Edgar Filing: Stock Yards Bancorp, Inc.

sybt20150930_10q.htm Table Of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2015

☐	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 ☑ 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 ☑ 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	☐	Accelerated filer ☑
Non-accelerated filer (Do not check if a smaller reporting company)	☐	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 ☑

The number of shares of the registrant’s Common Stock, no par value, outstanding as of October 27, 2015, was 14,870,711.

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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 September 30, 2015 (Unaudited) and December 31, 2014	2

Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2015 and 2014	3

Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2015 and 2014	4

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2015 and 2014	5

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 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	56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 6. Exhibits	57

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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

September 30, 2015 and December 31, 2014

(In thousands, except share data)

	September 30,		December 31,
	2015		2014
Assets	(Unaudited)

Cash and due from banks	$	37,335	$	42,216
Federal funds sold		17,859		32,025
Cash and cash equivalents		55,194		74,241
Mortgage loans held for sale		5,539		3,747
Securities available-for-sale (amortized cost of $498,633 and $509,276 in 2015 and 2014, respectively)		504,366		513,056
Federal Home Loan Bank stock and other securities		6,347		6,347
Loans		1,954,425		1,868,550
Less allowance for loan losses		21,614		24,920
Net loans		1,932,811		1,843,630
Premises and equipment, net		39,951		39,088
Bank owned life insurance		30,777		30,107
Accrued interest receivable		6,058		5,980
Other assets		43,564		47,672
Total assets	$	2,624,607	$	2,563,868
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	595,039	$	523,947
Interest bearing		1,546,539		1,599,680
Total deposits		2,141,578		2,123,627
Securities sold under agreements to repurchase		67,557		69,559
Federal funds purchased		62,101		47,390
Accrued interest payable		126		131
Other liabilities		28,598		26,434
Federal Home Loan Bank advances		43,699		36,832
Total liabilities		2,343,659		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 14,868,894 and 14,744,684 shares in 2015 and 2014, respectively		10,448		10,035
Additional paid-in capital		42,217		38,191
Retained earnings		225,178		209,584
Accumulated other comprehensive income		3,105		2,085
Total stockholders’ equity		280,948		259,895
Total liabilities and stockholders’ equity	$	2,624,607	$	2,563,868

See accompanying notes to unaudited consolidated financial statements.

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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income (Unaudited)

For the three and nine months ended September 30, 2015 and 2014

(In thousands, except per share data)

	For three months ended						For nine months ended
	September 30,						September 30,
	2015			2014			2015		2014
Interest income:
Loans	$	20,924		$	20,429		$	61,951	$	59,575
Federal funds sold		65			73			184		215
Mortgage loans held for sale		67			54			180		128
Securities – taxable		1,936			1,845			5,939		5,506
Securities – tax-exempt		292			291			877		885
Total interest income		23,284			22,692			69,131		66,309
Interest expense:
Deposits		900			1,065			2,811		3,319
Federal funds purchased		7			8			19		23
Securities sold under agreements to repurchase		42			37			111		100
Federal Home Loan Bank advances		254			219			694		621
Total interest expense		1,203			1,329			3,635		4,063
Net interest income		22,081			21,363			65,496		62,246
Provision (credit) for loan losses		—			(2,100	)		—		(400	)
Net interest income after provision for loan losses		22,081			23,463			65,496		62,646
Non-interest income:
Investment management and trust services		4,373			4,502			13,576		13,825
Service charges on deposit accounts		2,342			2,294			6,621		6,620
Bankcard transaction revenue		1,223			1,182			3,591		3,466
Mortgage banking revenue		772			641			2,513		1,951
Gain (loss) on sales of securities available for sale		—			—			—		(9	)
Brokerage commissions and fees		585			539			1,545		1,506
Bank owned life insurance income		222			229			670		699
Other		468			463			1,361		1,324
Total non-interest income		9,985			9,850			29,877		29,382
Non-interest expenses:
Salaries and employee benefits		11,333			11,855			33,816		33,697
Net occupancy expense		1,518			1,422			4,437		4,431
Data processing expense		1,572			1,591			4,782		4,869
Furniture and equipment expense		282			269			789		796
FDIC insurance expense		318			340			932		1,032
Loss (gain) on other real estate owned		(12	)		7			153		(342	)
Other		3,419			3,225			10,167		9,471
Total non-interest expenses		18,430			18,709			55,076		53,954
Income before income taxes		13,636			14,604			40,297		38,074
Income tax expense		4,352			4,715			12,756		11,974
Net income	$	9,284		$	9,889		$	27,541	$	26,100
Net income per share:
Basic	$	0.63		$	0.68		$	1.87	$	1.79
Diluted	$	0.62		$	0.67		$	1.84	$	1.77
Average common shares:
Basic		14,754			14,574			14,704		14,542
Diluted		14,986			14,748			14,940		14,732

See accompanying notes to unaudited consolidated financial statements.

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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

For the three and nine months ended September 30, 2015 and 2014

(In thousands)

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Net income	$	9,284		$	9,889		$	27,541		$	26,100
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during the period (net of tax of $1,089, ($234), $683 and $1,521, respectively)		2,023			(435	)		1,270			2,823
Reclassification adjustment for securities losses realized in income (net of tax of $0, $0, $0, and $3, respectively)		—			—			—			6
Unrealized (losses) gains on hedging instruments:
Unrealized (losses) gains arising during the period (net of tax of ($124), $12, ($135) and $6, respectively)		(231	)		23			(250	)		10
Other comprehensive income (loss), net of tax		1,792			(412	)		1,020			2,839
Comprehensive income	$	11,076		$	9,477		$	28,561		$	28,939

See accompanying notes to unaudited consolidated financial statements.

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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the nine months ended September 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		—			—			—			26,100			—			26,100

Other comprehensive income, net of tax		—			—			—			—			2,839			2,839

Stock compensation expense		—			—			1,459			—			—			1,459

Stock issued for exercise of stock options, net of withholdings to satisfy employee tax obligations upon vesting of stock awards		81			269			1,870			(95	)		—			2,044

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, $0.65 per share		—			—			—			(9,534	)		—			(9,534	)

Shares repurchased or cancelled		(31	)		(102	)		(784	)		73			—			(813	)

Balance September 30, 2014		14,704		$	9,898		$	36,711		$	204,215		$	622		$	251,446

Balance December 31, 2014		14,745		$	10,035		$	38,191		$	209,584		$	2,085		$	259,895

Net income		—			—			—			27,541			—			27,541

Other comprehensive income, net of tax		—			—			—			—			1,020			1,020

Stock compensation expense		—			—			1,561			—			—			1,561

Stock issued for exercise of stock options, net of withholdings to satisfy employee tax obligations upon vesting of stock awards		92			307			2,383			(201	)		—			2,489

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			60			(397	)		(128	)		—			(465	)

Cash dividends declared, $0.71 per share		—			—			—			(10,519	)		—			(10,519	)

Shares repurchased or cancelled		(21	)		(70	)		(609	)		105			—			(574	)

Balance September 30, 2015		14,869		$	10,448		$	42,217		$	225,178		$	3,105		$	280,948

See accompanying notes to unaudited consolidated financial statements.

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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2015 and 2014

(In thousands)

	2015			2014
Operating activities:
Net income	$	27,541		$	26,100
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan losses		—			(400	)
Depreciation, amortization and accretion, net		5,088			3,226
Deferred income tax expense (benefit)		1,326			(252	)
Loss on sale of securities available for sale		—			9
Gain on sales of mortgage loans held for sale		(1,611	)		(769	)
Origination of mortgage loans held for sale		(90,997	)		(64,332	)
Proceeds from sale of mortgage loans held for sale		90,816			63,159
Bank owned life insurance income		(670	)		(699	)
Loss (gain) on the disposal of premises and equipment		3			(30	)
Loss (gain) on the sale of other real estate		153			(342	)
Stock compensation expense		1,561			1,459
Excess tax benefits from share-based compensation arrangements		(366	)		(257	)
(Increase) decrease in accrued interest receivable and other assets		(1,049	)		1,107
Increase in accrued interest payable and other liabilities		2,509			2,049
Net cash provided by operating activities		34,304			30,028
Investing activities:
Purchases of securities available for sale		(203,465	)		(220,296	)
Proceeds from sale of securities available for sale		5,934			7,732
Proceeds from maturities of securities available for sale		206,734			256,948
Net increase in loans		(90,224	)		(66,748	)
Purchases of premises and equipment		(3,136	)		(1,517	)
Proceeds from disposal of premises and equipment		—			344
Proceeds from sale of foreclosed assets		2,332			4,768
Net cash used in investing activities		(81,825	)		(18,769	)
Financing activities:
Net increase in deposits		17,951			26,884
Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased		12,709			(34,659	)
Proceeds from Federal Home Loan Bank advances		78,200			32,740
Repayments of Federal Home Loan Bank advances		(71,333	)		(30,150	)
Issuance of common stock for options and performance stock units		1,994			1,445
Excess tax benefits from share-based compensation arrangements		366			257
Common stock repurchases		(910	)		(564	)
Cash dividends paid		(10,503	)		(9,534	)
Net cash provided by (used in) financing activities		28,474			(13,581	)
Net decrease in cash and cash equivalents		(19,047	)		(2,322	)
Cash and cash equivalents at beginning of period		74,241			70,770
Cash and cash equivalents at end of period	$	55,194		$	68,448
Supplemental cash flow information:
Income tax payments	$	10,177		$	8,764
Cash paid for interest		3,640			4,063
Supplemental non-cash activity:
Transfers from loans to other real estate owned	$	1,043		$	1,780

See accompanying notes to unaudited consolidated financial statements.

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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 nine month periods ended September 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.

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Stock Yards Bancorp, inc. and subsidiary

Bancorp’s allowance calculation includes allocations to loan portfolio segments at September 30, 2015 for qualitative factors including, among other factors, local economic and business conditions, the quality and experience of lending staff and management, changes in lending policies and procedures, levels of and trends in past due loans and loan classifications, concentrations of credit such as collateral type, trends in portfolio growth, changes in the value of underlying collateral for collateral-dependent loans considering Bancorp’s disposition bias, effect of other external factors such as the national economic and business trends, and the quality and depth of the loan review function. 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				Fair
September 30, 2015	cost		Gains		Losses		value

U.S. Treasury and other U.S. Government obligations	$	100,000	$	-	$	-	$	100,000
Government sponsored enterprise obligations		184,258		2,746		194		186,810
Mortgage-backed securities - government agencies		152,552		2,564		769		154,347
Obligations of states and political subdivisions		61,067		1,482		41		62,508
Corporate equity securities		756		-		55		701

Total securities available for sale	$	498,633	$	6,792	$	1,059	$	504,366

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 September 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 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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Stock Yards Bancorp, inc. and subsidiary

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

(in thousands)
Securities available-for-sale		Amortized cost		Fair value

Due within 1 year	$	125,176	$	125,348
Due after 1 but within 5 years		114,928		117,100
Due after 5 but within 10 years		15,694		15,992
Due after 10 years		89,527		90,878
Mortgage-backed securities		152,552		154,347
Corporate equity securities		756		701
Total securities available-for-sale	$	498,633	$	504,366

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 $278.1 million at September 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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Stock Yards Bancorp, inc. and subsidiary

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

(in thousands)	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2015	value		losses		value		losses		value		losses

Government sponsored enterprise obligations	$	6,353	$	8	$	8,740	$	186	$	15,093	$	194
Mortgage-backed securities - government agencies		12,929		129		31,734		640		44,663		769
Obligations of states and political subdivisions		7,817		25		2,232		16		10,049		41
Corporate equity securities		701		55		-		-		701		55

Total temporarily impaired securities	$	27,800	$	217	$	42,706	$	842	$	70,506	$	1,059

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 September 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 45 and 80 separate investment positions as of September 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 September 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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Stock Yards Bancorp, inc. and subsidiary

(3)

Loans

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

(in thousands)	September 30, 2015		December 31, 2014
Commercial and industrial	$	610,877	$	571,754
Construction and development, excluding undeveloped land		109,870		95,733
Undeveloped land		18,950		21,268

Real estate mortgage:
Commercial investment		491,171		487,822
Owner occupied commercial		357,628		340,982
1-4 family residential		222,643		211,548
Home equity - first lien		49,937		43,779
Home equity - junior lien		62,223		66,268
Subtotal: Real estate mortgage		1,183,602		1,150,399

Consumer		31,126		29,396

Total loans	$	1,954,425	$	1,868,550

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Stock Yards Bancorp, inc. and subsidiary

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 September 30, 2015 and December 31, 2014.

(in thousands)	Type of loan
			Construction
			and development
	Commercial		excluding
	and		undeveloped		Undeveloped		Real estate
September 30, 2015	industrial		land		land		mortgage		Consumer		Total

Loans	$	610,877	$	109,870	$	18,950	$	1,183,602	$	31,126	$	1,954,425

Loans collectively evaluated for impairment	$	604,021	$	109,523	$	18,950	$	1,179,342	$	31,041	$	1,942,877

Loans individually evaluated for impairment	$	6,778	$	26	$	-	$	3,764	$	85	$	10,653

Loans acquired with deteriorated credit quality	$	78	$	321	$	-	$	496	$	-	$	895

				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)		(214	)		599		(1,327	)		844			98			-		-
Charge-offs		(3,346	)		-		-			(688	)		(447	)		-		(4,481	)
Recoveries		47			-		650			118			360			-		1,175
At September 30, 2015	$	8,306		$	1,320	$	868		$	10,815		$	305		$	-	$	21,614

Allowance for loans collectively evaluated for impairment	$	7,089		$	1,320	$	868		$	10,499		$	235		$	-	$	20,011

Allowance for loans individually evaluated for impairment	$	1,217		$	-	$	-		$	316		$	70		$	-	$	1,603

Allowance for loans acquired with deteriorated credit quality	$	-		$	-	$	-		$	-		$	-		$	-	$	-

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Stock Yards Bancorp, inc. and subsidiary

(in thousands)	Type of loan
			Construction
			and development
	Commercial		excluding
	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:

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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.

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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. Upon completion or stabilization, the construction loan may 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.

Table Of Contents

Stock Yards Bancorp, inc. and subsidiary

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