-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QFtGh1MtccuwZLTEl3gUbtCmef37WeWZkvkt5Ok0tBVFfzuNAMKATbLJNEKgGQgA fyn+xZmhGRMov2H7RITIMA== 0000835324-98-000006.txt : 19980814 0000835324-98-000006.hdr.sgml : 19980814 ACCESSION NUMBER: 0000835324-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: S Y BANCORP INC CENTRAL INDEX KEY: 0000835324 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 611137529 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13661 FILM NUMBER: 98684864 BUSINESS ADDRESS: STREET 1: 1040 E MAIN ST CITY: LOUISVILLE STATE: KY ZIP: 40206 BUSINESS PHONE: 5025822571 MAIL ADDRESS: STREET 1: 1040 EAST MAIN STREET CITY: LOUISVILLE STATE: KY ZIP: 40206 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- -------------------- Commission file number 17262 S.Y. BANCORP, INC. (Exact name of registrant as specified in its charter) Kentucky 61-1137529 (State or other jurisdiction (I.R.S. Employer or organization) Identification No.) 1040 East Main Street, Louisville, Kentucky, 40206 (Address of principal executive offices) (Zip Code) (502)582-2571) (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value - 3,296,569 shares issued and outstanding at August 4, 1998 PART I - FINANCIAL INFORMATION Item 1. Financial Statements The following consolidated financial statements of S.Y. Bancorp, Inc. and Subsidiary, Stock Yards Bank & Trust Company, are submitted herewith: Consolidated Balance Sheets June 30, 1998 (Unaudited) and December 31, 1997 Unaudited Consolidated Statements of Income for the three months ended June 30, 1998 and 1997 Unaudited Consolidated Statements of Income for the six months ended June 30, 1998 and 1997 Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 Unaudited Consolidated Statements of Changes in Stockholders' Equity for the six months ended June 30, 1998 Notes to Consolidated Financial Statements S.Y. BANCORP, INC. AND SUBSIDIARY Consolidated Balance Sheets June 30, 1998 and December 31, 1997 (Unaudited) June 30, 1998 December 31, 1997 ------------- ----------------- (In thousands, except share data) Assets Cash and due from banks $ 24,819 $ 18,153 Federal funds sold 2,000 6,000 Mortgage loans held for sale 6,227 5,183 Securities available for sale (amortized cost $31,142 in 1998 and $31,019 in 1997) 31,548 31,462 Securities held to maturity (approximate market value $39,839 in 1998 and $28,962 in 1997) 39,572 28,652 Loans 417,924 370,293 Allowance for loan losses 6,465 5,921 ------- ------- Net loans 411,459 364,372 Premises and equipment 14,375 13,903 Accrued interest receivable and other assets 11,990 10,872 ------- ------- TOTAL ASSETS $541,990 $478,597 ======= ======= Liabilities and Stockholders' Equity Deposits Non-interest bearing $ 78,073 $ 72,103 Interest bearing 402,236 345,468 ------- ------- Total deposits 480,309 417,571 Securities sold under agreements to repurchase and federal funds purchased 8,847 13,684 Short-term borrowings 4,999 4,483 Accrued interest payable and other liabilities 5,398 3,827 Long-term debt 2,100 2,115 ------- ------- TOTAL LIABILITIES 501,653 441,680 ------- ------- Stockholders' equity Common stock, no par value; 10,000,000 shares authorized; 3,293,759 and 3,281,971 shares issued and outstanding in 1998 and 1997, respectively 5,525 5,486 Surplus 13,945 13,644 Retained earnings 20,599 17,495 Accumulated other comprehensive income 268 292 ------- ------- TOTAL STOCKHOLDERS' EQUITY 40,337 36,917 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $541,990 $478,597 ======= ======= See accompanying notes to consolidated financial statements. S.Y. BANCORP, INC. AND SUBSIDIARY Unaudited Consolidated Statements of Income For the three months ended June 30, 1998 and 1997 1998 1997 (In thousands, except share and per share data) ---- ---- Interest income Loans $9,386 $7,405 Federal funds sold 178 63 Mortgage loans held for sale 138 72 U.S. Treasury and Federal agencies 796 915 Obligations of states and political subdivisions 120 98 ------ ------ Total interest income 10,618 8,553 ------ ------ Interest expense Deposits 4,719 3,389 Securities sold under agreements to repurchase and federal funds purchased 134 243 Short-term borrowings 26 30 Long-term debt 39 43 ------ ------ Total interest expense 4,918 3,705 ------ ------ Net interest income 5,700 4,848 Provision for loan losses 350 225 ------ ------ Net interest income after provision for loan losses 5,350 4,623 ------ ------ Non-interest income Investment management and trust services 1,238 862 Service charges on deposit accounts 735 496 Gains on sales of mortgage loans held for sale 529 275 Other 339 220 ------ ------ Total non-interest income 2,841 1,853 ------ ------ Non-interest expenses Salaries and employee benefits 2,976 2,316 Net occupancy expense 342 278 Furniture and equipment expense 491 414 Other 1,344 883 ------ ------ Total non-interest expenses 5,153 3,891 ------ ------ Income before income taxes 3,038 2,585 Income tax expense 976 864 ------ ------ Net income $ 2,062 $ 1,721 ====== ====== Net income per share Basic $ .63 $ .53 ====== ====== Diluted $ .60 $ .51 ====== ====== Average common shares Basic 3,293,552 3,275,257 ========= ========= Diluted 3,426,441 3,399,799 ========= ========= See accompanying notes to consolidated financial statements. S.Y. BANCORP, INC. AND SUBSIDIARY Unaudited Consolidated Statements of Income For the six months ended June 30, 1998 and 1997 1998 1997 (In thousands, except share and per share data) ---- ---- Interest income Loans $18,171 $14,466 Federal funds sold 267 243 Mortgage loans held for sale 234 129 U.S. Treasury and Federal agencies 1,601 1,738 Obligations of states and political subdivisions 236 194 ------ ------ Total interest income 20,509 16,770 ------ ------ Interest expense Deposits 8,959 6,752 Securities sold under agreements to repurchase and federal funds purchased 284 395 Short-term borrowings 56 52 Long-term debt 78 86 ====== ====== Total interest expense 9,377 7,285 ------ ------ Net interest income 11,132 9,485 Provision for loan losses 650 450 ------ ------ Net interest income after provision for loan losses 10,482 9,035 ------ ------ Non-interest income Investment management and trust services 2,298 1,508 Service charges on deposit accounts 1,290 940 Gains on sales of mortgage loans held for sale 852 488 Gains on sales of securities available for sale 184 80 Other 645 417 ------ ------ Total non-interest income 5,269 3,433 ------ ------ Non-interest expenses Salaries and employee benefits 5,533 4,633 Net occupancy expense 651 533 Furniture and equipment expense 895 771 Other 2,843 1,750 ------ ------- Total non-interest expenses 9,922 7,687 ------ ------ Income before income taxes 5,829 4,781 Income tax expense 1,870 1,577 ------ ------ Net income $ 3,959 $ 3,204 ====== ====== Net income per share Basic $ 1.20 $ .98 ====== ====== Diluted $ 1.16 $ .94 ====== ====== Average common shares Basic 3,291,274 3,274,143 ========= ========= Diluted 3,416,871 3,395,395 ========= ========= See accompanying notes to consolidated financial statements. S.Y. BANCORP & SUBSIDIARY Unaudited Consolidated Statement of Changes in Stockholders' Equity For the six months ended June 30, 1998
Common Stock Accumulated ------------ Other Number of Retained Comprehensive Shares Amount Surplus Earnings Income Total ------ ------ ------- -------- ------ ----- (In thousands, except per share data) Balance December 31, 1997 3,281,971 $ 5,486 $ 13,644 $ 17,495 $ 292 $ 36,917 Net income 3,959 3,959 Stock options exercised 4,869 16 34 50 Shares issued for dividend reinvestment and employee stock purchase plan 6,919 23 267 290 Cash dividends, $.26 per share ( 855) ( 855) Change in other comprehensive income, net of tax ( 24) ( 24) -------- ------ ------ ------ ------ ------ Balance June 30, 1998 3,293,759 $ 5,525 $ 13,945 $ 20,599 $ 268 $ 40,337 ========= ======= ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY Unaudited Consolidated Statements of Cash Flows For the six months ended June 30, 1998 and 1997 1998 1997 (In thousands) ---- ---- Operating Activities Net income $ 3,959 $ 3,204 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 650 450 Depreciation, amortization and accretion, net 787 649 Gains on sales of mortgages held for sale ( 852) ( 488) Gains on sales of securities available for sale ( 184) ( 80) Origination of mortgage loans held for sale ( 48,628) (27,247) Proceeds from sales of mortgage loans held for sale 48,436 27,175 (Increase) decrease in accrued interest receivable other assets ( 1,140) ( 582) Increase (decrease) in accrued interest payable and other liabilities 1,571 ( 178) ------ ------ Net cash provided (used) by operating activities 4,599 2,903 ------ ------ Investing Activities Net (increase) decrease in federal funds sold 4,000 3,900 Purchases of securities available for sale ( 32,417) ( 17,749) Purchases of securities held to maturity ( 48,652) ( 10,994) Proceeds from maturities of securities available for sale 26,848 3,348 Proceeds from maturities of securities held to maturity 38,283 36,128 Proceeds from sales of securities available for sale 5,031 4,026 Proceeds from sales of other real estate owned - 172 Net (increase) decrease in loans ( 47,737) ( 26,408) Purchases of premises and equipment ( 1,176) ( 3,115) ------ ------ Net cash provided (used) by investing activities ( 55,820) ( 10,692) ------ ------ Financing Activities Net increase (decrease) in deposits 62,738 18,074 Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased ( 4,837) ( 2,817) Net increase (decrease) in short-term borrowings 516 1,301 Issuance of common stock for options and dividend reinvestment plan 340 104 Cash dividends ( 855) ( 723) Repayments of long-term debt ( 15) ( 512) ------ ------ Net cash provided (used) by financing activities 57,887 15,427 ------ ------ Net increase (decrease) in cash and cash equivalents 6,666 7,638 Cash and cash equivalents at beginning of period 18,153 15,348 ------- ------ Cash and cash equivalents at end of period $ 24,819 $ 22,986 ======= ======= Income tax payments were $1,095,000 in 1998, and $1,644,000 in 1997 Cash paid for interest was $9,498,000 in 1998, and $7,363,000 in 1997 See accompanying notes to consolidated financial statements. S.Y. BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements of S.Y. Bancorp, Inc. and subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which Are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods. The consolidated financial statements include the accounts of S.Y. Bancorp, Inc. and its wholly owned subsidiary, Stock Yards Bank & Trust Company, a Kentucky bank. As of the close of business May 29, 1998, Stock Yards Bank & Trust Company, an Indiana bank, was merged with the Kentucky Bank. All significant inter-company transactions have been eliminated in consolidation. A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 1997 included in S.Y. Bancorp, Inc.'s Annual Report on Form 10-K for the year then ended. Interim results for the quarter and six months ended June 30, 1998 are not necessarily indicative of the results for the entire year. (2) Allowance for Loan Losses An analysis of the changes in the allowance for loan losses for the six months ended June 30 follows (in thousands): 1998 1997 ---- ---- Beginning balance $5,921 $5,155 Provision for loan losses 650 450 Loans charged off ( 150) ( 52) Recoveries 44 22 ----- ----- Ending balance $6,465 $5,575 ===== ===== (3) Comprehensive Income S.Y. Bancorp, Inc. adopted FASB Statement No. 130, "Reporting Comprehensive Income", during the first quarter of 1998. This statement established standards for reporting and displaying comprehensive income and its components. Comprehensive income is defined as "the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners." Comprehensive income for S.Y. Bancorp, Inc. and subsidiary includes net income and unrealized gains and losses on securities available for sale. The following table sets forth the components of comprehensive income for the six months ended June 30 (in thousands). 1998 1997 ---- ---- Net Income $ 3,959 $ 3,204 Other comprehensive income, net of tax: Unrealized gains on securities Unrealized holding losses arising during period ( 145) ( 197) Less reclassification adjustment for gains included in net income 121 53 ----- ----- ( 24) ( 144) ----- ----- Comprehensive income $ 3,935 $ 3,060 ===== ===== (4) Net Income per share The following table reflects, for the three and six month periods ended June 30, the numerators (net income) and denominators (average shares outstanding) for the basic and diluted net income per share computations (in thousands except per share data). Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 ---- ---- ---- ---- Net income, basic and diluted $ 2,062 $ 1,721 $ 3,959 $ 3,204 ===== ===== ===== ===== Average shares outstanding 3,294 3,275 3,291 3,274 Effect of dilutive securities 132 125 126 121 ----- ----- ----- ----- Average shares outstanding including dilutive securities 3,426 3,400 3,417 3,395 ===== ===== ===== ===== Net income per share, basic $ .63 $ .53 $ 1.20 $ .98 ===== ===== ===== ===== Net income per share, diluted $ .60 $ .51 $ 1.16 $ .94 ===== ===== ===== ===== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This item discusses the results of operations for S.Y. Bancorp, Inc. ("Bancorp"), and its subsidiary, Stock Yards Bank & Trust Company ("the Kentucky Bank") for the three and six month period ended June 30, 1998 and compares those periods with the same periods of the previous year. As of the close of business May 29, 1998, the Stock Yards Bank & Trust Company (Indiana) was merged with the Kentucky Bank. Unless otherwise indicated, all references in this discussion to the "Bank" or "Banks" include Bancorp. In addition, this discussion describes the significant changes in the financial condition of Bancorp and the Bank that have occurred during the first six months of 1998 compared to December 31, 1997. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes presented in Part I, Item 1 of this report. A. RESULTS OF OPERATIONS Net income of $2,062,000 for the three months ended June 30, 1998 increased $341,000 or 19.8% from $1,721,000 for the comparable 1997 period. Basic net income per share was $.63 for the second quarter of 1998, an increase of 18.9% from $.53 for the same period in 1997. Net income on a diluted basis was $.60 for the second quarter of 1998 compared to $.51 for the second quarter of 1997. This represents a 17.7% increase. Return on average assets and return on average stockholders' equity were 1.65% and 20.96%, respectively, for the second quarter of 1998, compared to 1.62% and 20.63%, respectively, for the same period in 1997. Net income of $3,959,000 for the six months ended June 30, 1997 increased $755,000 or 23.6% from $3,204,000 for the comparable 1997 period. Basic net income per share was $1.20 for the first six months of 1998, an increase of 22.5% from $.98 for the same period in 1997. Net income per share on a diluted basis was $1.16 for the first six months of 1998, an increase of 23.4% from $.94 for the same period in 1997. Return on average assets and return on average stockholders' equity was 1.56% and 20.65%, respectively, for the first half of 1998, compared to 1.55% and 19.70%, respectively, for the same period in 1997. The following paragraphs provide an analysis of the significant factors affecting operating results and financial condition. Net Interest Income In thousands except percentages Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 ---- ---- ---- ---- Interest income $10,618 $ 8,553 $ 20,509 $ 16,770 Tax equivalent adjustment 52 45 102 89 ------ ------ ------ ------ Interest income, tax equivalent basis 10,670 8,598 20,611 16,859 Total interest expense 4,918 3,705 9,377 7,285 ------ ------ ------ ------ Net interest income , tax equivalent basis (1) $ 5,752 $ 4,893 $ 11,234 $ 9,574 ====== ====== ====== ====== Net interest spread (2), annualized 3.98% 4.17% 4.03% 4.12% ====== ====== ====== ====== Net interest margin (3), annualized 4.73% 4.98% 4.81% 4.95% ====== ====== ====== ====== Notes: (1) Net interest income, the most significant component of the Bank's earnings, is total interest income less total interest expense. The level of net interest income is determined by the mix and volume of interest earning assets, interest bearing deposits and borrowed funds, and by changes in interest rates. (2) Net interest spread is the difference between the taxable equivalent rate earned on interest earning assets less the rate expensed on interest bearing liabilities. (3) Net interest margin represents net interest income on a taxable equivalent basis as a percentage of average interest earning assets. Net interest margin is affected by both the interest rate spread and the level of non-interest bearing sources of funds, primarily consisting of demand deposits and stockholders' equity. Fully taxable equivalent net interest income of $5,752,000 for the three months ended June 30, 1998 increased $859,000 or 17.6% from $4,893,000 for the same period last year. For the six months ended June 30, 1998, net interest income of $11,234,000 increased $1,660,000 or 17.3% from $9,574,000 for the same period last year. Net interest spread and net interest margin were 3.98% and 4.73%, respectively, for the second quarter of 1998 and 4.17% and 4.98%, respectively, for the second quarter of 1997. Net interest spread and margin were 4.03% and 4.81%, respectively, for the first six months of 1998 and 4.12%, and 4.95%, respectively, for the same period in 1997. Average earning assets increased $81,341,000, or 20.9% to $471,323,000 for the first six months of 1998 compared to 1997. Average interest bearing liabilities increased $75,795,000 or 23.7% to $395,247,000 for the first six months of 1998 compared to 1997. Interest rate sensitivity has a major impact on the earnings of the Banks. As interest rates change in the market, rates earned on assets do not necessarily move identically with rates paid on liabilities. Proper asset and liability management involves the matching of interest sensitive assets and liabilities to reduce interest rate risk. Bancorp manages interest rate risk by making both variable and fixed rate loans. Fixed rate loans are matched, along with investment securities against longer term fixed rate time deposits. The Bank's largest interest earning asset is loans and approximately half of the loan portfolio is comprised of variable rate loans. Variable rate loans re-price immediately with a change in prime rates. Deposits, the Bank's largest interest bearing liability, do not respond as quickly nor as significantly to changes in market interest rates. At June 30, 1998 Bancorp was slightly asset sensitive through one year. With this position more interest bearing assets re-price within one year than do interest bearing liabilities. This position is generally favorable to net interest margin during periods of rising interest rates and generally unfavorable during periods of declining rates. At June 30, 1998 Bancorp's cumulative asset sensitivity position for one year was 1.30%. Bancorp's management believes it has the ability to effectively manage the degree of market risk inherent in its interest sensitive financial instruments. The following table provides information about Bancorp's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and weighted average interest rates as well as Bancorp's experience of the impact of interest rate fluctuations on the prepayment of mortgage-backed securities. For deposits that have no contractual maturity (non-interest bearing checking, interest bearing checking and savings), the table presents information regarding the most likely withdrawal behaviors. This information is based on Bancorp's historical experience and management's judgments. For interest rate caps and floors, the table presents notional amounts. Notional amounts are used to calculate the contractual payments to be exchanged under the contracts.
For Twelve Month Period Ending (Dollars in thousands) 6/30/99 6/30/00 6/30/01 6/30/02 6/30/03 Thereafter Total ------- ------- ------- ------- ------- ---------- ----- Loans Fixed rate $ 53,712 $38,606 $41,053 $44,976 $50,975 $37,728 $267,050 Average interest rate 9.01% 9.01% 8.97% 8.87% 8.81% 8.26% 8.84% Variable rate $ 60,118 $13,708 $ 9,077 $ 7,009 $ 9,290 $51,295 $150,497 Average interest rate 9.22% 9.20% 9.25% 9.09% 9.07% 8.88% 9.09% Securities Fixed rate $ 16,520 $ 9,542 $ 5,376 $ 8,285 $13,458 $17,939 $ 71,120 Average interest rate 6.02% 6.39% 7.17% 6.62% 6.25% 6.66% 6.44% Federal funds sold (variable rate) $ 2,000 $ 2,000 Average interest rate 5.33% 5.33% Deposits Non-interest bearing checking $ 11,712 $11,712 $11,712 $11,712 $11,712 $19,513 $ 78,073 Average interest rate - - - - - - Savings and interest bearing checking $ 21,890 $21,890 $21,890 $21,890 $21,890 $36,484 $145,934 Average interest rate 3.15% 3.15% 3.15% 3.15% 3.15% 3.15% 3.15% Time deposits (fixed rate) $183,240 $60,017 $ 5,277 $ 4,626 $ 2,106 $ 1,036 $256,302 Average interest rate 5.57% 5.99% 5.55% 5.92% 5.84% 6.11% 5.68% Other short-term borrowings (variable rate) $ 4,999 $ 4,999 Average interest rate 5.37% 5.37% Federal funds purchased and securities sold under agreements to repurchase (variable rate) $ 8,847 $ 8,847 Average interest rate 5.01% 5.01% Long-term debt (variable rate) $ 1,800 $ 300 $ 2,100 Average interest rate 7.29% 7.50% 7.32% Derivative Financial Instrument Interest rate cap sold $ 50,000 $ 50,000 Strike rate 9.00% 9.00% Interest rate floor purchased $ 50,000 $ 50,000 Strike rate 8.00% 8.00%
Provision for Loan Losses The allowance for loan losses is based on management's continuing review of individual credits, recent loss experience, current economic conditions, the risk characteristics of the various categories of loans, and such other factors that, in management's judgement, deserve current recognition in estimating loan losses. An analysis of the changes in the allowance for loan losses and selected ratios follow: Six Months Ended June 30 (In thousands except percentages) 1998 1997 ---- ---- Balance at January 1 $ 5,921 $ 5,155 Provision for loan losses 650 450 Loan charge-offs, net of recoveries ( 106) ( 30) ------- ------- Balance at June 30 $ 6,465 $ 5,575 ======= ======= Average loans, net of unearned income $395,608 $314,736 ======= ======= Provision for loan losses to average loans (1) .33% .29% ======= ======= Net loan charge-offs to average loans (1) .05% .02% ======= ======= Allowance for loan losses to average loans 1.63% 1.77% ======= ======= Allowance for loan losses to period-end loans 1.55% 1.70% ======= ======= (1) Amounts annualized Non-interest Income and Expenses The following table sets forth the major components of non-interest income and expenses for the three and six month periods ended June 30, 1998 and 1997. In thousands Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 ---- ---- ---- ---- Non-interest income Investment management and trust services $1,238 $ 862 $ 2,298 $ 1, 508 Service charges on deposit accounts 735 496 1,290 940 Gains on sales of mortgage loans held for sale 529 275 852 488 Gains on sales of securities available for sale - - 184 80 Other 339 220 645 417 ----- ----- ----- ----- Total non-interest income $2,841 $1,853 $5,269 $3,433 ===== ===== ===== ===== Non-interest expenses Salaries and employee benefits $2,976 $2,316 $ 5,533 $ 4,633 Net occupancy expense 342 278 651 533 Furniture and equipment expense 491 414 895 771 Other 1,344 883 2,843 1,750 ----- ---- ----- ----- Total non-interest expenses $5,153 $3,891 $9,922 $7,687 ===== ===== ===== ===== Non-interest income increased $988,000, or 53.3%, for the second quarter of 1998, and $1,836,000 or 53.5% for the first six months of 1998 compared to the same periods in 1997. Trust income increased $376,000 or 43.6% in the second quarter and $790,000 or 52.4% for the first half of 1998, as compared to the same periods in 1997. Trust assets under management at June 30, 1998 were $755 million as compared to $632 million at December 31, 1997 and $595 million at June 30, 1997. In addition to asset growth, trust income in the first half of 1998 benefited from a fee rate increase in June 1997 and approximately $230,000 in non-recurring estate fees. Service charges on deposit accounts increased $239,000 or 48.2% in the second quarter and $350,000 or 37.2% in the first half of 1998 as compared to the same periods in 1997. Growth in deposit accounts spurred by the opening of new branch offices and by reactions to recent mergers of other local institutions has presented opportunities for increased fee income in this area. Additionally, some deposit service charges were raised in the second quarters of 1998 and 1997. Gains on sales of mortgage loans were $529,000 in the second quarter and $852,000 in the first six months of 1998 compared to $275,000 and $488,000, respectively, in 1997. The Bank operates a mortgage banking company which originates residential mortgage loans and sells the loans in the secondary market. The volume of loans originated by the mortgage company increased dramatically in 1998. Favorable interest rates have stimulated home buying and refinancing. Additionally, the mortgage company began origination and sale of sub-prime loans in 1998. The latter contributed $33,000 to the above gains in 1998. Investors commit to purchase both prime and sub-prime loans when such loans are originated. Therefore, mortgage loans held for sale do not subject the Bank to interest rate risk. Gains on sales of securities available for sale during the first quarter of both 1998 and 1997 occurred as management sold lower yielding, shorter term securities for intermediate term, higher yielding securities. Other non-interest income increased $119,000 or 54.1% in the second quarter and $228,000 or 54.7% in the first half of 1998 compared to 1997. Numerous factors contributed to this increase, including $20,000 from full service brokerage, $17,000 from credit card merchant fees and $45,000 from check card income. The remaining portion of the increase arose from increasing volume of various sources of fee income. Non-interest expenses increased $1,262,000 or 32.4% for the second quarter and $2,235,000 or 29.1% in the first six months of 1998 compared to the same periods in 1997. Salaries and employee benefits increased $660,000 or 28.5%, for the second quarter and 900,000 or 19.4% in the first half of 1998 compared to the same periods in 1997. These increases arose in part from regular salary increases. Also, employees continue to be added to support the Bank's growth. The Bank had 265 full time equivalent employees as of June 30, 1998 and 231 full time equivalents as of June 30, 1997. In addition, the Bank has an incentive plan in place which is based on profitability and employee performance. Expense accrues throughout the year, and with higher Bank earnings and a growing employee base, these incentives have increased. Net occupancy expense increased $64,000 or 23.0% in the second quarter and $118,000 or 22.1% in the first half of 1998 as compared to 1997. Furniture and equipment expense increased $77,000, or 18.6%, for the second quarter and $124,000 or 16.1% in the first half of 1998 compared to 1997. These increases are largely due to the opening of new banking centers. In 1997, the Stony Brook and Clarksville branches moved into permanent facilities, and the historic rehabilitation of the Bourbon Stockyards Exchange building was completed. Virtually all non-customer contact employees moved into this building during the second quarter of 1997. Additionally, the Bank continues to update computer equipment and software as technology advances. These capital additions flow through the statement of income as depreciation expense. Other non-interest expenses have increased $461,000 or 52.2% in the second quarter and $1,093,000 or 62.5% in the first six months of 1998 as compared to 1997. Again, this increase is reflective of the Bank's expansion. Included in other non-interest expenses for the first half of 1998 are $150,000 representing a buy-out of a lease for a future branch location and advertising expenses of $447,000 compared to $61,000 in 1997. The Bank has embarked on a large advertising campaign to attract bank and investment management customers. Other expenses such as office supplies, telephone, postage, insurance and franchise (state) taxes have increased with the Bank's growth; however, other than the items enumerated above, there are no individually significant increases in other non-interest expenses. Income Taxes Bancorp had income tax expense of $1,870,000 for the first six months of 1998, compared to $1,577,000 for the same period in 1997. The effective rate was 32.1% in 1998 and 33.0% in 1997. B. FINANCIAL CONDITION Total Assets Total assets increased $63.4 million from December 31, 1997 to June 30, 1998. Average assets for the first six months of 1998 were $512.2 million. Total assets at June 30, 1998 increased $95.9 million from June 30, 1997, representing a 23.0% increase. Since year end, loans have increased approximately $47.6 million; cash and due from banks and federal funds sold increased $2.7 million; securities available for sale increased $.1 million, and securities held to maturity increased $10.9 million. Mortgage loans available for sale increased $1.0 million. Nonperforming Loans and Assets Nonperforming loans, which include non-accrual and accruing loans past due over 90 days, totaled $3,312,000 at June 30, 1998 and $290,000 at December 31, 1997. This represents .79% of total loans at June 30, 1998 compared to .08% at December 31, 1997. Nonperforming assets, which include non-performing loans, other real estate and repossessed assets, totaled $3,408,000 at June 30, 1998 and $290,000 at December 31, 1997. This represents .63% of total assets at June 30, 1998 compared to .06% at December 31, 1997. The increase in non-accrual loans at June 30, 1998 arose from loans to one obligor, a long time customer of the Bank. These loans are well secured by real estate. No loss of principal or interest is anticipated. C. LIQUIDITY The role of liquidity is to ensure that funds are available to meet depositors' withdrawal and borrowers' credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity to meet demand is provided by maturing assets, short-term liquid assets that can be converted to cash, and the ability to attract funds from external sources - principally deposits. The Banks have a number of sources of funds to meet its liquidity needs on a daily basis. An increase in loans affects liquidity as the repayment of principal and interest are a daily source of funds. The deposit base, consisting of relatively stable consumer and commercial deposits, and large denomination ($100,000 and over) certificates of deposit, is another source of funds. The majority of these deposits are from long term customers and are a stable source of funds. In addition, federal funds purchased continue to be a source of funds. Other sources of funds available to meet daily needs include the sale of securities under agreements to repurchase and funds made available under a treasury tax and loan note agreement with the federal government. Also, the Kentucky Bank is a member of the Federal Home Loan Bank of Cincinnati (FHLB). As a member of the FHLB, the Kentucky Bank has access to credit products of the FHLB. These credit services provide the Kentucky Bank with another source of funds. To date, the Kentucky Bank has not accessed this source of funds. Bancorp's liquidity depends primarily on the dividends paid to it as the sole shareholder of the Bank. At June 30, 1998, the Bank may pay up to $11,968,000 in dividends to Bancorp without regulatory approval. D. CAPITAL RESOURCES At June 30, 1998, stockholders' equity totaled $40,337,000, an increase of $3,420,000 since December 31, 1997. One component of equity is accumulated other comprehensive income which for Bancorp consists solely of net unrealized gains on securities available for sale, net of taxes. Accumulated other comprehensive income was $268,000 at June 30, 1998 and $292,000 at December 31, 1997. Bank holding companies and their subsidiary banks are required by regulators to meet risk based capital standards. These standards, or ratios, measure the relationship of capital to a combination of balance-sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted to reflect credit risks. At June 30, 1998, Bancorp's tier 1, total risk based capital and leverage ratios were 9.50%, 10.83% and 7.42%, respectively. These ratios exceed the minimum required by regulators to be well capitalized. Capital ratios of the Bank and the consolidated entity have continued to decrease slowly. With the rapid expansion of the Bank, assets have increased faster than capital has grown. Management monitors this situation and plans to maintain the Bank's capital ratios within well capitalized parameters. E. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of the Enterprise and Related Information." This statement requires reporting of certain information about operating segments and is effective in 1998. The implementation of this statement has not had a significant impact on Bancorp's financial position or results of operations. In June, 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement standardizes the accounting for derivative instruments. Under this standard, entities are required to carry all derivative instruments in the balance sheet at fair value. The accounting for changes in the fair value (i.e.. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies. If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss is reported in earnings immediately. Accounting for foreign currency hedges is similar to the accounting for fair value and cash flow hedges. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change. Bancorp must adopt Statement 133 by January 1, 2000; however, early adoption is permitted. On adoption, the provisions of Statement 133 must be applied prospectively. Bancorp has not determined when it will adopt Statement 133 nor has it determined the impact that Statement 133 will have on its financial statements. Management believes that such determination will not be meaningful until closer to the date of initial adoption. F. YEAR TWO THOUSAND Bancorp's management has undertaken an evaluation of the effects Year 2000 will have on its information system and other important aspects of its business. The program has five phases: awareness, assessment, renovation, validation and implementation. Bancorp has progressed through the first three phases of the plan, and for mission critical systems, is in the final stages of the validation phase. The Year 2000 project coordinator and committee report to the Board of Directors with regard to the project plan and status. Costs to prepare for the Year 2000 include new hardware, software, internal staff costs and some consulting. Because Bancorp has made recent large investments in upgrades of hardware and software, management does not anticipate significant incremental information systems costs related to the Year 2000. Bancorp recorded expense related to the Year 2000 of $60,000 in 1997 and management anticipates incurring a similar total for 1998. Expensed to date in 1998 is $30,000. Management is also addressing the matter of loan collectibility as it relates to customers' accounting, manufacturing, and other systems. Customers' noncompliance with Year 2000 issues could adversely affect their ability to service their debt. Management's evaluation of the creditworthiness of customers now includes a review of the customer's self assessment as to compliance with Year 2000 issues. Additionally, management has contacted all major vendors used by the Bank and/or Bancorp to assess each vendor's ability to continue servicing the Bank's/Bancorp's needs into the next millennium. Part II - Other Information Item 3. Quantitative and Qualitative Disclosures about Market Risk Information required by this item is include in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 4. Submission of Matters to a Vote of Security Holders On April 22, 1998, at the Annual Meeting of Shareholders of S.Y. Bancorp, Inc., the following matters were submitted to a vote of shareholders. Represented in person or by proxy were 2,756,775 shares, and those shares were as follows. (1) Fixing the number of directors at fifteen (15) and electing at the Annual Meeting four (4) directors: FOR 2,749,484 AGAINST 5,395 ABSTAIN 1,896 (2) Election of Directors: Bancorp has a staggered Board of Directors. The following individuals were nominated in 1996. All nominees were elected. The results below reflect cumulative voting. FOR AGAINST ABSTAIN WITHHOLD --- ------- ------- -------- David H. Brooks 10,969,536 - - 57,564 Carl T. Fischer, Jr. 10,969,144 - - 57,956 Stanley A. Gall, M.D. 10,969,300 - - 59,800 Henry A. Meyer 10,966,520 - - 60,580 (3) Proposal to increase the authorized shares of common stock from 5,000,000 to 10,000,000: FOR 2,695,645 AGAINST 52,296 ABSTAIN 8,824 Item 6. Exhibits and Reports on Form 8-K - -------------------------------- (a) Reports on Form 8-K The registrant did not file any reports on Form 8-K during the three months ended June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. S.Y. BANCORP, INC. Date: August 12, 1998 By: /s/ David H. Brooks ----------------------------- David H. Brooks, Chairman and Chief Executive Officer Date: August 12, 1998 By: /s/ David P. Heintzman ------------------------------ David P. Heintzman, President Date: August 12, 1998 By: /s/ Nancy B. Davis ------------------------------ Nancy B. Davis, Senior Vice President, Treasurer and Chief Financial Officer EX-27 2
9 3-MOS DEC-31-1998 JUN-30-1998 24819 0 2000 0 31548 39572 39839 417924 6465 541990 480309 4999 5398 2100 0 0 5525 34812 541990 9386 916 316 10618 4719 4918 5700 350 000 5153 3038 3038 0 0 2062 .63 .60 8.77 3312 0 0 1612 6191 93 17 6465 6465 0 1200
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