Community Trust Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
Community Trust Bancorp, Inc. (CTBI) is a Kentucky-based bank holding company operating Community Trust Bank and a trust company across Kentucky, southern West Virginia, and northeastern Tennessee. The filing covers the unaudited quarter ended March 31, 2022, with comparisons to March 31, 2021 and December 31, 2021. CTBI reported 79 banking locations, $5.4 billion of consolidated assets, and $3.6 billion of trust assets under management at quarter-end.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total interest income | $43.5 million | $44.2 million | (1.5%) |
| Net interest income | $40.0 million | $40.2 million | (0.5%) |
| Provision for credit losses | $0.9 million | $(2.5) million recovery | $3.4 million unfavorable |
| Noninterest income | $15.0 million | $15.6 million | (3.9%) |
| Noninterest expense | $29.4 million | $28.3 million | 3.7% |
| Net income | $19.7 million | $23.6 million | (16.5%) |
| Basic and diluted EPS | $1.11 | $1.33 | (16.5%) |
| Net interest margin, tax-equivalent | 3.18% | 3.31% | (13 basis points) |
Net income represented approximately 17.5% of total revenue consisting of net interest income plus noninterest income, versus approximately 20.6% in the prior-year quarter. CTBI paid a quarterly dividend of $0.400 per share, compared with $0.385 in Q1 2021.
- Loans totaled $3.516 billion, up $106.7 million, or 12.7% annualized, from December 31, 2021 and up 3.1% from the prior year. Excluding PPP loans, quarterly loan growth was $131.6 million.
- Deposits totaled $4.428 billion; deposits plus repurchase agreements totaled $4.683 billion, up 2.1% from March 31, 2021.
- Cash and cash equivalents were $164.5 million, down from $311.8 million at December 31, 2021. Available-for-sale securities were $1.503 billion.
- Net cash provided by operating activities was $27.4 million. Investing activities used $235.3 million, primarily reflecting loan growth and securities purchases. Financing activities provided $60.7 million, principally from increased deposits.
- Allowance for credit losses was $42.3 million, or 1.20% of loans, compared with 1.28% at March 31, 2021. Reserve coverage of nonperforming loans was 309.1%.
- Long-term debt was $57.8 million. Federal Home Loan Bank advances were $0.4 million, and CTBI reported $490.5 million of available Federal Home Loan Bank borrowing capacity plus $75 million of correspondent-bank lines.
- CTBI’s community bank leverage ratio was 13.15%; Community Trust Bank’s ratio was 12.53%. Both were considered well-capitalized.
Material changes versus comparable periods
- Net income declined $3.9 million year over year, primarily because the Q1 2021 provision reflected a $2.5 million recovery, while Q1 2022 included a $0.9 million provision, and because interest and noninterest income declined.
- Interest income on PPP loans and recognition of related fees continued to decline as loans were forgiven. PPP loans fell $24.9 million during the quarter to $22.5 million.
- Mortgage-related gains on loan sales decreased to $0.6 million from $2.4 million, reflecting the slowdown in mortgage refinancing activity.
- Noninterest expense increased $1.0 million year over year, primarily from higher personnel and loan-related expenses, although expense declined $1.8 million from Q4 2021 due mainly to lower bonus and incentive accruals.
- Shareholders’ equity fell $44.8 million, or 6.4%, from year-end 2021 to $653.4 million. The primary driver was a $58.1 million after-tax increase in unrealized losses on the available-for-sale securities portfolio.
- Available-for-sale securities had $86.8 million of gross unrealized losses at March 31, 2022, compared with $17.7 million at year-end 2021. Management considered the losses temporary, market- and interest-rate-driven, and not credit-related.
- Nonperforming loans declined to $13.7 million, excluding TDRs, from $16.6 million at year-end 2021 and $21.0 million at March 31, 2021. Nonperforming assets were $16.0 million.
Outlook, risks, contingencies, and unusual items
Management did not provide numerical earnings guidance in the filing. Management stated that loan growth, credit performance, inflation, rising interest rates, COVID-19 effects, securities-market conditions, competition, regulation, technology dependence, acquisitions, and legal matters could materially affect future results.
- Interest-rate risk is significant. CTBI estimated that a 200-basis-point increase in the yield curve would increase net interest income by 3.99% over one year and 7.46% over two years; a 25-basis-point decrease would reduce it by 0.54% and 1.02%, respectively.
- Management continued to include a qualitative credit-loss adjustment for COVID-19, inflation, potential rate increases, and borrower repayment uncertainty. The filing notes that PPP funding was largely complete and that no new funding capacity was approved.
- Hotel and motel loans represented approximately 7.8% of total loans and are particularly sensitive to economic conditions and property operating performance.
- CTBI entered into 10 TDR modifications during the quarter totaling $2.3 million post-modification; no charge-offs resulted from these modifications, and no restructured loans subsequently defaulted during the quarter.
- Other real estate owned declined to $2.3 million from $3.5 million at year-end 2021. Sales totaled $1.1 million, new properties acquired totaled $0.1 million, and fair-value adjustments reduced earnings by $0.2 million.
- The filing was unaudited, and interim results are not necessarily indicative of full-year results. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
- No legal proceedings or additional risk factors were reported in Part II of the filing.
Important facts for investors to verify
- Whether loan growth excluding PPP loans remains sustainable as interest rates rise and regional economic conditions change.
- The duration, credit quality, and potential future capital impact of the available-for-sale securities portfolio’s unrealized losses.
- Whether the increased credit-loss provision and management’s COVID-19, inflation, and forecast assumptions adequately reflect future credit risk.
- Trends in net interest margin, deposit pricing, liquidity, and sensitivity to the Federal Reserve’s rate actions.
- Performance of the hotel/motel and commercial real estate portfolios, including criticized loans, TDRs, delinquencies, and collateral values.
- The extent to which declining PPP fee income and mortgage loan-sale gains reduce future revenue.