0001104659-15-055659.txt : 20150804 0001104659-15-055659.hdr.sgml : 20150804 20150804094749 ACCESSION NUMBER: 0001104659-15-055659 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20150630 FILED AS OF DATE: 20150804 DATE AS OF CHANGE: 20150804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Stock Yards 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: 1934 Act SEC FILE NUMBER: 001-13661 FILM NUMBER: 151024304 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 FORMER COMPANY: FORMER CONFORMED NAME: S Y BANCORP INC DATE OF NAME CHANGE: 19920703 10-Q 1 a15-11954_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the quarterly period ended June 30, 2015

 

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  1-13661

 

STOCK YARDS BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Kentucky

 

61-1137529

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1040 East Main Street, Louisville, Kentucky 40206

(Address of principal executive offices including 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 required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes  x  No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  o

Accelerated filer  x

 

 

Non-accelerated filer  o

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes  ¨  No  x

 

The number of shares of the registrant’s Common Stock, no par value, outstanding as of July 27, 2015, was 14,851,374.

 

 

 



Table of Contents

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

 

Index

 

Item

 

Page

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

 

 

 

The following consolidated financial statements of Stock Yards Bancorp, Inc. and Subsidiary are submitted herewith:

 

 

 

 

Consolidated Balance Sheets

June 30, 2015 (Unaudited) and December 31, 2014

2

 

 

 

Consolidated Statements of Income (Unaudited)

for the three and six months ended June 30, 2015 and 2014

3

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)

for the three and six months ended June 30, 2015 and 2014

4

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

for the six months ended June 30, 2015 and 2014

5

 

 

 

Consolidated Statements of Cash Flows (Unaudited)

for the six months ended June 30, 2015 and 2014

6

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

56

 

 

 

Item 4.

Controls and Procedures

56

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

 

 

 

Item 6.

Exhibits

57

 

1



Table of Contents

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

June 30, 2015 and December 31, 2014

(In thousands, except share data)

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

37,775

 

$

42,216

 

Federal funds sold

 

20,901

 

32,025

 

Cash and cash equivalents

 

58,676

 

74,241

 

Mortgage loans held for sale

 

8,237

 

3,747

 

Securities available-for-sale (amortized cost of $410,242 and $509,276 in 2015 and 2014, respectively)

 

412,866

 

513,056

 

Federal Home Loan Bank stock and other securities

 

6,347

 

6,347

 

Loans

 

1,899,302

 

1,868,550

 

Less allowance for loan losses

 

23,308

 

24,920

 

Net loans

 

1,875,994

 

1,843,630

 

Premises and equipment, net

 

40,199

 

39,088

 

Bank owned life insurance

 

30,554

 

30,107

 

Accrued interest receivable

 

5,950

 

5,980

 

Other assets

 

43,864

 

47,672

 

Total assets

 

$

2,482,687

 

$

2,563,868

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

 

$

551,723

 

$

523,947

 

Interest bearing

 

1,520,042

 

1,599,680

 

Total deposits

 

2,071,765

 

2,123,627

 

Securities sold under agreements to repurchase

 

64,418

 

69,559

 

Federal funds purchased

 

13,290

 

47,390

 

Accrued interest payable

 

125

 

131

 

Other liabilities

 

21,852

 

26,434

 

Federal Home Loan Bank advances

 

38,855

 

36,832

 

Total liabilities

 

2,210,305

 

2,303,973

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding

 

 

 

Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 14,851,554 and 14,744,684 shares in 2015 and 2014, respectively

 

10,390

 

10,035

 

Additional paid-in capital

 

41,213

 

38,191

 

Retained earnings

 

219,466

 

209,584

 

Accumulated other comprehensive income

 

1,313

 

2,085

 

Total stockholders’ equity

 

272,382

 

259,895

 

Total liabilities and stockholders’ equity

 

$

2,482,687

 

$

2,563,868

 

 

See accompanying notes to unaudited consolidated financial statements.

 

2



Table of Contents

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income  (Unaudited)

For the three and six months ended June 30, 2015 and 2014

(In thousands, except per share data)

 

 

 

For three months ended

 

For six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans

 

$

20,612

 

$

19,787

 

$

41,027

 

$

39,146

 

Federal funds sold

 

51

 

63

 

119

 

142

 

Mortgage loans held for sale

 

74

 

43

 

113

 

74

 

Securities – taxable

 

1,969

 

1,824

 

4,003

 

3,661

 

Securities – tax-exempt

 

294

 

296

 

585

 

594

 

Total interest income

 

23,000

 

22,013

 

45,847

 

43,617

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

938

 

1,114

 

1,911

 

2,254

 

Federal funds purchased

 

5

 

9

 

12

 

15

 

Securities sold under agreements to repurchase

 

32

 

29

 

69

 

63

 

Federal Home Loan Bank advances

 

224

 

206

 

440

 

402

 

Total interest expense

 

1,199

 

1,358

 

2,432

 

2,734

 

Net interest income

 

21,801

 

20,655

 

43,415

 

40,883

 

Provision for loan losses

 

 

1,350

 

 

1,700

 

Net interest income after provision for loan losses

 

21,801

 

19,305

 

43,415

 

39,183

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Investment management and trust services

 

4,651

 

4,755

 

9,203

 

9,323

 

Service charges on deposit accounts

 

2,199

 

2,223

 

4,279

 

4,326

 

Bankcard transaction revenue

 

1,246

 

1,209

 

2,368

 

2,284

 

Mortgage banking revenue

 

913

 

722

 

1,741

 

1,310

 

Loss on sales of securities available for sale

 

 

(9

)

 

(9

)

Brokerage commissions and fees

 

499

 

462

 

960

 

967

 

Bank owned life insurance income

 

226

 

234

 

448

 

470

 

Other

 

485

 

461

 

893

 

861

 

Total non-interest income

 

10,219

 

10,057

 

19,892

 

19,532

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

11,383

 

10,724

 

22,483

 

21,842

 

Net occupancy expense

 

1,450

 

1,453

 

2,919

 

3,009

 

Data processing expense

 

1,756

 

1,718

 

3,210

 

3,278

 

Furniture and equipment expense

 

260

 

259

 

507

 

527

 

FDIC insurance expense

 

317

 

350

 

614

 

692

 

Loss (gain) on other real estate owned

 

145

 

(6

)

165

 

(349

)

Other

 

3,556

 

3,203

 

6,748

 

6,246

 

Total non-interest expenses

 

18,867

 

17,701

 

36,646

 

35,245

 

Income before income taxes

 

13,153

 

11,661

 

26,661

 

23,470

 

Income tax expense

 

4,151

 

3,627

 

8,404

 

7,259

 

Net income

 

9,002

 

8,034

 

18,257

 

16,211

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

$

0.55

 

$

1.24

 

$

1.12

 

Diluted

 

$

0.60

 

$

0.55

 

$

1.23

 

$

1.10

 

Average common shares:

 

 

 

 

 

 

 

 

 

Basic

 

14,710

 

14,545

 

14,679

 

14,526

 

Diluted

 

14,936

 

14,704

 

14,902

 

14,714

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3



Table of Contents

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

For the three and six months ended June 30, 2015 and 2014

(In thousands)

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,002

 

$

8,034

 

$

18,257

 

$

16,211

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on securities available for sale:

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains arising during the period (net of tax of ($1,417), $663, ($405) and $1,754, respectively)

 

(2,631

)

1,232

 

(751

)

3,258

 

Reclassification adjustment for securities losses realized in income (net of tax of $0, $3, $0, and $3, respectively)

 

 

6

 

 

6

 

Unrealized losses on hedging instruments:

 

 

 

 

 

 

 

 

 

Unrealized losses arising during the period (net of tax of ($1), ($18), ($11) and ($7), respectively)

 

(2

)

(34

)

(21

)

(13

)

Other comprehensive (loss) income , net of tax

 

(2,633

)

1,204

 

(772

)

3,251

 

Comprehensive income

 

$

6,369

 

$

9,238

 

$

17,485

 

$

19,462

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4



Table of Contents

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the six months ended June 30, 2015 and 2014

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Common stock

 

 

 

 

 

other

 

 

 

 

 

Number of

 

 

 

Additional

 

Retained

 

comprehensive

 

 

 

 

 

shares

 

Amount

 

paid-in capital

 

earnings

 

income (loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2013

 

14,609

 

$

9,581

 

$

33,255

 

$

188,825

 

$

(2,217

)

$

229,444

 

Net income

 

 

 

 

16,211

 

 

16,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

3,251

 

3,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

768

 

 

 

768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for exercise of stock options, net of withholdings to satisfy employee tax obligations upon vesting of stock awards

 

31

 

104

 

807

 

(73

)

 

838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for non-vested restricted stock

 

40

 

132

 

1,022

 

(1,154

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

 

5

 

18

 

(111

)

 

 

 

(93

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared, $0.43 per share

 

 

 

 

(6,300

)

 

(6,300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased or cancelled

 

(20

)

(66

)

(499

)

60

 

 

(505

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2014

 

14,665

 

$

9,769

 

$

35,242

 

$

197,569

 

$

1,034

 

$

243,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2014

 

14,745

 

$

10,035

 

$

38,191

 

$

209,584

 

$

2,085

 

$

259,895

 

Net income

 

 

 

 

18,257

 

 

18,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 

(772

)

(772

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

995

 

 

 

995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for exercise of stock options, net of withholdings to satisfy employee tax obligations upon vesting of stock awards

 

74

 

245

 

1,917

 

(175

)

 

1,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for non-vested restricted stock

 

35

 

116

 

1,088

 

(1,204

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

 

18

 

61

 

(397

)

(128

)

 

(464

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared, $0.47 per share

 

 

 

 

(6,952

)

 

(6,952

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased or cancelled

 

(20

)

(67

)

(581

)

84

 

 

(564

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2015

 

14,852

 

$

10,390

 

$

41,213

 

$

219,466

 

$

1,313

 

$

272,382

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5



Table of Contents

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2015 and 2014

(In thousands)

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

18,257

 

$

16,211

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

 

1,700

 

Depreciation, amortization and accretion, net

 

3,374

 

3,226

 

Deferred income tax expense (benefit)

 

1,170

 

(252

)

Loss on sale of securities available for sale

 

 

9

 

Gain on sales of mortgage loans held for sale

 

(1,133

)

(769

)

Origination of mortgage loans held for sale

 

(63,461

)

(41,363

)

Proceeds from sale of mortgage loans held for sale

 

60,104

 

39,727

 

Bank owned life insurance income

 

(448

)

(470

)

Gain on the disposal of premises and equipment

 

(5

)

(30

)

Loss (gain) on the sale of other real estate

 

165

 

(349

)

Stock compensation expense

 

995

 

768

 

Excess tax benefits from share-based compensation arrangements

 

(293

)

(169

)

Decrease in accrued interest receivable and other assets

 

387

 

584

 

(Decrease) increase in accrued interest payable and other liabilities

 

(4,303

)

2,337

 

Net cash provided by operating activities

 

14,809

 

21,160

 

Investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(92,730

)

(124,550

)

Proceeds from sale of securities available for sale

 

5,934

 

7,732

 

Proceeds from maturities of securities available for sale

 

184,878

 

197,397

 

Net increase in loans

 

(32,596

)

(80,407

)

Purchases of premises and equipment

 

(2,615

)

(1,203

)

Proceeds from disposal of premises and equipment

 

 

344 

 

Proceeds from sale of foreclosed assets

 

1,820

 

4,303

 

Net cash provided by investing activities

 

64,691

 

3,616

 

Financing activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

(51,862

)

6,458

 

Net decrease in securities sold under agreements to repurchase and federal funds purchased

 

(39,241

)

(2,421

)

Proceeds from Federal Home Loan Bank advances

 

63,200

 

21,820

 

Repayments of Federal Home Loan Bank advances

 

(61,177

)

(20,082

)

Issuance of common stock for options and performance stock units

 

1,566

 

626

 

Excess tax benefits from share-based compensation arrangements

 

293

 

169

 

Common stock repurchases

 

(900

)

(555

)

Cash dividends paid

 

(6,944

)

(6,300

)

Net cash used in financing activities

 

(95,065

)

(285

)

Net (decrease) increase in cash and cash equivalents

 

(15,565

)

24,491

 

Cash and cash equivalents at beginning of period

 

74,241

 

70,770

 

Cash and cash equivalents at end of period

 

$

58,676

 

$

95,261

 

Supplemental cash flow information:

 

 

 

 

 

Income tax payments

 

$

6,774

 

$

5,094

 

Cash paid for interest

 

2,438

 

2,729

 

Supplemental non-cash activity:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

232

 

$

1,505

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6



Table of Contents

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

 

Notes to Consolidated Financial Statements (Unaudited)

 

(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 U.S. generally accepted accounting principles (US GAAP) for complete financial statements.  The consolidated unaudited financial statements of Stock Yards Bancorp, Inc. (“Bancorp”) and its 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 unaudited consolidated financial statements include the accounts of Stock Yards Bancorp, Inc. and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (“Bank”).  Significant intercompany transactions and accounts have been eliminated in consolidation. In preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of related revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of available-for sale securities, other real estate owned and income tax assets, and estimated liabilities and expense.

 

A description of other significant accounting policies is presented in the notes to Consolidated Financial Statements for the year ended December 31, 2014 included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K.  Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.

 

Interim results for the three and six month periods ended June 30, 2015 are not necessarily indicative of the results for the entire year.

 

Critical Accounting Policies

 

Management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors.  Since the application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change.  Assumptions include many factors such as changes in borrowers’ financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses.  In the second quarter of 2015, Bancorp extended the historical period used to capture Bancorp’s historical loss ratios from 12 quarters to 24 quarters.  Management believes the extension of the look-back period is appropriate to capture the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio.  To the extent that management’s assumptions prove incorrect, the results from operations could be materially affected by a higher or lower provision for loan losses.  The accounting policy related to the allowance for loan losses is applicable to the commercial banking segment of Bancorp.

 

The allowance for loan losses is management’s estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

Bancorp’s allowance calculation includes specific allowance allocations to loan portfolio segments at June 30, 2015 for qualitative factors including, among other factors, national and local economic and business conditions, the quality and experience of lending staff and management, changes in lending policies and procedures, changes in volume and severity of past due loans, classified loans and non-performing loans, potential impact of any concentrations of credit, changes in the nature and terms of loans such as growth

 

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rates and utilization rates, changes in the value of underlying collateral for collateral-dependent loans, considering Bancorp’s disposition bias, and the effect of other external factors such as the legal and regulatory environment.  Bancorp may also consider other qualitative factors in future periods for additional allowance allocations, including, among other factors, changes in Bancorp’s loan review process.   Bancorp utilizes the sum of all allowance amounts derived as described above as the appropriate level of allowance for loan and lease losses. Changes in the criteria used in this evaluation or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan and lease losses based on their judgments and estimates.

 

(2)                     Securities

 

The amortized cost, unrealized gains and losses, and fair value of securities available-for-sale follow:

 

(in thousands)

 

Amortized

 

Unrealized

 

 

 

June 30, 2015

 

cost

 

Gains

 

Losses

 

Fair value

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. Government obligations

 

$

10,000

 

$

 

$

 

$

10,000

 

Government sponsored enterprise obligations

 

175,985

 

1,942

 

559

 

177,368

 

Mortgage-backed securities - government agencies

 

160,359

 

1,477

 

1,510

 

160,326

 

Obligations of states and political subdivisions

 

63,142

 

1,344

 

157

 

64,329

 

Corporate equity securities

 

756

 

87

 

 

843

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

410,242

 

$

4,850

 

$

2,226

 

$

412,866

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. Government obligations

 

$

70,000

 

$

 

$

 

$

70,000

 

Government sponsored enterprise obligations

 

203,531

 

2,017

 

562

 

204,986

 

Mortgage-backed securities - government agencies

 

173,573

 

2,042

 

1,345

 

174,270

 

Obligations of states and political subdivisions

 

61,416

 

1,560

 

142

 

62,834

 

Corporate equity securities

 

756

 

210

 

 

966

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

509,276

 

$

5,829

 

$

2,049

 

$

513,056

 

 

Corporate equity securities consist of common stock in a publicly-traded business development company.

 

There were no securities classified as held to maturity as of June 30, 2015 or December 31, 2014.

 

In the first quarter of 2015, Bancorp sold securities with total fair market value of $5.9 million, generating no gain or loss.  These securities consisted of agency and mortgage-backed securities with small remaining balances and agency securities. In the second quarter of 2014, Bancorp sold securities with total fair market value of $7.7 million, generating a net loss of $9 thousand.  These securities consisted of mortgage-backed securities with small remaining balances, obligations of state and political subdivisions, and agency securities.  These sales were made in the ordinary course of portfolio management. Management has the intent and ability to hold all remaining investment securities available-for-sale for the foreseeable future.

 

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Table of Contents

 

A summary of the available-for-sale investment securities by contractual maturity groupings as of June 30, 2015 is shown below.

 

(in thousands)

 

 

 

 

 

Securities available-for-sale

 

Amortized cost

 

Fair value

 

 

 

 

 

 

 

Due within 1 year

 

$

26,168

 

$

26,253

 

Due after 1 but within 5 years

 

123,077

 

124,852

 

Due after 5 but within 10 years

 

18,907

 

19,263

 

Due after 10 years

 

80,975

 

81,329

 

Mortgage-backed securities

 

160,359

 

160,326

 

Corporate equity securities

 

756

 

843

 

Total securities available-for-sale

 

$

410,242

 

$

412,866

 

 

Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations.  In addition to equity securities, the investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, and GNMA.  These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral.

 

Securities with a carrying value of approximately $258.4 million at June 30, 2015 and $263.1 million at December 31, 2014 were pledged to secure accounts of commercial depositors in cash management accounts, public deposits, and cash balances for certain investment management and trust accounts.

 

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Table of Contents

 

Securities with unrealized losses at June 30, 2015 and December 31, 2014, not recognized in the statements of income are as follows:

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

(in thousands)

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

June 30, 2015

 

value

 

losses

 

value

 

losses

 

value

 

losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government sponsored enterprise obligations

 

$

25,363

 

$

208

 

$

8,793

 

$

351

 

$

34,156

 

$

559

 

Mortgage-backed securities - government agencies

 

36,666

 

394

 

33,165

 

1,116

 

69,831

 

1,510

 

Obligations of states and political subdivisions

 

18,249

 

124

 

2,221

 

33

 

20,470

 

157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

80,278

 

$

726

 

$

44,179

 

$

1,500

 

$

124,457

 

$

2,226

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government sponsored enterprise obligations

 

$

36,979

 

$

30

 

$

26,848

 

$

532

 

$

63,827

 

$

562

 

Mortgage-backed securities - government agencies

 

4,038

 

77

 

49,325

 

1,268

 

53,363

 

1,345

 

Obligations of states and political subdivisions

 

12,655

 

67

 

6,297

 

75

 

18,952

 

142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

53,672

 

$

174

 

$

82,470

 

$

1,875

 

$

136,142

 

$

2,049

 

 

Applicable dates for determining when securities are in an unrealized loss position are June 30, 2015 and December 31, 2014. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past twelve months, but is not in the “Investments with an Unrealized Loss of less than 12 months” category above.

 

Unrealized losses on Bancorp’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is due to changes in the prevailing interest rate environment since the purchase date.  Fair value is expected to recover as securities reach their maturity date and/or the interest rate environment returns to conditions similar to when these securities were purchased. These investments consist of 71 and 80 separate investment positions as of June 30, 2015 and December 31, 2014, respectively.  Because management does not intend to sell the investments, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at June 30, 2015.

 

FHLB stock and other securities are investments held by Bancorp which are not readily marketable and are carried at cost. This category includes holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock which are required for access to FHLB borrowing, and are classified as restricted securities.

 

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(3)                     Loans

 

Composition of loans, net of deferred fees and costs, by primary loan portfolio class follows:

 

(in thousands)

 

June 30, 2015

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

595,584

 

$

571,754

 

Construction and development, excluding undeveloped land

 

102,274

 

95,733

 

Undeveloped land

 

19,965

 

21,268

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

Commercial investment

 

484,130

 

487,822

 

Owner occupied commercial

 

342,908

 

340,982

 

1-4 family residential

 

216,864

 

211,548

 

Home equity - first lien

 

42,612

 

43,779

 

Home equity - junior lien

 

65,354

 

66,268

 

Subtotal: Real estate mortgage

 

1,151,868

 

1,150,399

 

 

 

 

 

 

 

Consumer

 

29,611

 

29,396

 

 

 

 

 

 

 

Total loans

 

$

1,899,302

 

$

1,868,550

 

 

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Table of Contents

 

The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of June 30, 2015 and December 31, 2014.

 

 

 

Type of loan

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and development

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

excluding

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

and

 

undeveloped

 

Undeveloped

 

Real estate

 

 

 

 

 

 

 

June 30, 2015

 

industrial

 

land

 

land

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

595,584

 

$

102,274

 

$

19,965

 

$

1,151,868

 

$

29,611

 

 

 

$

1,899,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans collectively evaluated for impairment

 

$

591,064

 

$

101,333

 

$

19,965

 

$

1,146,530

 

$

29,537

 

 

 

$

1,888,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

4,440

 

$

516

 

$

 

$

4,844

 

$

73

 

 

 

$

9,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans acquired with deteriorated credit quality

 

$

80

 

$

425

 

$

 

$

494

 

$

1

 

 

 

$

1,000

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and development

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

excluding

 

 

 

 

 

 

 

 

 

 

 

 

 

and

 

undeveloped

 

Undeveloped

 

Real estate

 

 

 

 

 

 

 

 

 

industrial

 

land

 

land

 

mortgage

 

Consumer

 

Unallocated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014

 

$

11,819

 

$

721

 

$

1,545

 

$

10,541

 

$

294

 

$

 

$

24,920

 

Provision (credit)

 

(1,250

)

655

 

(471

)

1,022

 

44

 

 

 

Charge-offs

 

(1,330

)

 

 

(358

)

(274

)

 

(1,962

)

Recoveries

 

14

 

 

 

81

 

255

 

 

350

 

At June 30, 2015

 

$

9,253

 

$

1,376

 

$

1,074

 

$

11,286

 

$

319

 

$

 

$

23,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loans collectively evaluated for impairment

 

$

6,807

 

$

1,286

 

$

1,074

 

$

10,860

 

$

247

 

$

 

$

20,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loans individually evaluated for impairment

 

$

2,446

 

$

90

 

$

 

$

426

 

$

72

 

$

 

$

3,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loans acquired with deteriorated credit quality

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

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Table of Contents

 

 

 

Type of loan

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and development

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

excluding

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

and

 

undeveloped

 

Undeveloped

 

Real estate

 

 

 

 

 

 

 

December 31, 2014

 

industrial

 

land

 

land

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

571,754

 

$

95,733

 

$

21,268

 

$

1,150,399

 

$

29,396

 

 

 

$

1,868,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans collectively evaluated for impairment

 

$

564,443

 

$

94,603

 

$

21,268

 

$

1,146,212

 

$

29,311

 

 

 

$

1,855,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

7,239

 

$

516

 

$

 

$

3,720

 

$

76

 

 

 

$

11,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans acquired with deteriorated credit quality

 

$

72

 

$

614

 

$

 

$

467

 

$

9

 

 

 

$

1,162

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and development

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

excluding

 

 

 

 

 

 

 

 

 

 

 

 

 

and

 

undeveloped

 

Undeveloped

 

Real estate

 

 

 

 

 

 

 

 

 

industrial

 

land

 

land

 

mortgage

 

Consumer

 

Unallocated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2013

 

$

7,644

 

$

2,555

 

$

5,376

 

$

12,604

 

$

343

 

$

 

$

28,522

 

Provision (credit)

 

4,593

 

(1,584

)

(2,244

)

(1,190

)

25

 

 

(400

)

Charge-offs

 

(661

)

(250

)

(1,753

)

(993

)

(587

)

 

(4,244

)

Recoveries

 

243

 

 

166

 

120

 

513

 

 

1,042

 

At December 31, 2014

 

$

11,819

 

$

721

 

$

1,545

 

$

10,541

 

$

294

 

$

 

$

24,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loans collectively evaluated for impairment

 

$

10,790

 

$

706

 

$

1,545

 

$

10,285

 

$

218

 

$

 

$

23,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loans individually evaluated for impairment

 

$

1,029

 

$

15

 

$

 

$

256

 

$

76

 

$

 

$

1,376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loans acquired with deteriorated credit quality

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

The considerations by Bancorp in computing its allowance for loan losses are determined based on the various risk characteristics of each loan segment. Relevant risk characteristics are as follows:

 

·                  Commercial and industrial loans:  Loans in this category are made to businesses. Generally these loans are secured by assets of the business and repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and/or business spending will have an effect on the credit quality in this loan category.

 

·                  Construction and development, excluding undeveloped land:  Loans in this category primarily include owner-occupied and investment construction loans and commercial development projects.  In most cases, construction loans require only interest to be paid during construction, and then convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units including any pre-sold units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing, to the extent such permanent financing is not being provided by Bancorp.

 

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Table of Contents

 

·                  Undeveloped land:  Loans in this category are secured by land initially acquired for development by the borrower, but for which no development has yet taken place.  Credit risk is affected by market conditions and time to sell lots at an adequate price.  Credit risk is also affected by availability of permanent financing, to the extent such permanent financing is not being provided by Bancorp.

 

·                  Real estate mortgage:  Loans in this category are made to and secured by owner-occupied residential real estate, owner-occupied real estate used for business purposes, and income-producing investment properties.  Repayment is dependent on credit quality of the individual borrower.  Underlying properties are generally located in Bancorp’s primary market area. Cash flows of income producing investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on credit quality.  Overall health of the economy, including unemployment rates and housing prices, has an effect on credit quality in this loan category.

 

·                  Consumer:  Loans in this category may be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, sale of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates and housing prices, will have a significant effect on credit quality in this loan category.

 

Bancorp has loans that were acquired in a 2013 acquisition, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected.  The carrying amount of those loans is included in the balance sheet amounts of loans at June 30, 2015 and December 31, 2014.   Changes in the fair value adjustment for acquired impaired loans are shown in the following table:

 

(in thousands)

 

Accretable
discount

 

Non-
accretable
discount

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

$

137

 

$

369

 

 

 

 

 

 

 

Accretion

 

(75

)

(103

)

Reclassifications from (to) non-accretable difference

 

 

 

Disposals

 

 

 

Balance at December 31, 2014

 

62

 

266

 

 

 

 

 

 

 

Accretion

 

(27

)

 

Reclassifications from (to) non-accretable difference

 

 

 

Disposals

 

 

 

Balance at June 30, 2015

 

$

35

 

$

266

 

 

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Table of Contents

 

The following table presents loans individually evaluated for impairment as of June 30, 2015 and December 31, 2014.

 

 

 

 

 

Unpaid

 

 

 

Average

 

(in thousands)

 

Recorded

 

principal

 

Related

 

recorded

 

June 30, 2015

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

762

 

$

3,461

 

$

 

$

802

 

Construction and development, excluding undeveloped land

 

26

 

151

 

 

26

 

Undeveloped land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate mortgage

 

 

 

 

 

 

 

 

 

Commercial investment

 

104

 

361

 

 

110

 

Owner occupied commercial

 

1,649

 

2,087

 

 

1,587

 

1-4 family residential

 

492

 

492

 

 

695

 

Home equity - first lien

 

80

 

80

 

 

27

 

Home equity - junior lien

 

72

 

72

 

 

72

 

Subtotal: Real estate mortgage

 

2,397

 

3,092

 

 

2,491

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

1

 

1

 

 

 

Subtotal

 

$

3,186

 

$

6,705

 

$

 

$

3,319

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

3,678

 

$

6,566

 

$

2,446

 

$

5,438

 

Construction and development, excluding undeveloped land

 

490

 

490

 

90

 

490

 

Undeveloped land