Community Trust Bancorp, Inc. (NASDAQ:CTBI):

Community Trust Bancorp, Inc. (NASDAQ-CTBI) achieved earnings for the third quarter 2021 of $21.1 million, or $1.19 per basic share, compared to $23.9 million, or $1.35 per basic share, earned during the second quarter 2021 and $17.4 million, or $0.98 per basic share, earned during the third quarter 2020. Our loan portfolio quality continues to see improvement, allowing a further reduction in credit loss reserves. Noninterest income declined; however, total revenue increased as our net interest margin saw improvement resulting from a redeployment of Federal Reserve funds into our investment portfolio and forgiveness of Paycheck Protection Program (PPP) loans. Earnings for the nine months ended September 30, 2021 were $68.7 million compared to $43.7 million for the nine months ended September 30, 2020.

3^rd Quarter 2021 Highlights

• Net interest income for the quarter of $42.0 million was $2.0 million, or 5.0%, above prior quarter and $4.3 million, or 11.5%, above third quarter 2020.

• We recovered $0.2 million of our provision for credit losses during the quarter ended September 30, 2021. The reduction to our allowance for credit losses was the result of improving credit metrics. We also recognized a recapture of allowance for credit losses in the second quarter 2021 with a credit to the provision for credit losses of $4.3 million. Provision for credit losses for the third quarter 2020 totaled $2.4 million.

• Our loan portfolio decreased $50.3 million, an annualized 5.8%, during the quarter and $159.7 million, or 4.5%, from September 30, 2020. Loans, excluding PPP loans, increased $26.6 million during the quarter.

• Net loan charge-offs for the quarter were $0.3 million, or 0.04% of average loans annualized, for the quarter ended September 30, 2021, compared to a net recovery of loan losses of $0.6 million for the quarter ended June 30, 2021 and net loan charge-offs of $1.1 million, or 0.12% of average loans annualized, for the third quarter 2020.

• Asset quality remains strong from prior quarter as our nonperforming loans, excluding troubled debt restructurings, decreased to $18.7 million at September 30, 2021 from $21.1 million at June 30, 2021 and $29.9 million at September 30, 2020. Nonperforming assets at $23.0 million decreased $3.9 million from June 30, 2021 and $22.4 million from September 30, 2020.

• Deposits, including repurchase agreements, decreased $106.0 million, an annualized 9.0%, during the quarter but increased $326.3 million, or 7.7%, from September 30, 2020. The decrease from prior quarter was primarily due to the transfer of a $75 million repurchase agreement into a managed fund with our trust subsidiary.

• Noninterest income for the quarter ended September 30, 2021 of $14.4 million decreased from prior quarter by $1.1 million, or 7.3%, and $0.5 million, or 3.5%, from prior year same quarter.

• Noninterest expense for the quarter ended September 30, 2021 of $30.3 million increased $0.8 million, or 2.8%, from prior quarter, and $0.9 million, or 2.9%, from prior year same quarter.

COVID-19

We continue working with our customers through the COVID-19 pandemic. At September 30, 2021, the number of customers with CARES Act deferrals reduced to 27 for a total outstanding amount of $15.8 million. The majority of our CARES Act deferrals have been 90 day deferrals. Total outstanding deferrals include 6 commercial loan deferrals with a total outstanding amount of $14.3 million, 17 residential loan deferrals with a total outstanding amount of $1.4 million, and 4 consumer loan deferrals with a total outstanding amount of $0.1 million. These loan deferrals and modifications have been executed consistent with the guidelines of the CARES Act. Pursuant to the CARES Act, these loan deferrals are not included in our nonperforming loans disclosed below.

At September 30, 2021, we had closed 6,312 Paycheck Protection Program (PPP) loans totaling $401.3 million, including 3,352 loans totaling $124.3 million stemming from the Consolidated Appropriations Act 2021 (second round). Through September 30, 2021, we have had 4,730 of our PPP loans totaling $297.7 million forgiven by the SBA, including 1,877 loans totaling $35.9 million from the second round.

Net Interest Income

Net interest income for the quarter of $42.0 million increased $2.0 million, or 5.0%, from second quarter 2021 and $4.3 million, or 11.5%, from third quarter 2020. Our net interest income excluding PPP loans for the quarter ended September 30, 2021 was $37.9 million compared to $36.7 million for the quarter ended June 30, 2021 and $36.6 million for the quarter ended September 30, 2020. Our net interest margin at 3.23% increased 12 basis points from prior quarter and 7 basis points from prior year same quarter, as our average earning assets decreased $0.2 million from prior quarter but increased $415.9 million from prior year same quarter. Our yield on average earning assets increased 11 basis points from prior quarter but decreased 14 basis points from prior year same quarter, and our cost of funds decreased 2 basis points from prior quarter and 30 basis points from prior year same quarter. The improvement in our net interest margin resulted from a redeployment of Federal Reserve funds into our investment portfolio and forgiveness of PPP loans. As discussed more fully below, the impact of the PPP loans to the net interest margin for the third quarter 2021 was 25 basis points. Net interest income for the nine months ended September 30, 2021 increased $9.9 million, or 8.8%, compared to the nine months ended September 30, 2020.

The PPP loan portfolio had an annualized yield for the quarter of 12.24%, a 620 basis point increase from the 6.04% yield in the second quarter 2021. Interest income on the portfolio was $0.4 million during the quarter, down $0.2 million from prior quarter, while the amortization of net loan origination fees from current outstanding loans and recognition of net fee income from paid and forgiven loans was $4.0 million, up $1.0 million from prior quarter. These fees are amortized over the life of the loan with any unamortized balance fully recognized at the time of loan forgiveness. The impact of the PPP loan portfolio to the net interest margin was 25 basis points for the third quarter 2021, an 11 basis point increase from the 14 basis points for the second quarter 2021.

Our ratio of average loans to deposits, including repurchase agreements, was 73.1% for the quarter ended September 30, 2021 compared to 75.0% for the quarter ended June 30, 2021 and 82.8% for the quarter ended September 30, 2020.

Noninterest Income

Noninterest income for the quarter ended September 30, 2021 of $14.4 million was a decrease of $1.1 million, or 7.3%, from prior quarter and $0.5 million, or 3.5%, from prior year same quarter. The decrease from prior quarter included decreases in gains on sales of loans ($0.7 million), trust revenue ($0.3 million), securities gains ($0.3 million), and other operating revenue ($0.4 million), partially offset by an increase in deposit service charges ($0.7 million). The decrease from prior year same quarter included decreases in gains on sales of loans ($1.2 million), loan related fees ($0.3 million), and securities gains ($0.2 million), partially offset by increases in deposit service charges ($0.8 million) and trust revenue ($0.3 million). Noninterest income for the nine months ended September 30, 2021 of $45.5 million was a $6.2 million, or 15.7% increase from the nine months ended September 30, 2020.

Gains on sales of loans continue to be impacted by the slowdown in the industry-wide refinancing boom. Deposit service charges were impacted during the quarter by an increase in overdraft charges. The year over year increase in noninterest income was driven by increases in gains on sales of loans, deposit service charges, trust revenue, and loan related fees. Deposit service charges were primarily impacted year over year by an increase in debit card income. Loan related fees were primarily impacted by the change in the fair market value of mortgage servicing rights.

Noninterest Expense

Noninterest expense for the quarter ended September 30, 2021 of $30.3 million increased $0.8 million, or 2.8%, from prior quarter, and $0.9 million, or 2.9%, from prior year same quarter. The increase in noninterest expense quarter over quarter included increases in operating losses ($0.3 million), marketing and promotional ($0.2 million), and loan related expense ($0.2 million). The increase from prior year same quarter was the result of an increase in personnel expense ($2.7 million), partially offset by decreases in taxes other than property and payroll ($1.4 million), net other real estate owned expense ($0.2 million), and repossession expense ($0.2 million). The increase in personnel expense included a $1.8 million increase in bonuses and incentives as we increased the accruals for incentive payments based on our current projected earnings for the year. Noninterest expense for the nine months ended September 30, 2021 increased $2.5 million, or 3.0%, compared to the nine months ended September 30, 2020.

Balance Sheet Review

CTBI’s total assets at $5.4 billion decreased $108.6 million, or 7.8% annualized, from June 30, 2021 but increased $365.2 million, or 7.3%, from September 30, 2020. Loans outstanding at September 30, 2021 were $3.4 billion, a decrease of $50.3 million, an annualized 5.8%, from June 30, 2021 and $159.7 million, or 4.5%, from September 30, 2020. Loans, excluding PPP loans, increased $26.6 million during the quarter, with a $17.9 million increase in the commercial loan portfolio, a $3.5 million increase in the direct consumer loan portfolio, a $2.8 million increase in the residential loan portfolio, and a $2.4 million increase in the indirect consumer loan portfolio. The PPP loan portfolio declined $76.9 million as a result of SBA forgiveness. CTBI’s investment portfolio increased $168.1 million, or an annualized 49.0%, from June 30, 2021 and $576.9 million, or 60.6%, from September 30, 2020 as we redeployed funds from our Federal Reserve account into our investment portfolio. Deposits in other banks decreased $249.8 million from prior quarter and $58.9 million from prior year same quarter. Deposits, including repurchase agreements, at $4.6 billion decreased $106.0 million, or an annualized 9.0%, from June 30, 2021 but increased $326.3 million, or 7.7%, from September 30, 2020. The decrease from prior quarter was primarily due to the transfer of a $75 million repurchase agreement into a managed fund with our trust subsidiary.

Shareholders’ equity at September 30, 2021 was $691.6 million, a $7.6 million increase from the $684.1 million at June 30, 2021 and a $47.2 million increase from the $644.4 million at September 30, 2020. CTBI’s annualized dividend yield to shareholders as of September 30, 2021 was 3.80%.

Asset Quality

CTBI’s total nonperforming loans, not including performing troubled debt restructurings, decreased to $18.7 million at September 30, 2021 from $21.1 million at June 30, 2021 and $29.9 million at September 30, 2020. Accruing loans 90+ days past due decreased $1.6 million from prior quarter and $11.3 million from September 30, 2020. Nonaccrual loans decreased $0.8 million during the quarter but increased $0.2 million from September 30, 2020. Accruing loans 30-89 days past due at $8.9 million decreased $2.0 million from prior quarter and $4.5 million from September 30, 2020. Our loan portfolio management processes focus on the immediate identification, management, and resolution of problem loans to maximize recovery and minimize loss.

Our level of foreclosed properties at $4.3 million at September 30, 2021 was a $1.5 million decrease from the $5.8 million at June 30, 2021 and an $11.3 million decrease from the $15.6 million at June 30, 2020. Sales of foreclosed properties for the quarter ended September 30, 2021 totaled $2.0 million while new foreclosed properties totaled $0.6 million. At September 30, 2021, the book value of properties under contracts to sell was $0.4 million; however, the closings had not occurred at quarter-end.

Net loan charge-offs for the quarter were $0.3 million, or 0.04% of average loans annualized, for the quarter ended September 30, 2021, compared to a net recovery of loan losses of $0.6 million for the quarter ended June 30, 2021 and net loan charge-offs of $1.1 million, or 0.12% of average loans annualized, for the third quarter 2020. For the nine months ended September 30, 2021, we experienced a net recovery of loan losses of $0.1 million compared to net charge-offs of $5.2 million, or 0.20% of average loans annualized, for the nine months ended September 30, 2020.

Allowance for Credit Losses

We recovered $0.2 million of our provision for credit losses during the quarter ended September 30, 2021 as a result of improving credit metrics. We also recognized a recapture of allowance for credit losses in the second quarter 2021 with a credit to the provision for credit losses of $4.3 million. Provision for credit losses for the third quarter 2020 totaled $2.4 million. Our reserve coverage (allowance for credit losses to nonperforming loans) at September 30, 2021 was 220.0% compared to 197.2% at June 30, 2021 and 160.7% at September 30, 2020. Our credit loss reserve as a percentage of total loans outstanding at September 30, 2021 was 1.21% (1.25% excluding PPP loans) compared to 1.21% at June 30, 2021 (1.27% excluding PPP loans) and 1.35% at September 30, 2020 (1.46% excluding PPP loans).

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. Community Trust Bancorp, Inc.’s (“CTBI”) 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, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; the effects of the COVID-19 pandemic on our business operations and credit quality and on general economic and financial market conditions, as well as our ability to respond to the related challenges; results of various investment activities; the effects of competitors’ pricing policies, changes in laws and regulations, competition, and 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; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary, operational, and fiscal policies and regulations, which include, but are not limited to, those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and state regulators, whose policies, regulations, and enforcement actions 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 $5.4 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, three banking locations in northeastern Tennessee, four trust offices across Kentucky, and one trust office in Tennessee.

Additional information follows.

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