Community Trust Bancorp, Inc. 2022 Form 10-K Summary
Business context and reporting period
CTBI is a Kentucky-based bank holding company operating Community Trust Bank and Community Trust and Investment Company across Kentucky, southern West Virginia, and northeastern Tennessee. Its activities include commercial and consumer banking, lending, mortgage banking, trust, wealth management, brokerage, and insurance services. The filing covers the fiscal year ended December 31, 2022, with balance-sheet data as of that date.
- Total assets were $5.38 billion; deposits were $4.43 billion, or $4.64 billion including repurchase agreements.
- Total shareholders’ equity was $628.0 million, and trust assets under management were $3.2 billion.
- The company had 985 full-time equivalent employees and 80 total locations at year-end.
Financial performance and condition
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net interest income | $169.1 million | $163.1 million | Up 3.7% |
| Provision for credit losses | $4.9 million expense | $6.4 million recovery | Unfavorable $11.3 million swing |
| Noninterest income | $57.9 million | $60.5 million | Down 4.2% |
| Noninterest expense | $121.1 million | $119.3 million | Up 1.5% |
| Net income | $81.8 million | $87.9 million | Down 7.0% |
| Basic earnings per share | $4.59 | $4.94 | Down $0.35 |
| Net interest margin, tax equivalent | 3.32% | 3.21% | Up 11 basis points |
| ROAA | 1.50% | Not clearly provided in the filing text | Not clearly provided |
| ROAE | 12.73% | Not clearly provided in the filing text | Not clearly provided |
- Total revenue was $227.0 million, up $3.5 million from 2021. Net income represented approximately 36% of reported revenue; the filing does not identify this as a formal margin measure.
- Average earning assets increased 0.3% to $5.13 billion. The yield on average earning assets rose to 3.87% from 3.50%, while the cost of interest-bearing funds increased to 0.85% from 0.45%.
- Loans increased $300.5 million, or 8.8%, to $3.71 billion. Excluding PPP loans, loans increased $347.0 million.
- Deposits and repurchase agreements increased 0.6% to $4.64 billion. The average loan-to-deposit ratio, including repurchase agreements, was 75.8%.
- Net cash provided by operating activities was $99.7 million. Investing activities used $280.0 million, primarily reflecting loan growth and securities activity, while financing activities used $2.7 million. Cash and cash equivalents declined to $128.7 million from $311.8 million.
- Long-term debt was $57.8 million, consisting primarily of junior subordinated debentures. Short-term debt, including repurchase agreements and federal funds purchased, was $215.9 million.
- Available liquidity included $128.7 million of cash and cash equivalents, approximately $309.2 million of available-for-sale securities designated as continuously available for liquidity needs, $501.0 million of available FHLB borrowing capacity, and $75 million of correspondent-bank credit lines.
- The community bank leverage ratio was 13.55% for CTBI and 12.98% for Community Trust Bank, compared with a 9.00% required ratio.
Material changes versus the prior comparable period
- Net income declined primarily because 2021 included a $6.4 million recovery of credit-loss provisions, whereas 2022 included $4.9 million of provision expense, and because gains on loan sales declined $5.3 million.
- Net interest income benefited from higher asset yields, loan growth, and a larger benefit from noninterest-bearing deposits despite materially higher funding costs.
- Noninterest income declined as gains on loan sales fell 77.6% to $1.5 million, reflecting the slowdown in mortgage refinancing. Deposit service charges increased 9.5% to $29.0 million.
- Noninterest expense included a $1.4 million accrual for customer refunds of re-presented returned-item fees. Data-processing expense and other costs increased, partly offset by lower personnel expense.
- Nonperforming loans declined 7.9% to $15.3 million, or 0.41% of total loans, while net charge-offs were $0.7 million compared with a $0.1 million net recovery in 2021.
- The allowance for credit losses increased to $46.0 million from $41.8 million, and coverage of nonperforming loans increased to 300.4% from 251.2%.
- Shareholders’ equity declined 10.0% to $628.0 million, primarily because net unrealized losses on available-for-sale securities increased to $129.2 million from $4.8 million as interest rates rose. Management stated that the securities were expected to be held to recovery or maturity.
- The annual cash dividend increased to $1.68 per share from $1.57. No shares were repurchased during 2022.
Guidance, outlook, commentary, risks, and unusual items
- Management’s 2023 targets are basic EPS of $4.57–$4.75, net income of $82.0–$85.4 million, ROAA of 1.50%–1.56%, ROAE of 12.26%–12.76%, revenue of $237.9–$247.6 million, assets of $5.38–$5.72 billion, loans of $3.77–$3.92 billion, and deposits including repurchase agreements of $4.64–$4.83 billion. These are targets, not assurances.
- Management identified interest-rate risk as a significant market risk. Its model estimated that a gradual 400-basis-point increase in rates would increase 12-month net interest income by 9.98%, while a 400-basis-point decrease would reduce it by 7.91%. Actual results may differ materially.
- Key risks include economic weakness in CTBI’s concentrated regional markets, credit deterioration, commercial real estate and hotel/motel exposure, indirect consumer lending, interest-rate and liquidity pressure, deposit competition, cybersecurity and third-party technology risks, regulatory changes, litigation, climate-related effects on coal-related markets, and acquisition-integration risk.
- Approximately 65% of loans were secured by real estate and approximately 40% were commercial real estate loans. Hotel/motel loans represented approximately 9.3% of total loans; consumer loans represented approximately 24%, including a significant indirect-automobile component.
- Eastern Kentucky flooding in July 2022 affected six branches; one branch was destroyed and reopened on February 13, 2023. The filing does not indicate a material financial impact from the event.
- CTBI reported $174.6 million of gross unrealized losses on available-for-sale securities, which management characterized as temporary and interest-rate driven rather than credit-related.
- The company had $874.3 million of off-balance-sheet credit exposure, including $839.5 million of commitments to extend credit and $34.7 million of standby letters of credit. Reserves of approximately $0.7 million were maintained for each category.
- CTBI stated that its exposure to the discontinuation of LIBOR was insignificant. Its $57.8 million floating-rate junior subordinated debt is expected to transition under the LIBOR Act and related regulations.
- Pending legal actions arise from ordinary business activities; management believes they are without merit or will not materially affect consolidated results. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for an investor to verify
- Whether loan growth, particularly commercial real estate, hotel/motel, and indirect consumer loans, remains consistent with credit-quality trends and the allowance methodology.
- Whether the large unrealized securities losses remain temporary and do not create liquidity, capital, or forced-sale pressure if deposits decline.
- Whether rising deposit costs and competition reduce the 3.32% net interest margin and constrain the 2023 earnings targets.
- Whether the $874.3 million of unfunded and contingent credit commitments generate material future funding or credit-loss requirements.
- Whether the 2023 guidance is achieved, particularly the projected loan growth, deposit stability, revenue growth, and net income range.
- The terms and completed implementation of the LIBOR-to-SOFR transition for the junior subordinated debt.