Community Trust Bancorp, Inc. 2023 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. The filing covers the fiscal year ended December 31, 2023. CTBI had 79 banking locations, approximately 967 full-time equivalent employees, $5.77 billion of assets, $4.95 billion of deposits and repurchase agreements, $702.2 million of shareholders’ equity, and $3.4 billion of trust assets under management at year-end.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net income | $78.0 million | $81.8 million | Down 4.7% |
| Basic earnings per share | $4.36 | $4.59 | Down $0.23 |
| Net interest income | $173.1 million | $169.1 million | Up 2.4% |
| Provision for credit losses | $6.8 million | $4.9 million | Up 38.9% |
| Noninterest income | $57.7 million | $57.9 million | Down 0.4% |
| Noninterest expense | $125.4 million | $121.1 million | Up 3.6% |
| Net interest margin, tax equivalent | 3.32% | 3.32% | Stable |
| ROAA / ROAE | 1.40% / 11.75% | Not clearly provided in the filing excerpt | Not clearly provided |
- Total assets increased 7.2% to $5.77 billion; loans increased 9.2% to $4.05 billion.
- Deposits and repurchase agreements increased 6.6% to $4.95 billion, although noninterest-bearing deposits declined 9.6% and time deposits increased 39.7%.
- Net loan charge-offs increased to $3.2 million, or 0.08% of average loans, from $0.7 million, or 0.02%, in 2022.
- Nonperforming loans declined to $14.0 million, or 0.34% of loans, from $15.3 million, or 0.41%. Nonperforming assets declined 17.9% to $15.6 million.
- The allowance for credit losses was $49.5 million, equal to 1.22% of loans, with coverage of nonperforming loans of 354.7%.
- Net cash provided by operating activities was $85.7 million. Investing activities used $226.6 million, primarily reflecting $344.2 million of net loan growth. Financing activities provided $283.6 million, primarily from a $298.5 million increase in deposits.
- Cash and cash equivalents increased to $271.4 million from $128.7 million.
- Long-term debt was $64.2 million, including $57.8 million of junior subordinated debentures and $6.4 million of loan-related borrowings. Short-term debt, principally repurchase agreements, was $225.7 million.
- CTBI reported a 13.69% community bank leverage ratio, compared with the 9.00% applicable requirement; CTB’s ratio was 13.22%.
Material changes versus the prior comparable period
- Higher loan yields and average earning assets increased net interest income, but funding costs rose substantially: the cost of interest-bearing funds increased to 2.72% from 0.85%.
- Interest expense increased to $95.5 million from $28.6 million, partially offsetting the increase in interest income.
- Loan-related fees and gains on mortgage loan sales declined materially, contributing to lower mortgage banking income of $1.6 million versus $5.0 million.
- Noninterest expense increased by $4.3 million, including higher salaries, data processing costs, occupancy costs, and FDIC insurance premiums. A $1.2 million discretionary employee payment was accrued at year-end and paid in January 2024.
- CTBI implemented third-party discounted cash flow software for its allowance for credit losses during the second quarter of 2023. The change affected reserve allocations but did not materially change the overall allowance at implementation.
- Accumulated other comprehensive loss improved to $103.3 million from $129.2 million, primarily because of improved fair values of available-for-sale securities. Management stated that the unrealized losses were interest-rate related and not credit related.
- The annual cash dividend increased to $1.80 per share from $1.68. No shares were repurchased during 2023; 1,034,706 shares remained authorized for repurchase.
Guidance, outlook, commentary, risks and unusual items
Management’s 2024 target ranges are basic EPS of $4.31-$4.49, net income of $77.7-$80.8 million, ROAA of 1.33%-1.39%, ROAE of 10.99%-11.44%, revenue of $236.8-$246.5 million, assets of $5.74-$6.10 billion, loans of $4.18-$4.35 billion, deposits and repurchase agreements of $4.97-$5.17 billion, and shareholders’ equity of $711.2-$740.3 million. These are targets rather than guaranteed forecasts.
- Management identifies interest-rate risk, deposit pricing and liquidity, credit quality, commercial real estate and hotel/motel exposure, consumer indirect lending, local economic conditions, regulatory changes, competition, cybersecurity, third-party vendors, and acquisition integration as significant risks.
- Approximately 66% of the loan portfolio was secured by real estate and approximately 39% consisted of commercial real estate. Hotel/motel loans represented approximately 9.8% of total loans; commercial real estate nonresidential loans totaled $778.6 million.
- At year-end, CTBI had approximately $271.4 million of cash and cash equivalents, $157.5 million of unpledged available-for-sale securities, $476.2 million of available FHLB borrowing capacity, and $50 million of correspondent-bank lines of credit.
- Interest-rate modeling estimated that a gradual 400-basis-point increase would increase 12-month net interest income by 11.50%, while a 400-basis-point decrease would reduce it by 5.68%. Actual results may differ because the model relies on uncertain assumptions.
- A third-party vendor experienced a MOVEit-related data security incident in 2023 that potentially exposed certain customer information. CTBI stated that operations were not affected and that cyber insurance is expected to cover many related costs.
- CTBI reported no material unresolved staff comments, no material legal liability expected from pending ordinary-course litigation, and unqualified audit opinions on the financial statements and internal control over financial reporting.
Most important facts for an investor to verify
- Whether loan growth can continue without a material increase in charge-offs, nonperforming loans, or allowance requirements.
- The sustainability of the 3.32% net interest margin as deposit costs and other funding costs remain elevated.
- The composition, maturity profile, and fair-value sensitivity of the $1.16 billion available-for-sale securities portfolio and the $103.3 million after-tax unrealized loss.
- Deposit retention and the effect of the 39.7% increase in time deposits on future funding costs and liquidity.
- The assumptions and sensitivity of the new discounted cash flow allowance model, including economic forecasts, probability of default, loss severity, prepayments, and qualitative adjustments.
- Progress toward the stated 2024 targets and the effect of the employee payment, FDIC assessments, cybersecurity incident, and other unusual items on future expense levels.
- Whether the MOVEit incident results in additional customer remediation, insurance recoveries, regulatory action, litigation, or costs not reflected in the 2023 results.