Community Trust Bancorp, Inc. Reports Earnings for the Third Quarter 2009

• Press Release
• Source: Community Trust Bancorp, Inc.
• On 8:16 am EDT, Wednesday October 21, 2009

PIKEVILLE, Ky.--(BUSINESS WIRE)--Community Trust Bancorp, Inc. (NASDAQ:CTBI - News):

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Symbol	Price	Change
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Community Trust Bancorp, Inc. (NASDAQ:CTBI - News) reports earnings for the quarter ended September 30, 2009 of $5.6 million or $0.37 per basic share compared to $5.9 million or $0.39 per basic share earned during the quarter ended June 30, 2009 and a loss of ($0.6 million) or ($0.04) per basic share incurred during the third quarter of 2008. The loss recorded in the third quarter 2008 was a result of the $13.5 million other than temporary impairment (OTTI) charge to earnings incurred due to the U.S. Treasury placing Freddie Mac and Fannie Mae into conservatorship. Year-to-date September 30, 2009 earnings per basic share were $1.20 compared to $1.11 for the same period in 2008.

CTBI continues to maintain a significantly higher level of capital than required by regulatory authorities to be designated as well-capitalized. On September 30, 2009, our Tangible Common Equity/Tangible Assets Ratio remained significantly higher than our peer institutions at 8.51%, our Tier 1 Leverage Ratio of 10.25% was 525 basis points higher than the 5.00% required, our Tier 1 Risk-Based Capital Ratio of 12.92% was 692 basis points higher than the required 6.00%, and our Total Risk-Based Capital Ratio of 14.17% was 417 basis points higher than the 10.00% regulatory requirement for this designation.

Third Quarter 2009 Highlights

• CTBI's basic earnings per share decreased $0.02 per share from prior quarter and increased $0.41 per share from prior year third quarter. Year over year basic earnings per share increased $0.09 per share. 2009 YTD earnings were impacted by increased provision for loan losses, increased FDIC insurance premiums and special FDIC assessment, and increased noninterest income compared to 2008 YTD which was impacted by the $13.5 million impairment charge referenced above.
• The significant increase in loan loss provision supports loan growth of $22.4 million for the quarter and $86.7 million from prior year third quarter, as well as increased charge offs as problem commercial real estate loans with specific reserves are working through a slow legal process.
• Net loan charge-offs for the quarter ended September 30, 2009 were 0.87% of average loans compared to 0.63% for the quarter ended June 30, 2009 and 0.36% for the third quarter 2008. Year-to-date net charge-offs increased $5.1 million from prior year.
• Noninterest income was impacted by increased gains on sales of loans and loan related fees year over year; however, both declined in the third quarter 2009 as refinancing of mortgage loans has slowed and the fair value of mortgage servicing rights decreased.
• Noninterest expense increased year over year as a result of increases in legal fees, net OREO expense, and repossession expense as CTBI works through its problem real estate loans resulting from the decline in the housing market. CTBI also experienced increased personnel expense and increased FDIC insurance premiums including the special FDIC assessment. The decline in FDIC premiums quarter over quarter was due to the special FDIC assessment booked in the second quarter 2009.
• Expenses associated with group medical and life insurance increased $0.7 million during the third quarter 2009, but were offset by a $0.6 million reversal of a performance-based employee incentive accrual.
• Our net interest margin increased 18 basis points during the third quarter 2009, although it remains below prior year as pressure continues due to the current interest rate environment and economic conditions. Our net interest margin compared to prior year-to-date and same quarter ended September 2008 decreased 27 basis points and 16 basis points, respectively.
• Our loan portfolio grew $22.4 million, an annualized rate of 3.7%, during the quarter with growth in the residential and consumer loan categories offset by declines in commercial loan categories. Year over year loan growth was $86.7 million or 3.7%.
• Nonperforming loans decreased $14.4 million during the third quarter 2009 to $45.2 million compared to $59.6 million at prior quarter end and $49.3 million at September 30, 2008. The decrease in nonperforming loans was in both the 90 day and accruing and the nonaccrual classifications. Nonperforming assets, however, increased $1.8 million from prior quarter-end, June 30, 2009, and $23.0 million from prior year quarter-end, September 30, 2008, as a result of increased other real estate owned.
• Our investment portfolio declined $22.2 million for the quarter and $16.5 million year over year.
• Our tangible common equity/tangible assets ratio remains strong at 8.51%.

Net Interest Income

CTBI saw improvement in its net interest margin of 18 basis points from prior quarter, although it remains below prior year with a decrease of 16 basis points compared to the quarter ended September 30, 2008. Net interest income for the quarter increased 6.4% from prior quarter and 2.1% from prior year third quarter with average earning assets increasing 0.2% and 6.1%, respectively, for the same periods. CTBI’s balance sheet is asset sensitive in the short time period but liability sensitive at the one year time period. Deposit repricing is occurring more slowly than loan repricing placing pressure on the margin; however, current margin improvement from repricing is evidenced as the yield on average earnings assets increased 5 basis points from prior quarter in comparison to the 18 basis point decrease in the cost of interest bearing funds during the same period. Net interest income increased $1.6 million from prior quarter. YTD 2009 net interest income was $76.9 million compared to $78.5 million for the same period in 2008. Average earnings assets for the quarter ending September 30, 2009 increased $6.0 million from prior quarter and 2009 YTD average earning assets increased $140.0 million from the nine months ended September 30, 2008.

Noninterest Income

Noninterest income for the third quarter 2009 decreased 15.8% over prior quarter and 2.8% over prior year third quarter after normalizing for the $13.5 million temporary impairment charge in the third quarter 2008. The decrease from prior quarter included a $1.0 million decrease in gains on sales of mortgage loans and a $1.0 million decrease in loan related fees driven primarily by a $0.9 million change in the fair value of our mortgage servicing rights. Year over year noninterest income increased 10.8% from the nine months ended September 30, 2008 after normalizing for the OTTI charge with a $2.2 million increase in gains on sales of loans and a $0.7 million increase in loan related fees related to the fair value adjustment of mortgage servicing rights.

Noninterest Expense

Noninterest expense for the quarter decreased 4.2% from prior quarter and increased 6.0% from prior year third quarter. FDIC premium costs of $1.1 million during the third quarter were a $1.2 million decrease quarter over quarter and a $1.0 million increase from the same quarter last year. The decrease quarter over quarter was driven by a one time assessment imposed by the Federal Deposit Insurance Corporation which was paid during September 2009 but assessed and booked as of June 30, 2009. CTBI continues to experience higher legal fees, repossession expenses, and other real estate owned expenses as it continues to work through problem loans associated with the decline in the real estate market primarily in Central Kentucky. Personnel costs decreased by $0.4 million quarter over quarter as CTBI’s expenses associated with group medical and life insurance were offset by the reversal of a performance-based employee incentive accrual.

Balance Sheet Review

CTBI’s total assets at $3.0 billion remained stable from prior quarter and increased 4.3% from prior year. Loans outstanding at September 30, 2009 were $2.4 billion reflecting an annualized 3.7% growth during the quarter and a 3.7% growth from September 30, 2008. The growth occurred in the residential and consumer loan portfolios with residential loans increasing by $23.4 million and consumer loans increasing by $18.5 million. The commercial loan portfolio declined by $19.4 million during the quarter. CTBI's investment portfolio decreased an annualized 27.7% from prior quarter and 5.3% from prior year. Federal funds sold and deposits in other banks decreased $10.3 million quarter over quarter and increased $33.8 million year over year. Deposits, including repurchase agreements, at $2.6 billion increased an annualized 5.9% from prior quarter and 6.3% from prior year. Other interest bearing liabilities declined resulting from the payoff of a $40 million FHLB advance.

Shareholders’ equity at September 30, 2009 was $318.6 million compared to $314.8 million at June 30, 2009 and $305.0 million at September 30, 2008. CTBI's annualized dividend yield to shareholders as of September 30, 2009 was 4.59%.

Asset Quality

CTBI's total nonperforming loans were $45.2 million at September 30, 2009 compared to $59.6 million at June 30, 2009 and $49.3 million at September 30, 2008. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.

Foreclosed properties increased during the third quarter 2009 to $36.6 million from the $20.1 million at June 30, 2009 and the $9.4 million at September 30, 2008, as problem real estate loans are slowly moving through the legal system, which remains strained due to current economic conditions, and CTBI continues working through a prolonged foreclosure process. Sales of foreclosed properties for the nine months ended September 30, 2009 totaled $3.9 million while new foreclosed properties totaled $29.1 million. Our nonperforming loans and foreclosed properties remain primarily concentrated in our Central Kentucky Region.

Net loan charge-offs for the quarter of $5.2 million, or 0.87% of average loans annualized, was an increase from prior quarter's 0.63% and prior year third quarter’s 0.36%. Of the total net charge offs of $5.2 million, $3.5 million was charged off in commercial loans with specific reserve allocations for these loans of $3.0 million or 81% of total commercial loan charge offs. Residential real estate and other consumer loans are not generally provided a specific allocation during the credit review process. Allocations to loan loss reserves were $5.8 million for the quarter ended September 30, 2009 compared to $4.5 million for the quarter ended June 30, 2009 and $2.9 million for the quarter ended September 30, 2008. Our loan loss reserves as a percentage of total loans outstanding at September 30, 2009 increased to 1.33% from the 1.32% at June 30, 2009 and the 1.29% at September 30, 2008. The adequacy of our loan loss reserves is analyzed quarterly and adjusted as necessary with a focus on maintaining appropriate reserves for potential losses.

Forward-Looking Statements

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. CTBI’s actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," and "could." These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, the performance of coal and coal related industries, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various investment activities; the effects of competitors’ pricing policies, of changes in laws and regulations on competition and of demographic changes on target market populations’ savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements or cost savings at levels or within the time frames originally anticipated or unforeseen integration difficulties; the adoption by CTBI of an FFIEC policy that provides guidance on the reporting of delinquent consumer loans and the timing of associated credit charge-offs for financial institution subsidiaries; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and state regulators, whose policies and regulations could affect CTBI’s results. These statements are representative only on the date hereof, and CTBI undertakes no obligation to update any forward-looking statements made.

Community Trust Bancorp, Inc., with assets of $3.0 billion, is headquartered in Pikeville, Kentucky and has 70 banking locations across eastern, northeastern, central, and south central Kentucky, six banking locations in southern West Virginia, and five trust offices across Kentucky.

Additional information follows.

Community Trust Bancorp, Inc.
Jean R. Hale, Chairman, President, and C.E.O., 606-437-3294