differ materially from those contemplated by such statements.
These cautionary statements are being made pursuant to the "safe harbor"
provisions of the Act. The considerations listed below represent certain
important factors the Company believes could cause such results to differ.
These considerations are not intended to represent a complete list of the
general or specific risks that may affect the Company and CTBI Trust or
guarantees of future performance. It should be recognized that other risks may
be significant, presently or in the future, and the risks set forth below may
affect the Company and CTBI Trust to a greater extent than indicated, and that
actual results may differ materially from those in the forward-looking
statements.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Preferred Securities and under the Subordinated
Debentures are unsecured and rank subordinate and junior in right of payment
to all Senior Debt and Subordinated Debt of the Company and, in certain
circumstances relating to the dissolution, winding-up, liquidation or
reorganization of the Company, to all Additional Senior Obligations of the
Company. As of December 31, 1996, the aggregate outstanding Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company were
approximately $19,200,000. Because the Company is a holding company, the right
of the Company to participate in any distribution of assets of any of the
Banks upon any such Bank's liquidation or reorganization or otherwise (and
thus the ability of holders of the Preferred Securities to benefit indirectly
from such distribution) is subject to the prior claims of creditors of that
Bank, except to the extent that the Company may itself be recognized as a
creditor of that Bank. Accordingly, the Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the Banks,
and holders of Subordinated Debentures and Preferred Securities should look
only to the assets of the Company for payments on the Subordinated Debentures.
None of the Indenture, the Guarantee or the CTBI Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior Debt,
Subordinated Debt and Additional Senior Obligations, that may be incurred by
the Company. See "Description of Guarantee--Status of the Guarantee" and
"Description of Subordinated Debentures--Subordination."
The ability of CTBI Trust to pay amounts due on the Preferred Securities is
solely dependent upon the Company making payments on the Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest on the Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Preferred Securities by CTBI Trust
will be deferred (and the amount of Distributions to which holders of the
Preferred Securities are entitled will accumulate additional Distributions
thereon at the rate of 9.0% per annum, compounded quarterly from the relevant
payment date for such Distributions to the date of payment) during any such
Extension Period. During any such Extension Period, the Company may not (i)
declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
capital stock, or (ii) make any payment of principal, interest or premium, if
any, on, or repay, repurchase or redeem any debt
6
<PAGE>
securities of the Company, that rank pari passu with, or are junior in
interest to, the Subordinated Debentures or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company, if such guarantee ranks pari passu with, or is
junior in interest to, the Subordinated Debentures (other than (a) dividends
or distributions in Company common stock, (b) any declaration of a dividend in
connection with the implementation of a shareholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to the rights under any of
the Company's benefit plans for its directors, officers or employees). Prior
to the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Subordinated
Debentures. Upon the termination of any Extension Period and the payment of
all interest then accrued and unpaid (together with interest thereon at the
annual rate of 9.0% compounded quarterly, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period subject
to the above requirements. There is no limitation on the number of times that
the Company may elect to begin an Extension Period. See "Descriptions of
Preferred Securities--General" and "Description of Subordinated Debentures--
Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will be
required to accrue and recognize income (in the form of original issue
discount) in respect of its pro rata share of the interest accruing on the
Subordinated Debentures held by CTBI Trust for United States federal income
tax purposes. As a result, a holder of Preferred Securities will include such
income in gross income for United States federal income tax purposes in
advance of the receipt of cash, and will not receive the cash related to such
income from CTBI Trust if the holder disposes of the Preferred Securities
prior to the record date for the payment of the related Distributions. See
"Certain Federal Income Tax Consequences--Potential Extension of Interest
Payment Period and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities
during an Extension Period, therefore, might not receive the same return on
its investment as a holder that continues to hold its Preferred Securities. In
addition, as a result of the existence of the Company's right to defer
interest payments, the market price of the Preferred Securities may be more
volatile than the market prices of other securities on which original issue
discount accrues that are not subject to such optional deferrals.
TAX EVENT, INVESTMENT COMPANY EVENT, OR CAPITAL EVENT--REDEMPTION
Upon the occurrence and during the continuance of a Tax Event, Investment
Company Event or Capital Event (whether occurring before or after March 31,
2007), the Company has the right to redeem the Subordinated Debentures in
whole (but not in part) within 90 days following the occurrence of such Tax
Event, Investment Company Event or Capital Event and, therefore, cause a
mandatory redemption of the Preferred Securities. The exercise of such right
is subject to the Company having received prior approval of the Federal
Reserve to do so if then required under applicable guidelines or policies of
the Federal Reserve. See "Description of Subordinated Debentures--Redemption."
EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES
The Company will have the right at any time to terminate CTBI Trust and
cause the Subordinated Debentures to be distributed to the holders of the
Preferred Securities in liquidation of CTBI Trust. The exercise of such right
is subject to the Company having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies of
the Federal Reserve. See "Description of Preferred Securities-- Redemption."
7
<PAGE>
SHORTENING OF STATED MATURITY OF SUBORDINATED DEBENTURES
The Company will have the right at any time to shorten the maturity of the
Subordinated Debentures to a date not earlier than March 31, 2007. The
exercise of such right is subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve.
EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES
The Company will also have the right to extend the maturity of the
Subordinated Debentures whether or not CTBI Trust is terminated and the
Subordinated Debentures are distributed to holders of the Preferred Securities
to a date no later than the 39th anniversary of the initial issuance of the
Preferred Securities, provided that the Company can extend the maturity only
if at the time such election is made and at the time of such extension (i) the
Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the
Company is not in default in the payment of any interest or principal on the
Subordinated Debentures, and (iii) CTBI Trust is not in arrears on payments of
Distributions on the Preferred Securities and no deferred Distributions are
accumulated.
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by CTBI Trust: (i) any accumulated
and unpaid Distributions required to be paid on the Preferred Securities, to
the extent that CTBI Trust has funds on hand legally available therefor at
such time, (ii) the redemption price with respect to any Preferred Securities
called for redemption, to the extent that CTBI Trust has funds on hand legally
available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of CTBI Trust (unless the Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment to the extent that CTBI Trust has funds
on hand available therefor at such time and (b) the amount of assets of CTBI
Trust remaining available for distribution to holders of the Preferred
Securities. The holders of not less than a majority of aggregate Liquidation
Amount of the Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Guarantee. Any
holder of the Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against CTBI Trust, the Guarantee Trustee or
any other person or entity. If the Company were to default on its obligation
to pay amounts payable under the Subordinated Debentures, CTBI Trust would
lack funds for the payment of Distributions or amounts payable on redemption
of the Preferred Securities or otherwise, and, in such event, holders of
Preferred Securities would not be able to rely upon the Guarantee for such
amounts. Instead, in the event a Debenture Event of Default shall have
occurred and be continuing and such event is attributable to the failure of
the Company to pay interest on or principal of the Subordinated Debentures on
the payment date on which such payment is due and payable, then a holder of
Preferred Securities may institute a legal proceeding directly against the
Company for enforcement of payment to such holder of the principal of or
interest on such Subordinated Debentures having a principal amount equal to
the aggregate Liquidation Amount of the Preferred Securities of such holder (a
"Direct Action"). In connection with such Direct Action, the Company will have
a right of set-off under the Indenture to the extent of any payment made by
the Company to such holder of Preferred Securities in the Direct Action.
Except as described herein, holders of Preferred Securities will not be able
to exercise directly any other remedy available to the holders of the
Subordinated Debentures or assert directly any other rights in respect of the
Subordinated Debentures. See "Description of Subordinated Debentures--
Debenture Events of Default," "--Enforcement of Certain Rights by Holders of
Preferred Securities" and "Description of Guarantee."
The CTBI Trust Agreement provides that each holder of Preferred Securities
by acceptance thereof agrees to the provisions of the Guarantee and the
Indenture.
8
<PAGE>
LIMITED VOTING RIGHTS
Holders of Preferred Securities will generally have limited voting rights
relating only to the modification of the Preferred Securities and the exercise
of CTBI Trust's rights as holder of Subordinated Debentures and the Guarantee.
Holders of Preferred Securities will not be entitled to vote to appoint,
remove or replace the Property Trustee or the Delaware Trustee, and such
voting rights are vested exclusively in the holder of the Common Securities
except upon the occurrence of certain events described herein. The Property
Trustee, the Administrative Trustees and the Company may amend the CTBI Trust
Agreement without the consent of holders of Preferred Securities to ensure
that CTBI Trust will be classified for United States federal income tax
purposes as a grantor trust even if such action adversely affects the
interests of such holders. See "Description of Preferred Securities--Removal
of CTBI Trust Trustees" and "--Voting Rights; Amendment of Trust Agreement."
POSSIBLE TAX LAW CHANGES AFFECTING THE PREFERRED SECURITIES
On February 6, 1997, the revenue portion of President Clinton's 1998 budget
proposal (the "Budget Proposal") was released. The Budget Proposal would
generally deny deductions for interest on an instrument issued by a
corporation that has a maximum weighted average maturity of more than 40
years. The Budget Proposal would also generally deny deductions for interest
or original issue discount on an instrument issued by a corporation that has a
maximum term of more than 15 years and that is not shown as indebtedness on
the separate balance sheet of the issuer filed with the Commission or, where
the instrument is issued to a related party (other than a corporation), where
the holder or some other related party issues a related instrument that is not
shown as indebtedness on the issuer's consolidated balance sheet filed with
the Commission. The above described provisions of the Budget Proposal are
proposed to be effective generally for instruments issued on or after the date
of first Congressional committee action. Since the Subordinated Debentures
cannot have a term exceeding 40 years, the first of the above described Budget
Proposals would be inapplicable. Furthermore, since the Company intends to
reflect the Preferred Securities as long-term debt in its consolidated balance
sheet filed with the Commission (although it will treat the Preferred
Securities as a minority interest for regulatory reporting), the Budget
Proposal, as currently drafted, would not appear to apply to the Subordinated
Debentures. There can be no assurance, however, that similar legislation which
would apply to the Subordinated Debentures will not be enacted, and such
legislation could be retroactive in effect. If any such legislation were
enacted, the Company would be unable to deduct interest on the Subordinated
Debentures. Such a change could give rise to a Tax Event, which would permit
the Company to cause a redemption of the Preferred Securities before March 31,
2007. See "Description of Subordinated Debentures--Redemption" and
"Description of the Preferred Securities--Redemption--Tax Event Redemption,
Investment Company Event Redemption or Capital Event Redemption." See also
"Certain Federal Income Tax Consequences--Effect of Proposed Changes in
Tax Laws."
MARKET PRICES
There can be no assurance as to the market prices for Preferred Securities
or Subordinated Debentures that may be distributed in exchange for Preferred
Securities if a liquidation of CTBI Trust occurs. Accordingly, the Preferred
Securities, or the Subordinated Debentures that a holder of Preferred
Securities may receive on liquidation of CTBI Trust, may trade at a discount
to the price that the investor paid to purchase the Preferred Securities
offered hereby. In addition, there can be no assurance that the Company will
not exercise its option to change the maturity of the Subordinated Debentures
as permitted by the terms thereof and of the Indenture. Because holders of
Preferred Securities may receive Subordinated Debentures on liquidation of
CTBI Trust, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Subordinated Debentures and should
carefully review all the information regarding the Subordinated Debentures
contained herein. See "Description of Subordinated Debentures."
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the
underlying Subordinated Debentures. A holder that disposes of its Preferred
Securities
9
<PAGE>
between record dates for payments of distributions thereon (and consequently
does not receive a Distribution from CTBI Trust for the period prior to such
disposition) will be required to include as ordinary income either original
issue discount (if applicable) or accrued but unpaid interest on the
Subordinated Debentures through the date of disposition. To the extent the
amount realized is less than the holder's adjusted tax basis, a holder will
generally recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes. See "Certain Federal Income Tax Consequences--
Disposition of Preferred Securities."
PREFERRED SECURITIES ARE NOT INSURED
The Preferred Securities are not insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") or by any other governmental agency.
RISK FACTORS RELATING TO THE COMPANY
STATUS OF THE COMPANY AS A BANK HOLDING COMPANY
The Company is a legal entity separate and distinct from the Banks and its
other subsidiaries, although the principal source of the Company's cash
revenues is dividends from the Banks. The right of the Company to participate
in the assets of any subsidiary upon the latter's liquidation, reorganization
or otherwise (and thus the ability of the holders of Preferred Securities to
benefit indirectly from any such distribution) will be subject to the claims
of the subsidiaries' creditors, which will take priority except to the extent
that the Company may itself be a creditor with a recognized claim.
The Company's principal source of funds is dividends received from the
subsidiary banks. Regulations limit the amount of dividends that may be paid
by the Company's banking subsidiaries without prior approval. During 1997,
approximately $3.4 million plus any 1997 net profits can be paid by the
Company's banking subsidiaries without prior regulatory approval.
The Banks are also subject to restrictions under federal law which limit the
transfer of funds by any of the Banks to the Company and its nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments,
asset purchases or otherwise. Such transfers by any Bank to the Company or any
of the Company's nonbanking subsidiaries are limited in amount to 10% of such
Bank's capital and surplus and, with respect to the Company and all such
nonbanking subsidiaries, to an aggregate of 20% of such Bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specified amounts.
IMPACT OF INTEREST RATE CHANGES
The Company's results of operations are derived from the operations of the
Banks and are principally dependent on net interest income, calculated as the
difference between interest earned on loans and investments and the interest
expense paid on deposits and other borrowings. Like other banks and financial
institutions, the Company's interest income and interest expense are affected
by general economic conditions and by the policies of regulatory authorities,
including the monetary policies of the Federal Reserve. While management has
taken measures intended to manage the risks of operating in a changing
interest rate environment, there can be no assurance that such measures will
be effective in avoiding undue interest rate risk. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Interest Rate Sensitivity Analysts."
CREDIT RISK AND LOAN CONCENTRATION
As a financial institution, the Company is exposed to the risk that
customers to whom the Banks have made loans will be unable to repay those
loans according to their terms and that collateral securing such loans (if
any) may not be sufficient in value to assure repayment. Credit losses could
have a material adverse effect on the Company's operating results.
10
<PAGE>
A primary risk facing the Company, and financial institutions in general, is
credit risk, that is, the risk of losing principal and interest due to a
borrower's failure to perform according to the terms of such borrower's loan
agreement. As of December 31, 1996, the Company's total loan portfolio was
approximately $1,310 million or 72.1% of its total assets. The three largest
components of the loan portfolio are commercial loans, $505 million or 38.6%
of total loans, consumer installment loans, $310 million or 23.7% of total
loans, and real estate mortgage and construction loans, $490 million or 37.4%
of total loans. The Company's credit risk with respect to its consumer
installment loan portfolio and commercial loan portfolio relates principally
to the general creditworthiness of individuals and small- to medium-sized
businesses in eastern, central and south-central Kentucky and eastern and
central Tennessee. The Company's credit risk with respect to its real estate
mortgage and construction loan portfolio relates principally to the general
creditworthiness of individuals and the value of real estate serving as
security for the repayment of the loans.
REGULATORY RISK
The banking industry is heavily regulated. These regulations are primarily
intended to protect depositors and the FDIC, not shareholders or other
creditors. Regulations affecting the financial institutions industry are
undergoing continuous change, and the ultimate effect of such changes cannot
be predicted. Regulations and laws affecting the Company and the Banks may be
modified at any time, and new legislation affecting financial institutions may
be proposed and enacted. There is no assurance that such modifications or new
laws will not materially and adversely affect the business, condition or
operations of the Company and the Banks.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The success of the Company and the Banks is dependent to a certain extent
upon the general economic conditions of the Commonwealth of Kentucky and the
geographic markets served by the Banks. Unlike larger banks which are
geographically diversified, the Company and the Banks provide financial and
banking services to customers in east, central and south-central Kentucky. No
assurance can be given concerning the economic conditions which will exist in
such markets.
COMPETITION
The Company'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 Company's subsidiaries. Competing providers
may have greater financial resources than the Company and offer services
within and outside the market areas served by the Company's subsidiaries.
Since July 1989, banking legislation in Kentucky has placed no limit 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. As a result, the Company may face increased competition
from out-of-state banks. Bank holding companies are prohibited from
controlling more than 15% of deposits held by banks in the state (exclusive of
inter-bank and foreign deposits).
USE OF PROCEEDS
The CTBI Trust will use the proceeds of the sale of the Preferred Securities
to acquire Subordinated Debentures from the Company. The Company intends to
apply the net proceeds from the sale of the Subordinated Debentures to its
general funds to be used for expansion through new branches and acquisitions,
to fund growth in the Company's indirect consumer loan portfolio and for
general corporate purposes. The Company does not have any current agreements
or understandings regarding any acquisitions.
11
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, CTBI Trust will be treated as a subsidiary
of the Company and, accordingly, the accounts of CTBI Trust will be included
in the consolidated financial statements of the Company. The Preferred
Securities will be presented in the consolidated balance sheet of the Company
as a component of long term debt. The Company will record distributions
payable on the Preferred Securities as interest expense in its consolidated
statement of income.
12
<PAGE>
THE COMPANY
The Company is a bank holding company registered with the Board of Governors
of the Federal Reserve System ("Federal Reserve") as a bank holding company
and with the Office of Thrift Supervision as a thrift holding company. The
Company was incorporated August 12, 1980, under the laws of the Commonwealth
of Kentucky. The Company currently owns all of 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, N.A. and Commercial Bank, West
Liberty. The Company also owns all of the capital stock of Community Trust
Bank, FSB, a federal savings bank located in Campbellsville, Kentucky
("Savings Bank") and the Trust Company of Kentucky, a state chartered trust
company, with its principal office in Ashland, Kentucky and satellite offices
in Lexington, Louisville, Middlesboro and Pikeville, Kentucky. As of December
31, 1996, the Company had total consolidated assets of $1.8 billion and total
consolidated deposits of $1.5 billion, making it one of the largest
independent bank holding companies headquartered in the Commonwealth of
Kentucky.
Effective January 1, 1997, the Company changed its name from Pikeville
National Corporation to Community Trust Bancorp, Inc., changed the name of the
Lead Bank from Pikeville National Bank & Trust Company to Community Trust
Bank, N.A. and merged seven of its other commercial bank subsidiaries into the
Lead Bank (the "Consolidation"). As a result of these transactions, the Lead
Bank has approximately $1.5 billion in assets and 42 offices in 12 Kentucky
counties. The Company's thrift and trust subsidiaries and West Liberty
continue to operate as independent subsidiaries.
The Company excluded Commercial Bank, West Liberty, Kentucky ("West
Liberty") from the Consolidation. The Company 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. As of
December 31, 1996, West Liberty had $73 million in assets, constituting 4% of
the Company's total consolidated assets. The Lead Bank, the Savings Bank and
West Liberty are collectively referred to herein as the "Banks."
Through its subsidiaries, the Company 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 Banks include making
commercial, construction, mortgage, personal and consumer 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.
RECENT DEVELOPMENTS
From and after December 31, 1996, the following developments have occurred
with respect to Company:
1. On January 30, 1997, the Company declared a 10% stock dividend to
holders of the Company's common stock of record as of March 15, 1997. The
stock dividend will be distributed on April 15, 1997.
2. On January 17, 1997, the Company settled a dispute with a former
software vendor pursuant to which such former software vendor paid the
Company $4.9 million before taxes.
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at December 31, 1996 and (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Preferred Securities hereby
offered by CTBI Trust, respectively, as if such sale had been consummated on
December 31, 1996, and assuming the Underwriters' over-allotment options were
not exercised.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
LONG-TERM DEBT
Notes Payable...................................... $ 19,136 $ 19,136
Guaranteed Preferred Beneficial Interests in the
Company's Subordinated Debentures................. 0 30,000
-------- --------
Total Long-term Debt............................. $ 19,136 $ 49,136
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $5 par value; 25,000,000 shares
authorized; 9,128,814 shares issued and
outstanding....................................... $ 45,644 $ 45,644
Capital Surplus.................................... 27,915 27,915
Net Unrealized Holding Gains on Investment
Securities Available for Sale..................... (781) (781)
Retained earnings.................................. 71,976 71,976
-------- --------
Total Shareholders' Equity....................... 144,754 144,754
-------- --------
Total Capitalization........................... $163,890 $193,890
======== ========
</TABLE>
CAPITAL RATIOS
The following table sets forth certain ratios for the Company.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS (1)
-------------- ---------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- ------------ --------- ------------ ----------
(IN THOUSANDS)
<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%
</TABLE>
- --------
(1) The Company is not currently subject to Prompt Corrective Action
Provisions.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY(1)
The following table presents selected financial data for the Company for
each of the last five years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY RESULTS OF
OPERATIONS
Interest Income......... $ 144,447 $ 131,026 $ 106,560 $ 104,929 $ 109,946
Interest Expenses....... 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 federal
income taxes........... 27,266 15,421 10,490 20,369 18,176
Federal income tax
expense................ 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
earnings per share.... 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
Average common shares
outstanding............ 9,138 8,960 8,601 8,246 8,024
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.... 144,754 133,795 166,636 107,371 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%
Net interest margin..... 4.76% 4.54% 4.51% 4.60% 4.68%
CAPITAL RATIOS:
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 charge-offs to
average loans.......... 0.37% 0.47% 0.74% 0.57% 0.60%
RATIO OF EARNINGS TO
FIXED CHARGES:(2)
Excluding deposit
interest.............. 4.10x 2.77x 2.33x 3.61x 4.85x
Including deposit
interest.............. 1.39x 1.24x 1.22x 1.43x 1.34x
RATIO OF EARNINGS TO
COMBINED FIXED CHARGES
AND PREFERRED STOCK
DIVIDENDS:(2)
Excluding deposit
interest.............. 4.10x 2.77x 2.33x 3.61x 4.85x
Including deposit
interest.............. 1.39x 1.24x 1.22x 1.43x 1.34x
</TABLE>
- --------
(1) The numbers have been adjusted to reflect a 3 for 2 common stock split,
effective February 1, 1994 to shareholders of record on January 5, 1994.
(2) Earnings consist of income before income tax plus interest expense. Fixed
charges consist of interest expense. The Company does not currently have
any preferred stock outstanding.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company 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 Company'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 Company 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, N.A. (the "Lead Bank") and merged seven of its other commercial bank
subsidiaries into the Lead Bank. As a result of these transactions, the Lead
Bank has $1.5 billion in assets and forty-two offices in twelve Kentucky
counties. The Company's thrift and trust subsidiaries, the Savings Bank and
Trust Company of Kentucky, remain subsidiaries of the Company and will
continue to operate as independent entities.
The Company excluded West Liberty from the merger of its commercial bank
subsidiaries into the Lead Bank. The Company 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 Company's total
consolidated assets. Consistent with the Company's strategic plan, the funds
generated by the sale of West Liberty will provide the Company 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
Company intends to continue the direction undertaken during Terry Coleman's
tenure and does not expect his departure to have significant adverse
consequences on the Company.
The Company 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 Company acquired all of
the outstanding stock of four Kentucky banks during 1995, giving the Company
additional economies of scale and new markets in which to deliver its existing
products.
On February 2, 1995, the Company acquired Community Bank of Lexington, Inc.,
Lexington, Kentucky ("Community Bank"), which had assets of $61 million. The
Company 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 Lead Bank
16
<PAGE>
on March 31, 1995. While the Company had already been active in lending in the
Lexington-Fayette County market through its loan production office, this
acquisition has given the Company offices in which to provide deposit products
and other financial services in one of Kentucky's fastest growing markets.
On May 31, 1995, the Company 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 Company 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 Company 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 Company 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 Company 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 accounted for as a pooling-of-interests, 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 Company on the date of
acquisition. Through the acquisition, the Company increased the deposit base
of an existing affiliate substantially while increasing its operating costs
only marginally. Through the merger transaction, the Company 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 1995 was $10.8 million compared to $18.8 million for 1996.
Earnings per share for 1995 was $1.21 per share compared to $2.06 per share
for 1996. All information has been restated due to the acquisition of Woodford
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 1995 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 Company'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 Company to
increase its yield on average earning assets while its cost of interest
bearing funds declined slightly.
The Company'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.
17
<PAGE>
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 Company 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 63.5% of total assets as of December 31, 1995 compared to 71.1%
as of December 31, 1996. 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 Company's indirect consumer loan portfolio
exceeded $100 million.
The Company 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 Company 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 a provision in excess of loan charge-offs to increase the reserve
proportionally to the increase in loans outstanding. The Company 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 nonperforming
loans.
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 Company 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 a 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 45.4% 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 Company 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 declined from $1.9
million in 1995 to $1.7 million in 1996. Taxes other
18
<PAGE>
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 Company's affiliates qualify.
Other noninterest expense declined from $13.9 million in 1995 to $12.8 million
in 1996, consistent with the Company'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 1994 was $0.95 per share compared to $1.21 for 1995.
Net Interest Income
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
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 Company
incurred net securities losses of $45 thousand in 1994 and net securities
gains of $12 thousand in 1995.
Noninterest Expense
Noninterest expense increased from $52.3 million in 1994 to $55.9 million in
1995. Except for two unusual items which decreased significantly, all other
categories increased as would be expected in a period of acquisitions. 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 Company'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
Company purchased the securities from the trust accounts during 1994. The
Company sold these securities in the first quarter of 1997.
During the latter part of 1993 and continuing through 1994, the Company
intensively examined ways to improve its performance through restructuring its
operations and reengineering its work flow processes. As a result of this, the
Company 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.
19
<PAGE>
LIQUIDITY
The Company'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 Company continues to identify ways to provide for liquidity on both a
current and long-term basis. On a long-term basis, the 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 Company 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 Company's ability to fund loans
or service its debt obligations.
Due to the nature of the markets served by the Company'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
Company's liquidity needs.
The Company 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 Company also relies on Federal Home Loan Bank advances
for both liquidity and management of its asset/liability position. Often the
Company 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 Company 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 Company 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. The Company'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 Company 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 Company
uses the Sendero system to monitor its interest rate risk. The Company desires
an interest sensitivity gap of not more than fifteen percent of total assets
at the one year interval.
20
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
The Company's static interest rate gap position as of December 31, 1996 is
presented below:
<TABLE>
<S> <C> <C> <C> <C> <C>
<CAPTION>
0-3 3-12 TOTAL 1 OVER 1
MONTHS MONTHS YEAR YEAR TOTAL
December 31, 1996 -------- --------- ---------- -------- ----------
(IN THOUSANDS)
<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 interest 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 Company 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 Company 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 Company is retained earnings. Cash dividends per share were $0.66 per
share for 1995 and $0.74 per share for 1996. The Company retained 45% of its
earnings for 1995 and 64% for 1996.
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 maintain a Tier 1
leverage ratio of no less than 5.0%, a Tier 1 risk based ratio of no less than
6.0% and a total risk based ratio of no less than 10.0%. The Company's ratios
as of December 31, 1996 were 7.05%, 9.71% and 10.96%, respectively. The
Company 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 Company's liquidity, capital resources, or operations.
Impact of inflation and changing prices
The majority of the Company's assets and liabilities are monetary in nature.
Therefore, the Company 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
21
<PAGE>
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 Company'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.
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ------------------ ----------- ------------ ------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<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>
22
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the executive officers of the Company, their positions
with the Company and the year in which they first became an executive officer
or director.
<TABLE>
<CAPTION>
POSITIONS AND DATE, FIRST
OFFICES BECAME DIRECTOR PRESENT
NAME AND AGE CURRENTLY OR EXECUTIVE PRINCIPAL
(1) HELD OFFICER OCCUPATION
- ------------ ------------------------- --------------- -------------------------
<S> <C> <C> <C>
Burlin Cole- Chairman of Board, 1980 Chairman of Board,
man; 67 President, CEO & Director President & CEO
Brandt Vice Chairman of Board 1980 Vice Chairman
Mullins; 69 & Director
Jean R. Executive Vice President, 1992(2) President &
Hale; 50 Secretary & Director CEO of the Lead Bank
Richard M. Executive Vice President, 1995(3) Executive Vice President,
Levy; 38 CFO & Treasurer CFO & Treasurer
Ralph Executive Vice President, 1995(4) Executive Vice President,
Weickel; 39 Sales & Marketing Sales & Marketing
Ronald M. Executive Vice President, 1996(5) President and CEO
Holt; 49 Trust of Trust Company
Mark Gooch; Executive Vice President, 1997(6) Executive Vice President
38 Operations Operations
John 1997(7) Executive Vice President
Shropshire; Executive Vice President & Senior Lender
48 & Senior Lender
</TABLE>
- --------
(1) The ages listed for the Company's executive officers are as of February
28, 1997.
(2) Prior to becoming an executive officer, Ms. Hale served as Vice President
of the Company and as an executive officer of the Lead Bank since 1988.
(3) Mr. Levy served as Senior Vice President and Controller of Bank of America
Texas, N.A. prior to joining the Company.
(4) Mr. Weickel served as Vice President of the Company 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 Company in 1993.
(5) Mr. Holt served as Executive Vice President and Trust Manager of Bank One
Kentucky Corporation prior to joining the Company.
(6) Mr. Gooch served as President and Chief Executive Officer of First
Security Bank & Trust Co., Whitesburg, Kentucky, an affiliate of the
Company until the merger with the Lead Bank 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 Company until
the merger with the Lead Bank prior to becoming an executive officer.
23
<PAGE>
DIRECTORS OF THE COMPANY
The Company's directors are elected at each annual meeting of the
shareholders and hold office until the next election of directors or until
their successors are duly elected and qualify. The persons named below, all of
whom currently serve as directors of the Company, have been nominated for
election to serve until the 1998 Annual Meeting of Shareholders. The following
table sets forth certain information respecting the persons nominated to be
directors of the Company:
<TABLE>
<CAPTION>
AMOUNT AND
POSITIONS NATURE OF
NAME AND AND DIRECTOR PRINCIPAL BENEFICIAL PERCENT
AGE (1) OFFICES SINCE OCCUPATION (2) OWNERSHIP (3) OF CLASS
- ---------- --------------- -------- ---------------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Charles J. Director 1988 Baird, Baird, Baird & 71,593(4) *
Baird; 47 Jones, P.S.C.,
Attorneys
Burlin Chairman of 1980 Chairman of Board of 389,483(6) 4.3%
Coleman; Board of Directors, President &
67(5) Directors, CEO--Community
President & CEO Trust Bancorp, Inc.
Nick A. Director 1980 President--Unit Coal 31,645 *
Cooley; Corporation
63
William A. Director 1990 Chairman of the 100,970(7) 1.1%
Graham, Advisory Board--
Jr.; 60 Fleming County
Region--Community
Trust Bank, N.A.
Jean R. Executive VP, 1993 President & CEO-- 26,548(8) *
Hale; 50(5) Secretary & Community Trust
Director Bank, N.A.
Brandt Vice Chairman & 1980 Retired President- 71,069(9) *
Mullins; Director Community Trust
69(5) Bank, NA
M. Lynn Director 1993 President--Knott Floyd 55,091(10) *
Parrish; Land Co., Inc.
47
Ernest M. Director 1980 President and General 54,067(11) *
Rogers; Manager--Rogers
69 Petroleum Services,
Inc.
Porter P. Director 1995 Chairman of the 40,635(12) *
Welch; 71 Advisory Board--
Woodford County
Region--Community
Trust Bank, NA
All direc- 857,465(13)
tors as a
group 9.4%
</TABLE>
(see footnotes on the next page)
24
<PAGE>
- --------
* Less than 1 percent.
(1) The ages listed for the Directors of the Company are as of February 28,
1997.
(2) Each of the nominees has been engaged in the principal occupation
specified above for five years or more.
(3) Under the rules of the Commission, a person is deemed to beneficially own
a security if the person has or shares the power to vote or direct the
voting of such security, or the power to dispose or to direct the
disposition of such security. A person is also deemed to beneficially own
any shares which that person has the right to acquire beneficial
ownership within sixty days. Shares of common stock subject to options
exercisable within sixty days are deemed outstanding for computing the
percentage of class of the person holding such options but are not deemed
outstanding for computing the percentage of class for any other person.
Unless otherwise indicated, the named persons have sole voting and
investment power with respect to shares held by them.
(4) Includes 35,093 shares in trust for W.J. Baird's grandchildren over which
Mr. Baird is trustee with the power to vote and invest such shares.
(5) Burlin Coleman is also a director of the Lead Bank, the Savings Bank and
Trust Company of Kentucky. Jean Hale is also a director of and Trust
Company of Kentucky. Brandt Mullins is also a director of West Liberty.
(6) Includes the following shares beneficially owned by Burlin Coleman:
253,671 shares held in trust over which Mr. Coleman has sole voting and
investment power; 53,999 shares in which Mr. Coleman shares voting power
pursuant to a power of attorney; 395 shares held directly by Mr. Coleman;
and 81,418 shares held in IRA over which Mr. Coleman has sole voting and
investment power. Excludes 8,770 shares held by Mr. Coleman's wife, over
which Mr. Coleman has no voting or investment power.
(7) Includes 5,709 shares that Mr. Graham may acquire pursuant to options
exercisable within sixty days of the Record Date and 868 shares held in
the ESOP, which Mr. Graham has the power to vote.
(8) Includes 8,995 shares which Mrs. Hale may acquire pursuant to options
exercisable within sixty days of the Record Date and 2,214 shares held in
the ESOP, which Mrs. Hale has the power to vote. Excludes 4,625 shares
held by Mrs. Hale's husband, over which Mrs. Hale has no voting or
investment power.
(9) Includes 68,444 shares held in trust, which Mr. Mullins has the power to
vote. Excludes 21,375 shares held by Mr. Mullins' wife, over which Mr.
Mullins has no voting or investment power.
(10) Excludes 600 shares held by Mr. Parrish's wife as custodian for their
minor child, over which Mr. Parrish has no voting or investment power.
(11) Excludes 15,674 shares held by Mr. Rogers' wife, over which Mr. Rogers
has no voting or investment power.
(12) Excludes 40,000 shares held by Mr. Welch's wife, over which Mr. Welch has
no voting or investment power.
(13) Includes 16,364 shares which may be acquired by all directors as a group
pursuant to options exercisable within sixty days of March 15, 1997.
25
<PAGE>
SELECTED STATISTICAL INFORMATION
The following tables set forth certain statistical information relating to
the Company and its subsidiaries on a consolidated basis and should be read
together with the consolidated financial statements of the Company.
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
YIELDS/RATES
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCES INTEREST RATE BALANCES INTEREST RATE BALANCES INTEREST RATE
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
(IN THOUSANDS)
<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
========== ========== ==========
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
Total liabilities....... 1,623,084 1,500,143 1,354,465
---------- ---------- ----------
Shareholders' equity.... 138,925 130,780 116,165
---------- ---------- ----------
Total liabilities and
shareholders' equity... $1,762,009 $1,630,923 $1,470,630
========== ========== ==========
Net interest income..... $ 77,681 $ 68,490 $ 61,600
======== ======== ========
Net interest spread..... 4.13% 3.93% 4.01%
==== ==== ====
Benefit of interest free
funding................ 0.63% 0.61% 0.50%
==== ==== ====
Net interest margin..... 4.76% 4.54% 4.51%
==== ==== ====
</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.
26
<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
------------ ---------------- ------------ ----------------
1996/1995 VOLUME RATE 1995/1994 VOLUME RATE
------------ ------- ------- ------------ ------- -------
(IN THOUSANDS)
<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) -- 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
--------------------------------------------------------------------------------------
AFTER 10 TOTAL FAIR
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS YEARS VALUE AMORTIZED
------------- -------------- ------------- ------------- -------------- COST
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------- ----- -------- ----- ------- ----- ------- ----- -------- ----- ---------
(IN THOUSANDS)
<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% $ -- 0.00% $ -- 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........... -- 0.00 15 7.57 -- 0.00 -- 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
------- ---- -------- ---- ------- ---- ------- ----- -------- ---- --------
Total................... $54,735 6.25% $132,263 6.93% $22,196 6.51% $20,758 8.03% $229,952 6.82% $230,933
------- ---- -------- ---- ------- ---- ------- ----- -------- ---- --------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED MATURITY AT DECEMBER 31, 1996
--------------------------------------------------------------------------------------
AFTER 10 TOTAL FAIR
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS YEARS VALUE AMORTIZED
------------- -------------- ------------- ------------- -------------- COST
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------- ----- -------- ----- ------- ----- ------- ----- -------- ----- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity
U. S. government
agencies and
corporations........... $ 3,414 4.67% $ 57,160 5.82% $11,498 4.53% $ -- 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 -- 0.00 -- 0.00 11,570 5.86 11,325
------- ---- -------- ---- ------- ---- ------- ---- -------- ---- -------
Total................... $ 4,655 5.82% $ 88,941 6.16% $32,556 6.18% $11,581 8.93% $137,733 6.38% 135,383
------- ---- -------- ---- ------- ---- ------- ---- -------- ---- -------
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.
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
Company at December 31, 1996.
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.
28
<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
(IN THOUSANDS)
-----------------------------------
AFTER
ONE BUT
WITHIN AFTER
WITHIN FIVE FIVE
ONE YEAR YEARS 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
======== ======== ======== ========
</TABLE>
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
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 more 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 % AS A % ACCRUING AS A %
OF LOAN OF LOAN LOANS OF LOAN
BALANCES BALANCES PAST DUE BALANCES
NONACCRUAL BY RESTRUCTURED BY 90 DAYS BY
LOANS CATEGORY LOANS CATEGORY OR MORE CATEGORY BALANCES
(IN THOUSANDS) ---------- -------- ------------ -------- -------- -------- ----------
<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
29
<PAGE>
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.
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.
Foreign Outstandings
None
Loan Concentrations
The Company has no concentration of loans exceeding 10% of total loans which
is not otherwise disclosed at December 31, 1996.
30
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS)
<TABLE>
<CAPTION>
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..... 2,807 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 1,457
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.
31
<PAGE>
AVERAGE DEPOSITS AND OTHER BORROWED FUNDS
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31,
1996 are summarized as follows:
<TABLE>
<CAPTION>
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======== ====== ========
</TABLE>
SHORT-TERM BORROWINGS
The Company 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.
32
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the CTBI
Trust Agreement. The CTBI Trust Agreement is qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
Initially, State Street Bank and Trust Company will be the Property Trustee
and will act as trustee for the purpose of complying with the Trust Indenture
Act. The terms of the Preferred Securities will include those stated in the
CTBI Trust Agreement and those made part of the CTBI Trust Agreement by the
Trust Indenture Act. This summary of the material terms and provisions of the
Preferred Securities and the CTBI Trust Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the CTBI Trust Agreement, including the definitions
therein of certain terms, and the Trust Indenture Act. Wherever particular
defined terms of the CTBI Trust Agreement (as amended or supplemented from
time to time) are referred to herein, such defined terms are incorporated by
reference herein. The form of the CTBI Trust Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the CTBI Trust Agreement, the Administrative
Trustees, on behalf of CTBI Trust, will issue the Preferred Securities and the
Common Securities (collectively, the "Trust Securities"). The Preferred
Securities will represent undivided preferred beneficial interests in CTBI
Trust and the holders thereof will be entitled to a preference in certain
circumstances with respect to Distributions and amounts payable on redemption
or liquidation over the Common Securities of CTBI Trust, as well as other
benefits as described in the CTBI Trust Agreement. The Preferred Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Common Securities of CTBI Trust except as described under "--Subordination of
Common Securities."
Legal title to the Subordinated Debentures will be held by the Property
Trustee in trust for the benefit of the holders of the Preferred Securities
and Common Securities. The Guarantee executed by the Company for the benefit
of the holders of the Preferred Securities will be a guarantee on a
subordinated basis with respect to the Preferred Securities, but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when CTBI Trust does not have funds
on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on each Preferred Security will be
payable at the annual rate of 9.0% of the stated Liquidation Amount of $25,
accruing from the date of original issuance and payable quarterly in arrears
on March 31, June 30, September 30 and December 31 of each year, to the
holders of the Preferred Securities on the relevant record dates (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). The record date will be, for so long as the Preferred
Securities remain in book-entry form, one Business Day prior to the relevant
Distribution Date and, in the event the Preferred Securities are not in book-
entry form, the 15th day of the month in which the relevant Distribution Date
occurs. Distributions will accumulate from the date of original issuance. The
first Distribution Date for the Preferred Securities will be June 30, 1997.
The amount of Distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which Distributions are payable on the Preferred Securities is not a Business
Day, then payment of the Distributions payable on such date will be made on
the next succeeding day that is a Business Day (and without any additional
Distributions, interest or other payment in respect of any such delay), in
each case with the same force and effect as if made on the date such payment
was originally payable. As used in this Prospectus, a "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office
of the Property Trustee or the Debenture Trustee is closed for business.
33
<PAGE>
Extension Period. So long as no Event of Default under the Indenture has
occurred and is continuing, the Company has the right under the Indenture to
defer the payment of interest on the Subordinated Debentures at any time and
from time to time for a period not exceeding 20 consecutive quarters with
respect to each such period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity of the Subordinated
Debentures. As a consequence of any such election, quarterly Distributions on
the Preferred Securities will be deferred by CTBI Trust during any such
Extension Period. Distributions to which holders of the Preferred Securities
are entitled will accumulate additional Distributions thereon at the rate per
annum of 9.0% thereof, compounded quarterly from the relevant Distribution
Date. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may
not, and may not permit any subsidiary of the Company to, (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Subordinated Debentures (other than (a)
dividends or distributions in Company common stock, (b) any declaration of a
dividend in connection with the implementation of a shareholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock under any of the Company's benefit
plans for its directors, officers or employees). Prior to the termination of
any such Extension Period, the Company may defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarters, or
extend beyond the Stated Maturity of the Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period. Subject to the
foregoing, there is no limitation on the number of times that the Company may
elect to begin an Extension Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
Cumulative Distributions. The funds of CTBI Trust available for distribution
to holders of its Preferred Securities will be limited to payments under the
Subordinated Debentures. See "Description of Subordinated Debentures." If the
Company does not make interest payments on the Subordinated Debentures, the
Property Trustee will not have funds available to pay Distributions on the
Preferred Securities. The payment of Distributions (if and to the extent CTBI
Trust has funds legally available for the payment of such Distributions and
cash sufficient to make such payments) is guaranteed by the Company. See
"Description of Guarantee."
REDEMPTION
The Company will have the right to redeem the Subordinated Debentures (i) on
or after March 31, 2007, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), upon the occurrence of a Tax
Event, an Investment Company Event or a Capital Event, in each case subject to
receipt of prior approval by the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve.
Mandatory Redemption. Upon the repayment or redemption, in whole or in part,
of any Subordinated Debentures, whether at Stated Maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Trust Securities, upon not less than 30 nor more
than 60 days notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Trust Securities plus accumulated but
unpaid Distributions thereon to the date of redemption (the "Redemption
Date"). See "Description of Subordinated Debentures--Redemption." If less than
all of the Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption of the Preferred Securities and the Common
Securities pro rata.
34
<PAGE>
Distribution of Subordinated Debentures. Subject to the Company having
received prior approval of the Federal Reserve if so required under applicable
capital guidelines or policies of the Federal Reserve, the Company will have
the right at any time to liquidate CTBI Trust and, after satisfaction of the
liabilities of creditors of CTBI Trust as provided by applicable law, cause
the Subordinated Debentures to be distributed to the holders of Preferred
Securities and Common Securities in the liquidation of CTBI Trust.
Tax Event Redemption, Investment Company Event Redemption or Capital Event
Redemption. If a Tax Event, an Investment Company Event or a Capital Event in
respect of the Preferred Securities and Common Securities shall occur and be
continuing, the Company has the right to redeem the Subordinated Debentures in
whole (but not in part) and thereby cause a mandatory redemption of the 9.0%
Preferred Securities and Common Securities in whole (but not in part) at the
Redemption Price within 90 days following the occurrence of such Tax Event,
Investment Company Event or Capital Event. In the event a Tax Event,
Investment Company Event or Capital Event in respect of the Preferred
Securities and Common Securities has occurred and is continuing and the
Company does not elect to redeem the Subordinated Debentures and thereby cause
a mandatory redemption of such Preferred Securities and Common Securities or
to liquidate CTBI Trust and cause the Subordinated Debentures to be
distributed to holders of such Preferred Securities and Common Securities in
liquidation of CTBI Trust as described below, such Preferred Securities will
remain outstanding and, in the event of a Tax Event (but not an Investment
Company Event or a Capital Event) Additional Sums (as defined below) may be
payable on the Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by CTBI Trust on the
outstanding Preferred Securities and Common Securities of CTBI Trust shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which CTBI Trust has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities based upon the relative
aggregate Liquidation Amounts of such classes and the proceeds of which will
be used to pay the Redemption Price of such Trust Securities, and (ii) with
respect to a distribution of Subordinated Debentures to holders of Trust
Securities in connection with a dissolution or liquidation of CTBI Trust,
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
Redemption Procedures. Preferred Securities redeemed on each Redemption Date
shall be redeemed at the Redemption Price with the applicable proceeds from
the contemporaneous redemption of the Subordinated Debentures. Redemptions of
the Preferred Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that CTBI Trust has funds
on hand available for the payment of such Redemption Price. See also
"Description of Preferred Securities--Subordination of Common Securities."
If CTBI Trust gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, Eastern Standard Time, on the Redemption
Date, to the extent funds are available, the Property Trustee, in its capacity
as paying agent, will pay the Redemption Price to the holders of such
Preferred Securities. See "Book-Entry Issuance." If such Preferred Securities
are no longer in book-entry form, the Property Trustee, to the extent funds
are available, will irrevocably deposit with the paying agent for such
Preferred Securities funds sufficient to pay the aggregate Redemption Price
and will give such paying agent irrevocable instructions and authority to pay
the Redemption Price to the holders thereof upon surrender of their
certificates evidencing such Preferred Securities. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for any
Preferred Securities called for redemption shall be payable to the holders of
such Preferred Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
35
<PAGE>
deposited as required, then upon the date of such deposit, all rights of the
holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Preferred Securities will cease to be outstanding. In the event that any date
fixed for redemption of Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day which is a Business Day (and without any additional
Distribution, interest or other payment in respect of any such delay). In the
event that payment of the Redemption Price in respect of Preferred Securities
called for redemption is improperly withheld or refused and not paid either by
CTBI Trust or by the Company pursuant to the Guarantee, Distributions on such
Preferred Securities will continue to accrue at the then applicable rate, from
the Redemption Date originally established by CTBI Trust for such Preferred
Securities to the date such Redemption Price is actually paid, in which case
the actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price. See "Description of Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Subordinated Debentures to holders of Preferred Securities
shall be made to the applicable record holders thereof as they appear on the
register for such Preferred Securities on the relevant record date, which date
shall be one Business Day prior to the relevant Redemption Date or liquidation
date, as applicable; provided, however, that in the event that any Preferred
Securities are not in book-entry form, the relevant record date for such
Preferred Securities shall be a date at least 15 days prior to the Redemption
Date or liquidation date, as applicable.
If less than all of the Preferred Securities and Common Securities issued by
CTBI Trust are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata to the Preferred Securities and the
Common Securities based upon the relative Liquidation Amounts of such classes.
The particular Preferred Securities to be redeemed shall be selected by the
Property Trustee from the outstanding Preferred Securities not previously
called for redemption, by such method as the Property Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions (equal to $25 or an integral multiple of $25 in excess thereof) of
the Liquidation Amount of Preferred Securities of a denomination larger than
$25. The Property Trustee shall promptly notify the trust registrar in writing
of the Preferred Securities selected for redemption and, in the case of any
Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the CTBI Trust Agreement, unless
the context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate to the portion of the aggregate Liquidation
Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on such Subordinated Debentures
or portions thereof (and distributions will cease to accrue on the related
Preferred Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based
on the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default shall have occurred and be continuing, no payment
of any Distribution on, or Redemption Price of, any of the Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of such Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions on all of the outstanding
Preferred Securities for all Distribution periods terminating on or prior
thereto, or in the
36
<PAGE>
case of payment of the Redemption Price, the full amount of such Redemption
Price on all of the outstanding Preferred Securities then called for
redemption, shall have been made or provided for, and all funds available to
the Property Trustee shall first be applied to the payment in full in cash of
all Distributions on, or Redemption Price of, the Preferred Securities then
due and payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company, as holder of the Common Securities, will be deemed to
have waived any right to act with respect to any such Event of Default under
the CTBI Trust Agreement until the effect of all such Events of Default with
respect to such Preferred Securities have been cured, waived or otherwise
eliminated. Until any such Events of Default under the CTBI Trust Agreement
with respect to the Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Preferred Securities and not on behalf of the Company as holder
of the Common Securities, and only the holders of the Preferred Securities
will have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The amount payable on the Preferred Securities in the event of any
liquidation of CTBI Trust is $25 per Preferred Security plus accrued and
unpaid Distributions thereon to the date of payment, which may be in the form
of a distribution of such amount in Subordinated Debentures, subject to
certain exceptions. See "Description of the Preferred Securities--Liquidation
Distribution Upon Termination."
The Company, as the holder of the Common Securities, will have the right at
any time to terminate CTBI Trust and cause the Subordinated Debentures to be
distributed to the holders of the Preferred Securities. Such right is subject
to the Company having received prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal
Reserve.
In addition, pursuant to the CTBI Trust Agreement, CTBI Trust shall
automatically terminate upon expiration of its term and shall earlier
terminate on the first to occur of: (i) certain events of bankruptcy,
dissolution or liquidation of the Company; (ii) the distribution of a Like
Amount of the Subordinated Debentures to the holders of its Trust Securities,
if the Company, as Depositor, has given written direction to the Property
Trustee to terminate CTBI Trust (which direction is optional and wholly within
the discretion of the Company, as Depositor); (iii) redemption of all of the
Preferred Securities as described under "Description of Preferred Securities--
Redemption;" and (iv) the entry of an order for the dissolution of CTBI Trust
by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, CTBI Trust shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of CTBI Trust as provided by applicable law, to the
holders of such Trust Securities a Like Amount of the Subordinated Debentures,
unless such distribution is determined by the Property Trustee not to be
practical, in which event such holders will be entitled to receive out of the
assets of CTBI Trust available for distribution to holders, after satisfaction
of liabilities to creditors of CTBI Trust as provided by applicable law, an
amount equal to, in the case of holders of Preferred Securities, the aggregate
of the Liquidation Amount plus accrued and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because CTBI Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by CTBI Trust on the Preferred
Securities shall be paid on a pro rata basis. The holder(s) of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Preferred Securities, except that if a
Debenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities.
After the liquidation date fixed for any distribution of Subordinated
Debentures for Preferred Securities (i) such Preferred Securities will no
longer be deemed to be outstanding, (ii) The Depository Trust Company (the
"Depositary") or its nominee, as the record holder of the Preferred
Securities, will receive a registered global
37
<PAGE>
certificate or certificates representing the Subordinated Debentures to be
delivered upon such distribution and (iii) any certificates representing
Preferred Securities not held by the Depositary or its nominee will be deemed
to represent the Subordinated Debentures having a principal amount equal to
the Liquidation Amount of such Preferred Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
the Preferred Securities until such certificates are presented to the
Securities Registrar or their agent for transfer or reissuance.
Under current United States federal income tax law and interpretations and
assuming, as expected, CTBI Trust is treated as a grantor trust, a
distribution of the Subordinated Debentures should not be a taxable event to
holders of the Preferred Securities. Should there be a change in law, a change
in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Certain Federal Income Tax Consequences." If the Company elects neither
to redeem the Subordinated Debentures prior to maturity, nor to liquidate CTBI
Trust and distribute the Subordinated Debentures to holders of the Preferred
Securities, the Preferred Securities will remain outstanding until the
repayment of the Subordinated Debentures.
If the Company elects to liquidate CTBI Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred
Securities in liquidation of CTBI Trust, the Company shall continue to have
the right to shorten or extend the maturity of such Subordinated Debentures,
subject to certain conditions. See "Description of Subordinated Debentures--
General."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution and liquidation of CTBI Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
or the Subordinated Debentures that the investor may receive on dissolution
and liquidation of CTBI Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
EVENTS OF DEFAULT AND NOTICE
Any one of the following events constitutes an "Event of Default" under the
CTBI Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the CTBI Trust Agreement (other
than a covenant or warranty a default in the performance of which or the
breach of which is dealt with in clauses (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Trustee or Trustees
by the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Preferred Securities, a written notice specifying such default
or breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the CTBI Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Preferred Securities,
the Administrative Trustees and the Company, as Depositor, unless such Event
of Default shall have
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been cured or waived. The Company, as Depositor, and the Administrative
Trustees are required to file annually with the Property Trustee a certificate
as to whether or not they are in compliance with all the conditions and
covenants applicable to them under each Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities upon
termination of CTBI Trust as described above. See "--Liquidation Distribution
Upon Termination." The existence of an Event of Default does not entitle the
holders of Preferred Securities to accelerate the maturity thereof.
REMOVAL OF CTBI TRUST TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Securities Trustee may be removed at any time by the holders of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of at least 25% in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Company as the holder of the
Common Securities. No resignation or removal of a Securities Trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
applicable Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property,
as defined in the Indenture, may at the time be located, the Company, as the
holder of the Common Securities, and the Administrative Trustees shall have
power to appoint one or more persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to
act as separate trustee of any such property, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such
person or persons in such capacity any property, title, right or power deemed
necessary or desirable, subject to the provisions of the applicable Trust
Agreement. In case a Debenture Event of Default has occurred and is
continuing, the Property Trustee alone shall have power to make such
appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any person resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under each Trust
Agreement, provided such person shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF CTBI TRUST
CTBI Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. CTBI Trust may, at the request of the Company, with the
consent of the Administrative Trustees and without the consent of the holders
of the Preferred Securities, merge with or into, consolidate, amalgamate, or
be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of CTBI Trust with respect to the Preferred
Securities or (b) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as
the Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) the Company
expressly appoints a trustee of such successor entity possessing the same
powers and duties as the Property Trustee in its capacity as the holder of the
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on The
Nasdaq Stock Market's National Market or any national securities exchange or
other organization on which the Preferred Securities are then listed, if any,
(iv)
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such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in
any material respect, (v) such successor entity has a purpose identical to
that of CTBI Trust, (vi) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company has received an
opinion from independent counsel to CTBI Trust experienced in such matters to
the effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities
(including any Successor Securities) in any material respect, and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither CTBI Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act
and (vii) the Company or any permitted successor or assignee owns all of the
Common Securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, CTBI Trust shall
not, except with the consent of holders of 100% in Liquidation Amount of the
Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause CTBI Trust or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the CTBI Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The CTBI Trust Agreement may be amended from time to time by the Company,
the Property Trustee and the Administrative Trustees, without the consent of
the holders of the Preferred Securities (i) to cure any ambiguity, correct or
supplement any provisions in the CTBI Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under the CTBI Trust Agreement, which shall not
be inconsistent with the other provisions of the CTBI Trust Agreement, or (ii)
to modify, eliminate or add to any provisions of the CTBI Trust Agreement to
such extent as shall be necessary to ensure that CTBI Trust will be classified
for United States federal income tax purposes as a grantor trust at all times
that any Trust Securities are outstanding or to ensure that CTBI Trust will
not be required to register as an "investment company" under the Investment
Company Act; provided, however, that in the case of clause (i), such action
shall not adversely affect in any material respect the interests of any holder
of Trust Securities, and any amendments of such CTBI Trust Agreement shall
become effective when notice thereof is given to the holders of Trust
Securities. The CTBI Trust Agreement may be amended by the Trustees and the
Company with (i) the consent of holders representing not less than a majority
in the aggregate Liquidation Amount of the outstanding Trust Securities, and
(ii) receipt by the Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not affect CTBI Trust's status as a grantor trust for
United States federal income tax purposes or CTBI Trust's exemption from
status as an "investment company" under the Investment Company Act.
Notwithstanding anything in this paragraph to the contrary, without the
consent of each holder of Trust Securities, such CTBI Trust Agreement may not
be amended to (i) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date
or (ii) restrict the right of a holder of Trust Securities to institute suit
for the enforcement of any such payment on or after such date.
So long as any Subordinated Debentures are held by the Property Trustee, the
Property Trustee shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or executing
any trust or power conferred on the Property Trustee with respect to the
Subordinated Debentures, (ii) waive any past default that is waivable under
the Indenture, (iii) exercise any right to rescind or
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annul a declaration that the principal of all the Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or the Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of at least a majority in aggregate Liquidation Amount of all
outstanding Preferred Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the Preferred Securities.
The Property Trustee shall not revoke any action previously authorized or
approved by a vote of the holders of the Preferred Securities except by
subsequent vote of the holders of the Preferred Securities. The Property
Trustee shall notify each holder of Preferred Securities of any notice of
default with respect to the Subordinated Debentures. In addition to obtaining
the foregoing approvals of the holders of the Preferred Securities, prior to
taking any of the foregoing actions, the Property Trustee shall obtain an
opinion of counsel experienced in such matters to the effect that CTBI Trust
will not be classified as an association taxable as a corporation for United
States federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be
taken, to be given to each holder of record of Preferred Securities in the
manner set forth in the CTBI Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for CTBI Trust to redeem and cancel its Preferred Securities in accordance
with the CTBI Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The Preferred Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee ("Global
Preferred Security"). Beneficial interests in the Preferred Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by participants in the Depositary. Except as described below,
Preferred Securities in certificated form will not be issued in exchange for
the global certificates. See "Book-Entry Issuance."
A global security shall be exchangeable for Preferred Securities registered
in the names of persons other than the Depositary or its nominee only if (i)
the Depositary notifies the Company that it is unwilling or unable to continue
as a depositary for such global security and no successor depositary shall
have been appointed, or if at any time the Depositary ceases to be a clearing
agency registered under the Securities Exchange Act of 1934, as amended, at a
time when the Depositary is required to be so registered to act as such
Depositary, (ii) the Company in its sole discretion determines that such
global security shall be so exchangeable, or (iii) there shall have occurred
and be continuing an Event of Default under the Indenture. Any global security
that is exchangeable pursuant to the preceding sentence shall be exchangeable
for definitive certificates registered in such names as the Depositary shall
direct. It is expected that such instructions will be based upon directions
received by the Depositary with respect to ownership of beneficial interests
in such global security. In the event that Preferred Securities are issued in
definitive form, such Preferred Securities will be in denominations of $25 and
integral multiples thereof and may be transferred or exchanged at the offices
described below.
Payments on Preferred Securities represented by a global security will be
made to the Depositary, as the depositary for the Preferred Securities. In the
event Subordinated Debentures are issued in definitive form, principal and
Distributions will be payable, the transfer of the Preferred Securities will
be registrable, and Preferred Securities will be exchangeable for Preferred
Securities of other denominations of a like aggregate
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Liquidation Amount, at the corporate office of the Property Trustee in Boston,
Massachusetts, or at the offices of any paying agent or transfer agent
appointed by the Administrative Trustees, provided that payment of any
Distribution may be made at the option of the Administrative Trustees by check
mailed to the address of the persons entitled thereto or by wire transfer. In
addition, if the Preferred Securities are issued in certificated form, the
record dates for payment of Distributions will be the 15th day of the month in
which the relevant Distribution Date occurs. For a description of the terms of
the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Preferred Security, and the deposit of such
Global Preferred Security with or on behalf of the Depositary, the Depositary
for such Global Preferred Security or its nominee will credit, on its book-
entry registration and transfer system, the respective aggregate Liquidation
Amounts of the individual Preferred Securities represented by such Global
Preferred Securities to the accounts of persons having accounts with the
Depositary ("Participants"). Such accounts shall be designated by the dealers,
underwriters or agents with respect to such Preferred Securities. Ownership of
beneficial interests in a Global Preferred Security will be limited to
Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Preferred Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depositary or its nominee (with respect
to interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Preferred Security.
So long as the Depositary for a Global Preferred Security, or its nominee,
is the registered owner of such Global Preferred Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Preferred Securities represented by such Global Preferred Security for
all purposes under the Indenture governing such Preferred Securities. Except
as provided below, owners of beneficial interests in a Global Preferred
Security will not be entitled to have any of the individual Preferred
Securities represented by such Global Preferred Security registered in their
names, will not receive or be entitled to receive physical delivery of any
such Preferred Securities in definitive form and will not be considered the
owners or holders thereof under the Indenture.
None of the Company, CTBI Trust, the Property Trustee, any Paying Agent, or
the Securities Registrar for such Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Preferred Security representing such Preferred Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for Preferred Securities or its
nominee, upon receipt of any payment of the Liquidation Amount, Redemption
Price or Distributions in respect of the Global Preferred Security immediately
will credit Participants' accounts with payments in amounts proportionate to
their respective beneficial interest in the aggregate Liquidation Amount of
such Global Preferred Security as shown on the records of such Depositary or
its nominee. The Company also expects that payments by Participants to owners
of beneficial interests in such Global Preferred Security held through such
Participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
If the Depositary for the Preferred Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is
not appointed by the Company within 90 days, CTBI Trust will issue individual
Preferred Securities in exchange for the Global Preferred Security. In
addition, CTBI Trust may at any time and in its sole discretion, subject to
any limitations described herein relating to such Preferred Securities,
determine not to have any Preferred Securities represented by one or more
Global Preferred Securities and, in such event, will issue individual
Preferred Securities in exchange for the Global Preferred Security or
Securities representing the Preferred Securities. Further, if CTBI Trust so
specifies with respect to the Preferred
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Securities, an owner of a beneficial interest in a Global Preferred Security
representing Preferred Securities may, on terms acceptable to the Company, the
Property Trustee and the Depositary for such Global Preferred Security,
receive individual Preferred Securities in exchange for such beneficial
interests, subject to any limitations described herein. In any such instance,
an owner of a beneficial interest in a Global Preferred Security will be
entitled to physical delivery of individual Preferred Securities represented
by such Global Preferred Security equal in Liquidation Amount to such
beneficial interest and to have such Preferred Securities registered in its
name. Individual Preferred Securities so issued will be issued in
denominations, unless otherwise specified by CTBI Trust, of $25 and integral
multiples thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to the paying
agent, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any Preferred Securities are not held by
the Depositary, such payments shall be made by check mailed to the address of
the holder entitled thereto as such address shall appear on the register of
holders of Preferred Securities. The paying agent shall initially be the
Property Trustee ("Paying Agent") and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees. The Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Company. In the event that the Property
Trustee shall no longer be the Paying Agent, the Administrative Trustees shall
appoint a successor (which shall be a bank or trust company acceptable to the
Administrative Trustees) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities. Registration of transfers of Preferred Securities will
be effected without charge by or on behalf of CTBI Trust, but upon payment of
any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. CTBI Trust will not be required to register or cause
to be registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the CTBI Trust Agreement and, after such Event
of Default, must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the Property Trustee is under no obligation to exercise any
of the powers vested in it by the CTBI Trust Agreement at the request of any
holder of Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby. If
no Event of Default has occurred and is continuing and the Property Trustee is
required to decide between alternative causes of action, construe ambiguous
provisions in the CTBI Trust Agreement or is unsure of the application of any
provision of the CTBI Trust Agreement, and the matter is not one on which
holders of Preferred Securities are entitled under the CTBI Trust Agreement to
vote, then the Property Trustee shall take such action as is directed by the
Company and if not so directed, shall take such action as it deems advisable
and in the best interests of the holders of the Trust Securities and will have
no liability except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate CTBI Trust in such a way that CTBI Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a
corporation for United States federal income tax purposes and so that the
Subordinated Debentures will be treated as indebtedness of the Company for
United Stated federal income tax purposes. In this connection, the Company and
the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of CTBI Trust or
the CTBI Trust Agreement, that the Company and the Administrative Trustees
determine in their discretion to be necessary or desirable for such purposes,
as long as such action does not materially adversely affect the interests of
the holders of the related Preferred Securities.
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DESCRIPTION OF SUBORDINATED DEBENTURES
The Subordinated Debentures will be issued under the Indenture, dated as of
April 16, 1997 ("Indenture"), between the Company and the Debenture Trustee.
The following summary of the material terms and provisions of the Subordinated
Debentures and the Indenture does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the Indenture, which has
been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and to the Trust Indenture Act. The Indenture will be
qualified under the Trust Indenture Act. Whenever particular defined terms of
the Indenture are referred to herein, such defined terms are incorporated
herein or therein by reference. Concurrently with the issuance of the
Preferred Securities, CTBI Trust will invest the proceeds thereof, together
with the consideration paid by the Company for the Common Securities, in the
Subordinated Debentures issued by the Company. The Subordinated Debentures
will be issued as unsecured debt under the Indenture.
GENERAL
The Subordinated Debentures will bear interest at the annual rate of 9.0% of
the principal amount thereof, payable quarterly in arrears on March 31, June
30, September 30, and December 31 of each year (each, an "Interest Payment
Date") beginning June 30, 1997, to the person in whose name each Subordinated
Debenture is registered, subject to certain exceptions, at the close of
business on the Business Day next preceding such Interest Payment Date.
Interest will begin to accrue from the date of original issuance of the
Subordinated Debentures. It is anticipated that, until the liquidation, if
any, of CTBI Trust, the Subordinated Debentures will be held in the name of
the Property Trustee in trust for the benefit of the holders of the Preferred
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on the Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) with the same force and effect as
if made on the date such payment was originally payable. Accrued interest that
is not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at the rate
per annum of 9.0% thereof, compounded quarterly. The term "interest" as used
herein shall include quarterly interest payments, interest on quarterly
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Subordinated Debentures will mature on March 31, 2027. Such date may be
shortened at any time by the Company to any date not earlier than March 31,
2007, subject to the Company having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies of
the Federal Reserve. Such date may also be extended at any time at the
election of the Company but in no event to a date later than March 31, 2036,
provided that at the time such election is made and at the time of extension
(i) the Company is not in bankruptcy, otherwise insolvent or in liquidation,
(ii) the Company is not in default in the payment of any interest or principal
on the Subordinated Debentures, and (iii) CTBI Trust is not in arrears on
payments of Distributions on the Preferred Securities and no deferred
Distributions are accumulated. In the event that the Company elects to shorten
or extend the Stated Maturity of the Subordinated Debentures, it shall give
notice to the Debenture Trustee, and the Debenture Trustee shall give notice
of such shortening or extension to the holders of the Subordinated Debentures
no more than 180 days and no less than 90 days prior to the effectiveness
thereof.
The Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt and Subordinated Debt of
the Company and, in certain circumstances relating to the dissolution,
winding-up, liquidation or reorganization of the Company, to all Additional
Senior Obligations of the Company. See "--Subordination." Because the Company
is a holding company, the right of the Company to participate in any
distribution of assets of any of the Banks, upon any such Bank's liquidation
or reorganization or otherwise (and thus the ability of holders of the
Preferred Securities to benefit indirectly from such distribution), is subject
to the prior claims of creditors of that Bank, except to the extent that the
Company may itself be recognized as a creditor of such Bank. Accordingly, the
Subordinated Debentures will be effectively
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subordinated to all existing and future liabilities of the Banks, and holders
of Subordinated Debentures should look only to the assets of the Company for
payments on the Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt, Subordinated Debt or Additional Senior Obligations,
whether under the Indenture or any existing indenture or other indenture that
the Company may enter into in the future or otherwise. See "--Subordination."
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture at any time during
the term of the Subordinated Debentures to defer the payment of interest at
any time or from time to time for a period not exceeding 20 consecutive
quarters (each such period an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the Subordinated Debentures.
At the end of such Extension Period, the Company must pay all interest then
accrued and unpaid (together with interest thereon at the annual rate of 9.0%,
compounded quarterly, to the extent permitted by applicable law). During an
Extension Period, interest will continue to accrue and holders of Subordinated
Debentures (or holders of Preferred Securities while such series is
outstanding) will be required to include original issue discount in income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Potential Extension of Interest Payment Period and Original
Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any Bank or other subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including other
Subordinated Debentures) that rank pari passu with or junior in interest to
the Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu or junior in interest to the
Subordinated Debentures (other than (a) dividends or distributions in Company
common stock, (b) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of stock under
any such plan in the future or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee, and (d) purchases of
common stock related to rights under any of the Company's benefit plans for
its directors, officers or employees). Prior to the termination of any such
Extension Period, the Company may further extend the interest payment period,
provided that no Extension Period may exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then
due on any Interest Payment Date, the Company may elect to begin a new
Extension Period subject to the above requirements. No interest shall be due
and payable during an Extension Period, except at the end thereof. The Company
must give the Property Trustee, the Administrative Trustees and the Debenture
Trustee notice of its election of such Extension Period at least one Business
Day prior to the earlier of (i) the date the Distributions on the Preferred
Securities would have been payable except for the election to begin such
Extension Period or (ii) the date the Administrative Trustees are required to
give notice to the Nasdaq Stock Market National Market or other applicable
self-regulatory organization, or to holders of such Preferred Securities on
the record date for the date such Distributions are payable, but in any event
not less than one Business Day prior to such record date. The Debenture
Trustee shall give notice of the Company's election to begin a new Extension
Period to the holders of the Preferred Securities. Subject to the foregoing,
there is no limitation on the number of times that the Company may elect to
begin an Extension Period.
SHORTENING OR EXTENDING MATURITY DATE
The Subordinated Debentures will mature on March 31, 2027. Such date may be
shortened at any time by the Company to any date not earlier than March 31,
2007, subject to the Company having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies of
the Federal Reserve.
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Such date may also be extended at any time at the election of the Company, but
in no event to a date later than March 31, 2036, provided that at the time
such election is made and at the time of extension (i) the Company is not in
bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in
default in the payment of any interest or principal on the Subordinated
Debentures, and (iii) CTBI Trust is not in arrears on payments of
Distributions on the Preferred Securities and no deferred Distributions are
accumulated. In the event that the Company elects to shorten or extend the
Stated Maturity of the Subordinated Debentures, it shall give notice to the
Debenture Trustee, and the Debenture Trustee shall give notice of such
shortening or extension to the holders of the Subordinated Debentures no more
than 180 days and no less than 90 days prior to the effectiveness thereof.
ADDITIONAL SUMS
If CTBI Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Subordinated Debentures such amounts ("Additional
Sums") as shall be required so that the Distributions payable by CTBI Trust
shall not be reduced as a result of any such additional taxes, duties or other
governmental charges.
REDEMPTION
Subject to the Company having received prior approval of the Federal
Reserve, if then required under applicable capital guidelines or policies of
the Federal Reserve, the Subordinated Debentures are redeemable prior to
maturity at the option of the Company (i) on or after March 31, 2007, in whole
at any time or in part from time to time or (ii) at any time in whole (but not
in part) upon the occurrence and during the continuance of a Tax Event, an
Investment Company Event or a Capital Event, in each case at a redemption
price equal to the accrued and unpaid interest on the Subordinated Debentures
so redeemed to the date fixed for redemption, plus 100% of the principal
amount thereof.
"Tax Event" means the receipt by the Company of an opinion of independent
counsel (which may be counsel to the Company) experienced in such matters to
the effect that, as a result of any amendment to, or change in (including any
announced prospective change), the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Subordinated Debentures
under the Indenture, there is more than an insubstantial risk that (i) CTBI
Trust is, or will be within 90 days after the date of such opinion, subject to
United States federal income tax with respect to income accrued or received on
the Subordinated Debentures, (ii) interest payable by the Company on the
Subordinated Debentures is not, or within 90 days after the date of such
opinion will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes, or (iii) CTBI Trust is, or will be
within 90 days after the date of such opinion, subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.
An "Investment Company Event" means the receipt by CTBI Trust of an opinion
of independent counsel (which may be counsel to the Company) experienced in
such matters to the effect that, as a result of a change in law or regulation
or a change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority, there is
more than an insubstantial risk that CTBI Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
A "Capital Event" means that CTBI Trust has received an opinion of
independent counsel (which may be counsel to the Company) experienced in such
matters that the Company cannot, or within 90 days after the date of such
opinion, will not be permitted by the applicable regulatory authorities, due
to a change in law, regulation, policy or guideline or interpretation or
application of law or regulation, policy or guideline, to account for the
Preferred Securities as Tier I Capital under the capital guidelines or
policies of the Federal Reserve.
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Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Subordinated Debentures
to be redeemed at its registered address. Unless the Company defaults in
payment of the redemption price, on and after the redemption date interest
ceases to accrue on such Subordinated Debentures or portions thereof called
for redemption.
The Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of Preferred Securities--Liquidation
Distribution Upon Termination," under certain circumstances involving the
termination of CTBI Trust, the Subordinated Debentures may be distributed to
the holders of the Preferred Securities in liquidation of CTBI Trust after
satisfaction of liabilities to creditors of CTBI Trust as provided by
applicable law. If distributed to holders of Preferred Securities in
liquidation, it is anticipated that the Subordinated Debentures will initially
be issued in the form of one or more global securities and the Depositary, or
any successor depositary for the Preferred Securities, will act as depositary
for the Subordinated Debentures. It is anticipated that the depositary
arrangements for the Subordinated Debentures would be substantially identical
to those in effect for the Preferred Securities. If the Subordinated
Debentures are distributed to the holders of Preferred Securities upon the
liquidation of CTBI Trust, the Company will use its best efforts to list the
Subordinated Debentures on The Nasdaq Stock Market's National Market or such
stock exchanges, if any, on which the Preferred Securities are then listed.
There can be no assurance as to the market price of any Subordinated
Debentures that may be distributed to the holders of Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will covenant, as to the Subordinated Debentures, that if at
such time (i) there shall have occurred any event (a) that with the giving of
notice or the lapse of time, or both, would constitute an "Event of Default"
under the Indenture and (b) in respect of which the Company shall not have
taken reasonable steps to cure, or (ii) the Company shall have given notice of
its election of an Extension Period as provided in the Indenture with respect
to the Subordinated Debentures and shall not have rescinded such notice, or
such Extension Period, or any extension thereof, shall be continuing, it will
not, and will not permit any subsidiary of the Company to, (1) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (2)
make any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
or junior in interest to the Subordinated Debentures (other than (a) dividends
or distributions in Company common stock, (b) any declaration of a dividend in
connection with the implementation of a shareholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to rights under any of the
Company's benefit plans for its directors, officers or employees).
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt, Subordinated Debt and Additional Senior
Obligations to the extent provided in the Indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors,
marshaling of assets or any bankruptcy, insolvency, debt restructuring or
similar proceedings in connection with any insolvency or bankruptcy proceeding
of the Company, the holders of Senior Debt, Subordinated Debt and Additional
Senior Obligations will first be entitled to receive payment in full of
principal of (and premium, if any) and interest, if any, on such Senior Debt,
Subordinated Debt and Additional Senior Obligations before the holders of
Subordinated Debentures will be entitled to receive any payment in respect of
the principal of or interest, if any, on the Subordinated Debentures.
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In the event of the acceleration of the maturity of any Subordinated
Debentures, the holders of all Senior Debt, Subordinated Debt and Additional
Senior Obligations outstanding at the time of such acceleration will first be
entitled to receive payment in full of all amounts due thereon (including any
amounts due upon acceleration) before the holders of Subordinated Debentures
will be entitled to receive any payment in respect of the principal of or
interest, if any, on the Subordinated Debentures; provided, however, that
holders of Subordinated Debt shall not be entitled to receive payment of any
such amounts to the extent that such Subordinated Debt is by its terms
subordinated to trade creditors.
No payments on account of principal or interest, if any, in respect of the
Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt, Subordinated
Debt or Additional Senior Obligations or an event of default with respect to
any Senior Debt, Subordinated Debt or Additional Senior Obligations resulting
in the acceleration of the maturity thereof, or if any judicial proceeding
shall be pending with respect to any such default.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent, (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such person; (iv) every obligation of such person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such
person; and (vi) every obligation of the type referred to in clauses (i)
through (v) of another person and all dividends of another person the payment
of which, in either case, such person has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Subordinated Debentures; provided, however, that Senior Debt shall not be
deemed to include (i) any Debt of the Company which when incurred and without
respect to any election under section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to the Company, (ii) any Debt
of the Company to any of its subsidiaries, (iii) Debt to any employee of the
Company, (iv) Debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of business to
the extent that payments made to the holders of such Debt by the holders of
the Subordinated Debentures as a result of the subordination provisions of the
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course
of business as a result of subordination provisions to which such Debt is
subject, (v) Debt which constitutes Subordinated Debt, and (vi) any other debt
securities issued pursuant to the Indenture.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in Bankruptcy or for reorganization relating to the Company whether
or not such claim for post-petition interest is allowed in such proceeding),
on Debt, whether incurred on or prior to the date of the Indenture or
thereafter incurred, which is by its terms expressly provided to be junior and
subordinate to other Debt of the Company (other than the Subordinated
Debentures).
"Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of the Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
provided, however, that Additional Senior Obligations do not include claims in
respect of Senior Debt or Subordinated Debt or obligations which, by their
terms, are expressly stated to be not superior in right of payment to the
Subordinated
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Debentures or to rank pari passu in right of payment with the Subordinated
Debentures. For purposes of this definition, "claim" shall have the meaning
assigned thereto in Section 101(4) of the United States Bankruptcy Code of
1978, as amended.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by the Company. The Company expects from time to time to
incur additional indebtedness constituting Senior Debt, Subordinated Debt and
Additional Senior Obligations.
DENOMINATIONS, REGISTRATION AND TRANSFER
Initially, the Subordinated Debentures will be registered in the name of the
Property Trustee. If the Subordinated Debentures are distributed to the
holders of the Preferred Securities upon the liquidation of CTBI Trust, it is
anticipated that the Subordinated Debentures will then be represented by
global certificates registered in the name of the Depositary or its nominee.
Beneficial interests in the Subordinated Debentures will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary. If the Subordinated Debentures are maintained by the Depositary,
it is anticipated that substantially the same procedures will be applicable to
the Subordinated Debentures as are described under "Description of the
Preferred Securities--Global Preferred Securities." See also "Book-Entry
Issuance."
The Company will appoint the Debenture Trustee as securities registrar under
the Indenture (the "Securities Registrar"). Subordinated Debentures may be
presented for exchange as provided above, and may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the Securities Registrar. The Company may at any time rescind the designation
of any such registrar or approve a change in the location through which any
such registrar acts, provided that the Company maintains a registrar in the
place of payment, as defined in the Indenture. The Company may at any time
designate additional transfer agents with respect to the Subordinated
Debentures. In the event of any redemption, neither the Company nor the
Debenture Trustee shall be required to (i) issue, register the transfer of or
exchange Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption or (ii) transfer or exchange any Subordinated
Debentures so selected for redemption, except, in the case of any Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Subordinated Debentures will
be made at the office of the Debenture Trustee in the City of Boston,
Massachusetts, except that at the option of the Company payment of any
interest may be made (i) except in the case of a Global Subordinated
Debenture, by check mailed to the address of the person entitled thereto as
such address shall appear in the securities register or (ii) by transfer to an
account maintained by the person entitled thereto as specified in the
securities register, provided that proper transfer instructions have been
received by the record date. Payment of any interest on Subordinated
Debentures will be made to the person in whose name such Subordinated
Debentures is registered at the close of business on the record date for such
interest payment, except in the case of Defaulted Interest. The Company may at
any time designate additional Paying Agents or rescind the designation of any
paying agent; however the Company will at all times be required to maintain a
paying agent in each place of payment for the Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of or interest
on the Subordinated Debentures and remaining unclaimed for two years after
such principal or interest has become due and payable shall, at the request of
the Company, be repaid to the Company and the holder of such Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Company for payment thereof.
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MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interests of the holders of
the Subordinated Debentures or the Preferred Securities so long as they remain
outstanding) and qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the outstanding
Subordinated Debentures, to modify the Indenture in a manner affecting the
rights of the holders of the Subordinated Debentures; provided, that no such
modification may, without the consent of the holder of each outstanding
Subordinated Debenture, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce the
percentage of principal amount of Subordinated Debentures, the holders of
which are required to consent to any such modification of the Indenture,
provided that so long as any of the Preferred Securities remain outstanding,
no such modification may be made that adversely affects the holders of such
Preferred Securities in any material respect, and no termination of the
Indenture may occur, and no waiver of any Debenture Event of Default or
compliance with any covenant under the Indenture may be effective, without the
prior consent of the holders of at least a majority of the aggregate
Liquidation Amount of the Preferred Securities unless and until the principal
of the Subordinated Debentures and all accrued and unpaid interest thereon
have been paid in full and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures that has occurred and is
continuing constitutes an event of default ("Debenture Event of Default") with
respect to the Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Subordinated
Debentures, when due (subject to the deferral of any due date in the case
of an extension Period); or
(ii) failure to pay any principal on the Subordinated Debentures when due
whether at maturity, upon redemption by declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee.
The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Subordinated Debentures may declare the
principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures may annul such declaration and waive the default if
the default (other than the non-payment of the principal of the Subordinated
Debentures which has become due solely by such acceleration) has been cured
and a sum sufficient to pay all matured installments of interest and principal
due otherwise than by acceleration has been deposited with the Debenture
Trustee. Should the holders of the Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Preferred Securities shall have such right.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing the
Property Trustee will have the right to declare the principal of and the
interest on such Subordinated Debentures, and any other amounts payable under
the Indenture, to be forthwith due and payable and to enforce its other rights
as a creditor with respect to such Subordinated Debentures.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of Preferred Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder ("Direct Action"). The Company may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Preferred
Securities. The Company shall have the right under the Indenture to set-off
any payment made to such holder of Preferred Securities by the Company in
connection with a Direct Action.
The holders of the Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Subordinated Debentures unless there shall
have been an Event of Default under the CTBI Trust Agreement. See "Description
of Preferred Securities--Events of Default and Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into the Company or convey, transfer or lease its properties and
assets substantially as an entirety to the Company, unless (i) in case the
Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any
Person, the successor Person is organized under the laws of the United States
or any state or the District of Columbia, and such successor Person expressly
assumes the Company's obligations on the Subordinated Debentures issued under
the Indenture; (ii) immediately after giving effect thereto, no Debenture
Event of Default, and no event which, after notice or lapse of time or both,
would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
The general provisions of the Indenture do not afford holders of the
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and payable at their
Stated Maturity within one year, and the Company deposits or causes to be
deposited with the Debenture Trustee funds, in trust, for the purpose and in
an amount in the currency or currencies in which the Subordinated Debentures
are payable sufficient to pay and discharge the entire indebtedness on the
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal and interest to the date of the deposit or to
the Stated Maturity, as the case may be, then the Indenture will cease to be
of further effect (except as to the Company's obligations to pay all other
sums due pursuant to the Indenture and to provide the officers' certificates
and opinions of counsel described therein), and the Company will be deemed to
have satisfied and discharged the Indenture.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of
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Subordinated Debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred thereby.
The Debenture Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
The Company will covenant in the Indenture, as to the Subordinated
Debentures, that if and so long as (i) CTBI Trust is the holder of all such
Subordinated Debentures, (ii) a Tax Event in respect of CTBI Trust has
occurred and is continuing and (iii) the Company has elected, and has not
revoked such election, to pay Additional Sums (as defined under "Description
of the Preferred Securities--Redemption") in respect of the Preferred
Securities, the Company will pay to CTBI Trust such Additional Sums. The
Company will also covenant, as to the Subordinated Debentures, (i) to maintain
directly or indirectly 100% ownership of the Common Securities of CTBI Trust
to which Subordinated Debentures have been issued, provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities, (ii) not to voluntarily
terminate, wind-up or liquidate CTBI Trust, except upon prior approval of the
Federal Reserve if then so required under applicable capital guidelines or
policies of the Federal Reserve, and (a) in connection with a distribution of
Subordinated Debentures to the holders of the Preferred Securities in
liquidation of CTBI Trust, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the CTBI Trust Agreement and
(iii) to use its reasonable efforts, consistent with the terms and provisions
of the CTBI Trust Agreement, to cause CTBI Trust to remain classified as a
grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Preferred
Securities. The Preferred Securities will be issued only as fully-registered
securities registered in the name of Cede & Co. (the Depositary's nominee).
One or more fully-registered global certificates will be issued for the
Preferred Securities and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. "Direct Participants" include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain custodial relationships with
Direct Participants, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with
the Commission.
Purchases of Preferred Securities within the Depositary system must be made
by or through Direct Participants, which will receive a credit for the
Preferred Securities on the Depositary's records. The ownership interest of
each actual purchaser of each Preferred Security ("Beneficial Owner") is in
turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Preferred Securities. Transfers of
ownership interests in the Preferred Securities are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Preferred Securities, except in the event that use of
the book-entry system for the Preferred Securities of CTBI Trust is
discontinued.
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The Depositary has no knowledge of the actual Beneficial Owners of the
Preferred Securities; the Depositary's records reflect only the identity of
the Direct Participants to whose accounts such Preferred Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Preferred Securities. If less than all of the Preferred Securities are
being redeemed, the Depositary will determine by lot or pro rata the amount of
the Preferred Securities of each Direct Participant to be redeemed. Although
voting with respect to the Preferred Securities is limited to the holders of
record of the Preferred Securities, in those instances in which a vote is
required, neither the Depositary nor Cede & Co. will itself consent or vote
with respect to Preferred Securities. Under its usual procedures, the
Depositary would mail an omnibus proxy (the "Omnibus Proxy") to the relevant
Trustee as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts such Preferred Securities are credited on the record date (identified
in a listing attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made by the
relevant Trustee to the Depositary. The Depositary's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participant and not of the Depositary, the relevant
Trustee, CTBI Trust or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of Distributions
to the Depositary is the responsibility of the relevant Trustee, disbursement
of such payments to Direct Participants is the responsibility of the
Depositary, and disbursements of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Preferred Securities at any time by
giving reasonable notice to the relevant Trustee and the Company. In the event
that a successor securities depositary is not obtained, definitive Preferred
Security certificates representing such Preferred Securities are required to
be printed and delivered. The Company, at its option, may decide to
discontinue use of the system of book-entry transfers through the Depositary
(or a successor depositary). After a Debenture Event of Default, the holders
of a majority in liquidation preference of Preferred Securities may determine
to discontinue the system of book-entry transfers through the Depositary. In
any such event, definitive certificates for such Preferred Securities will be
printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that CTBI Trust
and the Company believe to be accurate, but CTBI Trust and the Company assume
no responsibility for the accuracy thereof. Neither CTBI Trust nor the Company
has any responsibility for the performance by the Depositary or its
Participants of their respective obligations as described herein or under the
rules and procedures governing their respective operation.
In the event that CTBI Trust is terminated and the Subordinated Debentures
are distributed to the holders of the Preferred Securities the depository
arrangements and book-entry system applicable thereto will be substantially
similar to those applicable to the Preferred Securities. See "Description of
Preferred Securities--Global Preferred Securities."
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DESCRIPTION OF GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred
Securities. State Street Bank and Trust will act as indenture trustee under
the Guarantee for the purposes of compliance with the Trust Indenture Act, and
the Guarantee will be qualified as an Indenture under the Trust Indenture Act.
The following summary of the material terms and provisions of the Guarantee
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the Guarantee Agreement,
including the definitions therein of certain terms, and the Trust Indenture
Act. The form of the Guarantee has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The Guarantee
Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis of
CTBI Trust's obligations under the Preferred Securities, but will apply only
to the extent that CTBI Trust has funds sufficient to make such payments, and
is not a guarantee of collection.
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that CTBI Trust may have or assert
other than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of CTBI Trust
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that CTBI Trust has funds on hand available therefor
at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption to the extent that CTBI Trust has funds on
hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of CTBI Trust (unless the
Subordinated Debentures are distributed to holders of the Preferred
Securities), the lesser of (a) the Liquidation Distribution and (b) the amount
of assets of CTBI Trust remaining available for distribution to holders of
Preferred Securities. The Company's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the Company to the
holders of the Preferred Securities or by causing CTBI Trust to pay such
amounts to such holders. Third party creditors of CTBI Trust may proceed
directly against the Company under the Agreement as to Expenses and
Liabilities (as defined below), regardless of whether such creditors had
notice of the Agreement as to Expenses and Liabilities.
If the Company does not make interest payments on the Subordinated
Debentures held by CTBI Trust, CTBI Trust will not be able to pay
Distributions on the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all other liabilities of the Company. See "--Status of the
Guarantee." Because the Company is a holding company, the right of the Company
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of that subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and
claimants should look only to the assets of the Company for payments
thereunder. Except as otherwise described herein, the Guarantee does not limit
the incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt, whether under the Indenture, any other indenture that
the Company may enter into in the future, or otherwise.
The Company has, through the Guarantee, the CTBI Trust Agreement, the
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of CTBI
Trust's obligations under the Preferred Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined
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operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of CTBI Trust's obligations under the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all other liabilities
of the Company.
The Guarantee will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The
Guarantee will be held for the benefit of the holders of the Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by CTBI Trust or upon
distribution of the Subordinated Debentures to the holders of the Preferred
Securities. The Guarantee does not place a limitation on the amount of other
liabilities that may be incurred by the Company. The Company expects from time
to time to incur additional liabilities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will
be required), the Guarantee may not be amended without the prior approval of
the holders of not less than a majority of the aggregate Liquidation Amount of
the outstanding Preferred Securities. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against CTBI Trust, the Guarantee Trustee or
any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or
her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
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<PAGE>
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Preferred Securities, upon full payment
of the amounts payable upon liquidation of CTBI Trust or upon distribution of
the Subordinated Debentures to the holders of the Preferred Securities. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Preferred Securities must restore payment
of any sums paid under such Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the Commonwealth of Kentucky.
THE AGREEMENT AS TO EXPENSES AND LIABILITIES
Pursuant to the Agreement as to Expenses and Liabilities entered into by the
Company under the CTBI Trust Agreement ("Agreement as to Expenses and
Liabilities"), the Company will irrevocably and unconditionally guarantee to
each person or entity to whom CTBI Trust becomes indebted or liable, the full
payment of any costs, expenses or liabilities of CTBI Trust, other than
obligations of CTBI Trust to pay to the holders of the Preferred Securities or
other similar interests in CTBI Trust of the amounts due such holders pursuant
to the terms of the Preferred Securities or such other similar interests, as
the case may be.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SUBORDINATED DEBENTURES
AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent CTBI Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of Guarantee." The Company and CTBI Trust believe
that, taken together, the Company's obligations under the Subordinated
Debentures, the Indenture, the CTBI Trust Agreement, the Agreement as to
Expenses and Liabilities, and the Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payment of Distributions and other
amounts due on the Preferred Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of CTBI Trust's obligations under the Preferred
Securities. If and to the extent that the Company does not make payments on
the Subordinated Debentures, CTBI Trust will not pay Distributions or other
amounts due on the Preferred Securities. The Guarantee does not cover payment
of Distributions when CTBI Trust does not have sufficient funds to pay such
Distributions. In such event, the remedy of a holder of Preferred Securities
is to institute a legal proceeding directly against the Company for
enforcement of payment of such Distributions to such holder. The obligations
of the Company under the Guarantee are subordinate and junior in right of
payment to all other liabilities of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because (i) the aggregate principal amount of the Subordinated Debentures will
be equal to the sum of the aggregate stated Liquidation Amount of the
Preferred Securities and Common Securities; (ii) the interest rate and
interest and other payment dates on the Subordinated Debentures will match the
Distribution rate and Distribution and other payment dates for the Preferred
Securities; (iii) the Company shall pay for all and any costs, expenses and
liabilities of CTBI Trust except CTBI Trust's obligations to holders of the
Preferred Securities; and (iv) the CTBI Trust Agreement further provides that
CTBI Trust will not engage in any activity that is not consistent with the
limited purposes of CTBI Trust.
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Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, CTBI Trust or
any other person or entity.
A default or event of default under any Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company would not constitute a Debenture
Event of Default. However, in the event of payment defaults under, or
acceleration of, Senior Debt, Subordinated Debt or Additional Senior
Obligations of the Company, the subordination provisions of the Indenture
provide that no payments may be made in respect of the Subordinated Debentures
until such Senior Debt, Subordinated Debt or Additional Senior Obligations has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on the Subordinated Debentures would
constitute an Event of Default.
LIMITED PURPOSE OF CTBI TRUST
The Preferred Securities evidence a beneficial interest in CTBI Trust, and
CTBI Trust exists for the sole purpose of issuing the Preferred Securities and
Common Securities and investing the proceeds thereof in Subordinated
Debentures. A principal difference between the rights of a holder of a
Preferred Security and a holder of a Subordinated Debenture is that a holder
of a Subordinated Debenture is entitled to receive from the Company the
principal amount of and interest accrued on Subordinated Debentures held,
while a holder of Preferred Securities is entitled to receive Distributions
from CTBI Trust (or from the Company under the Guarantee) if and to the extent
CTBI Trust has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
CTBI Trust involving the liquidation of the Subordinated Debentures, the
holders of the Preferred Securities will be entitled to receive, out of assets
held by CTBI Trust, the Liquidation Distribution in cash. See "Description of
Preferred Securities--Liquidation Distribution Upon Termination." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the
Property Trustee, as holder of the Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior Debt, Subordinated Debt and Additional Senior Obligations as set forth
in the Indenture, but entitled to receive payment in full of principal and
interest before any stockholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of CTBI Trust (other
than CTBI Trust's obligations to the holders of its Preferred Securities), the
positions of a holder of the Preferred Securities and a holder of the
Subordinated Debentures relative to other creditors and to stockholders of the
Company in the event of liquidation or bankruptcy of the Company are expected
to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section is a summary of the material United States federal income tax
considerations that may be relevant to the purchasers of Preferred Securities
and represents the opinion of Greenebaum Doll & McDonald PLLC, counsel to the
Company, insofar as it relates to matters of law and legal conclusions. The
conclusions expressed herein are based upon current provisions of the Internal
Revenue Code of 1986, as amended ("Code"), the regulations promulgated
thereunder and current administrative rulings and court decisions, all of
which are
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subject to change at any time, with possible retroactive effects. Subsequent
changes may cause tax consequences to vary substantially from the consequences
described below. See "--Effect of Proposed Changes in Tax Laws." Furthermore,
the authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of Preferred Securities
may differ from the treatment described below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Preferred
Securities. Moreover, the discussion generally focuses on holders of Preferred
Securities who are individual citizens or residents of the United States and
who acquire Preferred Securities on their original issue at their offering
price and hold Preferred Securities as capital assets. The discussion has only
limited application to dealers in securities, corporations, estates, trusts or
nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-
exempt investors, or persons that will hold the Preferred Securities as a
position in a "straddle," as part of a "synthetic security" or "hedge," as
part of a "conversion transaction" or other integrated investment, or as other
than a capital asset. This summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. dollar or the
tax consequences to shareholders, partners or beneficiaries of a holder of
Preferred Securities. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the
Preferred Securities.
Each prospective investor should consult, and should rely exclusively on,
the investor's own tax advisors in analyzing the federal, state, local and
foreign tax consequences of the purchase, ownership or disposition of
Preferred Securities.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
The Company intends to take the position that the Subordinated Debentures
will be classified for United States federal income tax purposes as
indebtedness of the Company under current law. No assurance can be given,
however, that such position of the Company will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. The remainder of this discussion assumes that the Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company.
CLASSIFICATION OF CTBI TRUST
With respect to the Preferred Securities, Greenebaum Doll & McDonald PLLC,
counsel to the Company, has rendered its opinion generally to the effect that,
under current law and assuming full compliance with the terms of the CTBI
Trust Agreement and Indenture, CTBI Trust will be classified for United States
federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of Preferred Securities generally will be treated as
owning an undivided beneficial interest in the Subordinated Debentures, and
each holder will be required to include in its return any income, gain, loss
or expense with respect to its allocable share of the Subordinated Debentures.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
The Company's option to extend the interest payment period on the
Subordinated Debentures may cause the indebtedness to be issued with original
issue discount ("OID"). Under recently issued Treasury regulations
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(the "Regulations"), a contingency that stated interest will not be timely
paid that is "remote" will be ignored in determining whether such debt
instrument is issued with OID. As a result of the terms and conditions of the
Subordinated Debentures that prohibit certain payments with respect to the
Company's capital stock and indebtedness if the Company elects to extend
interest payment periods, the Company believes that the likelihood of its
exercising its option to defer payments is remote. Based on the foregoing, the
Company intends to take the position that the Subordinated Debentures will not
be considered to be issued with OID at the time of their original issuance. If
this position is sustained, a holder of Preferred Securities should include in
gross income such holder's allocable share of interest on the Subordinated
Debentures in accordance with its own method of tax accounting.
There can be no assurance, however, that the Internal Revenue Service will
not successfully contest the Company's position. If the Internal Revenue
Service were successful in such a contention, then all of the stated interest
payments on the Subordinated Debentures would be treated as OID. In such case,
the holders of the Preferred Securities would be required to include OID in
income on an economic accrual basis regardless of whether any interest is
actually paid or their method of tax accounting, but will not be required to
report actual payments of interest as taxable income.
If the Company's position that there is no OID initially is upheld, but the
Company exercises its option to defer any payment of interest, the
Subordinated Debentures would at the time of such exercise be treated as
issued with OID, and all stated interest thereafter payable on the
Subordinated Debentures would be treated as OID. In such event, the holders of
the Preferred Securities would be required to account for the OID as stated in
the immediately preceding paragraph. Consequently, a holder of Preferred
Securities would be required to include in gross income OID even though the
Company would not make any actual interest payments during an Extension
Period.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interests in the Subordinated Debentures with "market
discount" or "acquisition premium" as such phrases are defined for United
States federal income tax purposes. Such holders are advised to consult their
tax advisors as to the income tax consequences of the acquisition, ownership
and disposition of the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF CTBI TRUST
Under certain circumstances, as described under "Description of the
Preferred Securities--Redemption," the Subordinated Debentures may be
distributed to holders of Preferred Securities upon a liquidation of CTBI
Trust. Under current United States federal income tax law, such a distribution
would be treated as a nontaxable exchange to each such holder and would result
in such holder having an aggregate tax basis in the Subordinated Debentures
received in the liquidation equal to such holder's aggregate tax basis in the
Preferred Securities immediately before the distribution. A holder's holding
period for the Subordinated Debentures so received in liquidation of CTBI
Trust would include the period for which such holder held the Preferred
Securities.
If, however, a Tax Event occurs which results in CTBI Trust being treated as
an association taxable as a corporation, the distribution would likely
constitute a taxable event to CTBI Trust and to holders of the Preferred
Securities. Each holder of Preferred Securities would recognize gain or loss
as if such holder exchanged the Preferred Securities for the Subordinated
Debentures it received upon liquidation of CTBI Trust. Under certain
circumstances described herein, the Subordinated Debentures may be redeemed
for cash and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Under current law, such a redemption
would, for United States federal income tax purposes, constitute a taxable
disposition, and a holder would recognize gain or loss as if the holder sold
such Preferred Securities for cash. See "Description of Preferred Securities--
Redemption."
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DISPOSITION OF PREFERRED SECURITIES
A holder of Preferred Securities that sells Preferred Securities will
recognize gain or loss equal to the difference between its adjusted tax basis
for the Preferred Securities and the amount realized on the sale of such
Preferred Securities. Assuming that the Company's position that there is no
OID initially is upheld, and that the Company does not exercise its option to
defer payment of interest on the Subordinated Debentures, a Preferred Security
holder's adjusted tax basis for the Preferred Securities generally will be its
initial purchase price. If the Subordinated Debentures are deemed to have been
issued initially with OID, or OID results due to the Company's deferral of any
interest payment, a Preferred Security holder's adjusted tax basis for the
Preferred Securities generally will be its initial purchase price, increased
by OID previously included in such holder's gross income to the date of
disposition and decreased by distributions and other payments received on the
Preferred Securities since the date the Subordinated Debentures are deemed to
have OID. Such gain or loss generally will be a capital gain or loss (except
to the extent any amount realized is treated as a payment of accrued interest
with respect to such holder's pro rata share of the Subordinated Debentures)
and will be a long-term capital gain or loss if the Preferred Securities have
been held for more than one year.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the
underlying Subordinated Debentures. A holder that disposes of its Preferred
Securities between record dates for payments of distributions thereon will be
required to include as ordinary income either OID (if applicable) or accrued
but unpaid interest on the Subordinated Debentures through the date of
disposition. To the extent the amount realized is less than the holder's
adjusted tax basis, a holder will generally recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
EFFECT OF PROPOSED CHANGES IN TAX LAWS
On February 6, 1997, the revenue portion of President Clinton's 1998 budget
proposal (the "Budget Proposal") was released. The Budget Proposal would
generally deny deductions for interest on an instrument issued by a
corporation that has a maximum weighted average maturity of more than 40
years. The Budget Proposal would also generally deny deductions for interest
on an instrument issued by a corporation that has a maximum term of more than
15 years and that is not shown as indebtedness on the separate balance sheet
of the issuer filed with the Commission or, where the instrument is issued to
a related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as indebtedness on
the issuer's consolidated balance sheet filed with the Commission. The above
described provisions of the Budget Proposal are proposed to be effective
generally for instruments issued on or after the date of first Congressional
committee action. Since the Subordinated Debentures cannot have a term
exceeding 40 years, the first of the above described Budget Proposals would be
inapplicable. Furthermore, since the Company intends to reflect the Preferred
Securities as long-term debt on its consolidated balance sheet filed with the
Commission (although it will treat the Preferred Securities as a minority
interest for regulatory reporting), as currently drafted, the Budget Proposal
would not appear to apply to the Subordinated Debentures. There can be no
assurance, however, that similar legislation which would apply to the
Subordinated Debentures will not be enacted, and such legislation could be
retroactive in effect. If any such legislation were enacted, the Company would
be unable to deduct interest on the Subordinated Debentures. Such a change
could give rise to a Tax Event, which would permit the Company to cause a
redemption of the Preferred Securities before March 31, 2007.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Interest paid on the Subordinated Debentures, or the amount of OID on the
Subordinated Debentures, if applicable deemed held of record by individual
citizens or residents of the United States, or certain trusts, estates, and
partnerships, will be reported to the Internal Revenue Service on Forms 1099,
which forms should be mailed to such holders of Preferred Securities by
January 31 following each calendar year. Payments made on, and proceeds from
the sale of, the Preferred Securities may be subject to a "backup" withholding
tax (currently at 31%) unless the holder complies with certain identification
and other requirements. Any amounts withheld under
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the backup withholding rules will be allowed as a credit against the holder's
United States federal income tax liability provided the required information
is provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
Morgan Keegan & Company, Inc., J.J.B. Hilliard, W.L. Lyons, Inc., the Company
and CTBI Trust, the Underwriters have, severally and not jointly, agreed to
purchase from CTBI Trust, and CTBI Trust has agreed to sell to the
Underwriters, the respective numbers of the Preferred Securities set forth
opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER PREFERRED SECURITIES
------------------- --------------------
<S> <C>
Morgan Keegan & Company, Inc......................... 600,000
J.J.B. Hilliard, W.L. Lyons, Inc..................... 600,000
---------
Total............................................ 1,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions, including, among other things, the continuing
accuracy of the representations and warranties of the Company and CTBI Trust
contained in the Underwriting Agreement, the performance by the Company and
CTBI Trust of their obligations under the Underwriting Agreement and the
receipt of certain opinions of counsel in form and substance reasonably
satisfactory to counsel for the Underwriters. The nature of the Underwriters
obligations is such that they are committed to purchase and pay for all of the
Preferred Securities, if any are purchased.
The Underwriters propose to offer the Preferred Securities directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus. The Underwriters have advised the Company and CTBI Trust that
sales of the Preferred Securities to certain dealers may be made at a
concession not in excess of $.525 per Preferred Security, and that the
Underwriters may allow, and such dealers may reallow, discounts not in excess
of $.25 per Preferred Security on sales to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriters.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures issued by the
Company, the Underwriting Agreement provides that the Company will pay as
Underwriters' Compensation for the Underwriters' arranging the investment
therein of such proceeds an amount of $.875 per Preferred Security for the
accounts of the several Underwriters.
CTBI Trust has granted to the Underwriters an option, exercisable during a
thirty-day period after the date of this Prospectus, to purchase up to 180,000
shares of Preferred Securities at the public offering price, all as described
on the cover page hereof, solely to cover over-allotments, if any. The Company
has also agreed to pay the Underwriters the same commission described in the
immediately preceding paragraph in the event the Underwriters exercise this
option.
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Prior to this offering, there has been no public market for the Preferred
Securities. The Preferred Securities have been approved for quotation on The
Nasdaq Stock Market's National Market. Trading of the Preferred Securities on
Nasdaq Stock Market's National Market is expected to commence within 30 days
after the initial delivery of the Preferred Securities. The Underwriters have
advised the Company that they intend to make a market in the Preferred
Securities prior to commencement of trading on The Nasdaq Stock Market's
National Market, but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the
liquidity of or the existence of the trading market for the Preferred
Securities.
The Company and CTBI Trust have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment banking services to the
Company and its affiliates, for which such Underwriters or their affiliates
have received or will receive customary fees and commissions.
At the request of the Company, up to 120,000 Preferred Securities have been
reserved for sale to certain individuals, including directors, officers and
employees of the Company and members of their families.
VALIDITY OF PREFERRED SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon, upon behalf of CTBI Trust, by Richards, Layton
& Finger, special Delaware counsel to CTBI Trust. The validity of the
Subordinated Debentures and the Preferred Securities Guarantee and certain
matters relating thereto will be passed upon for Community Trust Bancorp, Inc.
by Greenebaum Doll & McDonald PLLC, Lexington, Kentucky. Counsel for the
Underwriters, King & Spalding, will pass upon certain legal matters for the
Underwriters.
EXPERTS
The consolidated financial statements for the year ended December 31, 1996
of Community Trust Bancorp, Inc. appearing in Community Trust Bancorp, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. The consolidated financial statements for the year
ended December 31, 1995 and each of the two years in the period ending
December 31, 1995 of Community Trust Bancorp, Inc. appearing in Community
Trust Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1996, have been audited by Crowe, Chisek & Company LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Nicholas R. Glancy, a Member of Greenebaum
Doll & McDonald PLLC who participated in the preparation of this Registration
Statement beneficially owns 2,812 shares of the common stock of the Company.
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AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") filed by the Company and CTBI Trust with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, with respect to this offering. This Prospectus does
not contain all of the information set forth in such Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, although it does include a summary of the
material terms of the Indenture and the CTBI Trust Agreement (each as defined
herein). Reference is made to such Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, CTBI
Trust and the Preferred Securities. Any statements contained herein concerning
the provisions of any document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission or incorporated by reference
herein are not necessarily complete, and, in each instance, reference is made
to the copy of such document so filed for a more complete description of the
matter involved. Each such statement is qualified in its entirety by such
reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional
offices at Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661,
and Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company's Common Stock is listed on the National Association of Securities
Dealers Automated Quotation/National Market System ("Nasdaq"), 1735 K Street,
N.W., Washington, D.C. 20006 under the symbol "CTBI." If available, such
reports and other information may also be accessed through the Commission's
electronic data gathering, analysis and retrieval system ("EDGAR") via
electronic means, including the Commission's web site on the Internet
(http://www.sec.gov).
No separate financial statements of the CTBI Trust have been included or
incorporated by reference herein. The Company and CTBI Trust do not consider
that such financial statements would be material to holders of the Preferred
Securities because CTBI Trust is a newly formed special purpose entity, has no
operating history or independent operations and is not engaged in and does not
propose to engage in any activity other than holding as trust assets the
Subordinated Debentures and issuing the Trust Securities. See "Description of
the Preferred Securities," "Description of Subordinated Debentures" and
"Description of Guarantee." In addition, the Company does not expect that CTBI
Trust will be filing reports under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company pursuant to
Section 13 of the Exchange Act are incorporated by reference in this
Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996; and
(b) Current Report on Form 8-K dated January 17, 1997.
All documents filed by the Registrant pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Registration Statement
and prior to the filing of a post-effective amendment to this Registration
Statement which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
filing date of such documents. Any statement contained in this Prospectus or
in a document incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to
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the extent that a statement contained herein or in the original Section 10(a)
prospectus (as regards any statement in any previously filed document
incorporated by reference herein), or a statement in any subsequently filed
document that is also incorporated by reference herein or a statement in any
subsequent Section 10(a) prospectus, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have
been or may be incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to Community
Trust Bancorp, Inc., 208 North Mayo Trail, Pikeville, Kentucky 41501;
Attention: Chief Financial Officer.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY CTBI TRUST, THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF CTBI TRUST OR THE COMPANY SINCE
SUCH DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Accounting Treatment...................................................... 12
The Company............................................................... 13
Capitalization............................................................ 14
Selected Consolidated Financial Data of the Company....................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Quarterly Financial Data.................................................. 22
Executive Officers of the Company......................................... 23
Directors of the Company.................................................. 24
Selected Statistical Information.......................................... 26
Description of the Preferred Securities................................... 33
Description of Subordinated Debentures.................................... 44
Book-Entry Issuance....................................................... 52
Description of Guarantee.................................................. 54
Relationship Among the Preferred Securities, the Subordinated Debentures
and the Guarantee ....................................................... 56
Certain Federal Income Tax Consequences................................... 57
Underwriting.............................................................. 61
Validity of Preferred Securities.......................................... 62
Experts................................................................... 62
Available Information..................................................... 63
Incorporation of Certain Documents by Reference........................... 63
</TABLE>
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1,200,000 PREFERRED SECURITIES
CTBI PREFERRED
CAPITAL TRUST
9.0% CUMULATIVE TRUSTPREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
LOGO
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PROSPECTUS
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MORGAN KEEGAN & COMPANY, INC.
J.J.B. HILLIARD, W.L. LYONS, INC.
April 10, 1997
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