Community Trust Bancorp, Inc. Reports Record Earnings for the Year 2018

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Community Trust Bancorp, Inc. CTBI:

Earnings Summary          
(in thousands except per share data)   4Q

2018

  3Q

2018

  4Q

2017

  Year

2018

  Year

2017

Net income $15,709 $16,106 $14,912 $59,228 $51,493
Earnings per share $0.89 $0.91 $0.84 $3.35 $2.92
Earnings per share - diluted $0.89 $0.91 $0.84 $3.35 $2.92
 
Return on average assets 1.48% 1.52% 1.43% 1.41% 1.27%
Return on average equity 11.16% 11.62% 11.18% 10.83% 9.93%
Efficiency ratio 58.04% 57.33% 57.76% 60.17% 58.66%
Tangible common equity 12.06% 11.80% 11.43%
 
Dividends declared per share $0.36 $0.36 $0.33 $1.38 $1.30
Book value per share $31.81 $31.04 $30.00
 
Weighted average shares 17,696 17,691 17,650 17,687 17,631
Weighted average shares - diluted 17,714 17,710 17,674 17,703 17,653

Community Trust Bancorp, Inc. (NASDAQ-CTBI) reports earnings for the fourth quarter 2018 of $15.7 million, or $0.89 per basic share, compared to $16.1 million, or $0.91 per basic share, earned during the third quarter 2018 and $14.9 million, or $0.84 per basic share, earned during the fourth quarter 2017. Earnings for the year ended December 31, 2018 were a record $59.2 million, or $3.35 per basic share, compared to $51.5 million or $2.92 per basic share earned during the year ended December 31, 2017.

4th Quarter 2018 Highlights

  • Net interest income for the quarter of $36.3 million was an increase of $0.1 million, or 0.4%, from third quarter 2018 and $1.2 million, or 3.4%, from prior year fourth quarter.
  • Provision for loan losses for the quarter ended December 31, 2018 increased $0.2 million from prior quarter but decreased $1.1 million from prior year same quarter.
  • Our loan portfolio increased $30.8 million, an annualized 3.8%, during the quarter and $85.7 million, or 2.7%, from December 31, 2017.
  • Net loan charge-offs for the quarter ended December 31, 2018 were $1.6 million, or 0.20% of average loans annualized, compared to $1.5 million, or 0.19%, experienced for the third quarter 2018 and $3.1 million, or 0.39%, for the fourth quarter 2017.
  • Nonperforming loans at $22.1 million increased $1.0 million from September 30, 2018 but decreased $6.2 million from December 31, 2017. Nonperforming assets at $49.4 million decreased $1.4 million from September 30, 2018 and $11.1 million from December 31, 2017.
  • Deposits, including repurchase agreements, increased $14.0 million during the quarter and $31.0 million from December 31, 2017.
  • Noninterest income for the quarter ended December 31, 2018 of $12.2 million was a decrease of $0.4 million, or 3.3%, from prior quarter and $0.2 million, or 1.4%, from prior year same quarter. The decrease in noninterest income was primarily the result of a decrease in loan related fees due to a decline in the fair value of our mortgage servicing rights.
  • Noninterest expense for the quarter ended December 31, 2018 of $28.2 million increased $0.1 million, or 0.2%, from prior quarter, and $0.4 million, or 1.6%, from prior year same quarter. The variance in noninterest expense from prior year same quarter was primarily due to increases in taxes other than income, property, and payroll and net other real estate owned expense, partially offset by a decrease in personnel expense. The decrease in personnel expense was due to the 2017 one-time bonus to employees as a result of the positive impact on income tax expense during the period.
  • Income tax expense continues to be positively impacted by the change in the corporate income tax rate from 35% to 21%. We utilize various tax exempt investments and loans, including municipal bonds, bank owned life insurance, and low income housing projects, to lower our effective income tax rate. With the current tax laws, our effective tax rate for the year ended December 31, 2018 was 16% compared to 28% for the year ended December 31, 2017.

Net Interest Income

Net interest income for the quarter of $36.3 million was an increase of $0.1 million, or 0.4%, from third quarter 2018 and $1.2 million, or 3.4%, from prior year fourth quarter. Our net interest margin at 3.68% was flat to prior quarter but increased 3 basis points from prior year same quarter, while our average earning assets increased $18.9 million and $68.1 million, respectively, during those same periods. Our yield on average earning assets increased 14 basis points from prior quarter and 36 basis points from prior year same quarter, and our cost of funds increased 21 basis points from prior quarter and 47 basis points from prior year same quarter. Our ratio of average loans to deposits, including repurchase agreements, was 89.8% for the quarter ended December 31, 2018 compared to 89.5% for the quarter ended September 30, 2018 and 89.1% for the quarter ended December 31, 2017. Net interest income for the year ended December 31, 2018 increased $4.8 million from December 31, 2017 with a 1 basis point decrease in our net interest margin and a $114.5 million increase in average earning assets.

Noninterest Income

Noninterest income for the quarter ended December 31, 2018 of $12.2 million was a decrease of $0.4 million, or 3.3%, from prior quarter and $0.2 million, or 1.4%, from prior year same quarter. The decrease in noninterest income was primarily the result of a decrease in loan related fees due to a decline in the fair value of our mortgage servicing rights. Noninterest income for the year ended December 31, 2018 was a $3.4 million, or 7.1%, increase from prior year. Year over year noninterest income has been positively impacted by increases in deposit service charges ($0.9 million), trust revenue ($0.9 million), and bank owned life insurance income ($1.5 million).

Noninterest Expense

Noninterest expense for the quarter ended December 31, 2018 of $28.2 million increased $0.1 million, or 0.2%, from prior quarter, and $0.4 million, or 1.6%, from prior year same quarter. The variance in noninterest expense from prior year same quarter was primarily due to increases in taxes other than property and payroll ($0.4 million) and net other real estate owned expense ($0.5 million), partially offset by a decrease in personnel expense ($0.5 million). The decrease in personnel expense was due to the 2017 one-time bonus to employees as a result of the positive impact on income tax expense during the period. Noninterest expense for the year ended December 31, 2018 was $117.4 million, a $7.5 million, or 6.8%, increase over the year 2017. The year over year increase included a $2.7 million increase in personnel expense and a $1.1 million increase in taxes other than income, property, and payroll, in addition to the $3.6 million customer reimbursement expense discussed in the second quarter 10-Q related to two deposit add-on products. The increase in personnel expense included increases in salaries ($0.7 million), bonuses ($0.2 million), and the cost of group medical and life insurance ($1.4 million).

Balance Sheet Review

CTBI's total assets at $4.2 billion increased $27.8 million, or 2.6% annualized, from September 30, 2018 and $65.4 million, or 1.6%, from December 31, 2017. Loans outstanding at December 31, 2018 were $3.2 billion, an increase of $30.8 million, or an annualized 3.8%, from September 30, 2018 and $85.7 million, or 2.7%, from December 31, 2017. We experienced an increase during the quarter of $31.0 million in the commercial loan portfolio and $3.2 million in the indirect loan portfolio, offset by decreases of $1.7 million in both the residential and consumer loan portfolios. CTBI's investment portfolio increased $25.7 million, or an annualized 17.9%, from September 30, 2018 and $9.1 million, or 1.6%, from December 31, 2017. Deposits in other banks decreased $35.6 million from prior quarter and $57.9 million from prior year-end. Deposits, including repurchase agreements, at $3.5 billion increased $14.0 million, or an annualized 1.6%, from September 30, 2018 and $31.0 million, or 0.9%, from December 31, 2017.

Shareholders' equity at December 31, 2018 was $564.2 million, a 10.0% annualized increase from the $550.3 million at September 30, 2018 and a 6.3% increase from the $530.7 million at December 31, 2017. CTBI's annualized dividend yield to shareholders as of December 31, 2018 was 3.64%.

Asset Quality

CTBI's total nonperforming loans, not including performing troubled debt restructurings, were $22.1 million, or 0.69% of total loans, at December 31, 2018 compared to $21.0 million, or 0.66% of total loans, at September 30, 2018 and $28.3 million, or 0.91% of total loans, at December 31, 2017. Accruing loans 90+ days past due increased $2.2 million from prior quarter but remained relatively flat compared to December 31, 2017. Nonaccrual loans decreased $1.2 million during the quarter and $6.3 million from December 31, 2017. Accruing loans 30-89 days past due at $22.7 million was a decrease of $5.5 million from September 30, 2018 but increased $3.3 million from December 31, 2017. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss. Impaired loans, loans not expected to meet contractual principal and interest payments other than insignificant delays, at December 31, 2018 totaled $46.4 million, compared to $46.9 million at September 30, 2018 and $47.4 million at December 31, 2017.

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Our level of foreclosed properties at $27.3 million at December 31, 2018 was a $2.4 million decrease from the $29.7 million at September 30, 2018 and a $4.7 million decrease from the $32.0 million at December 31, 2017. Sales of foreclosed properties for the quarter ended December 31, 2018 totaled $3.6 million while new foreclosed properties totaled $1.8 million. At December 31, 2018, the book value of properties under contracts to sell was $3.3 million; however, the closings had not occurred at year-end. Write-downs on foreclosed properties for the fourth quarter 2018 totaled $0.5 million compared to $0.7 million in the third quarter 2018 and $0.2 in the fourth quarter 2017. Write-downs for the year 2018 were $2.5 million compared to $3.0 million for the year 2017.

Net loan charge-offs for the quarter ended December 31, 2018 were $1.6 million, or 0.20% of average loans annualized, compared to $1.5 million, or 0.19%, experienced for the third quarter 2018 and $3.1 million, or 0.39%, for the fourth quarter 2017. Of the net charge-offs for the quarter, $0.3 million were in commercial loans, $0.7 million were in indirect auto loans, $0.4 million were in residential loans, and $0.2 million were in consumer direct loans. Allocations to loan loss reserves were $1.7 million for the quarter ended December 31, 2018 compared to $1.5 million for the quarter ended September 30, 2018 and $2.9 million for the quarter ended December 31, 2017. Our reserve coverage (allowance for loan and lease loss reserve to nonperforming loans) at September 30, 2018 was 162.7% compared to 170.1% at September 30, 2018 and 127.8% at December 31, 2017. Our loan loss reserve as a percentage of total loans outstanding at December 31, 2018 was 1.12%, down from the 1.13% at September 30, 2018 and 1.16% at December 31, 2017.

Forward-Looking Statements

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

Community Trust Bancorp, Inc., with assets of $4.2 billion, is headquartered in Pikeville, Kentucky and has 69 banking locations across eastern, northeastern, central, and south central Kentucky, six banking locations in southern West Virginia, four banking locations in northeastern Tennessee, four trust offices across Kentucky, and one trust office in Tennessee.

Additional information follows.

Community Trust Bancorp, Inc.
Financial Summary (Unaudited)
December 31, 2018
(in thousands except per share data and # of employees)
       
Three Three Three Twelve Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
December 31, 2018 September 30, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Interest income $ 45,238 $ 43,607 $ 40,673 $ 171,450 $ 155,696
Interest expense   8,958     7,471     5,571     29,295     18,294  
Net interest income 36,280 36,136 35,102 142,155 137,402
Loan loss provision 1,749 1,543 2,862 6,167 7,521
 
Gains on sales of loans 386 319 423 1,288 1,320
Deposit service charges 6,602 6,671 6,463 25,974 25,121
Trust revenue 2,663 2,836 2,684 11,313 10,453
Loan related fees 644 1,022 1,108 3,729 3,678
Securities gains (losses) 203 (2 ) 15 (85 ) 73
Other noninterest income   1,741     1,817     1,723     9,733     7,863  
Total noninterest income 12,239 12,663 12,416 51,952 48,508
 
Personnel expense 15,257 15,264 15,782 61,562 58,829
Occupancy and equipment 2,698 2,744 2,804 11,045 11,121
Data processing expense 1,715 1,695 1,782 6,680 7,100
FDIC insurance premiums 264 314 316 1,171 1,239
Other noninterest expense   8,238     8,089     7,052     36,940     31,589  
Total noninterest expense 28,172 28,106 27,736 117,398 109,878
 
Net income before taxes 18,598 19,150 16,920 70,542 68,511
Income taxes   2,889     3,044     2,008     11,314     17,018  
Net income $ 15,709   $ 16,106   $ 14,912   $ 59,228   $ 51,493  
 
Memo: TEQ interest income $ 45,462 $ 43,833 $ 41,186 $ 172,352 $ 157,722
 
Average shares outstanding 17,696 17,691 17,650 17,687 17,631
Diluted average shares outstanding 17,714 17,710 17,674 17,703 17,653
Basic earnings per share $ 0.89 $ 0.91 $ 0.84 $ 3.35 $ 2.92
Diluted earnings per share $ 0.89 $ 0.91 $ 0.84 $ 3.35 $ 2.92
Dividends per share $ 0.36 $ 0.36 $ 0.33 $ 1.38 $ 1.30
 
Average balances:
Loans $ 3,191,980 $ 3,167,357 $ 3,116,070 $ 3,150,878 $ 3,048,879
Earning assets 3,937,106 3,918,183 3,869,028 3,913,596 3,799,128
Total assets 4,217,158 4,190,768 4,141,555 4,187,397 4,068,970
Deposits, including repurchase agreements 3,555,292 3,539,482 3,498,571 3,540,717 3,406,627
Interest bearing liabilities 2,794,216 2,789,473 2,778,996 2,796,092 2,734,076
Shareholders' equity 558,632 549,837 529,334 546,641 518,767
 
Performance ratios:
Return on average assets 1.48 % 1.52 % 1.43 % 1.41 % 1.27 %
Return on average equity 11.16 % 11.62 % 11.18 % 10.83 % 9.93 %
Yield on average earning assets (tax equivalent) 4.58 % 4.44 % 4.22 % 4.40 % 4.15 %
Cost of interest bearing funds (tax equivalent) 1.27 % 1.06 % 0.80 % 1.05 % 0.67 %
Net interest margin (tax equivalent) 3.68 % 3.68 % 3.65 % 3.66 % 3.67 %
Efficiency ratio (tax equivalent) 58.04 % 57.33 % 57.76 % 60.17 % 58.66 %
 
Loan charge-offs $ 2,667 $ 2,828 $ 3,962 $ 10,998 $ 11,085
Recoveries   (1,035 )   (1,305 )   (860 )   (4,588 )   (3,782 )
Net charge-offs $ 1,632 $ 1,523 $ 3,102 $ 6,410 $ 7,303
 
Market Price:
High $ 46.86 $ 52.80 $ 51.90 $ 53.00 $ 51.90
Low $ 35.70 $ 45.65 $ 45.00 $ 35.70 $ 40.33
Close $ 39.61 $ 46.35 $ 47.10 $ 39.61 $ 47.10
  As of   As of   As of
December 31, 2018 September 30, 2018 December 31, 2017
Assets:
Loans $ 3,208,638 $ 3,177,888 $ 3,122,940
Loan loss reserve   (35,908 )   (35,791 )   (36,151 )
Net loans 3,172,730 3,142,097 3,086,789
Loans held for sale 2,461 1,029 1,033
Securities AFS 594,919 569,208 585,761
Securities HTM 649 659 659
Other equity investments 19,600 19,600 22,814
Other earning assets 82,585 124,413 139,392
Cash and due from banks 64,632 53,912 47,528
Premises and equipment 45,291 45,808 46,318
Goodwill and core deposit intangible 65,490 65,490 65,490
Other assets   153,259     151,627     140,447  
Total Assets $ 4,201,616   $ 4,173,843   $ 4,136,231  
 
Liabilities and Equity:
NOW accounts $ 56,964 $ 59,379 $ 51,218
Savings deposits 1,294,037 1,190,977 1,108,572
CD's >=$100,000 598,125 624,801 702,218
Other time deposits   553,508     571,685     610,925  
Total interest bearing deposits 2,502,634 2,446,842 2,472,933
Noninterest bearing deposits   803,316     826,804     790,930  
Total deposits 3,305,950 3,273,646 3,263,863
Repurchase agreements 232,712 250,983 243,814
Other interest bearing liabilities 60,957 61,433 67,498
Noninterest bearing liabilities   37,847     37,517     30,357  
Total liabilities 3,637,466 3,623,579 3,605,532
Shareholders' equity   564,150     550,264     530,699  
Total Liabilities and Equity $ 4,201,616   $ 4,173,843   $ 4,136,231  
 
Ending shares outstanding 17,733 17,728 17,693
Memo: Market value of HTM securities $ 649 $ 660 $ 660
 
30 - 89 days past due loans $ 22,682 $ 28,172 $ 19,388
90 days past due loans 10,198 8,005 10,176
Nonaccrual loans 11,867 13,032 18,119
Restructured loans (excluding 90 days past due and nonaccrual) 56,328 58,008 53,010
Foreclosed properties 27,273 29,666 31,996
Other repossessed assets 42 54 155
 
Common equity Tier 1 capital 16.27 % 16.08 % 15.33 %
Tier 1 leverage ratio 13.51 % 13.37 % 12.89 %
Tier 1 risk-based capital ratio 18.12 % 17.94 % 17.22 %
Total risk based capital ratio 19.29 % 19.11 % 18.41 %
Tangible equity to tangible assets ratio 12.06 % 11.80 % 11.43 %
FTE employees 978 979 990

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