ctbi10k2013.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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For the fiscal year ended December 31, 2013
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Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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For the transition period from _____________ to _____________
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Commission file number 0-11129
COMMUNITY TRUST BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
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Kentucky
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61-0979818
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(State or Other Jurisdiction of Incorporation or Organization)
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(IRS Employer Identification No.)
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346 North Mayo Trail
Pikeville, Kentucky
(Address of Principal Executive Offices)
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41501
(Zip Code)
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(606) 432-1414
(Registrant’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5.00 par value
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer ü
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Based upon the closing price of the Common Shares of the Registrant on the NASDAQ-Stock Market LLC – Global Select Market, the aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2013 was $530.9 million. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates. The number of shares outstanding of the Registrant’s Common Stock as of February 28, 2014 was 15,831,847.
TABLE OF CONTENTS
Portions of the following documents are incorporated by reference into the Form 10-K part indicated:
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Document
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Form 10-K
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(1) Proxy statement for the annual meeting of shareholders to be held April 29, 2014
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Part III
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REGARDING 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; 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; the adoption by CTBI of a Federal Financial Institutions Examination Council (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. (“CTBI”) is a bank holding company registered with the Board of Governors of the Federal Reserve System pursuant to Section 5(a) of the Bank Holding Company Act of 1956, as amended. CTBI was incorporated August 12, 1980, under the laws of the Commonwealth of Kentucky for the purpose of becoming a bank holding company. Currently, CTBI owns all the capital stock of one commercial bank and one trust company, serving small and mid-sized communities in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. The commercial bank is Community Trust Bank, Inc., Pikeville, Kentucky and the trust company is Community Trust and Investment Company, Lexington, Kentucky.
At December 31, 2013, CTBI had total consolidated assets of $3.6 billion and total consolidated deposits, including repurchase agreements, of $3.1 billion, making it the largest bank holding company headquartered in the Commonwealth of Kentucky.
Through its subsidiaries, CTBI engages in a wide range of commercial and personal banking and trust and wealth management activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services. The lending activities of our Bank include making commercial, construction, mortgage, and personal loans. Lease-financing, lines of credit, revolving lines of credit, term loans, and other specialized loans, including asset-based financing, are also available. Our corporate subsidiaries act as trustees of personal trusts, as executors of estates, as trustees for employee benefit trusts, as registrars, transfer agents, and paying agents for bond and stock issues, as investment agent, as depositories for securities, and as providers of full service brokerage and insurance services.
COMPETITION
CTBI’s subsidiaries face substantial competition for deposit, credit, trust, wealth management, and brokerage relationships in the communities we serve. Competing providers include state banks, national banks, thrifts, trust companies, insurance companies, mortgage banking operations, credit unions, finance companies, brokerage companies, and other financial and non-financial companies which may offer products functionally equivalent to those offered by our subsidiaries. As financial services become increasingly dependent on technology, permitting transactions to be conducted by telephone and the internet, non-bank institutions are able to attract funds and provide lending and other financial services without offices located in our market areas. Many of these providers offer services within and outside the market areas served by our subsidiaries. We strive to offer competitively priced products along with quality customer service to build customer relationships in the communities we serve.
The United States and global markets, as well as general economic conditions, have been disruptive and volatile. Some financial institutions have failed and others have been forced to seek acquisition partners. Larger financial institutions could strengthen their competitive position as a result of ongoing consolidation within the financial services industry.
Banking legislation in Kentucky places no limits on the number of banks or bank holding companies that a bank holding company may acquire. Interstate acquisitions are allowed where reciprocity exists between the laws of Kentucky and the home state of the bank or bank holding company to be acquired. Bank holding companies continue to be limited to control of less than 15% of deposits held by banks in the states where they do business (exclusive of inter-bank and foreign deposits).
The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) has expanded the permissible activities of a bank holding company. The GLB Act allows qualifying bank holding companies to elect to be treated as financial holding companies. A financial holding company may engage in activities that are financial in nature or are incidental or complementary to financial activities. We have not yet elected to be treated as a financial holding company. The GLB Act also eliminated restrictions imposed by the Glass-Steagall Financial Services Law, adopted in the 1930s, which prevented banking, insurance, and securities firms from fully entering each other’s business. This legislation has resulted in further consolidation in the financial services industry. In addition, removal of these restrictions has increased the number of entities providing banking services and thereby created additional competition.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) may impact our competitive environment. Competition for deposits may be increasing as a consequence of FDIC assessments shifting from deposits to an asset based formula, as larger banks may move away from non-deposit funding sources. Moreover, the Dodd-Frank Act’s interstate branching provisions permit banks to establish de novo branches at a location where a bank based in that state could establish a branch.
No material portion of our business is seasonal. We are not dependent upon any one customer or a few customers, and the loss of any one or a few customers would not have a material adverse effect on us. See note 18 to the consolidated financial statements for additional information regarding concentrations of credit.
We do not engage in any operations in foreign countries.
EMPLOYEES
As of December 31, 2013, CTBI and subsidiaries had 1,022 full-time equivalent employees. Our employees are provided with a variety of employee benefits. A retirement plan, an employee stock ownership plan, group life insurance, major medical insurance, a cafeteria plan, and management and employee incentive compensation plans are available to all eligible personnel.
SUPERVISION AND REGULATION
General
We, as a registered bank holding company, are restricted to those activities permissible under the Bank Holding Company Act of 1956, as amended, and are subject to actions of the Board of Governors of the Federal Reserve System thereunder. We are required to file an annual report with the Federal Reserve Board and are subject to an annual examination by the Board.
Community Trust Bank, Inc. (“CTB”) is a state-chartered bank subject to state and federal banking laws and regulations and periodic examination by the Kentucky Department of Financial Institutions and the restrictions, including dividend restrictions, thereunder. Our Bank is also a member of the Federal Reserve System and is subject to certain restrictions imposed by and to examination and supervision under the Federal Reserve Act. Community Trust and Investment Company is also regulated by the Kentucky Department of Financial Institutions and the Federal Reserve.
Deposits of our Bank are insured by the Federal Deposit Insurance Corporation (FDIC), which subjects banks to regulation and examination under the provisions of the Federal Deposit Insurance Act.
The operations of CTBI and our subsidiaries are also affected by other banking legislation and policies and practices of various regulatory authorities. Such legislation and policies include statutory maximum rates on some loans, reserve requirements, domestic monetary and fiscal policy, and limitations on the kinds of services that may be offered.
CTBI’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our website at www.ctbi.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission. CTBI’s Code of Business Conduct and Ethics and other corporate governance documents are also available on our website. Copies of our annual report will be made available free of charge upon written request to:
Community Trust Bancorp, Inc.
Jean R. Hale
Chairman, President and CEO
P.O. Box 2947
Pikeville, KY 41502-2947
The Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Act was signed into law. This law has significantly changed the bank regulatory structure and affected the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act has required various federal agencies to adopt a broad range of implementing rules and regulations and to prepare numerous studies and reports for Congress. The federal agencies have been given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act are still unknown.
Certain provisions of the Dodd-Frank Act that are relevant to us:
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Broadened the base for FDIC insurance assessments, eliminated the ceiling and increased the size of the floor of the Deposit Insurance Fund, and offset the impact of the minimum floor on institutions with less than $10 billion in assets. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution.
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Removed the federal prohibition on payment of interest on demand deposits, thereby permitting businesses to have interest bearing checking accounts.
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Required capital regulations which call for higher levels of capital. The same leverage and risk based capital requirements that apply to depository institutions now apply to holding companies. New issuances of trust preferred securities are no longer eligible to qualify as Tier 1 capital. However, CTBI’s currently outstanding trust preferred securities are grandfathered and are still considered in Tier 1 capital under the regulations. Under Dodd-Frank, and previously under Federal Reserve policy, we are required to act as a source of financial strength for our bank subsidiary and to commit sufficient resources to support it.
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Created an agency, the Consumer Financial Protection Bureau (Bureau), responsible for the implementation of federal consumer protection laws. The Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. Although insured depository institutions with assets of $10 billion or less (such as CTB) will continue to be supervised and examined by their primary federal regulators, rather than the Bureau, with respect to compliance with federal consumer protection laws, any change in regulatory environment may have a negative impact on all financial institutions. The full reach and the impact of the Bureau’s inquiries and rulemaking powers on the operations of financial institutions are currently unknown.
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Permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, with noninterest bearing transaction accounts and IOLTA accounts having unlimited deposit insurance through December 31, 2012. Effective January 1, 2013, money in noninterest-bearing transaction accounts (including IOLTA/IOLA) no longer receive unlimited deposit insurance coverage from the FDIC, but are FDIC-insured up to the legal maximum of $250,000 for each ownership category.
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Increased the authority of the Federal Reserve Board to examine CTBI and its non-bank subsidiaries. In addition, it gave the Federal Reserve Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. The Federal Reserve interchange fee regulations are the subject of litigation brought by certain merchants. If the merchants prevail, the Federal Reserve might be required to provide more stringent caps on debit interchange fees, which could adversely impact all banks that issue debit cards, including us, and which could result in an industry-wide retraction of debit card products.
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Restricted proprietary trading by banks, bank holding companies and others, and their acquisition and retention of ownership interests in and sponsorship of hedge funds and private equity funds, subject to an exception allowing a bank to organize and offer hedge funds and private equity funds to customers if certain conditions are met, including, among others, a requirement that the bank limit its ownership interest in any single fund to 3%, and its aggregate investment in all funds to 3%, of Tier 1 capital, with no director or employee of the bank holding an ownership interest in the fund unless he or she provides services directly to the funds.
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Required publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments in mergers and acquisitions. The legislation also directed the federal banking regulators to issue rules prohibiting incentive compensation that encourages inappropriate risks.
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Imposed restrictions related to mortgage lending, such as minimum underwriting standards, requiring certain loan provision qualifications, limitations on mortgage terms, and additional disclosures to mortgage borrowers and prohibiting certain yield-spread compensation to mortgage originators. New rules under this requirement went into effect on January 17, 2014.
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Permited banks to establish de novo interstate branches at a location where a bank based in that state could establish a branch, and requires banks and bank holding companies to be well-capitalized and well-managed in order to acquire banks outside their home state.
With the appointment of a director for the Consumer Financial Protection Bureau (“CFPB”) in January 2012, the CFPB began to exercise its full authority under the Dodd-Frank Act. For example, the CFPB completed its first public enforcement actions regarding unfair, deceptive, or abusive practices in connection with marketing, sales, and operations of certain add-on products offered in connection with credit cards. Furthermore, in 2012 the CFPB issued its first major regulation, which covers remittance transfers (international wire transfers) by consumers.
In January 2013, the CFPB finalized a number of significant rules which will impact nearly every aspect of the lifecycle of a residential mortgage. These rules implement the Dodd-Frank Act amendments to the Equal Credit Opportunity Act, the Truth in Lending Act, and the Real Estate Settlement Procedures Act. The final rules require banks to, among other things: (i) develop and implement procedures to ensure compliance with a new “reasonable ability to repay” test and identify whether a loan meets a new definition for a “qualified mortgage;” (ii) implement new or revised disclosures, policies, and procedures for servicing mortgages including, but not limited to, early intervention with delinquent borrowers and specific loss mitigation procedures for loans secured by a borrower’s principal residence; (iii) comply with additional restrictions on mortgage loan originator compensation; and (iv) comply with new disclosure requirements and standards for appraisals and escrow accounts maintained for “higher priced mortgage loans.” These new rules which were effective in June 2013 and January 2014 create operational and strategic challenges. A rule integrating disclosures required by the Truth in Lending Act and the Real Estate Settlement and Procedures Act will be effective August 2015. Achieving full compliance in the relatively short timeframe provided for certain of the new rules has resulted in increased regulatory and compliance costs. We continue to analyze the impact that such rules may have on our business.
Basel III
On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to CTBI and CTB. The FDIC has subsequently approved these rules. The final rules were adopted following the issuance of proposed rules by the Federal Reserve in June 2012, and implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.
The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to CTBI and CTB under the final rules would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. , banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes CTBI and CTB. The final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes CTBI) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.
The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).
The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets. Based on our current capital composition and levels, we anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well-capitalized minimum capital requirements upon the effectiveness of the final rule.
An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors. See also, “Cautionary Statement Regarding Forward-Looking Statements.” If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.
Economic Risk
CTBI may continue to be adversely affected by current economic and market conditions.
Since 2008 the U.S. economy has faced a severe economic crisis including a major recession from which it is slowly recovering. Commerce and business growth across a wide range of industries and regions in the U.S. remains reduced and local governments and many businesses continue to experience financial difficulty. While reflecting some improvement in many parts of the country and in parts of our own service area, unemployment levels remain elevated. There can be no assurance that these conditions will continue to improve and these conditions could worsen. In addition, ongoing federal budget negotiations, the implementation of the Patient Protection and Affordable Care Act and the level of U.S. debt may have a destabilizing effect on financial markets.
Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the markets where we operate, in the states of Kentucky, West Virginia, and Tennessee and in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters; or a combination of these or other factors.
Overall, during recent years, the business environment has been adverse for many households and businesses in the United States and worldwide. While economic conditions in the United States and worldwide have improved since the recession, there can be no assurance that this improvement will continue. Economic pressure on consumers and uncertainty regarding continuing economic improvement may result in changes in consumer and business spending, borrowing, and savings habits. Such conditions could adversely affect the credit quality of our loans and our business, financial condition, and results of operations.
Economy of Our Markets
Our business may continue to be adversely affected by ongoing weaknesses in the local economies on which we depend.
Our loan portfolio is concentrated primarily in eastern, northeastern, central, and south central Kentucky, southern West Virginia, and northeastern Tennessee. Our profits depend on providing products and services to clients in these local regions. Although some of these regions have experienced decreases in unemployment and improved real estate values, unemployment rates remain high and real estate values remain depressed. Recent economic conditions in the coal industry are resulting in increased unemployment in the markets we serve where coal is a major contributor to the economy. Further increases in unemployment, decreases in real estate values, or increases in interest rates could weaken the local economies in which we operate. These economic indicators typically affect certain industries, such as real estate and financial services, more significantly. A continuation of high levels of unemployment and depressed real estate asset values in the markets we serve would likely prolong the economic recovery period in our market area. Weakness in our market area could depress our earnings and consequently our financial condition because:
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Clients may not want, need, or qualify for our products and services;
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Borrowers may not be able to repay their loans;
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The value of the collateral securing our loans to borrowers may decline; and
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The quality of our loan portfolio may decline.
Interest Rate Risk
Changes in interest rates could adversely affect our earnings and financial condition.
Our earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest-rate spreads, meaning the difference between the interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect our earnings and financial condition. Interest rates are highly sensitive to many factors, including:
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The rate of economic growth;
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Instability in domestic and foreign financial markets.
Changes in market interest rates will also affect the level of voluntary prepayments on our loans and the receipt of payments on our mortgage-backed securities resulting in the receipt of proceeds that may be reinvested at a lower rate than the loan or mortgage-backed security being prepaid.
We originate residential loans for sale and for our portfolio. The origination of loans for sale is designed to meet client financing needs and earn fee income. The origination of loans for sale is highly dependent upon the local real estate market and the level and trend of interest rates. Increasing interest rates may reduce the origination of loans for sale and consequently the fee income we earn. While our commercial banking, construction, and income property business lines remain a significant portion of our activities, high interest rates may reduce our mortgage-banking activities and thereby our income. In contrast, decreasing interest rates have the effect of causing clients to refinance mortgage loans faster than anticipated. This causes the value of assets related to the servicing rights on loans sold to be lower than originally anticipated. If this happens, we may need to write down our servicing assets faster, which would accelerate our expense and lower our earnings.
We consider interest rate risk one of our most significant market risks. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. Consistency of our net interest revenue is largely dependent upon the effective management of interest rate risk. We employ a variety of measurement techniques to identify and manage our interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain financial assets and liabilities. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.
Liquidity Risk
CTBI is subject to liquidity risk.
CTBI requires liquidity to meet its deposit and debt obligations as they come due and to fund loan demands. CTBI’s access to funding sources in amounts adequate to finance its activities or on terms that are acceptable to it could be impaired by factors that affect it specifically or the financial services industry or economy in general. Factors that could reduce its access to liquidity sources include a downturn in the market, difficult credit markets, or adverse regulatory actions against CTBI. CTBI’s access to deposits may also be affected by the liquidity needs of its depositors. In particular, a substantial majority of CTBI’s liabilities are demand, savings, interest checking, and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of its assets are loans, which cannot be called or sold in the same time frame. To the extent that consumer confidence in other investment vehicles, such as the stock market, increases, customers may move funds from bank deposits and products into such other investment vehicles. Although CTBI historically has been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future, especially if a large number of its depositors sought to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could have a material adverse effect on our financial condition and results of operations.
Banking Reform
Our business may be adversely affected by “banking reform” legislation.
On July 21, 2010, the Dodd-Frank Act was signed into law. This law has significantly changed the bank regulatory structure and affected the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act has required the adoption of a broad range of implementing rules and regulations and preparation of numerous studies and reports for Congress. Significant discretion has been given in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act are still unknown. This legislation includes, among other things: (i) changes in the manner in which the FDIC deposit insurance assessments are computed and an increase in the minimum designated reserve ratio for the Deposit Insurance Fund; (ii) authorization of interest-bearing demand deposits; (iii) requirements for capital regulations applicable to banks and bank holding companies which call for higher levels of capital; (iv) creation of the Consumer Financial Protection Bureau, responsible for the drafting of regulations for the implementation of federal consumer protection laws which affect banks and bank holding companies; (v) a permanent increase in the maximum amount of deposit insurance for banks; (vi) a prohibition of certain proprietary trading and equity investment activities by banks; (vii) restrictions related to mortgage lending; (viii) allowance of de novo interstate branching; and (ix) additional corporate governance provisions relating to non-binding shareholder votes on executive compensation and rules prohibiting incentive compensation that encourages inappropriate risks.
Many aspects of the Dodd-Frank Act are subject to rulemaking and take effect over several years, making it difficult to anticipate the overall financial impact on CTBI. However, compliance with this law and the subsequent implementing regulations will result in additional operating costs that could have a material adverse effect on our financial condition and results of operations.
On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to CTBI and CTB. The FDIC has subsequently approved these rules. The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions take effect January 1, 2015.
The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets. Based on our current capital composition and levels, we anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well-capitalized minimum capital requirements upon the effectiveness of the final rule.
Government Policies and Oversight
Our business may be adversely affected by changes in government policies and oversight.
The earnings of banks and bank holding companies such as ours are affected by the policies of regulatory authorities, including the Federal Reserve Board, which regulates the money supply. Among the methods employed by the Federal Reserve Board are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial and savings banks in the past and are expected to continue to do so in the future.
Many states and municipalities are experiencing financial stress due to the economy. As a result, various levels of government have sought to increase their tax revenues through increased tax levies, which could have an adverse impact on our results of operations.
Federal banking regulators are increasing regulatory scrutiny, and additional limitations (including those contained in the Dodd-Frank Act) on financial institutions have been proposed or adopted by regulators and by Congress. The banking industry is highly regulated and changes in federal and state banking regulations as well as policies and administration guidelines may affect our practices, growth prospects, and earnings. In particular, there is no assurance that recent governmental actions designed to stabilize the economy and banking system will not adversely affect the financial position or results of operations of CTBI.
From time to time, CTBI and/or its subsidiaries may be involved in information requests, reviews, investigations, and proceedings (both formal and informal) by various governmental agencies and law enforcement authorities regarding our respective businesses. Any of these matters may result in material adverse consequences to CTBI and its subsidiaries, including adverse judgements, findings, limitations on merger and acquisition activity, settlements, fines, penalties, orders, injunctions, and other actions. Such adverse consequences may be material to the financial position of CTBI or its results of operations.
Credit Risk
Our earnings and reputation may be adversely affected if we fail to effectively manage our credit risk.
Originating and underwriting loans are integral to the success of our business. This business requires us to take “credit risk,” which is the risk of losing principal and interest income because borrowers fail to repay loans. Collateral values and the ability of borrowers to repay their loans may be affected at any time by factors such as:
-
The length and severity of downturns in the local economies in which we operate or the national economy;
-
The length and severity of downturns in one or more of the business sectors in which our customers operate, particularly the automobile, hotel/motel, coal, and residential development industries; or
-
A rapid increase in interest rates.
Our loan portfolio includes loans with a higher risk of loss.
We originate commercial real estate loans, construction and development loans, consumer loans, and residential mortgage loans, primarily within our market area. Commercial real estate, commercial, and construction and development loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are most susceptible to a risk of loss during a downturn in the business cycle. These loans also have historically had a greater credit risk than other loans for the following reasons:
-
Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. As of December 31, 2013, commercial real estate loans, including multi-family loans, comprised approximately 38% of our total loan portfolio.
-
Other Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business. As of December 31, 2013, other commercial loans comprised approximately 15% of our total loan portfolio.
-
Construction and Development Loans. The risk of loss is largely dependent on our initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. As of December 31, 2013, construction and development loans comprised approximately 6% of our total loan portfolio.
Consumer loans may carry a higher degree of repayment risk than residential mortgage loans, particularly when the consumer loan is unsecured. Repayment of a consumer loan typically depends on the borrower’s financial stability, and it is more likely to be affected adversely by job loss, illness, or personal bankruptcy. Economic conditions in the coal industry are resulting in increases in unemployment in many of our market areas, which is likely to impact the repayment risk associated with our consumer loans. In addition, federal and state bankruptcy, insolvency, and other laws may limit the amount we can recover when a consumer client defaults. As of December 31, 2013, consumer loans comprised approximately 16% of our total loan portfolio.
A significant part of our lending business is focused on small to medium-sized business which may be impacted more severely during periods of economic weakness.
A significant portion of our commercial loan portfolio is tied to small to medium-sized businesses in our markets. During periods of economic weakness, small to medium-sized businesses may be impacted more severely than larger businesses. As a result, the ability of smaller businesses to repay their loans may deteriorate, particularly if economic challenges persist over a period of time, and such deterioration would adversely impact our results of operations and financial condition.
A large percentage of our loan portfolio is secured by real estate, in particular commercial real estate. Weakness in the real estate market or other segments of our loan portfolio would lead to additional losses, which could have a material adverse effect on our business, financial condition, and results of operations.
As of December 31, 2013, approximately 70% of our loan portfolio is secured by real estate, 38% of which is commercial real estate. High levels of commercial and consumer delinquencies or declines in real estate market values could require increased net charge-offs and increases in the allowance for loan and lease losses, which could have a material adverse effect on our business, financial condition, and results of operations and prospects.
While we have seen a decline in our level of other real estate owned, it still remains above our historical norm, primarily as a result of foreclosures. To the extent that we continue to hold a higher level of real estate owned, related real estate expense would likely increase.
During the recent economic downturn, we experienced an increase in nonperforming real estate loans. As a result, we have experienced, and we continue to experience, an increase in the level of foreclosed properties. Foreclosed real estate expense consists of maintenance costs, taxes, valuation adjustments to appraisal values, and gains or losses on disposition. The amount that we may realize after a default is dependent upon factors outside of our control, including but not limited to: (i) general and local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the properties; (vi) environmental remediation liabilities; (vii) ability to obtain and maintain occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations, and fiscal policies; (x) potential vandalism; and (xi) acts of God. Expenditures associated with the ownership of real estate, such as real estate taxes, insurance, and maintenance costs, may adversely affect income from the real estate. The cost of operating real property may exceed the income earned from the property, and we may need to advance funds in order to protect our investment in the property, or we may be required to dispose of the property at a loss. If our levels of other real estate owned increase or are sustained and local real estate values decline, our foreclosed real estate expense will increase, which would adversely impact our results of operations.
Environmental Liability Risk
We are subject to environmental liability risk associated with lending activity.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.
Competition
Strong competition within our market area may reduce our ability to attract and retain deposits and originate loans.
We face competition both in originating loans and in attracting deposits. Competition in the financial services industry is intense. We compete for clients by offering excellent service and competitive rates on our loans and deposit products. The type of institutions we compete with include commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms. Competition arises from institutions located within and outside our market areas. As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer. The recent economic crisis is likely to result in increased consolidation in the financial industry and larger financial institutions may strengthen their competitive positions. In addition, to stay competitive in our markets we may need to adjust the interest rates on our products to match the rates offered by our competitors, which could adversely affect our net interest margin. As a result, our profitability depends upon our continued ability to successfully compete in our market areas while achieving our investment objectives.
Acquisition Risk
We may have difficulty in the future continuing to grow through acquisitions.
We may experience difficulty in making acquisitions on acceptable terms due to the decreasing number of suitable acquisition targets, competition for attractive acquisitions, regulatory impediments, and certain limitations on interstate acquisitions.
Any future acquisitions or mergers by CTBI or its banking subsidiary are subject to approval by the appropriate federal and state banking regulators. The banking regulators evaluate a number of criteria in making their approval decisions, such as:
-
Safety and soundness guidelines;
-
Compliance with all laws including the USA Patriot Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act, the Sarbanes-Oxley Act and the related rules and regulations promulgated under such Act or the Exchange Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, and all other applicable fair lending and consumer protection laws and other laws relating to discriminatory business practices; and
-
Anti-competitive concerns with the proposed transaction.
If the banking regulators or a commenter on our regulatory application raise concerns about any of these criteria at the time a regulatory application is filed, the banking regulators may deny, delay, or condition their approval of a proposed transaction. As more fully described under “Results of Operations and Financial Condition” in Item 7, we understand that the resolution of a pending Federal Reserve investigation will likely result in impediments to CTBI’s merger and acquisition activity for an unspecified period of time.
We have grown, and, subject to regulatory approval, intend to continue to grow, through acquisitions of banks and other financial institutions. After these acquisitions, we may experience adverse changes in results of operations of acquired entities, unforeseen liabilities, asset quality problems of acquired entities, loss of key personnel, loss of clients because of change of identity, difficulties in integrating data processing and operational procedures, and deterioration in local economic conditions. These various acquisition risks can be heightened in larger transactions.
Integration Risk
We may not be able to achieve the expected integration and cost savings from our ongoing bank acquisition activities.
We have a long history of acquiring financial institutions and, subject to regulatory approval, we expect this acquisition activity to continue in the future. Difficulties may arise in the integration of the business and operations of the financial institutions that agree to merge with and into CTBI and, as a result, we may not be able to achieve the cost savings and synergies that we expect will result from the merger activities. Achieving cost savings is dependent on consolidating certain operational and functional areas, eliminating duplicative positions and terminating certain agreements for outside services. Additional operational savings are dependent upon the integration of the banking businesses of the acquired financial institution with that of CTBI, including the conversion of the acquired entity’s core operating systems, data systems and products to those of CTBI and the standardization of business practices. Complications or difficulties in the conversion of the core operating systems, data systems, and products of these other banks to those of CTBI may result in the loss of clients, damage to our reputation within the financial services industry, operational problems, one-time costs currently not anticipated by us, and/or reduced cost savings resulting from the merger activities.
Operational Risk
An extended disruption of vital infrastructure or a security breach could negatively impact our business, results of operations, and financial condition.
Our operations depend upon, among other things, our infrastructure, including equipment and facilities. Extended disruption of vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking or viruses, terrorist activity or the domestic and foreign response to such activity, or other events outside of our control could have a material adverse impact on the financial services industry as a whole and on our business, results of operations, cash flows, and financial condition in particular. Our business recovery plan may not work as intended or may not prevent significant interruption of our operations. The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in the loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have an adverse effect on our financial condition and results of operation.
Third party vendors provide key components of our business infrastructure, such as processing, internet connections, and network access. While CTBI has selected these third party vendors carefully, it does not control their actions. Any problems caused by third parties or arising from their services, such as disruption in service, negligence in the performance of services or a breach of customer data security with regard to the third parties’ systems, could adversely affect our ability to deliver services, negatively impact our business reputation, cause a loss of customers, or result in increased expenses, regulatory fines and sanctions, or litigation.
Market Risk
Community Trust Bancorp, Inc.’s stock price is volatile.
Our stock price has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future. These factors include:
-
Actual or anticipated variations in earnings;
-
Changes in analysts’ recommendations or projections;
-
CTBI’s announcements of developments related to our businesses;
-
Operating and stock performance of other companies deemed to be peers;
-
New technology used or services offered by traditional and non-traditional competitors;
-
News reports of trends, concerns, and other issues related to the financial services industry; and
-
Additional governmental policies and enforcement of current laws.
Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to CTBI’s performance. Although investor confidence in financial institutions has strengthened, the financial crisis adversely impacted investor confidence in the financial institutions sector. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
Technology Risk
CTBI continually encounters technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Counterparty Risk
The soundness of other financial institutions could adversely affect CTBI.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional counterparties. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan due us. There is no assurance that any such losses would not materially and adversely affect our businesses, financial condition, or results of operations.
None.
The following tables set forth certain statistical information relating to CTBI and subsidiaries on a consolidated basis and should be read together with our consolidated financial statements.
Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates
| |
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
(in thousands)
|
|
Average
Balances
|
|
|
Interest
|
|
|
Average
Rate
|
|
|
Average
Balances
|
|
|
Interest
|
|
|
Average
Rate
|
|
|
Average
Balances
|
|
|
Interest
|
|
|
Average
Rate
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)(2)(3)
|
|
$ |
2,579,805 |
|
|
$ |
132,087 |
|
|
|
5.12 |
% |
|
$ |
2,549,459 |
|
|
$ |
138,172 |
|
|
|
5.42 |
% |
|
$ |
2,580,351 |
|
|
$ |
145,178 |
|
|
|
5.63 |
% |
|
Loans held for sale
|
|
|
3,894 |
|
|
|
223 |
|
|
|
5.73 |
|
|
|
1,434 |
|
|
|
198 |
|
|
|
13.81 |
|
|
|
749 |
|
|
|
112 |
|
|
|
14.95 |
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
|
487,650 |
|
|
|
9,910 |
|
|
|
2.03 |
|
|
|
480,562 |
|
|
|
10,292 |
|
|
|
2.14 |
|
|
|
350,612 |
|
|
|
8,992 |
|
|
|
2.56 |
|
|
Tax exempt state and political subdivisions (3)
|
|
|
80,694 |
|
|
|
3,460 |
|
|
|
4.29 |
|
|
|
69,773 |
|
|
|
3,191 |
|
|
|
4.57 |
|
|
|
51,565 |
|
|
|
2,634 |
|
|
|
5.11 |
|
|
Other securities
|
|
|
90,178 |
|
|
|
2,515 |
|
|
|
2.79 |
|
|
|
54,664 |
|
|
|
1,717 |
|
|
|
3.14 |
|
|
|
30,492 |
|
|
|
1,141 |
|
|
|
3.74 |
|
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
|
|
30,559 |
|
|
|
1,367 |
|
|
|
4.47 |
|
|
|
30,557 |
|
|
|
1,433 |
|
|
|
4.69 |
|
|
|
30,412 |
|
|
|
1,374 |
|
|
|
4.52 |
|
|
Federal funds sold
|
|
|
3,207 |
|
|
|
11 |
|
|
|
0.34 |
|
|
|
3,372 |
|
|
|
11 |
|
|
|
0.33 |
|
|
|
31,000 |
|
|
|
84 |
|
|
|
0.27 |
|
|
Interest bearing deposits
|
|
|
97,492 |
|
|
|
228 |
|
|
|
0.23 |
|
|
|
155,233 |
|
|
|
379 |
|
|
|
0.24 |
|
|
|
132,269 |
|
|
|
315 |
|
|
|
0.24 |
|
|
Other investments
|
|
|
8,886 |
|
|
|
87 |
|
|
|
0.98 |
|
|
|
10,229 |
|
|
|
91 |
|
|
|
0.89 |
|
|
|
12,342 |
|
|
|
87 |
|
|
|
0.70 |
|
|
Investment in unconsolidated subsidiaries
|
|
|
1,846 |
|
|
|
35 |
|
|
|
1.90 |
|
|
|
1,851 |
|
|
|
72 |
|
|
|
3.89 |
|
|
|
1,856 |
|
|
|
120 |
|
|
|
6.47 |
|
|
Total earning assets
|
|
|
3,384,211 |
|
|
$ |
149,923 |
|
|
|
4.43 |
% |
|
|
3,357,134 |
|
|
$ |
155,556 |
|
|
|
4.63 |
% |
|
|
3,221,648 |
|
|
$ |
160,037 |
|
|
|
4.97 |
% |
|
Allowance for loan and lease losses
|
|
|
(34,159 |
) |
|
|
|
|
|
|
|
|
|
|
(33,781 |
) |
|
|
|
|
|
|
|
|
|
|
(35,808 |
) |
|
|
|
|
|
|
|
|
| |
|
|
3,350,052 |
|
|
|
|
|
|
|
|
|
|
|
3,323,353 |
|
|
|
|
|
|
|
|
|
|
|
3,185,840 |
|
|
|
|
|
|
|
|
|
|
Nonearning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
55,405 |
|
|
|
|
|
|
|
|
|
|
|
62,807 |
|
|
|
|
|
|
|
|
|
|
|
70,239 |
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
52,825 |
|
|
|
|
|
|
|
|
|
|
|
54,962 |
|
|
|
|
|
|
|
|
|
|
|
55,445 |
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
193,259 |
|
|
|
|
|
|
|
|
|
|
|
200,538 |
|
|
|
|
|
|
|
|
|
|
|
194,379 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,651,541 |
|
|
|
|
|
|
|
|
|
|
$ |
3,641,660 |
|
|
|
|
|
|
|
|
|
|
$ |
3,505,903 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and demand deposits
|
|
$ |
911,473 |
|
|
$ |
2,281 |
|
|
|
0.25 |
% |
|
$ |
878,825 |
|
|
$ |
2,894 |
|
|
|
0.33 |
% |
|
$ |
777,639 |
|
|
$ |
2,824 |
|
|
|
0.36 |
% |
|
Time deposits
|
|
|
1,384,500 |
|
|
|
9,032 |
|
|
|
0.65 |
|
|
|
1,445,018 |
|
|
|
15,017 |
|
|
|
1.04 |
|
|
|
1,460,627 |
|
|
|
18,458 |
|
|
|
1.26 |
|
|
Repurchase agreements and federal funds purchased
|
|
|
221,266 |
|
|
|
940 |
|
|
|
0.42 |
|
|
|
222,872 |
|
|
|
1,240 |
|
|
|
0.56 |
|
|
|
219,040 |
|
|
|
1,625 |
|
|
|
0.74 |
|
|
Advances from Federal Home Loan Bank
|
|
|
1,921 |
|
|
|
26 |
|
|
|
1.35 |
|
|
|
2,439 |
|
|
|
34 |
|
|
|
1.39 |
|
|
|
21,670 |
|
|
|
99 |
|
|
|
0.46 |
|
|
Long-term debt
|
|
|
61,341 |
|
|
|
1,161 |
|
|
|
1.89 |
|
|
|
61,341 |
|
|
|
2,403 |
|
|
|
3.92 |
|
|
|
61,341 |
|
|
|
3,999 |
|
|
|
6.52 |
|
|
Total interest bearing liabilities
|
|
|
2,580,501 |
|
|
$ |
13,440 |
|
|
|
0.52 |
% |
|
|
2,610,495 |
|
|
$ |
21,588 |
|
|
|
0.83 |
% |
|
|
2,540,317 |
|
|
$ |
27,005 |
|
|
|
1.06 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
624,646 |
|
|
|
|
|
|
|
|
|
|
|
604,736 |
|
|
|
|
|
|
|
|
|
|
|
573,067 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
37,612 |
|
|
|
|
|
|
|
|
|
|
|
37,052 |
|
|
|
|
|
|
|
|
|
|
|
36,746 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,242,759 |
|
|
|
|
|
|
|
|
|
|
|
3,252,283 |
|
|
|
|
|
|
|
|
|
|
|
3,150,130 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
408,782 |
|
|
|
|
|
|
|
|
|
|
|
389,377 |
|
|
|
|
|
|
|
|
|
|
|
355,773 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$ |
3,651,541 |
|
|
|
|
|
|
|
|
|
|
$ |
3,641,660 |
|
|
|
|
|
|
|
|
|
|
$ |
3,505,903 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, tax equivalent
|
|
|
|
|
|
$ |
136,483 |
|
|
|
|
|
|
|
|
|
|
$ |
133,968 |
|
|
|
|
|
|
|
|
|
|
$ |
133,032 |
|
|
|
|
|
|
Less tax equivalent interest income
|
|
|
|
|
|
|
1,796 |
|
|
|
|
|
|
|
|
|
|
|
1,834 |
|
|
|
|
|
|
|
|
|
|
|
1,577 |
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$ |
134,687 |
|
|
|
|
|
|
|
|
|
|
$ |
132,134 |
|
|
|
|
|
|
|
|
|
|
$ |
131,455 |
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.91 |
% |
|
|
|
|
|
|
|
|
|
|
3.80 |
% |
|
|
|
|
|
|
|
|
|
|
3.91 |
% |
|
Benefit of interest free funding
|
|
|
|
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
0.22 |
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
4.03 |
% |
|
|
|
|
|
|
|
|
|
|
3.99 |
% |
|
|
|
|
|
|
|
|
|
|
4.13 |
% |
(1) Interest includes fees on loans of $1,848, $1,954, and $1,889 in 2013, 2012, and 2011, respectively.
(2) Loan balances include deferred loan origination costs and principal balances on nonaccrual loans.
(3) Tax exempt income on securities and loans is reported on a fully taxable equivalent basis using a 35% rate.
Net Interest Differential
The following table illustrates the approximate effect of volume and rate changes on net interest differentials between 2013 and 2012 and also between 2012 and 2011.
| |
|
Total Change
|
|
|
Change Due to
|
|
|
Total Change
|
|
|
Change Due to
|
|
|
(in thousands)
|
|
|
2013/2012 |
|
|
Volume
|
|
|
Rate
|
|
|
|
2012/2011 |
|
|
Volume
|
|
|
Rate
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
(6,085 |
) |
|
$ |
1,629 |
|
|
$ |
(7,714 |
) |
|
$ |
(7,006 |
) |
|
$ |
(1,754 |
) |
|
$ |
(5,252 |
) |
|
Loans held for sale
|
|
|
25 |
|
|
|
191 |
|
|
|
(166 |
) |
|
|
86 |
|
|
|
95 |
|
|
|
(9 |
) |
|
U.S. Treasury and agencies
|
|
|
(382 |
) |
|
|
150 |
|
|
|
(532 |
) |
|
|
1,300 |
|
|
|
2,952 |
|
|
|
(1,652 |
) |
|
Tax exempt state and political subdivisions
|
|
|
269 |
|
|
|
477 |
|
|
|
(208 |
) |
|
|
557 |
|
|
|
855 |
|
|
|
(298 |
) |
|
Other securities
|
|
|
798 |
|
|
|
1,009 |
|
|
|
(211 |
) |
|
|
576 |
|
|
|
784 |
|
|
|
(208 |
) |
|
Federal Reserve Bank and Federal Home Loan Bank stock
|
|
|
(66 |
) |
|
|
0 |
|
|
|
(66 |
) |
|
|
59 |
|
|
|
7 |
|
|
|
52 |
|
|
Federal funds sold
|
|
|
0 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
(73 |
) |
|
|
(62 |
) |
|
|
(11 |
) |
|
Interest bearing deposits
|
|
|
(151 |
) |
|
|
(146 |
) |
|
|
(5 |
) |
|
|
64 |
|
|
|
56 |
|
|
|
8 |
|
|
Other investments
|
|
|
(4 |
) |
|
|
(11 |
) |
|
|
7 |
|
|
|
4 |
|
|
|
(13 |
) |
|
|
17 |
|
|
Investment in unconsolidated subsidiaries
|
|
|
(37 |
) |
|
|
0 |
|
|
|
(37 |
) |
|
|
(48 |
) |
|
|
0 |
|
|
|
(48 |
) |
|
Total interest income
|
|
|
(5,633 |
) |
|
|
3,298 |
|
|
|
(8,931 |
) |
|
|
(4,481 |
) |
|
|
2,920 |
|
|
|
(7,401 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and demand deposits
|
|
|
(613 |
) |
|
|
104 |
|
|
|
(717 |
) |
|
|
70 |
|
|
|
348 |
|
|
|
(278 |
) |
|
Time deposits
|
|
|
(5,985 |
) |
|
|
(653 |
) |
|
|
(5,332 |
) |
|
|
(3,441 |
) |
|
|
(199 |
) |
|
|
(3,242 |
) |
|
Repurchase agreements and federal funds purchased
|
|
|
(300 |
) |
|
|
(9 |
) |
|
|
(291 |
) |
|
|
(385 |
) |
|
|
28 |
|
|
|
(413 |
) |
|
Advances from Federal Home Loan Bank
|
|
|
(8 |
) |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(65 |
) |
|
|
(33 |
) |
|
|
(32 |
) |
|
Long-term debt
|
|
|
(1,242 |
) |
|
|
0 |
|
|
|
(1,242 |
) |
|
|
(1,596 |
) |
|
|
0 |
|
|
|
(1,596 |
) |
|
Total interest expense
|
|
|
(8,148 |
) |
|
|
(565 |
) |
|
|
(7,583 |
) |
|
|
(5,417 |
) |
|
|
144 |
|
|
|
(5,561 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
2,515 |
|
|
$ |
3,863 |
|
|
$ |
(1,348 |
) |
|
$ |
936 |
|
|
$ |
2,776 |
|
|
$ |
(1,840 |
) |
For purposes of the above table, changes which are due to both rate and volume are allocated based on a percentage basis, using the absolute values of rate and volume variance as a basis for percentages. Income is stated at a fully taxable equivalent basis, assuming a 35% tax rate.
Investment Portfolio
The maturity distribution and weighted average interest rates of securities at December 31, 2013 are as follows:
Available-for-sale
| |
|
Estimated Maturity at December 31, 2013
|
|
| |
|
Within 1 Year
|
|
|
1-5 Years
|
|
|
5-10 Years
|
|
|
After 10 Years
|
|
|
Total Fair Value
|
|
|
Amortized Cost
|
|
|
(in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
U.S. Treasury, government agencies, and government sponsored agency mortgage-backed securities
|
|
$ |
1,069 |
|
|
|
1.31 |
% |
|
$ |
42,848 |
|
|
|
2.44 |
% |
|
$ |
117,255 |
|
|
|
1.66 |
% |
|
$ |
278,748 |
|
|
|
2.41 |
% |
|
$ |
439,920 |
|
|
|
2.21 |
% |
|
$ |
448,698 |
|
|
State and political subdivisions
|
|
|
2,859 |
|
|
|
3.38 |
|
|
|
18,111 |
|
|
|
3.55 |
|
|
|
64,596 |
|
|
|
3.96 |
|
|
|
31,137 |
|
|
|
4.44 |
|
|
|
116,703 |
|
|
|
4.01 |
|
|
|
118,055 |
|
|
Other securities
|
|
|
0 |
|
|
|
0.00 |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
52,782 |
|
|
|
2.15 |
|
|
|
52,782 |
|
|
|
2.15 |
|
|
|
55,000 |
|
|
Total
|
|
$ |
3,928 |
|
|
|
2.82 |
% |
|
$ |
60,959 |
|
|
|
2.77 |
% |
|
$ |
181,851 |
|
|
|
2.48 |
% |
|
$ |
362,667 |
|
|
|
2.55 |
% |
|
$ |
609,405 |
|
|
|
2.55 |
% |
|
$ |
621,753 |
|
Held-to-maturity
| |
|
Estimated Maturity at December 31, 2013
|
|
| |
|
Within 1 Year
|
|
|
1-5 Years
|
|
|
5-10 Years
|
|
|
After 10 Years
|
|
|
Total
Amortized Cost
|
|
|
Fair
Value
|
|
|
(in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
U.S. Treasury, government agencies, and government sponsored agency mortgage-backed securities
|
|
$ |
0 |
|
|
|
0.00 |
% |
|
$ |
0 |
|
|
|
0.00 |
% |
|
$ |
0 |
|
|
|
0.00 |
% |
|
$ |
480 |
|
|
|
2.48 |
% |
|
$ |
480 |
|
|
|
2.48 |
% |
|
$ |
418 |
|
|
State and political subdivisions
|
|
|
0 |
|
|
|
0.00 |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
1,182 |
|
|
|
4.30 |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
1,182 |
|
|
|
4.30 |
|
|
|
1,183 |
|
|
Total
|
|
$ |
0 |
|
|
|
0.00 |
% |
|
$ |
0 |
|
|
|
0.00 |
% |
|
$ |
1,182 |
|
|
|
4.30 |
% |
|
$ |
480 |
|
|
|
2.48 |
% |
|
$ |
1,662 |
|
|
|
3.78 |
% |
|
$ |
1,601 |
|
Total Securities
| |
|
Estimated Maturity at December 31, 2013
|
|
| |
|
Within 1 Year
|
|
|
1-5 Years
|
|
|
5-10 Years
|
|
|
After 10 Years
|
|
|
Total
Book Value
|
|
|
Fair
Value
|
|
|
(in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Total
|
|
$ |
3,928 |
|
|
|
2.82 |
% |
|
$ |
60,959 |
|
|
|
2.77 |
% |
|
$ |
183,033 |
|
|
|
2.49 |
% |
|
$ |
363,147 |
|
|
|
2.55 |
% |
|
$ |
611,067 |
|
|
|
2.55 |
% |
|
$ |
611,006 |
|
The calculations of the weighted average interest rates for each maturity category are based upon yield weighted by the respective costs of the securities. The weighted average rates on state and political subdivisions are computed on a taxable equivalent basis using a 35% tax rate.
Excluding those holdings of the investment portfolio in U.S. Treasury securities, government agencies, and government sponsored agency mortgage-backed securities, there were no securities of any one issuer that exceeded 10% of our shareholders’ equity at December 31, 2013.
The book values of securities available-for-sale and securities held-to-maturity as of December 31, 2013 and 2012 are presented in note 3 to the consolidated financial statements.
The book value of securities at December 31, 2011 is presented below:
|
(in thousands)
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
U.S. Treasury and government agencies
|
|
$ |
32,077 |
|
|
$ |
480 |
|
|
State and political subdivisions
|
|
|
68,358 |
|
|
|
1,182 |
|
|
U.S. government sponsored agency mortgage-backed securities
|
|
|
390,714 |
|
|
|
0 |
|
|
Total debt securities
|
|
|
491,149 |
|
|
|
1,662 |
|
|
Marketable equity securities
|
|
|
20,582 |
|
|
|
0 |
|
|
Total securities
|
|
$ |
511,731 |
|
|
$ |
1,662 |
|
Loan Portfolio
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$ |
110,779 |
|
|
$ |
119,447 |
|
|
$ |
120,577 |
|
|
$ |
135,091 |
|
|
$ |
141,440 |
|
|
Secured by real estate
|
|
|
872,542 |
|
|
|
807,213 |
|
|
|
798,887 |
|
|
|
807,049 |
|
|
|
707,500 |
|
|
Equipment lease financing
|
|
|
8,840 |
|
|
|
9,246 |
|
|
|
9,706 |
|
|
|
14,151 |
|
|
|
20,048 |
|
|
Commercial other
|
|
|
374,881 |
|
|
|
376,348 |
|
|
|
374,597 |
|
|
|
388,746 |
|
|
|
373,829 |
|
|
Total commercial
|
|
|
1,367,042 |
|
|
|
1,312,254 |
|
|
|
1,303,767 |
|
|
|
1,345,037 |
|
|
|
1,242,817 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
56,075 |
|
|
|
55,041 |
|
|
|
53,534 |
|
|
|
56,910 |
|
|
|
51,311 |
|
|
Real estate mortgage
|
|
|
697,601 |
|
|
|
696,928 |
|
|
|
650,075 |
|
|
|
623,851 |
|
|
|
528,592 |
|
|
Home equity
|
|
|
84,880 |
|
|
|
82,292 |
|
|
|
84,841 |
|
|
|
85,103 |
|
|
|
82,135 |
|
|
Total residential
|
|
|
838,556 |
|
|
|
834,261 |
|
|
|
788,450 |
|
|
|
765,864 |
|
|
|
662,038 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer direct
|
|
|
122,215 |
|
|
|
122,581 |
|
|
|
123,949 |
|
|
|
126,046 |
|
|
|
115,555 |
|
|
Consumer indirect
|
|
|
287,541 |
|
|
|
281,477 |
|
|
|
340,382 |
|
|
|
368,233 |
|
|
|
415,350 |
|
|
Total consumer
|
|
|
409,756 |
|
|
|
404,058 |
|
|
|
464,331 |
|
|
|
494,279 |
|
|
|
530,905 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$ |
2,615,354 |
|
|
$ |
2,550,573 |
|
|
$ |
2,556,548 |
|
|
$ |
2,605,180 |
|
|
$ |
2,435,760 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total year-end loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
4.24 |
% |
|
|
4.68 |
% |
|
|
4.72 |
% |
|
|
5.19 |
% |
|
|
5.80 |
% |
|
Secured by real estate
|
|
|
33.36 |
|
|
|
31.65 |
|
|
|
31.25 |
|
|
|
30.98 |
|
|
|
29.05 |
|
|
Equipment lease financing
|
|
|
0.34 |
|
|
|
0.36 |
|
|
|
0.38 |
|
|
|
0.54 |
|
|
|
0.82 |
|
|
Commercial other
|
|
|
14.33 |
|
|
|
14.76 |
|
|
|
14.65 |
|
|
|
14.92 |
|
|
|
15.35 |
|
|
Total commercial
|
|
|
52.27 |
|
|
|
51.45 |
|
|
|
51.00 |
|
|
|
51.63 |
|
|
|
51.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
2.15 |
|
|
|
2.16 |
|
|
|
2.09 |
|
|
|
2.18 |
|
|
|
2.11 |
|
|
Real estate mortgage
|
|
|
26.67 |
|
|
|
27.32 |
|
|
|
25.43 |
|
|
|
23.95 |
|
|
|
21.70 |
|
|
Home equity
|
|
|
3.25 |
|
|
|
3.23 |
|
|
|
3.32 |
|
|
|
3.27 |
|
|
|
3.37 |
|
|
Total residential
|
|
|
32.07 |
|
|
|
32.71 |
|
|
|
30.84 |
|
|
|
29.40 |
|
|
|
27.18 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer direct
|
|
|
4.67 |
|
|
|
4.80 |
|
|
|
4.85 |
|
|
|
4.84 |
|
|
|
4.74 |
|
|
Consumer indirect
|
|
|
10.99 |
|
|
|
11.04 |
|
|
|
13.31 |
|
|
|
14.13 |
|
|
|
17.06 |
|
|
Total consumer
|
|
|
15.66 |
|
|
|
15.84 |
|
|
|
18.16 |
|
|
|
18.97 |
|
|
|
21.80 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
The total loans above are net of deferred loan fees and costs.
The following table shows the amounts of loans (excluding residential mortgages of 1-4 family residences, consumer loans and lease financing) which, based on the remaining scheduled repayments of principal are due in the periods indicated. Also, the amounts are classified according to sensitivity to changes in interest rates (fixed, variable).
| |
|
Maturity at December 31, 2013
|
|
|
(in thousands)
|
|
Within One Year
|
|
|
After One but Within Five Years
|
|
|
After Five Years
|
|
|
Total
|
|
|
Commercial secured by real estate and commercial other
|
|
$ |
253,892 |
|
|
$ |
225,519 |
|
|
$ |
768,012 |
|
|
$ |
1,247,423 |
|
|
Commercial and real estate construction
|
|
|
97,892 |
|
|
|
18,547 |
|
|
|
50,415 |
|
|
|
166,854 |
|
| |
|
$ |
351,784 |
|
|
$ |
244,066 |
|
|
$ |
818,427 |
|
|
$ |
1,414,277 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate sensitivity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$ |
62,107 |
|
|
$ |
57,577 |
|
|
$ |
21,999 |
|
|
$ |
141,683 |
|
|
Adjustable rate
|
|
|
289,677 |
|
|
|
186,489 |
|
|
|
796,428 |
|
|
|
1,272,594 |
|
| |
|
$ |
351,784 |
|
|
$ |
244,066 |
|
|
$ |
818,427 |
|
|
$ |
1,414,277 |
|
Nonperforming Assets
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Nonaccrual loans
|
|
$ |
19,958 |
|
|
$ |
16,791 |
|
|
$ |
25,753 |
|
|
$ |
45,021 |
|
|
$ |
32,247 |
|
|
90 days or more past due and still accruing interest
|
|
|
23,599 |
|
|
|
19,215 |
|
|
|
11,515 |
|
|
|
17,014 |
|
|
|
9,067 |
|
|
Total nonperforming loans
|
|
|
43,557 |
|
|
|
36,006 |
|
|
|
37,268 |
|
|
|
62,035 |
|
|
|
41,314 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other repossessed assets
|
|
|
0 |
|
|
|
5 |
|
|
|
58 |
|
|
|
129 |
|
|
|
276 |
|
|
Foreclosed properties
|
|
|
39,188 |
|
|
|
46,986 |
|
|
|
56,545 |
|
|
|
42,935 |
|
|
|
37,333 |
|
|
Total nonperforming assets
|
|
$ |
82,745 |
|
|
$ |
82,997 |
|
|
$ |
93,871 |
|
|
$ |
105,099 |
|
|
$ |
78,923 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total loans and foreclosed properties
|
|
|
3.12 |
% |
|
|
3.20 |
% |
|
|
3.59 |
% |
|
|
3.97 |
% |
|
|
3.19 |
% |
|
Allowance to nonperforming loans
|
|
|
78.08 |
% |
|
|
92.33 |
% |
|
|
89.01 |
% |
|
|
56.10 |
% |
|
|
79.01 |
% |
Nonaccrual and Past Due Loans
|
(in thousands)
|
|
Nonaccrual loans
|
|
|
As a % of Loan Balances by Category
|
|
|
Accruing Loans Past Due 90 Days or More
|
|
|
As a % of Loan Balances by Category
|
|
|
Balances
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
$ |
4,519 |
|
|
|
4.08 |
% |
|
$ |
1,673 |
|
|
|
1.51 |
% |
|
$ |
110,779 |
|
|
Commercial secured by real estate
|
|
|
6,576 |
|
|
|
0.75 |
|
|
|
12,403 |
|
|
|
1.42 |
|
|
|
872,542 |
|
|
Equipment lease financing
|
|
|
0 |
|
|
|
0.00 |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
8,840 |
|
|
Commercial other
|
|
|
2,801 |
|
|
|
0.75 |
|
|
|
3,723 |
|
|
|
0.99 |
|
|
|
374,881 |
|
|
Real estate construction
|
|
|
481 |
|
|
|
0.86 |
|
|
|
213 |
|
|
|
0.38 |
|
|
|
56,075 |
|
|
Real estate mortgage
|
|
|
5,152 |
|
|
|
0.74 |
|
|
|
4,847 |
|
|
|
0.69 |
|
|
|
697,601 |
|
|
Home equity
|
|
|
429 |
|
|
|
0.51 |
|
|
|
324 |
|
|
|
0.38 |
|
|
|
84,880 |
|
|
Consumer direct
|
|
|
0 |
|
|
|
0.00 |
|
|
|
119 |
|
|
|
0.10 |
|
|
|
122,215 |
|
|
Consumer indirect
|
|
|
0 |
|
|
|
0.00 |
|
|
|
297 |
|
|
|
0.10 |
|
|
|
287,541 |
|
|
Total
|
|
$ |
19,958 |
|
|
|
0.76 |
% |
|
$ |
23,599 |
|
|
|
0.90 |
% |
|
$ |
2,615,354 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
$ |
5,955 |
|
|
|
4.99 |
% |
|
$ |
3,778 |
|
|
|
3.16 |
% |
|
$ |
119,447 |
|
|
Commercial secured by real estate
|
|
|
5,572 |
|
|
|
0.69 |
|
|
|
5,943 |
|
|
|
0.74 |
|
|
|
807,213 |
|
|
Equipment lease financing
|
|
|
0 |
|
|
|
0.00 |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
9,246 |
|
|
Commercial other
|
|
|
1,655 |
|
|
|
0.44 |
|
|
|
3,867 |
|
|
|
1.03 |
|
|
|
376,348 |
|
|
Real estate construction
|
|
|
315 |
|
|
|
0.57 |
|
|
|
196 |
|
|
|
0.36 |
|
|
|
55,041 |
|
|
Real estate mortgage
|
|
|
3,153 |
|
|
|
0.45 |
|
|
|
4,511 |
|
|
|
0.65 |
|
|
|
696,928 |
|
|
Home equity
|
|
|
141 |
|
|
|
0.17 |
|
|
|
441 |
|
|
|
0.54 |
|
|
|
82,292 |
|
|
Consumer direct
|
|
|
0 |
|
|
|
0.00 |
|
|
|
98 |
|
|
|
0.08 |
|
|
|
122,581 |
|
|
Consumer indirect
|
|
|
0 |
|
|
|
0.00 |
|
|
|
381 |
|
|
|
0.14 |
|
|
|
281,477 |
|
|
Total
|
|
$ |
16,791 |
|
|
|
0.66 |
% |
|
$ |
19,215 |
|
|
|
0.75 |
% |
|
$ |
2,550,573 |
|
Discussion of the Nonaccrual Policy
The accrual of interest income on loans is discontinued when management believes, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that the collection of interest is doubtful. Cash payments received on nonaccrual loans generally are applied against principal, and interest income is only recorded once principal recovery is reasonably assured. Any loans greater than 90 days past due must be well secured and in the process of collection to continue accruing interest. See note 1 for further discussion on our nonaccrual policy.
Potential Problem Loans
Interest accrual is discontinued when we believe, after considering economic and business conditions, collateral value, and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful.
Foreign Outstandings
None
Loan Concentrations
We had no concentration of loans exceeding 10% of total loans at December 31, 2013. See note 18 to the consolidated financial statements for further information.
Analysis of the Allowance for Loan and Lease Losses
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Allowance for loan and lease losses, beginning of year
|
|
$ |
33,245 |
|
|
$ |
33,171 |
|
|
$ |
34,805 |
|
|
$ |
32,643 |
|
|
$ |
30,821 |
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
1,135 |
|
|
|
1,034 |
|
|
|
2,510 |
|
|
|
1,695 |
|
|
|
3,435 |
|
|
Commercial secured by real estate
|
|
|
1,607 |
|
|
|
2,035 |
|
|
|
4,018 |
|
|
|
3,826 |
|
|
|
3,192 |
|
|
Commercial other
|
|
|
2,265 |
|
|
|
3,233 |
|
|
|
4,092 |
|
|
|
5,184 |
|
|
|
4,342 |
|
|
Real estate construction
|
|
|
89 |
|
|
|
189 |
|
|
|
319 |
|
|
|
22 |
|
|
|
330 |
|
|
Real estate mortgage
|
|
|
744 |
|
|
|
1,123 |
|
|
|
1,589 |
|
|
|
684 |
|
|
|
858 |
|
|
Home equity
|
|
|
241 |
|
|
|
248 |
|
|
|
171 |
|
|
|
358 |
|
|
|
223 |
|
|
Consumer direct
|
|
|
1,166 |
|
|
|
1,245 |
|
|
|
961 |
|
|
|
1,256 |
|
|
|
1,892 |
|
|
Consumer indirect
|
|
|
3,802 |
|
|
|
3,483 |
|
|
|
3,874 |
|
|
|
4,611 |
|
|
|
4,587 |
|
|
Total charge-offs
|
|
|
11,049 |
|
|
|
12,590 |
|
|
|
17,534 |
|
|
|
17,636 |
|
|
|
18,859 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
309 |
|
|
|
35 |
|
|
|
30 |
|
|
|
6 |
|
|
|
204 |
|
|
Commercial secured by real estate
|
|
|
163 |
|
|
|
303 |
|
|
|
140 |
|
|
|
163 |
|
|
|
415 |
|
|
Commercial other
|
|
|
557 |
|
|
|
764 |
|
|
|
441 |
|
|
|
688 |
|
|
|
350 |
|
|
Real estate construction
|
|
|
4 |
|
|
|
28 |
|
|
|
26 |
|
|
|
19 |
|
|
|
7 |
|
|
Real estate mortgage
|
|
|
56 |
|
|
|
151 |
|
|
|
82 |
|
|
|
99 |
|
|
|
132 |
|
|
Home equity
|
|
|
11 |
|
|
|
11 |
|
|
|
16 |
|
|
|
23 |
|
|
|
18 |
|
|
Consumer direct
|
|
|
495 |
|
|
|
538 |
|
|
|
452 |
|
|
|
635 |
|
|
|
792 |
|
|
Consumer indirect
|
|
|
1,649 |
|
|
|
1,384 |
|
|
|
1,451 |
|
|
|
1,681 |
|
|
|
1,295 |
|
|
Total recoveries
|
|
|
3,244 |
|
|
|
3,214 |
|
|
|
2,638 |
|
|
|
3,314 |
|
|
|
3,213 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial construction
|
|
|
826 |
|
|
|
999 |
|
|
|
2,480 |
|
|
|
1,689 |
|
|
|
3,231 |
|
|
Commercial secured by real estate
|
|
|
1,444 |
|
|
|
1,732 |
|
|
|
3,878 |
|
|
|
3,663 |
|
|
|
2,777 |
|
|
Commercial other
|
|
|
1,708 |
|
|
|
2,469 |
|
|
|
3,651 |
|
|
|
4,496 |
|
|
|
3,992 |
|
|
Real estate construction
|
|
|
85 |
|
|
|
161 |
|
|
|
293 |
|
|
|
3 |
|
|
|
323 |
|
|
Real estate mortgage
|
|
|
688 |
|
|
|
972 |
|
|
|
1,507 |
|
|
|
585 |
|
|
|
726 |
|
|
Home equity
|
|
|
230 |
|
|
|
237 |
|
|
|
155 |
|
|
|
335 |
|
|
|
205 |
|
|
Consumer direct
|
|
|
671 |
|
|
|
707 |
|
|
|
509 |
|
|
|
621 |
|
|
|
1,100 |
|
|
Consumer indirect
|
|
|
2,153 |
|
|
|
2,099 |
|
|
|
2,423 |
|
|
|
2,930 |
|
|
|
3,292 |
|
|
Total net charge-offs
|
|
|
7,805 |
|
|
|
9,376 |
|
|
|
14,896 |
|
|
|
14,322 |
|
|
|
15,646 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions charged against operations
|
|
|
8,568 |
|
|
|
9,450 |
|
|
|
13,262 |
|
|