SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2004
 
 
 
Or
 
 
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to _____________
 
 

Commission file number 0-11129

COMMUNITY TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)

Kentucky
61-0979818
(State or other jurisdiction of incorporation or organization)
IRS Employer Identification No.
 
 
346 North Mayo Trail
Pikeville, Kentucky
(address of principal executive offices)
41501
(Zip Code)

(606) 432-1414
(Registrant's telephone number)
   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ü
No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
 
Yes ü
No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.

Common stock - 13,454,650 shares outstanding at July 31, 2004
 
     
 
PART I - FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

The accompanying information has not been audited by independent public accountants; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature.

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Registrant's annual report on Form 10-K. Accordingly, the reader of the Form 10-Q should refer to the Registrant's Form 10-K for the year ended December 31, 2003 for further information in this regard.

 
     
 
 
Condensed Consolidated Balance Sheets

(dollars in thousands except share data)
   
June 30
2004
   
December 31
2003
 
     

(unaudited) 

        
Assets:
   
 
    
 
  
Cash and due from banks
 
$
73,491
 
$
79,907
 
Federal funds sold
   
14,669
   
9,054
 
Securities available-for-sale at fair value
   
 
    
 
  
(amortized cost of $333,113 and $414,404, respectively)
   
334,317
   
421,855
 
Securities held-to-maturity at amortized cost
   
 
    
 
  
(fair value of $70,411 and $87,061, respectively)
   
72,420
   
87,497
 
Loans held for sale
   
2,500
   
315
 
 
    
 
    
 
  
Loans
   
1,814,343
   
1,736,260
 
Allowance for loan losses
   
(25,782
)
 
(24,653
)
Net loans
   
1,788,561
   
1,711,607
 
 
    
 
    
 
  
Premises and equipment, net
   
50,698
   
49,990
 
Goodwill
   
60,122
   
60,122
 
Core deposit intangible (net of accumulated amortization of $3,421 and $3,131, respectively)
   
3,539
   
3,829
 
Other assets
   
41,973
   
49,863
 
Total assets
 
$
2,442,290
 
$
2,474,039
 
 
    
 
    
 
  
Liabilities and shareholders' equity:
   
 
    
 
  
Deposits
   
 
    
 
  
Noninterest bearing
 
$
368,298
 
$
359,403
 
Interest bearing
   
1,682,859
   
1,708,212
 
Total deposits
   
2,051,157
   
2,067,615
 
 
    
 
    
 
  
Federal funds purchased and other short-term borrowings
   
87,074
   
105,293
 
Advances from Federal Home Loan Bank
   
2,657
   
3,192
 
Long-term debt
   
59,500
   
59,500
 
Other liabilities
   
16,271
   
17,046
 
Total liabilities
   
2,216,659
   
2,252,646
 
 
    
 
    
 
  
Shareholders' equity:
   
 
    
 
  
Preferred stock, 300,000 shares authorized and unissued
   
 
    
 
  
Common stock, $5 par value, shares authorized 25,000,000;
   
 
    
 
  
Shares outstanding 2004 - 13,447,067; 2003 - 13,461,600
   
67,235
   
67,308
 
Capital surplus
   
105,108
   
105,579
 
Retained earnings
   
52,505
   
43,663
 
Accumulated other comprehensive income, net of tax
   
783
   
4,843
 
Total shareholders' equity
   
225,631
   
221,393
 
 
    
 
    
 
  
Total liabilities and shareholders' equity
 
$
2,442,290
 
$
2,474,039
 
See notes to condensed consolidated financial statements.

     
 
Condensed Consolidated Statements of Income
(unaudited)
 
 
  
Three months ended
Six months ended
 
  
June 30
June 30
(in thousands except per share data)
   
2004
   
2003
   
2004
   
2003
 
 
    
 
    
 
    
 
    
 
  
Interest income:
   
 
    
 
    
 
    
 
  
Interest and fees on loans, including loans held for sale
 
$
26,884
 
$
27,588
 
$
53,743
 
$
55,076
 
Interest and dividends on securities
   
 
    
 
    
 
    
 
  
Taxable
   
3,473
   
4,287
   
7,169
   
8,705
 
Tax exempt
   
550
   
536
   
1,123
   
1,102
 
Other, including interest on fed funds sold
   
115
   
277
   
284
   
472
 
Total interest income
   
31,022
   
32,688
   
62,319
   
65,355
 
 
    
 
    
 
    
 
    
 
  
Interest expense:
   
 
    
 
    
 
    
 
  
Interest on deposits
   
6,662
   
10,004
   
13,541
   
20,471
 
Interest on federal funds purchased and other short-term borrowings
   
356
   
268
   
739
   
532
 
Interest on advances from Federal Home Loan Bank
   
37
   
61
   
77
   
131
 
Interest on long-term debt
   
1,313
   
1,337
   
2,627
   
2,675
 
Total interest expense
   
8,368
   
11,670
   
16,984
   
23,809
 
 
    
 
    
 
    
 
    
 
  
Net interest income
   
22,654
   
21,018
   
45,335
   
41,546
 
Provision for loan losses
   
1,785
   
3,585
   
3,918
   
5,132
 
Net interest income after provision for loan losses
   
20,869
   
17,433
   
41,417
   
36,414
 
 
    
 
    
 
    
 
    
 
  
Noninterest income:
   
 
    
 
    
 
    
 
  
Service charges on deposit accounts
   
4,462
   
4,300
   
8,699
   
8,162
 
Gains on sales of loans, net
   
410
   
1,595
   
869
   
3,116
 
Trust income
   
614
   
634
   
1,175
   
1,247
 
Securities gains, net
   
0
   
1,587
   
1
   
2,566
 
Other
   
3,634
   
1,469
   
6,391
   
3,040
 
Total noninterest income
   
9,120
   
9,585
   
17,135
   
18,131
 
 
    
 
    
 
    
 
    
 
  
Noninterest expense:
   
 
    
 
    
 
    
 
  
Salaries and employee benefits
   
10,015
   
7,838
   
19,706
   
16,899
 
Occupancy, net
   
1,435
   
1,441
   
2,876
   
2,947
 
Equipment
   
930
   
973
   
1,902
   
1,767
 
Data processing
   
1,063
   
948
   
2,060
   
1,951
 
Stationery, printing, and office supplies
   
388
   
338
   
714
   
732
 
Taxes other than payroll, property, and income
   
811
   
671
   
1,614
   
1,338
 
FDIC insurance
   
77
   
84
   
156
   
168
 
Other
   
4,053
   
4,471
   
7,938
   
8,573
 
Total noninterest expense
   
18,772
   
16,764
   
36,966
   
34,375
 
 
    
 
    
 
    
 
    
 
  
Income before income taxes
   
11,217
   
10,254
   
21,586
   
20,170
 
Income taxes
   
3,461
   
3,190
   
6,550
   
6,113
 
Net income
   
7,756
   
7,064
   
15,036
   
14,057
 
 
    
 
    
 
    
 
    
 
  
Other comprehensive income, net of tax:
   
 
    
 
    
 
    
 
  
Unrealized holding losses arising during period
   
(5,253
)
 
(326
)
 
(4,060
)
 
(1,091
)
Comprehensive income
 
$
2,503
 
$
6,738
 
$
10,976
 
$
12,966
 
 
    
 
    
 
    
 
    
 
  
Basic earnings per share
 
$
0.58
 
$
0.52
 
$
1.12
 
$
1.04
 
Diluted earnings per share
 
$
0.57
 
$
0.52
 
$
1.10
 
$
1.03
 
 
    
 
    
 
    
 
    
 
  
Average shares outstanding
   
13,447
   
13,478
   
13,457
   
13,507
 

See notes to condensed consolidated financial statements.

     

Condensed Consolidated Statements of Cash Flows
(unaudited)

 
  
Six months ended
 
  
June 30
(in thousands)
 
2004
2003
 
  
 
 
Cash flows from operating activities:
   
 
    
 
  
Net income
 
$
15,036
 
 $
 14,057
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
 
    
 
  
Depreciation and amortization
   
2,185
   
2,206
 
Provision for loan and other real estate losses
   
4,107
   
5,213
 
Securities gains, net
   
(1
)
 
(2,566
)
Gains on sale of mortgage loans held for sale
   
(869
)
 
(3,116
)
Gains (losses) on sale of assets, net
   
(148
)
 
51
 
Proceeds from sale of mortgage loans held for sale
   
36,092
   
110,939
 
Amortization of securities premiums, net
   
590
   
709
 
Change in mortgage loans held for sale, net
   
(2,185
)
 
(6,224
)
Changes in:
   
 
    
 
  
Other liabilities
   
1,412
   
2,633
 
Other assets
   
7,496
   
750
 
Net cash provided by operating activities
   
63,715
   
124,652
 
 
    
 
    
 
  
Cash flows from investing activities:
   
 
    
 
  
Securities available-for-sale:
   
 
    
 
  
Proceeds from sales
   
60,600
   
72,839
 
Proceeds from prepayments and maturities
   
52,221
   
72,068
 
Purchase of securities
   
(31,923
)
 
(83,555
)
Securities held-to-maturity:
   
 
    
 
  
Proceeds from prepayments and maturities
   
14,881
   
19,450
 
Purchase of securities
   
0
   
(81,061
)
Change in loans, net
   
(117,139
)
 
(120,325
)
Purchase of premises, equipment, and other real estate
   
(2,617
)
 
(652
)
Proceeds from sale of premises and equipment
   
19
   
4
 
Proceeds from sale of other real estate
   
1,427
   
1,242
 
Additional investment in other real estate
   
(35
)
 
0
 
Net cash used in investing activities
   
(22,566
)
 
(119,990
)
 
    
 
    
 
  
Cash flows from financing activities:
   
 
    
 
  
Change in deposits, net
   
(16,458
)
 
2,355
 
Change in federal funds purchased and other short-term borrowings, net
   
(18,219
)
 
12,587
 
Payments on advances from Federal Home Loan Bank
   
(535
)
 
(1,465
)
Payments on long-term debt
   
0
   
(48
)
Issuance of common stock
   
810
   
928
 
Other equity adjustments
   
47
   
0
 
Purchase of common stock
   
(1,400
)
 
(5,089
)
Dividends paid
   
(6,195
)
 
(5,166
)
Net cash provided by (used in) financing activities
   
(41,950
)
 
4,102
 
Net increase (decrease) in cash and cash equivalents
   
(801
)
 
8,764
 
Cash and cash equivalents at beginning of year
   
88,961
   
142,206
 
Cash and cash equivalents at end of period
 
 $
 88,160
 
 $
 150,970
 

See notes to condensed consolidated financial statements.

     

Notes to Condensed Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring accruals) necessary, to present fairly the condensed consolidated financial position as of June 30, 2004, the results of operations for the three and six months ended June 30, 2004 and 2003, and the cash flows for the six months ended June 30, 2004 and 2003. In accordance with accounting principles generally accepted in the United States of America for interim financial information, these statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete annual financial statements. Financial information as of December 31, 2003 has been derived from the audited consolidated financial statements of Community Trust Bancorp, Inc. (the “Corporation”). The results of operations for the three and six months ended June 30, 2004 and 2003 and the cash flows for the six months ended June 30, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2003, included in the Corporation's Annual Report on Form 10-K.

Principles of Consolidation - The unaudited condensed consolidated financial statements include the accounts of the Corporation and its separate and distinct, wholly owned subsidiaries Community Trust Bank, Inc. (the “ Bank ” ) and Community Trust and Investment Company. All significant intercompany transactions have been eliminated in consolidation.

Goodwill and Other Intangible Assets - Effective January 1, 2002, the Corporation adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets . SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment. The Corporation evaluates total goodwill for impairment, based upon SFAS No. 142 , Goodwill and Other Intangible Assets and SFAS No. 147 , Acquisitions of Certain Financial Institutions , using fair value techniques including multiples of price/equity. Goodwill is evaluated for impairment on an annual basis.
 
Accounting for Stock-Based Compensation—Transition and Disclosure - In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, Accounting for Stock-Based Compensation --Transition and Disclosure. This statement amends SFAS No. 123, Accounting for Stock-Based Compensation , to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. Adoption of SFAS No. 148 did not have a material impact on the Corporation's consolidated financial statements. As permitted by SFAS No. 148, the Corporation will continue to apply the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock-Based Compensation , for all employee stock option grants and has elected to disclose pro forma net income and earnings per share amounts as if the fair-value based method had been applied in measuring compensation costs.

Note 2 - Securities

Securities are classified into held-to-maturity and available-for-sale categories. Held-to-maturity securities are those that the Corporation has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities are those that the Corporation may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.
 
The amortized cost and fair value of securities at June 30, 2004 are summarized as follows:

Available-for-Sale

(in thousands)
 
Amortized Cost
Fair
Value
U.S. Treasury and Government agencies
 
 $
 15,783
 
 $
 15,836
 
State and political subdivisions
   
47,827
   
49,496
 
U.S. agency mortgage-backed pass through certificates
   
174,990
   
174,493
 
Collateralized mortgage obligations
   
3,461
   
3,571
 
Other debt securities
   
25,912
   
26,151
 
Total debt securities
   
267,973
   
269,547
 
Marketable equity securities
   
65,140
   
64,770
 
Total available-for-sale securities
 
 $
 333,113
 
 $
 334,317
 

Held-to-Maturity

(in thousands)
 
Amortized Cost
Fair
Value
U.S. Treasury and Government agencies
 
 $
 4,500
 
$
4,549
 
State and political subdivisions
   
2,301
   
2,393
 
U.S. agency mortgage-backed pass through certificates
   
65,619
   
63,469
 
Total held-to-maturity securities
 
$
72,420
 
$
70,411
 

The amortized cost and fair value of securities as of December 31, 2003 are summarized as follows:

Available-for-Sale

(in thousands)
 
Amortized Cost
Fair
Value
U.S. Treasury and Government agencies
 
 $
 34,165
 
 $
 34,314
 
State and political subdivisions
   
89,107
   
92,072
 
U.S. agency mortgage-backed pass through certificates
   
180,236
   
183,740