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 March 31, 2018
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 incorporation or organization) |
(I.R.S. Employer 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth 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 | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 April 24, 2018 was 22,731,897.
Stock Yards Bancorp, inc. and subsidiary
Stock Yards Bancorp, inc. and subsidiary
Index
PART I – FINANCIAL INFORMATION
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
ASU |
Accounting Standards Update |
Bancorp |
Stock Yards Bancorp, Inc. |
Bank |
Stock Yards Bank & Trust Company |
BOLI |
Bank Owned Life Insurance |
BP |
Basis Point = 1/100th of one percent |
COSO |
Committee of Sponsoring Organizations |
CRA |
Community Reinvestment Act of 1977 |
Dodd-Frank Act |
Dodd-Frank Wall Street Reform and Consumer Protection Act |
EPS |
Earnings Per Share |
FASB |
Financial Accounting Standards Board |
FDIC |
Federal Deposit Insurance Corporation |
FHA |
Federal Housing Administration |
FHLB |
Federal Home Loan Bank |
FHLMC |
Federal Home Loan Mortgage Corporation |
FNMA |
Federal National Mortgage Association |
GNMA |
Government National Mortgage Association |
LIBOR |
London Interbank Offered Rate |
MSR |
Mortgage Servicing Right |
OAEM |
Other Assets Especially Mentioned |
OREO |
Other Real Estate Owned |
PSU |
Performance Stock Unit |
RSU |
Restricted Stock Unit |
SAR |
Stock Appreciation Right |
SEC |
Securities and Exchange Commission |
TDR |
Troubled Debt Restructuring |
US |
GAAP United States Generally Accepted Accounting Principles |
VA |
U.S. Department of Veterans Affairs |
WM&T |
Wealth management and Trust |
STOCK YARDS BANCORP, INC. AND SUBSIDIARY |
March 31, 2018 (unaudited) and December 31, 2017 |
(In thousands, except share data) |
March 31, |
December 31, |
|||||||
|
2018 |
2017 |
||||||
Assets | ||||||||
Cash and due from banks |
$ | 41,622 | $ | 41,982 | ||||
Federal funds sold and interest bearing due from banks |
15,254 | 97,266 | ||||||
Cash and cash equivalents |
56,876 | 139,248 | ||||||
Mortgage loans held for sale |
4,239 | 2,964 | ||||||
Securities available-for-sale (amortized cost of $605,670 in 2018 and $577,406 in 2017) |
598,081 | 574,524 | ||||||
Federal Home Loan Bank stock |
8,876 | 7,646 | ||||||
Loans |
2,512,388 | 2,409,570 | ||||||
Less allowance for loan losses |
24,203 | 24,885 | ||||||
Net loans |
2,488,185 | 2,384,685 | ||||||
Premises and equipment, net |
41,684 | 41,655 | ||||||
Bank owned life insurance |
32,236 | 32,049 | ||||||
Accrued interest receivable |
8,026 | 8,369 | ||||||
Other assets |
47,277 | 48,506 | ||||||
Total assets |
$ | 3,285,480 | $ | 3,239,646 | ||||
Liabilities and Stockholders’ Equity |
||||||||
Deposits: |
||||||||
Non-interest bearing |
$ | 681,936 | $ | 674,697 | ||||
Interest bearing |
1,891,428 | 1,903,598 | ||||||
Total deposits |
2,573,364 | 2,578,295 | ||||||
Securities sold under agreements to repurchase |
67,892 | 70,473 | ||||||
Federal funds purchased and other short-term borrowings |
215,233 | 161,352 | ||||||
Federal Home Loan Bank advances |
49,140 | 49,458 | ||||||
Accrued interest payable |
284 | 232 | ||||||
Other liabilities |
41,865 | 46,192 | ||||||
Total liabilities |
2,947,778 | 2,906,002 | ||||||
Stockholders’ equity: |
||||||||
Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outsanding |
- | - | ||||||
Common stock, no par value. Authorized 40,000,000 shares; issued and outstanding 22,730,380 and 22,679,362 shares in 2018 and 2017, respectively |
36,627 | 36,457 | ||||||
Additional paid-in capital |
32,917 | 31,924 | ||||||
Retained earnings |
274,002 | 267,193 | ||||||
Accumulated other comprehensive loss |
(5,844 | ) | (1,930 | ) | ||||
Total stockholders’ equity |
337,702 | 333,644 | ||||||
Total liabilities and stockholders’ equity |
$ | 3,285,480 | $ | 3,239,646 |
See accompanying notes to unaudited consolidated financial statements. |
STOCK YARDS BANCORP, INC., AND SUBSIDIARY Consolidated Statements of Income (Unaudited) For the three months ended March 31, 2018 and 2017 |
March 31, | ||||||||
(In thousands, except per share data) |
2018 |
2017 |
||||||
Interest income |
||||||||
Loans |
$ | 27,048 | $ | 24,060 | ||||
Federal funds sold and interest bearing deposits |
268 | 134 | ||||||
Mortgage loans held for sale |
35 | 44 | ||||||
Securities |
||||||||
Taxable |
2,138 | 2,114 | ||||||
Tax-exempt |
241 | 281 | ||||||
Total interest income |
29,730 | 26,633 | ||||||
Interest expense |
||||||||
Deposits |
2,077 | 1,163 | ||||||
Short term borrowing |
123 | 54 | ||||||
Long term debt |
235 | 232 | ||||||
Total interest expense |
2,435 | 1,449 | ||||||
Net interest income |
27,295 | 25,184 | ||||||
Provision for loan losses |
735 | 900 | ||||||
Net interest income after provision for loan losses |
26,560 | 24,284 | ||||||
Non-interest income |
||||||||
Wealth management and trust services |
5,500 | 5,094 | ||||||
Deposit service charges |
1,511 | 1,565 | ||||||
Debit and credit cards |
1,508 | 1,406 | ||||||
Treasury management |
947 | 956 | ||||||
Mortgage banking |
576 | 702 | ||||||
Net investment product sales commissions and fees |
404 | 386 | ||||||
Bank owned life insurance |
187 | 204 | ||||||
Other |
290 | 331 | ||||||
Total non-interest income |
10,923 | 10,644 | ||||||
Non-interest expenses |
||||||||
Compensation |
10,970 | 10,669 | ||||||
Employee benefits |
2,633 | 2,742 | ||||||
Net occupancy and equipment |
1,818 | 1,907 | ||||||
Technology and communication |
2,196 | 1,848 | ||||||
Marketing and business development |
646 | 445 | ||||||
Postage, printing and supplies |
391 | 371 | ||||||
Legal and professional |
493 | 429 | ||||||
FDIC insurance |
242 | 230 | ||||||
Amortization/impairment of investments in tax credit partnerships |
- | 616 | ||||||
Capital and deposit based taxes |
852 | 764 | ||||||
Other |
786 | 974 | ||||||
Total non-interest expenses |
21,027 | 20,995 | ||||||
Income before income taxes |
16,456 | 13,933 | ||||||
Income tax expense |
3,052 | 3,142 | ||||||
Net income |
$ | 13,404 | $ | 10,791 | ||||
Net income per share, basic |
$ | 0.59 | $ | 0.48 | ||||
Net income per share, diluted |
$ | 0.58 | $ | 0.47 | ||||
Average common shares: |
||||||||
Basic |
22,577 | 22,492 | ||||||
Diluted |
22,942 | 23,002 |
See accompanying notes to unaudited consolidated financial statements. |
STOCK YARDS BANCORP, INC. AND SUBSIDIARY |
For the three months ended March 31, 2018 and 2017 |
(In thousands) |
Three months ended |
||||||||
March 31, |
||||||||
2018 |
2017 |
|||||||
Net income |
$ | 13,404 | $ | 10,791 | ||||
Other comprehensive income, net of tax: |
||||||||
Unrealized gains (losses) on securities available for sale: |
||||||||
Unrealized gains (losses) arising during the period, net of tax of $(989) and $370, respectively |
(3,718 | ) | 689 | |||||
Unrealized losses on hedging instruments: |
||||||||
Unrealized gains (losses) arising during the period, net of tax benefit of $82 and $47, respectively |
310 | 85 | ||||||
Other comprehensive income (loss), net of tax |
(3,408 | ) | 774 | |||||
Comprehensive income |
$ | 9,996 | $ | 11,565 |
See accompanying notes to unaudited consolidated financial statements. |
Accumulated |
||||||||||||||||||||||||
Common stock |
Additional |
other |
||||||||||||||||||||||
Number of |
paid-in |
Retained |
comprehensive |
|||||||||||||||||||||
shares |
Amount |
capital |
earnings |
income (loss) |
Total |
|||||||||||||||||||
Balance December 31, 2016 |
22,617 | $ | 36,250 | $ | 26,682 | $ | 252,439 | $ | (1,499 | ) | $ | 313,872 | ||||||||||||
Net income |
- | - | - | 10,791 | - | 10,791 | ||||||||||||||||||
Other comprehensive income, net of tax |
- | - | - | - | 774 | 774 | ||||||||||||||||||
Stock compensation expense |
- | - | 660 | - | - | 660 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award |
47 | 155 | 1,716 | (3,976 | ) | - | (2,105 | ) | ||||||||||||||||
Cash dividends, $0.19 per share |
- | - | - | (4,305 | ) | - | (4,305 | ) | ||||||||||||||||
Shares cancelled |
(3 | ) | (10 | ) | (56 | ) | 66 | - | - | |||||||||||||||
Balance March 31, 2017 |
22,661 | $ | 36,395 | $ | 29,002 | $ | 255,015 | $ | (725 | ) | $ | 319,687 | ||||||||||||
Balance December 31, 2017 |
22,679 | $ | 36,457 | $ | 31,924 | $ | 267,193 | $ | (1,930 | ) | $ | 333,644 | ||||||||||||
Net income |
- | - | - | 13,404 | - | 13,404 | ||||||||||||||||||
Other comprehensive income, net of tax |
- | - | - | - | (3,408 | ) | (3,408 | ) | ||||||||||||||||
Adoption of Accounting Standard Update 2018-02 |
506 | (506 | ) | - | ||||||||||||||||||||
Stock compensation expense |
- | - | 823 | - | - | 823 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award |
52 | 174 | 205 | (1,914 | ) | - | (1,535 | ) | ||||||||||||||||
Cash dividends, $0.23 per share |
- | - | - | (5,226 | ) | - | (5,226 | ) | ||||||||||||||||
Shares cancelled |
(1 | ) | (4 | ) | (35 | ) | 39 | - | - | |||||||||||||||
Balance March 31, 2018 |
22,730 | $ | 36,627 | $ | 32,917 | $ | 274,002 | $ | (5,844 | ) | $ | 337,702 |
See accompanying notes to unaudited consolidated financial statements. |
STOCK YARDS BANCORP, INC. AND SUBSIDIARY |
||||||||||
For the three months ended March 31, 2018 and 2017 |
||||||||||
(In thousands) |
2018 |
2017 |
|||||||
Operating activities: |
||||||||
Net income |
$ | 13,404 | $ | 10,791 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
735 | 900 | ||||||
Depreciation, amortization and accretion, net |
1,326 | 2,280 | ||||||
Deferred income tax provision |
488 | 25 | ||||||
Gain on sales of mortgage loans held for sale |
(314 | ) | (406 | ) | ||||
Origination of mortgage loans held for sale |
(18,245 | ) | (20,839 | ) | ||||
Proceeds from sale of mortgage loans held for sale |
17,284 | 20,574 | ||||||
Bank owned life insurance income |
(187 | ) | (204 | ) | ||||
(Gain) on the disposal of premises and equipment |
(6 | ) | - | |||||
(Gain) on the sale of foreclosed assets |
(109 | ) | - | |||||
Stock compensation expense |
823 | 660 | ||||||
Excess tax benefits from share-based compensation arrangements |
(316 | ) | (1,013 | ) | ||||
Decrease (increase) in accrued interest receivable and other assets |
25 | (1,125 | ) | |||||
(Decrease) Increase in accrued interest payable and other liabilities |
(3,978 | ) | 3,947 | |||||
Net cash provided by operating activities |
10,930 | 15,590 | ||||||
Investing activities: |
||||||||
Purchases of securities available for sale |
(199,946 | ) | (99,988 | ) | ||||
Proceeds from maturities of securities available for sale |
171,308 | 114,297 | ||||||
Purchase of Federal Home Loan Bank stock |
(1,230 | ) | - | |||||
Net (increase) decrease in loans |
(104,505 | ) | 32,171 | |||||
Purchases of premises and equipment |
(1,111 | ) | (308 | ) | ||||
Proceeds from disposal of premises and equipment |
215 | - | ||||||
Proceeds from sale of foreclosed assets |
2,658 | 1,043 | ||||||
Net cash (used in) provided by investing activities |
(132,611 | ) | 47,215 | |||||
Financing activities: |
||||||||
Net (decrease) increase in deposits |
(4,931 | ) | 23,707 | |||||
Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased |
51,300 | (38,293 | ) | |||||
Proceeds from Federal Home Loan Bank advances |
30,000 | 30,000 | ||||||
Repayments of Federal Home Loan Bank advances |
(30,318 | ) | (30,320 | ) | ||||
Repurchase common stock for performing stock units |
(156 | ) | (216 | ) | ||||
Common stock repurchases of restricted shares surrendered for taxes |
(1,379 | ) | (1,889 | ) | ||||
Cash dividends paid |
(5,207 | ) | (4,286 | ) | ||||
Net cash provided by (used in) financing activities |
39,309 | (21,297 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
(82,372 | ) | 41,508 | |||||
Cash and cash equivalents at beginning of period |
139,248 | 47,973 | ||||||
Cash and cash equivalents at end of period |
$ | 56,876 | $ | 89,481 | ||||
Supplemental cash flow information: |
||||||||
Income tax payments |
$ | - | $ | - | ||||
Cash paid for interest |
2,383 | 1,437 | ||||||
Supplemental non-cash activity: |
||||||||
Transfers from loans to foreclosed assets |
$ | 270 | $ | - |
See accompanying notes to unaudited consolidated financial statements. |
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 inter-company 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, 2017 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 month period ended March 31, 2018 are not necessarily indicative of the results for the entire year.
Critical Accounting Policies
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.
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. The provision for loan losses reflects an allowance methodology driven by risk ratings, historical losses, specific loan loss allocations, and qualitative factors. 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. Consistent with Bancorp’s methodology, in the first quarter of 2018, Bancorp extended the historical period used to capture Bancorp’s historical loss ratios from 28 quarters to 32 quarters in order to capture the effects of a full economic cycle. This extension of the historical period was applied to all classes and segments of our portfolio. The expansion of the look-back period for the quantitative historical loss rate caused us to review the overall methodology for the qualitative factors to ensure we were appropriately capturing the risk not addressed in the quantitative historical loss rate. Management reviews the appropriateness of the look-back period annually, and 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.
Stock Yards Bancorp, inc. and subsidiary
As a result of extending the look-back period and making normal updates to other assumptions in the allowance model in the first quarter of 2018, the allowance decreased $682,000. The change in look-back period was consistent with management’s judgment regarding the risk in the loan portfolio and consistent with internal analysis showing continued strong asset quality related not only in the Company’s loan portfolio, but the Bank’s peer group as well, validating the continuation of the current economic cycle and thus the reasoning to extend the look-back period. Management will continue to evaluate the appropriateness of the look-back period based on the status of the economic cycle. To the extent that management’s assumptions prove incorrect, 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 impact and any associated risks related to this policy on Bancorp’s business operations are discussed in the “Allowance for Loan Losses” section below.
Bancorp’s allowance calculation includes allocations to loan portfolio segments at March 31, 2018 for qualitative factors including, among other factors, local economic and business conditions in each of our primary markets, quality and experience of lending staff and management, exceptions to lending policies, levels of and trends in past due loans and loan classifications, concentrations of credit such as collateral type, trends in portfolio growth, trends in value of underlying collateral for collateral-dependent loans, effect of other external factors such as the national economic and business trends, quality and depth of the loan review function, and management’s judgement of current trends and potential risks. 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 criteria used in this evaluation or 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 follows:
(In thousands) |
Amortized |
Unrealized |
|
|||||||||||||
March 31, 2018 |
cost |
Gains |
Losses |
Fair value | ||||||||||||
Government sponsored enterprise obligations |
$ | 405,684 | $ | 100 | $ | (3,373 | ) | $ | 402,411 | |||||||
Mortgage-backed securities - government agencies |
156,045 | 155 | (4,452 | ) | 151,748 | |||||||||||
Obligations of states and political subdivisions |
43,941 | 260 | (279 | ) | 43,922 | |||||||||||
Total securities available for sale |
$ | 605,670 | $ | 515 | $ | (8,104 | ) | $ | 598,081 | |||||||
December 31, 2017 |
||||||||||||||||
U.S. Treasury and other U.S. Government obligations |
$ | 149,996 | $ | - | $ | (12 | ) | $ | 149,984 | |||||||
Government sponsored enterprise obligations |
214,852 | 474 | (1,482 | ) | 213,844 | |||||||||||
Mortgage-backed securities - government agencies |
163,571 | 383 | (2,447 | ) | 161,507 | |||||||||||
Obligations of states and political subdivisions |
48,987 | 365 | (163 | ) | 49,189 | |||||||||||
Total securities available for sale |
$ | 577,406 | $ | 1,222 | $ | (4,104 | ) | $ | 574,524 |
There were no securities classified as held to maturity as of March 31, 2018 or December 31, 2017.
Stock Yards Bancorp, inc. and subsidiary
Bancorp sold no securities during the three-month periods ending March 31, 2018 or 2017.
A summary of the available-for-sale investment securities by contractual maturity groupings as of March 31, 2018 is shown below.
(In thousands) | ||||||||
Securities available-for-sale |
Amortized cost |
Fair value |
||||||
Due within 1 year |
$ | 230,740 | $ | 230,686 | ||||
Due after 1 but within 5 years |
97,419 | 96,063 | ||||||
Due after 5 but within 10 years |
10,058 | 9,808 | ||||||
Due after 10 years |
111,408 | 109,776 | ||||||
Mortgage-backed securities – government agencies |
156,045 | 151,748 | ||||||
Total securities available-for-sale |
$ | 605,670 | $ | 598,081 |
Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations. 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.
Bancorp pledges portions of its investment securities portfolio to secure public fund deposits, cash balances of uninsured wealth management and trust accounts, and securities sold under agreements to repurchase. The carrying value of these pledged securities was approximately $340.5 million at March 31, 2018 and $384.7 million at December 31, 2017.
Stock Yards Bancorp, inc. and subsidiary
Securities with unrealized losses at March 31, 2018 and December 31, 2017, 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 |
|||||||||||||||||||
March 31, 2018 |
value |
losses |
value |
losses |
value |
losses |
||||||||||||||||||
Government sponsored enterprise obligations |
$ | 340,018 | $ | (2,188 | ) | $ | 48,470 | $ | (1,185 | ) | $ | 388,488 | $ | (3,373 | ) | |||||||||
Mortgage-backed securities - government agencies |
75,107 | (1,669 | ) | 63,083 | (2,783 | ) | 138,190 | (4,452 | ) | |||||||||||||||
Obligations of states and political subdivisions |
19,582 | (192 | ) | 5,242 | (87 | ) | 24,824 | (279 | ) | |||||||||||||||
Total temporarily impaired securities |
$ | 434,707 | $ | (4,049 | ) | $ | 116,795 | $ | (4,055 | ) | $ | 551,502 | $ | (8,104 | ) | |||||||||
December 31, 2017 |
||||||||||||||||||||||||
U.S. Treasury and U.S. obligations |
$ | 149,984 | $ | (12 | ) | $ | - | $ | - | $ | 149,984 | $ | (12 | ) | ||||||||||
Government sponsored enterprise obligations |
95,139 | (586 | ) | 49,870 | (896 | ) | 145,009 | (1,482 | ) | |||||||||||||||
Mortgage-backed securities - government agencies |
69,290 | (440 | ) | 67,047 | (2,007 | ) | 136,337 | (2,447 | ) | |||||||||||||||
Obligations of states and political subdivisions |
22,366 | (107 | ) | 5,064 | (56 | ) | 27,430 | (163 | ) | |||||||||||||||
Total temporarily impaired securities |
$ | 336,779 | $ | (1,145 | ) | $ | 121,981 | $ | (2,959 | ) | $ | 458,760 | $ | (4,104 | ) |
Applicable dates for determining when securities are in an unrealized loss position are March 31, 2018 and December 31, 2017. 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 132 and 117 separate investment positions as of March 31, 2018 and December 31, 2017, 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 March 31, 2018.
FHLB stock is an investment held by Bancorp which is not readily marketable and is carried at cost adjusted for identified impairment. No impairment was indicated as of March 31, 2018. Holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock are required for access to FHLB borrowing, and are classified as restricted securities.
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) |
March 31, 2018 |
December 31, 2017 |
||||||
Commercial and industrial |
$ | 843,478 | $ | 779,014 | ||||
Construction and development, excluding undeveloped land |
215,752 | 195,912 | ||||||
Undeveloped land |
20,120 | 18,988 | ||||||
Real estate mortgage: |
||||||||
Commercial investment |
590,942 | 594,902 | ||||||
Owner occupied commercial |
407,733 | 398,685 | ||||||
1-4 family residential |
272,900 | 262,110 | ||||||
Home equity - first lien |
51,595 | 57,110 | ||||||
Home equity - junior lien |
64,108 | 63,981 | ||||||
Subtotal: Real estate mortgage |
1,387,278 | 1,376,788 | ||||||
Consumer |
45,760 | 38,868 | ||||||
Total loans |
$ | 2,512,388 | $ | 2,409,570 |
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 March 31, 2018 and December 31, 2017.
(In thousands) |
Type of loan |
|||||||||||||||||||||||
Construction |
||||||||||||||||||||||||
and development |
||||||||||||||||||||||||
Commercial |
excluding |
|||||||||||||||||||||||
and |
undeveloped |
Undeveloped |
Real estate |
|||||||||||||||||||||
March 31, 2018 |
industrial |
land |
land |
mortgage |
Consumer |
Total |
||||||||||||||||||
Loans |
$ | 843,478 | $ | 215,752 | $ | 20,120 | $ | 1,387,278 | $ | 45,760 | $ | 2,512,388 | ||||||||||||
Loans collectively evaluated for impairment |
$ | 839,328 | $ | 215,082 | $ | 19,550 | $ | 1,380,494 | $ | 45,669 | $ | 2,500,123 | ||||||||||||
Loans individually evaluated for impairment |
$ | 4,150 | $ | 670 | $ | 570 | $ | 6,784 | $ | 91 | $ | 12,265 | ||||||||||||
Loans acquired with deteriorated credit quality |
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
Construction |
||||||||||||||||||||||||
and development |
||||||||||||||||||||||||
Commercial |
excluding |
|||||||||||||||||||||||
and |
undeveloped |
Undeveloped |
Real estate |
|||||||||||||||||||||
industrial |
land |
land |
mortgage |
Consumer |
Total |
|||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||
At December 31, 2017 |
$ | 11,276 | $ | 1,724 | $ | 521 | $ | 11,012 | $ | 352 | $ | 24,885 | ||||||||||||
Provision (credit) |
761 | 296 | (39 | ) | (309 | ) | 26 | 735 | ||||||||||||||||
Charge-offs |
(1,409 | ) | - | - | - | (119 | ) | (1,528 | ) | |||||||||||||||
Recoveries |
10 | - | - | 4 | 97 | 111 | ||||||||||||||||||
At March 31, 2018 |
$ | 10,638 | $ | 2,020 | $ | 482 | $ | 10,707 | $ | 356 | $ | 24,203 | ||||||||||||
Allowance for loans collectively evaluated for impairment |
$ | 9,646 | $ | 2,020 | $ | 481 | $ | 10,230 | $ | 356 | $ | 22,733 | ||||||||||||
Allowance for loans individually evaluated for impairment |
$ | 992 | $ | - | $ | 1 | $ | 477 | $ | - | $ | 1,470 | ||||||||||||
Allowance for loans acquired with deteriorated credit quality |
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
Stock Yards Bancorp, inc. and subsidiary
(In thousands) |
Type of loan |
|||||||||||||||||||||||
Construction |
||||||||||||||||||||||||
and development |
||||||||||||||||||||||||
Commercial |
excluding |
|||||||||||||||||||||||
and |
undeveloped |
Undeveloped |
Real estate |
|||||||||||||||||||||
December 31, 2017 |
industrial |
land |
land |
mortgage |
Consumer |
Total |
||||||||||||||||||
Loans |
$ | 779,014 | $ | 195,912 | $ | 18,988 | $ | 1,376,788 | $ | 38,868 | $ | 2,409,570 | ||||||||||||
Loans collectively evaluated for impairment |
$ | 777,838 | $ | 195,248 | $ | 18,514 | $ | 1,371,246 | $ | 38,868 | $ | 2,401,714 | ||||||||||||
Loans individually evaluated for impairment |
$ | 1,176 | $ | 664 | $ | 474 | $ | 5,066 | $ | - | $ | 7,380 | ||||||||||||
Loans acquired with deteriorated credit quality |
$ | - | $ | - | $ | - | $ | 476 | $ | - | $ | 476 |
Construction |
||||||||||||||||||||||||
and development |
||||||||||||||||||||||||
Commercial |
excluding |
|||||||||||||||||||||||
and |
undeveloped |
Undeveloped |
Real estate |
|||||||||||||||||||||
industrial |
land |
land |
mortgage |
Consumer |
Total |
|||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||
At December 31, 2016 |
$ | 10,483 | $ | 1,923 | $ | 684 | $ | 10,573 | $ | 344 | $ | 24,007 | ||||||||||||
Provision (credit) |
2,373 | (199 | ) | (163 | ) | 383 | 156 | 2,550 | ||||||||||||||||
Charge-offs |
(1,782 | ) | - | - | (98 | ) | (549 | ) | (2,429 | ) | ||||||||||||||
Recoveries |
202 | - | - | 154 | 401 | 757 | ||||||||||||||||||
At December 31, 2017 |
$ | 11,276 | $ | 1,724 | $ | 521 | $ | 11,012 | $ | 352 | $ | 24,885 | ||||||||||||
Allowance for loans collectively evaluated for impairment |
$ | 11,242 | $ | 1,724 | $ | 521 | $ | 10,998 | $ | 352 | $ | 24,837 | ||||||||||||
Allowance for loans individually evaluated for impairment |
$ | 34 | $ | - | $ | - | $ | 14 | $ | - | $ | 48 | ||||||||||||
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 cash flows of the business. A decline in the strength of the business or a weakened economy and resultant decreased consumer and/or business spending may 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. Upon completion or stabilization, the construction loans generally 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. 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. |
Stock Yards Bancorp, inc. and subsidiary
● |
Undeveloped land: Loans in this category are secured by land acquired for development by the borrower, but for which no development has yet taken place. Credit risk is primarily dependent upon the financial strength of the borrower, but can also be affected by market conditions and time to sell lots at an adequate price in the future. Credit risk is also affected by availability of permanent financing, including to the end user, 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. For owner occupied residential and owner-occupied commercial real estate, repayment is dependent on financial strength of the borrower. For income-producing investment properties, repayment is dependent on financial strength of tenants, and to a lesser extent the borrowers’ financial strength, once the project is stabilized. Underlying properties are generally located in Bancorp's primary market area. Cash flows of income producing investment properties may be adversely impacted by a downturn in the economy as reflected in increased vacancy rates, which in turn, will have an effect on credit quality and property values. Overall health of the economy, including unemployment rates and real estate 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, adequacy of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates as well as home and securities prices, will have a significant effect on credit quality in this loan category. |
Stock Yards Bancorp, inc. and subsidiary
The following tables present loans individually evaluated for impairment as of March 31, 2018 and December 31, 2017.
(In thousands) |
Unpaid |
Average |
||||||||||||||
Recorded |
principal |
Related |
recorded |
|||||||||||||
March 31, 2018 |
investment |
balance |
allowance |
investment |
||||||||||||
Loans with no related allowance recorded: |
||||||||||||||||
Commercial and industrial |
$ | 212 | $ | 295 | $ | - | $ | 677 | ||||||||
Construction and development, excluding undeveloped land |
670 | 840 | - | 667 | ||||||||||||
Undeveloped land |
474 | 506 | - | 474 | ||||||||||||
Real estate mortgage |
||||||||||||||||
Commercial investment |
- | - | - | 26 | ||||||||||||
Owner occupied commercial |
3,437 | 3,894 | - | 3,384 | ||||||||||||
1-4 family residential |
1,592 | 1,614 | - | 1,615 | ||||||||||||
Home equity - first lien |
- | - | - | - | ||||||||||||
Home equity - junior lien |
29 | 29 | - | 30 | ||||||||||||
Subtotal: Real estate mortgage |
5,058 | 5,537 | - | 5,055 | ||||||||||||
Consumer |
91 | 91 | - | 46 | ||||||||||||
Subtotal |
$ | 6,505 | $ | 7,269 | $ | - | $ | 6,919 | ||||||||
Loans with an allowance recorded: |
||||||||||||||||
Commercial and industrial |
$ | 3,938 | $ | 4,616 | $ | 992 | $ | 1,986 | ||||||||
Construction and development, excluding undeveloped land |
- | - | - | - | ||||||||||||
Undeveloped land |
96 | 96 | 1 | 48 | ||||||||||||
Real estate mortgage |
||||||||||||||||
Commercial investment |
- | - | - | - | ||||||||||||
Owner occupied commercial |
1,712 | 1,712 | 463 | 856 | ||||||||||||
1-4 family residential |
14 | 14 | 14 | 14 | ||||||||||||
Home equity - first lien |
- | - | - | - | ||||||||||||
Home equity - junior lien |
- | - | - | - | ||||||||||||
Subtotal: Real estate mortgage |
1,726 | 1,726 | 477 | 870 | ||||||||||||
Consumer |
- | - | - | - | ||||||||||||
Subtotal |
$ | 5,760 | $ | 6,438 | $ | 1,470 | $ | 2,904 | ||||||||
Total: |
||||||||||||||||
Commercial and industrial |
$ | 4,150 | $ | 4,911 | $ | 992 | $ | 2,663 | ||||||||
Construction and development, excluding undeveloped land |
670 | 840 | - | 667 | ||||||||||||
Undeveloped land |
570 | 602 | 1 | 522 | ||||||||||||
Real estate mortgage |
||||||||||||||||
Commercial investment |
- | - | - | 26 | ||||||||||||
Owner occupied commercial |
5,149 | 5,606 | 463 | 4,240 | ||||||||||||
1-4 family residential |
1,606 | 1,628 | 14 | 1,629 | ||||||||||||
Home equity - first lien |
- | - | - | - | ||||||||||||
Home equity - junior lien |
29 | 29 | - | 30 | ||||||||||||
Subtotal: Real estate mortgage |
6,784 | 7,263 | 477 | 5,925 | ||||||||||||
Consumer |
91 | 91 | - | 46 | ||||||||||||
Total |
$ | 12,265 | $ | 13,707 | $ | 1,470 | $ | 9,823 |
Stock Yards Bancorp, inc. and subsidiary
(In thousands) |
Unpaid |
Average |
||||||||||||||
Recorded |
principal |
Related |
recorded |
|||||||||||||
December 31, 2017 |
investment |
balance |
allowance |
investment |
||||||||||||
Loans with no related allowance recorded: |
||||||||||||||||
Commercial and industrial |
$ | 1,142 | $ | 2,202 | $ | - | $ | 411 | ||||||||
Construction and development, excluding undeveloped land |
664 | 834 | - | 559 | ||||||||||||
Undeveloped land |
474 | 506 | - | 425 | ||||||||||||
Real estate mortgage |
||||||||||||||||
Commercial investment |
52 | 53 | - | 110 | ||||||||||||
Owner occupied commercial |
3,332 | 3,789 | - | 1,678 | ||||||||||||
1-4 family residential |
1,637 | 1,657 | - | 935 | ||||||||||||
Home equity - first lien |
- | - | - | - | ||||||||||||
Home equity - junior lien |
31 | 31 | - | 186 | ||||||||||||
Subtotal: Real estate mortgage |
5,052 | 5,530 | - | 2,909 | ||||||||||||
Consumer |
- | - | - | - | ||||||||||||
Subtotal |
$ | 7,332 | $ | 9,072 | $ | - | $ | 4,304 | ||||||||
Loans with an allowance recorded: |
||||||||||||||||
Commercial and industrial |
$ | 34 | $ | 34 | $ | 34 | $ | 1,882 | ||||||||
Construction and development, excluding undeveloped land |
- | - | - | - | ||||||||||||
Undeveloped land |
- | - | - | 48 | ||||||||||||
Real estate mortgage |
||||||||||||||||
Commercial investment |
- | - | - | - | ||||||||||||
Owner occupied commercial |
- | - | - | - | ||||||||||||
1-4 family residential |
14 | 14 | 14 | 5 | ||||||||||||
Home equity - first lien |
- | - | - | - | ||||||||||||
Home equity - junior lien |
- | - | - | - | ||||||||||||
Subtotal: Real estate mortgage |
14 | 14 | 14 | 5 | ||||||||||||
Consumer |
- | - | - | 46 | ||||||||||||
Subtotal |
$ | 48 | $ | 48 | $ | 48 | $ | 1,981 | ||||||||
Total: |
||||||||||||||||
Commercial and industrial |
$ | 1,176 | $ | 2,236 | $ | 34 | $ | 2,293 | ||||||||
Construction and development, excluding undeveloped land |
664 | 834 | - | 559 | ||||||||||||
Undeveloped land |
474 | 506 | - | 473 | ||||||||||||
Real estate mortgage |
- | - | - | - | ||||||||||||
Commercial investment |
52 | 53 | - | 110 | ||||||||||||
Owner occupied commercial |
3,332 | 3,789 | - | 1,678 | ||||||||||||
1-4 family residential |
1,651 | 1,671 | 14 | 940 | ||||||||||||
Home equity - first lien |
- | - | - | - | ||||||||||||
Home equity - junior lien |
31 | 31 | - | 186 | ||||||||||||
Subtotal: Real estate mortgage |
5,066 | 5,544 | 14 | 2,914 | ||||||||||||
Consumer |
- | - | - | 46 | ||||||||||||
Total |
$ | 7,380 | $ | 9,120 | $ | 48 | $ | 6,285 |
Differences between recorded investment amounts and unpaid principal balance amounts less related allowance are due to partial charge-offs which have occurred over the life of certain loans.
Stock Yards Bancorp, inc. and subsidiary
Impaired loans include non-accrual loans and accruing loans accounted for as troubled debt restructurings (TDRs), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest. Bancorp had no loans past due more than 90 days and still accruing interest at March 31, 2018, compared with $2 thousand at December 31, 2017, and none at March 31, 2017.
The following table presents the recorded investment in non-accrual loans as of March 31, 2018 and December 31, 2017.
(In thousands) |
March 31, 2018 |
December 31, 2017 |
||||||
Commercial and industrial |
$ | 3,321 | $ | 321 | ||||
Construction and development, excluding undeveloped land |
670 | 664 | ||||||
Undeveloped land |
570 | 474 | ||||||
Real estate mortgage |
||||||||
Commercial investment |
- | 52 | ||||||
Owner occupied commercial |
5,149 | 3,332 | ||||||
1-4 family residential |
1,592 | 1,637 | ||||||
Home equity - first lien |
- | - | ||||||
Home equity - junior lien |
29 | 31 | ||||||
Subtotal: Real estate mortgage |
6,770 | 5,052 | ||||||
Consumer |
91 | - | ||||||
Total |
$ | 11,422 | $ | 6,511 |
In the course of working with borrowers, Bancorp may elect to restructure the contractual terms of certain loans. Troubled debt restructurings (TDRs) occur when, for economic, legal, or other reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would not otherwise consider.
At March 31, 2018 and December 31, 2017, Bancorp had $843 thousand and $869 thousand of accruing loans classified as TDRs, respectively. Bancorp did not modify and classify any additional loans as TDRs during the three-month period ended March 31, 2018. One commercial loan, with a recorded investment of $38,000 at March 31, 2017 was modified and classified as TDRs in the three-month period ended March 31, 2017. The pre and post-modification balance for this loan was $39,000. The monthly payment amount of this loan was modified to enable the borrower to fulfill the loan agreement. A specific reserve was established for the entire recorded investment of this loan.
No loans classified and reported as troubled debt restructured within the twelve months prior to March 31, 2018 defaulted during the three-month period ended March 31, 2018. Loans accounted for as TDRs include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties. Loans accounted for as TDRs are individually evaluated for impairment and, at March 31, 2018, had a total allowance allocation of $94 thousand, compared with $48 thousand at December 31, 2017.
At March 31, 2018 and December 31, 2017, Bancorp did not have any outstanding commitments to lend additional funds to borrowers whose loans have been modified as TDRs.
Stock Yards Bancorp, inc. and subsidiary
At March 31, 2018 formal foreclosure proceedings were in process on three consumer mortgage loans with a total recorded investment of $412 thousand, all secured by residential real estate properties. The recorded investments for these properties ranged from $30 thousand to $350 thousand, and these loans were reported as non-accrual as of March 31, 2018.
The following table presents the aging of the recorded investment in loans as of March 31, 2018 and December 31, 2017.
Recorded |
||||||||||||||||||||||||||||
(In thousands) |
90 or more |
investment |
||||||||||||||||||||||||||
days past |
> 90 days |
|||||||||||||||||||||||||||
30-59 days |
  |