11
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________to_________
Commission file number 0-11129
COMMUNITY TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0979818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
346 North Mayo Trail
Pikeville, Kentucky 41501
(address of principal executive offices) (Zip Code)
Registrant's telephone number (606) 432-1414
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes X No___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock - 12,141,127 shares outstanding at April 30, 2000
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying information has not been audited by independent
public accountants; however, in the opinion of management such
information reflects all adjustments necessary for a fair presentation
of the results for the interim period. All such adjustments are of a
normal and recurring nature.
The accompanying financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all
of the disclosures normally required by generally accepted accounting
principles or those normally made in the registrant's annual report on
Form 10-K. Accordingly, the reader of the Form 10-Q should refer to
the registrant's Form 10-K for the year ended December 31, 1999 for
further information in this regard.
Index to consolidated financial statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
2
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Consolidated Balance Sheets
March 31 December 31
(In thousands except share data) 2000 1999
Assets:
Cash and due from banks $ 88,419 $ 99,383
Interest bearing deposits in
other financial institutions 459 390
Federal funds sold 11,960 7,684
Securities available-for-sale 253,297 270,281
Securities held-to-maturity (fair value
of $55,386 and $58,762, respectively) 57,619 60,307
Loans 1,647,178 1,619,480
Allowance for loan losses (25,126) (25,102)
Net loans 1,622,052 1,594,378
Premises and equipment, net 50,830 52,052
Excess of cost over net assets acquired (net of
accumulated amortization of
$12,965 and $12,187, respectively) 58,655 59,433
Other assets 31,043 32,182
Total Assets $2,174,334 $2,176,090
Liabilities and Shareholders' Equity:
Deposits:
Noninterest bearing $ 258,783 $ 261,880
Interest bearing 1,604,690 1,615,454
Total deposits 1,863,473 1,877,334
Federal funds purchased and other
short-term borrowings 51,081 45,626
Other liabilities 15,213 10,113
Advances from Federal Home Loan Bank 16,106 16,924
Long-term debt 53,657 53,674
Total Liabilities 1,999,530 2,003,671
Shareholders' Equity:
Preferred stock, 300,000 shares authorized and unissued
Common stock, $5 par value, shares authorized
25,000,000; shares issued 2000-11,028,822;
1999-11,043,201 55,144 55,216
Capital surplus 45,113 45,306
Retained earnings 77,934 75,021
Accumulated other comprehensive income (3,387) (3,124)
Total Shareholders' Equity 174,804 172,419
Total Liabilities and
Shareholders' Equity $2,174,334 $2,176,090
See notes to consolidated financial statements.
3
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Consolidated Statements of Income
Three months ended
March 31
(In thousands except per share data) 2000 1999
Interest Income:
Interest and related fees on loans $36,982 $33,647
Interest and dividends on securities
Taxable 4,079 4,686
Tax exempt 692 733
Interest on federal funds sold 218 1,343
Interest on deposits in other financial
institutions 2 2
Total Interest Income 41,973 40,411
Interest Expense:
Interest on deposits 18,784 18,030
Interest on federal funds purchased and
other short-term borrowings 660 482
Interest on advances from Federal Home Loan Bank 236 397
Interest on long-term debt 1,176 1,224
Total Interest Expense 20,856 20,133
Net interest income 21,117 20,278
Provision for loan losses 2,450 2,034
Net interest income after provision
for loan losses 18,667 18,244
Noninterest Income:
Service charges on deposit accounts 2,341 2,155
Gains on sale of loans, net 133 703
Trust income 565 515
Loan processing & servicing fees 736 825
Other 877 797
Total Noninterest Income 4,652 4,995
Noninterest Expense:
Salaries and employee benefits 7,754 7,519
Occupancy, net 1,362 1,176
Equipment 1,060 1,263
Data processing 921 855
Stationery, printing and office supplies 410 365
Taxes other than payroll, property and income 443 441
Goodwill amortization 778 787
Other 3,120 3,420
Total Noninterest Expense 15,848 15,826
Income before income taxes 7,471 7,413
Income tax expense 2,352 2,313
Net Income 5,119 5,100
Other comprehensive income, net of tax:
Unrealized holding gains/(losses) arising
during period (263) (687)
Comprehensive income $ 4,856 $ 4,413
Basic earnings per share 0.42(1) 0.42(1)
Diluted earnings per share 0.42(1) 0.42(1)
Average shares outstanding 12,138(1) 12,174(1)
(1) Per share data and average shares outstanding have been
restated to reflect the 10% stock dividend issued on April 15,
1999 and on April 15, 2000.
See notes to consolidated financial statements.
4
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Consolidated Statements of Cash Flows
Three months ended
March 31
(In thousands) 2000 1999
Cash flows from operating activities:
Net income $ 5,119 $ 5,100
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,813 1,951
Provision for loan and other real estate losses 2,487 2,040
Gain on sale of loans, net (133) (703)
Gain on sale of assets 107 0
Net amortization of securities premiums 86 127
Net change in loans held for sale 293 2,598
Changes in:
Other assets 1,691 5,113
Other liabilities 3,065 3,115
Net cash provided by operating activities 14,314 19,341
Cash flows from investing activities:
Proceeds from:
Sale/call of securities available-for-sale 0 1,178
Maturity of securities available-for-sale 16,706 36,338
Maturity of securities held-to-maturity 1,416 251
Principal payments on mortgage-backed securities1,653 3,678
Purchase of:
Securities available-for-sale (280) (27,042)
Securities held-to-maturity (390) 0
Mortgage-backed securities 0 (10)
Net change in loans (30,657) (10,332)
Net change in premises and equipment 297 (317)
Net cash provided by (used in)
investing activities (11,255) 3,744
Cash flows from financing activities:
Net change in deposits (13,861) (47,072)
Net change in federal funds purchased and
other short-term borrowings 5,455 (2,000)
Advances from Federal Home Loan Bank 89 0
Repayments of advances from
Federal Home Loan Bank (907) (31,858)
Payments on long-term debt (17) (29)
Issuance and repurchase of common stock, net (265) (228)
Dividends paid (172) (3,969)
Net cash (used in) financing activities (9,678) (85,156)
Net (decrease) in cash and cash equivalents (6,619) (62,071)
Cash and cash equivalents at beginning of period107,457 233,133
Cash and cash equivalents at end of period $ 100,838 $ 171,062
See notes to consolidated financial statements.
5
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Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Community Trust Bancorp,
Inc. (the "Corporation"), and its subsidiaries on a consolidated basis
conform to generally accepted accounting principles and general
practices within the banking industry.
Principles of Consolidation - The unaudited consolidated
financial statements include the accounts of the Corporation and its
separate and distinct, wholly owned subsidiaries Community Trust Bank,
NA, Community Trust Bank, FSB, Trust Company of Kentucky, National
Association, CTBI Preferred Capital Trust, and Community Trust Funding
Corporation. All significant intercompany transactions have been
eliminated in consolidation.
Note 2 - Securities
Securities are classified into held-to-maturity and available-for-
sale categories. Held-to-maturity securities are those which the
Corporation has the positive intent and ability to hold to maturity
and are reported at amortized cost. Available-for-sale securities are
those which the Corporation may decide to sell if needed for
liquidity, asset-liability management or other reasons. Available-for-
sale securities are reported at fair value, with unrealized gains or
losses included as a separate component of equity, net of tax.
The amortized cost and fair value of securities available-for-
sale as of March 31, 2000 are summarized as follows:
Amortized Fair
(in thousands) Cost Value
U.S. Treasury and government agencies $ 41,546 $ 41,319
Mortgage-backed pass through
certificates 125,077 121,988
Collateralized mortgage obligations 37,750 37,185
Other debt securities 29,040 27,519
Total debt securities 233,413 228,011
Equity securities 25,370 25,286
Total Securities $258,783 $253,297
The amortized cost and fair value of securities held-to-maturity
as of March 31, 2000 are summarized as follows:
Amortized Fair
(in thousands) Cost Value
U.S. Treasury and government agencies $ 12,499 $ 10,197
States and political subdivisions 31,094 31,339
Mortgage-backed pass through
certificates 10,583 10,459
Collateralized mortgage obligations 3,443 3,391
Total Securities $ 57,619 $ 55,386
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Note 3 - Loans
Major classifications of loans are summarized as follows:
March 31 December 31
(in thousands) 2000 1999
Commercial, secured by real estate $ 429,228 $ 406,330
Commercial, other 313,963 293,659
Real Estate Construction 92,134 98,990
Real Estate Mortgage 402,558 397,168
Consumer 401,994 415,935
Equipment Lease Financing 7,302 7,398
$1,647,178 $1,619,480
Note 4 - Long-Term Debt
Long-Term Debt consists of the following:
March 31 December 31
(in thousands) 2000 1999
Trust Preferred Securities * $ 34,500 $ 34,500
Senior Notes 12,230 12,230
Revolving Bank Note 5,500 5,500
Other 1,427 1,444
$ 53,657 $ 53,674
Refer to the Corporation's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31,
1999 for information concerning rates and assets securing long-term
debt.
* In April 1997, CTBI Preferred Capital Trust ("CTBI Trust"), a
trust created under the laws of the State of Delaware, issued $34.5
million of 9.0% cumulative trust preferred securities ("Preferred
Securities"). The Corporation owns all of the beneficial interests
represented by common securities ("Common Securities") of CTBI Trust,
which 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 which were issued by
the Corporation. The Subordinated Debentures will mature on March 31,
2027, and are unsecured obligations of the Corporation. The
Subordinated Debentures are irrevocably and unconditionally guaranteed
by the Corporation and are subordinate and junior in right of payment
to all senior debt and other subordinated debt. There are no payments
due for this debt in the next five years.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Community Trust Bancorp, Inc. (the "Corporation") is a multi-bank
holding company headquartered in Pikeville, Kentucky. At March 31,
2000 the Corporation owned one commercial bank, one savings bank, one
trust company and two special purpose Delaware corporations. Through
its affiliates, the Corporation has over sixty banking locations
serving 85,000 households in various West Virginia and Eastern and
Central Kentucky counties. The Corporation had total assets of $2.18
billion and total shareholders' equity of $175 million as of March 31,
2000. The Corporation's common stock is listed on NASDAQ under the
symbol CTBI. Market makers are Herzog, Heine, Geduld, Inc., New York,
New York; J.J.B. Hilliard, W.L. Lyons, Inc., Louisville, Kentucky;
Morgan, Keegan and Company, Inc., Memphis, Tennessee; Robinson Salomon
Smith Barney, Atlanta, Georgia; J.C. Bradford & Co., Louisville,
Kentucky; Keefe, Bruyette & Woods, Inc., New York, New York.
Dividends
On January 25, 2000, the Corporation's Board of Directors
approved a 10% stock dividend. The stock dividend was paid on April
15, 2000, to shareholders of record on March 20, 2000. On April 15,
1999, there was a 10% stock dividend paid to shareholders of record on
March 20, 1999. All per share data has been restated to reflect these
stock dividends.
Regular quarterly cash dividends were paid on (1) April 1, 1999
of 17 cents per share for shareholders of record on March 15, 1999,
(2) July 1, 1999 of 18 cents per share for shareholders of record on
June 15, 1999, (3) October 1, 1999 of 18 cents per share for
shareholders of record on September 15, 1999, (4) January 1, 2000 of
18 cents per share for shareholders of record on December 15, 1999 and
(5) April 1, 2000 of 18 cents per share for shareholders of record on
March 15, 2000.
Income Statement Review
The Corporation's net income for the three months ended March 31,
2000 was $5.1 million or $0.42 per share as compared to $5.1 million
or $0.42 per share for the three months ended March 31, 1999. The
following table sets forth on an annualized basis the return on
average assets and return on average shareholders' equity for the
three month period ending March 31, 2000 and 1999:
Three months ended
March 31
2000 1999
Return on average shareholders' equity 11.82% 12.35%
Return on average assets 0.95% 0.95%
Provision for loan losses for the three months ended March 31,
2000 was $2.5 million, compared to $2.0 million for the same period in
1999. See "Provision For Loan Losses" below for an explanation of the
increase.
Net Interest Income
Net interest income increased $0.8 million or 4.1% from $20.3
million for the first quarter of 1999 to $21.1 million for the first
quarter of 2000. Interest income and interest expense both increased
for the quarter ending March 31, 2000 as compared to the same period
in 1999, with interest income increasing $1.6 million and interest
expense increasing $0.7 million.
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<PAGE>
The yield on interest earning assets increased 33 basis points
for the first quarter of 2000 as compared to the same period in 1999,
as a result of (1) funds being redeployed to loans from other
financial assets and (2) rising interest rates. The cost of interest
bearing funds also increased by 22 basis points for the first quarter
of 2000 as compared to the same period in 1999 due to rising interest
rates. As a result, the net interest margin increased from 4.27% for
the first quarter of 1999 to 4.45% for the current quarter.
The Corporation's loan portfolio, its highest yielding asset,
continues to expand. The Corporation's loan portfolio increased 9.3%
from $1.51 billion for the first quarter of 1999 to $1.65 billion for
the first quarter of 2000.
The following table summarizes the annualized net interest spread
and net interest margin, on a taxable equivalent basis, for the three
months ended March 31, 2000 and 1999.
Three Months Ended
March 31
2000 1999
Yield on interest earning assets 8.68% 8.35%
Cost of interest bearing funds 4.86% 4.64%
Net interest spread 3.82% 3.71%
Net interest margin 4.45% 4.27%
Provision for Loan Losses
The analysis of the changes in the allowance for loan losses and
selected ratios is set forth below.
Three Months Ended
March 31
(in thousands) 2000 1999
Allowance balance January 1 $25,102 $26,089
Additions to allowance charged
against operations 2,450 2,034
Recoveries credited to allowance 1,521 1,670
Losses charged against allowance (3,947) (5,520)
Allowance balance at March 31 $25,126 $24,273
Allowance for loan losses to
period-end loans 1.53% 1.61%
Average loans, net of unearned income $1,630,319 $1,501,450
Provision for loan losses to
average loans, annualized .60% .55%
Loan charge-offs net of recoveries, to
average loans, annualized .60% 1.04%
The Corporation increased its provision for loan losses during
the first quarter of 2000. This increase is primarily due to the loan
growth experienced in the first quarter of 2000. In September 1998,
CTBI took a special charge of $7.3 million to clean up problems in the
Indirect Loan Portfolio. Six million dollars of this charge was
booked as additional Provision for Loan Losses. As a result, losses
incurred in the Corporation's pre-1998 Indirect Lending Portfolio are
charged against this provision. In the first quarter of 1999, $942
thousand of the net charge-offs were applied to the pre-1998 special
reserve. In the first quarter of 2000, this amount decreased to $323
thousand. The 1999 provision was less than the 2000 provision even
though gross net charge-offs were greater in 1999, because $942
thousand of the 1999 charge-offs were applied to the special reserve.
Net charge-offs represent the amount of loans charged off less
amounts recovered on loans previously charged off. Net charge-offs as
a percentage of average loans outstanding decreased 44 basis points to
0.60% for the three months ended March 31, 2000 as compared to the
same period in 1999. The Corporation's non-performing loans (90 days
or more past due and non-accrual) were 1.12% and 1.33% of outstanding
loans at December 31, 1999 and March 31, 2000, respectively.
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Any loans classified as doubtful, substandard or special mention
that are not included in non-performing loans do not (1) represent or
result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity or
capital resources or (2) represent material credits about which
management has knowledge of any information which would cause
management to have serious doubts as to the ability of the borrowers
to comply with the loan repayment terms. The Corporation does not
believe there are currently any trends, events or uncertainties that
are reasonably likely to have a material effect on the volume of its
non-performing loans.
Noninterest Income
The Corporation's noninterest income decreased 6.87% from $5.00
million for the three months ended March 31, 1999 to $4.65 million for
the three months ended March 31, 2000. This net decrease can
primarily be attributed to gains on the sale of loans which decreased
from $703 thousand for the three months ended March 31, 1999, to $133
thousand for the three months ended March 31, 2000 and service charges
on deposit accounts which increased 8.63%, or $186 thousand, for the
three months ended March 31, 2000 as compared to the same period in
1999.
Noninterest Expense
The Corporation's noninterest expense remained flat at $15.8
million for the three months ended March 31, 2000 and March 31, 1999.
Cash Basis Income
Quarter Ended
March 31, 2000
Amortization
Reported Core Deposit "Cash"
Earnings Goodwill Intangible Earnings
Income before income tax expense $ 7,471 $ 634 $ 145 $8,250
Income tax expense 2,352 205 51 2,608
Net income $ 5,119 $ 429 $ 94 $5,642
Basic earnings per common share $ 0.42 $ 0.04 $ 0.01 $ 0.47
Diluted earnings per common share $ 0.42 $ 0.04 $ 0.01 $ 0.47
These calculations were specifically formulated by the Corporation and
may not be comparable to similarly titled measures reported by other
companies.
Earnings per share calculations have been restated to reflect the 10%
stock dividend paid on April 15, 2000.
Balance Sheet Review
Total assets were $2.18 billion at December 31, 1999 compared to
$2.17 billion at March 31, 2000. During the last three months, loans
increased 1.7% from $1.62 billion to $1.65 billion. Securities
decreased from $331 million at December 31, 1999 to $311 million at
March 31, 2000.
The Corporation's largest liability, deposits, decreased from
$1.88 billion as of December 31, 1999 to $1.86 billion as of March 31,
2000. Noninterest bearing deposits declined from $261.9 million at
December 31, 1999 to $258.8 million at March 31, 2000. Interest
bearing deposits decreased from $1,615.5 million at December 31, 1999
to $1,604.7 million at March 31, 2000.
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Loans
Loans increased from $1.62 billion as of December 31, 1999 to
$1.65 billion as of March 31, 2000, primarily due to the growth of the
Corporation's commercial loan portfolio. The category of commercial
loans secured by real estate increased from $406.3 million as of
December 31, 1999 to $429.2 million as of March 31, 2000 while other
commercial loans increased from $293.7 million as of December 31, 1999
to $314.0 million as of March 31, 2000. These increases were
partially offset by a decrease in consumer loans of $13.9 million.
The Corporation has strengthened the underwriting standards of
its consumer loan portfolio. The changes in underwriting standards have
resulted in a decrease in the volume of new loans booked.
Non-accrual and 90 days past due loans amounted to 1.12% of total
loans outstanding as of December 31, 1999 and 1.33% of total loans
outstanding as of March 31, 2000. Non-accrual loans as a percentage
of total loans outstanding were 0.92% as of December 31, 1999 and at
1.20% at March 31, 2000. During the same period, loans 90 days or
more past due decreased 7 basis points from 0.20% of total loans
outstanding to 0.13%. The allowance for loan losses decreased from
1.55% of total loans outstanding as of December 31, 1999 to 1.53% as
of March 31, 2000. The allowance for loan losses as a percentage of
non-accrual loans and loans past due 90 days or more was 138.7% at
December 31, 1999 and 114.7% at March 31, 2000.
Loans on non-accrual status increased from $14.8 million at
December 31, 1999 to $19.7 million at March 31, 2000, an increase of
$4.9 million. This increase was substantially due to the additions of
two secured commercial loans totaling $4.6 million. Both businesses
continue to operate and the sale of both businesses is being actively
pursued by their owners. The Corporation does not anticipate a material
loss from these two loans.
The following table summarizes the Corporation's loans that are
non-accrual or past due 90 days or more as of March 31, 2000 and
December 31, 1999.
As a % of Accruing loans As a % of
Non-accrual loan balances past due 90 loan balances
loans by category days or more by category
(in thousands)
March 31, 2000
Commercial loans,
secured by real estate $ 8,497 1.68% $ 208 0.04%
Commercial loans, other 5,866 1.83 61 0.02
Consumer loans,
secured by real estate 4,919 1.18 1,152 0.28
Consumer loans, other 425 0.11 783 0.19
Total $19,707 1.20% $ 2,204 0.13%
December 31, 1999
Commercial loans,
secured by real estate $ 5,887 1.21% $ 271 0.06%
Commercial loans, other 3,518 1.17 546 0.18
Consumer loans,
secured by real estate 5,098 1.23 1,305 0.31
Consumer loans, other 358 0.09 1,115 0.27
Total $14,861 0.92% $ 3,237 0.20%
Allowance for loan losses
Management analyzes the adequacy of its allowance for loan losses
on a quarterly basis. The loan portfolio of each market region is
analyzed by each major loan category, with a review of the following
areas: (i) specific allocations based upon a review of selected loans
for loss potential; (ii) an allocation which estimates reserves based
upon the remaining pool of loans in each category derived from
historical net charge-off data, delinquency trends and other relevant
factors and (iii) an unallocated portion of the allowance which
provides for a margin of error in estimating the allocations described
above and provides for risks inherent in the portfolio which may not
be specifically addressed elsewhere.
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Off-balance sheet risk is addressed by including letters of
credit in the Corporation's allowance adequacy analysis and through a
monthly review of all letters of credit outstanding. The
Corporation's loan review and problem loan analysis includes
evaluation of deteriorating letters of credit. Volume and trends in
delinquencies are monitored monthly by management, regional advisory
boards and the boards of directors of the respective banks.
Securities
The Corporation uses its securities held-to-maturity for
production of income and to manage cash flow needs through expected
maturities. The Corporation uses its securities available-for-sale
for income and balance sheet liquidity management. The book value of
securities available-for-sale decreased from $270.3 million as of
December 31, 1999 to $253.3 million as of March 31, 2000. Securities
held-to-maturity declined from $60.3 million to $57.6 million during
the same period. Total securities as a percentage of total assets
were 15.2% as of December 31, 1999 and 14.3% as of March 31, 2000.
Liquidity and Capital Resources
The Corporation's liquidity objectives are to ensure that funds
are available for the subsidiary banks to meet deposit withdrawals and
credit demands without unduly penalizing profitability, and to ensure
that funding is available for the Corporation to meet ongoing cash
needs while maximizing profitability. The Corporation continues to
identify ways to provide for liquidity on both a current and long-term
basis. The subsidiary banks rely mainly on core deposits,
certificates of $100,000 or more, repayment of principal and interest
on loans and securities and federal funds sold and purchased to create
long-term liquidity. The subsidiary banks also rely on the sale of
securities under repurchase agreements, securities available-for-sale
and Federal Home Loan Bank borrowings.
Deposits decreased from $1.877 billion to $1.863 billion from
December 31, 1999 to March 31, 2000. Noninterest bearing deposits
decreased by $3.1 million while interest-bearing deposits decreased by
$10.8 million.
Due to the nature of the markets served by the subsidiary banks,
management believes that the majority of its certificates of deposits
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 correspondent banks for the purchase
of federal funds on an unsecured basis, up to an aggregate of nearly
$100 million, if necessary, to meet the Corporation's liquidity needs.
The Corporation owns $253.3 million of securities valued at
market price that are designated as available-for-sale and available
to meet liquidity needs on a continuing basis. The Corporation also
relies on Federal Home Loan Bank advances for both liquidity and
management of its asset/liability position. These advances have
sometimes been matched against pools of residential mortgage loans,
which are not sold in the secondary market, some of which have
original maturities of ten to fifteen years. Federal Home Loan Bank
advances decreased from $16.9 million as of December 31, 1999 to $16.1
million as of March 31, 2000.
The Corporation generally relies upon net inflows of cash from
financing activities, supplemented by net inflows of cash from
operating activities, to provide cash for its investing activities.
As is typical of many financial institutions, significant financing
activities include deposit gathering, use of short-term borrowing
facilities such as federal funds purchased and securities sold under
repurchase agreements, and issuance of long-term debt. The
Corporation currently has a $21.0 million revolving line of credit,
$15.5 million of which is currently available to meet any future cash
needs. (See long-term debt footnote to the consolidated financial
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statements.) The Corporation's primary investing activities include
purchases of securities and loan originations.
In conjunction with maintaining a satisfactory level of
liquidity, management monitors the degree of interest rate risk
assumed on the balance sheet. The Corporation monitors its interest
rate risk by use of the static and dynamic gap models at the one-year
interval. The static gap model monitors the difference in interest
rate sensitive assets and interest rate sensitive liabilities as a
percentage of total assets that mature within the specified time
frame. The dynamic gap model goes further in that it assumes that
interest rate sensitive assets and liabilities will be reinvested.
The Corporation uses the Sendero system to monitor its interest rate
risk. The Corporation desires an interest sensitivity gap of not more
than fifteen percent of total assets at the one-year interval.
On a limited basis, the Corporation may use interest rate swaps
and sales of options on securities as additional tools in managing
interest rate risk. Interest rate swaps involve an exchange of cash
flows based on the notional principal amount and agreed upon fixed and
variable interest rates. In this transaction, the Corporation would
typically agree to pay a floating interest rate based on London Inter-
Bank Offering Rate (LIBOR) and receive a fixed interest rate in
return. On options, the Corporation would typically sell the right to
a third party to purchase securities the Corporation currently owns at
a fixed price on a future date. The Corporation had no swaps
or options outstanding at March 31, 2000.
The Corporation's principal source of funds used to pay dividends
to shareholders and service long-term debt is the dividends it
receives from subsidiary banks. Various federal and state statutory
provisions, in addition to regulatory policies and directives, limit
the amount of dividends that subsidiary banks can pay without prior
regulatory approval. These restrictions have had no major impact on
the Corporation's dividend policy or its ability to service long-term
debt, nor is it anticipated that they would have any major impact in
the foreseeable future. In addition to the subsidiary banks' 2000
profits, approximately $27.4 million can be paid to the Corporation as
dividends without prior regulatory approval.
The primary source of capital for the Corporation is retained
earnings. The Corporation paid cash dividends of $0.18 per share for
the first three months of 2000 and $0.17 per share for the first three
months of 1999. Earnings per share for the same periods were $0.42
and $0.42, respectively. The Corporation retained 57% of earnings for
the first three months of 2000.
Under guidelines issued by banking regulators, the Corporation
and its subsidiary banks are required to maintain a minimum Tier 1
risk-based capital ratio of 4% and a minimum total risk-based ratio of
8%. Risk-based capital ratios weight the relative risk factors of all
assets and consider the risk associated with off-balance sheet items.
The Corporation must also maintain a minimum Tier 1 leverage ratio of
4%. The Corporation's Tier 1 leverage, Tier 1 risk-based and total
risk-based ratios were 7.29%, 9.01% and 10.27%, respectively as of
March 31, 2000.
As of March 31, 2000, management is not aware of any current
recommendations by banking regulatory authorities which, if they were
to be implemented, would have, or would be reasonably likely to have,
a material adverse impact on the Corporation's liquidity, capital
resources, or operations.
Impact of Inflation and Changing Prices
The majority of the Corporation's assets and liabilities are
monetary in nature. Therefore, the Corporation differs greatly from
most commercial and industrial companies that have significant
investment in nonmonetary assets, such as fixed assets and
inventories. However, inflation does have an important impact on the
growth of assets in the banking industry and on the resulting need to
increase equity capital at higher than normal rates in order to
maintain an appropriate equity to assets ratio. Inflation also affects
other expenses, which tend to rise during periods of general
inflation.
13
<PAGE>
Management believes the most significant impact on financial and
operating results is the Corporation's ability to react to changes in
interest rates. Management seeks to maintain an essentially balanced
position between interest rate sensitive assets and liabilities in
order to protect against the effects of wide interest rate
fluctuations.
14
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporation currently does not engage in any derivative or
hedging activity. Refer the Corporation's 1999 10-K for analysis of
the interest rate sensitivity.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a vote None
of Security Holders
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMMUNITY TRUST BANCORP, INC.
by
Date: May 12, 2000 /s/Jean R. Hale
Jean R. Hale
President and
Principal Executive Officer
/s/Kevin Stumbo
Kevin Stumbo
Chief Accounting Officer
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