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

Community Trust Bancorp, Inc. (NASDAQ-CTBI) achieved earnings for the second quarter 2022 of $20.3 million, or $1.14 per basic share, compared to $19.7 million, or $1.11 per basic share, earned during the first quarter 2022 and $23.9 million, or $1.35 per basic share, earned during the second quarter 2021. Total revenue was $0.3 million above prior quarter but $0.2 million below prior year same quarter. Net interest revenue increased $0.8 million compared to prior quarter and prior year same quarter; however, noninterest income decreased $0.5 million compared to prior quarter and $1.0 million compared to prior year same quarter. The decrease in noninterest income quarter over quarter was primarily the result of a variance in the valuation of our mortgage servicing rights, while the decrease year over year was primarily the result of a decrease in gains on sales of loans. Provision for credit losses for the quarter was $0.1 million, compared to provision of $0.9 million for the quarter ended March 31, 2022 and a recovery of provision of $4.3 million for the second quarter 2022. Noninterest expense increased $0.6 million compared to prior quarter and $0.5 million compared to prior year same quarter. Net income for the six months ended June 30, 2022 was below prior year by $7.5 million, primarily due to the $6.8 million recovery of provision for credit losses taken in 2021.

2^nd Quarter 2022 Highlights

• Net interest income for the quarter of $40.8 million was $0.8 million above prior quarter and prior year same quarter.

• Provision for loan losses for the quarter was $0.1 million, compared to provision of $0.9 million for the quarter ended March 31, 2022 and a recovery of provision of $4.3 million for the second quarter 2021.

• Our loan portfolio increased $42.9 million, an annualized 4.9%, during the quarter and $110.0 million, or 3.2%, from June 30, 2021.

• Net loan charge-offs were $42 thousand, or less than 0.01% of average loans annualized, for the quarter ended June 30, 2022 compared to net loan charge-offs of $0.3 million, or 0.04% of average loans annualized, for the first quarter 2022 and a net recovery of loan charge-offs for the second quarter 2021 of $0.6 million.

• Our nonperforming loans, excluding troubled debt restructurings, increased slightly to $13.8 million at June 30, 2022 from $13.7 million at March 31, 2022 but were $7.3 million below the $21.1 million at June 30, 2021. Nonperforming assets at $15.8 million decreased $0.2 million from March 31, 2022 and $11.2 million from June 30, 2021.

• Deposits, including repurchase agreements, increased $28.7 million, an annualized 2.5%, during the quarter and $17.4 million, or 0.4%, from June 30, 2021.

• Shareholders’ equity declined $21.3 million, or an annualized 13.1%, during the quarter and $52.0 million, or 7.6%, from June 30, 2021, as a result of the continued increase in unrealized losses on our securities portfolio.

• Noninterest income for the quarter ended June 30, 2022 of $14.5 million was $0.5 million, or 3.1%, below prior quarter and $1.0 million, or 6.6%, below prior year same quarter.

• Noninterest expense for the quarter ended June 30, 2022 of $30.0 million was $0.6 million, or 2.1%, higher than prior quarter and $0.5 million, or 1.6%, above prior year same quarter.

Net Interest Income

Net interest income for the quarter of $40.8 million was $0.8 million above prior quarter and prior year same quarter. Our net interest income excluding PPP loans for the quarter ended June 30, 2022 was $40.3 million compared to $38.6 million for the quarter ended March 31, 2022 and $36.4 million for the quarter ended June 30, 2021. Our net interest margin, on a fully tax equivalent basis, at 3.20% increased 2 basis points from prior quarter and 9 basis points from prior year same quarter, as our average earning assets increased $6.5 million from prior quarter but decreased $44.3 million from prior year same quarter. Our yield on average earning assets increased 10 basis points from prior quarter and 15 basis points from prior year same quarter, and our cost of funds increased 12 basis points from prior quarter and 9 basis points from prior year same quarter. As discussed more fully below, the impact of the PPP loans to the net interest margin for the second quarter 2022 was 3 basis points.

The PPP loan portfolio had an annualized yield for the quarter of 13.56% compared to 17.03% for the first quarter 2022. Interest income on the portfolio was $45 thousand during the quarter, down $51 thousand 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 $463 thousand, down $915 thousand 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 an increase of 3 basis points for the second quarter 2022 compared to an increase of 11 basis points for the first quarter 2022.

Our ratio of average loans to deposits, including repurchase agreements, was 75.2% for the quarter ended June 30, 2022 compared to 74.2% for the quarter ended March 31, 2022 and 75.0% for the quarter ended June 30, 2021.

Noninterest Income

Noninterest income for the quarter ended June 30, 2022 of $14.5 million was $0.5 million, or 3.1%, below prior quarter and $1.0 million, or 6.6%, below prior year same quarter. The quarter over quarter decrease included a $0.6 million decrease in loan related fees and a $0.3 million decrease in securities gains, partially offset by a $0.5 million increase in deposit related fees. The decrease from prior year same quarter included a $1.4 million decrease in gains on sales of loans and a $0.5 million decrease in securities gains, partially offset by a $0.9 million increase in deposit related fees. Year-to-date noninterest income decreased $1.6 million from the six months ended June 30, 2021 due to a $3.2 million decline in gains on sales of loans, partially offset by a $1.6 million increase in deposit related fees. Gains on sales of loans were impacted by the slowdown in the industry-wide mortgage refinancing boom. Deposit related fees were primarily impacted by debit card income and overdraft charges. 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 June 30, 2022 of $30.0 million was $0.6 million, or 2.1%, higher than prior quarter and $0.5 million, or 1.6%, above prior year same quarter. The increase in noninterest expense quarter over quarter was primarily the result of an increase in personnel expense ($1.0 million), partially offset by a $0.3 million decrease in net other real estate owned expense. The increase in personnel expense was due to increases in salaries and a higher accrual for bonuses and incentives. Noninterest expense for the six months ended June 30, 2022 was $1.5 million higher than the six months ended June 30, 2021. The year-to-date increase was primarily the result of increases in personnel expense, data processing expense, and loan related expenses.

Balance Sheet Review

CTBI’s total assets at $5.4 billion increased $4.2 million, or 0.3% annualized, from March 31, 2022 but decreased $46.8 million, or 0.9%, from June 30, 2021. Loans outstanding at June 30, 2022 were $3.6 billion, an increase of $42.9 million, an annualized 4.9%, from March 31, 2022 and $110.0 million, or 3.2%, from June 30, 2021. Loans, excluding PPP loans, increased $57.6 million during the quarter, with an $8.4 million increase in the commercial loan portfolio, $16.4 million increase in the residential loan portfolio, a $29.7 million increase in the indirect consumer loan portfolio, and a $3.1 million increase in the consumer direct loan portfolio. The PPP loan portfolio declined during the quarter $14.7 million as a result of SBA forgiveness. CTBI’s investment portfolio decreased $101.3 million, or an annualized 27.0%, from March 31, 2022 but increased $44.1 million, or 3.2%, from June 30, 2021. Deposits in other banks increased $30.2 million from prior quarter but decreased $254.2 million from prior year same quarter. Deposits, including repurchase agreements, at $4.7 billion increased $28.7 million, or an annualized 2.5%, from March 31, 2022 and $17.4 million, or 0.4%, from June 30, 2021.

Shareholders’ equity declined $21.3 million, or an annualized 13.1%, during the quarter and $52.0 million, or 7.6%, from June 30, 2021, as a result of the continued increase in unrealized losses on our securities portfolio. We experienced a $34.9 million increase in accumulated other comprehensive loss, net of tax, resulting from increases in unrealized losses on our securities portfolio during the quarter. CTBI’s annualized dividend yield to shareholders as of June 30, 2022 was 3.96%.

Asset Quality

Our total nonperforming loans, excluding troubled debt restructurings, increased slightly to $13.8 million at June 30, 2022 from $13.7 million at March 31, 2022 but were $7.3 million below the $21.1 million at June 30, 2021. Accruing loans 90+ days past due at $5.0 million increased $0.2 million from prior quarter but decreased $3.3 million from June 30, 2021. Nonaccrual loans remained at $8.8 million from prior quarter but decreased $4.0 million from June 30, 2021. Accruing loans 30-89 days past due at $10.6 million decreased $0.2 million from prior quarter and $0.3 million from June 30, 2021. 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 were $2.0 million at June 30, 2022 compared to $2.3 million at March 31, 2022 and $5.8 million at June 30, 2021. Sales of foreclosed properties for the quarter ended June 30, 2022 totaled $0.7 million while new foreclosed properties totaled $0.3 million. At June 30, 2022, 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 were $42 thousand, or less than 0.01% of average loans annualized, for the quarter ended June 30, 2022 compared to net loan charge-offs of $0.3 million, or 0.04% of average loans annualized, for the first quarter 2022 and a net recovery of loan charge-offs for the second quarter 2021 of $0.6 million. Year-to-date net loan charge-offs were $0.4 million, or 0.02% of average loans annualized, compared to a net recovery of loan charge-offs of $0.4 million for the first six months of 2021.

Allowance for Credit Losses

Provision for credit losses for the quarter was $0.1 million, compared to provision of $0.9 million for the quarter ended March 31, 2022 and a recovery of provision of $4.3 million for the second quarter 2021. Year-to-date provision was $1.0 million compared to a recovery of $6.8 million during the first six months of 2021. Our reserve coverage (allowance for credit losses to nonperforming loans) at June 30, 2022 was 305.9% compared to 309.1% at March 31, 2022 and 197.2% at June 30, 2021. Our credit loss reserve as a percentage of total loans outstanding at June 30, 2022 was 1.19% (1.19% excluding PPP loans) compared to 1.20% at March 31, 2022 (1.21% excluding PPP loans) and 1.21% at June 30, 2021 (1.27% 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 68 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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