Home » Community Trust reports decreased 4Q earnings but slight increase for 2013 overall

Community Trust reports decreased 4Q earnings but slight increase for 2013 overall

Community Trust Bancorp Inc. (NASDAQ:CTBI) reports earnings for the fourth quarter 2013 of $8.8 million, or $0.56 per basic share, compared to $10.6 million, or $0.68 per basic share, earned during the fourth quarter 2012 and $12.7 million, or $0.81 per basic share, earned during the third quarter 2013. Earnings for the year ended December 31, 2013, were $45.2 million, or $2.90 per basic share, compared to $44.9 million, or $2.90 per basic share for the year ended December 31, 2012.

Community Trust Bancorp, with assets of $3.6 billion, is headquartered in Pikeville and is the largest bank domiciled in Kentucky. It has 71 banking locations across eastern, northeastern, central and south central Kentucky, six banking locations in southern West Virginia, four banking locations in northeastern Tennessee, four trust offices across Kentucky, and one trust office in Tennessee.

On November 15, 2013, CTBI reported, in a current report on Form 8-K, an ongoing investigation by the Federal Reserve that we expected to result in an accrual against earnings in the fourth quarter of 2013. While the final determination of costs, including customer refunds, has not occurred, management has developed an estimated range of outcomes, including a maximum and minimum exposure and has accrued $6.2 million, the amount within this range that was considered the most likely cost.

4th Quarter 2013 Highlights

  • • CTBI’s basic earnings per share for the quarter decreased $0.12 per share from the fourth quarter 2012 and $0.25 per share from the third quarter 2013. Basic earnings per share for the year remained flat to prior year.
  • • Net interest income for the quarter increased 0.7% from prior year fourth quarter but declined 0.4% from prior quarter as our net interest margin increased 2 basis points but decreased 2 basis points, respectively, for those time periods. Average earning assets decreased 0.1% from fourth quarter 2012 but increased 0.1% from prior quarter. Net interest income for the year ended December 31, 2013 increased 1.9% from prior year.
  • • Nonperforming loans at $43.6 million increased $7.6 million from December 31, 2012 and $1.3 million from September 30, 2013. Nonperforming assets at $82.7 million decreased $0.3 million from December 31, 2012 and $2.0 million from September 30, 2013.
  • • Net loan charge-offs for the quarter ended December 31, 2013 were $1.2 million, or 0.19% of average loans annualized, compared to $2.9 million, or 0.45%, experienced for the fourth quarter 2012 and $1.7 million, or 0.26%, for the third quarter 2013. Net charge-offs for the year were $7.8 million, or 0.30%, compared to $9.4 million, or 0.37%, for the year ended December 31, 2012.
  • • Loan loss provision for the quarter decreased $1.7 million from prior year fourth quarter and $0.9 million from prior quarter. Provision expense for the year of $8.6 million is $0.9 million less than 2012.
  • • Loan loss reserves as a percentage of total loans outstanding remained at 1.30% from December 31, 2012 to December 31, 2013. Reserve coverage (allowance for loan loss reserve to nonperforming loans) at December 31, 2013 was 78.1% compared to 92.3% at December 31, 2012 and 80.5% at September 30, 2013.
  • • Noninterest income increased 0.8% for the quarter ended December 31, 2013 compared to the same period in 2012 but decreased 0.3% from prior quarter. The increase from fourth quarter 2012 was primarily attributable to increases in trust fees and net gains on other real estate owned, while the decrease from prior quarter was primarily due to a decrease in gains on sales of loans. Noninterest income for the year ended December 31, 2013 increased 7.3%. The increase year over year included increases in gains on sales of loans, deposit service charges, trust revenue, loan related fees, net gains on other real estate owned, and bank owned life insurance income, offset slightly by a decrease in securities gains.
  • • Noninterest expense for the quarter ended December 31, 2013 increased 16.3% from prior year fourth quarter and 26.5% from prior quarter. Noninterest expense for the year ended December 31, 2013 increased 6.5% from prior year. Noninterest expense was impacted by increased personnel expense, increased data processing expense, and $6.2 million in accrued expenses related to the Federal Reserve investigation discussed above.
  • CTBI’s loan portfolio increased $64.8 million from December 31, 2012 but declined $1.0 million during the quarter.
  • • Our investment portfolio increased $6.1 million from December 31, 2012 but declined $54.5 million during the quarter.
  • • Deposits, including repurchase agreements, declined $50.8 million from December 31, 2012 and $25.9 million during the quarter.
  • • Our tangible common equity/tangible assets ratio remains strong at 9.85%.

Net Interest Income

Net interest income for the quarter increased 0.7% from prior year fourth quarter but declined 0.4% from prior quarter as our net interest margin increased 2 basis points but decreased 2 basis points, respectively, for those time periods. Average earning assets decreased 0.1% from fourth quarter 2012 but increased 0.1% from prior quarter. The yield on average earning assets decreased 12 basis points and 5 basis points for these respective time periods. Loans represented 77.1% of our average earning assets for the quarter ended December 31, 2013 compared to 75.5% for the quarter ended December 31, 2012 and 77.0% for the quarter ended September 30, 2013. The cost of interest bearing funds decreased 17 basis points from prior year fourth quarter and 2 basis points from prior quarter. Net interest income for the year ended December 31, 2013 increased 1.9% from prior year with average earning assets increasing 0.8% and our net interest margin increasing 4 basis points.

Noninterest Income

Noninterest income increased 0.8% for the quarter ended December 31, 2013 compared to the same period in 2012 but decreased 0.3% from prior quarter. Gains on sales of loans declined from prior quarter and prior year, loan related fees decreased from prior year but increased from prior quarter, and bank owned life insurance income increased from prior year but decreased from prior quarter, while deposit service charges, trust revenue, and net gains on other real estate owned increased from prior year and prior quarter. Noninterest income for the year ended December 31, 2013 increased 7.3%. The increase year over year in noninterest income included increases in gains on sales of loans, deposit service charges, trust revenue, loan related fees, and bank owned life insurance income, offset slightly by a decrease in securities gains. Loan related fees were impacted by a $0.8 million positive variance year over year in fair value adjustments to our mortgage servicing rights.

Noninterest Expense

Noninterest expense for the quarter ended December 31 increased 16.3% from prior year fourth quarter and 26.5% from prior quarter. Noninterest expense for the year ended December 31, 2013 increased 6.5% from prior year. Noninterest expense was impacted by increased personnel expense of $1.0 million for the year, increased data processing expense of $0.9 million for the year, and $6.2 million in accrued expenses related to the Federal Reserve investigation discussed above.

Balance Sheet Review

CTBI’s total assets at $3.6 billion decreased $53.9 million, or 1.5%, from December 31, 2012 and $62.1 million, or an annualized 6.8%, during the quarter. Loans outstanding at December 31, 2013 were $2.6 billion, increasing $64.8 million, or 2.5%, from December 31, 2012 but decreasing $1.0 million, or an annualized 0.2%, during the quarter. We experienced loan growth during the quarter of $8.7 million in the residential loan portfolio, offset by declines of $4.7 million in the commercial loan portfolio and $5.0 million in the consumer loan portfolio. CTBI’s investment portfolio increased $6.1 million, or 1.0%, from December 31, 2012 but decreased $54.5 million, or an annualized 32.5%, during the quarter. The decline in the investment portfolio was primarily a result of the decline in deposits. Deposits, including repurchase agreements, at $3.1 billion decreased $50.8 million, or 1.6%, from December 31, 2012 and $25.9 million, or an annualized 3.3%, from prior quarter.

Shareholders’ equity at December 31, 2013 was $412.5 million compared to $400.3 million at December 31, 2012 and $408.7 million at September 30, 2013. CTBI’s annualized dividend yield to shareholders as of December 31, 2013 was 2.83%.

Asset Quality

CTBI’s total nonperforming loans were $43.6 million at December 31, 2013, a 21.0% increase from the $36.0 million at December 31, 2012, and a 3.1% increase from the $42.3 million at September 30, 2013. The increase for the quarter included a $2.8 million increase in nonaccrual loans, primarily residential real estate loans, partially offset by a $1.5 million decrease in 90+ days past due category. Loans 30-89 days past due at $16.0 million is a decrease of $11.1 million from December 31, 2012 and $7.3 million from September 30, 2013. 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, 2013, totaled $65.3 million, compared to $62.5 million at December 31, 2012 and $63.3 million at September 30, 2013.

Our level of foreclosed properties at $39.2 million at December 31, 2013, was a decrease from $47.0 million at December 31, 2012, and $42.5 million at September 30, 2013. Sales of foreclosed properties for the year ended December 31, 2013 totaled $12.7 million while new foreclosed properties totaled $7.4 million. At December 31, 2013, the book value of properties under contracts to sell was $6.8 million; however, the closings had not occurred at quarter-end.

Net loan charge-offs for the quarter ended December 31, 2013 were $1.2 million, or 0.19% of average loans annualized, compared to $2.9 million, or 0.45%, experienced for the fourth quarter 2012 and $1.7 million, or 0.26%, for the third quarter 2013. Of the total net charge-offs for the quarter, $0.1 million were in commercial loans, $0.7 million were in indirect auto loans, and $0.2 million were in residential real estate mortgage loans. Net charge-offs for the year 2013 were $7.8 million, or 0.30%, compared to $9.4 million, or 0.37%, for the year ended December 31, 2012. Allocations to loan loss reserves were $1.2 million for the quarter ended December 31, 2013 compared to $2.9 million for the quarter ended December 31, 2012 and $2.1 million for the quarter ended September 30, 2013. Our loan loss reserve as a percentage of total loans outstanding has remained at 1.30% from December 31, 2012 to December 31, 2013.

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