Annual Report 2013
C o r p o r a t e
p r o f i l e
Community Trust Financial Corporation (the “Company”) is a financial
holding company that provides products and services through online
and retail delivery channels with locations in Louisiana, Mississippi and
Texas. The Company supports the financial needs of individuals, small
businesses, commercial entities and governmental agencies through
its wholly-owned subsidiaries — Community Trust Bank and Davison
Insurance Agency, Inc.
Community Trust Bank (the “Bank”) is more than 100 years old and
a Louisiana chartered bank that provides a wide range of traditional
banking services, including mortgage servicing activities. Since its
founding in 1912, the Bank has been committed to serving and helping
its communities grow and prosper. With a philosophy of making every
customer feel like the only customer every time, the Bank provides a
unique brand of personalized relationship banking to a growing list of
customers and communities.
Davison Insurance Agency, Inc.’s wholly-owned subsidiary, Thomas & Farr
Insurance Agency, provides property and casualty insurance coverage to
individuals and businesses. Thomas & Farr is a Louisiana corporation with
its principal place of business located in Monroe, Louisiana.
Community Trust Financial Corporation will continue to seek growth
opportunities and will do so from a position of strength. The Company
remains committed to providing value to its shareholders, customers,
communities and employees.
TABLE OF CONTENTS
2
Letter to Shareholders
4
Our Culture
5
Financial Highlights
6
Achievements
8
12
Annual Report
2013
Market
Updates
Boards of Directors & Executive Officers
l e t t e r
to s h a r e
h o l d e r s
In 2013 the banking industry faced many challenges including increased regulation,
customer deleveraging, margin compression, and competitive rate pressure to name
a few. Community Trust Financial Corporation was not immune to these challenges.
Despite the hurdles, however, your company put itself in a position of success by
investing in our future and strengthening our foundation.
The heart of your company has always been relationships. This philosophy has served us well for over a century and will
continue to do so into the future. This past year we expanded our Texas footprint to Houston by adding a team of bankers led
by a successful, seasoned Houstonian, Preston Moore. Preston and his team moved fast, opening their first office in May and
adding a second in October, growing their market to $102.7 million in deposits and $79.0 million in loans. With relationships
at the heart of our Houston team, we are poised for continued success in one of the fastest growing markets in the country.
We found more fortune in Houston by adding a successful financial services expert to our Board - Jim D’Agostino, the past
Chairman and CEO of Encore Bank. Another highly experienced addition to our board was Shreveport, Louisiana resident
Farrell Malone. Mr. Malone brings a wealth of financial accounting and auditing expertise gained from a 38 year career
with KPMG, which included partner status and board tenure. Both of these new board members will compliment a highly
effective and visionary group of directors dedicated to making Community Trust Financial Corporation a success.
Your company continued to invest in future growth. We added a team of bankers headquartered in Dallas, Texas who
are singularly focused on the energy sector. This highly experienced team, which has built a reputation of providing
superior service to their clients, is led by seasoned industry veteran, Christina Kitchens. The Energy Finance Group
added $72.7 million in net loans during the last four months of 2013. We increased our investment in our residential
mortgage operation, adding James Hinton, a career mortgage industry leader in North Texas. Community Trust Bank
expanded its Treasury Management effort, adding Paula Morris to lead the team that covers our three-state market.
Paula comes with an impeccable reputation as a Houston banker with over 30 years of knowledge and experience in
providing the best of class products to satisfy customers’ private and commercial needs. Community Trust made a longterm investment with the addition of our new Dallas headquarters in Turtle Creek, and opened new locations in Allen,
Texas and Flowood, Mississippi, expanding our reach to customers and communities.
2
2013 letter to shareholders
As of December 31, 2013, Community Trust Financial Corporation had consolidated assets of $3.22 billion - an increase of 3.99% from
2012 year end. Total loans grew 1.73% to $2.4 billion with total deposits growing 4.61% to $2.7 billion during 2013. Net income was
$22.3 million, down 10.33% from the prior year. Margin compression, in the form of rates on new and outstanding loans, continued
to decline, resulting in lower than expected revenue. Total overhead expense increased by $18.7 million, or 26.86%, as we invested
in future revenues in Houston, Dallas, Jackson mortgage operations and the Thomas and Farr Insurance Agency acquisition. The
Agency acquisition represented $5.0 million, or 26.94%, of our consolidated overhead increase in 2013. I am confident that each
decision we made to expand in 2013 will enhance the company’s opportunity to increase total revenue and strengthen earnings
per share. We are positioned to improve our net interest margin as rates move upward, enhancing revenue growth.
While the banking industry continued to face counterproductive influences, Community Trust Financial Corporation had many
high points in 2013. Management stayed focused on high quality asset acquisition without increasing risk for the sake of growth.
With margin compression reducing total revenue, we were fortunate that several initiatives added growth in non-interest income
by 55.75% to $32.2 million during 2013. In an effort to offset margin compression, we were able to reduce cost of total deposits
by 21 basis points to 0.46%. Each of our markets increased market share, validating our employees’ dedication to expanding our
brand in the three-state area.
Our management team and board of directors are focused and committed to capitalizing on opportunities in our markets that
will provide return to our shareholders for years to come. We expect the investments we made in 2013 will have a positive
impact on net earnings during the upcoming year, but will require management to be disciplined in controlling expenses as
our new markets mature. As the banking industry evolves in meeting customers’ expectations, allowing them to bank when,
where, and how they want, we will require significant investment in technology as well as electronic banking platforms. I feel
that Community Trust Bank has advanced electronic products and services, but will be forced to make additional investments.
We will reward our teams for expense control with incentives, continue to expand our social media and digital marketing
platforms to reduce marketing costs and remain vigilant in capitalizing on opportunities for return.
We know that our competitive advantage is our people and the Community Trust culture. Our employees believe in the core
values of Community Trust and our core purpose of enriching the lives of people in our communities. It was a banner year
for the Community Trust culture. The American Banker Magazine, a national publication, recognized your company as one
of the top three Best Banks to Work For in the three to ten billion dollar category. Community Trust was also recognized as
one of the best places to work in the Dallas/Fort Worth Metroplex, Best Bank of the Delta in north Louisiana and macrobusiness of the year in Rankin County, Mississippi. These awards and recognition are a direct reflection of our people.
For over a century, we have remained committed to our mission of placing the highest importance on our employees, customers,
shareholders, and communities. Our foundation is strong and we have laid the groundwork for future success. The banking
industry will continue to face challenges, but Community Trust Financial Corporation is ready to meet them. Thanks to our board
of directors, shareholders, and employees our future looks bright. We are confident in our people, committed to our strategic
plan, and focused on building upon our foundation.
DRAKE MILLS
Chairman of the Board,
President & Chief Executive Officer
Community Trust Financial Corporation
community trust financial corporation | annual report 2013
3
2013 our culture
CORE VALUES
• Trust is our foundation — earn it every day
• Never compromise our integrity
• Corporate and individual commitment to our communities
• Respect for self and others
• Encourage and recognize strong work ethic and individual initiative
• Innovative, flexible and forward thinking
CORE PURPOSE
To enrich the lives of people in our community.
BRAND PROMISE
Every customer feels like the only customer every time.
VISION STATEMENT
To become the community bank that meets every financial need
of every customer, a place every employee wants to retire from,
a partner our communities depend on and an investment that
makes our shareholders proud.
o u r
c u l t u r e
4
2013 financial highlights
f i n a n c i a l
h i g h l i g h t s
As of or for the year ended December 31,
2013
2012
$ 94,012
$ 89,153
7,655
6,409
Noninterest income
32,216
20,684
Noninterest expense
88,158
69,490
Net income
22,337
24,910
Net income available to common shareholders
21,749
23,929
$ 2.54
$ 3.57
0.26
0.26
33.40
32.27
Return on average assets
0.72%
0.92%
Return on average equity
6.48%
10.13%
Tier 1 capital ratio**
11.08%
11.56%
Total capital ratio**
12.21%
12.69%
Total assets
$ 3,224,259
$ 3,100,643
Gross loans
2,429,862
2,388,513
Deposits
2,716,132
2,596,502
Total stockholders’ equity
350,284
339,458
(dollar amounts in thousands except per share data)
Net interest income before provision for loan losses
Provision for loan losses
Per common share:
Net income*
Cash dividends declared
Book value
Community Trust Financial Corporation’s capital stock is held
by a diverse shareholder base that acquired shares through
periodic offerings from the Company or through independent
transactions with other shareholders. Community Trust
Financial Corporation is not listed on any national or regional
stock exchange. The Company serves as its own transfer agent
for all sales, transfers, or other exchanges of Company stock.
* Calculated based on weighted average common shares
outstanding of 8,561,958; 6,710,024 shares for 2013 and
2012, respectively, based on net income available to
common shareholders.
** Calculated using standards and criteria established by
federal regulations for financial institutions, as applicable.
Information regarding products and services offered by the
Company and its subsidiaries can be found on the Company’s
website, ctbonline.com.
community trust financial corporation | annual report 2013
5
a c h i e v e
m e n t s
2013 HIGHLIGHTS
While 2013 was a challenging year for the banking
industry, we never wavered in our fundamental
approach to banking built around its customers and
its communities—a philosophy that has guided and
shaped us for over 100 years. Despite the hurdles we
faced, we continued to focus on reinvestment in the
customers and communities we serve. This year more
than ever, we continued to faithfully emphasize the
measurable results of good business done well.
ABOVE Ruston Financial Center
APPOINTMENTS TO THE BOARD
Leadership is an integral component of our continued success, and in 2013
we looked to the future with these key appointments to the Company board:
James S. D’Agostino, Jr., who previously founded
Farrell J. Malone retired from KPMG LLP in 2012 after
Encore Bancshares in 2000 and served as Chairman
a 38-year career with the firm and has a wealth of
of the Board of Encore Bank, is currently Managing
experience in accounting and auditing, valuations,
Director of Encore Interests, LLC and Chairman of
mergers and acquisitions and public company
the Board of Houston Trust Company, a privately
fillings. As the Global Lead Audit Partner for KPMG,
owned independent trust company with $3.7 billion
Malone worked with numerous multinational clients
under management.
and led the audit of the bankruptcy reorganization
and reinstatement of the consolidated financial
Oliver Goldstein is a managing director on the
statements of MCI, Inc. (formerly WorldCom, Inc.).
financial services investment team and a member
of the Investment Committee at Pine Brook®.
John T. Pietrzak is a managing principal at Castle
Goldstein has 19 years of private equity and financial
Creek®. Prior to joining Castle Creek®, Pietrzak
advisory experience, including 17 years in the private
worked at Levi Strauss & Co., Diamond Strategy and
equity industry. Goldstein previously worked at
Technology Consultants, and Sara Lee Corporation.
Eton Park Capital Management, Warburg Pincus,
Pietrzak is a current board member of Square 1
Fenway Partners and Goldman, Sachs & Co. Goldstein
Financial, its wholly-owned subsidiary Square 1 Bank,
represents Pine Brook® as a director of Amedeo
and Intermountain Community Bancorp and its
Capital Limited and GR Energy Services Holdings, LLC.
wholly-owned subsidiary Panhandle State Bank, and
a former board member of West Coast Bancorp and
its wholly-owned subsidiary West Coast Bank.
6
2013 achievements
ABOVE Drake Mills, Ernst and Young Entrepreneur of the Year
ACHIEVEMENTS
• Named one of the top three Best Banks to Work
For by American Banker Magazine in the three
to ten billion dollar asset category.
• Drake Mills was named Ernst & Young 2013 Entrepreneur
Of The Year for the Gulf Coast area in addition to his
lauded appointment as Federal Reserve Board Vice
President of Community Depository Institutions Advisory
Council. Mills was also named the 2013-2014 chairman
of the Louisiana Bankers Association (LBA).
• Project ENRICH was launched to provide full-time
employees with up to 20 hours of paid time each
year during work hours to volunteer with preapproved non-political, non-religious, non-profit
organizations within the communities we serve.
• A 5,000-square-foot training center was opened in
Ruston, Louisiana. Equipped with state-of-the-art
technology, the center offers face-to-face, handson training as well as broadcast remote training
sessions, reducing the need for employee travel.
community trust financial corporation | annual report 2013
7
m a r k e t
u p d a t e s
GROWTH IN TEXAS
RIGHT Allen Banking
Center Grand Opening
and Ribbon Cutting
The year 2013 marked significant expansion in
our Texas footprint as we entered the Houston
market and expanded in Dallas/Fort Worth by
opening a location in Allen. We also broadened
our product and service platform by adding an
Energy Finance Group. We remain committed
to being large enough to provide competitive
services needed by a vibrant community, yet
small enough to focus on building relationships
with our customers.
8
2013 market updates – tx
DALLAS / FORT WORTH
We celebrate innovation in customer-focused banking at the newly opened
Allen Banking Center where the lobby features state-of-the-art dialogue
towers, a truly unique retail platform that replaces teller windows with a sideby-side conversation experience between personal bankers and customers.
We opened the Dallas Financial Center in Turtle Creek, which will serve
as our Dallas headquarters. Located one-half mile from Downtown Dallas,
Highland Park and Uptown, this expansion cements the bank’s commitment
to this area and marks our 8th location in the Dallas-Fort Worth Metroplex.
HOUSTON
Houston is long known for its strong local economy, rich diversity and
thriving business atmosphere. West University Place is home to our first
permanent location. Our second banking center opened in February
2014 and is located in the Memorial City area, where the new Murphy
Oil Building houses our Houston headquarters. Another facility is
ABOVE West University Banking Center
Team, Houston, TX
forthcoming in The Woodlands and slated to open in April 2014.
ENERGY FINANCE GROUP
The Energy Finance Group will principally focus on relationship banking
for firms seeking credit secured by oil and gas assets. The group’s
funding focuses will largely apply to acquisition, drilling, and working
capital ventures for oil and gas business entities.
2013 HIGHLIGHTS IN TEXAS
• Dallas Morning News ranked Community Trust Bank in their list of
Top 100 Best Places to Work for the second consecutive year.
• Community Trust Bank was named a Macro Business of the Year
Finalist, Frisco Chamber of Commerce.
• Six scholarships were funded by Community Trust Bank and awarded
through the Happy Davis Foundation, which was formed in 2008 by
Ray C. Davis, the son of Happy Davis and co-chairman of the Texas
Rangers baseball club.
• This was our fourth year presenting the Community Hero of the Week awards
at Texas Christian University (TCU) home football games. We continued the
awards for a second year at Southern Methodist University (SMU).
• Ongoing sponsorships benefited the North Texas Food Bank, Crystal
Charity Ball, Fort Worth Business Press Top 100 Businesses, Frisco
Family Services, Dallas Junior League, Scottish Rites Hospital, Fort
Worth Stock Show and Rodeo, Cystic Fibrosis Foundation, Children’s
ABOVE Fort Worth President, Grant
James, presents the Hero of the Week
award at a TCU football game.
Medical Center and the United Way of Metropolitan Dallas.
community trust financial corporation | annual report 2013
9
ENRICHMENT IN
LOUISIANA
RIGHT Louisiana President,
Lance Hall, accepts the game
ball during a Louisiana Tech
basketball game.
One enriching endeavor after another—that’s how
we defined success in 2013. Not just another year
older, another year stronger. We continued to seek
new opportunities while remaining committed to
a foundation based in community, practicing good
business principles, reinvesting in the community
and empowering dedicated employees.
2013 HIGHLIGHTS IN LOUISIANA
• Customer satisfaction was affirmed by our seventh consecutive annual Best Bank of the Delta award, voted on
by members of the northeast and north central Louisiana community and awarded by Delta Style Magazine.
• We were recognized by the United Way of Northeast Louisiana with the Campaign Leaders Award
and the Circle of Honor Award for contributions and employee support.
• As of June 30, 2013, Community Trust Bank had deposits of $1.4 billion, making the bank the 4th
largest bank headquartered in Louisiana.*
• Shreveport’s Market Street location opened its Community Room, an engaging and inviting space
designated specifically for use by non-profits to host a variety of events in support of community
involvement and development.
• Community Trust Bank, the Downtown RiverMarket and the Downtown Monroe Alliance joined forces in
support of the Food Bank of Northeast Louisiana, raising more than $40,000 in the fight against hunger.
• We continued to invest time and financial support in a variety of organizations, including Louisiana Tech
University, where we remain the Official Bank of Louisiana Tech Athletics. We proudly supported the
Krewe of Centaur and Krewe of Highland Mardi Gras parades in Shreveport/Bossier City, and continued
our investment in numerous local schools, children’s organizations and the arts.
10
2013 market updates – la/ms
MOMENTUM IN
MISSISSIPPI
RIGHT Flowood Banking
Center Team at their
Grand Opening
We continue to make promising strides in Mississippi,
strides that are emblematic of our celebrated core
purpose. More than just an increase in market
share, we continue to invest in our community
and the local businesses we serve.
2013 HIGHLIGHTS IN MISSISSIPPI
• We expanded our footprint in Mississippi with the opening of the
Flowood Banking Center in February 2013.
• Our efforts in Mississippi were validated when we were named Rankin
County Large Business of the Year.
• As of June 30, 2013, Community Trust Bank ranked 7th in deposits
among all Jackson, Mississippi banks.*
• This was our second year presenting the Community Hero of the
Week awards during Ole Miss home football games.
• We were title sponsor for Madison The City Chamber’s “Night Out”,
sponsor for St. Dominic’s Health Services Magnolia Meltdown 5K, The
Club at the Township, the Mississippi Food Network, 10K Runs benefiting
St. Dominic’s Community Health Clinic and the Taste of Oxford benefiting
St. Jude Children’s Research Hospital. Employees volunteered their time
and talents to Habitat for Humanity and Stewpot Community Services.
*Source: FDIC.gov, Deposit Market Share Report as of June 30, 2013
community trust financial corporation | annual report 2013
11
2013 boards of directors & executive officers
COMMUNITY TRUST
FINANCIAL CORPORATION
Michael W. Haddox
Retired Businessman
SENIOR
EXECUTIVE OFFICERS
Drake Mills
Chairman, President, &
Chief Executive Officer
Robert Q. Humble
Century Ready-Mix Corporation
President
Drake Mills
Chairman, President, &
Chief Executive Officer
John F. Emory
Chairman Emeritus
Gary E. Luffey
Green Clinic
Ophthalmologist
Wayne Aswell
Chief Operating Officer
John M. Buske
Retired Businessman
James S. D’Agostino, Jr.
Encore Interests LLC
Managing Director
James E. Davison, Jr.
Investments
Hez Elkins
Agriculture
Oliver Goldstein
Pine Brook®
Managing Director
Ronald Graham
Lincoln Builders, Inc.
Chief Executive Officer
Michael A. Jones
Certified Public Accountant
Jack P. Love
Business Consultant
Farrell J. Malone
KPMG LLP Partner (Retired)
Ronnie Myrick
Community Trust Bank
Chairman
John T. Pietrzak
Castle Creek®
Managing Principal
Richard H. Shirley, Jr.
Flare Resources, Inc.
Chairman
George Snellings
Nelson Zentner Sartor
& Snellings, LLC
Attorney
David L. Winkler
Winkler Land Company, LLC
COMMUNITY TRUST BANK
Ronnie Myrick
Chairman
Emmerson Daily
Daily Equipment Company
Founder
Greg Gammill
Lincoln Builders of Texas, Inc.
President
12
John H. Meldrum, Jr.
BNB Systems
President
Drake Mills
President & Chief Executive Officer
Elizabeth E. Solender
Solender/Hall, Inc.
President
Steve Taylor
Auto Dealer
Charles T. Waters
Energy Transfer
Jack W. Young
Lancer G.P., LLC
President
Cary Davis
Chief Risk Officer
James K. Kendrick, Sr.
Chief Financial Officer
Ronnie Myrick
Chief Administration Officer
EXECUTIVE OFFICERS
Lance Hall
State President
Grant James
Regional President
Larry Little
Regional President
Preston Moore
Regional President
DAVISON INSURANCE
AGENCY, INC.
Paige Oliver
Executive Vice President
Drake Mills
Chairman
Van Pardue
State President
Randy Graham
President
Larry Ratzlaff
State President
Michael A. Jones
Certified Public Accountant
Lonnie Scarborough
Chief Retail Officer
James K. Kendrick, Sr.
Chief Financial Officer
Linda Tuten
Chief People Officer
Joe Newton
Principal
Steven Upchurch
Executive Vice President
COMMUNITY TRUST
SERVICES CORPORATION
John M. Buske
Chairman
Wayne Aswell
President & Chief Executive Officer
Cary Davis
Chief Risk Officer
Michael A. Jones
Certified Public Accountant
James K. Kendrick, Sr.
Chief Financial Officer
Drake Mills
President & Chief Executive Officer
Community Trust Financial Corporation
COMMUNITY TRUST
FINANCIAL CORPORATION
500 South Service Road East
Ruston, LA 71270
Paige Oliver
Investor Relations
(318) 807-4537
Jeannine Coker
Shareholder Services
Transfer Agent
(318) 232-7492
WF Shareowner Services
P.O. Box 64854
St. Paul, MN 55164
(800) 468-9716
www.shareowneronline.com
In our 101 years of serving
businesses and families,
Community Trust continues
to have a positive impact
on communities we serve.
1511 N. Trenton St. Ruston, LA 71270
ctbonline.com Member FDIC
COMMUNITY TRUST FINANCIAL CORPORATION
RUSTON, LOUISIANA
2013 Annual Report
COMMUNITY TRUST FINANCIAL CORPORATION
RUSTON, LOUISIANA
TABLE OF CONTENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Management
2-3
Reports of Independent Certified Public Accountants
4-7
Consolidated Balance Sheets
8-9
Consolidated Statements of Income
10
Consolidated Statements of Comprehensive Income
11
Consolidated Statements of Changes in Stockholders' Equity
12
Consolidated Statements of Cash Flows
13-14
Notes to Consolidated Financial Statements
15-63
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management Report
In this management report, the following subsidiary institution of the Community Trust Financial
Corporation (the “Company”) that are subject to Part 363 are included in the statement of management’s
responsibilities; the report on management’s assessment of compliance with the Federal laws and
regulations pertaining to insider loans and the Federal and, if applicable, State laws and regulations
pertaining to dividend restrictions; and the report on management’s assessment of internal control over
financial reporting: Community Trust Bank.
Statement of Management's Responsibilities
The management of Community Trust Financial Corporation (the “Company”) is responsible for
preparing the Company's annual financial statements in accordance with accounting principles generally
accepted in the United States of America; for establishing and maintaining an adequate internal control
structure and procedures for financial reporting, including controls over the preparation of regulatory
financial statements in accordance with the instructions for the Consolidated Financial Statements for
Bank Holding Companies, Form Y-9C; and for complying with the Federal laws and regulations
pertaining to insider loans and the Federal and, if applicable, State laws and regulations pertaining to
dividend restrictions.
Management's Assessment of Compliance With Designated Laws and Regulations
The management of the Company has assessed the Company's compliance with the Federal laws and
regulations pertaining to insider loans and the Federal and, if applicable, State laws and regulations
pertaining to dividend restrictions during the fiscal year that ended on December 31, 2013.
Based upon its assessment, management has determined that, because of the instances of noncompliance
noted below, the Company did not comply with the Federal laws and regulations pertaining to insider
loans during the fiscal year that ended on December 31, 2013. Also, based on its assessment, management
has concluded that the Company complied with the Federal and, if applicable, State laws and regulations
pertaining to dividend restrictions during the fiscal year that ended on December 31, 2013.
The Company had two instances of noncompliance with the Federal laws and regulations pertaining to
insider loans during the fiscal year that ended on December 31, 2013. One instance of noncompliance
related to the prior approval of insider loans, whereby the Company extended a loan in the amount of
$575,250 to an entity and guaranteed by a director of the Company prior to being approved by a majority
of the directorate of the Company. The second instance of noncompliance related to reporting of
executive officer debt, whereby the Company’s board of directors was not notified of a loan in the amount
of $3,005 which was made to an entity and guaranteed by an executive officer of the Company.
Management's Assessment of Internal Control Over Financial Reporting
The Company's internal control over financial reporting is a process effected by those charged with
governance, management, and other personnel, designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of reliable financial statements in accordance with
accounting principles generally accepted in the United States of America and financial statements for
regulatory reporting purposes, i.e., Consolidated Financial Statements for Bank Holding Companies,
Form Y-9C. The Company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance
2
that the transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America and financial statements for
regulatory reporting purposes, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or
disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and
correct misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting,
including controls over the preparation of regulatory financial statements in accordance with the
instructions for the Consolidated Financial Statements for Bank Holding Companies, Form Y-9C, as of
December 31, 2013, based on the framework set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control–Integrated Framework. Based upon its
assessment, management has concluded that, as of December 31, 2013, the Company's internal control
over financial reporting, including controls over the preparation of regulatory financial statements in
accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies,
Form Y-9C, is effective based on the criteria established in Internal Control–Integrated Framework
issued by COSO.
Management's assessment of the effectiveness of internal control over financial reporting, including
controls over the preparation of regulatory financial statements in accordance with the instructions for the
Consolidated Financial Statements for Bank Holding Companies, Form Y-9C, as of December 31, 2013,
has been audited by Grant Thornton, LLP, an independent public accounting firm, as stated in their report
dated March 18, 2014.
Community Trust Financial Corporation
By
Drake D. Mills, Chief Executive Officer
By
James K. Kendrick, Sr., Chief Financial Officer
3
4
5
6
7
COMMUNITY TRUST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2013 AND 2012
ASSETS
(in thousands)
Cash and cash equivalents:
Cash and due from banks
Interest-bearing deposits in banks
Federal funds sold
Interest-bearing time deposits in banks
Investment securities:
Securities available for sale
Securities held to maturity
Federal Home Loan Bank stock
Federal Reserve Bank stock
Investment in affiliates
Mortgage loans held for sale
Loans
Allowance for loan losses
Loans, net
Accrued interest and loan fees receivable
Premises and equipment, net
Cash surrender value of life insurance
Goodwill
Other intangible assets, net
Mortgage servicing rights
Deferred tax asset, net
Other real estate owned
Other assets
Total assets
2013
$
47,251
132,899
42,600
222,750
2012
$
65,425
129,201
4,250
198,876
100
100
369,340
5,433
374,773
341,071
211
341,282
4,766
7,974
2,946
7,767
6,289
2,870
24,190
16,297
2,429,862
31,283
2,398,579
2,388,513
28,467
2,360,046
8,669
82,587
20,938
20,676
5,183
11,088
12,474
2,522
24,044
8,878
73,990
20,654
20,610
6,686
4,788
6,477
5,618
19,415
$ 3,224,259
$ 3,100,643
The accompanying notes are an integral part of these consolidated financial statements.
8
COMMUNITY TRUST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2013 AND 2012
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands except share data)
Liabilities:
Deposits:
Noninterest-bearing demand deposits
Savings and other interest-bearing
Time deposits
Total deposits
Short-term borrowings
Long-term borrowings
Subordinated debentures
Accrued expenses and other liabilities
Total liabilities
Stockholders' equity:
Preferred stock, no par value; 1,000,000 shares authorized:
Series UST-SBLF, $1,000 stated value; 48,260 shares
issued and outstanding at December 31, 2013 and 2012
Preferred stock, no par value; 410,000 shares authorized: Series D
nonvoting convertible preferred stock; 405,406 shares
issued and outstanding at December 31, 2013 and 2012
Common stock, $5 par value; 50,000,000 shares authorized:
8,620,264 shares issued and 8,608,269 shares outstanding at
December 31, 2013
8,559,807 shares issued and 8,559,438 shares outstanding at
December 31, 2012
Additional paid-in capital
Retained earnings
Treasury stock; 11,995 and 369 shares at December 31, 2013
and 2012, respectively
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
2013
$
559,292
1,396,007
760,833
2,716,132
2012
$
482,073
1,302,616
811,813
2,596,502
28,621
81,978
9,688
37,556
2,873,975
34,621
86,740
9,638
33,684
2,761,185
48,260
48,260
15,000
15,000
43,101
153,318
90,726
42,799
151,639
71,203
(480)
359
350,284
(13)
10,570
339,458
$ 3,224,259
$ 3,100,643
The accompanying notes are an integral part of these consolidated financial statements.
9
COMMUNITY TRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
2013
2012
(in thousands, except per share data)
Interest and dividend income:
Interest and fees on loans
Federal funds sold
Investment securities-Taxable
Investment securities-Nontaxable
Other
Total interest income
$
101,717
88
4,641
4,645
1,101
112,192
$
100,724
4
4,508
4,406
403
110,045
Interest expense:
Interest-bearing deposits
Short-term borrowings
Long-term borrowings
Subordinated debentures
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
14,530
210
2,811
629
18,180
94,012
7,655
86,357
16,481
773
2,950
688
20,892
89,153
6,409
82,744
Noninterest income:
Service charges and fees
Net gains on sales of securities available for sale
Net gains on sales of mortgage loans
Mortgage servicing fees
Insurance commission and fee income
Other
Total noninterest income
9,976
532
6,081
2,661
6,277
6,689
32,216
9,629
52
5,588
1,948
3,467
20,684
Noninterest expenses:
Salaries and employee benefits
Net occupancy
Technology costs
FDIC insurance assessments
Amortization of intangibles
Other
Total noninterest expenses
42,929
12,439
6,760
2,004
1,502
22,524
88,158
29,011
9,149
5,410
1,696
1,493
22,731
69,490
Income before income taxes
30,415
33,938
8,078
9,028
22,337
24,910
588
981
Income tax expense
Net income
Preferred stock dividends
Net income available to common stockholders
$
21,749
$
23,929
Basic earnings per common share
Diluted earnings per common share
$
$
2.54
2.41
$
$
3.57
3.52
The accompanying notes are an integral part of the consolidated financial statements.
10
COMMUNITY TRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
2013
(in thousands)
Net income
$
22,337
Other comprehensive income (loss)
Change in fair value of cash flow hedge derivative, net of
taxes of $83 and $40, for 2013 and 2012, respectively
$
24,910
154
Unrealized (depreciation) appreciation on available for sale
securities, net of taxes of $(5,422) and $2,129, for 2013
and 2012, respectively
96
(10,069)
Reclassification adjustment for realized gains included in net
income, net of taxes of $(193) and $(10), for 2013 and
2012, respectively
Unrealized appreciation on available for sale securities
for which a portion of an other-than-temporary
impairment has been recognized in net income, net of
taxes of $34 and $13, for 2013 and 2012, respectively
Total other comprehensive (loss) income
Comprehensive income
2012
3,580
(358)
(18)
62
23
(10,211)
$
12,126
3,681
$
28,591
The accompanying notes are an integral part of the consolidated financial statements.
11
12
$
$
$
$
-
Issuance of 144,066 shares of treasury common stock
Stock compensation expense
Dividends declared - Preferred stock
Dividends declared - Common stock ($0.26 per share)
$ 15,000
-
-
-
-
-
-
-
-
-
43,101
-
-
111
-
-
191
-
-
-
42,799
-
-
7
-
-
$
153,318
-
-
104
1
-
1,574
-
-
-
151,639
-
-
743
-
-
(1)
59,268
$
90,726
(2,226)
(588)
-
-
-
-
-
-
22,337
71,203
(1,703)
(981)
-
-
-
-
-
$
(480)
-
-
10
6,280
(6,757)
-
-
-
-
(13)
-
-
-
2,378
(2,340)
-
-
$
The accompanying notes are an integral part of the consolidated financial statements.
$ 48,260
-
Balance at December 31, 2013
-
Repurchase of 155,922 shares of common stock
-
-
-
Common stock issued - 60,457 shares
Total comprehensive income
deferred taxes of $83
for cash flow hedges, net of
Change in fair value derivatives used
deferred taxes of $(5,581)
on securities available for sale, net of
Change in net unrealized gain
Net income
Comprehensive income:
$ 15,000
-
-
-
-
-
$
359
-
-
-
-
-
-
154
(10,365)
-
10,570
-
-
-
-
-
-
-
$
-
Dividends declared - Common stock ($0.26 per share)
$
-
Dividends declared - Preferred stock
$
-
Stock compensation expense
$ 48,260
-
Issuance of 63,139 shares of treasury common stock
Balance at December 31, 2012
-
(1)
10,011
350,284
(2,226)
(588)
225
6,281
(6,757)
1,765
12,126
154
(10,365)
22,337
339,458
(1,703)
(981)
750
2,378
(2,340)
(2)
69,279
15,000
Repurchase of 62,064 shares of common stock
-
-
-
-
-
-
-
-
-
-
Common stock retired - 45 shares
-
139
96
3,585
24,910
228,151
Common stock issued - 2,003,585 shares
-
196
96
3,585
-
6,889
335
15,000
-
-
-
-
(51)
T otal
Stockholders'
Equity
-
-
-
24,910
48,977
T reasury
Stock
-
-
-
-
91,490
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Preferred convertible stock issued - 405,406 shares
-
-
-
32,586
Additional
Paid-In
Capital
Stock options exercised - 39,154 shares
-
-
-
-
Common
Stock
28,591
-
-
-
48,260
Preferred
Stock
Series D
Total comprehensive income
deferred taxes of $40
for cash flow hedges, net of
Change in fair value derivatives used
deferred taxes of $2,132
on securities available for sale, net of
Change in net unrealized gain
Net income
Comprehensive income:
Balance at January 1, 2012
(in thousands except share data)
Preferred
Stock
Series UST SBLF
COMMUNITY TRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
[THIS PAGE INTENTIONALLY LEFT BLANK]
COMMUNITY TRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation
Deferred income taxes
Net amortization/accretion of investment premiums/discounts
Amortization of investments in tax credit funds
Net realized gain on investment securities
Amortization of intangible assets
Valuation adjustment on mortgage servicing rights at fair value
Valuation adjustment on derivative mortgage commitments
Valuation adjustment on loans held at fair value
Valuation adjustment on interest rate swap derivatives
Provision for loan losses
Cash surrender value of life insurance, excluding purchases
Write-down of other real estate owned
Gain on disposals of premises and equipment
Losses (gains) on sales of other real estate owned
Equity in earnings of affiliates
Amortization of subordinated debentures discount
Stock compensation
Changes in:
Mortgage servicing rights
Mortgage warehouse loans
Mortgage loans held for sale
Accrued interest and loan fees receivable
Other assets
Accrued expense and other liabilities
Net cash provided by (used in) operating activities
2013
$
22,337
2012
$
24,910
5,274
(494)
964
193
(532)
1,502
(1,197)
(1,117)
3,561
(3,972)
7,655
(284)
1,111
(682)
345
(76)
49
225
3,563
(1,824)
1,069
1,200
(52)
1,493
530
746
409
6,409
(301)
164
(9)
(147)
98
750
(5,102)
196,025
(7,894)
210
(3,710)
4,109
218,500
(1,494)
(141,791)
1,765
(378)
(1,318)
6,597
(97,611)
(205,458)
144,595
15,371
-
(180,445)
178,087
2,425
(882)
43
3,002
(1,685)
(16,507)
3,024
6,326
(250,455)
41
1,877
4,696
(6,289)
(18,854)
14
(222)
2,778
(348,451)
(66)
(301,810)
(10,346)
(375,571)
Cash flows from investing activities:
Purchases of securities available for sale
Maturities, paydowns, and calls of securities available for sale
Proceeds from sales of securities available for sale
Purchases of securities held to maturity
Maturities, redemptions, paydowns, and calls of securities
held to maturity
Net redemptions of investments in affiliates
Net redemptions of Federal Home Loan Bank stock
Net purchases of Federal Reserve Bank stock
Purchases of premises and equipment
Proceeds from sales of premises and equipment
Capitalized expenditures on other real estate owned
Cash received on sales of other real estate owned
Net increase in loans, excluding mortgage warehouse loans
Cash paid for business combinations, net of cash
and cash equivalents acquired
Net cash used in investing activities
The accompanying notes are an integral part of the consolidated financial statements.
13
COMMUNITY TRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(in thousands)
Cash flows from financing activities:
Net increase in demand and savings deposits
Net (decrease) increase in time deposits
Net decrease in other borrowed funds
Net increase (decrease) in securities sold under
agreements to repurchase
Dividends paid
Proceeds from issuance of common stock
Cash paid for retirement of common stock
Net proceeds from issuance of preferred stock
Net (purchase) issuance of treasury stock
Net cash provided by financing activities
2013
$ 170,610
(50,980)
(14,762)
$ 430,911
258,148
(184,166)
4,000
(2,814)
1,607
(477)
107,184
(2,783)
(2,684)
65,501
(2)
15,000
38
579,963
Net increase in cash and cash equivalents
23,874
106,781
198,876
92,095
$ 222,750
$ 198,876
$
$
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2012
Supplementary cash flow information:
Interest paid
Income taxes paid
Real estate acquired in settlement of loans
Loans made to facilitate sale of other real estate
Non-cash issuance of common stock in exchange for premises and equipment
Non-cash capital lease assets acquired through assumptions of debt
19,316
10,700
(4,234)
159
158
3,391
The accompanying notes are an integral part of the consolidated financial statements.
14
19,226
12,200
(2,901)
1,712
2,112
-
COMMUNITY TRUST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a.
Consolidation
The accounting and reporting policies of Community Trust Financial Corporation (the
“Company”) conform to accounting principles generally accepted in the United States of
America (“U.S. GAAP”) and general practices within the banking industry. The consolidated
financial statements include the accounts of Community Trust Financial Corporation (“CTFC”);
its wholly-owned subsidiaries, Community Trust Bank (“CTB” or the “Bank”), Community
Trust Services Corporation (“Services Corp”) and Davison Insurance; and Davison Insurance’s
wholly-owned subsidiary, Thomas & Farr Agency (“T&F”). All significant intercompany
accounts and transactions have been eliminated in consolidation.
b.
Nature of operations
Community Trust Financial Corporation provides a variety of banking services to individuals
and businesses through CTB’s offices in Louisiana, Texas and Mississippi. CTB is subject to
competition from other financial institutions, and is also subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those regulatory authorities.
Effective July 26, 2011, CTFC acquired Cimarron Mortgage Company (“CMC”), a mortgage
servicing company headquartered in Jackson, Mississippi. Upon acquisition the CMC investment
was transferred to CTB as a wholly-owned subsidiary of CTB. During 2013, CMC was merged
with and into CTB. CTB is engaged in the residential mortgage banking business in the United
States of America. CTB enters into forward delivery contracts to sell mortgage loans for the
purpose of reducing exposure to the effect of changes in interest rates on mortgage loans held for
sale or mortgage loans CTB has committed to fund.
Effective December 31, 2012, CTFC acquired a 100% equity interest in T&F, an insurance
agency with a principal office located in Monroe, Louisiana and branch offices in Bastrop and
Shreveport, Louisiana. T&F operates a property and casualty insurance business and represents
customers, companies and brokers throughout the United States of America.
In addition, on December 31, 2012, CTB distributed its investment in Davison Insurance to
CTFC through a non-cash dividend. Simultaneously, CTFC transferred its investment in T&F to
its wholly-owned subsidiary, Davison Insurance, as a capital contribution.
Services Corp was formed during 2008 primarily to provide operational support to the various
subsidiaries of CTFC. Such intercompany service fees are eliminated in consolidation.
c.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period. Actual results could
differ from those estimates.
15
Material estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses, fair value of financial instruments and
derivatives, fair value of mortgage servicing rights, contingencies, other-than-temporary
impairment of securities, valuation of deferred taxes, and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection with the determination of
the allowance for loan losses and other real estate owned, management obtains independent
appraisals for significant properties. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based on changes in local
economic conditions.
d.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all cash on hand, demand
deposits with other banks, federal funds sold and short term interest-bearing cash items with an
original maturity less than 90 days to be cash equivalents. The financial institutions holding the
Company’s cash accounts are members of, and insured by, the Federal Deposit Insurance
Corporation (“FDIC”). Pursuant to legislation enacted in 2010, the FDIC fully insures all
noninterest-bearing transaction accounts beginning December 31, 2010 through December 31,
2012, at all FDIC-insured institutions. Subsequent to December 31, 2012, all such accounts have
limited insurance up to $250,000 per customer per institution. The Company held $13.4 million
in interest-bearing accounts with other institutions at December 31, 2013 and 2012 that were not
insured by the federal government. The Company has not experienced any losses from these
cash accounts, and the expectation of future losses is remote.
e.
Investment securities
Securities are classified as either held to maturity, available for sale or trading. Management
determines the appropriate classification of securities at the time of purchase. If management has
the positive intent and ability to hold securities until maturity, those securities are classified as
held to maturity and carried at cost, adjusted for amortization of premiums and accretion of
discounts which are recognized in interest income using the effective interest method over the
period to maturity. Securities not classified as held to maturity or trading are classified as
securities available for sale and carried at fair value with the unrealized gains and losses reported
as a component of other comprehensive income, net of tax. Amortization of premiums and
accretion of discounts are recognized in interest income using the effective interest method over
the period to maturity unless called or sold, at which time all remaining premiums and discounts
are fully recognized. Gains and losses on the sale of securities available for sale are determined
using the specific-identification method. Securities held for resale in anticipation of short-term
market movements are classified as trading and carried at fair value, with changes in unrealized
holding gains and losses included in earnings. The Company had no securities classified as
trading at December 31, 2013 and 2012.
For debt securities with fair value below amortized cost when the Company does not intend to
sell a debt security, and it is more likely than not the Company will not have to sell the security
before recovery of its cost basis, it recognizes the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other comprehensive
income. For held to maturity debt securities, the amount of an other-than-temporary impairment
recorded in other comprehensive income for the noncredit portion of a previous other-thantemporary impairment is amortized prospectively over the remaining life of the security on the
basis of the timing of future estimated cash flows of the security.
The Company’s consolidated statement of income for all years presented, reflects the full
impairment (that is, the difference between the security’s amortized cost basis and fair value) on
16
debt securities that the Company intends to sell or would more likely than not sell before the
expected recovery of the amortized cost basis. For available for sale and held to maturity debt
securities that management has no intent to sell and believes that it more likely than not will not
be sold prior to recovery, only the credit loss component of the impairment is recognized in
earnings, while the noncredit loss is recognized in other comprehensive income. The credit loss
component recognized in earnings is identified as the amount of principal cash flows not
expected to be received over the remaining term of the security as projected based on cash flow
projections.
For equity securities, when the Company has decided to sell an impaired available for sale
security and does not expect the fair value of the security to fully recover before the expected
time of sale, the security is deemed other-than-temporarily impaired in the period in which the
decision to sell is made. The Company recognizes an impairment loss when the impairment is
deemed other-than-temporary even if a decision to sell has not been made.
f.
Restricted investment in bank stock
CTB is a member of the Federal Home Loan Bank of Dallas (“FHLB”). The FHLB requires
members to purchase and hold a specified level of FHLB stock based upon their level and
availability of borrowings and participation in other programs. Members do not purchase stock in
the FHLB for the same reasons that traditional equity investors acquire stock in an investorowned enterprise. Rather, members purchase stock to obtain access to the low-cost products and
services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the
stock of the FHLB does not provide its holders with an opportunity for capital appreciation
because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par
value. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB.
Both cash and stock dividends are reported as income in taxable investment securities in the
accompanying consolidated statements of income.
CTB is a member of the Federal Reserve System and under supervision of the Federal Reserve
Bank of Dallas (“FRB”). The Federal Reserve System requires members to purchase and hold a
specified level of FRB stock. FRB stock involves a paid-in consideration of three percent of the
member bank’s stock and surplus, plus dividends accrued since the last dividend date. Both cash
and stock dividends are reported as income in taxable investment securities in the accompanying
consolidated statements of income.
Both FHLB and FRB stock investments are carried at cost and evaluated for impairment on an
ongoing basis.
g.
Mortgage loans held for sale
Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an
aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the
decline in value occurs. Forward commitments to sell mortgage loans are acquired to reduce
market risk on mortgage loans in the process of origination and mortgage loans held for sale.
The forward commitments acquired by the Company for mortgage loans in process of
origination are mandatory forward commitments, and the Company is required to substitute
another loan or to buy back the commitment if the original loan does not fund. Typically, the
Company delivers the mortgage loans within a few days after the loans are funded. These
commitments are derivative instruments. See Note 16 Derivative Financial Instruments for
more information regarding these commitments.
17
Gains and losses resulting from sales of mortgage loans are recognized when the respective loans
are sold to investors. Gains and losses are determined by the difference between the selling price
(including the fair value of any items such as mortgage servicing rights) and the carrying amount
of the loans sold. Fees received from borrowers to guarantee the funding of mortgage loans held
for sale are recognized as income or expense when the loans are sold or when it becomes evident
that the commitment will not be used.
h.
Transfers of financial assets
Transfers of financial assets are accounted for as sales when control over the assets has been
surrendered. Control over transferred financial assets is deemed to be surrendered when the
assets have been isolated from the Company, the transferee obtains the right to pledge or
exchange the transferred financial assets, and the Company does not maintain effective control
over the transferred financial assets. Mortgage servicing rights are the only continuing
involvement the Company retains from their transfers of financial assets.
i.
Loans
Loans that management has the intent and ability to hold for the foreseeable future, or until
maturity or payoff, are reported at their outstanding unpaid principal balances adjusted for
charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.
Interest income is accrued on the unpaid principal balance. Loan origination fees, and certain
direct origination costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Late fees are recognized as income when earned,
assuming collectability is reasonably assured.
In addition to loans issued in the normal course of business, the Company considers overdrafts
on customer deposit accounts to be loans and reclassifies these overdrafts as loans in its
consolidated balance sheets. At December 31, 2013 and 2012, overdrafts of $1.3 million have
been reclassified to loans receivable.
The Company also issues loans to mortgage companies for individual mortgages that are closed
and awaiting sale to a secondary market investor through our mortgage warehouse lending
division. At December 31, 2013 and 2012, the mortgage warehouse lending division had
outstanding loan balances of $127.5 million and $323.5 million, respectively. Mortgage
warehouse lending fees are recognized at the time of the sale to the investor, and $1.3 million
and $1.9 million in fees were included in other noninterest income for the years ended December
31, 2013 and 2012, respectively.
Loans are placed on non-accrual status when management believes that the borrower’s financial
condition, after giving consideration to economic and business conditions and collection efforts,
is such that collection of interest is doubtful, or generally when loans are 90 days or more past
due. Past due status is based on contractual terms of the loan. Loans are charged against the
allowance for loan losses when management believes the loss is confirmed. Interest income on
non-accrual loans may be recognized to the extent cash payments are received, but payments
received are usually applied to principal. Non-accrual loans are generally returned to accrual
status when principal and interest payments are less than 90 days past due, the customer has
made required payments for at least six months, and the Company reasonably expects to collect
all principal and interest.
18
j.
Fair value option
As permitted by Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments,
the Company has elected to measure certain loans at fair value. Management has elected the fair
value option for these items to offset the corresponding change in fair value of the related interest
rate swap agreements. See Note 24 Loans Recorded at Fair Value for additional disclosures
regarding loans measured at fair value.
k.
Loans acquired in business combinations
The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which
requires the use of the acquisition method of accounting. All identifiable assets acquired,
including loans, are recorded at fair value. No allowance for loan losses related to the acquired
loans is recorded on the acquisition date as the fair value of the loans acquired incorporates
assumptions regarding credit risk. The fair value estimates associated with the loans include
estimates related to expected prepayments and the amount and timing of undiscounted expected
principal, interest and other cash flows. There were no loans acquired in business combinations
in 2013 or 2012.
l.
Allowance for loan losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses not associated with a related valuation
reserve are charged against the provision for loan losses when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance. The allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations that may affect the
borrower’s ability to repay, estimated value of any underlying collateral, and prevailing
economic conditions. This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to
loans that are classified as impaired. For those loans that are classified as impaired, an allowance
is established when the discounted cash flows (or collateral value or observable market price) of
the impaired loan is lower than the carrying value of that loan. The general component covers
nonclassified loans and is based on historical charge-off experience and the expected loss, given
default, derived from the Company’s internal risk rating process. Other adjustments may be
made to the allowance for pools of loans after an assessment of internal or external influences on
credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that
the Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Impaired loans include
nonperforming loans and loans modified in troubled debt restructurings where concessions have
been granted to borrowers experiencing financial difficulties. These concessions could include a
reduction in the interest rate on the loan, payment extensions, forgiveness of principal,
forbearance or other actions intended to maximize collection. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-bycase basis, taking into consideration all of the circumstances surrounding the loan and the
19
borrower, including the length of the delay, the reasons for the delay, the borrower’s prior
payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis by either the present value of expected future
cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or
the fair value of the collateral if the loan is collateral dependent.
The accrual of interest on impaired loans is discontinued when, in management’s opinion, the
borrower may be unable to meet payments as they become due. When accrual of interest is
discontinued, all unpaid accrued interest is reversed.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based
on the group’s historical loss experience adjusted for changes in trends, conditions and other
relevant factors that affect repayment of the loans.
Troubled debt restructurings (“TDRs”) are loans for which the contractual terms on the loan have
been modified and both of the following conditions exist: (i) the borrower is experiencing
financial difficulty and (ii) the restructuring constitutes a concession. The Company assesses all
loan modifications to determine whether they constitute a TDR. Restructurings resulting in an
insignificant delay in payment are not considered to be TDRs. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the
length and the reasons for the delay, the borrower’s prior payment record, and the amount of the
shortfall in relation to the principal and interest owed.
All TDRs are considered impaired loans. Impairment is measured on a loan by loan basis by
either the present value of expected future cash flows discounted at the loan’s effective interest
rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral
dependent.
m. Premises and equipment
Land is carried at cost. Buildings and improvements are stated at cost less accumulated
depreciation computed using the straight-line method over the estimated useful lives of the
assets, which range from thirty-five to forty years. Furniture, fixtures, and equipment are stated
at cost less accumulated depreciation computed using the straight-line method over the estimated
useful lives of the assets, which range from three to seven years. Leasehold improvements are
capitalized and depreciated using the straight-line method over the estimated useful lives of the
leasehold improvements or the expected terms of the leases, if shorter.
n.
Other real estate owned
Other real estate owned (“OREO”) represents properties acquired through foreclosure or
acceptance of a deed in lieu of foreclosure on loans on which the borrowers have defaulted as to
payment of principal and interest. These properties are initially recorded at fair value, less cost
to sell, at the date of foreclosure establishing a new cost basis. Fair value is determined based on
third party appraisals. Any subsequent capital improvements that increase value are added to the
balance of the properties. Any valuation adjustments required at the date of transfer from loans to
other real estate owned are charged to the allowance for loan losses. Any subsequent writedowns to reflect current fair value are charged to noninterest expense.
20
o.
Mortgage servicing rights
Mortgage servicing assets are recognized separately when rights are acquired through the sale of
financial assets. As required by ASC Topic 860-50, Servicing Assets and Liabilities, servicing
rights resulting from the sale of loans originated by the Company are initially measured at fair
value. Per ASC Topic 860-50, Servicing Assets and Liabilities, the Company can subsequently
measure each class of servicing asset using either the fair value or the amortization method. The
Company has elected to initially and subsequently measure the mortgage servicing rights for
consumer mortgage loans using the fair value method. Under the fair value method, the
servicing rights are carried in the balance sheet at fair value and the changes in fair value are
reported in earnings in the period in which the changes occur.
Fair value is based on market prices for comparable mortgage servicing contracts, when
available, or alternatively, is based on a valuation model that calculates the present value of
estimated future net servicing income. The valuation model incorporates assumptions that
market participants would use in estimating future net servicing income, such as the cost to
service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income,
prepayment speeds and default rates and losses. These variables change from quarter to quarter
as market conditions and projected interest rates change, and may have an adverse impact on the
value of the mortgage servicing right and may result in a reduction to noninterest income.
p.
Servicing revenue accounting
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
contractual percentage of the outstanding principal or a fixed amount per loan and are recorded
as income when earned.
q.
Intangible assets
Intangible assets are being amortized on the straight-line basis over periods ranging from 2 to 20
years. Such assets are periodically evaluated as to the recoverability of their carrying value for
potential impairment.
r.
Securities sold under agreements to repurchase
The Company enters into agreements under which it sells securities subject to an obligation to
repurchase the same or similar securities. Under these arrangements, the Company may transfer
legal control over the assets but still retain effective control through an agreement that both
entitles and obligates the Company to repurchase the assets. Securities sold under agreements to
repurchase generally mature on the banking day following that on which the investment was
initially purchased and are treated as collateralized financing transactions which are recorded at
the amounts at which the securities were sold plus accrued interest. Interest rates and maturity
dates of the securities involved vary and are not intended to be matched with funds from
customers.
s.
Treasury stock
Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is
determined using the first-in, first-out method.
21
t.
Income taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. The
income tax accounting guidance results in two components of income tax expense: current and
deferred. Current income tax expense reflects taxes to be paid or refunded for the current period
by applying the provisions of the enacted tax law to the taxable income or excess of deductions
over revenues. Deferred income tax assets and liabilities are determined using the liability (or
balance sheet) method. Under this method, the net deferred tax asset or liability is determined
based on the tax effects of the temporary differences between the book and tax basis of the
various balance sheet assets and liabilities and gives current recognition to changes in tax rates
and laws.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of
evidence available, it is more likely than not that some portion or all of a deferred tax asset will
not be realized.
Uncertain tax positions are recognized if it is more likely than not, based on the technical merits,
that the tax position will be realized or sustained upon examination. The term more likely than
not means a likelihood of more than 50 percent; the terms examined and upon examination also
include resolution of the related appeals or litigation processes, if any. A tax position that meets
the more-likely-than-not recognition threshold is initially and subsequently measured as the
largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon
settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the more-likely-than-not recognition
threshold considers the facts, circumstances and information available at the reporting date. The
Company has recorded no amounts for uncertain tax positions as of December 31, 2013 and
2012.
The Company recognizes interest and penalties on income taxes as a component of other
noninterest expense. There were no such amounts recorded in the accompanying consolidated
income statements.
CTFC files a consolidated federal income tax return with its subsidiaries. Income taxes and
benefits are generally allocated based on each subsidiary's contribution to the total federal tax
liability.
u.
Advertising costs
Advertising costs are expensed as incurred. Advertising costs were $1.2 million and $1.9 million
for the years ended December 31, 2013 and 2012, respectively, and are included in other
noninterest expense in the accompanying consolidated statements of income.
v.
Derivatives
The Company utilizes derivative transactions to mitigate significant interest rate risk related to
financing receivables and debt. The Company has elected hedge accounting treatment for its
derivative transaction associated with underlying debt on its books, whereby adjustments to fair
value are recorded as a component of other comprehensive income in the accompanying
consolidated balance sheets. All other derivative transactions are recorded in the consolidated
balance sheets, with offsetting adjustments being recorded in the consolidated income
statements, as the Company has not elected hedge accounting on any other derivative
transactions.
22
Derivative financial instruments are recorded at fair value in the accompanying consolidated
balance sheets. Fair value is based on dealer quotes, pricing models, discounted cash flow
methodologies or similar techniques for which the determination of fair value may require
significant management judgment or estimation. See Note 16 Derivative Financial Instruments
for more information.
w. Stock compensation
The cost of employee services received in exchange for stock options or restricted stock grants is
measured using the fair value of the award on the grant date and is recognized over the service
period, which is usually the vesting period.
x.
Earnings per share (“EPS”)
Basic earnings per share are computed based on the weighted-average number of shares
outstanding during each year. Diluted earnings per share are computed using the weightedaverage common shares and all potential dilutive common shares outstanding during the period
calculated using the treasury stock method. As of December 31, 2013 and 2012, there were no
anti-dilutive shares.
The following table sets forth the computation of basic and diluted earnings per share for the
years ended December 31:
2013
2012
Net income
Less: Preferred stock dividends
Net income available to common shareholders
$ 22,337
588
$ 21,749
$ 24,910
981
$ 23,929
Average shares outstanding (in thousands):
Basic average shares
Effect of common stock options
Effect of convertible preferred stock
Effect of restricted stock grants
Diluted average shares
8,562
80
405
19
9,066
6,710
59
20
6,789
(Dollars in thousands, except per share amounts)
Earnings per share:
Basic
Diluted
$
$
23
2.54
2.41
$
$
3.57
3.52
y.
Reclassifications
Letter of Credit Fee Income
Prior year commitment fees were $1.3 million and have been reclassified from Interest and fees
on loans to Other noninterest income in the accompanying consolidated statement of income for
the year ended December 31, 2012. This reclassification had no effect on net income nor total
stockholders’ equity.
Investments
Certain investments in the amount of $6.5 million have been reclassified from Investment
securities-Securities held to maturity to Other assets in the accompanying consolidated balance
sheet for the year ended December 31, 2012. Consequently, $1.2 million in expenses related to
these investments have been reclassified from Losses from other-than-temprorary impairment to
Other noninterest expense. These reclassifications had no effect on net income nor total
stockholders’ equity
Cash and Cash Equivalents
Certain deposit accounts held at First National Bankers Bank (“FNBB”) and FRB were interestbearing accounts at December 31, 2013 and 2012. The balances of these accounts in the amount
of $115.8 million have been reclassified from Cash and due from banks to Interest-bearing
deposits in banks in the accompanying consolidated balance sheet for the year ended December
31, 2012. These reclassifications had no effect on net income nor total stockholders’ equity.
Mortgage Servicing Fees
Due to the increasing prominence related to mortgage servicing activity as a source of income
during 2013, the decision was made to display related revenue earned as a separate line item
within noninterest income in the accompanying consolidated statements of income. Amounts
earned in 2012 related to mortgage servicing fees totaling approximately $1.9 million have been
reclassified from other noninterest income into mortgage servicing fees to conform with current
year presentation. The reclassification had no effect on net income nor total stockholders’
equity.
z.
Recent accounting pronouncements
ASU 2011-11, “Balance Sheet (Topic 210) – “Disclosures about Offsetting Assets and
Liabilities” (“ASU 2011-11”) amends Topic 210, “Balance Sheet,” to require an entity to disclose
both gross and net information about financial instruments and transactions eligible for offset in
the statement of financial position and instruments and transactions subject to an agreement
similar to a master netting arrangement. ASU 2011-11 is effective for annual and interim periods
beginning on January 1, 2013, and did not have a significant impact on the Company’s financial
statements.
ASU 2013-02, “Comprehensive Income (Topic 220) – “Reporting Items Reclassified Out of
Accumulated Other Comprehensive Income” (“ASU 2013-02”) updates Topic 220,
“Comprehensive Income,” which requires disclosure of amounts reclassified out of accumulated
other comprehensive income in their entirety, by component, on the face of the statement of
comprehensive income or in the notes to the financial statements. Amounts that are not required
to be classified in their entirety to net income must be cross-referenced to other disclosures that
provide additional detail. ASU 2013-02 is effective prospectively for annual reporting periods
beginning after December 15, 2013, and is not expected to have a significant impact on the
Company’s financial statements.
24
2.
Investment Securities
The following table is a summary of the amortized cost and estimated fair value of securities
available for sale and held to maturity:
(in thousands)
Securities available for sale:
December 31, 2013:
Debt securities:
U.S. Treasuries
U.S. Government and
agency
State and municipal
Collateralized mortgage
obligations
Mortgage-backed
Corporate bonds
Total debt securities
Other securities
Total securities available for sale
(in thousands)
Securities available for sale:
December 31, 2012:
Debt securities:
U.S. Treasuries
U.S. Government and
agency
State and municipal
Collateralized mortgage
obligations
Mortgage-backed
Corporate bonds
Total debt securities
Other securities
Total securities available for sale
Amortized
Cost
$ 10,000
Gross
Unrealized
Gains
$
-
Gross
Unrealized
Losses
$
Fair
Value
-
$ 10,000
7,000
140,824
4,838
(426)
(1,412)
6,574
144,250
126,883
75,799
3,873
364,379
3,996
1,161
991
105
7,095
326
(2,442)
(2,101)
(6,381)
(75)
125,602
74,689
3,978
365,093
4,247
$368,375
$ 7,421
$ (6,456)
$369,340
Amortized
Cost
Gross
Unrealized
Gains
$ 30,000
$
-
Gross
Unrealized
Losses
$
Fair
Value
(2)
$ 29,998
145,180
11,711
(19)
156,872
83,188
58,016
3,819
320,203
3,996
2,601
2,312
36
16,660
311
(21)
(78)
85,789
60,328
3,855
336,842
4,229
$324,199
$ 16,971
(99)
$341,071
25
$
Amortized
Cost
(in thousands)
Securities held to maturity:
December 31, 2013:
Debt securities:
State and municipal
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
5,433
$
14
$
-
$
5,447
Total securities held to maturity
$
5,433
$
14
$
-
$
5,447
December 31, 2012:
Debt securities:
State and municipal
$
211
$
-
$
-
$
211
Total securities held to maturity
$
211
$
-
$
-
$
211
During 2013, the Company transferred one security from available for sale classification to held to
maturity classification. The fair value at the time of transfer was approximately $5.3 million, and the
cost was $5.1 million. The difference between cost and fair value will be accreted into income over
the maturity of the security, which is November 1, 2029. The Company has the intent and ability to
hold the transferred security to maturity and believes all requirements for the transfer have been met
in accordance with accounting standards.
The carrying amount of debt securities available for sale and held to maturity at December 31, 2013,
by contractual maturity, is shown below (in thousands). Expected maturities will differ from
contractual maturities because issuers may have the right to call or repay obligations with or without
call or prepayment penalties.
Within
1 Year
Securities available for sale, at fair value:
Debt securities:
U.S. Treasuries
U.S. Government and agency
State and municipal
Collateralized mortgage obligations
Mortgage-backed
Corporate bonds
Total
Securities held to maturity:
Debt securities:
State and municipal
Total
After
1 Year
Through
5 Years
After
5 Years
Through
10 Years
$ 10,000
4,201
16
$ 14,217
$
11,299
153
3,978
$15,430
$
$
$
$
$
45
45
$
123
123
6,574
30,108
1,433
$ 38,115
$
-
Over 10
Years
$
Total
98,642
125,602
73,087
$ 297,331
$ 10,000
6,574
144,250
125,602
74,689
3,978
$ 365,093
$ 5,265
$ 5,265
$ 5,433
$ 5,433
For the years ended December 31, 2013 and 2012, proceeds from sales of securities available for sale
amounted to $15.4 million and $2.4 million, respectively. Gross realized gains amounted to
$532,000 and $66,000, respectively, and gross realized losses amounted to $-0- and $14,000,
respectively.
26
Temporarily Impaired Securities
Information pertaining to securities with gross unrealized losses aggregated by investment category
and length of time that individual securities have been in a continuous loss position is as follows (in
thousands):
December 31, 2013
12 Months or Greater
Gross
Fair
Unrealized
Value
Losses
Less than 12 Months
Gross
Fair
Unrealized
Value
Losses
Securities available for sale:
Debt securities:
U.S. Treasuries
$
U.S. Government
and agency
6,574
State and municipal
20,609
Collateralized
mortgage obligations
61,919
Mortgage-backed
52,023
Total debt securities
141,125
Other securities
Total
$141,125
$
-
$
$
-
$
-
$
-
(426)
(1,378)
323
(34)
6,574
20,932
(426)
(1,412)
(2,442)
(2,101)
(6,347)
$(6,347)
323
674
997
(34)
(75)
(109)
61,919
52,023
141,448
674
$ 142,122
(2,442)
(2,101)
(6,381)
(75)
$(6,456)
$
$
$
(2)
$
December 31, 2012
12 Months or Greater
Gross
Fair
Unrealized
Value
Losses
Less than 12 Months
Gross
Fair
Unrealized
Value
Losses
Securities available for sale:
Debt securities:
U.S. Treasuries
$ 29,998
U.S. Government
and agency
State and municipal
2,257
Collateralized
mortgage obligations
Mortgage-backed
Total debt securities
32,255
Other securities
Total
$ 32,255
-
Total
Gross
Fair
Unrealized
Value
Losses
$
-
(19)
-
(21)
(21)
671
671
$
$
$
Total
Gross
Fair
Unrealized
Value
Losses
-
$ 29,998
-
2,257
(19)
32,255
671
$ 32,926
(21)
(78)
(99)
(78)
(78)
$
$
(2)
Management evaluates securities in a loss position for other-than-temporary impairment.
Consideration is given to, among other things, (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3)
the intent and ability of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value. Declines in fair value of available for
sale and held to maturity securities below their cost that are deemed to be other-than-temporary are
reflected in earnings as realized losses to the extent the impairment is related to credit losses.
27
The Company estimates the amount of losses attributable to credit using a discounted cash flow
model that compiles relevant details on borrower and collateral performance on a security-bysecurity basis. Expected future cash flows are calculated using a discount rate that management
believes a market participant would consider in determining the fair value.
U.S. Government and agency Securities
The unrealized losses on the Company’s investments in direct obligations of U.S. government
agencies were caused by interest rate increases. Because the Company does not intend to sell the
investments and it is not more likely than not the Company will be required to sell the investments
before the recovery of their amortized cost bases, which may be maturity, the Company does not
consider those investments to be other-than-temporarily impaired at December 31, 2013.
Collateralized mortgage obligations and Mortgage-backed Securities
The unrealized losses on the Company’s investments in collateralized mortgage obligations and
mortgage-backed securities were caused by interest rate increases. The Company expects to recover
the amortized cost bases over the term of the securities. Because the decline in market value is
attributable to changes in interest rates and not credit quality, and because the Company does not
intend to sell the investments and it is not more likely than not the Company will be required to sell
the investments before the recovery of their amortized cost bases, which may be maturity, the
Company does not consider those investments to be other-than-temporarily impaired at December
31, 2013.
State and municipal Securities
The unrealized losses on the Company’s investments in securities of state and political subdivisions
were caused by interest rate increases.
Because the Company does not intend to sell the
investments and it is not more likely than not the Company will be required to sell the investments
before the recovery of their amortized cost bases, which may be maturity, the Company does not
consider those investments to be other-than-temporarily impaired at December 31, 2013.
Securities with a carrying value of $243.1 million and $204.0 million at December 31, 2013 and
2012, respectively, were pledged to secure public deposits and for other purposes required or
permitted by law. At December 31, 2013 and 2012, the carrying amount of securities pledged to
repurchase agreements was $51.8 million and $39.1 million, respectively.
28
3. Investment in Affiliates
Davison Insurance holds a thirty-eight percent (38%) equity interest in Lincoln Agency, LLC
(“Lincoln”), an insurance property and casualty agency. Davison Insurance accounts for the
investment in Lincoln under the equity method of accounting and, therefore, records its proportionate
share of Lincoln’s income as other noninterest income. Equity in earnings of Lincoln was $233,000
and $81,000 for the years ended December 31, 2013 and 2012, respectively. The balance of the
investment in Lincoln was $360,000 and $284,000 at December 31, 2013 and 2012, respectively.
Insurance premiums paid to Lincoln were $619,000 and $563,000 for the years ended December 31,
2013 and 2012, respectively.
CTFC holds an approximate six percent (6%) equity interest in Argent Financial Group, Inc. The
balance of this investment was $2.3 million at December 31, 2013 and 2012. The Company accounts
for this investment under the cost method.
CTFC holds an investment in CTB Statutory Trust I. The balance of this investment was $326,000 at
December 31, 2013 and 2012. See Note 12 Statutory Trusts for additional information on this
investment.
4. Loans
Major classifications of loans by purpose code and accounting method at December 31, are as
follows (in thousands):
2013
Commercial Non-Real Estate (“NRE”)
Agricultural
Commercial & Industrial
Other Purpose
Total commercial non-real estate
Commercial Real Estate (“RE”)
Agricultural
Development
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
Consumer
Other Purpose
Construction
Residential
Total consumer
Total
Amortized
Cost Basis
Fair
Value Option
$
$
5,500
1,345,602
12,197
1,363,299
26,322
26,322
Total
$
5,500
1,371,924
12,197
1,389,621
7,410
6,346
142,449
265,420
43,036
219,834
136,676
821,171
8,852
29,359
38,211
7,410
6,346
142,449
274,272
43,036
249,193
136,676
859,382
35,715
5,832
139,312
180,859
$2,365,329
$ 64,533
35,715
5,832
139,312
180,859
$ 2,429,862
29
2012
Commercial Non-Real Estate
Agricultural
Commercial & Industrial
Other Purpose
Total commercial non-real estate
Commercial Real Estate
Agricultural
Development
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
Consumer
Other Purpose
Construction
Residential
Total consumer
Total
Amortized
Cost Basis
Fair
Value Option
$
$
6,023
1,378,239
8,501
1,392,763
31,086
31,086
Total
$
6,023
1,409,325
8,501
1,423,849
8,041
7,882
134,377
203,784
35,063
197,514
144,389
731,050
31,915
21,146
53,061
8,041
7,882
134,377
235,699
35,063
218,660
144,389
784,111
42,933
5,887
131,733
180,553
$2,304,366
$ 84,147
42,933
5,887
131,733
180,553
$ 2,388,513
CTB originates loans to customers and enters into related interest rate swaps for the purpose of
managing future interest rate risk. As these loans are accounted for at fair value in accordance with
ASC Topic 825, Financial Instruments, the fair value relationships between the loans and the swaps
mitigate changes in the fair value of the loans attributable to changes in the benchmark interest rate.
See Note 24 Loans Recorded at Fair Value for additional information.
30
The following tables present the balance in the allowance for loan losses at amortized cost and the
recorded investment in loans based on portfolio segment and impairment method (in thousands):
December 31, 2013
Allowance for loan losses:
Beginning balance
Loans charged off
Recoveries of loans previously
charged off
Net loans charged off
Provision for loan losses
Ending balance
Period end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
Loans receivable:
Period end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
Commercial
NRE
Commercial
RE
$
$
11,012
(2,296)
13,482
(2,563)
118
(2,445)
239
11,276
Consumer
$
3,973
(644)
$
28,467
(5,503)
$
664
(4,839)
7,655
31,283
288
$
4,140
$
862
1,150
$
27,143
31,283
14,831
$
5,022
$
32,069
806,340
821,171
$
175,837
180,859
$
270
(2,026)
9,871
18,857
$
$
3,007
$
845
$
$
15,850
18,857
$
10,431
11,276
$
12,216
$
1,351,083
$ 1,363,299
$
$
276
(368)
(2,455)
1,150
Total
2,333,260
$ 2,365,329
December 31, 2012
Allowance for loan losses:
Beginning balance
Loans charged off
Recoveries of loans previously
charged off
Net loans charged off
Provision for loan losses
Ending balance
Period end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
Loans receivable:
Period end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending balance
Commercial
NRE
Commercial
RE
$
$
9,662
(1,800)
12,288
(1,365)
$
2,918
(702)
Total
$
24,868
(3,867)
$
288
(414)
1,469
3,973
$
1,057
(2,810)
6,409
28,467
612
$
326
$
3,056
$
12,870
13,482
$
3,647
3,973
$
25,411
28,467
10,046
$
10,395
$
3,521
$
23,962
1,382,717
$ 1,392,763
$
720,655
731,050
$
177,032
180,553
$
143
(1,657)
3,007
11,012
$
$
2,118
$
$
8,894
11,012
$
31
626
(739)
1,933
13,482
Consumer
2,280,404
$ 2,304,366
The following tables present the credit quality indicators of CTB’s loan portfolio segments and
classes, excluding loans held for sale as of December 31, 2013 and 2012. Commercial and investor
real estate loans classes are detailed by categories related to underlying credit quality and
probability of default. These categories are utilized to develop the associated allowance for loan
losses using historical losses adjusted for current economic conditions and are defined as follows:
• Pass—includes obligations where the probability of default is considered low;
• Special Mention—includes obligations that have potential weakness which may, if not reversed
or corrected, weaken the credit or inadequately protect the Company’s position at some future
date. Obligations in this category may also be subject to economic or market conditions which
may, in the future, have an adverse effect on debt service ability;
• Substandard—includes obligations that exhibit a well-defined weakness which presently
jeopardizes debt repayment, even though they are currently performing. These obligations are
characterized by the distinct possibility that the Company may incur a loss in the future if these
weaknesses are not corrected;
• Doubtful—includes obligations that exhibit all the weaknesses inherent in one classified
Substandard with the added characteristic that the weaknesses make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly questionable and
improbable.
December 31, 2013
Pass
(in thousands)
Commercial Non-Real Estate
Agriculture
Commercial & Industrial
Other Purpose
Total commercial non-real estate
$
5,500 $
1,306,021
12,053
1,323,574
Special
Mention Substandard
$
1,657
1,657
37,924
144
38,068
Doubtful
$
Total
-
$
5,500
1,345,602
12,197
1,363,299
Commercial Real Estate
Agriculture
Development
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
7,365
3,949
142,449
258,006
41,425
211,668
133,199
798,061
548
1,374
42
2,352
1,009
5,325
45
1,849
6,040
1,569
5,814
2,468
17,785
-
7,410
6,346
142,449
265,420
43,036
219,834
136,676
821,171
Consumer
Other Purpose
Construction
Residential
Total consumer
35,386
5,832
136,165
177,383
-
323
3,146
3,469
6
1
7
35,715
5,832
139,312
180,859
7
$2,365,329
-
64,533
7
$2,429,862
Total
Fair Value Option
Total
$2,299,018 $
64,533
$2,363,551 $
32
6,982 $
6,982
59,322
$
$ 59,322
$
December 31, 2012
Pass
(in thousands)
Commercial Non-Real Estate
Agriculture
Commercial & Industrial
Other Purpose
Total commercial non-real estate
$
5,465 $
1,310,527
8,449
1,324,441
Special
Mention Substandard
$
26,512
26,512
558
41,196
52
41,806
Doubtful
$
Total
-
$
6,023
1,378,239
8,501
4 1,392,763
4
Commercial Real Estate
Agriculture
Development
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
7,914
5,209
134,312
194,334
33,310
190,506
139,562
705,147
756
1,609
754
1,428
4,547
127
1,917
7,841
1,753
6,254
3,399
21,291
65
65
8,041
7,882
134,377
203,784
35,063
197,514
144,389
731,050
Consumer
Other Purpose
Construction
Residential
Total consumer
42,445
5,887
129,178
177,510
-
476
2,555
3,031
12
12
42,933
5,887
131,733
180,553
$2,207,098 $
31,059 $
66,128
84,147
-
Total
Fair Value Option
Total
$2,291,245 $
33
31,059
$
$ 66,128
81 $2,304,366
-
$
81
84,147
$2,388,513
The following tables present CTB’s loan portfolio aging analysis (in thousands). All loans that are
measured at fair value are included in current loans in the tables below.
December 31, 2013
30 – 59
Days
Past Due
60 – 89
Days
Past Due
Past Due 90
Days or
More
Current
Loans
Total
Loans
Nonaccrual
Receivable
Loans
5,500
1,366,948
12,080
1,384,528
$
5,500
1,371,924
12,197
1,389,621
Total
Past Due
Accruing
Loans
Past Due
90 Days
or More
Commercial Non-Real Estate
Agriculture
$
Commercial & Industrial
Other Purpose
Total commercial non-real estate
1,665
1,665
Commercial Real Estate
Agriculture
Development
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
167
851
95
80
2,257
3,450
200
62
259
33
554
5,036
41
1,854
462
7,393
167
6,087
198
2,193
2,752
11,397
7,410
6,179
142,449
268,185
42,838
247,000
133,924
847,985
7,410
6,346
142,449
274,272
43,036
249,193
136,676
859,382
1,849
5,669
1,539
2,010
1,106
12,173
-
Consumer
Other Purpose
Construction
Residential
Total consumer
544
4,602
5,146
40
1,237
1,277
262
1,414
1,676
846
7,253
8,099
34,869
5,832
132,059
172,760
35,715
5,832
139,312
180,859
463
3,019
3,482
-
24,589
$2,405,273
$2,429,862
Total
$
10,261
$
$
660
660
2,491
$
$
2,651
117
2,768
11,837
$
$
4,976
117
5,093
$
$
$
5,980
117
6,097
21,752
$
-
$
-
December 31, 2012
30 – 59
Days
Past Due
60 – 89
Days
Past Due
Past Due 90
Days or
More
Current
Loans
Total
Loans
Nonaccrual
Receivable
Loans
5,920
1,402,735
8,488
1,417,143
$
6,023
1,409,325
8,501
1,423,849
Total
Past Due
Accruing
Loans
Past Due
90 Days
or More
Commercial Non-Real Estate
Agriculture
$
Commercial & Industrial
Other Purpose
Total commercial non-real estate
1,248
1,248
Commercial Real Estate
Agriculture
Development
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
1,044
683
1,260
320
3,307
161
35
265
461
80
65
3,927
549
391
5,012
80
65
4,971
844
1,844
976
8,780
7,961
7,882
134,312
230,728
34,219
216,816
143,413
775,331
8,041
7,882
134,377
235,699
35,063
218,660
144,389
784,111
80
65
5,009
649
1,645
543
7,991
-
Consumer
Other Purpose
Construction
Residential
Total consumer
439
1,306
1,745
38
286
324
243
1,667
1,910
720
3,259
3,979
42,213
5,887
128,474
176,574
42,933
5,887
131,733
180,553
508
2,165
2,673
29
29
19,465
$2,369,048
$2,388,513
Total
$
6,300
$
$
1,249
13
1,262
2,047
$
$
103
4,093
4,196
11,118
34
$
$
103
6,590
13
6,706
$
$
$
103
6,512
13
6,628
17,292
$
$
-
29
The following tables present impaired loans (in thousands):
December 31, 2013
Unpaid
Contractual
Principal
Balance
Commercial Non-Real Estate
Agriculture
Commercial & Industrial
Other Purpose
Total commercial non-real estate
$
Commercial Real Estate
Agriculture
Development
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
Consumer
Other Purpose
Residential
Total consumer
Total
$
Total
Recorded
Investment
Allocation of
Allowance for
Loan Losses
$
12,314
117
12,431
$
12,099
117
12,216
3,595
6,404
1,556
2,672
2,350
16,577
1,849
6,404
1,556
2,672
2,350
14,831
621
4,401
5,022
621
4,401
5,022
34,030 $
32,069 $
2,997
10
3,007
Average
Recorded
Investment
$
Interest
Recognized
52 $
11,015
65
11,132
597
5
602
292
239
137
177
845
40
925
33
6,054
1,189
2,369
2,005
12,615
185
222
116
93
163
779
64
224
288
489
3,783
4,272
27
193
220
4,140 $
28,019 $
1,601
December 31, 2012
Unpaid
Contractual
Principal
Balance
Commercial Non-Real Estate
Agriculture
Commercial & Industrial
Other Purpose
Total commercial non-real estate
$
Commercial Real Estate
Agriculture
Construction
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
Consumer
Other Purpose
Construction
Residential
Total consumer
Total
$
Total
Recorded
Investment
Allocation of
Allowance for
Loan Losses
103 $
10,058
13
10,174
103 $
9,930
13
10,046
80
65
5,703
822
2,065
1,660
10,395
80
65
5,703
822
2,065
1,660
10,395
357
3,164
3,521
357
3,164
3,521
24,090 $
35
23,962 $
2,118
2,118
Average
Recorded
Investment
$
Interest
Recognized
52 $
8,008
16
8,076
500
2
502
9
65
45
49
383
61
612
40
32
5,840
434
1,872
1,475
9,693
3
133
65
30
92
323
80
246
326
442
1
2,476
2,919
22
167
189
3,056 $
20,688 $
1,014
Interest on impaired loans is recognized on the accrual basis of accounting, which approximates amounts
that would be recognized under the cash basis of accounting.
No additional funds are committed to be advanced in connection with impaired loans. Included in certain
loan categories in the impaired loans are troubled debt restructurings that were classified as impaired.
Interest income on the nonaccrual loans, had they been accruing, would have been approximately
$603,000 and $488,000 for the year ended December 31, 2013 and 2012, respectively.
The following tables summarize loans restructured in TDRs (in thousands):
December 31, 2013
Total TDRs
Pre-
Post-
Modification
Modification
Recorded
Balance
Recorded
Balance
Number of
Loans
Commercial Non-Real Estate
Commercial & Industrial
Total commercial non-real estate
27
27
Commercial Real Estate
Development
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
1
7
8
4
14
34
5,172
1,433
2,638
1,514
10,757
781
4,465
1,426
1,055
1,396
9,123
Consumer
Other Purpose
Residential
Total consumer
24
19
43
651
2,695
3,346
Total
104
$
$
6,216
6,216
20,319
$
$
TDRs in Default
Pre-
Modification
Recorded
Balance
Recorded
Balance
Number of
Loans
4,161
4,161
3
3
Post-
Modification
$
-
574
574
$
351
351
2
1
2
1
6
3,803
128
815
179
4,925
3,552
1
763
183
4,499
508
2,514
3,022
4
2
6
197
73
270
147
53
200
16,306
15
$
5,769
$
5,050
December 31, 2012
Total TDRs
Pre-
Post-
Modification
Modification
Recorded
Balance
Recorded
Balance
Number of
Loans
Commercial Non-Real Estate
Commercial & Industrial
Total commercial non-real estate
21
21
Commercial Real Estate
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
8
3
4
10
25
Consumer
Other Purpose
Residential
Total consumer
14
10
24
Total
70
$
$
4,570
4,570
8
8
4,518
822
1,374
1,179
7,893
4,518
822
1,374
1,179
7,893
1
1
220
1,454
1,674
36
$
Post-
Modification
Modification
Recorded
Balance
Recorded
Balance
Number of
Loans
4,442
4,442
14,137
$
TDRs in Default
Pre-
$
2,337
2,337
$
2,337
2,337
2
841
649
1,490
841
649
1,490
220
1,454
1,674
7
3
10
56
116
172
56
116
172
14,009
20
-
$
3,999
$
3,999
The following tables summarize concession types for loans restructured in TDRs (in thousands):
December 31, 2013
Interest Rate
Commercial Non-Real Estate
Commercial & Industrial
Total commercial non-real estate
$
220
220
Commercial Real Estate
Development
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
Consumer
Other Purpose
Residential
Total consumer
Total
$
Term
$
Combination
2,738
2,738
$
1,203
1,203
Total
$
4,161
4,161
Allocation of
Allowance for
Loan Losses
$
1,128
1,128
152
410
562
781
3,481
1,384
292
428
6,366
832
42
353
968
2,195
781
4,465
1,426
1,055
1,396
9,123
168
40
147
355
18
18
271
1,556
1,827
237
940
1,177
508
2,514
3,022
47
214
261
800
$
10,931
$
4,575
$
16,306
$
1,744
December 31, 2012
Interest Rate
Commercial Non-Real Estate
Commercial & Industrial
Total commercial non-real estate
$
Commercial Real Estate
Non-Owner Occupied
Other Purpose
Owner Occupied
Residential
Total commercial real estate
Consumer
Other Purpose
Residential
Total consumer
Total
$
127
127
Term
$
Combination
2,863
2,863
$
1,451
1,451
Total
$
4,441
4,441
Allocation of
Allowance for
Loan Losses
$
2,118
2,118
167
930
1,097
3,511
779
444
175
4,909
841
44
1,003
1,888
4,519
823
1,374
1,178
7,894
45
49
383
61
538
-
110
1,381
1,491
110
73
183
220
1,454
1,674
80
52
132
1,224
$
9,263
$
3,522
$
14,009
$
2,788
5. Premises, Equipment, and Lease Commitments
Major classifications of premises and equipment are summarized below as of December 31 (in
thousands):
2013
Buildings, land and improvements
Furniture, fixtures, and equipment
Leasehold improvements
Construction in process
$ 76,419
25,540
7,059
2,790
111,808
(29,221)
$ 82,587
Accumulated depreciation
Total
37
2012
$ 62,247
19,399
2,310
14,900
98,856
(24,866)
$ 73,990
Depreciation expense for the years ended December 31, 2013 and 2012 was $5.3 million and $3.6
million, respectively, and was included in net occupancy expense in the accompanying consolidated
statements of income.
At December 31, 2013, the Company had capital leased assets included above with gross amounts
approximating $3.4 million and accumulated depreciation of $485,000. Capital lease obligations
were $2.9 million at December 31, 2013 and were included in accrued expenses and other liabilities
in the accompanying consolidated balance sheets.
The Company also leases certain real estate for its banking premises, as well as certain equipment,
under non-cancelable operating leases that expire at various dates through 2037. Management
expects that, in the normal course of business, most leases that expire will be renewed or replaced by
other similar leases. The Company recognizes escalating lease payments on a straight-line basis
over the term of each respective lease with the difference between cash payment and rent expense
recognized being recorded as deferred rent (included in accrued expenses and other liabilities) in the
accompanying consolidated balance sheets.
Minimum future lease obligations for capital and operating leases at December 31, 2013 are as
follows (in thousands):
Years ended December 31,
Capital Leases
$
611
611
625
469
331
506
3,153
(260)
$
2,893
2014
2015
2016
2017
2018
Thereafter
Total
Less amounts representing interest
Total lease obligations
Operating Leases
$
1,920
2,126
1,966
1,800
1,633
4,634
14,079
$
14,079
Total lease and rental expense for the years ended December 31, 2013 and 2012 amounted to $2.7
million and $1.4 million, respectively, and was included in net occupancy expense in the
accompanying consolidated statements of income.
6. Goodwill and Other Intangible Assets
The Company has recorded goodwill in the amount of $20.7 million and $20.6 million as of
December 31, 2013 and 2012 in connection with the acquisitions of First United Bank (“FUB”),
CTB Texas, First Louisiana Bank (“FLB”), Madison County Bank (“MCB”), CMC, and T&F.
Management evaluated the goodwill at September 30, 2013 and 2012 and determined there was no
impairment for either of these years.
Changes in the carrying amount of the Company’s goodwill were as follows (in thousands):
January 1, 2012, beginning balance
T&F acquisition
December 31, 2012, ending balance
T&F additional purchase price
December 31, 2013, ending balance
$ 11,087
9,523
20,610
66
$ 20,676
38
In regard to the acquisitions of FUB, CTB Texas, FLB, and MCB, deposit-based intangibles of $8.0
million were recorded as of December 31, 2013 and 2012. These intangibles are being amortized
over a life of eighty-four (84) months. Amortization of $656,000 and $1.1 million was recorded for
the years ended December 31, 2013 and 2012, respectively. Accumulated amortization of $6.2
million and $5.5 million as of December 31, 2013 and 2012, respectively, had been recorded. The
balance of the deposit-based intangibles net of amortization was $1.8 million and $2.5 million at
December 31, 2013 and 2012, respectively.
Expected amortization expense is as follows (in thousands):
Years ended December 31,
2014
2015
2016
2017
$
656
656
513
15
1,840
$
In regard to the acquisitions of CMC and T&F, relationship-based intangibles of $4.5 million and
$4.7 million were recorded as of December 31, 2013 and 2012, respectively. These intangibles are
being amortized over a weighted-average life of 14.3 years. Amortization of $600,000 and $369,000
was recorded in 2013 and 2012, respectively. Accumulated amortization of $1.1 million and
$523,000 as of December 31, 2013 and 2012, respectively, had been recorded. During 2013 and in
regard to the acquisition of CMC, the Company recognized an impairment charge on certain
relationship-based intangible assets, amounting to $246,000, due to a change in circumstances from
the date of acquisition, and the impairment charge was included in amortization of intangibles in the
accompanying consolidated statement of income for the year ended December 31, 2013. The balance
of the relationship-based intangibles, net of amortization, was $3.3 million and $4.2 million at
December 31, 2013 and 2012, respectively.
Expected amortization expense is as follows (in thousands):
Years ended December 31,
2014
2015
2016
2017
2018
Thereafter
$
$
39
443
410
396
383
299
1,412
3,343
7. Other Real Estate Owned
The following table summarizes the assets held in OREO at December 31 (in thousands):
2013
$ 1,913
323
286
$ 2,522
Commercial and Industrial
Construction/Land Development
Consumer – Residential
Total OREO
2012
$ 4,208
451
959
$ 5,618
Capital improvements on other real estate were $-0- and $81,000 for the years ended December 31,
2013 and 2012, respectively.
8. Loan Servicing
Loans serviced by the Company for others are not included in the accompanying consolidated balance
sheets. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that
result from shifts in mortgage interest rates. The unpaid principal balances of mortgage and other
loans serviced for others were $937.4 million and $562.4 million at December 31, 2013 and 2012,
respectively. The Company also sub-services, for certain financial institutions, mortgage loans with
unpaid principal balances totaling approximately $822.7 million and $487.9 million at December 31,
2013 and 2012, respectively. The Company uses the fair value method to record mortgage servicing
rights. The estimated fair value of the Company’s mortgage servicing rights was $11.1 million and
$4.8 million at December 31, 2013 and 2012, respectively. Gains of $1.2 million and losses of
$530,000 were recognized in other noninterest income as a result of changes in the fair value of the
Company’s mortgage servicing rights for the years ended December 31, 2013 and 2012, respectively.
Activity in mortgage servicing rights was as follows (in thousands):
Balance at January 1, 2012
Additions
Fair Value Accounting Adjustment
Balance at December 31, 2012
Additions
Fair Value Accounting Adjustment
Balance at December 31, 2013
$
$
3,824
1,494
(530)
4,788
5,103
1,197
11,088
The assumptions used to value mortgage servicing rights were as follows at December 31:
2013
9.42%
8.25%
$44.99
Prepayment speed
Discount yield
Annual servicing costs per loan
40
2012
16.38%
8.16%
$43.85
9. Time Deposits
Included in time deposits at December 31, 2013 and 2012 are approximately $547.0 million and
$573.4 million, respectively, of certificates of deposit in denominations of $100,000 or more. On
July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into
law, which, in part, permanently raises the current standard maximum deposit insurance amount to
$250,000.
Approximate maturities of all time deposits are as follows (in thousands):
Years ended December 31,
2014
2015
2016
2017
2018
Thereafter
$
$
582,586
75,808
65,016
20,866
16,547
10
760,833
10. Short-Term Borrowings
As of December 31, 2013 and 2012, the Company had unsecured lines of credit for the purchase of
federal funds in the amount of $48.5 million. As of December 31, 2013 and 2012, the Company had
no federal funds purchased outstanding against the lines of credit.
Securities sold under agreements to repurchase consist of obligations of CTB to other parties. They
mature on a daily basis and amounted to $28.6 million and $24.6 million at December 31, 2013 and
2012, respectively. These obligations of CTB to other parties carried a daily average interest rate of
0.22% and 0.32% for the years ended December 31, 2013 and 2012, respectively. Securities sold
under agreements to repurchase were secured by investment securities with a carrying amount of
$51.8 million and $39.1 million at December 31, 2013 and 2012, respectively.
On June 14, 2012, CTFC obtained a $25.0 million revolving line of credit from FNBB. The variable
interest rate on the line of credit is set at the Wall Street Journal Prime Rate with a floor of 4.00%
and matures on June 13, 2014. There was not a balance on the line at December 31, 2013, and the
balance outstanding on the line at December 31, 2012 was $10.0 million at a rate of 4.00%. This
revolving line of credit is secured by 100% of the issued and outstanding common stock of CTB.
Short-term borrowings included the following at December 31 (in thousands):
Securities sold under repurchased agreements
FNBB short-term loan
FHLB short-term advances
Total short-term borrowings
41
2013
$ 28,621
$ 28,621
2012
$ 24,621
10,000
$ 34,621
11. Long-Term Borrowings
CTB had outstanding long-term advances from the FHLB at December 31, 2013 and 2012, in the
amount of $82.0 million and $86.7 million, respectively. Interest rates for advances outstanding at
December 31, 2013 ranged from 1.82% to 6.82% and are subject to restrictions or penalties in the
event of prepayment. Interest rates for advances outstanding at December 31, 2012 ranged from
1.52% to 6.82%.
Scheduled maturities of the long-term advances from the FHLB at December 31, 2013 are as follows
(in thousands):
Years ended December 31,
2014
2015
2016
2017
2018
Thereafter
$
3,537
2,431
1,920
1,930
51,977
20,183
$ 81,978
As of December 31, 2013, CTB held 14 unfunded letters of credit from the FHLB totaling $71.5
million with expiration dates ranging from January 6, 2014 to September 4, 2015. As of December
31, 2012, CTB held nine (9) unfunded letters of credit from the FHLB totaling $64.8 million with
expiration dates ranging from February 22, 2013 to February 21, 2014.
Security for all indebtedness and outstanding commitments to the FHLB consists of a blanket
floating lien on all of CTB's first mortgage loans, commercial real estate and other real estate loans,
as well as CTB's investment in capital stock of the FHLB and deposit accounts at the FHLB. The
net amount available under the blanket floating lien as of December 31, 2013 and 2012 was $371.1
million and $387.0 million, respectively.
12. Statutory Trusts
CTFC formed CTB Statutory Trust I (the “Trust”) in July 2001. The purpose of the Trust is (a) to
issue and sell securities in its assets, (b) to invest the proceeds from such sale in debentures, (c) to
issue common securities and capital securities, and (d) to engage in only those other activities
incidental thereto. CTFC issued $6.7 million of mandatorily redeemable subordinated debentures in
July 2001 to the Trust which matures July 31, 2031. The Trust sold 6,500 of its $1,000 par value
floating rate capital securities (capital securities) in July 2001. These securities mature July 31, 2031
with interest due quarterly at 3-month LIBOR plus 3.30% (3.55% at December 31, 2013); however, a
ceiling of 12.50% was set prior to July 31, 2011. In June 2009, CTFC entered into an interest rate
swap contract with a third party to convert the interest rate to a fixed rate of 7.42% effective April
30, 2010 for a period of five (5) years. See Note 16 Derivative Financial Instruments for more
information. If the capital securities had been redeemed prior to July 31, 2011, a premium would
have been paid ranging from 107.5% to 101.5%. The payments of these securities are guaranteed by
CTFC. Due to the extended maturity date of the capital securities, they are included in Tier I capital
of CTFC for regulatory purposes, subject to certain limitations.
42
First Louisiana Statutory Trust I (the “FLBI Trust”) was formed in September 2006 by First
Louisiana Bancshares, Inc. (“FLBI”). CTFC acquired FLBI during 2009. FLBI Trust was formed to
(a) issue and sell securities in its assets, (b) to invest the proceeds from such sale in debentures, (c) to
issue common securities and capital securities, and (d) to engage in only those other activities
incidental thereto. In September 2006, FLBI issued $4.1 million of mandatorily redeemable floating
rate junior subordinated deferrable interest debentures to the FLBI Trust which matures December
31, 2036. The debentures were marked to fair value at the date of the merger resulting in a discount,
or value reduction of $1.3 million. The discount is being amortized over the life of the debentures
using the straight line method. The FLBI Trust sold 4,000 of its $1,000 par value floating rate capital
securities (capital securities) in September 2006. These securities mature December 15, 2036 with
interest due quarterly at 3-month LIBOR plus 1.8% (2.05% at December 31, 2013); however, that
rate will not exceed the maximum rate permitted by New York law as modified by United States law,
which was 16% as of December 31, 2013. The payments of these securities are guaranteed by
CTFC. Due to the extended maturity date of the capital securities, they are included in Tier 1 capital
of CTFC for regulatory purposes, subject to certain limitations.
13. Income Taxes
The provision (benefit) for income taxes is as follows for the years ended December 31 (in
thousands):
2013
Federal income taxes:
Current
Deferred
$
State taxes
Income tax expense
$
2012
7,657 $ 10,685
(494)
(1,824)
915
8,078 $
167
9,028
The reconciliation of the effective income tax rate to the federal statutory rate is as follows for the
years ended December 31:
Statutory federal income tax rate
Tax exempt income
Cash value of life insurance
Housing tax credits
Bond tax credits, net
State taxes, net
Other
Effective income tax rate
43
2013
2012
35.00%
(5.44%)
(0.51%)
(2.55%)
(3.29%)
3.01%
0.34%
26.56%
35.00%
(4.38%)
(0.59%)
(1.72%)
(2.96%)
0.49%
0.76%
26.60%
Significant components of deferred tax assets and liabilities are as follows at December 31 (in
thousands):
2013
2012
Deferred tax assets:
Allowance for loan losses and credit losses
$ 11,445
$ 9,941
Deferred compensation and stock options
3,462
3,072
Other-than-temporary impairment
731
663
Write-downs on other real estate owned
260
321
Net operating loss carryforwards
805
1,004
Other
429
941
17,132
15,942
Deferred tax liabilities:
Basis difference in premises and equipment
Core deposit intangible
Mortgage servicing rights
Relationship-based intangibles
Basis difference on investments and cash flow hedges
(1,883)
(644)
(768)
(1,170)
(193)
(4,658)
Net deferred tax asset
$ 12,474
(541)
(874)
(888)
(1,466)
(5,696)
(9,465)
$
6,477
The Company has approximately $2.3 million of net operating loss carryforwards that expire
between 2027 and 2031. The net operating loss carryforwards originated as a result of the
acquisition of CMC and are being utilized approximately $200,000 per year under limitations
imposed by Internal Revenue Code Section 382.
CTFC files a consolidated income tax return in the U.S. federal jurisdiction and various states. With
few exceptions, the Company is no longer subject to income tax examinations by tax authorities in
these taxing jurisdictions for the years before 2010.
14. Deferred Compensation
The Company has established deferred compensation plans for some of its key executives and has
acquired deferred compensation plans through the acquisitions of FUB, FLB, and MCB, for which
deferred compensation liabilities are recorded as a component of accrued expenses and other
liabilities in the accompanying consolidated balance sheets. In connection with the deferred
compensation agreements, the Company has purchased Bank Owned Life Insurance (“BOLI”) and
has entered into split-dollar agreements with the participants. Following is a summary of the plans at
December 31 and the years then ended (in thousands):
Cash surrender value of BOLI
Deferred compensation liability
2013
2012
$ 20,938
6,371
$ 20,654
5,414
The Company incurred deferred compensation expense of $1.1 million and $445,000 as of December
31, 2013 and 2012, respectively, and included the expense in other noninterest expenses in the
accompanying consolidated statements of income.
44
15. Commitments and Contingencies
There are outstanding commitments and contingent liabilities on which management does not
anticipate losses. They include, among other things, commitments to extend credit and letters of
credit undertaken in the normal course of business. Outstanding letters of credit were $105.1 million
and $106.9 million at December 31, 2013 and 2012, respectively. As of December 31, 2013,
commitments to extend credit amounted to $1.06 billion with $947.6 million in variable rates and
$108.6 million in fixed rates. As of December 31, 2012, commitments to extend credit amounted to
$679.4 million with $629.4 million in variable rates and $50.0 million in fixed rates. These
commitments represent off-balance sheet risk to CTB with the contractual notional amount
representing the Bank's exposure to credit loss in the event of nonperformance by the counterparty to
the instruments. Commitments to extend credit are agreements to lend to a customer as long as there
is no violation of any condition established in the contract. The commitments generally have fixed
expiration dates and require payment of a fee. Since many commitments are expected to expire
without being drawn upon, the total commitments do not represent future cash requirements. CTB
evaluates each customer's creditworthiness on a case-by-case basis and obtains an amount of
collateral deemed sufficient in the opinion of management.
Management establishes an asset-specific allowance for lending-related commitments that are
considered impaired and computes a formula-based allowance for performing consumer and
commercial lending-related commitments. These are computed using a methodology similar to that
used for the commercial loan portfolio, modified for expected maturities and probabilities of
drawdown. The reserve for lending-related commitments was $2.4 million and $1.9 million for the
years ended December 31, 2013 and 2012, respectively, and was included in other liabilities in the
accompanying consolidated balance sheets. The Company recorded $480,000 and $700,000 of
provision expense related to lending-related commitments during the years ended 2013 and 2012,
respectively, and the amounts have been included in other noninterest expense in the accompanying
consolidated statements of income.
There are various claims and legal actions arising in the ordinary course of business involving CTFC
and/or its subsidiaries. In the opinion of management of CTFC and its subsidiaries, the ultimate
disposition of these matters will not have a material adverse effect on CTFC’s financial statements.
16. Derivative Financial Instruments
The Company utilizes derivative financial instruments such as interest rate swaps, caps and floors to
mitigate significant interest rate risk. The Company also enters into interest rate swap agreements to
mitigate changes in the fair value of certain loans attributable to changes in the benchmark interest
rate (LIBOR).
As of December 31, 2013 and 2012, the notional amount of swap agreements entered into related to
certain loans was $94.9 million. The fair value of the interest rate swap agreements recorded in other
liabilities was $2.5 million and $6.5 million at December 31, 2013 and 2012, respectively. Gains of
$4.0 million and losses of $409,000 were recognized in noninterest income as a result of changes in
fair value of the interest rate swaps for the years ended December 31, 2013 and 2012, respectively.
Losses of $3.1 million and $746,000 were recognized in noninterest income as a result of changes in
the fair value of the related loans for the years ended December 31, 2013 and 2012, respectively. See
Note 24 Loans Recorded at Fair Value for additional information on the related loans.
45
In June 2009, CTFC entered into an interest rate swap agreement to hedge cash flow risk related to
the Trust through an interest rate swap with a money center institution with a forward start date in
April 2010. The Company has designated the transaction as a cash flow hedge and is accounting for
the transaction in accordance with generally accepted accounting principles, whereby the fair value is
recorded in the consolidated balance sheets and the offsetting amount is recorded as a component of
accumulated other comprehensive income.The notional amount of the cash flow hedge is $6.5
million. The fair value of the interest rate swap recorded in the consolidated balance sheets was a
liability of $372,000 and $609,000 as of December 31, 2013 and 2012, respectively. The Company
expects approximately $253,000 to be reclassified into earnings over the next twelve months as
payments are made under the terms of the interest rate swap agreement.
As of December 31, 2013, CTB had interest rate lock commitments with notional amounts of $23.9
million and forward sale commitments related to these interest rate lock commitments and mortgage
loans held for sale with notional amounts of $36.8 million. At December 31, 2013, the fair value of
the interest rate lock commitments was $209,000, and the fair value of the forward sale commitments
was $249,000. During the year ended December 31, 2013, gains of $1.1 million were recognized in
noninterest income as a result of changes in the total fair value of the interest rate lock commitments
and forward sale commitments. As of December 31, 2012, CTB had interest rate lock commitments
and corresponding forward sale commitments related to these interest rate lock commitments with
notional amounts of $102.6 million. The fair value of such commitments offset to an immaterial
amount.
CTB has entered into interest rate swap agreements with customers and also entered into duplicate
interest rate swap agreements with offsetting interest rate provisions with money center institutions
in an effort to hedge its customers' interest rate swap agreements. The total notional amount of these
derivatives held for trading was $172.4 million and $136.8 million at December 31, 2013 and 2012,
respectively. The fair value of the trading assets was $3.7 million and $5.3 million at December 31,
2013 and 2012, respectively. The fair value of the trading liabilities was $3.7 million and $5.3
million at December 31, 2013 and 2012, respectively.
Included in cash and cash equivalents was approximately $13.4 million as of December 31, 2013 and
2012, respectively, which was pledged as collateral for interest rate swaps.
17. Stockholders' Equity
CTFC is authorized to issue 50,000,000 shares of voting common stock at a par value of five dollars
($5.00) each. During 2012, CTFC issued 1,350 shares of common stock in the form of restricted
stock grants subject to a one year vesting period. During the vesting period, the holders of restricted
shares are entitled to voting rights and dividends on the same basis as unrestricted shares. All
restricted stock grants issued during 2012 were considered earned as of December 31, 2013. During
2013, CTFC issued 1,474 restricted stock grants subject to a one year vesting period and 20,807
restricted stock grants subject to a three year vesting period. Of the restricted stock grants issued
during 2013, 5,593 shares were considered earned as of December 31, 2013.
On July 6, 2011, the Company entered into a Securities Purchase Agreement (“Purchase
Agreement”) with the United States Department of the Treasury, pursuant to which the Company
issued 48,260 shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series
SBLF, having a liquidation amount per share equal to $1,000, for a total purchase price of $48.3
million. The Purchase Agreement was entered into, and the Series SBLF Preferred Stock was issued,
pursuant to the Small Business Lending Fund (“SBLF”) program, a $30 billion fund established
under the Small Business Jobs Act of 2010, that encourages lending to small businesses by providing
Tier 1 capital to qualified community banks with assets of less than $10 billion.
46
Holders of the Series SBLF Preferred Stock are entitled to receive non-cumulative dividends,
payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The
dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the
first ten quarters during which the Series SBLF Preferred Stock is outstanding and may be adjusted
between 1.0% and 5.0% per annum, to reflect the amount of change in the Bank’s level of Qualified
Small Business Lending (“QSBL”) (as defined in the Purchase Agreement) over the baseline level
calculated under the terms of the Purchase Agreement (“Baseline”). In addition to the dividend, in
the event the Bank’s level of QSBL has not increased relative to the Baseline, at the beginning of the
tenth calendar quarter, the Company will be subject to an additional lending incentive fee equal to
2.0% per annum. For the eleventh dividend period through the eighteenth dividend period, inclusive,
and that portion of the nineteenth dividend period before, but not including, the four and one half
(4½) year anniversary of the date of issuance, the dividend rate will be fixed at between 1.0% and
7.0% per annum based upon the increase in QSBL as compared to the Baseline. After four and one
half (4½) years from issuance, the dividend rate will increase to nine 9.0%. Based upon the Bank’s
level of QSBL over the Baseline for purposes of calculating the dividend rate for the initial dividend
period, the dividend rate for the initial dividend period ended September 30, 2011 was 1.00%. The
average dividend declared rate was 1.00% and 2.03% for the years ended December 31, 2013 and
2012, respectively. The Series SBLF Preferred Stock is non-voting, except in limited circumstances.
In the event that the Company fails to timely make five dividend payments, whether or not
consecutive, the holder of the Series SBLF Preferred Stock will have the right, but not the obligation,
to appoint a representative as an observer on the Company’s board of directors. In the event that the
Company fails to timely make six dividend payments, whether or not consecutive, and if the then
outstanding aggregate liquidation amount of the Series SBLF Preferred Stock is at least $25,000,000,
then the holder of the Series SBLF Preferred Stock will have the right to designate and appoint two
directors to the Company’s board of directors.
The Series SBLF Preferred Stock may be redeemed at any time at the Company’s option, at a
redemption price of one hundred percent (100%) of the liquidation amount plus accrued but unpaid
dividends to the date of redemption for the current period, subject to the approval of its federal
banking regulator.
During 2012, CTFC was authorized by the Board of Directors to issue 410,000 shares of nonvoting
noncumulative convertible perpetual preferred stock, designated “Series D”. Series D ranked
subordinate and junior to all other shares of preferred stock as of December 31, 2013 and 2012.
Holders of Series D preferred shares are entitled to dividends on an equal basis as those of common
shares. Holders of Series D preferred shares may convert to common shares provided that the holder
will not own or control more than 9.99% of the voting securities of CTFC subsequent to conversion.
On December 14, 2012, 405,406 shares were issued for a total of $15 million; of which all were
outstanding as of December 31, 2013 and 2012. In conjunction with the Series D preferred share
issuance, the Company issued 1,891,892 shares of common stock for total cash consideration of $70
million. The Company incurred expenses of $4.8 million related to these issuances, which was
recorded as a reduction of additional paid in capital.
47
18. Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (loss), included in stockholders’
equity, are as follows (in thousands):
Net unrealized gain on available for sale securities
Net unrealized gain on available for sale securities
for which a portion of an other-than-temporary
impairment has been recognized in income
Net unrealized loss on derivatives used for cash
flow hedges
Other comprehensive income, before tax effect
Tax effect
Net-of-tax amount
$
$
2013
2012
888
$ 16,890
67
11
(372)
583
(224)
359
(609)
16,292
(5,722)
$ 10,570
19. Retained Earnings and Regulatory Matters
CTFC (on a consolidated basis) and CTB are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, CTFC and
CTB must meet specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors. Prompt corrective action provisions are not
applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require CTFC and CTB
to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). Management believes, as of December 31, 2013 and 2012 that CTFC
and CTB met all capital adequacy requirements to which they are subject.
48
As of December 31, 2013, the most recent notification from the Federal Deposit Insurance
Corporation categorized CTB as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an institution must maintain minimum Total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are
no conditions or events since that notification that management believes have changed CTB's
category. CTFC's and CTB's actual capital amounts and ratios are also presented in the table.
Actual
Amount
(in thousands)
As of December 31, 2013:
Total Capital to Risk
Weighted Assets:
CTB
CTFC (Consolidated)
Tier I Capital to Risk
Weighted Assets:
CTB
CTFC (Consolidated)
Tier I Capital to Average
Assets:
CTB
CTFC (Consolidated)
As of December 31, 2012:
Total Capital to Risk
Weighted Assets:
CTB
CTB (Consolidated)
CTFC (Consolidated)
Tier I Capital to Risk
Weighted Assets:
CTB
CTB (Consolidated)
CTFC (Consolidated)
Tier I Capital to Average
Assets:
CTB
CTB (Consolidated)
CTFC (Consolidated)
Ratio
Minimum
For Capital
Adequacy Purposes:
Amount
Ratio
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions:
Amount
Ratio
$351,877
$367,498
11.7%
12.2%
≥$239,811
•$240,763
≥8.0%
≥8.0%
≥$299,764
N/A
≥10.0%
N/A
$317,786
$333,407
10.6%
11.1%
≥$119,906
•$120,381
≥4.0%
≥4.0%
≥$179,858
N/A
≥6.0%
N/A
$317,786
$333,407
10.2%
10.7%
≥$124,726
•$125,162
≥4.0%
≥4.0%
≥$155,907
N/A
≥5.0%
N/A
$338,288
$334,685
$342,113
12.7%
12.6%
12.7%
≥$213,992
•$213,146
•$215,666
≥8.0%
>8.0%
≥8.0%
≥$267,490
>$266,433
N/A
≥10.0%
•10.0%
N/A
$307,733
$305,931
$311,651
11.5%
11.5%
11.6%
≥$106,996
•$106,573
•$107,833
≥4.0%
•4.0%
≥4.0%
≥$160,494
>$159,860
N/A
≥6.0%
•6.0%
N/A
$307,733
$305,931
$311,651
10.6%
10.5%
10.8%
≥$116,448
•$116,223
•$115,954
≥4.0%
•4.0%
≥4.0%
≥$145,560
•$145,279
N/A
≥5.0%
•5.0%
N/A
CTFC is subject to certain restrictions on the amount of dividends that it may declare without prior
regulatory approval. At December 31, 2013, approximately $41.7 million of retained earnings was
available for dividend declaration without prior regulatory approval.
49
20. Employee Stock Ownership Plan
The Company has a profit sharing plan, an employee stock ownership plan containing 401(k)
provisions (the “KSOP”). CTFC stock and other investments may be acquired by the KSOP. An
eligible employee shall become a participant effective as of the earlier of, the first day of the month
coinciding with or next following 90 days of employment or the date such Employee has met the
eligibility requirements of Section 3.1 of the document, provided said Employee was still employed
as of such date. Participation in the KSOP is voluntary. At the Board of Directors' discretion, the
Company contributes an amount equal to fifty percent (50%) of employee contributions up to a
maximum of six percent (6%) of an individual employee's total compensation that is subject to
income tax, exclusive of expense allowances, fringe benefits, moving expenses, deferred
compensation and welfare benefits. In addition, the Company may make additional contributions out
of current or accumulated net profit of an amount determined by the CTFC Board of Directors.
Stock dividends on CTFC stock held in the Participant’s Company Stock account are credited to the
Participant’s Company Stock account when paid to the plan. Cash dividends on CTFC stock held in
the Participant’s Company Stock account is either credited to the Participant’s Other Investments
Account when paid to the Plan or used to repay an Exempt Loan. When cash dividends are used to
repay an Exempt Loan, CTFC stock is released from the Unallocated Company Stock Suspense
Account and allocated to the Participant’s Company Stock Account. Cash dividends on CTFC stock
not held in the Participant’s Company Stock account is used to pay expenses of the plan.
The total of the Company's contributions may not exceed 15% of compensation paid to all employees
or the maximum deductible under the Internal Revenue Code. Although it has not expressed any
intention to do so, the Company has the right to terminate the KSOP at any time. The total expense
for the years ended December 31, 2013 and 2012, including optional contributions, was $927,000
and $745,000, respectively.
The KSOP owns a total of 484,341 shares as of December 31, 2013, all of which were released. At
December 31, 2012 the KSOP owned a total of 406,741shares, all of which were released. All CTFC
stock owned by the KSOP was included in the EPS calculation for 2013 and 2012.
21. Employee Stock Options
CTFC issues common stock options to select officers and employees through individual agreements
and as a result of obligations assumed in association with negotiated mergers. As a result, both
incentive and nonqualified stock options have been issued and may be issued in the future. The
exercise price of each option varies by agreement and is based on either the fair value of the stock at
the date of the grant in circumstances where option grants occurred or based on the previously
committed exercise price in the case of options acquired through merger. The initial term of all
outstanding stock options does not exceed twenty years. Vesting periods range from immediate to
seven years from the date of grant or merger. Options under the nonqualified stock option plan for
certain directors of the FLB merger could only be exercised three years from the date of the merger,
and all of these options were exercised during 2012. The total number of those options was 34,672
and the exercise price was $10 per share. The Company accounts for employee stock options in
accordance with ASC Topic 718, Compensation-Stock Compensation, which requires that
compensation cost relating to share-based payment transactions be recognized in the financial
statements with measurement based upon the fair value of the equity or liability instruments issued.
For the years ended December 31, 2013 and 2012, the Company recognized approximately $225,000
and $750,000 in compensation expense for stock options, respectively.
50
The fair value of each outstanding option is estimated on the date of grant or assumption through
merger using the Black-Scholes option-pricing model. No options were granted during the years
ended December 31, 2013 nor 2012.
The expected volatility is based on historical volatility. The risk-free interest rates for periods within
the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of
the grant. The expected life is based on historical exercise experience. The dividend yield
assumption is based upon CTFC's history and expectation of dividend payouts.
A summary of the status of CTFC's stock options is presented below:
Outstanding-January 1, 2012
Granted
Exercised
Outstanding-December 31, 2012
Granted
Exercised
Outstanding-December 31, 2013
Number
of
Shares
280,914
(43,272)
237,642
237,642
Options exercisable at December 31, 2013
210,733
Total Options
Average
Exercise
Price
$22.14
Average
Intrinsic
Value
$3,612,554
10.60
24.24
1,142,544
3,031,430
24.24
4,564,221
$23.78
$4,145,207
Information pertaining to options outstanding at December 31, 2013 is as follows:
Options Outstanding
Range of
Exercise Prices
$10.00
$10.01 - $20.00
$20.01 and above
Outstanding at end of year
Number
Outstanding
50,000
187,642
237,642
Vested Options
Range of
Exercise Prices
$10.00
$10.01 - $20.00
$20.01 and above
Exercisable at end of year
Number
Exercisable
43,000
167,733
210,733
51
Weighted
Average
Remaining
Contractual
Life
10.01 years
6.02 years
6.86 years
Weighted
Average
Exercise
Price
$16.50
$26.31
$24.24
Weighted
Average
Remaining
Contractual
Life
10.01 years
5.21 years
6.19 years
Weighted
Average
Exercise
Price
$16.50
$25.65
$23.78
Number of
Shares
109,672
(65,921)
43,751
(16,842)
26,909
Nonvested options, January 1, 2012
Granted
Vested
Forfeited
Nonvested options, December 31, 2012
Granted
Vested
Forfeited
Nonvested options, December 31, 2013
Weighted Average
Grant Date Fair
Value
$21.15
11.97
$12.68
Information pertaining to options outstanding at December 31, 2012 is as follows:
Options Outstanding
Range of
Exercise Prices
$10.00
$10.01 - $20.00
$20.01 and above
Outstanding at end of year
Number
Outstanding
50,000
187,642
237,642
Vested Options
Range of
Exercise Prices
$10.00
$10.01 - $20.00
$20.01 and above
Exercisable at end of year
Number
Exercisable
38,000
155,891
193,891
Weighted
Average
Remaining
Contractual
Life
11.01 years
7.02 years
7.86 years
Weighted
Average
Exercise
Price
$16.50
$26.31
$24.24
Weighted
Average
Remaining
Contractual
Life
11.01 years
5.91 years
6.91 years
Weighted
Average
Exercise
Price
$16.50
$25.38
$23.64
As of December 31, 2013 and 2012, there was $336,000 and $724,000, respectively, of total
unrecognized compensation cost related to nonvested share-based compensation arrangements. That
cost is expected to be recognized over a weighted-average period of 2.37 years. The total fair value
of shares vested during the years ended December 31, 2013 and 2012, was $291,000 and $514,000,
respectively. The recognized tax benefit related thereto was $102,000 and $180,000 for the years
ended December 31, 2013 and 2012, respectively.
No options were exercised during the year ended December 31, 2013. Cash received from options
exercised under all share-based payment arrangements for the year ended December 31, 2012 was
$347,000.
52
22. Related Party Transactions
In the ordinary course of business, CTB makes loans to directors, executive officers, principal
shareholders and other entities in which these individuals have 10% or more beneficial ownership.
Annual activity consisted of the following (in thousands):
2013
2012
Balance-beginning of year
Advances
Principal repayments
Balance-end of year
$ 25,786
18,889
(21,607)
$ 23,068
$ 24,295
22,084
(20,593)
$ 25,786
Commitments to extend credit
$ 37,829
$ 63,407
In management’s opinion, such loans and other extensions of credit and deposits were made in the
ordinary course of business and were made on substantially the same terms (including interest rates
and collateral) as those prevailing at the time for comparable transactions with other persons.
Further, in management’s opinion, these loans did not involve more than normal risk of collectability
or present other unfavorable features.
Deposits from related parties held by CTB at December 31, 2013 and 2012 amounted to $51.0
million and $53.9 million, respectively.
Lincoln Builders, Inc., a commercial construction company previously owned by one of our directors
and currently owned by his related interests, is engaged from time to time for the construction of
properties for the Company. The total value paid for construction contracts with Lincoln Builders,
Inc. and its affiliate company Lincoln Builders of Texas, Inc. was $6.1 million and $8.5 million for
the years ended December 31, 2013 and 2012, respectively.
23. Fair Value of Financial Instruments
The carrying value and estimated fair values of financial instruments at December 31 are as follows
(in thousands):
2013
Carrying
Estimated
Value
Fair Value
Financial assets:
Cash and cash equivalents
$ 222,750
$ 222,750
Time deposits in banks
100
100
Securities available for sale
369,340
369,340
Securities held to maturity
5,433
5,447
Federal Home Loan Bank stock
4,766
4,766
Federal Reserve Bank stock
7,974
7,974
Mortgage loans held for sale
24,190
24,190
Loans, net
2,398,579
2,395,412
Accrued interest and loan fees receivable
8,669
8,669
Mortgage servicing rights
11,088
11,088
Derivatives
3,659
3,659
53
2013
Carrying
Value
Financial liabilities:
Noninterest-bearing deposits
Interest-bearing deposits
Short-term borrowings
Long-term borrowings
Accrued interest payable
Derivatives
559,292
2,156,840
28,621
81,978
3,631
6,509
2012
Carrying
Value
Financial assets:
Cash and cash equivalents
Time deposits in banks
Securities available for sale
Securities held to maturity
Federal Home Loan Bank stock
Federal Reserve Bank stock
Mortgage loans held for sale
Loans, net
Accrued interest and loan fees receivable
Mortgage servicing rights
Derivatives
Financial liabilities:
Noninterest-bearing deposits
Interest-bearing deposits
Short-term borrowings
Long-term borrowings
Accrued interest payable
Derivatives
Estimated
Fair Value
559,292
2,155,159
28,621
81,081
3,631
6,509
Estimated
Fair Value
$ 198,876
100
341,071
5,490
7,767
6,289
16,297
2,360,046
8,878
4,788
5,319
$ 198,876
100
341,071
5,490
7,767
6,289
16,297
2,347,934
8,878
4,788
5,319
482,073
2,114,429
34,621
86,740
4,767
12,379
482,073
2,101,405
34,621
85,096
4,767
12,379
The methodology and significant assumptions used in estimating the fair values presented above are
as follows:
Cash and Cash Equivalents and Time Deposits in Banks
The carrying amounts for cash and cash equivalents and time deposits in banks approximate their fair
value.
Investment Securities
Estimated fair values for securities available for sale and securities held to maturity are based on
quoted market prices where available. If quoted market prices are not available, estimated fair values
are based on quoted market prices of comparable instruments.
Federal Home Loan Bank Stock
The carrying amount of the investment in the FHLB approximates its fair value.
Federal Reserve Bank Stock
The carrying amount of the investment in the Federal Reserve Bank approximates its fair value.
54
Mortgage Loans Held for Sale
The carrying amounts of mortgage loans held for sale with an average carrying period of less than
thirty days approximate their fair value.
Loans
Fair values are estimated for portfolios of loans that have similar financial characteristics. Loans are
segregated by type and maturity. Each loan category is further segmented into fixed and adjustable
rate interest terms.
The fair value of performing loans is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the credit and interest rate risk
inherent in the loan. The estimate of maturity is based on CTB’s historical experience with
repayments for each loan classification, modified, as required, by an estimate of the effect of current
economic and lending conditions. For purposes of estimating fair value, loans with a remaining
maturity of three months or less and adjustable rate loans are assumed to be carried at approximate
fair value due to re-pricing at current market rates.
Mortgage Servicing Rights
The carrying amounts of the mortgage servicing equals fair value. At December 31, 2013, the
mortgage servicing rights were valued based on expected future cash flows considering unobservable
inputs. See Note 8 Loan Servicing for more information on inputs.
Deposits
The carrying amount of noninterest-bearing deposits approximates fair value. The fair value of
interest-bearing deposits is based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for deposits of similar remaining maturities by the
Company and comparable institutions.
Short-Term Borrowings
The carrying amounts of federal funds purchased, borrowings under repurchase agreements and other
short-term borrowings maturing within ninety days approximate their fair values.
Long-Term Borrowings
The fair value of the long-term advances from the FHLB is calculated using market interest rates
currently available to the Company and comparable institutions for debt with similar terms and
remaining maturities.
Accrued Interest
Accrued interest receivable represents interest on loans and investments. Accrued interest payable
represents interest on deposits and borrowings. The carrying amount of accrued interest receivable
and payable approximates fair value.
55
Derivatives
Fair values for interest rate swap agreements are based upon the amounts that would be required to
settle the contracts. Fair values for derivative loan commitments and forward loan sale commitments
are based on fair values of the underlying mortgage loans and the probability of such commitments
being exercised. Significant management judgment and estimation is required in determining these
fair value measurements.
Outstanding Commitments
Outstanding commitments include commitments to extend credit, letters of credit and unadvanced
lines of credit for which fair values were estimated based on an analysis of the interest rates and fees
currently charged to enter into similar transactions. The estimated fair value of these commitments
was not material at December 31, 2013 and 2012.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's entire holdings of particular
financial instruments. Because no market exists for a significant portion of CTB's financial
instruments, fair value estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments.
ASC Topic 820, Fair Value Measurement, defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. The fair value of an asset or
liability is the price that would be received to sell that asset or paid to transfer that liability in an
orderly transaction occurring in the principal market (or most advantageous market in the absence of
a principal market) for such asset or liability. ASC Topic 820, Fair Value Measurement, establishes
a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active
markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair
value hierarchy is as follows:
• Level 1 Inputs - Valuation is based upon quoted market prices for identical assets or
liabilities traded in active markets,
• Level 2 Inputs - Valuation is based upon quoted market prices for similar assets or liabilities
traded in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active and model-based valuation techniques for which all significant
assumptions are derived from or corroborated by observable market data and
• Level 3 Inputs - Valuation is based upon unobservable inputs reflecting the reporting entity's
own determination about the assumptions that market participants would use in pricing the
asset or liability based on the best information available.
56
All assets and liabilities have been valued using a market approach, except for Level 3 assets and
liabilities. Level 3 assets and liabilities are valued using discounted cash flow models. Fair values
for assets and liabilities in Level 2 are calculated using quoted market prices for similar assets and
liabilities in markets that are not active. There were no changes in the valuation techniques during
the current year.
The following tables summarize financial assets and financial liabilities measured at fair value on a
recurring basis segregated by the level of valuation inputs with the fair value hierarchy utilized to
measure fair value (in thousands):
December 31, 2013
Level 2
Level 1
U.S. Treasuries
U.S. Government and agency
State and municipal
Collateralized mortgage obligations
Mortgage-backed
Corporate bonds
Other securities
Securities available for sale
$
Loans held at fair value
Mortgage servicing rights
Customer matched interest rate
swap assets
Customer matched interest rate
swap liabilities
Cash flow hedge liability
Interest rate swaps tied to certain
loans
-
Loans held at fair value
Mortgage servicing rights
Customer matched interest rate
swap assets
Customer matched interest rate
swap liabilities
Cash flow hedge liability
Interest rate swaps tied to certain
loans
$
Total
$
$ 10,000
6,574
144,250
125,602
74,689
3,978
4,247
369,340
-
-
-
-
3,659
-
3,659
-
(3,659)
(372)
-
(3,659)
(372)
-
(2,478)
-
(2,478)
December 31, 2012
Level 2
Level 1
U.S. Treasuries
U.S. Government and agency
State and municipal
Collateralized mortgage obligations
Mortgage-backed
Corporate bonds
Other securities
Securities available for sale
$ 10,000
6,574
144,250
125,602
74,689
3,978
4,247
369,340
Level 3
-
$ 29,998
156,872
85,789
60,328
3,855
4,229
341,071
64,533
11,088
64,533
11,088
Level 3
Total
$
$ 29,998
156,872
85,789
60,328
3,855
4,229
341,071
-
-
-
-
5,319
-
5,319
-
(5,319)
(609)
-
(5,319)
(609)
-
(6,451)
-
(6,451)
57
84,147
4,788
84,147
4,788
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years
ended December 31, 2013 and 2012 are summarized as follows (in thousands):
Beginning - January 1, 2012
Total gains or losses
Included in earnings
Included in other
comprehensive income
Purchases, issuances, sales,
and settlements
Purchases
Issuances
Reclassification to held to maturity
Sales
Settlements
Ending - December 31, 2012
Total gains or losses
Included in earnings
Included in other
comprehensive income
Purchases, issuances, sales,
and settlements
Purchases
Issuances
Sales
Settlements
Ending - December 31, 2013
Loans Held
at
Fair Value
Mortgage
Servicing
Rights
Other
Securities
$
$ 3,824
$
78,221
592
(746)
(530)
-
-
-
-
6,672
84,147
1,494
4,788
(592)
-
(3,067)
1,197
-
-
-
-
(16,547)
$ 64,533
5,103
$ 11,088
$
-
Following is a description of the valuation methodologies and inputs used for assets and liabilities
measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets,
as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Impaired Loans (Collateral Dependent)
Loans for which it is probable that CTB will not collect all principal and interest due according to
contractual terms are measured for impairment. Allowable methods for determining the amount of
impairment include estimating fair value using the fair value of the collateral for collateraldependent loans. If the impaired loan is identified as collateral-dependent, the fair value method of
measuring the amount of impairment is utilized. This method requires obtaining a current
independent appraisal of the collateral and applying a discount factor to the value. Impaired loans
that are collateral-dependent are classified within Level 3 of the fair value hierarchy when
impairment is determined using the fair value method. The fair value of impaired loans with specific
allocated losses was $5.5 million and $3.6 million at December 31, 2013 and 2012, respectively.
58
Non-Financial Assets
Foreclosed assets held for sale are the only material non-financial assets valued on a non-recurring
basis which are initially recorded by the Company at fair value, less estimated costs to sell. At
foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the
Company’s recorded investment in the related loan, a write-down is recognized through a charge to
the allowance for loan losses. Additionally, valuations are periodically performed by management
and any subsequent reduction in value is recognized by a charge to income. The fair value of
foreclosed assets held for sale is estimated using Level 3 inputs based on observable market data. As
of December 31, 2013 and 2012, the fair value of foreclosed assets held for sale, less estimated costs
to sell, with write-downs subsequent to foreclosure was $1.5 million and $2.8 million, respectively.
24. Loans Recorded at Fair Value
As permitted by ASC Topic 825, Financial Instruments, the Company has elected to measure certain
loans at fair value. Fair value is determined in accordance with ASC Topic 820, Fair Value
Measurement, using Level 3 inputs, including primarily credit spreads. Discount rates are
determined using forward curve rates established with market data. Credit spreads are applied to the
discount rates and ranged from 2.83% to 4.83%. The Company recognizes interest income on loans
measured at fair value separately from other changes in fair value. As of December 31, 2013 and
2012, there were no loans measured at fair value on non-accrual status or 90 days or more past due
and still accruing interest.
The unpaid principal balance of loans measured at fair value was $63.5 million and $79.3 million at
December 31, 2013 and 2012, respectively. The fair value of loans measured at fair value was $64.5
million and $84.1 million at December 31, 2013 and 2012, respectively. Decreases of $3.1 million
and $746,000 to the recorded value of the loans were recorded in other noninterest income during the
years ended December 31, 2013 and 2012, respectively. The Company uses interest rate swap
agreements to mitigate interest rate and valuation risk associated with these loans. Gains of $4.0
million and losses of $409,000 were recognized in noninterest income as a result of changes in fair
value of the related interest rate swaps for the years ended December 31, 2013 and 2012,
respectively. See Note 16 Derivative Financial Instruments for additional information on the
related interest rate swaps.
25. Other Noninterest Expense
The table below shows the components of other noninterest expense for the years ended December
31 (in thousands):
2013
3,362
2,833
3,162
2,621
5,760
21
3,343
894
528
22,524
Advertising and other marketing costs
Production costs
Portal costs
Loan support costs
Employee support costs
Facility support costs
Corporate support costs
Operations costs
Other costs
Total other noninterest expense
59
2012
3,708
2,652
2,452
2,582
4,672
29
4,136
1,019
1,481
22,731
26. Concentration of Credit Risk
CTB grants loans primarily to customers in Louisiana, Texas and Mississippi. Although the Bank
has a diversified loan portfolio, a substantial portion of loan repayment is dependent upon the general
business climate of this area. In addition, a substantial portion of its loans, although not necessarily
originated for the purposes of real estate acquisition, are secured by real estate and their ability to
fully collect their loans could depend upon the real estate market in this region. The Bank typically
requires collateral with sufficient margin in value to cover the principal amount of the loan. Such
collateral is evidenced by mortgages on property held and readily accessible to the Bank.
Additionally, at times, CTB maintains deposits and federal funds sold in federally insured financial
institutions in excess of federally insured limits. Management monitors the soundness of these
financial institutions and feels the Bank's risk of loss is remote.
27. Business Combinations
On December 31, 2012, CTFC acquired 100% of the outstanding stock of Thomas & Farr Agency,
Inc. (“T&F”), a Louisiana corporation with principal place of business in Monroe, Louisiana. T&F
is engaged in providing property and casualty insurance coverage to individuals and businesses. The
business combination was accounted for under the acquisition method of accounting.
As a result of the acquisition, CTFC issued 50,000 shares of common stock at a market value of
$40.00 per share, or $2.0 million, and paid $6.8 million cash to certain holders of T&F stock. Future
probable cash payments included an additional $150,000 in cash payable 120 days following closing,
contingent consideration of $750,000 in cash payable following the second anniversary of the closing
(provided Year 2 standalone net product line revenues are met according to the purchase agreement),
and additional contingent consideration of $2.0 million in cash payable following the third
anniversary of closing (provided guidelines are met according to the purchase agreement).
Management considered it probable that all conditions of the purchase agreement would be met.
Therefore, all of the contingent consideration was included in the purchase price allocation. The
total consideration of $11.7 million exceeded the net assets acquired by $9.5 million which was
recorded to goodwill. The goodwill arising from the acquisition consists largely of synergies and
economies of scale expected from combining the operations of the Company and T&F. During the
year ended December 31, 2013, the additional $150,000 mentioned above as a future probable cash
payment plus post-acquisition additional purchase price in the amount of $66,000 was paid to certain
holders of T&F stock. See Note 6 Goodwill and Other Intangible Assets for information on the
additional purchase price.
Approximately $2.8 million of the premium paid represents a relationship based intangible asset
which will be amortized over twenty years. This asset is not deductible for federal income taxes.
The following tables summarize the consideration paid for T&F and the assets acquired and
liabilities assumed at the acquisition date (in thousands):
Fair Value of Consideration Transferred or Transferable
Common stock issued
Cash consideration
Cash to be paid over the next three years
Consideration transferred or transferable
60
$
$
2,000
6,760
2,900
11,660
Recognized amounts of identifiable assets acquired and liabilities assumed at fair value
Cash and cash equivalents
Accounts receivable
Furniture and equipment
Relationship based intangible
Other assets
Insurance payables
Deferred tax liability
Other liabilities
Total identifiable net assets
$
$
478
715
76
2,824
3
(870)
(989)
(99)
2,138
The fair value of the CTFC common shares issued was determined based on a third-party appraisal at
the date of the acquisition as there is no active market for the Company’s stock.
28. Condensed Parent Company Only Financial Statements
Condensed financial statements of Community Trust Financial Corporation (parent company only)
are as follows (in thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 2013 AND 2012
2013
ASSETS
Cash and cash equivalents
Investment in affiliates/subsidiaries
Premises and equipment, net
Other assets
$
Total assets
LIABILITIES
Short-term borrowings
Subordinated debentures
Accrued expenses and other liabilities
Total liabilities
STOCKHOLDERS’ EQUITY
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Treasury stock, at cost
Accumulated other comprehensive income
Total stockholders' equity
2,548
352,005
5,192
3,604
3,380
351,022
5,547
2,363
$ 362,312
$
$
9,688
3,377
13,065
$ 363,349
61
$
$ 363,349
63,260
43,101
153,318
90,726
(480)
359
350,284
Total liabilities and stockholders’ equity
2012
10,000
9,638
3,216
22,854
63,260
42,799
151,639
71,203
(13)
10,570
339,458
$ 362,312
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Income:
Subsidiary management fees
Dividends from subsidiaries
Other
Total income
Expenses:
Interest expense
Salaries and employee benefits
Other
Total expenses
Income before income taxes and equity in undistributed
net income of subsidiaries
Income tax expense
2013
2012
$ 6,233
12,772
161
19,166
$ 7,174
4,959
12
12,145
768
3,433
2,859
7,060
1,213
3,659
2,978
7,850
12,106
4,295
(96)
185
Income before equity in undistributed net income of subsidiaries
Equity in undistributed net income of subsidiaries
12,010
10,327
4,480
20,430
Net income
22,337
24,910
588
981
$ 21,749
$ 23,929
Preferred stock dividends
Net income available to common stockholders
62
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Deferred income taxes
Gain on disposal of premises and equipment
Equity in undistributed net income of subsidiaries
Amortization of subordinated debentures discount
Stock compensation
Other, net
Net cash provided by operating activities
2013
2012
$ 22,337
$ 24,910
Cash flows from investing activities:
Purchases of premises and equipment
Capital contributed to subsidiary
Proceeds from sales of premises and equipment
Cash paid for business combinations, net of cash
and cash equivalents acquired
Net cash used in investing activities
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings
Dividends paid
Proceeds from issuance of common stock
Cash paid for retirement of common stock
Net proceeds from issuance of preferred stock
Net (purchase) issuance of treasury stock
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
423
185
(30)
(10,327)
50
186
(893)
11,931
137
(20,430)
98
750
911
6,376
(40)
(1,200)
160
(1,482)
(84,317)
-
(1,080)
(6,282)
(92,081)
(10,000)
(2,814)
1,607
(476)
(11,683)
10,000
(2,684)
65,501
(2)
15,000
38
87,853
(832)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
3,380
2,548
2,148
$
1,232
3,380
29. Subsequent Events
The Company evaluated events and transactions that occurred after the balance sheet date through
March 18, 2014, the date for which the financial statements were available for distribution, for
potential recognition and disclosure. No subsequent events requiring potential recognition or
disclosure were noted.
63