Community Trust Bancorp, Inc. (CTBI) — FY2021 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. It provides commercial and consumer banking, mortgage, trust, wealth management, brokerage, and insurance services across Kentucky, southern West Virginia, and northeastern Tennessee. The filing covers the fiscal year ended December 31, 2021, with comparisons primarily to 2020.
- 79 banking locations and 974 full-time equivalent employees at year-end.
- Total assets were $5.42 billion; deposits, including repurchase agreements, were $4.62 billion.
- Shareholders’ equity was $698.2 million and trust assets under management were $3.6 billion.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net income | $87.9 million | $59.5 million | +47.8% |
| Basic and diluted EPS | $4.94 | $3.35 | +$1.59 |
| Net interest income | $163.1 million | $151.0 million | +8.0% |
| Provision for credit losses | $(6.4) million recovery | $16.0 million provision | $22.4 million favorable |
| Noninterest income | $60.5 million | $54.6 million | +10.8% |
| Noninterest expense | $119.3 million | $119.2 million | Approximately flat |
| Effective tax rate | 20.5% reported; approximately 21% in MD&A | 15.3% | Higher due largely to Kentucky tax-law changes |
| Net interest margin | 3.21% | 3.33% | Down 12 basis points |
| Return on average assets | 1.63% | Not clearly provided in the filing excerpt | Not clearly provided |
| Return on average equity | 12.88% | Not clearly provided in the filing excerpt | Not clearly provided |
- Average earning assets increased $553.8 million, or 12.1%, while the yield on earning assets declined to 3.50% from 3.88%.
- Interest expense declined 40.7% to $15.1 million, reflecting lower funding costs.
- Net cash provided by operating activities was $115.7 million, compared with $62.4 million in 2020. Investing activities used $358.6 million, primarily reflecting securities purchases, while financing activities provided $216.4 million.
- Cash and cash equivalents ended at $311.8 million, compared with $338.2 million at December 31, 2020.
- Total loans declined 4.1% to $3.41 billion, primarily because PPP loans declined to $47.3 million from $252.7 million. Loans excluding PPP loans increased $59.9 million.
- Investment securities increased 45.8% to approximately $1.46 billion.
- Deposits and repurchase agreements increased 5.6% to $4.62 billion, including a 16.7% increase in noninterest-bearing deposits.
- Long-term debt was $57.8 million; repurchase agreements and federal funds purchased totaled $271.6 million at year-end.
- The annual cash dividend increased to $1.57 per share from $1.53. No shares were repurchased in 2021.
Material changes versus the prior comparable period
- Profitability improved substantially, primarily because of higher net interest income, increased noninterest income, and the reversal of credit-loss provisions.
- Asset quality strengthened: nonperforming loans declined 37.4% to $16.6 million, nonperforming assets declined 41.3% to $20.1 million, and net loan recoveries were $0.1 million versus $6.2 million of net charge-offs in 2020.
- The allowance for credit losses declined to $41.8 million from $48.0 million, while reserve coverage of nonperforming loans increased to 251.2% from 180.7%.
- The credit-loss reserve ratio declined to 1.22% of total loans from 1.35%.
- Noninterest income growth was led by deposit service charges, trust revenue, loan-related fees, brokerage revenue, and bank-owned life insurance revenue. Gains on mortgage-loan sales declined as refinancing activity slowed.
- Personnel expense increased, mainly because of incentive accruals, but was offset by lower franchise taxes, other real estate owned expense, and legal and professional fees.
- Other comprehensive income declined by $18.4 million, primarily because of unrealized losses on available-for-sale securities, compared with a $9.3 million gain in 2020.
Guidance, outlook, commentary, risks, and unusual items
Management’s stated 2022 target ranges are basic EPS of $4.15–$4.31, net income of $74.1–$77.1 million, ROAA of 1.35%–1.40%, ROAE of 10.18%–10.59%, revenues of $216.0–$224.8 million, assets of $5.42–$5.75 billion, loans of $3.41–$3.55 billion, deposits including repurchase agreements of $4.63–$4.82 billion, and shareholders’ equity of $733.5–$763.4 million. Management states these are targets rather than guarantees or forecasts.
- COVID-19 remained a risk to operations, credit quality, liquidity, interest rates, and economic conditions. Only one CARES Act deferral, totaling $1.4 million, remained outstanding at year-end.
- CTBI originated 6,312 PPP loans totaling $401.3 million; 5,543 loans totaling $351.8 million had been forgiven by the SBA through year-end.
- Key credit concentrations include commercial real estate, hospitality, consumer indirect lending, and loans secured by real estate. Approximately 65% of loans were secured by real estate and approximately 40% consisted of commercial real estate.
- 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 11.23%, while a 25-basis-point decline would reduce it by 0.66%. Actual results may differ materially from these modeled estimates.
- Available-for-sale securities totaled approximately $1.46 billion and had $17.7 million of gross unrealized losses at year-end. Management considered the losses temporary and interest-rate driven rather than credit-related.
- Liquidity sources included $311.8 million of cash and cash equivalents, approximately $1.5 billion of available-for-sale securities, $484.4 million of available FHLB borrowing capacity, and $75 million of correspondent-bank lines of credit.
- Off-balance-sheet commitments totaled $742.9 million, including $710.2 million of commitments to extend credit and $32.7 million of standby letters of credit.
- CTBI reported pending litigation arising from ordinary business activities but stated that no pending matter was expected to materially affect consolidated financial position or results of operations.
- The company’s $57.8 million floating-rate long-term debt references three-month LIBOR through maturity in 2037. Management considered its LIBOR-transition exposure insignificant.
- Management and the independent auditor reported effective internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls. The allowance for credit losses was identified as a critical audit matter because of its modeling complexity and management judgment.
Most important facts for investors to verify
- Whether the 2022 target ranges are being achieved, particularly EPS, net income, net interest margin, loan growth, and deposit growth.
- The sustainability of the 2021 earnings increase, given the favorable credit-loss recovery and PPP fee recognition.
- Trends in commercial real estate, hotel/motel, consumer indirect, and other concentrated loan portfolios as pandemic support programs expire.
- Allowance coverage, nonperforming loans, charge-offs, criticized loans, and the effect of changing economic forecasts on CECL reserves.
- The impact of rising interest rates on net interest margin, deposit pricing, securities values, mortgage originations, and mortgage servicing rights.
- Liquidity and funding stability, including deposit concentration, repurchase agreements, available borrowing capacity, and securities collateral requirements.
- Potential effects of unrealized available-for-sale securities losses on equity and regulatory capital if securities must be sold.
- Progress on LIBOR replacement for the floating-rate junior subordinated debentures.
- Any developments in regulatory matters, litigation, cybersecurity, technology disruptions, or local economic weakness in CTBI’s rural markets.