UNITED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
| ☒ Quarterly |
For the quarterly period ended September 30, 20172021
ORor
☐ | Transition |
For the transition period from _____________ to _______________.
Commission file number File Number: 1-13661
STOCK YARDS BANCORP, INC.YARDSBANCORP, 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) | (Zip Code) |
1040 East Main Street, Louisville, Kentucky 40206
(Address of principal executive offices including zip code)
(502) 582-2571
(Registrant’sRegistrant’s telephone number, including area code)code: (502) 582-2571
Not ApplicableSecurities registered pursuant to Section 12(b) of the Act:
(Former name, former address and former fiscal year, if changed since last report)
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, no par value | SYBT | The NASDAQ Stock Market, LLC |
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”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:Act.
Large accelerated filer |
| Accelerated filer ☐ |
| |
Non-accelerated filer | ☐ | 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.)Act).
Yes ☐ Yes ☒ No ☑
The number of shares outstanding of the registrant’sregistrant’s Common Stock, no par value, outstanding as of October 26, 201729, 2021, was 22,670,610.26,584,242.
Stock Yards Bancorp, inc. and subsidiaryTABLE OF CONTENTS
Index
Stock Yards Bancorp, inc. and subsidiary
Index
PART I – FINANCIAL INFORMATION
Glossary of Acronyms and TermsGLOSSARY OF ABBREVIATIONS AND ACRONYMS
The following listing provides a comprehensive reference of common acronyms and termsabbreviations identified in alphabetical order below are used throughout the document:this Report on Form 10-Q:
Acronym or Term | Definition | Acronym or Term | Definition | Acronym or Term | Definition | |||||
ACH | Automatic Clearing House | EPS | Earnings Per Share | NPV | Net Present Value | |||||
AFS | Available for Sale | ETR | Effective Tax Rate | Net Interest Spread | Net Interest Spread (FTE) | |||||
APIC | Additional paid-in capital | EVP | Executive Vice President | NM | Not Meaningful | |||||
ACL | Allowance for Credit Losses | FASB | Financial Accounting Standards Board | OAEM | Other Assets Especially Mentioned | |||||
AOCI | Accumulated Other Comprehensive Income | FDIC | Federal Deposit Insurance Corporation | OCI | Other Comprehensive Income | |||||
ASC | Accounting Standards Codification | FFP | Federal Funds Purchased | OREO | Other Real Estate Owned | |||||
ASU | Accounting Standards Update | FFS | Federal Funds Sold | PPP | SBA Paycheck Protection Program | |||||
ATM | Automated Teller Machine | FFTR | Federal Funds Target Rate | PV | Present Value | |||||
AUM | Assets Under Management | FHA | Federal Housing Authority | PCD | Purchased Credit Deteriorated | |||||
Bancorp / the Company | Stock Yards Bancorp, Inc. | FHC | Financial Holding Company | PCI | Purchased Credit Impaired | |||||
Bank / SYB | Stock Yards Bank & Trust Company | FHLB | Federal Home Loan Bank of Cincinnati | Prime | The Wall Street Journal Prime Interest Rate | |||||
BOLI | Bank Owned Life Insurance | FHLMC | Federal Home Loan Mortgage Corporation | Provision | Provision for Credit Losses | |||||
BP | Basis Point | FICA | Federal Insurance Contributions Act | PSU | Performance Stock Unit | |||||
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| FNMA | Federal National Mortgage Association | ROA | Return on Average Assets | |||||
Captive | SYB Insurance Company, Inc. | FRB | Federal Reserve Bank | ROE | Return on Average Equity | |||||
CARES Act | Coronavirus Aid, Relief and Economic Security Act | FTE | Fully Tax Equivalent | RSA | Restricted Stock Award | |||||
C&I | Commercial and Industrial | GAAP | United States Generally Accepted Accounting Principles | RSU | Restricted Stock Unit | |||||
CD | Certificate of | GLB Act | Gramm-Leach-Bliley Act | SAB | Staff Accounting Bulletin | |||||
CDI | Core Deposit Intangible | GNMA | Government National Mortgage Association | SAR | Stock Appreciation Right | |||||
CECL | Current Expected Credit Loss (ASC-326) | HELOC | Home Equity Line of Credit | SBA | Small Business Administration | |||||
CEO | Chief Executive Officer | ITM | Interactive Teller Machine | SEC | Securities and Exchange Commission | |||||
CFO | Chief Financial Officer | KB | Kentucky Bancshares, Inc. and Kentucky Bank | SSUAR | Securities Sold Under Agreements to Repurchase | |||||
Commonwealth | Commonwealth Bancshares, Inc. and Commonwealth Bank & Trust Company | KSB | King Bancorp, Inc. and King Southern Bank | SVP | Senior Vice President | |||||
COVID-19 | Coronavirus Disease - 2019 | LIBOR | London Interbank Offered Rate | TBOC | The Bank Oldham County | |||||
CRA | Community Reinvestment Act | Loans | Loans and Leases | TCE | Tangible Common Equity | |||||
CRE | Commercial Real Estate | MBS | Mortgage Backed Securities | TDR | Troubled Debt Restructuring | |||||
Dodd-Frank Act | The Dodd-Frank Wall Street Reform and Consumer Protection Act | |||||||||
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VA | U.S. Department of Veterans Affairs | |||||||||
DTL | Deferred Tax Liability | NASDAQ | The NASDAQ Stock Market, LLC | WM&T | Wealth Management and Trust | |||||
DCF | Discounted Cash Flow | NIM | Net Interest Margin (FTE) |
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2021 (unaudited) and December 31, 2020 (in thousands, except share data)
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Cash and due from banks | $ | 84,520 | $ | 43,179 | ||||
Federal funds sold and interest bearing due from banks | 500,421 | 274,766 | ||||||
Total cash and cash equivalents | 584,941 | 317,945 | ||||||
Mortgage loans held for sale | 10,201 | 22,547 | ||||||
Available for sale debt securities (amortized cost of $1,072,993 in 2021 and $574,722 in 2020, respectively) | 1,070,148 | 586,978 | ||||||
Federal Home Loan Bank stock, at cost | 9,376 | 11,284 | ||||||
Loans | 4,189,117 | 3,531,596 | ||||||
Allowance for credit losses on loans | 56,533 | 51,920 | ||||||
Net loans | 4,132,584 | 3,479,676 | ||||||
Premises and equipment, net | 77,350 | 58,015 | ||||||
Bank owned life insurance | 52,802 | 33,250 | ||||||
Accrued interest receivable | 13,749 | 13,094 | ||||||
Goodwill | 135,830 | 12,513 | ||||||
Core deposit intangible | 5,871 | 1,962 | ||||||
Other assets | 88,336 | 71,365 | ||||||
Total assets | $ | 6,181,188 | $ | 4,608,629 | ||||
Liabilities | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 1,744,790 | $ | 1,187,057 | ||||
Interest bearing | 3,597,234 | 2,801,577 | ||||||
Total deposits | 5,342,024 | 3,988,634 | ||||||
Securities sold under agreements to repurchase | 74,406 | 47,979 | ||||||
Federal funds purchased | 10,908 | 11,464 | ||||||
Federal Home Loan Bank advances | 10,000 | 31,639 | ||||||
Accrued interest payable | 398 | 391 | ||||||
Other liabilities | 79,905 | 87,821 | ||||||
Total liabilities | 5,517,641 | 4,167,928 | ||||||
Commitments and contingent liabilities (Footnote 11) | — | — | ||||||
Stockholders’ equity | ||||||||
Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding | — | — | ||||||
Common stock, no par value. Authorized 40,000,000 shares; issued and outstanding 26,585,000 and 22,692,000 shares in 2021 and 2020, respectively | 49,462 | 36,500 | ||||||
Additional paid-in capital | 241,254 | 41,886 | ||||||
Retained earnings | 375,462 | 353,574 | ||||||
Accumulated other comprehensive income (loss) | (2,631 | ) | 8,741 | |||||
Total stockholders’ equity | 663,547 | 440,701 | ||||||
Total liabilities and stockholders’ equity | $ | 6,181,188 | $ | 4,608,629 |
See accompanying notes to unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three and nine months ended September 30, 2021 and 2020 (in thousands, except per share data)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Interest income | ||||||||||||||||
Loans, including fees | $ | 43,307 | $ | 33,844 | $ | 120,402 | $ | 101,692 | ||||||||
Federal funds sold and interest bearing due from banks | 208 | 54 | 358 | 673 | ||||||||||||
Mortgage loans held for sale | 53 | 173 | 175 | 359 | ||||||||||||
Federal Home Loan Bank stock | 83 | 56 | 204 | 197 | ||||||||||||
Securities available for sale: | ||||||||||||||||
Taxable | 3,206 | 1,973 | 8,245 | 6,434 | ||||||||||||
Tax-exempt | 91 | 44 | 184 | 177 | ||||||||||||
Total interest income | 46,948 | 36,144 | 129,568 | 109,532 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 1,403 | 2,107 | 4,348 | 8,676 | ||||||||||||
Securities sold under agreements to repurchase | 6 | 7 | 16 | 31 | ||||||||||||
Federal funds purchased and other short-term borrowings | 5 | 2 | 11 | 33 | ||||||||||||
Federal Home Loan Bank advances | 51 | 333 | 301 | 1,123 | ||||||||||||
Total interest expense | 1,465 | 2,449 | 4,676 | 9,863 | ||||||||||||
Net interest income | 45,483 | 33,695 | 124,892 | 99,669 | ||||||||||||
Provision for credit losses | (1,525 | ) | 4,968 | 1,147 | 17,918 | |||||||||||
Net interest income after credit loss expense | 47,008 | 28,727 | 123,745 | 81,751 | ||||||||||||
Non-interest income | ||||||||||||||||
Wealth management and trust services | 7,128 | 5,657 | 20,234 | 17,601 | ||||||||||||
Deposit service charges | 1,768 | 998 | 3,945 | 3,081 | ||||||||||||
Debit and credit card income | 3,887 | 2,218 | 9,444 | 6,261 | ||||||||||||
Treasury management fees | 1,771 | 1,368 | 5,041 | 3,901 | ||||||||||||
Mortgage banking income | 915 | 1,979 | 3,662 | 4,447 | ||||||||||||
Net investment product sales commissions and fees | 780 | 431 | 1,789 | 1,288 | ||||||||||||
Bank owned life insurance | 275 | 172 | 642 | 527 | ||||||||||||
Other | 1,090 | 220 | 2,489 | 1,095 | ||||||||||||
Total non-interest income | 17,614 | 13,043 | 47,246 | 38,201 | ||||||||||||
Non-interest expenses | ||||||||||||||||
Compensation | 17,381 | 13,300 | 45,888 | 37,296 | ||||||||||||
Employee benefits | 3,662 | 2,853 | 10,290 | 8,891 | ||||||||||||
Net occupancy and equipment | 2,732 | 2,177 | 7,021 | 6,045 | ||||||||||||
Technology and communication | 3,173 | 2,323 | 8,189 | 6,385 | ||||||||||||
Debit and credit card processing | 1,479 | 649 | 3,160 | 1,908 | ||||||||||||
Marketing and business development | 1,011 | 523 | 2,357 | 1,548 | ||||||||||||
Postage, printing and supplies | 630 | 472 | 1,499 | 1,355 | ||||||||||||
Legal and professional | 700 | 544 | 1,828 | 1,795 | ||||||||||||
FDIC insurance | 387 | 435 | 1,141 | 894 | ||||||||||||
Amortization of investments in tax credit partnerships | 53 | 52 | 315 | 141 | ||||||||||||
Capital and deposit based taxes | 556 | 1,076 | 1,541 | 3,331 | ||||||||||||
Merger expenses | 525 | 0 | 19,025 | 0 | ||||||||||||
Federal Home Loan Bank early termination penalty | 0 | 0 | 474 | 0 | ||||||||||||
Other | 2,269 | 1,242 | 4,980 | 3,041 | ||||||||||||
Total non-interest expenses | 34,558 | 25,646 | 107,708 | 72,630 | ||||||||||||
Income before income tax expense | 30,064 | 16,124 | 63,283 | 47,322 | ||||||||||||
Income tax expense | 6,902 | 1,591 | 13,227 | 6,189 | ||||||||||||
Net income | $ | 23,162 | $ | 14,533 | $ | 50,056 | $ | 41,133 | ||||||||
Net income per share, basic | $ | 0.87 | $ | 0.64 | $ | 2.05 | $ | 1.82 | ||||||||
Net income per share, diluted | $ | 0.87 | $ | 0.64 | $ | 2.03 | $ | 1.81 | ||||||||
Weighted average outstanding shares | ||||||||||||||||
Basic | 26,485 | 22,582 | 24,360 | 22,553 | ||||||||||||
Diluted | 26,726 | 22,802 | 24,602 | 22,759 |
See accompanying notes to unaudited condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
For the three and nine months ended September 30, 2021 and 2020 (in thousands)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income | $ | 23,162 | $ | 14,533 | $ | 50,056 | $ | 41,133 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Change in unrealized gain (loss) on AFS debt securities | (5,881 | ) | (35 | ) | (15,100 | ) | 10,992 | |||||||||
Change in fair value of derivatives used in cash flow hedge | 44 | 111 | 127 | (207 | ) | |||||||||||
Total other comprehensive income (loss), before income tax expense | (5,837 | ) | 76 | (14,973 | ) | 10,785 | ||||||||||
Tax effect | (1,416 | ) | 20 | (3,601 | ) | 2,591 | ||||||||||
Total other comprehensive income (loss), net of tax | (4,421 | ) | 56 | (11,372 | ) | 8,194 | ||||||||||
Comprehensive income | $ | 18,741 | $ | 14,589 | $ | 38,684 | $ | 49,327 |
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| 2017 | 2016 | ||||||
Assets | ||||||||
Cash and due from banks | $ | 47,700 | $ | 39,709 | ||||
Federal funds sold and interest bearing deposits | 81,378 | 8,264 | ||||||
Cash and cash equivalents | 129,078 | 47,973 | ||||||
Mortgage loans held for sale | 5,459 | 3,213 | ||||||
Securities available-for-sale (amortized cost of $571,953 in 2017 and $571,936 in 2016) | 571,522 | 570,074 | ||||||
Federal Home Loan Bank stock and other securities | 7,666 | 6,347 | ||||||
Loans | 2,335,120 | 2,305,375 | ||||||
Less allowance for loan losses | 24,948 | 24,007 | ||||||
Net loans | 2,310,172 | 2,281,368 | ||||||
Premises and equipment, net | 41,498 | 42,384 | ||||||
Bank owned life insurance | 31,854 | 31,867 | ||||||
Accrued interest receivable | 8,162 | 6,878 | ||||||
Other assets | 50,502 | 49,377 | ||||||
Total assets | $ | 3,155,913 | $ | 3,039,481 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 676,824 | $ | 680,156 | ||||
Interest bearing | 1,805,142 | 1,840,392 | ||||||
Total deposits | 2,481,966 | 2,520,548 | ||||||
Securities sold under agreements to repurchase | 71,863 | 67,595 | ||||||
Federal funds purchased and other short-term borrowings | 161,961 | 47,374 | ||||||
Federal Home Loan Bank advances | 50,110 | 51,075 | ||||||
Accrued interest payable | 212 | 144 | ||||||
Other liabilities | 55,546 | 38,873 | ||||||
Total liabilities | 2,821,658 | 2,725,609 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding | - | - | ||||||
Common stock, no par value. Authorized 40,000,000 shares; issued and outstanding 22,669,339 and 22,617,098 shares in 2017 and 2016, respectively | 36,424 | 36,250 | ||||||
Additional paid-in capital | 30,681 | 26,682 | ||||||
Retained earnings | 267,681 | 252,439 | ||||||
Accumulated other comprehensive loss | (531 | ) | (1,499 | ) | ||||
Total stockholders’ equity | 334,255 | 313,872 | ||||||
Total liabilities and stockholders’ equity | $ | 3,155,913 | $ | 3,039,481 |
See accompanying notes to unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
For the three and nine months ended September 30, 2021 and 2020 (in thousands, except per share data)
Accumulated | ||||||||||||||||||||||||
Common stock | Additional | other | Total | |||||||||||||||||||||
Shares | paid-in | Retained | comprehensive | stockholders' | ||||||||||||||||||||
outstanding | Amount | capital | earnings | income (loss) | Total | |||||||||||||||||||
Balance, January 1, 2021 | 22,692 | $ | 36,500 | $ | 41,886 | $ | 353,574 | $ | 8,741 | $ | 440,701 | |||||||||||||
Activity for three months ended March 31, 2021: | ||||||||||||||||||||||||
Net income | — | 0 | 0 | 22,710 | 0 | 22,710 | ||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | 0 | (11,791 | ) | (11,791 | ) | ||||||||||||||||
Stock compensation expense | — | 0 | 849 | 0 | 0 | 849 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations | 89 | 296 | 4,144 | (7,533 | ) | 0 | (3,093 | ) | ||||||||||||||||
Cash dividends declared, $0.27 per share | — | 0 | 0 | (6,144 | ) | 0 | (6,144 | ) | ||||||||||||||||
Balance, March 31, 2021 | 22,781 | $ | 36,796 | $ | 46,879 | $ | 362,607 | $ | (3,050 | ) | $ | 443,232 | ||||||||||||
Activity for three months ended June 30, 2021: | ||||||||||||||||||||||||
Net income | — | 0 | 0 | 4,184 | 0 | 4,184 | ||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 0 | 4,840 | 4,840 | ||||||||||||||||||
Stock compensation expense | — | 0 | 1,414 | 0 | 0 | 1,414 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations | — | (2 | ) | (26 | ) | (45 | ) | 0 | (73 | ) | ||||||||||||||
Stock issued for KB acquisition | 3,808 | 12,682 | 191,988 | 0 | 0 | 204,670 | ||||||||||||||||||
Cash dividends declared, $0.27 per share | — | 0 | 0 | (7,178 | ) | 0 | (7,178 | ) | ||||||||||||||||
Shares cancelled | (1 | ) | (5 | ) | (55 | ) | 60 | 0 | 0 | |||||||||||||||
Balance, June 30, 2021 | 26,588 | $ | 49,471 | $ | 240,200 | $ | 359,628 | $ | 1,790 | $ | 651,089 | |||||||||||||
Activity for three months ended September 30, 2021: | ||||||||||||||||||||||||
Net income | — | 0 | 0 | 23,162 | 0 | 23,162 | ||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | 0 | (4,421 | ) | (4,421 | ) | ||||||||||||||||
Stock compensation expense | — | 0 | 1,165 | 0 | 0 | 1,165 | ||||||||||||||||||
Stock issued for share-based awards, net of witholdings to satisfy employee tax obligations | — | (1 | ) | (10 | ) | 0 | 0 | (11 | ) | |||||||||||||||
Cash dividends declared, $0.28 per share | — | 0 | 0 | (7,437 | ) | 0 | (7,437 | ) | ||||||||||||||||
Shares cancelled | (3 | ) | (8 | ) | (101 | ) | 109 | 0 | 0 | |||||||||||||||
Balance, September 30, 2021 | 26,585 | $ | 49,462 | $ | 241,254 | $ | 375,462 | $ | (2,631 | ) | $ | 663,547 |
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Interest income: | ||||||||||||||||
Loans | $ | 25,401 | $ | 23,436 | $ | 73,812 | $ | 67,992 | ||||||||
Federal funds sold and interest bearing deposits | 388 | 95 | 798 | 395 | ||||||||||||
Mortgage loans held for sale | 48 | 66 | 145 | 185 | ||||||||||||
Securities – taxable | 2,003 | 2,047 | 6,173 | 6,325 | ||||||||||||
Securities – tax-exempt | 271 | 298 | 829 | 907 | ||||||||||||
Total interest income | 28,111 | 25,942 | 81,757 | 75,804 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 1,593 | 941 | 4,237 | 2,916 | ||||||||||||
Federal funds purchased and other short-term borrowing | 77 | 19 | 125 | 57 | ||||||||||||
Securities sold under agreements to repurchase | 33 | 38 | 100 | 100 | ||||||||||||
Federal Home Loan Bank advances | 244 | 184 | 715 | 552 | ||||||||||||
Total interest expense | 1,947 | 1,182 | 5,177 | 3,625 | ||||||||||||
Net interest income | 26,164 | 24,760 | 76,580 | 72,179 | ||||||||||||
Provision for loan losses | 150 | 1,250 | 1,650 | 2,500 | ||||||||||||
Net interest income after provision for loan losses | 26,014 | 23,510 | 74,930 | 69,679 | ||||||||||||
Non-interest income: | ||||||||||||||||
Wealth management and trust services | 5,025 | 4,800 | 15,272 | 14,219 | ||||||||||||
Service charges on deposit accounts | 2,522 | 2,544 | 7,368 | 6,952 | ||||||||||||
Bankcard transactions | 1,492 | 1,455 | 4,412 | 4,198 | ||||||||||||
Mortgage banking | 781 | 1,072 | 2,380 | 2,896 | ||||||||||||
Gain on call of securities available for sale | 31 | — | 31 | — | ||||||||||||
Securities brokerage | 551 | 558 | 1,584 | 1,539 | ||||||||||||
Bank owned life insurance | 204 | 216 | 964 | 657 | ||||||||||||
Other | 497 | 713 | 1,564 | 1,757 | ||||||||||||
Total non-interest income | 11,103 | 11,358 | 33,575 | 32,218 | ||||||||||||
Non-interest expenses: | ||||||||||||||||
Salaries and employee benefits | 12,983 | 12,048 | 39,244 | 36,214 | ||||||||||||
Net occupancy | 1,621 | 1,646 | 4,765 | 4,716 | ||||||||||||
Data processing | 1,920 | 1,747 | 5,909 | 5,172 | ||||||||||||
Furniture and equipment | 316 | 277 | 861 | 853 | ||||||||||||
FDIC insurance | 242 | 356 | 716 | 1,035 | ||||||||||||
Amortization of investments in tax credit partnerships | 616 | 1,015 | 1,847 | 3,046 | ||||||||||||
Other | 3,619 | 3,429 | 10,469 | 9,215 | ||||||||||||
Total non-interest expenses | 21,317 | 20,518 | 63,811 | 60,251 | ||||||||||||
Income before income taxes | 15,800 | 14,350 | 44,694 | 41,646 | ||||||||||||
Income tax expense | 4,096 | 3,883 | 11,597 | 11,235 | ||||||||||||
Net income | $ | 11,704 | $ | 10,467 | $ | 33,097 | $ | 30,411 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.52 | $ | 0.47 | $ | 1.47 | $ | 1.36 | ||||||||
Diluted | $ | 0.51 | $ | 0.46 | $ | 1.44 | $ | 1.34 | ||||||||
Average common shares: | ||||||||||||||||
Basic | 22,542 | 22,385 | 22,524 | 22,325 | ||||||||||||
Diluted | 22,964 | 22,803 | 22,984 | 22,711 |
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September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 11,704 | $ | 10,467 | $ | 33,097 | $ | 30,411 | ||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Unrealized gains (losses) on securities available for sale: | ||||||||||||||||
Unrealized gains (losses) arising during the period, net of tax $29, ($616), $512, and $2,213, respectively | 56 | (1,147 | ) | 950 | 4,110 | |||||||||||
Reclassification adjustment for securities (gains) realized in income (net of tax of $(11), $0, $(11), and $0, respectively) | (20 | ) | — | (20 | ) | — | ||||||||||
Unrealized losses on hedging instruments: | ||||||||||||||||
Unrealized gains (losses) arising during the period, net of tax benefit of $23, $74, $21, ($162), respectively | 43 | 137 | 38 | (301 | ) | |||||||||||
Other comprehensive income (loss), net of tax | 79 | (1,010 | ) | 968 | 3,809 | |||||||||||
Comprehensive income | $ | 11,783 | $ | 9,457 | $ | 34,065 | $ | 34,220 |
(continued) | Accumulated | |||||||||||||||||||||||
Common stock | Additional | other | Total | |||||||||||||||||||||
Shares | paid-in | Retained | comprehensive | stockholders' | ||||||||||||||||||||
outstanding | Amount | capital | earnings | income | Total | |||||||||||||||||||
Balance, January 1, 2020 | 22,604 | $ | 36,207 | $ | 35,714 | $ | 333,699 | $ | 677 | $ | 406,297 | |||||||||||||
Activity for three months ended March 31, 2020: | ||||||||||||||||||||||||
Impact of adoption of ASC 326 | — | 0 | 0 | (8,823 | ) | 0 | (8,823 | ) | ||||||||||||||||
Net income | — | 0 | 0 | 13,232 | 0 | 13,232 | ||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 0 | 5,775 | 5,775 | ||||||||||||||||||
Stock compensation expense | — | 0 | 817 | 0 | 0 | 817 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations | 62 | 203 | 1,858 | (3,546 | ) | 0 | (1,485 | ) | ||||||||||||||||
Cash dividends declared, $0.27 per share | — | 0 | 0 | (6,111 | ) | 0 | (6,111 | ) | ||||||||||||||||
Shares cancelled | (1 | ) | (2 | ) | (22 | ) | 24 | 0 | 0 | |||||||||||||||
Balance, March 31, 2020 | 22,665 | $ | 36,408 | $ | 38,367 | $ | 328,475 | $ | 6,452 | $ | 409,702 | |||||||||||||
Activity for three months ended June 30, 2020: | ||||||||||||||||||||||||
Net income | — | 0 | 0 | 13,368 | 0 | 13,368 | ||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 0 | 2,364 | 2,364 | ||||||||||||||||||
Stock compensation expense | — | 0 | 976 | 0 | 0 | 976 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations | 2 | 8 | 96 | (163 | ) | 0 | (59 | ) | ||||||||||||||||
Cash dividends declared, $0.27 per share | — | 0 | 0 | (6,120 | ) | 0 | (6,120 | ) | ||||||||||||||||
Shares cancelled | — | (1 | ) | (14 | ) | 15 | 0 | 0 | ||||||||||||||||
Balance, June 30, 2020 | 22,667 | $ | 36,415 | $ | 39,425 | $ | 335,575 | $ | 8,816 | $ | 420,231 | |||||||||||||
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Activity for three months ended September 30, 2020: | ||||||||||||||||||||||||
Net income | — | 0 | 0 | 14,533 | 0 | 14,533 | ||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 0 | 56 | 56 | ||||||||||||||||||
Stock compensation expense | — | 0 | 843 | 0 | 0 | 843 | ||||||||||||||||||
Stock issued for share-based awards, net of witholdings to satisfy employee tax obligations | 27 | 91 | 1,049 | (2,083 | ) | 0 | (943 | ) | ||||||||||||||||
Cash dividends declared, $0.27 per share | — | 0 | 0 | (6,122 | ) | 0 | (6,122 | ) | ||||||||||||||||
Shares cancelled | (2 | ) | (6 | ) | (61 | ) | 67 | 0 | 0 | |||||||||||||||
Balance, September 30, 2020 | 22,692 | $ | 36,500 | $ | 41,256 | $ | 341,970 | $ | 8,872 | $ | 428,598 |
See accompanying notes to unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the nine months ended September 30, 2021 and 2020 (in thousands)
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 50,056 | $ | 41,133 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for credit losses | 1,147 | 17,918 | ||||||
Depreciation, amortization and accretion, net | 7,925 | 4,687 | ||||||
Deferred income tax expense (benefit) | 3,837 | (3,932 | ) | |||||
Gain on sale of mortgage loans held for sale | (2,708 | ) | (4,817 | ) | ||||
Origination of mortgage loans held for sale | (169,542 | ) | (201,099 | ) | ||||
Proceeds from sale of mortgage loans held for sale | 187,667 | 191,053 | ||||||
Bank owned life insurance income | (642 | ) | (527 | ) | ||||
(Gain)/loss on the disposal of premises and equipment | 41 | (176 | ) | |||||
Gain on the sale of other real estate owned | (180 | ) | 0 | |||||
Stock compensation expense | 3,428 | 2,636 | ||||||
Excess tax benefit from share-based compensation arrangements | (1,152 | ) | (444 | ) | ||||
Net change in accrued interest receivable and other assets | 1,656 | (20,224 | ) | |||||
Net change in accrued interest payable and other liabilities | (18,401 | ) | 11,573 | |||||
Net cash provided by operating activities | 63,132 | 37,781 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of available for sale debt securities | (325,073 | ) | (237,646 | ) | ||||
Proceeds from sales of acquired available for sale debt securities | 91,094 | 0 | ||||||
Proceeds from maturities and paydowns of available for sale debt securities | 131,936 | 289,587 | ||||||
Proceeds from redemption of Federal Home Loan Bank stock | 8,980 | 0 | ||||||
Proceeds from the sale of held for investment loans | 0 | 2,794 | ||||||
Net change in non-PPP loans | (232,636 | ) | 11,590 | |||||
Net change in PPP loans | 318,851 | (642,056 | ) | |||||
Purchases of premises and equipment | (3,243 | ) | (4,068 | ) | ||||
Proceeds from sale or disposal of premises and equipment | 0 | 1,240 | ||||||
Other investment activities | (3,975 | ) | (860 | ) | ||||
Proceeds from sales of other real estate owned | �� | 919 | 0 | |||||
Cash from acquisition, net of cash paid | 24,981 | 0 | ||||||
Net cash provided by (used in) investing activities | 11,834 | (579,419 | ) | |||||
Cash flows from financing activities: | ||||||||
Net change in deposits | 314,218 | 620,521 | ||||||
Net change in securities sold under agreements to repurchase and federal funds purchased | 14,511 | 6,827 | ||||||
Proceeds from Federal Home Loan Bank advances | 30,000 | 90,000 | ||||||
Repayments of Federal Home Loan Bank advances | (142,745 | ) | (113,564 | ) | ||||
Share repurchases related to compensation plans | (3,177 | ) | (2,487 | ) | ||||
Cash dividends paid | (20,777 | ) | (18,380 | ) | ||||
Net cash provided by financing activities | 192,030 | 582,917 | ||||||
Net change in cash and cash equivalents | 266,996 | 41,279 | ||||||
Beginning cash and cash equivalents | 317,945 | 249,724 | ||||||
Ending cash and cash equivalents | $ | 584,941 | $ | 291,003 |
| ||
| ||
|
Accumulated | ||||||||||||||||||||||||
Common stock | Additional | other | ||||||||||||||||||||||
Number of | paid-in | Retained | comprehensive | |||||||||||||||||||||
shares | Amount | capital | earnings | income (loss) | Total | |||||||||||||||||||
Balance December 31, 2015 | 14,919 | $ | 10,616 | $ | 44,180 | $ | 231,091 | $ | 632 | $ | 286,519 | |||||||||||||
Net income | - | - | - | 30,411 | - | 30,411 | ||||||||||||||||||
Other comprehensive income, net of tax | - | - | - | - | 3,809 | 3,809 | ||||||||||||||||||
Stock compensation expense | - | - | 1,646 | - | - | 1,646 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax | 159 | 527 | 3,404 | (2,903 | ) | - | 1,028 | |||||||||||||||||
3 for 2 stock split | 7,494 | 24,956 | (24,956 | ) | - | - | - | |||||||||||||||||
Cash dividends, $0.53 per share | - | - | - | (11,843 | ) | - | (11,843 | ) | ||||||||||||||||
Shares cancelled | (9 | ) | (31 | ) | (224 | ) | 255 | - | - | |||||||||||||||
Balance September 30, 2016 | 22,563 | $ | 36,068 | $ | 24,050 | $ | 247,011 | $ | 4,441 | $ | 311,570 | |||||||||||||
Balance December 31, 2016 | 22,617 | $ | 36,250 | $ | 26,682 | $ | 252,439 | $ | (1,499 | ) | $ | 313,872 | ||||||||||||
Net income | - | - | - | 33,097 | - | 33,097 | ||||||||||||||||||
Other comprehensive income, net of tax | - | - | - | - | 968 | 968 | ||||||||||||||||||
Stock compensation expense | - | - | 2,012 | - | - | 2,012 | ||||||||||||||||||
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award | 59 | 198 | 2,142 | (4,669 | ) | - | (2,329 | ) | ||||||||||||||||
Cash dividends, $0.59 per share | - | - | - | (13,365 | ) | - | (13,365 | ) | ||||||||||||||||
Shares cancelled | (7 | ) | (24 | ) | (155 | ) | 179 | - | - | |||||||||||||||
Balance September 30, 2017 | 22,669 | $ | 36,424 | $ | 30,681 | $ | 267,681 | $ | (531 | ) | $ | 334,255 |
|
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|
2017 | 2016 | |||||||
Operating activities: | ||||||||
Net income | $ | 33,097 | $ | 30,411 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 1,650 | 2,500 | ||||||
Depreciation, amortization and accretion, net | 6,848 | 8,016 | ||||||
Deferred income tax provision | (1,811 | ) | (320 | ) | ||||
Gain on call of securities available for sale | (31 | ) | — | |||||
Gain on sales of mortgage loans held for sale | (1,453 | ) | (1,825 | ) | ||||
Origination of mortgage loans held for sale | (74,857 | ) | (91,195 | ) | ||||
Proceeds from sale of mortgage loans held for sale | 74,064 | 93,861 | ||||||
Bank owned life insurance income | (964 | ) | (657 | ) | ||||
Loss on the disposal of premises and equipment | - | 163 | ||||||
(Gain) on the sale of foreclosed assets | (39 | ) | (382 | ) | ||||
Stock compensation expense | 2,012 | 1,646 | ||||||
Excess tax benefits from share-based compensation arrangements | (1,353 | ) | (963 | ) | ||||
Decrease in accrued interest receivable and other assets | (5,651 | ) | (6,145 | ) | ||||
Increase in accrued interest payable and other liabilities | 18,062 | 14,253 | ||||||
Net cash provided by operating activities | 49,574 | 49,363 | ||||||
Investing activities: | ||||||||
Purchases of securities available for sale | (422,190 | ) | (327,711 | ) | ||||
Proceeds from sale of securities available for sale | - | - | ||||||
Proceeds from maturities of securities available for sale | 420,179 | 355,943 | ||||||
Purchase of Federal Home Loan Bank stock | (1,319 | ) | - | |||||
Net increase in loans | (30,454 | ) | (191,793 | ) | ||||
Purchases of premises and equipment | (1,733 | ) | (5,853 | ) | ||||
Proceeds from mortality benefit of bank owned life insurance | 970 | - | ||||||
Proceeds from sale of foreclosed assets | 2,432 | 1,403 | ||||||
Net cash used in investing activities | (32,115 | ) | (168,011 | ) | ||||
Financing activities: | ||||||||
Net (decrease) increase in deposits | (38,582 | ) | 18,895 | |||||
Net increase in securities sold under agreements to repurchase and federal funds purchased | 118,855 | 56,699 | ||||||
Proceeds from Federal Home Loan Bank advances | 90,000 | 199,000 | ||||||
Repayments of Federal Home Loan Bank advances | (90,965 | ) | (191,102 | ) | ||||
Proceeds (used for) and received from settlement of stock awards | (216 | ) | 1,599 | |||||
Excess tax benefits from share-based compensation arrangements | - | 963 | ||||||
Common stock repurchases | (2,113 | ) | (1,534 | ) | ||||
Cash dividends paid | (13,333 | ) | (11,812 | ) | ||||
Net cash provided by financing activities | 63,646 | 72,708 | ||||||
Net increase (decrease) in cash and cash equivalents | 81,105 | (45,940 | ) | |||||
Cash and cash equivalents at beginning of period | 47,973 | 103,833 | ||||||
Cash and cash equivalents at end of period | $ | 129,078 | $ | 57,893 | ||||
Supplemental cash flow information: | ||||||||
Income tax payments | $ | 11,063 | $ | 9,190 | ||||
Cash paid for interest | 5,109 | 3,636 | ||||||
Supplemental non-cash activity: | ||||||||
Transfers from loans to foreclosed assets | $ | - | $ | 1,522 |
|
For the nine months ended September 30, | ||||||||
Supplemental cash flow information: | 2021 | 2020 | ||||||
Interest paid | $ | 4,669 | $ | 10,178 | ||||
Income taxes paid, net of refunds | 13,359 | 9,608 | ||||||
Cash paid for operating lease liabilities | 1,898 | 1,186 | ||||||
Supplemental non-cash activity: | ||||||||
Unfunded commitments in tax credit investments | $ | 6,307 | $ | 9,667 | ||||
Due to broker | 3,590 | 0 | ||||||
Dividends payable | 194 | 189 | ||||||
Loans transferred to OREO | 7,106 | 119 | ||||||
Liabilities assumed in conjunction with acquisition: | ||||||||
Fair value of assets acquired | $ | 1,389,327 | 0 | |||||
Consideration paid in acquisition | 28,276 | 0 | ||||||
Common stock issued in acquisition | 204,670 | 0 | ||||||
Total consideration paid | 232,946 | 0 | ||||||
Liabilities assumed | $ | 1,156,381 | 0 |
See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(1) | Summary of Significant Accounting Policies |
Nature of Operations – Stock Yards Bancorp, inc.Inc. (“Bancorp” or “the Company”) is a FHC headquartered in Louisville, Kentucky. The accompanying condensed consolidated financial statements include the accounts of its wholly owned subsidiaries, SYB (“the Bank”) and subsidiarySYB Insurance Company, Inc. (“the Captive”). Intercompany transactions and balances are eliminated in consolidation. The consolidated financial statements of Bancorp and its subsidiaries have been prepared in conformity with GAAP and adhere to predominant practices within the banking industry.
Notes to Consolidated Financial Statements (Unaudited)Established in 1904, SYB is a state-chartered non-member financial institution that provides services in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets through 63 full service banking center locations.
Bancorp is divided into two reportable segments: Commercial Banking and WM&T: Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all its markets through retail lending, mortgage banking, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, treasury management services, merchant services, international banking, correspondent banking and other banking services. The Bank also offers securities brokerage services via its banking center network through an arrangement with a third party broker-dealer in the Commercial Banking segment. WM&T provides investment management, financial & retirement planning and trust & estate services, as well as retirement plan management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. |
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The accompanyingCaptive, a wholly owned subsidiary of the Company, is a Nevada-based captive insurance company that provides insurance against certain risks unique to operations of the Company and its subsidiaries for which insurance may not be currently available or economically feasible in today’s insurance marketplace. The Captive pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. The Captive is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance. It has elected to be taxed under Section 831(b) of the Internal Revenue Code. Pursuant to Section 831(b), if gross premiums do not exceed $2,300,000, then the Captive is taxable solely on its investment income. The Captive is included in the Company’s consolidated financial statements and its federal income tax return.
Principles of Consolidation and Basis of Presentation–The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all the information and footnotes required by U.S. generally accepted accounting principles (US GAAP)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
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial condition and results of operations for the interim periods.
The unauditedhave been included. Intercompany transactions have been eliminated. These condensed consolidated financial statements includeshould be read in conjunction with Bancorp’s Annual Report on Form 10-K for the accountsyear ended December 31, 2020. Operating results for the three and nine months ended September 30,2021 are not necessarily indicative of Stock Yards Bancorp, Inc.the results that may be expected for the year ending December 31,2021.
Critical Accounting Policies 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 consolidatedEstimates – To prepare financial statements in conformity with GAAP, management is required tomust make estimates and assumptions that require difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, including pandemic-related changes, and changes in the financial condition of borrowers.
Bancorp’s accounting policies are fundamental to understanding management’s discussion and analysis of our results of operations and financial condition. At September 30, 2021 and December 31, 2020, the accounting policy considered the most critical in preparing Bancorp’s consolidated financial statements is the determination of the ACL for loans.
Effective January 1, 2020, Bancorp adopted ASC 326 “Financial Instruments – Credit Losses,” which created material changes to Bancorp’s existing critical accounting policy that existed at December 31, 2019. Accounting policies relating to credit losses for investment securities, loans and off-balance sheet credit exposures reflect the current accounting policies required by this ASC.
The ACL for loans is established through credit loss expense charged to current earnings. The amount maintained in the ACL reflects management’s estimate of the net amount not expected to be collected on the loan portfolio at the balance sheet date over the life of the loan. The ACL is comprised of specific reserves assigned to certain loans that do not share general risk characteristics and general reserves on pools of loans that do share general risk characteristics. Factors contributing to the determination of specific reserves include the creditworthiness of the borrower and more specifically, changes in the expected future receipt of principal and interest payments and/or in the value of pledged collateral. A specific reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral-dependent loans.
For purposes of establishing the general reserve, Bancorp stratifies the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and calculates the net amount expected to be collected over the life of the loans to estimate the credit losses in the loan portfolio. Bancorp’s methodologies for estimating the ACL for loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.
Accounting for Business Acquisitions –Bancorp accounts for acquisitions in accordance with the acquisition method as outlined in ASC Topic 805, “Business Combinations.” The acquisition method requires: a) identification of the entity that obtains control of the acquiree; b) determination of the acquisition date; c) recognition and measurement of the identifiable assets acquired and liabilities assumed, and any non-controlling interest in the acquiree; and d) recognition and measurement of goodwill or bargain purchase gain.
Identifiable assets acquired, liabilities assumed, and any non-controlling interest in acquirees are generally recognized at their acquisition-date (“day-one”) fair values based on the requirements of ASC Topic 820, “Fair Value Measurements and Disclosures.” The measurement period for day-one fair values begins on the acquisition date and ends at the earlier of: (a) the day management believes it has all the information necessary to determine day-one fair values; or (b) one year following the acquisition date. In many cases, the determination of day-one fair values requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly complex and subjective in nature and subject to recast adjustments, which are retrospective adjustments to reflect new information existing at the acquisition date affecting day-one fair values. More specifically, these recast adjustments may be made, as market value data, such as valuations, are received by the Bank. Increases or decreases to day-one fair values are reflected with a corresponding increase or decrease to bargain purchase gain or goodwill.
Acquisition related costs are expensed as incurred unless those costs are related to issuing debt or equity securities used to finance the acquisition.
Cash Equivalents–Cash and cash equivalents include cash and due from banks, FFS and interest bearing due from banks as segregated in the accompanying consolidated balance sheets.
Debt Securities–Bancorp determines the classification of debt securities at the time of purchase. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Debt securities not classified as held to maturity are classified as AFS and recorded at fair value, with unrealized gains and losses excluded from earnings and reported amountsin AOCI, net of tax. All debt securities were classified as AFS at September 30, 2021 and December 31, 2020.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method. Amortization of premiums and discounts are recognized in interest income over the period to maturity using the interest method, except for premiums on callable debt securities, which are amortized to their earliest call date.
Bancorp has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and reports accrued interest separately in the consolidated balance sheets. A debt security is placed on non-accrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on non-accrual is reversed against interest income. There was no accrued interest related to AFS debt securities reversed against interest income for the three and nine month periods ended September 30, 2021 and 2020.
ACL – AFS Debt Securities–For AFS debt securities in an unrealized loss position, Bancorp evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit-related is recognized in AOCI, net of tax. Credit-related impairment is recognized as an ACL for AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL for AFS debt securities and the adjustment to net income may be reversed if conditions change. However, if Bancorp intends to sell an impaired AFS debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL for AFS debt securities in this situation.
In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, Bancorp considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. There were no credit related factors underlying unrealized losses on AFS debt securities at September 30, 2021 and December 31, 2020.
Changes in the ACL for AFS debt securities are recorded as expense. Losses are charged against the ACL for AFS debt securities when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Mortgage Loans Held for Sale – Mortgages originated and intended for sale in the secondary market are recorded at the lower of cost or market value on an individual loan basis, as determined by outstanding commitments from investors.
Loans–Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income, deferred loan fees and costs, premiums and discounts associated with acquisition date fair value adjustments on acquired loans and any direct partial charge-offs. Bancorp has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in the consolidated balance sheets.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain assetsdirect origination costs, are deferred and liabilitiesrecognized in interest income over the life of the loan without anticipating prepayments.
Loans are considered past due or delinquent when the contractual principal and/or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. The accrual of interest income on loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and disclosurein process of contingent assetscollection, or if full collection of interest or principal becomes doubtful. Consumer loans are typically charged off no later than 120 days past due. All interest accrued but not received for a loan placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and liabilitiesinterest amounts contractually due are brought current and future payments are reasonably assured.
Acquired loans are recorded at fair value at the date of acquisition based on a DCF methodology that considers various factors including the financial statementstype of loan and reported amountsrelated collateral, classification status, fixed or variable interest rate, term of related revenuesloan and expenses duringwhether or not the reporting period. Actual results could differ from thoseloan was amortizing, and a discount rate reflecting Bancorp’s assessment of risk inherent in the cash flow estimates. MaterialCertain larger purchased loans are individually evaluated while certain purchased loans are grouped together according to similar risk characteristics and are treated in aggregate when applying various valuation techniques. These cash flow evaluations are inherently subjective, as they require material estimates, that are particularlyall of which may be susceptible to significant changechange.
Prior to January 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that Bancorp would be unable to collect all contractually required payments receivable were considered PCI. PCI loans were individually evaluated and recorded at fair value at the date of acquisition with no initial ACL based on a DCF methodology that considered various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting Bancorp’s assessment of risk inherent in the cash flow estimates. The difference between the DCFs expected at acquisition and the investment in the loan, or the “accretable yield,” was recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the DCFs expected at acquisition, or the “non-accretable difference,” were not recognized on the balance sheet and did not result in any yield adjustments, loss accruals or valuation allowances. Increases in expected cash flows, including prepayments, subsequent to the initial investment were recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows were recognized as impairment. ACLs on PCI loans reflected only losses incurred post-acquisition (meaning the PV of all cash flows expected at acquisition that ultimately were not expected to be received).
Subsequent to January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to determinationnon-credit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life 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.loans.
A descriptionAcquired loans are determined by Bancorp to have more-than-insignificant deterioration in credit quality since origination if any of other significant accounting policies is presentedthe following designations apply, listed in order of priority as follows: Loans individually analyzed by Bancorp and determined to have a collateral or cash flow deficiency resulting in a full or partial allocation for loss, loans placed on non-accrual status by the notes to Consolidated Financial Statements foracquired institution, loans identified as TDRs by the year ended December 31, 2016 included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K. Certain reclassificationsacquired institution, loans that have been made inreceived a partial charge off by the prior year financial statements to conform to current year classifications.acquired institution, loans risk-rated below a “pass” grade by the acquired institution and any loans past due 59 days or more at the time of acquisition.
Interim resultsFor acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income over the lives of the related loans. For non-PCD loans, an initial ACL for loans is estimated and recorded as credit loss expense at the three and nine-month periods ended September 30, 2017 are not necessarily indicative of results for the entire year.
Critical Accounting Policiesacquisition date.
The allowancesubsequent measurement of expected credit losses for loanall acquired loans is the same as the subsequent measurement of expected credit losses is management’s estimatefor originated loans.
Bancorp adopted ASC 326,“Financial Instruments – Credit Losses,” effective January 1, 2020 using the modified retrospective approach. Results for the periods subsequent to January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. Bancorp recorded a net reduction of probable losses inherentretained earnings of $8.8 million upon adoption. The transition adjustment included an increase in the loan portfolioACL for loans of $8.2 million and an increase in the ACL for off-balance sheet credit exposures of $3.5 million, net of the total corresponding DTA increase of $2.9 million.
Bancorp adopted ASC 326 using the prospective transition approach for loans purchased with PCD that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI loans met the criteria of PCD loans as of the adoption date. On January 1, 2020, non-accretable yield marks of $1.6 million related to formerly classified PCI loans were reclassified between the amortized cost basis of loans and corresponding ACL. The majority of these marks were subsequently charged off in the third quarter of 2020.
The following table summarizes the impact of the adoption of ASC 326 effective January 1, 2020:
January 1, 2020 | ||||||||||||
(in thousands) | As reported under ASC 326 | Pre-ASC 326 Adoption | Impact of Adoption (1) | |||||||||
Allowance for credit losses on loans: | ||||||||||||
Commercial real estate - non-owner occupied | $ | 8,333 | $ | 5,235 | $ | 3,098 | ||||||
Commercial real estate - owner occupied | 6,219 | 3,327 | 2,892 | |||||||||
Total commercial real estate | 14,552 | 8,562 | 5,990 | |||||||||
Commercial and industrial - term | 7,147 | 6,782 | 365 | |||||||||
Commercial and industrial - line of credit | 4,129 | 5,657 | (1,528 | ) | ||||||||
Total commercial and industrial | 11,276 | 12,439 | (1,163 | ) | ||||||||
Residential real estate - owner occupied | 2,713 | 1,527 | 1,186 | |||||||||
Residential real estate - non-owner occupied | 1,376 | 947 | 429 | |||||||||
Total residential real estate | 4,089 | 2,474 | 1,615 | |||||||||
Construction and land development | 5,161 | 2,105 | 3,056 | |||||||||
Home equity lines of credit | 842 | 728 | 114 | |||||||||
Consumer | 398 | 100 | 298 | |||||||||
Leases | 233 | 237 | (4 | ) | ||||||||
Credit cards | 96 | 146 | (50 | ) | ||||||||
Total allowance for credit losses on loans | $ | 36,647 | $ | 26,791 | $ | 9,856 | ||||||
Total allowance for credit losses on off-balance sheet exposures | $ | 3,850 | $ | 350 | $ | 3,500 |
(1) – The impact of the ASC 326 adoption on the ACL for loans reflects $8.2 million related to the transition from the incurred loss ACL model to the CECL ACL model and $1.6 million related to the transition from PCI to PCD methodology as defined in the standard.
ACL – Loans – Under the CECL model, the ACL for loans represents a valuation allowance estimated at each balance sheet date. Loandate in accordance with GAAP that is deducted from the loans’ amortized cost basis to represent the net amount expected to be collected on the loan portfolio.
Bancorp estimates the ACL for loans based on the underlying assets’ amortized cost basis, which is the amount at which the receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of payment, and partial charge-offs. In the event that collection of principal becomes uncertain, Bancorp has policies in place to reverse accrued interest in a timely manner. Therefore, Bancorp has made a policy election to exclude accrued interest from the measurement of the ACL for loans.
Expected credit losses are charged againstreflected in the allowance when management believes uncollectabilityACL for loans through a charge to provision. When Bancorp deems all or a portion of a loan balancefinancial asset to be uncollectible, the appropriate amount is confirmed.written-off and the ACL for loans is reduced by the same amount. Bancorp applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts of collection have been exhausted and the collateral, if any, has been liquidated. Subsequent recoveries, if any, are credited to the allowance.ACL for loans when received.
Management has identifiedBancorp’s methodologies for estimating the accounting policy relatedACL for loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable to the allowance and provisionidentified pools of financial assets with similar risk characteristics 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 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. In the first quarter of 2017, Bancorp extended the historical period used to capture Bancorp’s historical loss ratios from 24 quarters to 28 quarters. This extension of the historical period was applied to all classes and segments of the portfolio. The expansion of the look-back period for the historical loss rates used in the quantitative allocation caused managementexperience was observed. Bancorp’s methodologies may revert to review the overall methodology for the qualitative factors to ensure Bancorp was appropriately capturing the risk not addressed in the historical loss rates used in the quantitative allocation, resulting in the same expansioninformation on a straight-line basis over a number of the look-back period for the qualitative factors. Management believes the extension of the look-back period is appropriate to capture the impact of a full economic cyclequarters when it can no longer develop reasonable and more accurately represents the current level of risk inherent in the loan portfolio. 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.supportable forecasts.
Stock YardsLoans are predominantly segmented by FDIC Call Report Codes into loan pools that have similar risk characteristics, similar collateral type and are assumed to pose consistent risk of loss to Bancorp. Bancorp inc.has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:
Commercial Real Estate – Owner Occupied –Includes non-farm non-residential real estate loans for a variety of commercial property types and subsidiarypurposes, and is typically secured by commercial offices, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party (or affiliate) who owns the property. Repayment terms vary considerably; interest rates are fixed or variable and structured for full or partial amortization of principal.
Commercial Real Estate – Non-Owner Occupied –Includes investment real estate loans secured by similar collateral as above. The primary source of income for this loan type is typically rental income associated with the property. This category also includes apartment or multifamily residential buildings (secured by five or more dwelling units).
Construction and Land Development –Consists of loans to finance the ground up construction or improvement of owner occupied and non-owner occupied residential and commercial properties and loans secured by raw or improved land. The repayment of C&D loans is generally dependent upon the successful completion of the improvements by the builder for the end user, the leasing of the property, or sale of the property to a third party. Repayment of land secured loans is dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt. Bancorp’s construction loans may convert to real estate-secured loans once construction is completed or principal amortization payments begin, assuming the borrower retains financing with the Bank.
Commercial and Industrial –Represents loans for C&I purposes to sole proprietorships, partnerships, corporations and other business enterprises, whether secured (other than those that meet the definition of a “loan secured by real estate”) or unsecured, single payment or installment. This category includes loans originated for financing capital expenditures, loans secured by accounts receivable, inventory and other business assets such as equipment, non-real estate related construction loans in addition to non-real estate loans guaranteed by the SBA. Bancorp originates these loans for a variety of purposes across various industries. This portfolio has been segregated between term loans and revolving lines of credits based on the varied characteristics of these individual loan structures.
Residential Real Estate –Includes non-revolving (closed-end) first and junior lien loans secured by residential real estate primarily in Bancorp’s market areas. This portfolio is segregated between owner occupied and non-owner occupied status, as the investment nature of the latter poses additional credit risks to Bancorp.
Home Equity Lines of Credit – Similar to the above, however these are revolving (open-ended) lines of credit.
Consumer –Represents loans to individuals for personal expenditures that may be secured or unsecured. This includes pre-arranged overdraft plans, secured automobile loans and other consumer-purpose loans.
Leases –Represents a variety of leasing options to businesses to acquire equipment.
Credit Cards –Represents revolving loans to businesses and consumers.
Bancorp measures expected credit losses for its loan portfolio segments as follows:
Loan Portfolio Segment | ACL Methodology | |
Commercial real estate - non-owner occupied | Discounted cash flow | |
Commercial real estate - owner occupied | Discounted cash flow | |
Commercial and industrial - term | Static pool | |
Commercial and industrial - line of credit | Static pool | |
Residential real estate - owner occupied | Discounted cash flow | |
Residential real estate - non-owner occupied | Discounted cash flow | |
Construction and land development | Static pool | |
Home equity lines of credit | Static pool | |
Consumer | Static pool | |
Leases | Static pool | |
Credit cards | Static pool |
Discounted Cash flow Method – The DCF methodology is used to develop cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates and time to recovery are based on historical internal data.
Bancorp uses regression analysis on historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes the FRB’s forecasted Seasonally Adjusted National Civilian Unemployment Rate as its primary loss driver, as this was determined to best correlate to historical losses.
With regard to the DCF model and the adoption of CECL effective January 1, 2020, management determined that four quarters represented a reasonable and supportable forecast period with reversion back to a historical loss rate over eight quarters on a straight-line basis. However, in response to uncertainty surrounding the magnitude and duration of the economic crisis created by the pandemic, management subsequently determined that a one-quarter forecast period with a reversion back to a historical loss rate in the following quarter was appropriate for the calculation performed at March 31, 2020. For the calculation performed at June 30, 2020, management elected to return to the four quarter forecast period with reversion back to a historical loss rate in the following quarter, which was the methodology used for all subsequent calculations through June 30, 2021. Beginning with the calculation performed as of September 30, 2021, management concluded that increasing the reversion period back to a historical loss rate over four quarters on a straight line basis was warranted, as both current and forecasted unemployment levels have normalized.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level NPV of expected cash flows. An ACL is established for the difference between the instrument’s NPV and amortized cost basis.
Static Pool Method – The static pool methodology is utilized for the loan portfolio segments that typically have shorter durations. For each of these loan segments, Bancorp applies an expected loss ratio based on historical losses adjusted as appropriate for qualitative loss factors. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans and reasonable and supportable forecasts of economic conditions.
Collateral Dependent Loans – Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where Bancorp has determined that the liquidation or foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and Bancorp expects repayment of the financial asset to be provided substantially through the operation of the business or sale of the collateral, the ACL is measured based on the difference between the estimated fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of loan. Bancorp’s estimate of the ACL reflects losses expected over the remaining contractual life of the loan and the contractual term does not consider extensions, renewals or modifications.
A loan that has been modified or renewed is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with their modified contractual terms for a reasonable period may be included in Bancorp’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.
In March 2020, the CARES Act was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. To qualify for Section 4013 of the CARES Act, borrowers must have been current at December 31, 2019. All modifications were originally eligible as long as they were executed between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) the 60th day after the end of the COVID-19 national emergency as declared by the President of the United States. The Consolidated Appropriations Act, which was signed into law on December 27, 2020, extended this provision to the earlier of (1) 60 days after the national emergency termination date or (2) January 1, 2022. Multiple modifications of the same credits are allowed and there is no cap on the duration of the modification. The impact of such activity is discussed in the section of this document titled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Premises and Equipment–Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation of premises and equipment is computed using straight-line methods over the estimated useful lives of the assets ranging from three to 40 years. Leasehold improvements are amortized on the straight-line method over terms of the related leases, including expected renewals, or over the useful lives of the improvements, whichever is shorter. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.
FHLB Stock–Bancorp is a member institution of the FHLB. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts of stock. FHLB stock is carried at cost, classified as a restricted security and annually evaluated for impairment. Because this stock is viewed as a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are recorded as interest income.
Goodwill– Goodwill resulting from business acquisitions represents the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested annually for impairment or more frequently if events and circumstances exist that indicate a goodwill impairment test should be performed.
Bancorp has selected September 30 as the date to perform its annual goodwill impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Bank’s balance sheet.
All goodwill is attributable to the Commercial Banking segment. Goodwill related to the KSB acquisition is deductible for tax purposes, as it was structured as an asset sale/338 election. Goodwill related to the KB acquisition is not deductible for tax purposes, as it was structured as stock sale. Based on its assessment, Bancorp believes its goodwill balance at September 30, 2021 and December 31, 2020 was not impaired and is properly recorded in the consolidated financial statements.
Other intangible assets consist of CDI assets arising from business acquisitions. CDI assets are initially measured at fair value and then amortized on an accelerated method over their estimated useful lives.
Other Assets– BOLI and other life insurance policies are carried at net realizable value, which considers applicable surrender charges. Also, Bancorp maintains life insurance policies in conjunction with its non-qualified defined benefit and non-qualified compensation plans.
OREO is carried at the lower of cost or estimated fair value minus estimated selling costs. In certain situations, improvements to prepare assets for sale are capitalized if those costs increase the estimated fair value of the asset. Expenses incurred in maintaining assets, write downs to reflect subsequent declines in value, and realized gains or losses are reflected in the results of operations and are included in non-interest income and/or expense.
MSRs are initially recorded at fair value and amortized in proportion to, and over the period of, estimated net servicing income, considering appropriate prepayment assumptions and are evaluated quarterly for impairment by comparing the carrying value to fair value.
Off-Balance Sheet Credit Exposures – Financial instruments include off-balance sheet credit instruments, such as commitments to originate loans, commitments to fund existing loans and commercial letters of credit issued to meet customer-financing needs. Off-balance sheet refers to assets or liabilities that do not appear on a company's balance sheet. Bancorp’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
Bancorp records an ACL for off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision for credit losses on Bancorp’s consolidated statements of income. The ACL for off-balance sheet credit exposures is estimated by loan portfolio segment at each balance sheet date under the current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur and is included in other liabilities on Bancorp’s consolidated balance sheets.
Derivatives– Bancorp uses derivative financial instruments, including interest rate swaps, as part of its interest rate risk management. GAAP establishes accounting and reporting standards for derivative instruments and hedging activities. As required by GAAP, Bancorp’s interest rate swaps are recognized as other assets and liabilities in the consolidated balance sheet at fair value. Accounting for changes in fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. To qualify for hedge accounting, Bancorp must comply with detailed rules and documentation requirements at inception of the hedge, and hedge effectiveness is assessed at inception and periodically throughout the life of each hedging relationship. Hedge ineffectiveness, if any, is measured periodically throughout the life of the hedging relationship.
For derivatives designated as cash flow hedges, the effective portion of changes in fair value of the derivative is initially reported in OCI and subsequently reclassified to interest income or expense when the hedged transaction affects earnings, while the ineffective portion of changes in fair value of derivative, if any, is recognized immediately in other noninterest income. Bancorp assesses the effectiveness of each hedging relationship by comparing cumulative changes in cash flows of the derivative hedging instrument with cumulative changes in cash flows of the designated hedged item or transaction. No component of the change in the fair value of the hedging instrument is excluded from the assessment of hedge effectiveness.
Periodically, Bancorp enters into an interest rate swap transaction with a borrower, who desires to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. Because of matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition have an insignificant effect on earnings. Because these derivative instruments have not been designated as hedging instruments, the derivative instruments are recognized on the consolidated balance sheet at fair value, with changes in fair value, due to changes in prevailing interest rates, recorded in other noninterest income.
Bancorp had no fair value hedging relationships at September 30, 2021 and December 31, 2020. Bancorp does not use derivatives for trading or speculative purposes. See the Footnote titled “Derivative Financial Instruments” for additional discussion.
Transfers of Financial Assets–Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from Bancorp, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and Bancorp does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Stock-Based Compensation– For all awards, stock-based compensation expense is recognized over the period in which it is earned based on the grant-date fair value of the portion of stock-based payment awards that are ultimately expected to vest, reduced for estimated forfeitures at the time of grant. GAAP requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes– Income tax expense is the total of the current year income tax due or refundable and the change in DTAs and DTLs. DTAs and DTLs are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted statutory tax rates. A valuation allowance, if needed, reduces DTAs to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded.
Bancorp recognizes interest and/or penalties related to income tax matters in income tax expense, if any.
Bancorp periodically invests in certain partnerships with customers that yield historic tax credits, accounted for using the flow through method, which approximates the equity method. Also, low-income housing tax credits, as well as tax-deductible losses, are accounted for using the effective yield method for older transactions or proportional amortization method for more recent transactions. The tax benefit of these investments exceeds the amortization expense associated with them, resulting in a positive impact on net income.
Net Income Per Share –Basic net income per common share is determined by dividing net income by the weighted average number of shares of common stock outstanding. Diluted net income per share is determined by dividing net income by the weighted average number of shares of common stock outstanding plus the weighted average number of shares that would be issued upon exercise of dilutive options and SARs, assuming proceeds are used to repurchase shares under the treasury stock method.
Comprehensive Income –Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For Bancorp, this includes net income, changes in unrealized gains and losses on AFS debt securities and cash flow hedging instruments, net of reclassification adjustments and taxes, and minimum pension liability adjustments, net of taxes.
Loss Contingencies– Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are any outstanding matters that would have a material effect on the financial statements.
Restrictions on Cash and Cash Equivalents– Bancorp has historically been required by the FRB to maintain average reserve balances. Effective March 26, 2020, the FRB reduced the reserve requirement ratio to 0% in response to the COVID-19 pandemic, eliminating reserve requirements for all depository institutions. The reserve requirement ratio remained at 0% as of September 30, 2021.
The Company’s captive maintains cash reserves to cover insurable claims. Reserves totaled $400,000 as of September 30, 2021.
Dividend Restrictions– Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Holding Company or by the Holding Company to shareholders.
Fair Value of Financial Instruments–Fair values of financial instruments are estimated using relevant market information and other assumptions, as disclosed in the Footnote titled “Assets and Liabilities Measured and Reported at Fair Value” in this section of the filing. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect such estimates.
Revenue from Contracts with Customers–On January 1, 2018, Bancorp adopted ASU 2014-09, “Revenue from Contracts with Customers,”and all subsequent amendments to the ASU (collectively, “ASC 606”). While this update modified guidance for recognizing revenue, it did not have a material impact on the timing or presentation of Bancorp’s revenue. The majority of Bancorp’s revenue comes from interest income and other sources, including loans, leases, securities, and derivatives, which are not subject to ASC 606. Bancorp’s services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as Bancorp satisfies its obligation to its customer.
Segment Information–Bancorp provides a broad range of financial services to individuals, corporations and others through its full service banking locations. These services include loan and deposit services, cash management services, securities brokerage activities, mortgage origination and WM&T activities. Bancorp’s operations are considered by management to be aggregated in two reportable operating segments: Commercial Banking and WM&T.
Reclassifications–Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported prior periods’ net income or shareholders’ equity.
Adoption of New Accounting Standards–The FASB issued ASU No.2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” in March 2020. The amendments in this update provide optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.
Accounting Standards Updates–Generally, if an issued but not yet effective ASU with an expected immaterial impact to Bancorp has been disclosed in prior SEC filings, it will not be re-disclosed.
In April 2019, the FASB issued ASU No.2019-04, “Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825).” The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to the credit losses will be effective for Bancorp’s for fiscal years and interim periods beginning after December 15, 2022. Bancorp is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.
(2) | Acquisition |
On May 31, 2021, Bancorp completed its acquisition of Kentucky Bancshares, Inc. in a combined stock and cash transaction for total consideration of $233 million. Bancorp acquired 19 branches in 11 communities throughout central and eastern Kentucky, including the Lexington, Kentucky metropolitan statistical area and contiguous counties, and also acquired a captive insurance subsidiary.
The following table provides a summary of the fair value of the assets acquired and liabilities assumed by Bancorp as of the acquisition date. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary fair values shown in the following table continue to be evaluated by management and may be subjected to further adjustment.
As Recorded | Fair Value | Recast | As Recorded | |||||||||||||||
(in thousands) | By KB | Adjustments (1) | Adjustments (1) | by Bancorp | ||||||||||||||
Assets aquired: | ||||||||||||||||||
Cash and due from banks | $ | 53,257 | $ | 0 | $ | — | $ | 53,257 | ||||||||||
Mortgage loans held for sale | 3,071 | 0 | — | 3,071 | ||||||||||||||
Available for sale debt securities | 396,157 | (295 | ) | a | — | 395,862 | ||||||||||||
Federal Home Loan Bank stock, at cost | 7,072 | 0 | — | 7,072 | ||||||||||||||
Loans | 755,932 | (757 | ) | b | — | 755,175 | ||||||||||||
Allowance for credits losses on loans | (9,491 | ) | 2,734 | c | — | (6,757 | ) | |||||||||||
Net loans | 746,441 | 1,977 | — | 748,418 | ||||||||||||||
Premises and equipment, net | 27,401 | (6,361 | ) | d | — | 21,040 | ||||||||||||
Bank owned life insurance | 18,909 | 0 | — | 18,909 | ||||||||||||||
Accrued interest receivable | 4,939 | 0 | — | 4,939 | ||||||||||||||
Goodwill | 14,001 | (14,001 | ) | e | — | 0 | ||||||||||||
Core deposit intangible | 0 | 3,404 | f | 999 | f | 4,403 | ||||||||||||
Other real estate owned | 674 | (123 | ) | g | — | 551 | ||||||||||||
Mortgage servicing rights | 1,628 | 34 | h | — | 1,662 | |||||||||||||
Deferred income taxes, net | 1,856 | 715 | i | (230 | ) | i | 2,341 | |||||||||||
Other assets | 6,421 | (1,866 | ) | j | (70 | ) | j | 4,485 | ||||||||||
Total assets acquired | $ | 1,281,827 | $ | (16,516 | ) | $ | 699 | $ | 1,266,010 | |||||||||
Liabilities assumed: | ||||||||||||||||||
Deposits: | ||||||||||||||||||
Non-interest bearing | $ | 359,544 | $ | 0 | $ | — | $ | 359,544 | ||||||||||
Interest bearing | 678,528 | 1,146 | k | — | 679,674 | |||||||||||||
Total deposits | 1,038,072 | 1,146 | — | 1,039,218 | ||||||||||||||
Securities sold under agreements to repurchase | 11,360 | 0 | — | 11,360 | ||||||||||||||
Federal Home Loan Bank advances | 88,581 | 2,490 | l | — | 91,071 | |||||||||||||
Accrued interest payable | 505 | 0 | — | 505 | ||||||||||||||
Other liabilities | 16,231 | (2,004 | ) | m | — | 14,227 | ||||||||||||
Total liabilities assumed | 1,154,749 | 1,632 | — | 1,156,381 | ||||||||||||||
Net assets acquired | $ | 127,078 | $ | (18,148 | ) | $ | 699 | $ | 109,629 | |||||||||
Consideration for common stock | $ | 204,670 | ||||||||||||||||
Cash consideration paid | 28,276 | |||||||||||||||||
Total consideration | $ | 232,946 | ||||||||||||||||
Goodwill | $ | 123,317 |
(1) | See the following page for explanations or individual fair value and recast adjustments. |
Explanation of fair value adjustments
a. | Adjustment based on Bancorp’s evaluation of the acquired investment portfolio. Bancorp sold approximately $91 million in AFS debt securities shortly after acquisition. |
b. | Adjustments to loans to reflect estimated fair value adjustments, including the following: |
(in thousands) | ||||
Fair value adjustment - acquired non PCD loans | $ | 228 | ||
Fair value adjustment - acquired PCD loans | (735 | ) | ||
Eliminate unrecognized loan fees on acquired loans and fair value hedge | (250 | ) | ||
Net loan fair value adjustments | $ | (757 | ) |
c. | The net adjustment to allowance for credit losses includes the following: |
(in thousands) | ||||
Reversal of historical KB allowance for credit losses on loans | $ | 9,491 | ||
Estimate of lifetime credit losses for PCD loans | (6,757 | ) | ||
Net change in allowance for credit losses | $ | 2,734 |
d. | Adjustment to premises and equipment to reflect the estimated fair value of acquired premises and equipment and right of use assets. |
e. | Elimination of the historical KB goodwill of $14.0 million at the closing date. |
f. | Calculation of core deposit intangible related to the acquisition. During the third quarter of 2021, a recast adjustment of $999,000 was recorded based on revised inputs used in the calculation of the CDI attributed to KB, resulting in an increased intangible value. |
g. | Adjustment to reflect the estimated fair value of other real estate owned. |
h. | Adjustment to reflect the estimated fair value of mortgage servicing rights. |
i. | Adjustment to net deferred tax assets associated with the effects of the purchase accounting adjustments. |
j. | Adjustment to other assets to reflect the estimated fair value of prepaid and other assets. During the third quarter of 2021, a recast adjustment of $70,000 was recorded for the write off of miscellaneous mortgage servicing fees accrued in other assets by KB at acquisition, resulting in a reduction to other assets. |
k. | Adjustment to deposits to reflect the estimated fair value of time deposits in interest rates, which was based primarily on an analysis of current market interest rates and maturity dates. |
l. | Adjustment to reflect the estimated fair value of Federal Home Loan Bank advances for differences in interest rates, which was based primarily on an analysis of current market interest rates and maturity dates. All KB FHLB advances were paid off immediately upon acquisition. |
m. | Adjustment to other liabilities to establish the reserve for unfunded loan commitments under CECL and various accrual adjustments. |
Goodwill of approximately $123 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, was recorded in the KB acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Commercial Banking segment. Goodwill related to the KB acquisition is not deductible for tax purposes, as it was structured as stock sale. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the KB acquisition will change.
Total revenue, defined as net interest income and non-interest income, attributed to KB totaled $11.3 million and $15.7 million for the three and nine months ended September 30, 2021.
The following unaudited pro forma condensed combined financial information presents the results of operations of Bancorp, including the effects of the purchase accounting adjustments and acquisition expenses, had the KB acquisition taken place at the beginning of the period:
(in thousands) | Three months ended September 30, 2021 | Three months ended September 30, 2020 | ||||||
Net interest income | $ | 45,483 | $ | 42,458 | ||||
Provision for credit losses | (1,525 | ) | 4,718 | |||||
Non-interest income | 17,614 | 17,188 | ||||||
Non-interest expense | 34,558 | 35,238 | ||||||
Income before taxes | 30,064 | 19,690 | ||||||
Income tax expense | 6,902 | 1,907 | ||||||
Net income | $ | 23,162 | $ | 17,783 | ||||
Earnings per share | ||||||||
Basic | $ | 0.87 | $ | 0.67 | ||||
Diluted | 0.87 | 0.67 | ||||||
Basic weighted average shares outstanding | 26,485 | 26,385 | ||||||
Diluted weighted average shares outstanding | 26,726 | 26,605 |
Bancorp’s allowance calculation includes allocations to loan portfolio segments at September 30, 2017 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, changes 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 losses based on their judgments and estimates.
(in thousands) | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | ||||||
Net interest income | $ | 139,526 | $ | 126,614 | ||||
Provision for credit losses (1) | (6,067 | ) | 19,793 | |||||
Non-interest income | 53,704 | 49,907 | ||||||
Non-interest expense (2) | 106,361 | 101,102 | ||||||
Income before taxes | 92,936 | 55,626 | ||||||
Income tax expense | 18,881 | 6,623 | ||||||
Net income | $ | 74,055 | $ | 49,003 | ||||
Earnings per share | ||||||||
Basic | $ | 2.79 | $ | 1.86 | ||||
Diluted | 2.77 | 1.84 | ||||||
Basic weighted average shares outstanding | 26,532 | 26,356 | ||||||
Diluted weighted average shares outstanding | 26,773 | 26,562 |
| |||||||||
(2) - Excludes $19.0 million in pre-tax merger expenses for the nine months ended September 30, 2021, respectively. |
(3) | Available for Sale Debt Securities |
The amortizedAll of Bancorp’s debt securities are classified as AFS. Amortized cost, unrealized gains and losses and fair value of securities available-for-sale follow:
(in thousands) | Amortized | Unrealized |
| |||||||||||||
September 30, 2017 | cost | Gains | Losses | Fair value | ||||||||||||
Government sponsored enterprise obligations | $ | 372,596 | $ | 846 | $ | 778 | $ | 372,664 | ||||||||
Mortgage-backed securities - government agencies | 147,604 | 697 | 1,581 | 146,720 | ||||||||||||
Obligations of states and political subdivisions | 51,100 | 611 | 89 | 51,622 | ||||||||||||
Corporate equity securities | 653 | - | 137 | 516 | ||||||||||||
Total securities available for sale | $ | 571,953 | $ | 2,154 | $ | 2,585 | $ | 571,522 | ||||||||
December 31, 2016 | ||||||||||||||||
U.S. Treasury and other U.S. Government obligations | $ | 74,997 | $ | 1 | $ | - | $ | 74,998 | ||||||||
Government sponsored enterprise obligations | 268,784 | 800 | 1,494 | 268,090 | ||||||||||||
Mortgage-backed securities - government agencies | 170,344 | 735 | 2,236 | 168,843 | ||||||||||||
Obligations of states and political subdivisions | 57,158 | 682 | 396 | 57,444 | ||||||||||||
Corporate equity securities | 653 | 46 | - | 699 | ||||||||||||
Total securities available for sale | $ | 571,936 | $ | 2,264 | $ | 4,126 | $ | 570,074 |
(in thousands) | Amortized | Unrealized | ||||||||||||||
September 30, 2021 | cost | Gains | Losses | Fair value | ||||||||||||
U.S. Treasury and other U.S. Government obligations | $ | 83,916 | $ | 0 | $ | (204 | ) | $ | 83,712 | |||||||
Government sponsored enterprise obligations | 142,802 | 3,553 | (68 | ) | 146,287 | |||||||||||
Mortgage backed securities - government agencies | 777,636 | 3,784 | (9,698 | ) | 771,722 | |||||||||||
Obligations of states and political subdivisions | 67,633 | 284 | (493 | ) | 67,424 | |||||||||||
Other | 1,006 | 0 | (3 | ) | 1,003 | |||||||||||
Total available for sale debt securities | $ | 1,072,993 | $ | 7,621 | $ | (10,466 | ) | $ | 1,070,148 | |||||||
December 31, 2020 | ||||||||||||||||
Government sponsored enterprise obligations | $ | 133,436 | $ | 5,003 | $ | (361 | ) | $ | 138,078 | |||||||
Mortgage backed securities - government agencies | 430,198 | 7,555 | (168 | ) | 437,585 | |||||||||||
Obligations of states and political subdivisions | 11,088 | 227 | 0 | 11,315 | ||||||||||||
Total available for sale debt securities | $ | 574,722 | $ | 12,785 | $ | (529 | ) | $ | 586,978 |
Corporate equityAt September 30, 2021 and December 31, 2020, there were no holdings of debt securities consist of common stockany one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
Accrued interest on AFS debt securities totaled $2.3 million and $1.6 million at September 30, 2021 and December 31, 2020, respectively, and was included in the consolidated balance sheets.
AFS debt securities totaling $396 million were acquired on May 31, 2021 as a result of the KB acquisition. Shortly after acquisition, 86 securities with a total fair value of $91 million in the acquired AFS debt securities portfolio were sold, resulting in a publicly-traded business development company.
There were no securities classifiedloss on the sale $295,000, which was recorded a as held to maturity as of September 30, 2017 or December 31, 2016.
Stock Yards Bancorp, inc. and subsidiary
Bancorp sold no securities fair value adjustment through goodwill during the three or nine month periods ending September 30, 2016 or 2017. One security was called prior to maturity in the thirdsecond quarter of 2017 resulting in the receipt of a pre-payment penalty. The penalty income was classified as a realized gain on the call of available for sale securities.2021.
A summary of the available-for-sale investmentAFS debt securities by contractual maturity groupings as of September 30, 2017 is shown below.2021 follows:
(in thousands) |
|
| ||||||
Securities available-for-sale | Amortized cost | Fair value | ||||||
Due within 1 year | $ | 216,651 | $ | 216,696 | ||||
Due after 1 but within 5 years | 74,383 | 74,529 | ||||||
Due after 5 but within 10 years | 14,085 | 14,031 | ||||||
Due after 10 years | 118,577 | 119,030 | ||||||
Mortgage-backed securities - government agencies | 147,604 | 146,720 | ||||||
Corporate equity securities | 653 | 516 | ||||||
Total securities available-for-sale | $ | 571,953 | $ | 571,522 |
(in thousands) | Amortized cost | Fair value | ||||||
Due within one year | $ | 30,408 | $ | 30,442 | ||||
Due after one year but within five years | 100,808 | 100,774 | ||||||
Due after five years but within 10 years | 28,165 | 28,220 | ||||||
Due after 10 years | 135,976 | 138,990 | ||||||
Mortgage backed securities - government agencies | 777,636 | 771,722 | ||||||
Total available for sale debt securities | $ | 1,072,993 | $ | 1,070,148 |
Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations. In addition to equity securities, theobligations with or without prepayment penalties. The investment portfolio includes agency mortgage-backed securities,MBS, 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 certain wealth management and trust accounts, and securities sold under agreements to repurchase. TheSecurities with a carrying value of these$698 million and $505 million were pledged securities was approximately $329.7 million at September 30, 2017 2021 and $380.4 million at December 31, 2016.2020, respectively, to secure accounts of commercial depositors in cash management accounts, public deposits and uninsured cash balances for WM&T accounts. The large increase for 2021 was driven by collateralized accounts added through the KB acquisition.
Securities with unrealized losses at September 30, 2017 2021 and December 31, 2016, not recognized2020, aggregated by investment category and length of time securities have been in the statements of income are asa continuous unrealized loss position follows:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | Less than 12 months | 12 months or more | Total |
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||||
September 30, 2021 | value | losses | value | losses | value | losses | ||||||||||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | value | losses | value | losses | value | losses | ||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury and other U.S.Government obligations | $ | 83,712 | $ | (204 | ) | $ | 0 | $ | 0 | $ | 83,712 | $ | (204 | ) | ||||||||||||||||||||||||||||||||||
Government sponsored enterprise obligations | $ | 190,462 | $ | 135 | $ | 70,176 | $ | 643 | $ | 260,638 | $ | 778 | 16,587 | (68 | ) | 0 | 0 | 16,587 | (68 | ) | ||||||||||||||||||||||||||||
Mortgage-backed securities - government agencies | 13,227 | 117 | 65,781 | 1,464 | 79,008 | 1,581 | 585,126 | (9,698 | ) | 0 | 0 | 585,126 | (9,698 | ) | ||||||||||||||||||||||||||||||||||
Obligations of states and political subdivisions | 9,307 | 13 | 6,287 | 76 | 15,594 | 89 | 37,348 | (493 | ) | 0 | 0 | 37,348 | (493 | ) | ||||||||||||||||||||||||||||||||||
Corporate equity securities | 516 | 137 | - | - | 516 | 137 | ||||||||||||||||||||||||||||||||||||||||||
Other securities | 1,003 | (3 | ) | 0 | 0 | 1,003 | (3 | ) | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 723,776 | $ | (10,466 | ) | $ | 0 | $ | 0 | $ | 723,776 | $ | (10,466 | ) | ||||||||||||||||||||||||||||||||||
Total temporarily impaired securities | $ | 213,512 | $ | 402 | $ | 142,244 | $ | 2,183 | $ | 355,756 | $ | 2,585 | ||||||||||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
Government sponsored enterprise obligations | $ | 154,951 | $ | 1,344 | $ | 3,485 | $ | 150 | $ | 158,436 | $ | 1,494 | $ | 10,404 | $ | (112 | ) | $ | 24,398 | $ | (249 | ) | $ | 34,802 | $ | (361 | ) | |||||||||||||||||||||
Mortgage-backed securities - government agencies | 115,374 | 1,873 | 9,914 | 363 | 125,288 | 2,236 | 68,033 | (167 | ) | 921 | (1 | ) | 68,954 | (168 | ) | |||||||||||||||||||||||||||||||||
Obligations of states and political subdivisions | 29,893 | 380 | 1,478 | 16 | 31,371 | 396 | ||||||||||||||||||||||||||||||||||||||||||
Total temporarily impaired securities | $ | 300,218 | $ | 3,597 | $ | 14,877 | $ | 529 | $ | 315,095 | $ | 4,126 | ||||||||||||||||||||||||||||||||||||
Total | $ | 78,437 | $ | (279 | ) | $ | 25,319 | $ | (250 | ) | $ | 103,756 | $ | (529 | ) |
Applicable dates for determining when securities are in an unrealized loss position are September 30, 2017 2021 and December 31, 2016. 2020. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past twelve12 months, but is not in the “investments“Less than 12 months” category above.
For AFS debt securities with an unrealized loss position, Bancorp evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit-related is recognized in AOCI, net of tax. Credit-related impairment is recognized as an a ACL for AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if Bancorp intends to sell an impaired AFS debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.
In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, Bancorp considers the extent to which fair value is less than 12 months” category above.
amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. Unrealized losses on Bancorp’sBancorp’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 dueattributable 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. Because management does not intend to sell theThese investments consisted of 177 and it is not likely that Bancorp will be required to sell the investments before recovery14 separate investment positions as of their amortized cost bases, which may be maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at September 30, 2017.
FHLB stock 2021 and otherDecember 31, 2020, respectively. There were no credit related factors underlying unrealized losses on AFS debt securities are investments held by Bancorp which are not readily marketable at September 30, 2021 and are carried at cost. This category includes Federal Home Loan Bank of Cincinnati (FHLB) stock which is required for access to FHLB borrowing.December 31, 2020.
(4) | Loans and Allowance for Credit Losses on Loans |
Stock Yards Bancorp, inc.Composition of loans by class follows:
(in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Commercial real estate - non-owner occupied | $ | 1,142,647 | $ | 833,470 | ||||
Commercial real estate - owner occupied | 652,631 | 508,672 | ||||||
Total commercial real estate | 1,795,278 | 1,342,142 | ||||||
Commercial and industrial - term | 581,804 | 525,776 | ||||||
Commercial and industrial - term - PPP | 231,335 | 550,186 | ||||||
Commercial and industrial - lines of credit | 329,119 | 249,378 | ||||||
Total commercial and industrial | 1,142,258 | 1,325,340 | ||||||
Residential real estate - owner occupied | 398,069 | 239,191 | ||||||
Residential real estate - non-owner occupied | 277,045 | 140,930 | ||||||
Total residential real estate | 675,114 | 380,121 | ||||||
Construction and land development | 303,642 | 291,764 | ||||||
Home equity lines of credit | 140,027 | 95,366 | ||||||
Consumer | 104,629 | 71,874 | ||||||
Leases | 12,348 | 14,786 | ||||||
Credits cards | 15,821 | 10,203 | ||||||
Total loans (1) | $ | 4,189,117 | $ | 3,531,596 |
(1) Total loans are presented inclusive of premiums, discounts and subsidiarynet loan origination fees and costs.
Loans totaling $755 million were acquired on May 31, 2021 as a result of the KB acquisition, including $33 million in PPP loans.
Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $11 million and $12 million at September 30, 2021 and December 31,2020, respectively, and was included in the consolidated balance sheets.
Loans with carrying amounts of $2.5 billion and $2.0 billion were pledged to secure FHLB borrowing capacity at September 30, 2021 and December 31, 2020, respectively.
Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers, totaled $53 million and $43 million as of September 30, 2021 and December 31, 2020, respectively.
| PCD Loans |
CompositionIn connection with the acquisition of KB, Bancorp acquired loans netboth with and without evidence of deferred feescredit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no carryover from the acquired institution’s previously recorded allowance for loan and costs, by primary loan portfolio class follows:lease losses. Acquired loans are accounted for under ASC 326,Financial Instruments – Credit Losses.
(in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Commercial and industrial | $ | 750,728 | $ | 736,841 | ||||
Construction and development, excluding undeveloped land | 174,310 | 192,348 | ||||||
Undeveloped land | 20,989 | 21,496 | ||||||
Real estate mortgage: | ||||||||
Commercial investment | 576,810 | 538,886 | ||||||
Owner occupied commercial | 397,804 | 408,292 | ||||||
1-4 family residential | 261,707 | 249,498 | ||||||
Home equity - first lien | 51,925 | 55,325 | ||||||
Home equity - junior lien | 63,416 | 67,519 | ||||||
Subtotal: Real estate mortgage | 1,351,662 | 1,319,520 | ||||||
Consumer | 37,431 | 35,170 | ||||||
Total loans | $ | 2,335,120 | $ | 2,305,375 |
The fair value of acquired loans recorded at the time of acquisition is based upon several factors, including the timing and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash flows using comparable market rates. The resulting fair value adjustment is recorded in the form of a premium or discount to the unpaid principal balance of the respective loans. As it relates to acquired loans that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination (“PCD”), the net premium or net discount is adjusted to reflect Bancorp’s allowance for credit losses recorded for PCD loans at the time of acquisition, and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the respective loans. As it relates to loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of their fair value adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the remaining life of the respective loans. Bancorp records an ACL for non-PCD loans at the time of acquisition through provision expense, and therefore, no further adjustments are made to the net premium or net discount for non-PCD loans.
Stock Yards Bancorp inc.purchased loans through the acquisition of KB for which there was, at the time of acquisition, more-than-insignificant deterioration of credit quality since origination. The carrying amount of loans acquired and subsidiaryclassified as PCD was as follows at acquisition:
(in thousands) | May 31, 2021 | |||
Purchase price of PCD loans at acquisition | $ | 32,765 | ||
Allowance for credit losses at acquisition | (6,757 | ) | ||
Non-credit discount (premium) at acquisition | (735 | ) | ||
Fair value of PCD loans at acquisition | $ | 25,273 |
Interest income recognized on loans classified as PCD totaled $341,000 and $450,000 for the three and nine-month periods ended September 30, 2021, respectively.
Allowance for Credit Losses on Loans
The table below reflects activity in the ACL related to loans:
(in thousands) Three Months Ended September 30, 2021 | Beginning Balance | Initial Allowance on PCD Loans | Provision for Credit Losses on Loans | Charge-offs | Recoveries | Ending Balance | ||||||||||||||||||
Commercial real estate - non-owner occupied | $ | 19,747 | $ | 0 | $ | (3,582 | ) | $ | 0 | $ | 6 | $ | 16,171 | |||||||||||
Commercial real estate - owner occupied | 9,548 | 0 | 2,131 | (1,361 | ) | 0 | 10,318 | |||||||||||||||||
Total commercial real estate | 29,295 | 0 | (1,451 | ) | (1,361 | ) | 6 | 26,489 | ||||||||||||||||
Commercial and industrial - term (1) | 9,748 | 0 | 253 | (240 | ) | 5 | 9,766 | |||||||||||||||||
Commercial and industrial - lines of credit | 5,240 | 0 | (328 | ) | 0 | 0 | 4,912 | |||||||||||||||||
Total commercial and industrial | 14,988 | 0 | (75 | ) | (240 | ) | 5 | 14,678 | ||||||||||||||||
Residential real estate - owner occupied | 4,350 | 0 | 420 | (340 | ) | 27 | 4,457 | |||||||||||||||||
Residential real estate - non-owner occupied | 3,422 | 0 | 106 | 0 | 2 | 3,530 | ||||||||||||||||||
Total residential real estate | 7,772 | 0 | 526 | (340 | ) | 29 | 7,987 | |||||||||||||||||
Construction and land development | 5,193 | 0 | 45 | 0 | 0 | 5,238 | ||||||||||||||||||
Home equity lines of credit | 1,230 | 0 | (173 | ) | 0 | 0 | 1,057 | |||||||||||||||||
Consumer | 572 | 0 | 145 | (274 | ) | 284 | 727 | |||||||||||||||||
Leases | 232 | 0 | (38 | ) | 0 | 0 | 194 | |||||||||||||||||
Credit cards | 142 | 0 | 21 | 0 | 0 | 163 | ||||||||||||||||||
Total | $ | 59,424 | $ | 0 | $ | (1,000 | ) | $ | (2,215 | ) | $ | 324 | $ | 56,533 |
(in thousands) Nine Months Ended September 30, 2021 | Beginning Balance | Initial Allowance on PCD Loans | Provision for Credit Losses on Loans | Charge-offs | Recoveries | Ending Balance | ||||||||||||||||||
Commercial real estate - non-owner occupied | $ | 19,396 | $ | 1,491 | $ | (1,692 | ) | $ | (3,065 | ) | $ | 41 | $ | 16,171 | ||||||||||
Commercial real estate - owner occupied | 6,983 | 2,112 | 2,029 | (1,361 | ) | 555 | 10,318 | |||||||||||||||||
Total commercial real estate | 26,379 | 3,603 | 337 | (4,426 | ) | 596 | 26,489 | |||||||||||||||||
Commercial and industrial - term (1) | 8,970 | 1,022 | 156 | (409 | ) | 27 | 9,766 | |||||||||||||||||
Commercial and industrial - lines of credit | 3,614 | 1,755 | (457 | ) | 0 | 0 | 4,912 | |||||||||||||||||
Total commercial and industrial | 12,584 | 2,777 | (301 | ) | (409 | ) | 27 | 14,678 | ||||||||||||||||
Residential real estate - owner occupied | 3,389 | 142 | 1,279 | (383 | ) | 30 | 4,457 | |||||||||||||||||
Residential real estate - non-owner occupied | 1,818 | 88 | 1,620 | 0 | 4 | 3,530 | ||||||||||||||||||
Total residential real estate | 5,207 | 230 | 2,899 | (383 | ) | 34 | 7,987 | |||||||||||||||||
Construction and land development | 6,119 | 0 | (884 | ) | 0 | 3 | 5,238 | |||||||||||||||||
Home equity lines of credit | 895 | 147 | 14 | 0 | 1 | 1,057 | ||||||||||||||||||
Consumer | 340 | 0 | 471 | (561 | ) | 477 | 727 | |||||||||||||||||
Leases | 261 | 0 | (67 | ) | 0 | 0 | 194 | |||||||||||||||||
Credit cards | 135 | 0 | 28 | 0 | 0 | 163 | ||||||||||||||||||
Total | $ | 51,920 | $ | 6,757 | $ | 2,497 | $ | (5,779 | ) | $ | 1,138 | $ | 56,533 |
(1) | The allowance allocated for the commercial & industrial –term segment includes $813,000 related to PCD PPP loans. |
(in thousands) Three Months Ended September 30, 2020 | Beginning Balance | Impact of Adopting ASC 326 | Initial ACL on Loans Purchased with Credit Deterioration | Provision for Credit Losses on Loans | Charge-offs | Recoveries | Ending Balance | |||||||||||||||||||||
Commercial real estate - non-owner occupied | $ | 18,839 | $ | 0 | $ | 0 | $ | (558 | ) | $ | (143 | ) | $ | 2 | $ | 18,140 | ||||||||||||
Commercial real estate - owner occupied | 6,706 | 0 | 0 | 1,674 | (1,351 | ) | 0 | 7,029 | ||||||||||||||||||||
Total commercial real estate | 25,545 | 0 | 0 | 1,116 | (1,494 | ) | 2 | 25,169 | ||||||||||||||||||||
Commercial and industrial - term | 7,339 | 0 | 0 | 1,605 | (1 | ) | 1 | 8,944 | ||||||||||||||||||||
Commercial and industrial - lines of credit | 3,242 | 0 | 0 | 179 | 0 | 0 | 3,421 | |||||||||||||||||||||
Total commercial and industrial | 10,581 | 0 | 0 | 1,784 | (1 | ) | 1 | 12,365 | ||||||||||||||||||||
Residential real estate - owner occupied | 2,848 | 0 | 0 | 464 | (61 | ) | 13 | 3,264 | ||||||||||||||||||||
Residential real estate - non-owner occupied | 1,594 | 0 | 0 | 418 | (2 | ) | 0 | 2,010 | ||||||||||||||||||||
Total residential real estate | 4,442 | 0 | 0 | 882 | (63 | ) | 13 | 5,274 | ||||||||||||||||||||
Construction and land development | 5,608 | 0 | 0 | 420 | 0 | 0 | 6,028 | |||||||||||||||||||||
Home equity lines of credit | 832 | 0 | 0 | 106 | 0 | 0 | 938 | |||||||||||||||||||||
Consumer | 362 | 0 | 0 | 57 | (140 | ) | 57 | 336 | ||||||||||||||||||||
Leases | 223 | 0 | 0 | 34 | 0 | 0 | 257 | |||||||||||||||||||||
Credit cards | 115 | 0 | 0 | 19 | 0 | 0 | 134 | |||||||||||||||||||||
Total | $ | 47,708 | $ | 0 | $ | 0 | $ | 4,418 | $ | (1,698 | ) | $ | 73 | $ | 50,501 |
(in thousands) Nine Months Ended September 30, 2020 | Beginning Balance | Impact of Adopting ASC 326 | Initial ACL on Loans Purchased with Credit Deterioration | Provision for Credit Losses on Loans | Charge-offs | Recoveries | Ending Balance | |||||||||||||||||||||
Commercial real estate - non-owner occupied | $ | 5,235 | $ | 2,946 | $ | 152 | $ | 9,945 | $ | (143 | ) | $ | 5 | $ | 18,140 | |||||||||||||
Commercial real estate - owner occupied | 3,327 | 1,542 | 1,350 | 2,161 | (1,351 | ) | 0 | 7,029 | ||||||||||||||||||||
Total commercial real estate | 8,562 | 4,488 | 1,502 | 12,106 | (1,494 | ) | 5 | 25,169 | ||||||||||||||||||||
Commercial and industrial - term | 6,782 | 365 | 0 | 1,790 | (1 | ) | 8 | 8,944 | ||||||||||||||||||||
Commercial and industrial - lines of credit | 5,657 | (1,528 | ) | 0 | (708 | ) | 0 | 0 | 3,421 | |||||||||||||||||||
Total commercial and industrial | 12,439 | (1,163 | ) | 0 | 1,082 | (1 | ) | 8 | 12,365 | |||||||||||||||||||
Residential real estate - owner occupied | 1,527 | 1,087 | 99 | 615 | (79 | ) | 15 | 3,264 | ||||||||||||||||||||
Residential real estate - non-owner occupied | 947 | 429 | 0 | 636 | (2 | ) | 0 | 2,010 | ||||||||||||||||||||
Total residential real estate | 2,474 | 1,516 | 99 | 1,251 | (81 | ) | 15 | 5,274 | ||||||||||||||||||||
Construction and land development | 2,105 | 3,056 | 0 | 867 | 0 | 0 | 6,028 | |||||||||||||||||||||
Home equity lines of credit | 728 | 114 | 0 | 96 | 0 | 0 | 938 | |||||||||||||||||||||
Consumer | 100 | 264 | 34 | 54 | (394 | ) | 278 | 336 | ||||||||||||||||||||
Leases | 237 | (4 | ) | 0 | 24 | 0 | 0 | 257 | ||||||||||||||||||||
Credit cards | 146 | (50 | ) | 0 | 38 | 0 | 0 | 134 | ||||||||||||||||||||
Total | $ | 26,791 | $ | 8,221 | $ | 1,635 | $ | 15,518 | $ | (1,970 | ) | $ | 306 | $ | 50,501 |
The following table presents the balance amortized cost basis of the recorded investment innon-performing loans and allowancethe amortized cost basis of loans on non-accrual status for loan losses by portfolio segment and based on impairment evaluation method as of September 30, 2017 and December 31, 2016.which there was no related ACL losses:
(in thousands) | Type of loan | |||||||||||||||||||||||
Construction | ||||||||||||||||||||||||
and development | ||||||||||||||||||||||||
Commercial | excluding | |||||||||||||||||||||||
and | undeveloped | Undeveloped | Real estate | |||||||||||||||||||||
September 30, 2017 | industrial | land | land | mortgage | Consumer | Total | ||||||||||||||||||
Loans | $ | 750,728 | $ | 174,310 | $ | 20,989 | $ | 1,351,662 | $ | 37,431 | $ | 2,335,120 | ||||||||||||
Loans collectively evaluated for impairment | $ | 748,591 | $ | 173,573 | $ | 20,515 | $ | 1,348,774 | $ | 37,375 | $ | 2,328,828 | ||||||||||||
Loans individually evaluated for impairment | $ | 2,137 | $ | 737 | $ | 474 | $ | 2,403 | $ | 56 | $ | 5,807 | ||||||||||||
Loans acquired with deteriorated credit quality | $ | - | $ | - | $ | - | $ | 485 | $ | - | $ | 485 |
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) | 1,518 | 9 | (85 | ) | 54 | 154 | 1,650 | |||||||||||||||||
Charge-offs | (770 | ) | - | - | (45 | ) | (418 | ) | (1,233 | ) | ||||||||||||||
Recoveries | 128 | - | - | 98 | 298 | 524 | ||||||||||||||||||
At September 30, 2017 | $ | 11,359 | $ | 1,932 | $ | 599 | $ | 10,680 | $ | 378 | $ | 24,948 | ||||||||||||
Allowance for loans collectively evaluated for impairment | $ | 10,705 | $ | 1,932 | $ | 599 | $ | 10,668 | $ | 322 | $ | 24,226 | ||||||||||||
Allowance for loans individually evaluated for impairment | $ | 654 | $ | - | $ | - | $ | 12 | $ | 56 | $ | 722 | ||||||||||||
Allowance for loans acquired with deteriorated credit quality | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
Non-accrual Loans | Past Due 90-Days- | |||||||||||||||
(in thousands) | With No | Total | Troubled Debt | or-More and Still | ||||||||||||
September 30, 2021 | Recorded ACL | Non-accrual Loans | Restructurings | Accruing Interest | ||||||||||||
Commercial real estate - non-owner occupied | $ | 29 | $ | 771 | $ | 0 | $ | 0 | ||||||||
Commercial real estate - owner occupied | 155 | 669 | 0 | 0 | ||||||||||||
Total commercial real estate | 184 | 1,440 | 0 | 0 | ||||||||||||
Commercial and industrial - term | 94 | 1,000 | 13 | 0 | ||||||||||||
Commercial and industrial - lines of credit | 0 | 79 | 0 | 0 | ||||||||||||
Total commercial and industrial | 94 | 1,079 | 13 | 0 | ||||||||||||
Residential real estate - owner occupied | 805 | 1,912 | 0 | 0 | ||||||||||||
Residential real estate - non-owner occupied | 0 | 300 | 0 | 0 | ||||||||||||
Total residential real estate | 805 | 2,212 | 0 | 0 | ||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Home equity lines of credit | 0 | 181 | 0 | 0 | ||||||||||||
Consumer | 0 | 124 | 0 | 0 | ||||||||||||
Leases | 0 | 0 | 0 | 0 | ||||||||||||
Credit cards | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 1,083 | $ | 5,036 | $ | 13 | $ | 0 |
Non-accrual Loans | Past Due 90-Days- | |||||||||||||||
(in thousands) | With No | Total | Troubled Debt | or-More and Still | ||||||||||||
December 31, 2020 | Recorded ACL | Non-accrual Loans | Restructurings | Accruing Interest | ||||||||||||
Commercial real estate - non-owner occupied | $ | 186 | $ | 10,278 | $ | 0 | $ | 0 | ||||||||
Commercial real estate - owner occupied | 1,048 | 1,403 | 0 | 156 | ||||||||||||
Total commercial real estate | 1,234 | 11,681 | 0 | 156 | ||||||||||||
Commercial and industrial - term | 6 | 6 | 16 | 0 | ||||||||||||
Commercial and industrial - lines of credit | 88 | 88 | 0 | 0 | ||||||||||||
Total commercial and industrial | 94 | 94 | 16 | 0 | ||||||||||||
Residential real estate - owner occupied | 413 | 413 | 0 | 178 | ||||||||||||
Residential real estate - non-owner occupied | 101 | 101 | 0 | 301 | ||||||||||||
Total residential real estate | 514 | 514 | 0 | 479 | ||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Home equity lines of credit | 221 | 221 | 0 | 14 | ||||||||||||
Consumer | 4 | 4 | 0 | 0 | ||||||||||||
Leases | 0 | 0 | 0 | 0 | ||||||||||||
Credit cards | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 2,067 | $ | 12,514 | $ | 16 | $ | 649 |
For the three and nine month periods ended September 30, 2021 and 2020, the amount of accrued interest income previously recorded as revenue and subsequently reversed due to the change in accrual status was immaterial.
For the three and nine month periods ended September 30, 2021 and 2020, 0 interest income was recognized on loans on non-accrual status.
Stock Yards Bancorp, inc. and subsidiary
(in thousands) | Type of loan | |||||||||||||||||||||||
Construction | ||||||||||||||||||||||||
and development | ||||||||||||||||||||||||
Commercial | excluding | |||||||||||||||||||||||
and | undeveloped | Undeveloped | Real estate | |||||||||||||||||||||
December 31, 2016 | industrial | land | land | mortgage | Consumer | Total | ||||||||||||||||||
Loans | $ | 736,841 | $ | 192,348 | $ | 21,496 | $ | 1,319,520 | $ | 35,170 | $ | 2,305,375 | ||||||||||||
Loans collectively evaluated for impairment | $ | 734,139 | $ | 191,810 | $ | 21,022 | $ | 1,316,400 | $ | 35,111 | $ | 2,298,482 | ||||||||||||
Loans individually evaluated for impairment | $ | 2,682 | $ | 538 | $ | 474 | $ | 2,516 | $ | 59 | $ | 6,269 | ||||||||||||
Loans acquired with deteriorated credit quality | $ | 20 | $ | - | $ | - | $ | 604 | $ | - | $ | 624 |
Construction | ||||||||||||||||||||||||
and development | ||||||||||||||||||||||||
Commercial | excluding | |||||||||||||||||||||||
and | undeveloped | Undeveloped | Real estate | |||||||||||||||||||||
industrial | land | land | mortgage | Consumer | Total | |||||||||||||||||||
Allowance for loan losses | ||||||||||||||||||||||||
At December 31, 2015 | $ | 8,645 | $ | 1,760 | $ | 814 | $ | 10,875 | $ | 347 | $ | 22,441 | ||||||||||||
Provision (credit) | 2,775 | 275 | (130 | ) | (68 | ) | 148 | 3,000 | ||||||||||||||||
Charge-offs | (1,216 | ) | (133 | ) | - | (576 | ) | (568 | ) | (2,493 | ) | |||||||||||||
Recoveries | 279 | 21 | - | 342 | 417 | 1,059 | ||||||||||||||||||
At December 31, 2016 | $ | 10,483 | $ | 1,923 | $ | 684 | $ | 10,573 | $ | 344 | $ | 24,007 | ||||||||||||
Allowance for loans collectively evaluated for impairment | $ | 9,276 | $ | 1,923 | $ | 683 | $ | 10,573 | $ | 285 | $ | 22,740 | ||||||||||||
Allowance for loans individually evaluated for impairment | $ | 1,207 | $ | - | $ | 1 | $ | - | $ | 59 | $ | 1,267 | ||||||||||||
Allowance for loans acquired with deteriorated credit quality | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
The considerations by Bancorp in computing its allowance for loan losses are determined based on various risk characteristics of each loan segment. Relevant risk characteristics are as follows:
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Stock Yards Bancorp, inc. and subsidiary
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Bancorp has loans that were acquired 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 September 30, 2017 and December 31, 2016. 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, 2015 | $ | 3 | $ | 189 | ||||
Accretion | (3 | ) | (41 | ) | ||||
Reclassifications from (to) non-accretable discount | - | - | ||||||
Disposals | - | - | ||||||
Balance at December 31, 2016 | $ | - | $ | 148 | ||||
Accretion | - | - | ||||||
Reclassifications from (to) non-accretable discount | - | - | ||||||
Disposals | - | - | ||||||
Balance at September 30, 2017 | $ | - | $ | 148 |
Stock Yards Bancorp, inc. and subsidiary
The following tables present loans individually evaluated for impairment as of September 30, 2017 and December 31, 2016.
Unpaid | Average | |||||||||||||||
(in thousands) | Recorded | principal | Related | recorded | ||||||||||||
September 30, 2017 | investment | balance | allowance | investment | ||||||||||||
Loans with no related allowance recorded: | ||||||||||||||||
Commercial and industrial | $ | 350 | $ | 540 | $ | - | $ | 228 | ||||||||
Construction and development, excluding undeveloped land | 737 | 907 | - | 533 | ||||||||||||
Undeveloped land | 474 | 506 | - | 413 | ||||||||||||
Real estate mortgage | ||||||||||||||||
Commercial investment | 55 | 55 | - | 124 | ||||||||||||
Owner occupied commercial | 1,470 | 1,908 | - | 1,264 | ||||||||||||
1-4 family residential | 785 | 785 | - | 759 | ||||||||||||
Home equity - first lien | - | - | - | - | ||||||||||||
Home equity - junior lien | 81 | 81 | - | 224 | ||||||||||||
Subtotal: Real estate mortgage | 2,391 | 2,829 | - | 2,371 | ||||||||||||
Consumer | - | 17 | - | - | ||||||||||||
Subtotal | $ | 3,952 | $ | 4,799 | $ | - | $ | 3,545 | ||||||||
Loans with an allowance recorded: | ||||||||||||||||
Commercial and industrial | $ | 1,787 | $ | 2,321 | $ | 654 | $ | 2,343 | ||||||||
Construction and development, excluding undeveloped land | - | - | - | - | ||||||||||||
Undeveloped land | - | - | - | 60 | ||||||||||||
Real estate mortgage | ||||||||||||||||
Commercial investment | - | - | - | - | ||||||||||||
Owner occupied commercial | - | - | - | - | ||||||||||||
1-4 family residential | 12 | 12 | 12 | 3 | ||||||||||||
Home equity - first lien | - | - | - | - | ||||||||||||
Home equity - junior lien | - | - | - | - | ||||||||||||
Subtotal: Real estate mortgage | 12 | 12 | 12 | 3 | ||||||||||||
Consumer | 56 | 56 | 56 | 58 | ||||||||||||
Subtotal | $ | 1,855 | $ | 2,389 | $ | 722 | $ | 2,464 | ||||||||
Total: | ||||||||||||||||
Commercial and industrial | $ | 2,137 | $ | 2,861 | $ | 654 | $ | 2,571 | ||||||||
Construction and development, excluding undeveloped land | 737 | 907 | - | 533 | ||||||||||||
Undeveloped land | 474 | 506 | - | 473 | ||||||||||||
Real estate mortgage | ||||||||||||||||
Commercial investment | 55 | 55 | - | 124 | ||||||||||||
Owner occupied commercial | 1,470 | 1,908 | - | 1,264 | ||||||||||||
1-4 family residential | 797 | 797 | 12 | 762 | ||||||||||||
Home equity - first lien | - | - | - | - | ||||||||||||
Home equity - junior lien | 81 | 81 | - | 224 | ||||||||||||
Subtotal: Real estate mortgage | 2,403 | 2,841 | 12 | 2,374 | ||||||||||||
Consumer | 56 | 73 | 56 | 58 | ||||||||||||
Total | $ | 5,807 | $ | 7,188 | $ | 722 | $ | 6,009 |
Stock Yards Bancorp, inc. and subsidiary
Unpaid | Average | |||||||||||||||
(in thousands) | Recorded | principal | Related | recorded | ||||||||||||
December 31, 2016 | investment | balance | allowance | investment | ||||||||||||
Loans with no related allowance recorded: | ||||||||||||||||
Commercial and industrial | $ | 322 | $ | 465 | $ | - | $ | 1,947 | ||||||||
Construction and development, excluding undeveloped land | 538 | 708 | - | 108 | ||||||||||||
Undeveloped land | 233 | 265 | - | 76 | ||||||||||||
Real estate mortgage | ||||||||||||||||
Commercial investment | 107 | 107 | - | 193 | ||||||||||||
Owner occupied commercial | 1,042 | 1,479 | - | 1,356 | ||||||||||||
1-4 family residential | 895 | 896 | - | 962 | ||||||||||||
Home equity - first lien | - | - | - | 3 | ||||||||||||
Home equity - junior lien | 472 | 472 | - | 333 | ||||||||||||
Subtotal: Real estate mortgage | 2,516 | 2,954 | - | 2,847 | ||||||||||||
Consumer | - | - | - | 18 | ||||||||||||
Subtotal | $ | 3,609 | $ | 4,392 | $ | - | $ | 4,996 | ||||||||
Loans with an allowance recorded: | ||||||||||||||||
Commercial and industrial | $ | 2,360 | $ | 2,835 | $ | 1,207 | $ | 1,619 | ||||||||
Construction and development, excluding undeveloped land | - | - | - | 182 | ||||||||||||
Undeveloped land | 241 | 241 | 1 | 149 | ||||||||||||
Real estate mortgage | ||||||||||||||||
Commercial investment | - | - | - | - | ||||||||||||
Owner occupied commercial | - | - | - | 554 | ||||||||||||
1-4 family residential | - | - | - | - | ||||||||||||
Home equity - first lien | - | - | - | - | ||||||||||||
Home equity - junior lien | - | - | - | - | ||||||||||||
Subtotal: Real estate mortgage | - | - | - | 554 | ||||||||||||
Consumer | 59 | 59 | 59 | 63 | ||||||||||||
Subtotal | $ | 2,660 | $ | 3,135 | $ | 1,267 | $ | 2,567 | ||||||||
Total: | ||||||||||||||||
Commercial and industrial | $ | 2,682 | $ | 3,300 | $ | 1,207 | $ | 3,566 | ||||||||
Construction and development, excluding undeveloped land | 538 | 708 | - | 290 | ||||||||||||
Undeveloped land | 474 | 506 | 1 | 225 | ||||||||||||
Real estate mortgage | - | - | - | - | ||||||||||||
Commercial investment | 107 | 107 | - | 193 | ||||||||||||
Owner occupied commercial | 1,042 | 1,479 | - | 1,910 | ||||||||||||
1-4 family residential | 895 | 896 | - | 962 | ||||||||||||
Home equity - first lien | - | - | - | 3 | ||||||||||||
Home equity - junior lien | 472 | 472 | - | 333 | ||||||||||||
Subtotal: Real estate mortgage | 2,516 | 2,954 | - | 3,401 | ||||||||||||
Consumer | 59 | 59 | 59 | 81 | ||||||||||||
Total | $ | 6,269 | $ | 7,527 | $ | 1,267 | $ | 7,563 |
Differences between recorded investment amounts and unpaid principal balance amounts are due to partial charge-offs and interest paid on non-accrual loans which have occurred over the life of loans. Unpaid principal balance is reduced by these items to arrive at the recorded investment in the loan.
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 loans totaling $261 thousand past due more than 90 days and still accruing interest at September 30, 2017, compared with $438 thousand at December 31, 2016.
The following table presents the recorded investment in non-accrualamortized cost basis and ACL allocated for collateral dependent loans, as of September 30, 2017 and December 31, 2016.which are individually evaluated to determine expected credit losses:
(in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Commercial and industrial | $ | 1,256 | $ | 1,767 | ||||
Construction and development, excluding undeveloped land | 737 | 538 | ||||||
Undeveloped land | 474 | 474 | ||||||
Real estate mortgage | ||||||||
Commercial investment | 55 | 107 | ||||||
Owner occupied commercial | 1,470 | 1,042 | ||||||
1-4 family residential | 785 | 984 | ||||||
Home equity - first lien | - | - | ||||||
Home equity - junior lien | 81 | 383 | ||||||
Subtotal: Real estate mortgage | 2,391 | 2,516 | ||||||
Consumer | - | - | ||||||
Total | $ | 4,858 | $ | 5,295 |
(in thousands) September 30, 2021 | Real Estate | Accounts Receivable / Equipment | Other | Total | ACL Allocation | |||||||||||||||
Commercial real estate - non-owner occupied | $ | 771 | $ | 0 | $ | 0 | $ | 771 | $ | 35 | ||||||||||
Commercial real estate - owner occupied | 8,116 | 0 | 0 | 8,116 | 2,213 | |||||||||||||||
Total commercial real estate | 8,887 | 0 | 0 | 8,887 | 2,248 | |||||||||||||||
Commercial and industrial - term | 0 | 926 | 0 | 926 | 217 | |||||||||||||||
Commercial and industrial - lines of credit | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total commercial and industrial | 0 | 926 | 0 | 926 | 217 | |||||||||||||||
Residential real estate - owner occupied | 1,912 | 0 | 0 | 1,912 | 0 | |||||||||||||||
Residential real estate - non-owner occupied | 511 | 0 | 0 | 511 | 116 | |||||||||||||||
Total residential real estate | 2,423 | 0 | 0 | 2,423 | 116 | |||||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Home equity lines of credit | 181 | 0 | 0 | 181 | 0 | |||||||||||||||
Consumer | 0 | 0 | 34 | 34 | 0 | |||||||||||||||
Leases | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Credit cards | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total collateral dependent loans | $ | 11,491 | $ | 926 | $ | 34 | $ | 12,451 | $ | 2,581 |
In the course of working with borrowers, Bancorp may elect to restructure contractual terms of certain loans. Troubled debt restructurings (TDRs) occur when, for economic or legal reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would not otherwise consider.
At September 30, 2017 Bancorp had $949 thousand of loans classified as TDRs, all of which were accruing interest consistent with their modified terms. One residential real estate loan with a recorded investment of $12 thousand was modified and classified as a TDR in the three-month period ended September 30, 2017. Interest due and unpaid was capitalized into the principal balance resulting in the TDR classification. A specific reserve was established for the entire recorded investment of this loan. One additional loan, a commercial loan with a recorded investment of $35 thousand at September 30, 2017, was modified and classified as a TDR previously in the nine-month period ended September 30, 2017. The pre and post-modification balance for this loan was $39 thousand. 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.
(in thousands) December 31, 2020 | Real Estate | Accounts Receivable / Equipment | Other | Total | ACL Allocation | |||||||||||||||
Commercial real estate - non-owner occupied | $ | 10,278 | $ | 0 | $ | 0 | $ | 10,278 | $ | 3,037 | ||||||||||
Commercial real estate - owner occupied | 1,403 | 0 | 0 | 1,403 | 13 | |||||||||||||||
Total commercial real estate | 11,681 | 0 | 0 | 11,681 | 3,050 | |||||||||||||||
Commercial and industrial - term | 16 | 7 | 0 | 23 | 16 | |||||||||||||||
Commercial and industrial - lines of credit | 0 | 88 | 0 | 88 | 0 | |||||||||||||||
Total commercial and industrial | 16 | 95 | 0 | 111 | 16 | |||||||||||||||
Residential real estate - owner occupied | 413 | 0 | 0 | 413 | 0 | |||||||||||||||
Residential real estate - non-owner occupied | 101 | 0 | 0 | 101 | 0 | |||||||||||||||
Total residential real estate | 514 | 0 | 0 | 514 | 0 | |||||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Home equity lines of credit | 221 | 0 | 0 | 221 | 0 | |||||||||||||||
Consumer | 0 | 0 | 4 | 4 | 0 | |||||||||||||||
Leases | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Credit cards | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total collateral dependent loans | $ | 12,432 | $ | 95 | $ | 4 | $ | 12,531 | $ | 3,066 |
There have been no significant changes to the types of collateral securing Bancorp’s collateral dependent loans.
Stock Yards Bancorp, inc. and subsidiary
At September 30, 2016 Bancorp had $999 thousand of accruing loans classified as TDR. Bancorp did not modify or classify any additional loans as TDR during the three or nine month periods ended September 30, 2016.
No loans classified and reported as TDRs within the twelve months prior to September 30, 2017 defaulted during the three or nine-month periods ended September 30, 2017. Likewise, no loans classified and reported as troubled debt restructured within the twelve months prior to September 30, 2016 defaulted during the three-month or nine-month periods ended September 30, 2016. 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 September 30, 2017, had a total allowance allocation of $142 thousand, compared with $207 thousand at December 31, 2016.
At September 30, 2017 and December 31, 2016, Bancorp did not have any outstanding commitments to lend additional funds to borrowers whose loans have been modified as TDRs.
At September 30, 2017 formal foreclosure proceedings were in process on two loans with a total recorded investment of $75 thousand.
The following table presentstables present the aging of the recorded investment incontractually past due loans as of September 30, 2017 and December 31, 2016.by portfolio class:
Recorded | ||||||||||||||||||||||||||||
(in thousands) | 90 or more | investment | ||||||||||||||||||||||||||
days past | > 90 days | |||||||||||||||||||||||||||
30-59 days | 60-89 days | due (includes | Total | Total | and | |||||||||||||||||||||||
September 30, 2017 | Current | past due | past due | non-accrual) | past due | loans | accruing | |||||||||||||||||||||
Commercial and industrial | $ | 747,316 | $ | 2,149 | $ | 7 | $ | 1,256 | $ | 3,412 | $ | 750,728 | $ | - | ||||||||||||||
Construction and development, excluding undeveloped land | 173,573 | - | - | 737 | 737 | 174,310 | - | |||||||||||||||||||||
Undeveloped land | 20,515 | - | - | 474 | 474 | 20,989 | - | |||||||||||||||||||||
Real estate mortgage | ||||||||||||||||||||||||||||
Commercial investment | 574,088 | 2,667 | - | 55 | 2,722 | 576,810 | - | |||||||||||||||||||||
Owner occupied commercial | 395,924 | 47 | 363 | 1,470 | 1,880 | 397,804 | - | |||||||||||||||||||||
1-4 family residential | 259,729 | 330 | 602 | 1,046 | 1,978 | 261,707 | 261 | |||||||||||||||||||||
Home equity - first lien | 51,836 | 89 | - | - | 89 | 51,925 | - | |||||||||||||||||||||
Home equity - junior lien | 62,892 | 165 | 278 | 81 | 524 | 63,416 | - | |||||||||||||||||||||
Subtotal: Real estate mortgage | 1,344,469 | 3,298 | 1,243 | 2,652 | 7,193 | 1,351,662 | 261 | |||||||||||||||||||||
Consumer | 37,196 | 226 | 9 | - | 235 | 37,431 | - | |||||||||||||||||||||
Total | $ | 2,323,069 | $ | 5,673 | $ | 1,259 | $ | 5,119 | $ | 12,051 | $ | 2,335,120 | $ | 261 | ||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||
Commercial and industrial | $ | 734,682 | $ | 84 | $ | 290 | $ | 1,785 | $ | 2,159 | $ | 736,841 | $ | 18 | ||||||||||||||
Construction and development, excluding undeveloped land | 191,810 | - | - | 538 | 538 | 192,348 | - | |||||||||||||||||||||
Undeveloped land | 21,022 | - | - | 474 | 474 | 21,496 | - | |||||||||||||||||||||
Real estate mortgage | ||||||||||||||||||||||||||||
Commercial investment | 537,998 | 631 | 64 | 193 | 888 | 538,886 | 86 | |||||||||||||||||||||
Owner occupied commercial | 406,726 | 342 | - | 1,224 | 1,566 | 408,292 | 182 | |||||||||||||||||||||
1-4 family residential | 246,730 | 1,174 | 576 | 1,018 | 2,768 | 249,498 | 34 | |||||||||||||||||||||
Home equity - first lien | 55,027 | 231 | 21 | 46 | 298 | 55,325 | 46 | |||||||||||||||||||||
Home equity - junior lien | 66,911 | 99 | 126 | 383 | 608 | 67,519 | 72 | |||||||||||||||||||||
Subtotal: Real estate mortgage | 1,313,392 | 2,477 | 787 | 2,864 | 6,128 | 1,319,520 | 420 | |||||||||||||||||||||
Consumer | 34,965 | 28 | 105 | 72 | 205 | 35,170 | - | |||||||||||||||||||||
Total | $ | 2,295,871 | $ | 2,589 | $ | 1,182 | $ | 5,733 | $ | 9,504 | $ | 2,305,375 | $ | 438 |
(in thousands) | 30-59 days | 60-89 days | 90 or more | Total | Total | |||||||||||||||||||
September 30, 2021* | Current | Past Due | Past Due | Days Past Due | Past Due | Loans | ||||||||||||||||||
Commercial real estate - non-owner occupied | $ | 1,141,630 | $ | 5 | $ | 241 | $ | 771 | $ | 1,017 | $ | 1,142,647 | ||||||||||||
Commercial real estate - owner occupied | 651,023 | 949 | 0 | 659 | 1,608 | 652,631 | ||||||||||||||||||
Total commercial real estate | 1,792,653 | 954 | 241 | 1,430 | 2,625 | 1,795,278 | ||||||||||||||||||
Commercial and industrial - term | 579,865 | 1,000 | 18 | 921 | 1,939 | 581,804 | ||||||||||||||||||
Commercial and industrial - term - PPP | 231,165 | 170 | 0 | 0 | 170 | 231,335 | ||||||||||||||||||
Commercial and industrial - lines of credit | 326,859 | 1,918 | 263 | 79 | 2,260 | 329,119 | ||||||||||||||||||
Total commercial and industrial | 1,137,889 | 3,088 | 281 | 1,000 | 4,369 | 1,142,258 | ||||||||||||||||||
Residential real estate - owner occupied | 394,026 | 2,148 | 464 | 1,431 | 4,043 | 398,069 | ||||||||||||||||||
Residential real estate - non-owner occupied | 276,132 | 708 | 0 | 205 | 913 | 277,045 | ||||||||||||||||||
Total residential real estate | 670,158 | 2,856 | 464 | 1,636 | 4,956 | 675,114 | ||||||||||||||||||
Construction and land development | 303,642 | 0 | 0 | 0 | 0 | 303,642 | ||||||||||||||||||
Home equity lines of credit | 139,632 | 121 | 221 | 53 | 395 | 140,027 | ||||||||||||||||||
Consumer | 104,089 | 320 | 97 | 123 | 540 | 104,629 | ||||||||||||||||||
Leases | 12,348 | 0 | 0 | 0 | 0 | 12,348 | ||||||||||||||||||
Credit cards | 15,820 | 1 | 0 | 0 | 1 | 15,821 | ||||||||||||||||||
Total | $ | 4,176,231 | $ | 7,340 | $ | 1,304 | $ | 4,242 | $ | 12,886 | $ | 4,189,117 |
(in thousands) | 30-59 days | 60-89 days | 90 or more | Total | Total | |||||||||||||||||||
December 31, 2020* | Current | Past Due | Past Due | Days Past Due | Past Due | Loans | ||||||||||||||||||
Commercial real estate - non-owner occupied | $ | 822,199 | $ | 0 | $ | 10,600 | $ | 671 | $ | 11,271 | $ | 833,470 | ||||||||||||
Commercial real estate - owner occupied | 507,265 | 278 | 0 | 1,129 | 1,407 | 508,672 | ||||||||||||||||||
Total commercial real estate | 1,329,464 | 278 | 10,600 | 1,800 | 12,678 | 1,342,142 | ||||||||||||||||||
Commercial and industrial - term | 523,936 | 1,404 | 430 | 6 | 1,840 | 525,776 | ||||||||||||||||||
Commercial and industrial - term - PPP | 550,186 | 0 | 0 | 0 | 0 | 550,186 | ||||||||||||||||||
Commercial and industrial - lines of credit | 249,204 | 86 | 0 | 88 | 174 | 249,378 | ||||||||||||||||||
Total commercial and industrial | 1,323,326 | 1,490 | 430 | 94 | 2,014 | 1,325,340 | ||||||||||||||||||
Residential real estate - owner occupied | 237,902 | 585 | 247 | 457 | 1,289 | 239,191 | ||||||||||||||||||
Residential real estate - non-owner occupied | 140,234 | 294 | 0 | 402 | 696 | 140,930 | ||||||||||||||||||
Total residential real estate | 378,136 | 879 | 247 | 859 | 1,985 | 380,121 | ||||||||||||||||||
�� | ||||||||||||||||||||||||
Construction and land development | 291,764 | 0 | 0 | 0 | 0 | 291,764 | ||||||||||||||||||
Home equity lines of credit | 95,206 | 7 | 139 | 14 | 160 | 95,366 | ||||||||||||||||||
Consumer | 71,778 | 90 | 4 | 2 | 96 | 71,874 | ||||||||||||||||||
Leases | 14,786 | 0 | 0 | 0 | 0 | 14,786 | ||||||||||||||||||
Credit cards | 10,197 | 5 | 0 | 1 | 6 | 10,203 | ||||||||||||||||||
Total | $ | 3,514,657 | $ | 2,749 | $ | 11,420 | $ | 2,770 | $ | 16,939 | $ | 3,531,596 |
* - Pursuant to the CARES Act, loan deferrals granted to borrowers experiencing business interruptions related to the pandemic were not classified as TDRs and not included in past due and/or non-performing loan statistics. As of September 30, 2021 and December 31, 2020, outstanding CARES Act loan deferrals of $355,000 and $37 million are reflected as current, respectively. |
Stock Yards Bancorp, inc. and subsidiary
Loan Risk Ratings
Consistent with regulatory guidance, Bancorp categorizes loans into credit risk rating categories based on relevant information about the ability of borrowers to service their debt such as:as current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans includedinclude all risk-rated loans other than those classified as other assets especially mentioned,OAEM, substandard, and doubtful, which are defined below:
|
OAEM – Loans classified as OAEM have potential weaknesses requiring management's heightened attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp's credit position at some future date. |
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Substandard – Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of collateral pledged, if any. Loans so classified have |
Substandard non-performing – Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as TDRs. Loans are placed on non-accrual status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for 90 days or more. |
|
|
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. |
Stock YardsManagement considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. Beginning in 2021, Bancorp inc.has elected not to disclose revolving loans that have converted to term loans, as activity relating to this disclosure, which is included in the tables presented below as of December 31, 2020, is currently immaterial to Bancorp’s loan portfolio and subsidiaryis expected to be in the future. As of September 30, 2021, the risk rating of loans based on year of origination was as follows:
Revolving loans | ||||||||||||||||||||||||||||||||
(in thousands) | Term Loans Amortized Cost Basis by Origination Year | amortized | ||||||||||||||||||||||||||||||
September 30, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | cost basis | Total | ||||||||||||||||||||||||
Commercial real estate - non-owner occupied: | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 329,439 | $ | 324,280 | $ | 129,003 | $ | 92,202 | $ | 91,478 | $ | 104,421 | $ | 23,570 | $ | 1,094,393 | ||||||||||||||||
OAEM | 3,199 | 4,842 | 19,741 | 0 | 356 | 1,658 | 426 | 30,222 | ||||||||||||||||||||||||
Substandard | 6,667 | 2,374 | 0 | 0 | 0 | 7,721 | 499 | 17,261 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 38 | 103 | 0 | 601 | 0 | 29 | 771 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Commercial real estate non-owner occupied | $ | 339,305 | $ | 331,534 | $ | 148,847 | $ | 92,202 | $ | 92,435 | $ | 113,800 | $ | 24,524 | $ | 1,142,647 | ||||||||||||||||
Commercial real estate - owner occupied: | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 142,157 | $ | 204,692 | $ | 101,865 | $ | 86,396 | $ | 38,327 | $ | 49,337 | $ | 5,560 | $ | 628,334 | ||||||||||||||||
OAEM | 2,866 | 183 | 1,613 | 102 | 1,537 | 163 | 581 | 7,045 | ||||||||||||||||||||||||
Substandard | 2,476 | 5,089 | 5,993 | 1,292 | 634 | 102 | 997 | 16,583 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 165 | 0 | 13 | 32 | 459 | 0 | 669 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Commercial real estate owner occupied | $ | 147,499 | $ | 210,129 | $ | 109,471 | $ | 87,803 | $ | 40,530 | $ | 50,061 | $ | 7,138 | $ | 652,631 | ||||||||||||||||
Commercial and industrial - term: | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 228,560 | $ | 155,460 | $ | 64,637 | $ | 59,001 | $ | 30,463 | $ | 33,773 | $ | 0 | $ | 571,894 | ||||||||||||||||
OAEM | 313 | 191 | 283 | 4,121 | 10 | 0 | 0 | 4,918 | ||||||||||||||||||||||||
Substandard | 374 | 45 | 3,174 | 187 | 114 | 98 | 0 | 3,992 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 760 | 168 | 55 | 0 | 17 | 0 | 1,000 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Commercial and industrial - term | $ | 229,247 | $ | 156,456 | $ | 68,262 | $ | 63,364 | $ | 30,587 | $ | 33,888 | $ | 0 | $ | 581,804 | ||||||||||||||||
Commercial and industrial - PPP | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 198,965 | $ | 31,557 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 230,522 | ||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 813 | 0 | 0 | 0 | 0 | 0 | 813 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Commercial and industrial - PPP | $ | 198,965 | $ | 32,370 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 231,335 |
(continued)
As of September 30, 2017 and December 31, 2016, the internally assigned risk grades of loans by category were as follows:
(in thousands) | Substandard | Total | ||||||||||||||||||||||
September 30, 2017 | Pass | OAEM | Substandard | non-performing | Doubtful | loans | ||||||||||||||||||
Commercial and industrial | $ | 726,194 | $ | 7,464 | $ | 14,197 | $ | 2,873 | $ | - | $ | 750,728 | ||||||||||||
Construction and development, excluding undeveloped land | 174,310 | - | - | - | - | 174,310 | ||||||||||||||||||
Undeveloped land | 20,485 | - | 30 | 474 | - | 20,989 | ||||||||||||||||||
Real estate mortgage | ||||||||||||||||||||||||
Commercial investment | 575,339 | 761 | 420 | 290 | - | 576,810 | ||||||||||||||||||
Owner occupied commercial | 383,387 | 10,313 | 2,869 | 1,235 | - | 397,804 | ||||||||||||||||||
1-4 family residential | 256,458 | 3,018 | 1,172 | 1,059 | - | 261,707 | ||||||||||||||||||
Home equity - first lien | 51,923 | 2 | - | - | - | 51,925 | ||||||||||||||||||
Home equity - junior lien | 63,029 | 73 | 233 | 81 | - | 63,416 | ||||||||||||||||||
Subtotal: Real estate mortgage | 1,330,136 | 14,167 | 4,694 | 2,665 | - | 1,351,662 | ||||||||||||||||||
Consumer | 37,269 | 102 | 4 | 56 | - | 37,431 | ||||||||||||||||||
Total | $ | 2,288,394 | $ | 21,733 | $ | 18,925 | $ | 6,068 | $ | - | $ | 2,335,120 | ||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
Commercial and industrial | $ | 714,025 | $ | 14,266 | $ | 5,850 | $ | 2,700 | $ | - | $ | 736,841 | ||||||||||||
Construction and development, excluding undeveloped land | 191,455 | - | 355 | 538 | - | 192,348 | ||||||||||||||||||
Undeveloped land | 21,022 | - | - | 474 | - | 21,496 | ||||||||||||||||||
Real estate mortgage | ||||||||||||||||||||||||
Commercial investment | 538,688 | - | 5 | 193 | - | 538,886 | ||||||||||||||||||
Owner occupied commercial | 396,997 | 7,960 | 2,111 | 1,224 | - | 408,292 | ||||||||||||||||||
1-4 family residential | 247,888 | - | 592 | 1,018 | - | 249,498 | ||||||||||||||||||
Home equity - first lien | 55,279 | - | - | 46 | - | 55,325 | ||||||||||||||||||
Home equity - junior lien | 66,710 | - | 426 | 383 | - | 67,519 | ||||||||||||||||||
Subtotal: Real estate mortgage | 1,305,562 | 7,960 | 3,134 | 2,864 | - | 1,319,520 | ||||||||||||||||||
Consumer | 35,039 | - | - | 131 | - | 35,170 | ||||||||||||||||||
Total | $ | 2,267,103 | $ | 22,226 | $ | 9,339 | $ | 6,707 | $ | - | $ | 2,305,375 |
(continued) | ||||||||||||||||||||||||||||||||
Revolving | ||||||||||||||||||||||||||||||||
loans | ||||||||||||||||||||||||||||||||
(in thousands) | Term Loans Amortized Cost Basis by Origination Year | amortized | ||||||||||||||||||||||||||||||
September 30, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | cost basis | Total | ||||||||||||||||||||||||
Commercial and industrial - lines of credit | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 26,429 | $ | 9,353 | $ | 11,567 | $ | 1,712 | $ | 245 | $ | 224 | $ | 268,293 | $ | 317,823 | ||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 5,497 | 5,497 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 1,986 | 0 | 1,549 | 0 | 2,185 | 5,720 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 79 | 79 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Commercial and industrial - lines of credit | $ | 26,429 | $ | 9,353 | $ | 13,553 | $ | 1,712 | $ | 1,794 | $ | 224 | $ | 276,054 | $ | 329,119 | ||||||||||||||||
Residential real estate - owner occupied | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 164,516 | $ | 101,383 | $ | 32,074 | $ | 18,058 | $ | 15,198 | $ | 64,221 | $ | 0 | $ | 395,450 | ||||||||||||||||
OAEM | 102 | 0 | 175 | 0 | 87 | 0 | 0 | 364 | ||||||||||||||||||||||||
Substandard | 59 | 0 | 0 | 0 | 110 | 174 | 0 | 343 | ||||||||||||||||||||||||
Substandard non-performing | 202 | 201 | 134 | 232 | 837 | 306 | 0 | 1,912 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Residential real estate - owner occupied | $ | 164,879 | $ | 101,584 | $ | 32,383 | $ | 18,290 | $ | 16,232 | $ | 64,701 | $ | 0 | $ | 398,069 | ||||||||||||||||
Residential real estate - non-owner occupied | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 59,125 | $ | 89,408 | $ | 49,918 | $ | 36,231 | $ | 18,711 | $ | 19,511 | $ | 0 | $ | 272,904 | ||||||||||||||||
OAEM | 476 | 217 | 2,099 | 223 | 0 | 468 | 0 | 3,483 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 358 | 0 | 358 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 45 | 28 | 0 | 227 | 0 | 300 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Residential real estate - non-owner occupied | $ | 59,601 | $ | 89,625 | $ | 52,062 | $ | 36,482 | $ | 18,711 | $ | 20,564 | $ | 0 | $ | 277,045 | ||||||||||||||||
Construction and land development | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 115,823 | $ | 107,233 | $ | 42,286 | $ | 18,451 | $ | 3,253 | $ | 1,196 | $ | 15,151 | $ | 303,393 | ||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 249 | 249 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Construction and land development | $ | 115,823 | $ | 107,233 | $ | 42,286 | $ | 18,451 | $ | 3,253 | $ | 1,196 | $ | 15,400 | $ | 303,642 | ||||||||||||||||
Home equity lines of credit | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 139,754 | $ | 139,754 | ||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 92 | 92 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 181 | 181 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Home equity lines of credit | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 140,027 | $ | 140,027 |
Stock Yards(continued)
(continued) | ||||||||||||||||||||||||||||||||
Revolving | ||||||||||||||||||||||||||||||||
loans | ||||||||||||||||||||||||||||||||
(in thousands) | Term Loans Amortized Cost Basis by Origination Year | amortized | ||||||||||||||||||||||||||||||
September 30, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | cost basis | Total | ||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass* | $ | 21,473 | $ | 11,035 | $ | 5,384 | $ | 1,587 | $ | 707 | $ | 781 | $ | 63,537 | $ | 104,504 | ||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 1 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 124 | 0 | 0 | 0 | 0 | 0 | 124 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Consumer | $ | 21,473 | $ | 11,159 | $ | 5,384 | $ | 1,587 | $ | 707 | $ | 781 | $ | 63,538 | $ | 104,629 | ||||||||||||||||
Leases | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 2,939 | $ | 3,964 | $ | 1,502 | $ | 1,527 | $ | 551 | $ | 1,852 | $ | 0 | $ | 12,335 | ||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 13 | 0 | 13 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Leases | $ | 2,939 | $ | 3,964 | $ | 1,502 | $ | 1,527 | $ | 551 | $ | 1,865 | $ | 0 | $ | 12,348 | ||||||||||||||||
Credit cards | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 15,821 | $ | 15,821 | ||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Credit cards | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 15,821 | $ | 15,821 | ||||||||||||||||
Total loans | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 1,289,426 | $ | 1,038,365 | $ | 438,236 | $ | 315,165 | $ | 198,933 | $ | 275,316 | $ | 531,686 | $ | 4,087,127 | ||||||||||||||||
OAEM | 6,956 | 5,433 | 23,911 | 4,446 | 1,990 | 2,289 | 6,845 | 51,870 | ||||||||||||||||||||||||
Substandard | 9,576 | 8,321 | 11,153 | 1,479 | 2,407 | 8,466 | 3,682 | 45,084 | ||||||||||||||||||||||||
Substandard non-performing | 202 | 1,288 | 450 | 328 | 1,470 | 1,009 | 289 | 5,036 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Loans | $ | 1,306,160 | $ | 1,053,407 | $ | 473,750 | $ | 321,418 | $ | 204,800 | $ | 287,080 | $ | 542,502 | $ | 4,189,117 |
*Pass-rated, revolving consumer loans include $881,000 in overdrawn demand deposit balances.
As of December 31, 2020, the risk rating of loans based on year of origination was as follows:
Revolving | Revolving | |||||||||||||||||||||||||||||||||||
loans | loans | |||||||||||||||||||||||||||||||||||
(in thousands) | Term Loans Amortized Cost Basis by Origination Year | amortized | converted | |||||||||||||||||||||||||||||||||
December 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | cost basis | to term | Total | |||||||||||||||||||||||||||
Commercial real estate - non-owner occupied: | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 303,246 | $ | 114,731 | $ | 102,147 | $ | 105,981 | $ | 77,925 | $ | 57,221 | $ | 12,439 | $ | 11,717 | $ | 785,407 | ||||||||||||||||||
OAEM | 3,867 | 16,587 | 0 | 0 | 7,707 | 615 | 0 | 0 | 28,776 | |||||||||||||||||||||||||||
Substandard | 4,174 | 1,901 | 0 | 0 | 1,513 | 991 | 430 | 0 | 9,009 | |||||||||||||||||||||||||||
Substandard non-performing | 9,644 | 0 | 0 | 609 | 0 | 0 | 0 | 25 | 10,278 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Commercial real estate non-owner occupied | $ | 320,931 | $ | 133,219 | $ | 102,147 | $ | 106,590 | $ | 87,145 | $ | 58,827 | $ | 12,869 | $ | 11,742 | $ | 833,470 | ||||||||||||||||||
Commercial real estate - owner occupied: | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 183,666 | $ | 94,462 | $ | 83,592 | $ | 47,506 | $ | 39,638 | $ | 30,533 | $ | 7,693 | $ | 2,418 | $ | 489,508 | ||||||||||||||||||
OAEM | 74 | 6,534 | 1,575 | 796 | 115 | 0 | 200 | 0 | 9,294 | |||||||||||||||||||||||||||
Substandard | 1,408 | 5,360 | 1,335 | 247 | 117 | 0 | 0 | 0 | 8,467 | |||||||||||||||||||||||||||
Substandard non-performing | 91 | 0 | 15 | 500 | 0 | 471 | 0 | 326 | 1,403 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Commercial real estate owner occupied | $ | 185,239 | $ | 106,356 | $ | 86,517 | $ | 49,049 | $ | 39,870 | $ | 31,004 | $ | 7,893 | $ | 2,744 | $ | 508,672 | ||||||||||||||||||
Commercial and industrial - term: | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 215,629 | $ | 94,563 | $ | 104,871 | $ | 42,929 | $ | 36,016 | $ | 8,412 | $ | 0 | $ | 7,690 | $ | 510,110 | ||||||||||||||||||
OAEM | 60 | 2,969 | 7,878 | 0 | 283 | 8 | 0 | 0 | 11,198 | |||||||||||||||||||||||||||
Substandard | 1,229 | 2,521 | 0 | 91 | 163 | 74 | 0 | 384 | 4,462 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 6 | 0 | 0 | 6 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Commercial and industrial - term | $ | 216,918 | $ | 100,053 | $ | 112,749 | $ | 43,020 | $ | 36,462 | $ | 8,500 | $ | 0 | $ | 8,074 | $ | 525,776 | ||||||||||||||||||
Commercial and industrial - PPP | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 550,186 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 550,186 | ||||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Commercial and industrial - PPP | $ | 550,186 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 550,186 |
(continued)
(continued) | ||||||||||||||||||||||||||||||||||||
Revolving | Revolving | |||||||||||||||||||||||||||||||||||
loans | loans | |||||||||||||||||||||||||||||||||||
(in thousands) | Term Loans Amortized Cost Basis by Origination Year | amortized | converted | |||||||||||||||||||||||||||||||||
December 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | cost basis | to term | Total | |||||||||||||||||||||||||||
Commercial and industrial - lines of credit | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 26,351 | $ | 14,405 | $ | 2,229 | $ | 1,990 | $ | 290 | $ | 85 | $ | 195,904 | $ | 0 | $ | 241,254 | ||||||||||||||||||
OAEM | 0 | 2,222 | 0 | 0 | 0 | 0 | 1,596 | 0 | 3,818 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 4,218 | 0 | 4,218 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 88 | 0 | 88 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Commercial and industrial - lines of credit | $ | 26,351 | $ | 16,627 | $ | 2,229 | $ | 1,990 | $ | 290 | $ | 85 | $ | 201,806 | $ | 0 | $ | 249,378 | ||||||||||||||||||
Residential real estate - owner occupied | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 94,023 | $ | 34,631 | $ | 23,748 | $ | 19,567 | $ | 27,791 | $ | 37,362 | $ | 0 | $ | 1,528 | $ | 238,650 | ||||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard | 13 | 0 | 0 | 115 | 0 | 0 | 0 | 0 | 128 | |||||||||||||||||||||||||||
Substandard non-performing | 49 | 58 | 0 | 100 | 38 | 73 | 0 | 95 | 413 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Residential real estate - owner occupied | $ | 94,085 | $ | 34,689 | $ | 23,748 | $ | 19,782 | $ | 27,829 | $ | 37,435 | $ | 0 | $ | 1,623 | $ | 239,191 | ||||||||||||||||||
Residential real estate - non-owner occupied | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 63,537 | $ | 22,422 | $ | 25,466 | $ | 10,587 | $ | 9,609 | $ | 6,451 | $ | 0 | $ | 788 | $ | 138,860 | ||||||||||||||||||
OAEM | 137 | 1,600 | 140 | 0 | 0 | 92 | 0 | 0 | 1,969 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 29 | 0 | 0 | 72 | 0 | 0 | 101 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Residential real estate - non-owner occupied | $ | 63,674 | $ | 24,022 | $ | 25,635 | $ | 10,587 | $ | 9,609 | $ | 6,615 | $ | 0 | $ | 788 | $ | 140,930 | ||||||||||||||||||
Construction and land development | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 139,611 | $ | 94,066 | $ | 32,539 | $ | 15,384 | $ | 1,175 | $ | 553 | $ | 6,304 | $ | 1,883 | $ | 291,515 | ||||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 249 | 0 | 249 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Construction and land development | $ | 139,611 | $ | 94,066 | $ | 32,539 | $ | 15,384 | $ | 1,175 | $ | 553 | $ | 6,553 | $ | 1,883 | $ | 291,764 | ||||||||||||||||||
Home equity lines of credit | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 95,145 | $ | 0 | $ | 95,145 | ||||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 221 | 0 | 221 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Home equity lines of credit | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 95,366 | $ | 0 | $ | 95,366 |
(continued)
(continued) | ||||||||||||||||||||||||||||||||||||
Revolving | Revolving | |||||||||||||||||||||||||||||||||||
loans | loans | |||||||||||||||||||||||||||||||||||
(in thousands) | Term Loans Amortized Cost Basis by Origination Year | amortized | converted | |||||||||||||||||||||||||||||||||
December 31, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | cost basis | to term | Total | |||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass* | $ | 10,334 | $ | 2,897 | $ | 1,687 | $ | 243 | $ | 420 | $ | 466 | $ | 55,631 | $ | 192 | $ | 71,870 | ||||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 2 | 0 | 2 | 0 | 4 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Consumer | $ | 10,334 | $ | 2,897 | $ | 1,687 | $ | 243 | $ | 422 | $ | 466 | $ | 55,633 | $ | 192 | $ | 71,874 | ||||||||||||||||||
Leases | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 4,674 | $ | 1,875 | $ | 2,144 | $ | 1,300 | $ | 2,550 | $ | 2,168 | $ | 0 | $ | 0 | $ | 14,711 | ||||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 69 | 0 | 0 | 0 | 69 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 6 | 0 | 0 | 0 | 0 | 0 | 6 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Leases | $ | 4,674 | $ | 1,875 | $ | 2,150 | $ | 1,300 | $ | 2,619 | $ | 2,168 | $ | 0 | $ | 0 | $ | 14,786 | ||||||||||||||||||
Credit cards | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 10,203 | $ | 0 | $ | 10,203 | ||||||||||||||||||
OAEM | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard non-performing | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Credit cards | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 10,203 | $ | 0 | $ | 10,203 | ||||||||||||||||||
Total loans | ||||||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||||||
Pass | $ | 1,591,257 | $ | 474,052 | $ | 378,423 | $ | 245,487 | $ | 195,414 | $ | 143,251 | $ | 383,319 | $ | 26,216 | $ | 3,437,419 | ||||||||||||||||||
OAEM | 4,138 | 29,912 | 9,593 | 796 | 8,174 | 715 | 2,045 | 0 | 55,373 | |||||||||||||||||||||||||||
Substandard | 6,824 | 9,782 | 1,341 | 453 | 1,793 | 1,065 | 4,648 | 384 | 26,290 | |||||||||||||||||||||||||||
Substandard non-performing | 9,784 | 58 | 44 | 1,209 | 40 | 622 | 311 | 446 | 12,514 | |||||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Loans | $ | 1,612,003 | $ | 513,804 | $ | 389,401 | $ | 247,945 | $ | 205,421 | $ | 145,653 | $ | 390,323 | $ | 27,046 | $ | 3,531,596 |
* - Pass-rated, revolving consumer loans include $536,000 in overdrawn demand deposit balances.
For certain loan classes, such as credit cards, credit quality is evaluated based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in credit cards based on payment activity:
September 30, | December 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Credit cards | ||||||||
Performing | $ | 15,821 | $ | 10,203 | ||||
Non-performing | 0 | 0 | ||||||
Total credit cards | $ | 15,821 | $ | 10,203 |
In accordance with Section 4013 of the CARES Act and in response to requests from borrowers who experienced business or personal cash flow interruptions related to the pandemic, Bancorp inc.extended payment deferrals for those affected borrowers. Depending on the demonstrated need of the customer, Bancorp deferred either the full loan payment or the principal-only portion of respective loan payments, typically for 90 or 180 days, for some borrowers directly impacted by the pandemic. Pursuant to the CARES Act, these loan deferrals were not classified as TDRs and subsidiarynot included in past due and/or non-performing loan statistics. As of September 30, 2021, outstanding loan deferrals totaled $355,000, representing 0.01% of the total loan portfolio (excluding PPP loans) compared to $37 million, or 1.24% of the total loan portfolio (excluding PPP loans) at December 31, 2020.
Troubled Debt Restructurings
Detail of outstanding TDRs included in total non-performing loans follows:
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
Specific | Additional | Specific | Additional | |||||||||||||||||||||
reserve | commitment | reserve | commitment | |||||||||||||||||||||
(in thousands) | Balance | allocation | to lend | Balance | allocation | to lend | ||||||||||||||||||
Commercial and industrial - term | $ | 13 | $ | 13 | $ | 0 | $ | 16 | $ | 16 | $ | 0 | ||||||||||||
Residential real estate | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total TDRs | $ | 13 | $ | 13 | $ | 0 | $ | 16 | $ | 16 | $ | 0 |
During the three and nine month periods ended September 30, 2021 and 2020, there were 0 loans modified as TDRs and there were 0 payment defaults of existing TDRs within 12 months following the modification. Default is determined at 90 or more days past due, charge-off, or foreclosure.
Bancorp had $862,000 and $147,000, respectively, in residential real estate loans for which formal foreclosure proceedings were in process at September 30, 2021 and December 31, 2020.
| Goodwill and |
US As of September 30, 2021, goodwill represents $123 million related to the KB acquisition, $12 million related to the 2019 KSB acquisition and $682,000 related to the 1996 purchase of a bank in southern Indiana. The acquisition of TBOC in 2013 generated a bargain purchase gain. As permitted under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities related to the KB acquisition. During this measurement period, Bancorp may record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date.
GAAP requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment at least annually. Evaluations have resulted in no indicationImpairment exists when a reporting unit’s carrying value of impairment. goodwill exceeds its fair value. Bancorp’s annual goodwill impairment test is conducted as of September 30 of each year or more often as situations dictate.
At September 30, 2021, Bancorp currently has goodwillelected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the Commercial Banking reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting unit exceeded its fair value.
Changes in the amountcarrying value of $682 thousand from the 1996 acquisition of an Indiana bank. This goodwill is assigned to the commercial banking segment of Bancorp.follows:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Balance at beginning of period | $ | 136,529 | $ | 12,513 | $ | 12,513 | $ | 12,513 | ||||||||
Goodwill acquired | 0 | 0 | 124,016 | 0 | ||||||||||||
Recast adjustments | (699 | ) | 0 | (699 | ) | 0 | ||||||||||
Impairment | 0 | 0 | 0 | 0 | ||||||||||||
Balance at end of period | $ | 135,830 | $ | 12,513 | $ | 135,830 | $ | 12,513 |
Bancorp recorded a gross core deposit intangible totalingCDI assets of $4.4 million, $1.5 million and $2.5 million as a result of its 2013in association with the acquisition of THE BANCorp, Inc. This intangible is being amortized overKB in 2021, KSB in 2019 and TBOC in 2013, respectively.
Changes in the expected lifenet carrying amount of CDIs follows:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Balance at beginning of period | $ | 5,162 | $ | 2,122 | $ | 1,962 | $ | 2,285 | ||||||||
Core deposit intangible acquired | 0 | 0 | 3,404 | 0 | ||||||||||||
Recast adjustment | 999 | 0 | 999 | 0 | ||||||||||||
Amortization | (290 | ) | (80 | ) | (494 | ) | (243 | ) | ||||||||
Balance at end of period | $ | 5,871 | $ | 2,042 | $ | 5,871 | $ | 2,042 |
(6) | Other Assets |
A summary of the underlying deposits to which the intangible is attributable. At September 30, 2017, the unamortized core deposit intangible was $1.3 million, as compared to $1.4 million at December 31, 2016.major components of other assets follows:
September 30, | December 31, | |||||||
(in thousands) | 2021 | 2020 | ||||||
Cash surrender value of life insurance other than BOLI | $ | 19,792 | $ | 18,426 | ||||
Net deferred tax asset | 24,202 | 22,320 | ||||||
Investments in tax credit related ventures | 11,576 | 9,552 | ||||||
Swap assets | 4,180 | 8,374 | ||||||
Prepaid assets | 4,082 | 2,935 | ||||||
Trust fees receivable | 2,557 | 2,192 | ||||||
Mortgage servicing rights | 4,600 | 2,710 | ||||||
Other real estate owned | 7,229 | 281 | ||||||
Other | 10,118 | 4,575 | ||||||
Total other assets | $ | 88,336 | $ | 71,365 |
Bancorp maintains life insurance policies other than BOLI in conjunction with its non-qualified defined benefit retirement and non-qualified compensation plans.
Mortgage servicing rights (MSRs)Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value. For additional information, see the footnote titled “Derivative Financial Instruments.”
MSRs, a component of other assets, are initially recognized at fair value when mortgage loans are sold with servicing retained. The MSRs are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. MSRs are evaluated quarterly for impairment by comparing carrying value to fair value. EstimatedFair value is based on a valuation model that calculates the PV of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income.
The estimated fair valuesvalue of MSRs at both September 30, 2017 2021 and December 31, 2016 2020 were $2.7 million. Total outstanding principal balances of loans serviced for others were $350.1$5.3 million and $372.2$3.1 million, at respectively. MSRs with an estimated fair value of $1.7 million were acquired in the KB acquisition. There was 0 valuation allowance recorded for MSRs as of September 30, 2017, 2021 and December 31, 2016, respectively.2020, as fair value exceeded carrying value.
Changes in the net carrying amount of MSRs follows:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Balance at beginning of period | $ | 4,657 | $ | 1,888 | $ | 2,710 | $ | 1,372 | ||||||||
MSRs acquired | 0 | 0 | 1,662 | 0 | ||||||||||||
Additions for mortgage loans sold | 177 | 631 | 888 | 1,272 | ||||||||||||
Amortization | (234 | ) | (99 | ) | (660 | ) | (224 | ) | ||||||||
Impairment | — | — | — | — | ||||||||||||
Balance at end of period | $ | 4,600 | $ | 2,420 | $ | 4,600 | $ | 2,420 |
Total outstanding principal balances of loans serviced for the nine months ended others were $697 million and $428 million at September 30, 2017 2021 and 2016 are shown inDecember 31, 2020, respectively. Loans serviced for others acquired as part of the following table:KB acquisition totaled $233 million at the date of acquisition.
For the nine months | ||||||||
ended September 30, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Balance at beginning of period | $ | 921 | $ | 1,018 | ||||
Additions for mortgage loans sold | 143 | 105 | ||||||
Amortization | (222 | ) | (192 | ) | ||||
Balance at end of period | $ | 842 | $ | 931 |
Stock Yards Bancorp, inc. and subsidiary
| Income Taxes |
Components of income tax expense (benefit) from operations were as follows:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Current income tax expense | ||||||||||||||||
Federal | $ | 5,211 | $ | 4,363 | $ | 12,936 | $ | 10,958 | ||||||||
State | 179 | 287 | 472 | 597 | ||||||||||||
Total current income tax expense | 5,390 | 4,650 | 13,408 | 11,555 | ||||||||||||
Deferred income tax (benefit) expense | ||||||||||||||||
Federal | (1,583 | ) | (692 | ) | (2,240 | ) | (302 | ) | ||||||||
State | (44 | ) | (75 | ) | (30 | ) | (18 | ) | ||||||||
Total deferred income tax expense (benefit) | (1,627 | ) | (767 | ) | (2,270 | ) | (320 | ) | ||||||||
Change in valuation allowance | 333 | - | 459 | - | ||||||||||||
Total income tax expense | $ | 4,096 | $ | 3,883 | $ | 11,597 | $ | 11,235 |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Current income tax expense: | ||||||||||||||||
Federal | $ | 4,730 | $ | 3,369 | $ | 8,202 | $ | 9,574 | ||||||||
State | 642 | 198 | 1,188 | 538 | ||||||||||||
Total current income tax expense | 5,372 | 3,567 | 9,390 | 10,112 | ||||||||||||
Deferred income tax expense (benefit): | ||||||||||||||||
Federal | 858 | (1,507 | ) | 2,375 | (2,653 | ) | ||||||||||
State | 672 | (476 | ) | 1,462 | (1,279 | ) | ||||||||||
Total deferred income tax expense (benefit) | 1,530 | (1,983 | ) | 3,837 | (3,932 | ) | ||||||||||
Change in valuation allowance | 0 | 7 | 0 | 9 | ||||||||||||
Total income tax expense | $ | 6,902 | $ | 1,591 | $ | 13,227 | $ | 6,189 |
An analysis of the difference between the statutory and effective income tax rates for the nine months ended September 30, 2017 and 2016ETRs from operations follows:
Three months ended | Nine months ended | |||||||||||||||||||||||
Nine months ended September 30, | September 30, | September 30, | ||||||||||||||||||||||
2017 | 2016 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||
State income taxes, net of federal benefit | 3.6 | 0.6 | 3.4 | 0.7 | ||||||||||||||||||||
Excess tax benefit from stock-based compensation arrangements | (0.1 | ) | (2.6 | ) | (1.7 | ) | (0.9 | ) | ||||||||||||||||
Change in cash surrender value of life insurance | (0.2 | ) | (1.1 | ) | (0.7 | ) | (0.6 | ) | ||||||||||||||||
Tax credits | (4.6 | ) | (9.4 | ) | (0.3 | ) | (5.5 | ) | (0.8 | ) | (5.8 | ) | ||||||||||||
Excess tax benefits from share-based compensation arrangements | (3.0 | ) | - | |||||||||||||||||||||
Increase in cash surrender value of life insurance | (1.4 | ) | (0.9 | ) | ||||||||||||||||||||
Tax exempt interest income | (1.1 | ) | (1.3 | ) | (0.4 | ) | (0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||||||||
State income taxes, net of federal benefit | 0.7 | 0.9 | ||||||||||||||||||||||
Non-deductible merger expenses | 0.1 | 0 | 0.5 | 0 | ||||||||||||||||||||
Insurance captive | (0.3 | ) | 0 | (0.2 | ) | 0 | ||||||||||||||||||
Other, net | 0.3 | 2.7 | (0.4 | ) | (2.2 | ) | (0.3 | ) | (1.0 | ) | ||||||||||||||
Effective income tax rate | 25.9 | % | 27.0 | % | ||||||||||||||||||||
Effective tax rate | 23.0 | % | 9.9 | % | 20.9 | % | 13.1 | % |
State
Current state income tax expense represents taxes owed in Indiana. State incometo the states of Kentucky, Indiana and Illinois. Ohio state bank taxes in Kentucky and Ohio are currently based on capital levels and are recorded as other non-interest expense.
Bancorp’s results forThe state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital based franchise tax to the first nine months of 2017 reflect implementation of Accounting Standards Update 2016-09, which provides guidance for the recognition of excess tax benefits or deficiencies related to share-based payment awards. Effective for fiscal years beginning after December 15, 2016, ASU 2016-09 changes the way these benefits and deficiencies are recorded. Prior to 2017 they were recorded in additional paid-in capital, and therefore did not affect earnings. Beginning in 2017, these amounts are being recorded as tax expense or benefit in the income statement. For the three and nine month periods ending September 30, 2017 Bancorp recorded benefits of $241 thousand and $1.4 million, respectively, within the provision forKentucky corporate income tax expense for such awards.
Stock Yards Bancorp, inc.beginning in 2021 and subsidiaryallows entities filing a combined Kentucky income tax return to share certain tax attributes, including net operating loss carryforwards.
US GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. If recognized, tax benefits would reduce tax expense and accordingly, increase net income. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current year tax positions, expiration of open income tax returns due to statutes of limitation, changes in management’smanagement’s judgment about the level of uncertainty, status of examination, litigation and legislative activity and addition or elimination of uncertain tax positions. As of September 30, 2017 2021 and December 31, 2016, 2020, the gross amount of unrecognized tax benefits was immaterial to theBancorp’s consolidated financial statements of the Company.statements. Federal and state income tax returns are subject to examination for the years after 2012.2016.
| Deposits |
The composition of the Bank’s deposits outstanding at September 30, 2017 (unaudited) and December 31, 2016 is as follows:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Non-interest bearing demand | $ | 676,824 | $ | 680,156 | ||||
Interest bearing deposits: | ||||||||
Interest bearing demand | 725,368 | 768,139 | ||||||
Savings | 149,596 | 140,030 | ||||||
Money market | 698,198 | 682,421 | ||||||
Time deposits of more than $250,000 | 33,270 | 40,427 | ||||||
Other time deposits | 198,710 | 209,375 | ||||||
Total time deposits | 231,980 | 249,802 | ||||||
Total interest bearing deposits | 1,805,142 | 1,840,392 | ||||||
Total deposits | $ | 2,481,966 | $ | 2,520,548 |
Maturities of time deposits of more than $250,000, outstanding at September 30, 2017, are summarized as follows:
(in thousands) | Amount | |||
3 months or less | $ | 11,463 | ||
Over 3 through 6 months | 3,938 | |||
Over 6 through 12 months | 10,942 | |||
Over 1 through 3 years | 6,410 | |||
Over 3 years | 517 | |||
Total | $ | 33,270 |
Stock Yards Bancorp, inc. and subsidiary
(in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Non-interest bearing demand deposits | $ | 1,744,790 | $ | 1,187,057 | ||||
Interest bearing deposits: | ||||||||
Interest bearing demand | 1,794,816 | 1,355,985 | ||||||
Savings | 397,875 | 208,774 | ||||||
Money market | 955,200 | 844,414 | ||||||
Time deposits of $250 thousand or more | 89,420 | 73,065 | ||||||
Other time deposits(1) | 359,923 | 319,339 | ||||||
Total time deposits | 449,343 | 392,404 | ||||||
Total interest bearing deposits | 3,597,234 | 2,801,577 | ||||||
Total deposits | $ | 5,342,024 | $ | 3,988,634 |
|
|
Securities sold under agreementsDeposits totaling $1.0 billion were assumed on May 31, 2021 in relation to repurchase, whichthe KB acquisition.
(9) | Securities Sold Under Agreements to Repurchase |
SSUAR represent excess funds froma funding source of Bancorp and are primarily used by commercial customers as part of ain conjunction with collateralized corporate cash management service, totaled $71.9 millionaccounts. Such repurchase agreements are considered financing agreements and $67.6 million at mature within one business day from the transaction date. At September 30, 2017 2021 and December 31, 2016, respectively. Bancorp enters into sales of securities under agreement to repurchase at a specified future date. At September 30, 2017, 2020, all of these financing arrangements had overnight maturities and were secured by government sponsored enterprise obligations and government agency mortgage-backed securities whichthat were owned and controlled by and under the control of Bancorp.
Information concerning SSUAR follows:
(dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Outstanding balance at end of period | $ | 74,406 | $ | 47,979 | ||||
Weighted average interest rate at end of period | 0.04 | % | 0.05 | % |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Average outstanding balance during the period | $ | 71,065 | $ | 40,832 | $ | 57,980 | $ | 38,595 | ||||||||
Average interest rate during the period | 0.03 | % | 0.07 | % | 0.04 | % | 0.11 | % | ||||||||
Maximum outstanding at any month end during the period | $ | 81,964 | $ | 40,655 | $ | 81,964 | $ | 42,722 |
SSUAR totaling $11 million were assumed on May 31, 2021 in relation to the KB acquisition.
|
|
Bancorp had one advance totaling $10 million outstanding borrowings totaling $50.1 million and $51.1 million at as of September 30, 2017 and 2021, as compared with 37 separate advances totaling $32 million as of December 31, 2016, respectively, via 14 separate fixed-rate advances. As of September 30, 2017, for two advances totaling $30 million, both of which are non-callable, interest2020. Interest payments are due monthly with principal due at maturity. Formaturity for the remaininglone advance outstanding at September 30, 2021.
Bancorp chose to pay off all outstanding advances during the second quarter with the exception of the $10 million advance noted above, which is associated with a cash flow-related interest rate swap that matures in December 2021. The advances paid off during the second quarter had an average weighted cost of 2.03% prior to their maturity and an early-termination fee of $474,000 was incurred as a result of the payoffs. Bancorp made this decision due to its excess liquidity driven by the substantial deposit growth it achieved during 2020 and the first half of 2021 combined with the near-term outlook for low interest rates. Bancorp believes it will substantially “earn back” the early termination penalty through lower interest expense over two years.
FHLB advances totaling $20.1$91 million principal and interest payments are due monthly basedwere assumed on an amortization schedule.May 31, 2021 in relation to the KB acquisition, all of which were paid off immediately upon acquisition.
The following is a summary of the contractual maturities and average effective rates of outstanding advances:
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||
(dollars in thousands) | As of September 30, 2021 | As of December 31, 2020 | ||||||||||||||||||||||||||||||
Maturity | Weighted average | Weighted average | ||||||||||||||||||||||||||||||
Year | Advance | Fixed Rate | Advance | Fixed Rate | Advance | Fixed Rate | Advance | Fixed Rate | ||||||||||||||||||||||||
2017 | $ | 30,000 | 1.24 | % | $ | 30,000 | 0.70 | % | ||||||||||||||||||||||||
2020 | 1,753 | 2.23 | 1,790 | 2.23 | ||||||||||||||||||||||||||||
2021 | 306 | 2.12 | 359 | 2.12 | $ | 10,000 | 0.22 | $ | 12,148 | 0.68 | ||||||||||||||||||||||
2022 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
2023 | 0 | 0 | 268 | 1.00 | ||||||||||||||||||||||||||||
2024 | 2,505 | 2.36 | 2,661 | 2.36 | 0 | 0 | 1,389 | 2.36 | ||||||||||||||||||||||||
2025 | 5,615 | 2.43 | 6,025 | 2.43 | 0 | 0 | 2,827 | 2.43 | ||||||||||||||||||||||||
2026 | 8,658 | 1.99 | 8,936 | 1.99 | 0 | 0 | 5,401 | 1.96 | ||||||||||||||||||||||||
2027 | 0 | 0 | 5,323 | 1.73 | ||||||||||||||||||||||||||||
2028 | 1,273 | 1.48 | 1,304 | 1.48 | 0 | 0 | 4,283 | 2.27 | ||||||||||||||||||||||||
Total | $ | 50,110 | 1.61 | % | $ | 51,075 | 1.30 | % | $ | 10,000 | 0.22 | % | $ | 31,639 | 1.52 | % |
In addition to fixed-rateFHLB advances listed above, at September 30, 2017 Bancorp had a $150 million cash management advance from the FHLB. This advance matured in the first week of October, 2017 and was used to manage Bancorp’s overall cash position. Due to the short term of the advance, it was recorded on the consolidated balance sheet within Federal funds purchased and other short-term borrowings.
Advances from the FHLB are collateralized by certain commercialCRE and residential real estate mortgage loans under a blanket mortgage collateral agreementpledge agreements and FHLB stock. Bancorp at times utilizesviews these borrowingsadvances as an effective lower-costing alternative to matchbrokered deposits to fund long-term fixed rate loans.loan growth. At September 30, 2017, 2021 and December 31, 2020, the amount of available credit from the FHLB totaled $367.3 million.$892 million and $804 million, respectively.
Bancorp also had $80 million in FFP lines available from correspondent banks at both September 30, 2021 and December 31, 2020, respectively.
Stock Yards Bancorp, inc. and subsidiary
|
|
The following table illustrates activity within the balances of accumulated other comprehensive income by component, and is shown for the nine months ended September 30, 2017 and 2016.
Net unrealized | Net unrealized | Minimum | ||||||||||||||
gains on | gains (losses) | pension | ||||||||||||||
securities | on cash | liability | ||||||||||||||
(in thousands) | available-for-sale | flow hedges | adjustment | Total | ||||||||||||
Balance at December 31, 2015 | $ | 965 | $ | (60 | ) | $ | (273 | ) | $ | 632 | ||||||
Net current period other comprehensive gain (loss) | 4,110 | (301 | ) | - | 3,809 | |||||||||||
Balance at September 30, 2016 | $ | 5,075 | $ | (361 | ) | $ | (273 | ) | $ | 4,441 | ||||||
Balance at December 31, 2016 | $ | (1,211 | ) | $ | (16 | ) | $ | (272 | ) | $ | (1,499 | ) | ||||
Net current period other comprehensive income gain | 950 | 38 | - | 988 | ||||||||||||
Amounts reclassified from other comprehensive income | (20 | ) | - | - | (20 | ) | ||||||||||
Net current-period other comprehensive income | 930 | 38 | - | 968 | ||||||||||||
Balance at September 30, 2017 | $ | (281 | ) | $ | 22 | $ | (272 | ) | $ | (531 | ) |
|
|
Bancorp has a class of preferred stock (no par value; 1,000,000 shares authorized), the relative rights, preferences and other terms of which or any series within the class will be determined by the Board of Directors prior to any issuance. None of this stock has been issued to date.
Stock Yards Bancorp, inc. and subsidiary
|
|
The following table reflects, for the three and nine months ended September 30, 2017 and 2016, net income (numerator) and average shares outstanding (denominator) for basic and diluted net income per share computations:
Three months ended | Nine months ended | |||||||||||||||
(in thousands, except per share data) | September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 11,704 | $ | 10,467 | $ | 33,097 | $ | 30,411 | ||||||||
Average basic shares outstanding | 22,542 | 22,385 | 22,524 | 22,325 | ||||||||||||
Dilutive securities | 422 | 418 | 460 | 386 | ||||||||||||
Average shares outstanding including dilutive securities including dilutive securities | 22,964 | 22,803 | 22,984 | 22,711 | ||||||||||||
Net income per share, basic | $ | 0.52 | $ | 0.47 | $ | 1.47 | $ | 1.36 | ||||||||
Net income per share, diluted | $ | 0.51 | $ | 0.46 | $ | 1.44 | $ | 1.34 |
|
|
Bancorp sponsors an unfunded, non-qualified, defined benefit retirement plan for three key officers (two current and one retired), and has no plans to increase the number of or benefits to participants. Benefits vest based on 25 years of service. All three officers are fully vested as of September 2017. Actuarially determined pension costs are expensed and accrued over the service period, and benefits are paid from Bancorp’s assets. Net periodic benefits costs, which include interest cost and amortization of net losses, totaled $34 thousand and $33 thousand for the three-month periods ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the net periodic benefit costs totaled $103 thousand and $100 thousand, respectively.
|
|
The fair value of all awards granted, net of estimated forfeitures, is recognized as compensation expense over the respective service period.
Bancorp currently has one stock-based compensation plan. At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. No additional shares were made available. As of September 30, 2017, there were 285,133 shares available for future awards.
Options, which have not been granted since 2007, had a vesting schedule of 20% per year and as of February 2017; all options have been exercised or expired. Stock appreciation rights (“SARs”) have a vesting schedule of 20% per year. SARs expire ten years after the grant date unless unvested grants are forfeited due to employment termination. SARs granted under the 2005 plan expire as late as 2025.
Restricted shares granted to officers vest over five years. All restricted shares have been granted at a price equal to the market value of common stock at the time of grant. For all grants prior to 2015, grantees were entitled to dividend payments during the vesting period. For grants in 2015 and after, forfeitable dividends are deferred until shares are vested.
Stock Yards Bancorp, inc. and subsidiary
Grants of performance stock units (“PSUs”) vest based upon service and a three-year performance period which begins January 1 of the first year of the performance period. Because grantees are not entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the fair value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Beginning in 2015, grants require a one year post-vesting holding period. For 2015, 2016 and 2017, the fair value of such grants incorporates a liquidity discount of 4.80%, 4.50% and 5.12%, respectively, related to the holding period.
Grants of restricted stock units (“RSUs”) to directors are time-based and vest 12 months after grant date. Because grantees are entitled to deferred dividend payments at the end of the vesting period, fair value of the RSUs is equal to the fair value of underlying shares on the date of grant.
Bancorp has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other non-interest expense for directors, in the consolidated statements of income as follows:
For three months ended | For nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Stock-based compensation expense before income taxes | $ | 670 | $ | 573 | $ | 2,012 | $ | 1,646 | ||||||||
Less: deferred tax benefit | (235 | ) | (200 | ) | (704 | ) | (576 | ) | ||||||||
Reduction of net income | $ | 435 | $ | 373 | $ | 1,308 | $ | 1,070 |
Bancorp’s net income for the three and nine-month periods ended September 30, 2017 reflected the implementation of ASU 2016-09 which changed the way excess tax benefits and deficiencies related to share-based compensation are recorded. Prior to 2017 these were recorded directly to additional paid-in capital and, thus did not affect earnings. Beginning in 2017 these are recorded as a tax expense or benefit in the income statement. For the three and nine months ended September 30, 2017 these benefits resulted in a $241 thousand and a $1.4 million increase in net income, respectively. This tax benefit is not reflected in the table above.
Bancorp expects to record an additional $679 thousand of stock-based compensation expense in 2017 for equity grants outstanding as of September 30, 2017. As of September 30, 2017, Bancorp has $4.9 million of unrecognized stock-based compensation expense that is expected to be recorded as compensation expense over the next five years as awards vest. Bancorp used cash of $216 thousand during the first nine months of 2017 for purchase of shares upon vesting of restricted stock units, net of cash received for options exercised. This compares to cash received of $1.6 million during the first nine months of 2016 for similar activity.
Stock Yards Bancorp, inc. and subsidiary
Fair values of Bancorp’s SARs are estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating the value of stock options and SARs. This model requires input of assumptions, changes to which can materially affect the fair value estimate. Fair value of restricted shares is equal to Bancorp’s closing stock price on the date of grant. The following assumptions were used in SAR valuations at the grant date in each year:
2017 | 2016 | |||||||
Dividend yield | 2.72 | % | 2.94 | % | ||||
Expected volatility | 19.47 | % | 19.31 | % | ||||
Risk free interest rate | 2.29 | % | 1.70 | % | ||||
Expected life of SARs (in years) | 7.0 | 7.3 |
Dividend yield and expected volatility are based on historical information for Bancorp for time periods corresponding to the expected life of options and SARs granted. Expected volatility is the price volatility of the underlying shares for the expected term measured on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the award. The expected life of SARs is based on actual experience of past like-term SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.
Stock Yards Bancorp, inc. and subsidiary
A summary of stock option and SARs activity and related information for the twelve month period ended December 31, 2016 and the nine month period ended September 30, 2017 follows:
Weighted | ||||||||||||||||||||||||||
Weighted | Aggregate | Weighted | average | |||||||||||||||||||||||
Options | average | intrinsic | average | remaining | ||||||||||||||||||||||
and SARs | Exercise | exercise | value | fair | contractual | |||||||||||||||||||||
(in thousands) | price | price | (in thousands) | value | life (in years) | |||||||||||||||||||||
At December 31, 2015 | ||||||||||||||||||||||||||
Vested and exercisable | 656 | $ | 14.02 | - | 19.44 | $ | 15.75 | $ | 6,191 | $ | 3.39 | 3.7 | ||||||||||||||
Unvested | 266 | 15.24 | - | 24.55 | 18.66 | 1,733 | 3.29 | 7.7 | ||||||||||||||||||
Total outstanding | 922 | 14.02 | - | 24.55 | 16.59 | 7,924 | 3.36 | 4.8 | ||||||||||||||||||
Granted | 88 | 25.76 | - | 33.08 | 25.84 | 1,866 | 3.56 | |||||||||||||||||||
Exercised | (272 | ) | 14.02 | - | 17.89 | 16.38 | 4,155 | 3.73 | ||||||||||||||||||
Forfeited | (3 | ) | 14.02 | - | 15.84 | 15.18 | 60 | 2.94 | ||||||||||||||||||
At December 31, 2016 | ||||||||||||||||||||||||||
Vested and exercisable | 475 | 14.02 | - | 24.56 | 15.72 | 14,820 | 3.16 | 4.3 | ||||||||||||||||||
Unvested | 260 | 15.24 | - | 33.08 | 21.53 | 6,623 | 3.43 | 7.8 | ||||||||||||||||||
Total outstanding | 735 | 14.02 | - | 33.08 | 17.78 | 21,443 | 3.26 | 5.5 | ||||||||||||||||||
Granted | 46 | 40.00 | - | 40.00 | 40.00 | - | 6.34 | |||||||||||||||||||
Exercised | (47 | ) | 14.02 | - | 17.89 | 15.52 | 1,168 | 3.27 | ||||||||||||||||||
Forfeited | - | - | - | - | - | |||||||||||||||||||||
At September 30, 2017 | ||||||||||||||||||||||||||
Vested and exercisable | 519 | 14.02 | - | 25.76 | 16.39 | 11,218 | 3.15 | 4.3 | ||||||||||||||||||
Unvested | 215 | 15.24 | - | 40.00 | 26.45 | 2,567 | 4.17 | 7.9 | ||||||||||||||||||
Total outstanding | 734 | 14.02 | - | 40.00 | 19.17 | $ | 13,785 | 3.45 | 5.3 | |||||||||||||||||
Vested year-to-date | 92 | $ | 15.24 | - | 25.76 | $ | 19.34 | $ | 1,723 | $ | 3.18 |
Intrinsic value for stock options and SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise or grant price. 46,410 shares had an intrinsic value of zero because the exercise price for those shares exceeded the current market price at September 30, 2017. There are no options outstanding as of September 30, 2017; all have been exercised or have expired.
Stock Yards Bancorp, inc. and subsidiary
A summary of activity for restricted shares of common stock granted to officers for the periods ending December 31, 2016 and September 30, 2017 is outlined in the following table:
Grant date | ||||||||
weighted- | ||||||||
Number | average cost | |||||||
Unvested at December 31, 2015 | 155,858 | $ | 18.98 | |||||
2016 activity: | ||||||||
Shares awarded | 51,122 | 25.78 | ||||||
Restrictions lapsed and shares released | (49,265 | ) | 17.98 | |||||
Shares forfeited | (12,480 | ) | 20.69 | |||||
Unvested at December 31, 2016 | 145,235 | $ | 21.57 | |||||
2017 activity: | ||||||||
Shares awarded | 28,625 | 44.85 | ||||||
Restrictions lapsed and shares released | (46,220 | ) | 19.76 | |||||
Shares forfeited | (7,154 | ) | 25.03 | |||||
Unvested at September 30, 2017 | 120,486 | $ | 27.59 |
Bancorp awarded PSUs to executive officers of Bancorp, the three-year performance period for which began January 1 of the award year. Shares awarded in 2017 under the 2014 grant totaled 50,022. Shares awarded in 2016 under the 2013 grant totaled 55,188.
The following table outlines outstanding PSU grants:
Vesting | Expected | |||||||||||
Grant | period | Fair | shares to | |||||||||
year | in years | value | be awarded | |||||||||
2015 | 3 | $ | 20.02 | 51,910 | ||||||||
2016 | 3 | 22.61 | 58,786 | |||||||||
2017 | 3 | 35.66 | 24,756 |
In the first quarter of 2017, Bancorp awarded 4,680 RSUs to directors of Bancorp with a grant date fair value of $220 thousand. No awards were made in the second or third quarters of 2017.
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In April 2016 Bancorp declared a 3 for 2 stock split effected as a 50% stock dividend payable in May 2016. Share and per share information has been adjusted for this split.
Stock Yards Bancorp, inc. and subsidiary
| Commitments and Contingent Liabilities |
As of September 30, 2017, 2021 and December 31, 2020, Bancorp had various commitments outstanding that arose in the normal course of business including standby letters of credit and commitments to extend credit, which are properly not reflected in the consolidated financial statements. In management’s opinion, at September 30, 2017Total off-balance sheet commitments to extend credit of $709.7 million, including standby letters of credit of $17.6 million, represent normal banking transactions. Commitments to extend credit were $628.3 million, including letters of credit of $15.6 million, as of December 31, 2016. follows:
(in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Commercial and industrial | $ | 666,520 | $ | 555,077 | ||||
Construction and land development | 258,933 | 266,550 | ||||||
Home equity | 234,903 | 175,132 | ||||||
Credit cards | 42,048 | 32,321 | ||||||
Overdrafts | 51,881 | 33,564 | ||||||
Letters of credit | 31,043 | 24,425 | ||||||
Other | 76,028 | 54,385 | ||||||
Future loan commitments | 311,369 | 249,318 | ||||||
Total off balance sheet commitments to extend credit | $ | 1,672,725 | $ | 1,390,772 |
Commitments to extend credit are an agreementagreements to lend to a customercustomers either as unsecured or, in the case of secured, as long as collateral is available as agreed upon and there is no violation of any condition established in the contract.contracts. Commitments generally have fixed expiration dates or other termination clauses. Commitments to extend credit are mainly comprised of commercial lines of credit, construction and home equity credit lines and credit cards issued to commercial customers. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a case by case basis. The amount of collateral obtained if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, securities, equipment and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.
At September 30, 2017, 2021 and December 31, 2020, Bancorp had accrued $350 thousand$4.3 million and $5.4 million, respectively, in other liabilities for inherent risks relatedits estimate of credit losses for off balance sheet credit exposures. A net benefit of $1.4 million was recorded for the provision for off balance sheet credit exposures for the nine months ended September 30, 2021, as compared to unfundednet expense of $2.4 million for the same period of 2020. The reduction in the ACL for off balance sheet credit commitments.exposures between December 31, 2020 and September 30, 2021 is attributed to nearly all loan segments experiencing a decrease in their reserve loss percentages consistent with generally improving model factors, particularly unemployment forecasts.
Standby letters of credit and financial guarantees written are conditional commitments issued by Bancorp to guarantee the performance of a customer to a first party. party beneficiary. Those guarantees are primarily issued to supportcustomer commercial transactions. Standby letters of credit generally have maturities of one to two years.
Certain commercial customers require confirmation of Bancorp’s letters of credit by other banks since Bancorp does not have a rating by a national rating agency. Terms of the agreements range from one month to a year with certain agreements requiring between one and six months’ notice to cancel. If an event of default on all contracts had occurred at September 30, 2021, Bancorp would have been required to make payments of approximately $2.2 million, or the maximum amount payable under those contracts. No payments have ever been required because of default on these contracts. These agreements are normally secured by collateral acceptable to Bancorp, which limits credit risk associated with the agreements.
As part of the normal course of business Bancorp entered into an agreement to purchase 29 automatic teller machines (ATMs) over the next three years at a total price of $1.2 million. Management was able to secure favorable pricing by contractually committing to purchase the machines.
Also, as of September 30, 2017, 2021, in the normal course of business, there were pending legal actions and administrative proceedings in which claims for damages are asserted and/asserted. Management, after discussion with legal counsel, believes the ultimate result of these legal actions and proceedings will not have a material adverse effect on the consolidated financial position or losses could be incurred. We record a liability for these matters if an unfavorable outcome is probable and the amountresults of loss can be reasonably estimated, including expected insurance coverage. For proceedings where the reasonable estimateoperations of loss is a range, we record a best estimate of loss within the range. At September 30, 2017 we have recorded a liability of $266 thousand for such matters.Bancorp.
| Assets and Liabilities Measured and Reported at Fair Value |
Bancorp followsFair value represents the provisions of authoritative guidance for fair value measurements. This guidance is definitional and disclosure oriented and addresses how companies should approach measuring fair value when required by US GAAP. The guidance also prescribes various disclosures about financial statement categories and amounts which are measured at fair value, if such disclosures are not already specified elsewhere in US GAAP.
Authoritative guidance defines fair value as theexchange price that would be received to sellfor an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants aton the measurement date. The guidance also establishes a hierarchy to group assets and liabilities carried at fair value in There are three levels based upon the markets in which the assets and liabilities trade and the source of assumptionsinputs that may be used to determinemeasure fair value. These levels are:
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Stock Yards Bancorp, inc. and subsidiaryvalues:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
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Authoritative guidance requires maximum use ofLevel 2 – Significant other observable inputs and minimum use ofother than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in fair value measurements. Where there exists limited or no observable market data, Bancorp derives its own estimates by generally considering characteristics of the asset/liability, the current economic and competitive environment and other factors. For this reason, results cannot be determined with precision and may not be realized onpricing an actual sale or immediate settlement of the asset or liability.
Bancorp’s investment securities available-for-sale and interest rate swaps are recorded atThe methods of determining the fair value on a recurring basis. Other accounts including mortgage servicing rights, impaired loans and other real estate owned may be recorded at fair value on a non-recurring basis, generally in the application of lower of cost or market adjustments or write-downs of specific assets.
The portfolio of investment securities available-for-sale is comprised of U.S. Treasury and other U.S. government obligations, debt securities of U.S. government-sponsored corporations (including mortgage-backed securities), obligations of state and political subdivisions and corporate equity securities. U.S. Treasury and publicly traded corporate equity securities are priced using quoted prices of identical securities in an active market. These measurements are classified as Level 1 in the hierarchy above. All other securities are priced using standard industry models or matrices with various assumptions such as yield curves, volatility, prepayment speeds, default rates, time value, credit rating and market prices for similar instruments. These assumptions are generally observable in the market place and can be derived from or supported by observable data. These measurements are classified as Level 2 in the hierarchy above.
Interest rate swaps are valued using primarily Level 2 inputs. Fair value measurements generally based on benchmark forward yield curves and other relevant observable market data. For purposes of potential valuation adjustments to derivative positions, Bancorp evaluates the credit risk of its counterparties as well as its own credit risk. To date, Bancorp has not realized any losses due to a counterparty’s inability to perform and the change in value of derivative assets and liabilities attributable to credit risk was not significant during 2017.
Stock Yards Bancorp, inc. and subsidiarypresented in this note are consistent with the methodologies disclosed in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020.
Below are the carryingCarrying values of assets measured at fair value on a recurring basis.basis follows:
(in thousands) | Fair value at September 30, 2017 | |||||||||||||||
Assets | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Investment securities available-for-sale | ||||||||||||||||
Government sponsored enterprise obligations | $ | 372,664 | $ | - | $ | 372,664 | $ | - | ||||||||
Mortgage-backed securities - government agencies | 146,720 | - | 146,720 | - | ||||||||||||
Obligations of states and political subdivisions | 51,622 | - | 51,622 | - | ||||||||||||
Corporate equity securities | 516 | 516 | - | - | ||||||||||||
Total investment securities available-for-sale | 571,522 | 516 | 571,006 | - | ||||||||||||
Interest rate swaps | 182 | - | 182 | - | ||||||||||||
Total assets | $ | 571,704 | $ | 516 | $ | 571,188 | $ | - | ||||||||
Liabilities | ||||||||||||||||
Interest rate swaps | $ | 148 | $ | - | $ | 148 | $ | - |
Fair Value Measurements Using: | Total | |||||||||||||||
September 30, 2021 (in thousands) | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Available for sale debt securities: | ||||||||||||||||
U.S. Treasury and other U.S. Government obligations | $ | 83,712 | $ | 0 | $ | 0 | $ | 83,712 | ||||||||
Government sponsored enterprise obligations | 0 | 146,287 | 0 | 146,287 | ||||||||||||
Mortgage backed securities - government agencies | 0 | 771,722 | 0 | 771,722 | ||||||||||||
Obligations of states and political subdivisions | 0 | 67,424 | 0 | 67,424 | ||||||||||||
Other | 0 | 1,003 | 0 | 1,003 | ||||||||||||
Total available for sale debt securities | 83,712 | 986,436 | 0 | 1,070,148 | ||||||||||||
Interest rate swaps | 0 | 4,180 | 0 | 4,180 | ||||||||||||
Total assets | $ | 83,712 | $ | 990,616 | $ | 0 | $ | 1,074,328 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps | $ | 0 | $ | 4,226 | $ | 0 | $ | 4,226 |
(in thousands) | Fair value at December 31, 2016 | |||||||||||||||
Assets | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Investment securities available-for-sale | ||||||||||||||||
U.S. Treasury and other U.S. government obligations | $ | 74,998 | $ | 74,998 | $ | - | $ | - | ||||||||
Government sponsored enterprise obligations | 268,090 | - | 268,090 | - | ||||||||||||
Mortgage-backed securities - government agencies | 168,843 | - | 168,843 | - | ||||||||||||
Obligations of states and political subdivisions | 57,444 | - | 57,444 | - | ||||||||||||
Corporate equity securities | 699 | 699 | - | - | ||||||||||||
Total investment securities available-for-sale | 570,074 | 75,697 | 494,377 | - | ||||||||||||
Interest rate swaps | 203 | - | 203 | - | ||||||||||||
Total assets | $ | 570,277 | $ | 75,697 | $ | 494,580 | $ | - | ||||||||
Liabilities | ||||||||||||||||
Interest rate swaps | $ | 178 | $ | - | $ | 178 | $ | - |
Fair Value Measurements Using: | Total | |||||||||||||||
December 31, 2020 (in thousands) | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Available for sale debt securities: | ||||||||||||||||
Government sponsored enterprise obligations | $ | 0 | $ | 138,078 | $ | 0 | $ | 138,078 | ||||||||
Mortgage backed securities - government agencies | 0 | 437,585 | 0 | 437,585 | ||||||||||||
Obligations of states and political subdivisions | 0 | 11,315 | 0 | 11,315 | ||||||||||||
Total available for sale debt securities | 0 | 586,978 | 0 | 586,978 | ||||||||||||
Interest rate swaps | 0 | 8,374 | 0 | 8,374 | ||||||||||||
Total assets | $ | 0 | $ | 595,352 | $ | 0 | $ | 595,352 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps | $ | 0 | $ | 8,391 | $ | 0 | $ | 8,391 |
There were no transfers into or out of Level 3 of the fair value hierarchy during 2021 or 2020.
Bancorp had no financial instruments classified within Level 3
Discussion of assets and liabilities measured at fair value on a recurringnon-recurring basis at September 30, 2017 or December 31, 2016.
Stock Yards Bancorp, inc. and subsidiaryfollows:
MSRs – On at least a quarterly basis, MSRs are recorded at fair value upon capitalization, are amortized to correspond with estimated servicing income, and are periodically assessedevaluated for impairment based onupon the fair value atof the reporting date.MSRs as compared to carrying amount. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income. These measurements are classified as Level 3. At September 30, 2017 2021 and December 31, 2016 2020, there was no valuation allowance for MSRs, as the mortgage servicing rights, as fair value exceeded the cost. Accordingly, the MSRs are not included in either table belowthe following tabular disclosure for September 30, 2017 or 2021 and December 31, 2016. See Note 4 for more information regarding MSRs.2020.
Collateral dependent loans – For impairedcollateral-dependent loans inwhere Bancorp has determined that the table below, fair valueliquidation or foreclosure of the collateral is calculated as carrying value of loans with a specific valuation allowance, lessprobable, or where the specific allowance,borrower is experiencing financial difficulty and the carrying valueCompany expects repayment of the loan to be provided substantially through the operation or sale of the collateral, dependent loans that have been charged down to their fair value. Fair value of impaired loans was primarilythe ACL is measured based on the difference between the estimated fair value of the collateral securing these loans. Impaired loans are classified within Level 3and the amortized cost basis of the loan as of the measurement date. For real estate loans, fair value hierarchy. Collateral of the loan’s collateral is determined by third party or internal appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, comparable sales, or cost) vary based on the status of the project or property. The unobservable inputs may be realvary depending on the individual assets with noone of the three methods being the predominant approach. Bancorp reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 8% to 10% of the appraised value. For non-real estate and/or business assets including equipment, inventory, and/or accounts receivable. Bancorp determinesloans, fair value of real estatethe loan’s collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approachbe determined using an appraisal, net book value per the borrower’s financial statements, or a combination of approaches including comparable sales and the income approach. Appraised values areaging reports, adjusted or discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the datetime of the most recent appraisal, and/orvaluation and management’s expertise andor knowledge of the customerclient and the customer’sclient’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. For other assets, Bancorp relies on both internal and third party assessments
OREO –OREO is primarily comprised of asset value, based on information provided by the borrower, following methodologies similar to those described for real estate. Asestate acquired in partial or full satisfaction of September 30, 2017, total impaired collateral dependent loans charged down to theirloans. OREO is recorded at its estimated fair value less estimated selling and impaired loans with a valuation allowance were $3.2 million, and the specific allowance totaled $722 thousand, resulting in a fair value of $2.5 million, compared with total collateral dependent loans charged down to their fair value and impaired loans with a valuation allowance of $4.2 million, and the specific allowance allocation totaling $1.3 million, resulting in a fair value of $2.9 millionclosing costs at December 31, 2016. Losses represent charge offs and changes in specific allowances for the period indicated.
Other real estate owned (“OREO”), which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is based on appraisals performed by external parties which use judgments and assumptions that are property-specific and sensitive to changes in the overall economic environment. Appraisals may be further discounted based on management’s historical knowledge and/or changes in market conditions from the date of transfer, with any excess of the most recent appraisal. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3. For OREO inrelated loan balance over the table below, fair value isless expected selling costs charged to the ACL. Subsequent changes in fair value are reported as adjustments to the carrying value of only parcelsamount and are recorded against earnings. Bancorp obtains the valuation of OREO with material balances from third party appraisers. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. The unobservable inputs may vary depending on the individual assets with noone of the three methods being the predominant approach. Bancorp reviews the appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which have a carrying value equaltypically range from 8% to 10% of the appraised value. Losses represent write-downs which occurred during the period indicated. At September 30, 2017 and December 31, 2016, carrying value of all other real estate owned was $2.6 million and $5.0 million, respectively.
Stock Yards Bancorp, inc. and subsidiary
Below are carryingCarrying values of assets measured at fair value on a non-recurring basis. Impaired loan amounts reported represent only those impaired loans with specific valuation allowances and collateral dependent impaired loans charged down to their carrying value.basis follows:
(in thousands) | Fair value at September 30, 2017 | Losses for 9 month | ||||||||||||||||||
period ended | ||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | September 30, 2017 | ||||||||||||||||
Impaired loans | $ | 2,530 | $ | - | $ | - | $ | 2,530 | $ | (280 | ) | |||||||||
Other real estate owned | 2,640 | - | - | 2,640 | (171 | ) | ||||||||||||||
Total | $ | 5,170 | $ | - | $ | - | $ | 5,170 | $ | (451 | ) |
(in thousands) | Fair value at December 31, 2016 | Losses for 9 month | ||||||||||||||||||
period ended | ||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | September 30, 2016 | ||||||||||||||||
Impaired loans | $ | 2,933 | $ | - | $ | - | $ | 2,933 | $ | (1,612 | ) | |||||||||
Other real estate owned | 4,488 | - | - | 4,488 | (62 | ) | ||||||||||||||
Total | $ | 7,421 | $ | - | $ | - | $ | 7,421 | $ | (1,674 | ) |
Losses recorded | ||||||||||||||||||||||||
Three months | Nine months | |||||||||||||||||||||||
Fair Value Measurements Using: | Total | ended | ended | |||||||||||||||||||||
September 30, 2021 (in thousands) | Level 1 | Level 2 | Level 3 | Fair Value | September 30, 2021 | September 30, 2021 | ||||||||||||||||||
Collateral dependent loans | $ | 0 | $ | 0 | $ | 5,151 | $ | 5,151 | $ | — | $ | — | ||||||||||||
Other real estate owned | 0 | 0 | 7,229 | 7,229 | 0 | 0 |
Losses recorded | ||||||||||||||||||||||||
Three months | Nine months | |||||||||||||||||||||||
Fair Value Measurements Using: | Total | ended | ended | |||||||||||||||||||||
December 31, 2020 (in thousands) | Level 1 | Level 2 | Level 3 | Fair Value | September 30, 2020 | September 30, 2020 | ||||||||||||||||||
Collateral dependent loans | $ | 0 | $ | 0 | $ | 7,546 | $ | 7,546 | $ | 0 | $ | 0 | ||||||||||||
Other real estate owned | 0 | 0 | 281 | 281 | 0 | 0 |
For the securities portfolio, Bancorp monitors the valuation technique used by pricing agencies to ascertain when transfers between levels have occurred. The nature of other assets andThere were no liabilities measured at fair value is such that transfers in and out of any level are expected to be rare. For the nine months ended on a non-recurring basis at September 30, 2017, there were no transfers between Levels 1, 2, or 3. 2021 and December 31,2020.
For Level 3 assets measured at fair value on a non-recurring basis, as of September 30, 2017,the significant unobservable inputs used in the fair value measurements are presented below.
September 30, 2021 | |||||||||||
(dollars in thousands) | Fair Value | Valuation Technique | Unobservable Inputs | Weighted Average | |||||||
Collateral dependent loans | $ | 5,151 | Appraisal | Appraisal discounts | 39.3 | % | |||||
Other real estate owned | 7,229 | Appraisal | Appraisal discounts | 31.4 |
Significant | Weighted | |||||||||||||||||||||
Fair | Valuation | unobservable | average of | December 31, 2020 | ||||||||||||||||||
(dollars in thousands) | Value | technique | input | input | Fair Value | Valuation Technique | Unobservable Inputs | Weighted Average | ||||||||||||||
Impaired loans - collateral dependent | $ | 2,530 | Appraisal | Appraisal discounts | 15.0 | % | ||||||||||||||||
Collateral dependend loans | $ | 7,546 | Appraisal | Appraisal discounts | 10.7 | % | ||||||||||||||||
Other real estate owned | 2,640 | Appraisal | Appraisal discounts | 23.4 | 281 | Appraisal | Appraisal discounts | 36.0 |
Stock Yards Bancorp, inc. and subsidiary
| Disclosure of Financial Instruments Not Reported at Fair Value |
US GAAP requires disclosure of the fair value of financial assets and liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. Carrying amounts,The estimated fair values and placement in theof Bancorp’s financial instruments not measured at fair value hierarchy of Bancorp’s financial instruments are ason a recurring or non-recurring basis follows:
(in thousands) | Carrying | |||||||||||||||||||
September 30, 2017 | amount | Fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and short-term investments | $ | 129,078 | $ | 129,078 | $ | 129,078 | $ | - | $ | - | ||||||||||
Mortgage loans held for sale | 5,459 | 6,005 | - | 6,005 | - | |||||||||||||||
Federal Home Loan Bank stock and other securities | 7,666 | 7,666 | - | 7,666 | - | |||||||||||||||
Loans, net | 2,310,172 | 2,302,466 | - | - | 2,302,466 | |||||||||||||||
Accrued interest receivable | 8,162 | 8,162 | 8,162 | - | - | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Deposits | 2,481,966 | 2,480,641 | - | - | 2,480,641 | |||||||||||||||
Short-term borrowings | 233,824 | 233,824 | - | 233,824 | - | |||||||||||||||
FHLB advances | 50,110 | 50,070 | - | 50,070 | - | |||||||||||||||
Secured borrowings | 18,351 | 18,210 | ||||||||||||||||||
Accrued interest payable | 212 | 212 | 212 | - | - |
(in thousands) | Carrying | |||||||||||||||||||
December 31, 2016 | amount | Fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and short-term investments | $ | 47,973 | $ | 47,973 | $ | 47,973 | $ | - | $ | - | ||||||||||
Mortgage loans held for sale | 3,213 | 3,481 | - | 3,481 | - | |||||||||||||||
Federal Home Loan Bank stock and other securities | 6,347 | 6,347 | - | 6,347 | - | |||||||||||||||
Loans, net | 2,281,368 | 2,284,569 | - | - | 2,284,569 | |||||||||||||||
Accrued interest receivable | 6,878 | 6,878 | 6,878 | - | - | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Deposits | 2,520,548 | 2,519,725 | - | - | 2,519,725 | |||||||||||||||
Short-term borrowings | 114,969 | 114,969 | - | 114,969 | - | |||||||||||||||
FHLB advances | 51,075 | 50,806 | - | 50,806 | - | |||||||||||||||
Secured borrowings | 15,814 | 15,731 | ||||||||||||||||||
Accrued interest payable | 144 | 144 | 144 | - | - |
Stock Yards Bancorp, inc. and subsidiary
(in thousands) | Carrying | Fair Value Measurements Using: | ||||||||||||||||||
September 30, 2021 | amount | Fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 584,941 | $ | 584,941 | $ | 584,941 | $ | 0 | $ | 0 | ||||||||||
Mortgage loans held for sale | 10,201 | 10,490 | 0 | 10,490 | 0 | |||||||||||||||
Federal Home Loan Bank stock | 9,376 | 9,376 | 0 | 9,376 | 0 | |||||||||||||||
Loans, net | 4,132,584 | 4,158,330 | 0 | 0 | 4,158,330 | |||||||||||||||
Accrued interest receivable | 13,749 | 13,749 | 13,749 | 0 | 0 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Non-interest bearing deposits | $ | 1,744,790 | $ | 1,744,790 | $ | 1,744,790 | $ | 0 | $ | 0 | ||||||||||
Transaction deposits | 3,147,891 | 3,147,891 | 0 | 3,147,891 | 0 | |||||||||||||||
Time deposits | 449,343 | 451,258 | 0 | 451,258 | 0 | |||||||||||||||
Securities sold under agreement to repurchase | 74,406 | 74,406 | 0 | 74,406 | 0 | |||||||||||||||
Federal funds purchased | 10,908 | 10,908 | 0 | 10,908 | 0 | |||||||||||||||
Federal Home Loan Bank advances | 10,000 | 10,042 | 0 | 10,042 | 0 | |||||||||||||||
Accrued interest payable | 398 | 398 | 398 | 0 | 0 |
Management used the following methods and assumptions to estimate the fair value of each class of financial instrument for which it is practicable to estimate the value.
Cash, short-term investments, accrued interest receivable/payable and short-term borrowings
For these short-term instruments, carrying amount is a reasonable estimate of fair value.
Mortgage loans held for sale
Mortgage loans held for sale are initially recorded at the lower of cost or market value. The portfolio is comprised of residential real estate loans and fair value is determined by market quotes for similar loans based on loan type, term, rate, size and the borrower’s credit score.
Federal Home Loan Bank stock and other securities
For these securities without readily available market values, carrying amount is a reasonable estimate of fair value as it equals the amount due from FHLB or other issuer at upon redemption.
Loans, net
US GAAP prescribes the exit price concept for estimating fair value of loans. Because there is not an active market (exit price) for trading virtually all types of loans in Bancorp’s portfolio, fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities (entrance price).
Deposits
Fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Fair value of fixed-rate certificates of deposits is estimated by discounting future cash flows using the rates currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank advances
Fair value of FHLB advances is estimated by discounting future cash flows using estimates of current market rate for instruments with similar terms and remaining maturities.
Secured BorrowingsSecured borrowings represent sold participation loans for which Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their share of the loan without permission from Bancorp. US GAAP requires the participated portion of these loans to be recorded as secured borrowings. Secured borrowings are included in other liabilities on the consolidated balance sheets.
Commitments to extend credit and standby letters of credit
Fair values of commitments to extend credit are estimated using fees currently charged to enter into similar agreements and creditworthiness of customers. Fair values of standby letters of credit are based on fees currently charged for similar agreements or estimated cost to terminate them or otherwise settle obligations with counterparties at the reporting date.
Limitations
(in thousands) | Carrying | Fair Value Measurements Using: | ||||||||||||||||||
December 31, 2020 | amount | Fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 317,945 | $ | 317,945 | $ | 317,945 | $ | 0 | $ | 0 | ||||||||||
Mortgage loans held for sale | 22,547 | 23,389 | 0 | 23,389 | 0 | |||||||||||||||
Federal Home Loan Bank stock | 11,284 | 11,284 | 0 | 11,284 | 0 | |||||||||||||||
Loans, net | 3,479,676 | 3,513,916 | 0 | 0 | 3,513,916 | |||||||||||||||
Accrued interest receivable | 13,094 | 13,094 | 13,094 | 0 | 0 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Non-interest bearing deposits | $ | 1,187,057 | $ | 1,187,057 | $ | 1,187,057 | $ | 0 | $ | 0 | ||||||||||
Transaction deposits | 2,409,173 | 2,409,173 | 0 | 2,409,173 | 0 | |||||||||||||||
Time deposits | 392,404 | 395,734 | 0 | 395,734 | 0 | |||||||||||||||
Securities sold under agreement to repurchase | 47,979 | 47,979 | 0 | 47,979 | 0 | |||||||||||||||
Federal funds purchased | 11,464 | 11,464 | 0 | 11,464 | 0 | |||||||||||||||
Federal Home Loan Bank advances | 31,639 | 33,180 | 0 | 33,180 | 0 | |||||||||||||||
Accrued interest payable | 391 | 391 | 391 | 0 | 0 |
Fair value estimates are made at a specific point in time based on relevant market information and information about financial instruments. Because no market exists for a significant portion of Bancorp’sBancorp’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Therefore, calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. Changes in assumptions could significantly affectimpact estimates.
(14) | Accumulated Other Comprehensive Income (Loss) |
Stock Yards Bancorp, inc. and subsidiaryThe following table illustrates activity within the balances of AOCI by component:
Net unrealized | Net unrealized | Minimum | ||||||||||||||
gains (losses) | gains (losses) | pension | ||||||||||||||
on available for | on cash | liability | ||||||||||||||
(in thousands) | sale debt securities | flow hedges | adjustment | Total | ||||||||||||
Three months ended September 30, 2021 | ||||||||||||||||
Balance, June 30, 2021 | $ | 2,295 | $ | (58 | ) | $ | (447 | ) | $ | 1,790 | ||||||
Net current period other comprehensive income | (4,453 | ) | 32 | 0 | (4,421 | ) | ||||||||||
Balance, September 30, 2021 | $ | (2,158 | ) | $ | (26 | ) | $ | (447 | ) | $ | (2,631 | ) | ||||
Three months ended September 30, 2020 | ||||||||||||||||
Balance, June 30, 2020 | $ | 9,466 | $ | (281 | ) | $ | (369 | ) | $ | 8,816 | ||||||
Net current period other comprehensive income | (29 | ) | 85 | 0 | 56 | |||||||||||
Balance, September 30, 2020 | $ | 9,437 | $ | (196 | ) | $ | (369 | ) | $ | 8,872 |
Net unrealized | Net unrealized | Minimum | ||||||||||||||
gains (losses) | gains (losses) | pension | ||||||||||||||
on available for | on cash | liability | ||||||||||||||
(in thousands) | sale debt securities | flow hedges | adjustment | Total | ||||||||||||
Nine months ended September 30, 2021 | ||||||||||||||||
Balance, January 1, 2021 | $ | 9,310 | $ | (122 | ) | $ | (447 | ) | $ | 8,741 | ||||||
Net current period other comprehensive income (loss) | (11,468 | ) | 96 | 0 | (11,372 | ) | ||||||||||
Balance, September 30, 2021 | $ | (2,158 | ) | $ | (26 | ) | $ | (447 | ) | $ | (2,631 | ) | ||||
Nine months ended September 30, 2020 | ||||||||||||||||
Balance, January 1, 2020 | $ | 1,085 | $ | (39 | ) | $ | (369 | ) | $ | 677 | ||||||
Net current period other comprehensive income (loss) | 8,352 | (157 | ) | 0 | 8,195 | |||||||||||
Balance, September 30, 2020 | $ | 9,437 | $ | (196 | ) | $ | (369 | ) | $ | 8,872 |
| Preferred Stock |
Bancorp has one class of preferred stock (0 par value; 1,000,000 shares authorized), the relative rights, preferences and other terms of the class or any series within the class will be determined by the Board of Directors prior to any issuance. None of this stock has been issued to date.
(16) | Net Income Per Share |
The following table reflects net income (numerator) and average shares outstanding (denominator) for basic and diluted net income per share computations:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Net income | $ | 23,162 | $ | 14,533 | $ | 50,056 | $ | 41,133 | ||||||||
Weighted average shares outstanding - basic | 26,485 | 22,582 | 24,360 | 22,553 | ||||||||||||
Dilutive securities | 241 | 220 | 242 | 206 | ||||||||||||
Weighted average shares outstanding- diluted | 26,726 | 22,802 | 24,602 | 22,759 | ||||||||||||
Net income per share - basic | $ | 0.87 | $ | 0.64 | $ | 2.05 | $ | 1.82 | ||||||||
Net income per share - diluted | 0.87 | 0.64 | 2.03 | 1.81 |
Certain SARs that were excluded from the EPS calculation because their impact was antidilutive were as follows:
Three months ended | Nine months ended | |||||||||||||||
(shares in thousands) | September 30, | September 30, | ||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Antidilutive SARs | 31 | 202 | 31 | 202 |
(17) | Stock-Based Compensation |
The fair value of all stock-based awards granted, net of estimated forfeitures, is recognized as compensation expense over the respective service period.
At Bancorp's 2015 Annual Meeting of Shareholders, shareholders approved the 2015 Omnibus Equity Compensation Plan and authorized the shares available from the expiring 2005 plan for future awards under the 2015 plan. In 2018, shareholders approved an additional 500,000 shares for issuance under the plan. As of September 30, 2021, there were 351,000 shares available for future awards. The 2005 Stock Incentive Plan expired in April 2015 and SARs granted under this plan expire as late as 2025. The 2015 Stock Incentive Plan has no defined expiration date.
SAR Grants – SARs granted have a vesting schedule of 20% per year and expire ten years after the grant date unless forfeited due to employment termination.
Fair values of SARs are estimated at the date of grant using the Black-Scholes option-pricing model, a leading formula for calculating such value. This model requires the input of assumptions, changes to which can materially impact the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year:
Assumptions | 2021 | 2020 | ||||||
Dividend yield | 2.52 | % | 2.51 | % | ||||
Expected volatility | 25.19 | % | 20.87 | % | ||||
Risk free interest rate | 1.22 | % | 1.25 | % | ||||
Expected life (in years) | 7.1 | 7.1 |
Dividend yield and expected volatility are based on historical information for Bancorp corresponding to the expected life of SARs granted. Expected volatility is the volatility of underlying shares for the expected term calculated on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the awards. The expected life of SARs is based on actual experience of past like-term SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life.
RSA Grants – RSAs granted to officers vest over five years. For all grants prior to 2015, grantees are entitled to dividend payments during the vesting period. For grants in 2015 and forward, dividends are deferred until shares are vested. Fair value of RSAs is equal to the market value of the shares on the date of grant.
PSU Grants – PSUs vest based upon service and a three-year performance period, which begins January 1 of the first year of the performance period. Because grantees are not entitled to dividend payments during the performance period, the fair value of these PSUs is estimated based upon the market value of the underlying shares on the date of grant, adjusted for non-payment of dividends. Grants require a one-year post-vesting holding period and therefore the fair value of such grants incorporates a liquidity discount related to the holding period of 6.1% and 4.4% for 2021 and 2020.
RSU Grants – RSUs are only granted to non-employee directors, are time-based and vest 12 months after grant date. Because grantees are entitled to deferred dividend payments at the end of the vesting period, therefore the fair value of the RSUs equals market value of underlying shares on the date of grant.
In the first quarters of 2021 and 2020, Bancorp awarded 7,758 and 6,570 RSUs to non-employee directors of Bancorp with a grant date fair value of $315,000 and $270,000, respectively.
Bancorp utilized cash of $208,000 and $224,000 during the firstnine months of 2021 and 2020, respectively, for the purchase of shares upon the vesting of RSUs.
Bancorp has recognized stock-based compensation expense for SARs, RSAs and PSUs within compensation expense and RSUs for directors within other non-interest expense, as follows:
Three months ended September 30, 2021 | ||||||||||||||||||||
(in thousands) | Stock Appreciation Rights | Restricted Stock Awards | Restricted Stock Units | Performance Stock Units | Total | |||||||||||||||
Expense | $ | 88 | $ | 312 | $ | 79 | $ | 686 | $ | 1,165 | ||||||||||
Deferred tax benefit | (18 | ) | (66 | ) | (17 | ) | (144 | ) | (245 | ) | ||||||||||
Total net expense | $ | 70 | $ | 246 | $ | 62 | $ | 542 | $ | 920 |
Three months ended September 30, 2020 | ||||||||||||||||||||
(in thousands) | Stock Appreciation Rights | Restricted Stock Awards | Restricted Stock Units | Performance Stock Units | Total | |||||||||||||||
Expense | $ | 88 | $ | 424 | $ | 67 | $ | 264 | $ | 843 | ||||||||||
Deferred tax benefit | (19 | ) | (90 | ) | (14 | ) | (56 | ) | (179 | ) | ||||||||||
Total net expense | $ | 69 | $ | 334 | $ | 53 | $ | 208 | $ | 664 |
Nine months ended September 30, 2021 | ||||||||||||||||||||
(in thousands) | Stock Appreciation Rights | Restricted Stock Awards | Restricted Stock Units | Performance Stock Units | Total | |||||||||||||||
Expense | $ | 264 | $ | 978 | $ | 233 | $ | 1,953 | $ | 3,428 | ||||||||||
Deferred tax benefit | (55 | ) | (206 | ) | (49 | ) | (411 | ) | (721 | ) | ||||||||||
Total net expense | $ | 209 | $ | 772 | $ | 184 | $ | 1,542 | $ | 2,707 |
Nine months ended September 30, 2020 | ||||||||||||||||||||
(in thousands) | Stock Appreciation Rights | Restricted Stock Awards | Restricted Stock Units | Performance Stock Units | Total | |||||||||||||||
Expense | $ | 265 | $ | 1,064 | $ | 202 | $ | 1,105 | $ | 2,636 | ||||||||||
Deferred tax benefit | (56 | ) | (223 | ) | (42 | ) | (231 | ) | (552 | ) | ||||||||||
Total net expense | $ | 209 | $ | 841 | $ | 160 | $ | 874 | $ | 2,084 |
Detail of unrecognized stock-based compensation expense follows:
Stock | ||||||||||||||||||||
(in thousands) | Appreciation | Restricted | Restricted | Performance | ||||||||||||||||
Year ended | Rights | Stock Awards | Stock Units | Stock Units | Total | |||||||||||||||
Remainder of 2021 | $ | 88 | $ | 314 | $ | 79 | $ | 659 | $ | 1,140 | ||||||||||
2022 | 309 | 1,074 | 3 | 1,506 | 2,892 | |||||||||||||||
2023 | 234 | 869 | 0 | 700 | 1,803 | |||||||||||||||
2024 | 127 | 628 | 0 | 0 | 755 | |||||||||||||||
2025 | 68 | 376 | 0 | 0 | 444 | |||||||||||||||
2026 | 11 | 34 | 0 | 0 | 45 | |||||||||||||||
Total estimated expense | $ | 837 | $ | 3,295 | $ | 82 | $ | 2,865 | $ | 7,079 |
The following table summarizes SARs activity and related information:
Weighted | ||||||||||||||||||||||||
Weighted | Weighted | average | ||||||||||||||||||||||
average | Aggregate | average | remaining | |||||||||||||||||||||
Exercise | exercise | intrinsic | fair | contractual | ||||||||||||||||||||
(in thousands, except per share data) | SARs | price | price | value(1) | value | life (in years) | ||||||||||||||||||
Outstanding, January 1, 2020 | 641 | $14.02 | - | $40.00 | $ | 25.06 | $ | 10,250 | $ | 4.10 | 5.3 | |||||||||||||
Granted | 48 | 37.30 | - | 37.30 | 37.30 | 154 | 5.80 | |||||||||||||||||
Exercised | (96 | ) | 14.02 | - | 25.76 | 16.33 | 2,401 | 2.88 | ||||||||||||||||
Forfeited | — | — | 0 | — | — | |||||||||||||||||||
Outstanding, December 31, 2020 | 593 | $15.24 | - | $40.00 | $ | 27.47 | $ | 7,706 | $ | 4.44 | 5.1 | |||||||||||||
Outstanding, January 1, 2021 | 593 | $15.24 | - | $40.00 | $ | 27.47 | $ | 7,706 | $ | 4.44 | 5.1 | |||||||||||||
Granted | 31 | 47.17 | - | 50.71 | 50.48 | 251 | 9.69 | |||||||||||||||||
Exercised | (77 | ) | 15.24 | - | 15.84 | 15.31 | 2,815 | 2.58 | ||||||||||||||||
Forfeited | 0 | — | 0 | — | — | |||||||||||||||||||
Outstanding, September 30, 2021 | 547 | $15.24 | - | $50.71 | $ | 30.46 | $ | 15,417 | $ | 5.00 | 5.2 | |||||||||||||
Vested and exercisable | 388 | $15.24 | - | $40.00 | $ | 26.49 | $ | 12,492 | $ | 4.30 | 4.1 | |||||||||||||
Unvested | 159 | 33.08 | - | 50.71 | 40.20 | 2,926 | 6.70 | 7.8 | ||||||||||||||||
Outstanding, September 30, 2021 | 547 | $15.24 | - | $50.71 | $ | 30.46 | $ | 15,417 | $ | 5.00 | 5.2 | |||||||||||||
Vested in the current year | 53 | $25.76 | - | $40.00 | $ | 34.00 | $ | 1,316 | $ | 5.40 |
(1)–Aggregate intrinsic value for SARs is defined as the amount by which the current market price of the underlying stock exceeds the exercise or grant price.
The following table summarizes activity for RSAs granted:
Grant date | ||||||||
weighted | ||||||||
(in thousands, except per share data) | RSAs | average cost | ||||||
Unvested at January 1, 2020 | 108 | $ | 34.31 | |||||
Shares awarded | 36 | 39.30 | ||||||
Restrictions lapsed and shares released | (41 | ) | 32.38 | |||||
Shares forfeited | (4 | ) | 36.63 | |||||
Unvested at December 31, 2020 | 99 | $ | 36.85 | |||||
Unvested at January 1, 2021 | 99 | $ | 36.85 | |||||
Shares awarded | 39 | 46.90 | ||||||
Restrictions lapsed and shares released | (34 | ) | 35.50 | |||||
Shares forfeited | (5 | ) | 40.61 | |||||
Unvested at September 30, 2021 | 99 | $ | 41.05 |
Shares expected to be awarded for PSUs granted to executive officers of Bancorp, the three-year performance period for which began January 1 of the award year, are as follows:
Vesting | Expected | |||||||||||
Grant | period | Fair | shares to | |||||||||
year | in years | value | be awarded | |||||||||
2019 | 3 | $ | 32.03 | 62,291 | ||||||||
2020 | 3 | 32.27 | 65,111 | |||||||||
2021 | 3 | 44.44 | 47,280 |
(18) | Derivative Financial Instruments |
Periodically, Bancorp enters into an interest rate swap transactiontransactions with a borrower,borrowers who desiresdesire to hedge their exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the consolidated balance sheet at fair value. Because of matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition are expected to have an insignificant effect on earnings. Exchanges of cash flows related to undesignated interest rate swap agreements for the first nine months of 2017 were offsetting and therefore had no net effect on Bancorp’s earnings or cash flows.
Interest rate swap agreements derive their value from underlying interest rates. These transactions involve both credit and market risk. Notional amounts are amounts on which calculations, payments and the value of the derivative are based. Notional amounts do not represent direct credit exposure.exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Bancorp is exposed to credit-related losses in the event of nonperformancenon-performance by counterparties to these agreements. Bancorp mitigates the credit risk of its financial contracts through credit approvals, limits, collateral and monitoring procedures, and does not expect any counterparties to fail their obligations.obligations.
At September 30, 2017 and December 31, 2016, Bancorp had outstanding undesignated interest rate swap contracts as follows:
(dollar amounts in thousands) | Receiving | Paying | ||||||||||||||
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Notional amount | $ | 53,214 | $ | 43,986 | $ | 53,214 | $ | 43,986 | ||||||||
Weighted average maturity (years) | 8.9 | 9.9 | 8.9 | 9.9 | ||||||||||||
Fair value | $ | 148 | $ | (178 | ) | $ | (148 | ) | $ | 178 |
Receiving | Paying | |||||||||||||||
September 30, | December 31, | September 30, | December 31, | |||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Notional amount | $ | 127,607 | $ | 119,940 | $ | 127,607 | $ | 119,940 | ||||||||
Weighted average maturity (years) | 7.3 | 7.8 | 7.3 | 7.8 | ||||||||||||
Fair value | $ | 4,180 | $ | 8,374 | $ | 4,194 | $ | 8,391 |
In 2016, Bancorp entered into an interest rate swap to hedge cash flows of a $10 million rolling fixed-rate three-monththree-month FHLB borrowing. The swap began December 6, 2016 and ends matures December 6, 2021. In 2015, Bancorp entered into an interest rate swap to hedge cash flows of a $20 million rolling fixed-rate three-month FHLB borrowing. The swap began December 9, 2015 and matures December 6, 2020. For purposes of hedging, rolling fixed rate advances are considered to be floating rate liabilities. Interest rate swaps involve exchange of Bancorp’sBancorp’s floating rate interest payments for fixed rate swap payments on underlying principal amounts. These swaps were designated and qualified, for cash-flow hedge accounting. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of gains or losses is reported as a component of other comprehensive income,AOCI, and is subsequently reclassified into earnings as an adjustment to interest expense in periods infor which the hedged forecasted transaction affectsimpacts earnings.
Stock Yards Bancorp, inc. and subsidiary
The following table details Bancorp’sBancorp’s derivative position designated as a cash flow hedges,hedge, and the related fair values as of September 30, 2017 and December 31, 2016.value:
(dollars in thousands) | (dollars in thousands) | (dollars in thousands) | ||||||||||||||||||||||||||||||||
Fair value | Fair value | |||||||||||||||||||||||||||||||||
Notional | Notional | Maturity | Receive (variable) | Pay fixed | assets (liabilities) | Notional | Maturity | Receive (variable) | Pay fixed | assets (liabilities) | ||||||||||||||||||||||||
amount | amount | date | index | swap rate | September 30, 2017 | December 31, 2016 | amount | date | index | swap rate | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
$ | 10,000 | 12/6/2021 | US 3 Month LIBOR | 1.89 | % | $ | 26 | $ | 16 | 10,000 | December 6, 2021 | Three Month LIBOR | 1.89 | % | $ | (33 | ) | $ | (160 | ) | ||||||||||||||
20,000 | 12/6/2020 | US 3 Month LIBOR | 1.79 | % | 8 | 9 | ||||||||||||||||||||||||||||
$ | 30,000 | 1.82 | % | $ | 34 | $ | 25 |
| Regulatory Matters |
Bancorp and the Bank are subject to variouscapital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, prescribed by banking regulations and administered by state and federal banking agencies. The final rules implementingin part, dependent on the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective on January 1, 2015 with full compliance with allindividual risk profiles of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Thefinancial institutions. Failure to meet minimum capital level requirements applicable to bankscan initiate certain mandatory and bank holding companies subject topossibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Bancorp’s financial statements. Under capital adequacy guidelines and the rules are:
a total risk-based capital ratio of 8%
a common equity tier 1 capital ratio of 4.5%
a tier 1 risk-based capital ratio of 6%
a tier 1 leverage ratio of 4%
Under these requirements, Bancorpregulatory framework for prompt corrective action, the Holding Company and the Bank must meet minimumspecific capital guidelines that involve quantitative measures of Bancorp’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and percentages of Tier 1 capital, common equity Tier 1 capital, and total capital to risk weighted assets, and Tier 1 capital to average assets. Risk weighted assetsclassification are determined by applying certain risk weightings prescribed by regulation to various categories of assets and off-balance sheet commitments. Capital and risk weighted assets may be furtheralso subject to qualitative judgments by the regulators as toregarding components, risk weightingweightings and other factors. Failure to meet capital requirements can result in certain mandatory, and possibly discretionary, corrective actions prescribed by regulation or determined to be necessary by regulators, which could materially affect the unaudited consolidated financial statements.
The Basel III rules also establishedBanking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0% Tier 1 Leverage ratio.
Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer composed of 2.5%, to be phased in over three years through December 31, 2018,Common Equity Tier 1 Risk-Based Capital above the regulatory minimum risk-based capital ratios. When fully phased inrequirements for the buffer will result in the following minimum ratios:
a common equity tier Common Equity Tier 1 risk-based capital Risk-Based Capital ratio, of 7.0%,
a tier Tier 1 risk-based capital Risk-Based Capital ratio of 8.5%, and
a total risk-based capital Total Risk-Based Capital ratio of 10.5%.
The rules allowed banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. Bancorp opted out of this requirement.
Stock Yards Bancorp, inc. and subsidiary
As of September 30, 2017, Bancorp meets the requirementsnecessary to be considered well capitalized under adequately-capitalized. At September 30, 2020, the rules,adequately-capitalized minimums, including the capital conservation buffer, were a 6.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and is not subject10.5% Total Risk-Based Capital ratio. The capital conservation buffer was phased in starting in 2016 at 0.625% and was fully implemented at 2.5% effective January 1, 2019.
Bancorp continues to limitations dueexceed the regulatory requirements for all calculations. Bancorp and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the capital conservation buffer.
The following tables set sets forth consolidated Bancorp’s and the Bank’s risk based capital amounts and ratios as of September 30, 2017 and December 31, 2016.ratios:
(dollars in thousands) | Actual | Minimum for adequately capitalized | Minimum for well capitalized | Actual | Minimum for adequately capitalized | Minimum for well capitalized | ||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||||||||||||
September 30, 2021 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||||||||||||
Total risk-based capital (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 358,610 | 13.64 | % | $ | 210,328 | 8.00 | % | NA | NA | $ | 581,998 | 12.61 | % | $ | 369,314 | 8.00 | % |
| NA |
| NA | ||||||||||||||||||||||||||
Bank | 346,040 | 13.20 | 209,721 | 8.00 | $ | 262,152 | 10.00 | % | 564,054 | 12.26 | 368,132 | 8.00 | $ | 460,166 | 10.00 | % | ||||||||||||||||||||||||||||||||
Common equity tier 1 risk-based capital | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 333,312 | 12.67 | 118,382 | 4.50 | NA | NA | 539,601 | 11.69 | 207,739 | 4.50 |
| NA |
| NA | ||||||||||||||||||||||||||||||||||
Bank | 320,742 | 12.23 | 118,016 | 4.50 | 157,355 | 6.00 | 564,051 | 11.34 | 207,074 | 4.50 | 299,108 | 6.50 | ||||||||||||||||||||||||||||||||||||
Tier 1 risk-based capital (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 333,312 | 12.67 | 157,843 | 6.00 | NA | NA | 539,601 | 11.69 | 276,985 | 6.00 |
| NA |
| NA | ||||||||||||||||||||||||||||||||||
Bank | 320,742 | 12.23 | 157,355 | 6.00 | 157,355 | 6.00 | 564,051 | 11.34 | 276,099 | 6.00 | 368,132 | 8.00 | ||||||||||||||||||||||||||||||||||||
Leverage (2) | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 333,312 | 11.02 | 120,984 | 4.00 | NA | NA | 539,601 | 8.98 | 240,340 | 4.00 |
| NA |
| NA | ||||||||||||||||||||||||||||||||||
Bank | 320,742 | 10.61 | 120,921 | 4.00 | 151,151 | 5.00 | 564,051 | 8.69 | 240,011 | 4.00 | 300,014 | 5.00 |
(dollars in thousands) | Actual | Minimum for adequately capitalized | Minimum for well capitalized | |||||||||||||||||||||
December 31, 2016 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total risk-based capital (1) | ||||||||||||||||||||||||
Consolidated | $ | 338,525 | 13.04 | % | $ | 207,684 | 8.00 | % | NA | NA | ||||||||||||||
Bank | 325,630 | 12.57 | 207,243 | 8.00 | $ | 259,053 | 10.00 | % | ||||||||||||||||
Common equity tier 1 risk-based capital | ||||||||||||||||||||||||
Consolidated | 314,147 | 12.10 | 116,832 | 4.50 | NA | NA | ||||||||||||||||||
Bank | 301,252 | 11.63 | 116,564 | 4.50 | 155,418 | 6.00 | ||||||||||||||||||
Tier 1 risk-based capital (1) | ||||||||||||||||||||||||
Consolidated | 314,147 | 12.10 | 155,775 | 6.00 | NA | NA | ||||||||||||||||||
Bank | 301,252 | 11.63 | 155,418 | 6.00 | 155,418 | 6.00 | ||||||||||||||||||
Leverage (2) | ||||||||||||||||||||||||
Consolidated | 314,147 | 10.54 | 119,221 | 4.00 | NA | NA | ||||||||||||||||||
Bank | 301,252 | 10.11 | 119,190 | 4.00 | 148,987 | 5.00 |
|
| |
(dollars in thousands) | Actual | Minimum for adequately capitalized | Minimum for well capitalized | |||||||||||||||||||||
December 31, 2020 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total risk-based capital (1) | ||||||||||||||||||||||||
Consolidated | $ | 470,648 | 13.36 | % | $ | 281,887 | 8.00 | % |
| NA |
| NA | ||||||||||||
Bank | 456,302 | 12.99 | 281,106 | 8.00 | $ | 351,383 | 10.00 | % | ||||||||||||||||
Common equity tier 1 risk-based capital (1) | ||||||||||||||||||||||||
Consolidated | 430,886 | 12.23 | 158,556 | 4.50 |
| NA |
| NA | ||||||||||||||||
Bank | 416,540 | 11.85 | 158,122 | 4.50 | 228,399 | 6.50 | ||||||||||||||||||
Tier 1 risk-based capital (1) | ||||||||||||||||||||||||
Consolidated | 430,886 | 12.23 | 211,407 | 6.00 |
| NA |
| NA | ||||||||||||||||
Bank | 416,540 | 11.85 | 210,830 | 6.00 | 281,106 | 8.00 | ||||||||||||||||||
Leverage (2) | ||||||||||||||||||||||||
Consolidated | 430,886 | 9.57 | 180,123 | 4.00 |
| NA |
| NA | ||||||||||||||||
Bank | 416,540 | 9.26 | 179,845 | 4.00 | 224,807 | 5.00 |
Stock Yards Bancorp, inc. and subsidiary(1) Ratio is computed in relation to risk-weighted assets.
(2) Ratio is computed in relation to average assets.
NA –Not Applicable
| Segments |
Bancorp’sBancorp’s principal activities include commercial banking and wealth management and trust (WM&T).WM&T. Commercial banking provides a full range of loan and deposit products to individual consumers and businesses. Commercial banking also includes Bancorp’s mortgage originationbanking and securities brokerageinvestment products sales activity. WM&T provides financial management services including investment management, financial & retirement planning and trust and& estate administration, andservices, as well as retirement plan services.management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.
Financial information for each business segment reflects that which is specifically identifiable or allocated based on an internal allocation method. Income taxes are allocated based on the effective federal income tax rate adjusted for any tax exempttax-exempt activity. All tax exempttax-exempt activity and provision for loan losses have been allocated fully to the commercial banking segment. Measurement of performance of business segments is based on the management structure of Bancorp and is not necessarily comparable with similar information for any other financial institution. Information presented is also not necessarily indicative of the segments’segments’ operations if they were independent entities.
Principally, all of the net assets of Stock Yards Bancorp Inc. are involved in the commercial banking segment. Bancorp has goodwillGoodwill of $136 million, of which $682,000 relatedrelates to a bank acquisition in 1996, which $12 million relates to the 2019 KSB acquisition and $123 million relates to the KB acquisition, has been assigned to the commercial banking segment. Assets assigned to WM&T primarily consist of net premises and equipment net of accumulated depreciation.and a receivable related to fees earned that have not been collected.
Selected financial information by business segment for the three and nine month periods ended September 30, 2017 and 2016 follows:
Wealth | Three months ended September 30, 2021 | Three months ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
Commercial | management | |||||||||||||||||||||||||||||||||||
(in thousands) | banking | and trust | Total | Commercial Banking | WM&T | Total | Commercial Banking | WM&T | Total | |||||||||||||||||||||||||||
Three months ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||
Net interest income | $ | 26,089 | $ | 75 | $ | 26,164 | $ | 45,414 | $ | 69 | $ | 45,483 | $ | 33,619 | $ | 76 | $ | 33,695 | ||||||||||||||||||
Provision for loan losses | 150 | - | 150 | |||||||||||||||||||||||||||||||||
Provision for credit losses | (1,525 | ) | 0 | (1,525 | ) | 4,968 | 0 | 4,968 | ||||||||||||||||||||||||||||
Wealth management and trust services | - | 5,025 | 5,025 | 0 | 7,128 | 7,128 | 0 | 5,657 | 5,657 | |||||||||||||||||||||||||||
All other non-interest income | 6,078 | - | 6,078 | 10,486 | 0 | 10,486 | 7,386 | 0 | 7,386 | |||||||||||||||||||||||||||
Non-interest expense | 18,491 | 2,826 | 21,317 | |||||||||||||||||||||||||||||||||
Income before income taxes | 13,526 | 2,274 | 15,800 | |||||||||||||||||||||||||||||||||
Non-interest expenses | 31,072 | 3,486 | 34,558 | 22,512 | 3,134 | 25,646 | ||||||||||||||||||||||||||||||
Income before income tax expense | 26,353 | 3,711 | 30,064 | 13,525 | 2,599 | 16,124 | ||||||||||||||||||||||||||||||
Income tax expense | 3,284 | 812 | 4,096 | 6,070 | 832 | 6,902 | 1,027 | 564 | 1,591 | |||||||||||||||||||||||||||
Net income | $ | 10,242 | $ | 1,462 | $ | 11,704 | $ | 20,283 | $ | 2,879 | $ | 23,162 | $ | 12,498 | $ | 2,035 | $ | 14,533 | ||||||||||||||||||
Segment assets | $ | 3,153,886 | $ | 2,027 | $ | 3,155,913 | $ | 6,177,355 | $ | 3,833 | $ | 6,181,188 | $ | 4,361,576 | $ | 3,553 | $ | 4,365,129 | ||||||||||||||||||
Three months ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||
Net interest income | $ | 24,690 | $ | 70 | $ | 24,760 | ||||||||||||||||||||||||||||||
Provision for loan losses | 1,250 | - | 1,250 | |||||||||||||||||||||||||||||||||
Wealth management and trust services | - | 4,800 | 4,800 | |||||||||||||||||||||||||||||||||
All other non-interest income | 6,558 | - | 6,558 | |||||||||||||||||||||||||||||||||
Non-interest expense | 17,722 | 2,796 | 20,518 | |||||||||||||||||||||||||||||||||
Income before income taxes | 12,276 | 2,074 | 14,350 | |||||||||||||||||||||||||||||||||
Income tax expense | 3,142 | 741 | 3,883 | |||||||||||||||||||||||||||||||||
Net income | $ | 9,134 | $ | 1,333 | $ | 10,467 | ||||||||||||||||||||||||||||||
Segment assets | $ | 2,936,542 | $ | 2,123 | $ | 2,938,665 |
Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | |||||||||||||||||||||||
(in thousands) | Commercial Banking | WM&T | Total | Commercial Banking | WM&T | Total | ||||||||||||||||||
Net interest income | $ | 124,672 | $ | 220 | $ | 124,892 | $ | 99,423 | $ | 246 | $ | 99,669 | ||||||||||||
Provision for credit losses | 1,147 | 0 | 1,147 | 17,918 | 0 | 17,918 | ||||||||||||||||||
Wealth management and trust services | 0 | 20,234 | 20,234 | 0 | 17,601 | 17,601 | ||||||||||||||||||
All other non-interest income | 27,012 | 0 | 27,012 | 20,600 | 0 | 20,600 | ||||||||||||||||||
Non-interest expenses | 97,249 | 10,459 | 107,708 | 63,063 | 9,567 | 72,630 | ||||||||||||||||||
Income before income tax expense | 53,288 | 9,995 | 63,283 | 39,042 | 8,280 | 47,322 | ||||||||||||||||||
Income tax expense | 11,058 | 2,169 | 13,227 | 4,392 | 1,797 | 6,189 | ||||||||||||||||||
Net income | $ | 42,230 | $ | 7,826 | $ | 50,056 | $ | 34,650 | $ | 6,483 | $ | 41,133 | ||||||||||||
Segment assets | $ | 6,177,355 | $ | 3,833 | $ | 6,181,188 | $ | 4,361,576 | $ | 3,553 | $ | 4,365,129 |
(21) | Revenue from Contracts with Customers |
Stock Yards Bancorp, inc. and subsidiaryAll of Bancorp’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The table below presents Bancorp’s sources of non-interest income with items outside the scope of ASC 606 noted as such:
Wealth | ||||||||||||
Commercial | management | |||||||||||
(in thousands) | banking | and trust | Total | |||||||||
Nine months ended September 30, 2017 | ||||||||||||
Net interest income | $ | 76,350 | $ | 230 | $ | 76,580 | ||||||
Provision for loan losses | 1,650 | - | 1,650 | |||||||||
Wealth management and trust services | - | 15,272 | 15,272 | |||||||||
All other non-interest income | 18,303 | - | 18,303 | |||||||||
Non-interest expense | 54,756 | 9,055 | 63,811 | |||||||||
Income before income taxes | 38,247 | 6,447 | 44,694 | |||||||||
Income tax expense | 9,295 | 2,302 | 11,597 | |||||||||
Net income | $ | 28,952 | $ | 4,145 | $ | 33,097 | ||||||
Segment assets | $ | 3,153,886 | $ | 2,027 | $ | 3,155,913 | ||||||
Nine months ended September 30, 2016 | ||||||||||||
Net interest income | $ | 71,985 | $ | 194 | $ | 72,179 | ||||||
Provision for loan losses | 2,500 | - | 2,500 | |||||||||
Wealth management and trust services | - | 14,219 | 14,219 | |||||||||
All other non-interest income | 17,999 | - | 17,999 | |||||||||
Non-interest expense | 51,914 | 8,337 | 60,251 | |||||||||
Income before income taxes | 35,570 | 6,076 | 41,646 | |||||||||
Income tax expense | 9,064 | 2,171 | 11,235 | |||||||||
Net income | $ | 26,506 | $ | 3,905 | $ | 30,411 | ||||||
Segment assets | $ | 2,936,542 | $ | 2,123 | $ | 2,938,665 |
Three months ended September 30, 2021 | Three months ended September 30, 2020 | |||||||||||||||||||||||
(in thousands) | Commercial Banking | WM&T | Total | Commercial | WM&T | Total | ||||||||||||||||||
Wealth management and trust services | $ | 0 | $ | 7,128 | $ | 7,128 | $ | 0 | $ | 5,657 | $ | 5,657 | ||||||||||||
Deposit service charges | 1,768 | 0 | 1,768 | 998 | 0 | 998 | ||||||||||||||||||
Debit and credit card income | 3,887 | 0 | 3,887 | 2,218 | 0 | 2,218 | ||||||||||||||||||
Treasury management fees | 1,771 | 0 | 1,771 | 1,368 | 0 | 1,368 | ||||||||||||||||||
Mortgage banking income(1) | 915 | 0 | 915 | 1,979 | 0 | 1,979 | ||||||||||||||||||
Net investment product sales commissions and fees | 780 | 0 | 780 | 431 | 0 | 431 | ||||||||||||||||||
Bank owned life insurance(1) | 275 | 0 | 275 | 172 | 0 | 172 | ||||||||||||||||||
Other(2) | 1,090 | 0 | 1,090 | 220 | 0 | 220 | ||||||||||||||||||
Total non-interest income | $ | 10,486 | $ | 7,128 | $ | 17,614 | $ | 7,386 | $ | 5,657 | $ | 13,043 |
Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | |||||||||||||||||||||||
(Dollars in thousands) | Commercial Banking | WM&T | Total | Commercial | WM&T | Total | ||||||||||||||||||
Wealth management and trust services | $ | 0 | $ | 20,234 | $ | 20,234 | $ | 0 | $ | 17,601 | $ | 17,601 | ||||||||||||
Deposit service charges | 3,945 | 0 | 3,945 | 3,081 | 0 | 3,081 | ||||||||||||||||||
Debit and credit card income | 9,444 | 0 | 9,444 | 6,261 | 0 | 6,261 | ||||||||||||||||||
Treasury management fees | 5,041 | 0 | 5,041 | 3,901 | 0 | 3,901 | ||||||||||||||||||
Mortgage banking income(1) | 3,662 | 0 | 3,662 | 4,447 | 0 | 4,447 | ||||||||||||||||||
Net investment product sales commissions and fees | 1,789 | 0 | 1,789 | 1,288 | 0 | 1,288 | ||||||||||||||||||
Bank owned life insurance(1) | 642 | 0 | 642 | 527 | 0 | 527 | ||||||||||||||||||
Other(2) | 2,489 | 0 | 2,489 | 1,095 | 0 | 1,095 | ||||||||||||||||||
Total non-interest income | $ | 27,012 | $ | 20,234 | $ | 47,246 | $ | 20,600 | $ | 17,601 | $ | 38,201 |
(1) Outside of the scope of ASC 606. |
(2) Outside of the scope of ASC 606, with the exception of safe deposit fees which were nominal for all periods. |
Bancorp’s revenue on the consolidated statement of income is categorized by product type, which effectively depicts how the nature, timing and extent of cash flows are affected by economic factors. Revenue sources within the scope of ASC 606 are discussed below:
Bancorp earns fees from its deposit customers for transaction-based, account management and overdraft services. Transaction-based fees, which include services such as ATM use fees and stop payments fees, are recognized at the time the transaction is executed, as that is when the company fulfills the performance obligation. Account management fees are earned over the course of a month and charged in the month in which the services are provided.
Treasury management transaction fees are recognized at the time the transaction is executed, as that is when the company fulfills the performance obligation. Account analysis fees are earned over the course of a month and charged in the month in which the services are provided. Treasury management fees are withdrawn from customers’ account balances.
WM&T provides customers fiduciary and investment management services as agreed upon in asset management contracts. The contracts require WM&T to provide a series of distinct services for which fees are earned over time. The contracts are cancellable upon demand with fees typically based upon the asset value of investments. Revenue is accrued and recognized monthly based upon month-end asset values and collected from the customer predominately in the following month except for a small percentage of fees collected quarterly. Incentive compensation related to WM&T activities is considered a cost of obtaining the contract. Contracts between WM&T and customers do not permit performance-based fees and accordingly, none of the fee income earned by WM&T is performance-based. Trust fees receivable were $2.6 million and $2.2 million at September 30, 2021 and December 31, 2020, respectively.
Investment products sales commissions and fees represent the Bank’s share of transaction fees and wrap fees resulting from investment services and programs provided through an agent relationship with a third party broker-dealer. Transaction fees are assessed at the time of the transaction. Those fees are collected and recognized on a monthly basis. Trailing fees are based upon market values and are assessed, collected and recognized on a quarterly basis. Because the Bank acts as an agent in arranging the relationship between the customer and third party provider, and does not control the services rendered, investment product sales commissions and fees are reported net of related costs, including nominal incentive compensation, and trading activity charges of $437,000 and $417,000 for the nine month periods ended September 30, 2021 and 2020.
Debit and credit card revenue primarily consists of debit and credit card interchange income. Interchange income represents fees assessed within the payment card system for acceptance of card-based transactions. Interchange fees are assessed as the performance obligation is satisfied, which is at the point in time the card transaction is authorized. Revenue is collected and recognized daily through the payment network settlement process.
Bancorp did not establish any contract assets or liabilities as a result of adopting ASC 606, nor were any recognized during the nine months ended September 30, 2021.
(22) | Leases |
Bancorp has operating leases for various branch locations with terms ranging from two years to 19 years, some of which include options to extend the leases in five-year increments. A total of seven operating leases were added as a result of the KB acquisition. Options reasonably expected to be exercised are included in determination of the right-of-use asset. Bancorp elected to use a practical expedient to expense short-term lease obligations associated with leases with original terms of 12 months or less. Bancorp elected not to separate non-lease components from lease components for its operating leases. The right-of-use lease asset and operating lease liability are recorded in premises and equipment and other liabilities on the consolidated balance sheet.
Balance sheet, income statement and cash flow detail regarding operating leases follows:
(dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Balance Sheet | ||||||||
Operating lease right-of-use asset | $ | 15,449 | $ | 12,100 | ||||
Operating lease liability | 16,938 | 13,476 | ||||||
Weighted average remaining lease term (years) | 9.5 | 8.6 | ||||||
Weighted average discount rate | 3.02 | % | 3.37 | % | ||||
Maturities of lease liabilities: | ||||||||
One year or less | $ | 654 | $ | 2,087 | ||||
Year two | 2,634 | 2,107 | ||||||
Year three | 2,673 | 2,141 | ||||||
Year four | 2,408 | 1,899 | ||||||
Year five | 1,924 | 1,469 | ||||||
Greater than five years | 9,308 | 5,882 | ||||||
Total lease payments | $ | 19,601 | $ | 15,585 | ||||
Less imputed interest | 2,663 | 2,109 | ||||||
Total | $ | 16,938 | $ | 13,476 |
Three months ended | Three months ended | |||||||
(in thousands) | September 30, 2021 | September 30, 2020 | ||||||
Income Statement | ||||||||
Components of lease expense: | ||||||||
Operating lease cost | $ | 616 | $ | 468 | ||||
Variable lease cost | 57 | 44 | ||||||
Less sublease income | 9 | 0 | ||||||
Total lease cost | $ | 664 | $ | 512 |
Nine months ended | Nine months ended | |||||||
(in thousands) | September 30, 2021 | September 30, 2020 | ||||||
Income Statement | ||||||||
Components of lease expense: | ||||||||
Operating lease cost | $ | 1,623 | $ | 1,411 | ||||
Variable lease cost | 170 | 131 | ||||||
Less sublease income | 36 | 38 | ||||||
Total lease cost | $ | 1,757 | $ | 1,504 |
Nine months ended | Nine months ended | |||||||
(in thousands) | September 30, 2021 | September 30, 2020 | ||||||
Cash flow Statement | ||||||||
Supplemental cash flow information: | ||||||||
Operating cash flows from operating leases | $ | 1,898 | $ | 1,186 |
As of September 30, 2021, Bancorp had not entered into any lease agreements that had yet to commence.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The consolidated financial statements include the accounts of Stock Yards Bancorp, Inc. and its wholly owned subsidiaries, SYB and the Captive, collectively referred to as “Bancorp” or the “Company.” All significant inter-company transactions and accounts have been eliminated in consolidation.
Bancorp is a FHC headquartered in Louisville, Kentucky. Established in 1904, SYB is a state-chartered non-member financial institution that provides services in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets through 63 full-service banking center locations. The captive is a Nevada-based, wholly-owned insurance subsidiary of the Company, which was retained in conjunction with the KB acquisition and provides insurance coverage not currently provided by Bancorp’s commercial policies to Bancorp and SYB as well as a group of third-party insurance captives.
This section presents management’s perspective on our financial condition and results of operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This item discusses results of operations for Stock Yards Bancorp, Inc. (“Bancorp” or “Company”), and its subsidiary, Stock Yards Bank & Trust Company (“Bank”) for the three and nine months ended September 30, 2017 and compares these periods with the same periods of the previous year. Unless otherwise indicated, all references in this discussion to the Bank include Bancorp. In addition, the discussion describes changes in the financial condition of Bancorp and the Bank that have occurred during the first nine months of 2017 compared with same period in 2016. This discussion should be read in conjunction with the consolidated financial statements and accompanying notesfootnotes presented in Part 1 Item 1 “Financial Statements” and other information appearing in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of Bancorp’s future financial outcomes. In addition to historical information, this report.discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.
Cautionary Statement Regarding Forward-Looking Statements |
This reportdocument contains forward-looking statements underrelating to future results of Bancorp that are considered “forward-looking” as defined by Section 27A of the Private Securities Litigation Reform Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are principally, but not exclusively, contained in Part I Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that involvemay cause actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the statement. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “aim,” “can,” “conclude,” “continue,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “may,” “might,” “outlook,” “possible,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “will likely,” “would,” or other similar expressions. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Forward-looking statements detail management’s expectations regarding the future and are based on information known to management only as of the date the statements are made and management undertakes no obligation to update forward-looking statements to reflect events or circumstances that occur after the date forward-looking statements are made, except as required by applicable law.
There is no assurance that any list of risks and uncertainties. Although Bancorp believes assumptions underlying forward-looking statements contained herein are reasonable, any of these assumptions could be inaccurate.uncertainties or risk factors is complete. Factors that could cause actual results to differ materially from results discussedthose expressed or implied in forward-looking statements include, among other things:
● | impact of COVID-19 on Bancorp’s business, including the impact of the actions taken by governmental authorities to try and contain the pandemic or address the impact of the pandemic on the U.S. economy (including, without limitation, the CARES Act and other relief efforts), and the resulting effect of all of such items on our operations, liquidity and capital position, and on the financial condition of Bancorp’s borrowers and other customers; |
● | changes in or forecasts of future political and economic conditions; |
● | accuracy of assumptions and estimates used in establishing the ACL for loans, ACL for off-balance sheet credit exposures and other estimates; |
● | impairment of investment securities, goodwill, MSRs, other intangible assets or DTAs; |
● | ability to effectively navigate an economic slowdown or other economic or market disruptions; |
● | changes in laws and regulations or the interpretation thereof; |
● | changes in fiscal, monetary, and/or regulatory policies; |
● | changes in tax polices including but not limited to changes in federal and state statutory rates; |
● | behavior of securities and capital markets, including changes in market volatility and liquidity; |
● | ability to effectively manage capital and liquidity; |
● | long-term and short-term interest rate fluctuations, as well as the shape of the U.S. Treasury yield curve; |
● | the magnitude and frequency of changes to the FFTR implemented by the Federal Open Market Committee of the FRB; |
● | competitive product and pricing pressures; |
● | projections of revenue, expenses, capital expenditures, losses, EPS, dividends, capital structure, etc.; |
● | descriptions of plans or objectives for future operations, products, or services; |
● | integration of acquired financial institutions; |
● | changes in the credit quality of Bancorp’s customers and counterparties, deteriorating asset quality and charge-off levels; |
● | changes in technology instituted by Bancorp, its counterparties or competitors; |
● | changes to or the effectiveness of Bancorp’s overall internal control environment; |
● | adequacy of Bancorp’s risk management framework, disclosure controls and procedures and internal control over financial reporting; |
● | changes in applicable accounting standards, including the introduction of new accounting standards; |
● | changes in investor sentiment or consumer/business spending or savings behavior; |
● | ability to appropriately address social, environmental and sustainability concerns that may arise from business activities; |
● | integration of acquired businesses or future acquisitions; |
● | occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics or outbreaks of hostilities, and Bancorp’s ability to deal effectively with disruptions caused by the foregoing; |
● | ability to maintain the security of its financial, accounting, technology, data processing and other operational systems and facilities; |
● | ability to withstand disruptions that may be caused by any failure of its operational systems or those of third parties; |
● | ability to effectively defend itself against cyberattacks or other attempts by unauthorized parties to access information of Bancorp, its vendors or its customers or to disrupt systems; and |
● | other risks and uncertainties reported from time-to-time in Bancorp’s filings with the SEC, including Part I Item 1A “Risk Factors”of Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020. |
Bancorp executed a definitive Agreement and Plan of Merger (“agreement”), dated as of August 3, 2021, to acquire Commonwealth Bancshares, Inc. and its subsidiary Commonwealth Bank & Trust Company (collectively referred to as “Commonwealth”). This document also contains statements regarding the proposed acquisition transaction that are not statements of historical fact and are considered forward-looking statements within the criteria described above. These statements are likewise subject to various risks and uncertainties that may cause actual results and outcomes of the proposed transaction to differ, possibly materially, from the anticipated results or outcomes expressed or implied in these forward-looking statements. In addition to factors disclosed in reports filed by Bancorp with the SEC, risks and uncertainties for Bancorp, Commonwealth and the combined company include, but are not limited to: the possibility that some or all of the anticipated benefits of the proposed merger will not be realized or will not be realized within the expected time period; the risk that integration of Commonwealth’s operations with those of Bancorp will be materially delayed or will be more costly or difficult than expected; the parties’ inability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the failure to satisfy other conditions to completion of the merger, including receipt of required regulatory and other approvals; the failure of the proposed transaction to close for any other reason; diversion of management's attention from ongoing business operations and opportunities due to the following: economicmerger; the challenges of integrating and retaining key employees; the effect of the announcement of the merger on Bancorp’s, Commonwealth’s or the combined company’s respective customer and employee relationships and operating results; the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; dilution caused by Bancorp’s issuance of additional shares of common stock in connection with the merger; the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market conditions both generally and more specifically in markets in which Bancorp and the Bank operate; competition for Bancorp’s customers from other providers of financial services; government legislation and regulation which change from time to time and over which Bancorp has no control; changes in interest rates; material unforeseen changes in liquidity,business, results of operations orand financial condition of Bancorp’s customers;Bancorp, Commonwealth and other risks detailed in Bancorp’s filings with the Securitiescombined company; and Exchange Commission, all of which are difficult to predictgeneral competitive, economic, political and many of which are beyond the control of Bancorp.market conditions and fluctuations.
Acquisition of Kentucky Bancshares, Inc. |
Stock YardsOn May 31, 2021, Bancorp inc.completed its acquisition of Kentucky Bancshares, Inc. and its wholly owned subsidiary,
Overview Kentucky Bank, collectively defined as “KB,” a commercial bank and trust company operating 19 branches throughout central and eastern Kentucky with approximately $1.3 billion in assets, $755 million in loans (including PPP), $396 million in AFS debt securities and $1.0 billion in deposits at the time of 2017 through September 30, 2017acquisition. Kentucky Bancshares, Inc. was also the holding company for an insurance captive, which Bancorp acquired and retained. Bancorp acquired all outstanding common stock of Kentucky Bancshares, Inc. in a combined stock and cash transaction that resulted in total consideration paid to Kentucky Bancshares, Inc. shareholders of $233 million.
Bancorp completed has recorded goodwill of $123 million and incurred pre-tax merger related expenses totaling $0 and $18.5 million for the firstthree and nine months ended September 30, 2021, respectively, as a result of 2017 with netthe KB acquisition. Net income from the Kentucky Bancshares, Inc. acquisition is expected to be accretive to Bancorp’s overall operating results beginning in 2022.
The acquisition of $33.1 million, an 8.8% increase overKB had a significant impact on the comparable period in 2016. The increase is primarily due to higher net interest income, higher non-interest income,ACL and a reduction in provision for loan losses. These increases were partially offset by higher non-interest expense. Diluted earnings per shareloss provisioning for the first nine months of 2017 were $1.44, compared with $1.34ending September 30, 2021. In total, acquisition-related activity served to increase the ACL $14.2 million for the first nine months ended September 30, 2021. This increase consisted of 2016. Bancorp's performance$6.8 million attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed to provision expense), and $7.4 million attributed to the acquired non-PCD portfolio, which represents the acquisition-related provision expense for the first nine months of 2017 reflected several positive factors, including:ended September 30, 2021.
Pending Acquisition of Commonwealth Bancshares, Inc. and its Subsidiary Commonwealth Bank & Trust Company |
Effective August 3, 2021, Bancorp executed a definitive Agreement and Plan of Merger (“agreement”), pursuant to which Bancorp will acquire all of the outstanding common stock of privately-owned Commonwealth Bancshares, Inc. Commonwealth Bancshares, Inc., headquartered in Louisville, Kentucky, is the holding company for Commonwealth Bank & Trust Company (collectively referred to as “Commonwealth”), which operates 15 retail branches, including nine in Jefferson County, four in Shelby county and two in Northern Kentucky.
Under the terms of the Agreement, the Company will acquire all outstanding common stock in a combined stock and cash transaction, resulting in total consideration to Commonwealth’s shareholders of approximately $188 million based on estimates as of October 29, 2021. Bancorp will fund the cash payment portion of the acquisition through existing resources on-hand.
The acquisition is expected to close during the fourth quarter of 2021, subject to customary regulatory approval and completion of customary closing conditions. As of September 30, 2021, Commonwealth reported approximately $1.2 billion in assets, $711 million in loans (excluding PPP), $1.0 billion in deposits and $89 million in tangible common equity. Commonwealth also maintains a Wealth Management and Trust Department with total assets under management of $2.6 billion at September 30, 2021. The combined franchise will serve customers through 78 branches with total assets of approximately $7.4 billion, $4.9 billion in gross loans, $6.3 billion in deposits and over $7.1 billion in trust assets under management.
Issued but Not Yet Effective Accounting Standards Updates |
For disclosure regarding the impact to Bancorp’s financial statements of issued-but-not-yet-effective ASUs, see the footnote titled “Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.”
Business Segment Overview |
Bancorp is divided into two reportable segments: Commercial Banking and WM&T:
Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all its markets through retail lending, mortgage banking, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, treasury management services, merchant services, international banking, correspondent banking and other banking services. The Bank also offers securities brokerage services via its banking center network through an arrangement with a third party broker-dealer in the Commercial Banking segment.
WM&T provides investment management, financial & retirement planning and trust & estate services, as well as retirement plan management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.
Overview – Impact of the COVID-19 Pandemic on Financial Condition and Results of Operations |
The COVID-19 pandemic in the U.S. and efforts to contain both the virus and the related economic fallout have had a complex and significant impact on the economy, the banking industry and Bancorp. While the distribution of vaccinations, continued easing of restrictions on public commerce and business activities, and stabilizing unemployment levels have been positive developments in recent months, the overall impact of the pandemic upon Bancorp, the Bank and its customers remains uncertain.
Bancorp’s financial condition and results of operations for the three and nine months ended September 30, 2021 have been significantly impacted by the following pandemic-related factors, among others:
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The FRB’s decision to lower the FFTR 150 bps in March of 2020 in response to the pandemic lowered the FFTR to a range of 0%-0.25% and Prime to 3.25%, where both remained as of September 30, 2021. Consistent with the rate drops, key benchmark rates, such as the five-year treasury rate and one-month LIBOR, declined dramatically. While the interest rate environment has improved in recent quarters, key rates remain well below pre-pandemic levels.
Bancorp’s participation in the PPP has resulted in approximately 5,500 PPP loan originations totaling $918 million ($887 million net of unearned deferred fees and costs) since the program’s inception as part of the CARES Act, which was signed into law in March 2020. While the first round of PPP expired in August 2020, legislative action created a second round of funding for the program and subsequently extended the program to May 31, 2021.
As part of the first round of the PPP, Bancorp originated approximately 3,400 PPP loans totaling $657 million ($637 million net of unearned deferred fees and costs). As of September 30, 2021, 96% of the dollars originated in the first round have been forgiven. Further, approximately 99% of the $19.6 million in net fees received for this round have been recognized life to date. As these borrowers were required to begin making payments in July, accelerated forgiveness activity was experienced during the third quarter of 2021. Remaining round one originations are expected to be forgiven in the coming months.
As part of the second round of the PPP, Bancorp originated over 2,100 PPP loans totaling $261 million ($250 million net of unearned deferred fees and costs). As of September 30, 2021, 24% of the dollars originated in the second round have been forgiven and 34% of the $11.4 million in net fees received for this round have been recognized life to date. As these borrowers are not required to make payments for 16 months, Bancorp expects a significant portion of these borrowers will seek forgiveness in early to mid-2022 in connection with their tax return preparation.
As of September 30, 2021, outstanding PPP loans originated by KB and acquired by Bancorp totaled $12 million.
Interest and fee income earned on the PPP portfolio totaled $4.4 million and $18.4 million for the three and nine month periods ending September 30, 2021, respectively, representing increases of $242,000 and $10.8 million over the same periods of the prior year. As of September 30, 2021, Bancorp had $8 million of net unearned deferred fees related to the PPP that have yet to be recognized and as a result, PPP loan forgiveness will have a major impact on operating results for the remainder of 2021 and the first part of 2022.
As a result of the PPP originations, forgiveness activity, record deposit levels and historically low interest rates, excess liquidity has created NIM compression, as well as challenges associated with deploying idle cash. Bancorp has made substantial investments in the AFS debt securities portfolio during 2021 an effort to deploy excess liquidity, however, prepayment activity within the MBS portfolio has made it challenging to grow the portfolio.
The ACL for loans (excluding acquisition related activity) decreased $5 million between December 31, 2020 and September 30, 2021, a stark contrast from the large increase recorded between December 31, 2019 and September 30, 2020, which included a $16 million reserve build that was separate and subsequent to the increases recorded effective January 1, 2020 in relation to the initial adoption of CECL. The pandemic had a material impact on ACL calculations in 2020, as provisioning surged amidst changes in forecasted economic conditions, especially the FRB’s Seasonally Adjusted National Civilian Unemployment Rate. After peaking towards the middle of last year, unemployment forecasts have improved, as have other underlying CECL model factors, resulting in the provision reduction recorded during the first nine months of 2021.
While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced a decrease between December 31, 2020 and September 30, 2021. A net benefit of $1.4 million was recorded to provision for credit losses for off balance sheet exposures during the first nine months of 2021, as loss factors associated with the calculation have improved in recent months and line of credit utilization continues to increase, although it remains below pre-pandemic levels. The ACL for off balance sheet credit exposures stood at $4.3 million as of September 30, 2021 compared to $5.4 million as of December 31, 2020.
Bancorp has not incurred any significant challenges to its ability to maintain its systems and controls in light of the measures taken to prevent the spread of COVID-19 and has not incurred significant resource constraints through the implementation of its business continuity plans and does not anticipate incurring such issues in the future. Bancorp has not made, and at this time does not expect to make, any material staffing or compensation changes as a result of the pandemic.
Overview – Operating Results (FTE) |
The following table presents an overview of Bancorp’s financial performance for the three months ended September 30, 2021 and 2020:
(dollars in thousands, except per share data) | Variance | |||||||||||||||
Three months ended September 30, | 2021 | 2020 | $/bp | % | ||||||||||||
Net income | $ | 23,162 | $ | 14,533 | $ | 8,629 | 59 | % | ||||||||
Diluted earnings per share | $ | 0.87 | $ | 0.64 | $ | 0.23 | 36 | % | ||||||||
ROA | 1.50 | % | 1.34 | % | 16 bps | 12 | % | |||||||||
ROE | 13.92 | % | 13.57 | % | 35 bps | 3 | % |
Additional discussion follows under the section titled “Results of Operations.”
General highlights for the three months ended September 30, 2021 compared to September 30, 2020:
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● | Net interest income increased $11.8 million, or 35%, for the three months ended September 30, 2021 compared to the same period of 2020. The increase was driven by the KB acquisition, strong organic loan growth and a $984,000 decrease in interest expense stemming from the strategic lowering of deposit rates in tandem with FRB interest rate actions to levels at or below those offered during the Great Recession, where they remained as of September 30, 2021. |
● | NIM decreased 12 bps to 3.14% for the three months ended September 30, 2021 compared to 3.26% for the same period in 2020. Substantial growth in federal funds sold, interest bearing due from banks and the AFS debt securities portfolio resulting from excess liquidity and efforts to deploy it, coupled with a sustained low rate environment that has continued to put pressure on |
● | Total loans (excluding PPP loans) increased $1.1 billion, or 40%, compared to September 30, 2020, driven by adding $755 million in loans (including PPP) on May 31, 2021 in relation to the KB acquisition and $376 million of organic growth. Average loans (excluding PPP loans) also increased $1.1 billion, or 39%, for the three months ended September 30, 2021 compared to the same period in 2020, $738 million of which was attributed to the acquisition. |
● | As a result of generally improving CECL model factors, including an improved unemployment forecast, a net benefit of $1.5 million was recorded for total provision for credit losses during the three months ended September 30, 2021. In contrast, total provision for credit loss expense of $5.0 million was recorded for the three months ended September 30, 2020. The adoption of CECL (ASC 326) effective January 1, 2020 and subsequent pandemic-related developments, such as elevated unemployment and historic declines in line of credit utilization amidst the evolving pandemic resulted in elevated provisioning for credit losses throughout 2020. |
● | Deposit balances increased $1.6 billion compared to September 30, 2020, as a result of assuming approximately $1.0 billion in deposits on May 31, 2021 related to the KB acquisition and the general trend of customers maintaining elevated levels of liquidity. Deposits have remained elevated for several quarters and finished at record levels as of September 30, 2021 (both including and excluding acquisition-related activity), as PPP funding and multiple federal stimulus packages have led to customers generally holding higher levels of liquidity. |
● | Total non-interest income increased $4.6 million, or 35%, for the three-month period ended September 30, 2021 compared to the same period of 2020. As previously noted, the quarter benefitted from the first full quarter of activity related to the KB acquisition, which totaled approximately $3.0 million. All non-interest income revenue streams experienced significant increases over the same quarter of the prior year, with the exception of mortgage banking, which experienced a significant decrease as a result of slowing volumes compared to the pandemic-driven re-finance rush that benefitted 2020. |
● | Non-interest expenses increased $8.9 million, or 35%, for the quarter ended September 30, 2021 compared to the same period of 2020. The first full quarter of activity related to the KB acquisition added approximately $6.5 million in non-interest expenses. Compensation and employee benefits combined to drive over half of the increase over the same quarter of the prior year, driven largely by acquisition-related growth in FTEs and higher incentive compensation, while the majority of other non-interest expense categories also saw significant increases for the three months ended September 30, 2021 compared to the same period of last year. |
The following table presents an overview of Bancorp’s financial performance for the nine months ended September 30, 2021 and 2020:
(dollars in thousands, except per share data) | Variance | |||||||||||||||
Nine months ended September 30, | 2021 | 2020 | $/bp | % | ||||||||||||
Net income | $ | 50,056 | $ | 41,133 | $ | 8,923 | 22 | % | ||||||||
Diluted earnings per share | $ | 2.03 | $ | 1.81 | $ | 0.22 | 12 | % | ||||||||
ROA | 1.25 | % | 1.33 | % |
| (8) bps | -6 | % | ||||||||
ROE | 12.37 | % | 13.22 | % |
| (85) bps | -6 | % |
General highlights for the nine months ended September 30, 2021 compared to September 30, 2020:
● | Bancorp completed its acquisition of KB during the second quarter. At the time of acquisition, KB had approximately $1.3 billion in assets, $755 million in loans (including PPP), $396 million in AFS debt securities and |
● | Net income totaled $50.1 million, resulting in diluted EPS of $2.03 for the nine months ended September 30, 2021, a 12% increase over $1.81 for the same period of 2020. |
● | The nine months ended September 30, 2021 include four months of activity associated with the KB acquisition, which contributed approximately $11.2 million in net interest income, $4.3 million in non-interest income and $8.8 million in non-interest expense (excluding one-time merger related expenses). In addition, one-time merger related expenses totaling $19.0 million (including $525,000 related to the pending Commonwealth acquisition) and credit loss expense on the acquired loan portfolio of $7.4 million were recorded for the nine months ended September 30, 2021. |
● | Net interest income increased $25.2 million, or 25%, for the nine months ended September 30, 2021 compared to the same period of 2020, as PPP forgiveness activity accelerated fee recognition and strong growth in the non-PPP loan portfolio attributed to the acquisition and organic production drove a $20.0 million, or 18%, increase in total interest income. Further, a $5.2 million, or 53%, decrease in interest expense was driven by the lowering of deposit rates in tandem with FRB interest rate actions to levels at or below those offered during the Great Recession, where they remained as of September 30, 2021. |
● | NIM decreased 11 bps to 3.29% for the nine months ended September 30, 2021 compared to 3.40% for the same period in 2020. Despite the continued erosion of yields on earning assets attributed to the FRB lowering the FFTR a total of 150 bps in March 2020, net interest income increased $25.3 million, or 25%, driven by both accelerated fee recognition associated PPP forgiveness activity and substantial growth in the non-PPP loan portfolio. These rate drops drove the FFTR to a range of 0%-0.25% and Prime to 3.25%, where both respectively remained as of September 30, 2021. The five-year treasury rate and one-month LIBOR tumbled in tandem with these cuts as well, and while the five-year treasury has staged a recovery over the first nine months of 2021, it remains well below pre-pandemic levels. Given the timing of the cuts, the full effects of the dramatically lower interest rate environment were not felt in the first quarter of last year, benefiting NIM for the nine months ended September 30, 2020 compared to the same period of this year. |
● | Total loans (excluding PPP loans) increased $1.1 billion, or 40%, compared to September 30, 2020. While loans totaling $722 million were added on May 31, 2021 as a result of the KB acquisition (excluding PPP), strong organic growth also contributed to the substantial increase. Average loans (excluding PPP loans) increased $549 million, or 19%, for the nine months ended September 30, 2021 compared to the same period in 2020, $329 million of which was attributed to the acquisition. |
● | Total provision for credit losses was $1.1 million for the nine months ended September 30, 2021, representing a $16.8 million, or 94%, decrease compared to the same period of 2020. The adoption of CECL (ASC 326) effective January 1, 2020 and subsequent pandemic-related developments, such as elevated unemployment and historic declines in line of credit utilization amidst the evolving pandemic drove elevated provisioning for the nine months ended September 30, 2020. While a cumulative net benefit of $6.3 million was recorded for credit losses on loans and off balance sheet credit exposures during the nine months ended September 30, 2021 as a result generally improving CECL model factors, including an improved unemployment forecast, a provision of $7.4 million was recorded in relation to the acquisition of Kentucky Bancshares. |
● | Deposit balances increased $1.6 billion compared to September 30, 2020, as a result of assuming $1.0 billion in deposits on May 31, 2021 related to the KB acquisition and the general trend of customers maintaining elevated levels of liquidity. Deposits have remained elevated for several quarters and finished at record levels as of September 30, 2021 (both including and excluding acquisition-related activity), as PPP funding and multiple federal stimulus packages have led to customers holding higher levels of liquidity. |
● | Total non-interest income increased $9.0 million, or 24%, for the nine-month period ended September 30, 2021 compared to the same period of 2020. As previously noted, the nine months ended September 30, 2021 benefitted from four months of activity related to the KB acquisition, which totaled approximately $4.3 million. All non-interest income revenue streams experienced significant increases over the same period of the prior year, with the exception of mortgage banking, which experienced a significant decrease as a result of slowing volumes compared to the pandemic-driven re-finance rush that benefitted 2020. |
● | Non-interest expenses increased $35.1 million, or 48%, for the nine months ended September 30, 2021 compared to the same period of 2020. As previously noted, one-time merger-related expenses totaling $19.0 million were recorded for the nine months ended September 30, 2021, driving a large portion of the increase. Excluding these one-time costs, activity related to the KB acquisition added approximately $8.8 million in non-interest expenses. Compensation and employee benefits combined to make up 62% of the remaining increase over the same period of 2020, driven largely by acquisition-related growth in FTEs and higher incentive compensation, while the majority of other non-interest expense categories also saw significant increases for the nine months ended September 30, 2021 compared to the same period of last year. |
Results of Operations |
Net Interest Income - Overview
As is the case with most banks, Bancorp’sBancorp’s primary revenue sources are net interest income and fee income from various financial services provided to customers. Net interest income is the difference between interest income earned on loans, investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities. Loan volume and interest rates earned on those loans are critical to overall profitability. Similarly, deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability. Loan and deposit volumes areNew business volume is influenced by competition, new account acquisition efforts and economic factors including market interest rates, business spending, consumer confidence and competitive conditions within the marketplace.
NetComparative information regarding net interest income increased $4.4 million, or 6.1%, for the first nine months of 2017, compared with the same period in 2016. Net interest margin increased to 3.63% for the first nine months of 2017, compared with 3.60% for the same period of 2016.follows:
For the nine-month period ended September 30, 2017, Bancorp recorded a $1.7 million provision for loan losses, compared to $2.5 million for the same period in 2016. The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for the inherent losses on outstanding loans.
(dollars in thousands) | Variance | |||||||||||||||
As of and for the three months ended September 30, | 2021 | 2020 | $/bp | % | ||||||||||||
Net interest income | $ | 45,483 | $ | 33,695 | $ | 11,788 | 35 | % | ||||||||
Net interest income (FTE) | 45,643 | 33,768 | 11,875 | 35 | % | |||||||||||
Net interest spread | 3.08 | % | 3.13 | % |
| (5) bps | -2 | % | ||||||||
Net interest margin | 3.14 | % | 3.26 | % |
| (12) bps | -4 | % | ||||||||
Total average interest earning assets | $ | 5,760,760 | $ | 4,120,400 | $ | 1,640,360 | 40 | % |
Total non-interest income in the first nine months of 2017 increased $1.4 million, or 4.2%, compared with the same period in 2016, and comprised 30.0% of total revenues, as compared to 31.6% for the same period in 2016. Continuing the trends of 2016, Bancorp’s wealth management and trust department (WM&T) led the increase with a 7.4%, or $1.1 million increase over the same period in 2016.
Total non-interest expense in the first nine months of 2017 increased $3.6 million, or 5.9%, compared with the same period in 2016, primarily due to increases in salaries and employee benefits, as well as expenses related to the Bancorp’s continued growth and improvements in technology infrastructure. Amortization expenses for investments in tax-credit partnerships, which had a significant impact on earnings in 2016, decreased by $1.2 million, or 39.4%, in the first nine months of 2017 as compared to the same period in 2016. Bancorp's efficiency ratio in the first nine months of 2017 was 57.6% compared to 57.4% in the same period in 2016. Excluding amortization of the investments in tax credit partnerships, the adjusted efficiency ratio, a non-GAAP measure, would have been 55.9% and 54.5% for the first nine months of 2017 and 2016, respectively. See the Non-GAAP Financial Measures section for details on reconcilement to US GAAP measures.
(dollars in thousands) | Variance | |||||||||||||||
As of and for the nine months ended September 30, | 2021 | 2020 | $/bp | % | ||||||||||||
Net interest income | $ | 124,892 | $ | 99,669 | $ | 25,223 | 25 | % | ||||||||
Net interest income (FTE) | 125,178 | 99,834 | 25,344 | 25 | % | |||||||||||
Net interest spread | 3.22 | % | 3.22 | % |
| 0 bps | 0 | % | ||||||||
Net interest margin | 3.29 | % | 3.40 | % |
| (11) bps | -3 | % | ||||||||
Total average interest earning assets | $ | 5,091,596 | $ | 3,923,255 | $ | 1,168,341 | 30 | % |
Stock Yards Bancorp, inc. and subsidiary
Bancorp’s effective tax rate decreased to 25.9% in 2017 from 27.0% in 2016. In 2017 Bancorp adopted ASU 2016-09 “Compensation – Stock Compensation Improvements to Employee Share-Based Payment Accounting”. The new standard requires excess tax benefits and deficiencies related to share-based payment awards to be reflected in the statement of operations as a component of the provision for income taxes. For the nine months ended September 30, 2017 Bancorp recorded a benefit of $1.4 million for such tax benefits against the provision for income tax expense. Prior to adoption of ASU 2016-09 these tax benefits were recorded directly to additional paid-in capital.
The ratio of shareholder’s equity to total assets was 10.59% as of September 30, 2017 compared with 10.33% at December 31, 2016. Tangible common equity (TCE), a non-GAAP measure, is a measure of a company's capital which is useful in evaluating the quality and adequacy of capital. The ratio of tangible common equity to total tangible assets was 10.54% as of September 30, 2017, compared with 10.26% at December 31, 2016. See the Non-GAAP Financial Measures section for details on reconcilement to US GAAP measures.
In April 2016 Bancorp declared a 3 for 2 stock split effected as a 50% stock dividend payable in May 2016. Share and per share information has been adjusted for this dividend.
The following sections provide more details on Bancorp’s financial condition and results of operation.
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Net income of $11.7 million for the three months ended September 30, 2017 increased $1.2 million, or 11.8%, from $10.5 million for the comparable 2016 period. Basic net income per share was $0.52 for the third quarter of 2017, an increase of 10.6% from the $0.47 for the third quarter of 2016. Net income per share on a diluted basis was $0.51 for the third quarter of 2017, as compared to $0.46 for the same period in 2016. See Note 11 for additional information related to net income per share.
Annualized return on average assets and annualized return on average stockholders’ equity were 1.53% and 14.03%, respectively, for the third quarter of 2017, compared with 1.44% and 13.47%, respectively, for the same period in 2016.
Net income of $33.1 million for the nine months ended September 30, 2017 increased $2.7 million, or 8.8%, from $30.4 million for the comparable 2016 period. Basic net income per share was $1.47 for the first nine months of 2017, an increase of 8.1% from the $1.36 for the period in 2016. Net income per share on a diluted basis was $1.44 for the first nine months of 2017, an increase of 7.5% from the $1.34 for the same period in 2016. See Note 11 for additional information related to net income per share.
Annualized return on average assets and annualized return on average stockholders’ equity were 1.47% and 13.65%, respectively, for the first nine months of 2017, compared with 1.42% and 13.51%, respectively, for the same period in 2016.
Stock YardsNIM and net interest spread calculations above exclude the sold portion of certain participation loans. These sold loans are recorded on Bancorp’s balance sheet as required by GAAP because Bancorp inc. and subsidiaryretains some form of effective control; however, Bancorp receives no net interest income on the sold portion. These participation loans sold are excluded from analysis, as Bancorp believes it provides a more accurate depiction of the performance of its loan portfolio.
Net Interest IncomeAt September 30, 2021, Bancorp’s loan portfolio was composed of approximately 71% fixed and 29% variable rate loans, with the fixed rate portion pricing (including PPP loans) generally based on a spread to the five-year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 66%) or one-month LIBOR (approximately 34%). Excluding PPP loans, Bancorp’s loan portfolio at September 30, 2021 was composed of approximately 69% fixed and 31% variable rate loans, respectively.
The following table presentsBenchmark rates such as the five-year treasury and one-month LIBOR currently remain well below pre-pandemic levels and as a result, the average balance sheetsinterest rate environment experienced for the three and nine month periods ended September 30, 20172021 was substantially lower than that experienced for the same periods of 2020. The following table details the volatility experienced within the interest rate environment over the past twelve months by comparing period end and 2016 alongquarterly average rates:
September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
2021 | 2021 | 2021 | 2020 | 2020 | ||||||||||||||||
Five-year Treasury note - period end | 0.98 | % | 0.87 | % | 0.92 | % | 0.36 | % | 0.28 | % | ||||||||||
Five-year Treasury note - quarterly average | 0.80 | % | 0.84 | % | 0.62 | % | 0.37 | % | 0.27 | % | ||||||||||
Prime rate - period end | 3.25 | % | 3.25 | % | 3.25 | % | 3.25 | % | 3.25 | % | ||||||||||
Prime rate - quarterly average | 3.25 | % | 3.25 | % | 3.25 | % | 3.25 | % | 3.25 | % | ||||||||||
One-month LIBOR - period end | 0.08 | % | 0.10 | % | 0.12 | % | 0.14 | % | 0.15 | % | ||||||||||
One-month LIBOR - quarterly average | 0.09 | % | 0.10 | % | 0.12 | % | 0.15 | % | 0.16 | % |
With 66% of the variable rate loan portfolio tied to Prime and the majority with floor rates of 4.00%, short-term rates would have to increase over 75 bps for these loans to move above their floor rates given Prime is at 3.25% as of September 30, 2021. Beyond potential ongoing pricing pressure/competition and the related calculationabsolute low level of tax-equivalent net interest income, net interest marginrates, the current economic outlook and netprospects of a sustained low-rate environment continues to pose challenges regarding potential ongoing NIM compression.
Net Interest Income (FTE) – Three months ended September 30, 2021 compared to September 30, 2020
Net interest spread and NIM were 3.08% and 3.14%, for the related periods. Seethree months ended September 30, 2021 compared to 3.13% and 3.26% for the notes followingsame period in 2020, respectively. NIM during the tables for further explanation.three months ended September 30, 2021 was significantly impacted by the following:
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Three months ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
(Dollars in thousands) | balances | Interest | rate | balances | Interest | rate | ||||||||||||||||||
Earning assets: | ||||||||||||||||||||||||
Federal funds sold and interest bearing deposits | $ | 120,927 | $ | 388 | 1.27 | % | $ | 72,673 | $ | 95 | 0.52 | % | ||||||||||||
Mortgage loans held for sale | 3,515 | 48 | 5.42 | 5,070 | 66 | 5.18 | ||||||||||||||||||
Securities: | ||||||||||||||||||||||||
Taxable | 387,696 | 1,920 | 1.96 | 406,481 | 1,984 | 1.94 | ||||||||||||||||||
Tax-exempt | 51,905 | 388 | 2.97 | 59,981 | 426 | 2.83 | ||||||||||||||||||
FHLB stock and other securities | 7,666 | 83 | 4.30 | 6,347 | 63 | 3.95 | ||||||||||||||||||
Loans, net of unearned income | 2,289,435 | 25,484 | 4.42 | 2,171,772 | 23,511 | 4.31 | ||||||||||||||||||
Total earning assets | 2,861,144 | 28,311 | 3.93 | 2,722,324 | 26,145 | 3.82 | ||||||||||||||||||
Less allowance for loan losses | 25,434 | 23,634 | ||||||||||||||||||||||
2,835,710 | 2,698,690 | |||||||||||||||||||||||
Non-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 41,550 | 41,682 | ||||||||||||||||||||||
Premises and equipment | 41,395 | 42,665 | ||||||||||||||||||||||
Accrued interest receivable and other assets | 108,433 | 100,109 | ||||||||||||||||||||||
Total assets | $ | 3,027,088 | $ | 2,883,146 | ||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Interest bearing demand deposits | $ | 725,822 | $ | 418 | 0.23 | % | $ | 698,874 | $ | 232 | 0.13 | % | ||||||||||||
Savings deposits | 150,332 | 55 | 0.15 | 136,292 | 11 | 0.03 | ||||||||||||||||||
Money market deposits | 691,726 | 741 | 0.43 | 655,912 | 346 | 0.21 | ||||||||||||||||||
Time deposits | 232,773 | 379 | 0.65 | 247,237 | 352 | 0.57 | ||||||||||||||||||
Securities sold under agreements to repurchase | 73,806 | 33 | 0.18 | 68,835 | 38 | 0.22 | ||||||||||||||||||
Federal funds purchased and other short term borrowings | 27,535 | 77 | 1.11 | 23,471 | 19 | 0.32 | ||||||||||||||||||
FHLB advances | 50,221 | 244 | 1.93 | 44,194 | 184 | 1.66 | ||||||||||||||||||
Total interest bearing liabilities | 1,952,215 | 1,947 | 0.40 | 1,874,815 | 1,182 | 0.25 | ||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||
Non-interest bearing demand deposits | 697,815 | 656,689 | ||||||||||||||||||||||
Accrued interest payable and other liabilities | 46,194 | 42,597 | ||||||||||||||||||||||
Total liabilities | 2,696,224 | 2,574,101 | ||||||||||||||||||||||
Stockholders’ equity | 330,864 | 309,045 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 3,027,088 | $ | 2,883,146 | ||||||||||||||||||||
Net interest income | $ | 26,364 | $ | 24,963 | ||||||||||||||||||||
Net interest spread | 3.53 | % | 3.57 | % | ||||||||||||||||||||
Net interest margin | 3.66 | % | 3.65 | % |
Stock Yards Bancorp, inc. and subsidiary
|
Nine months ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
(Dollars in thousands) | balances | Interest | rate | balances | Interest | rate | ||||||||||||||||||
Earning assets: | ||||||||||||||||||||||||
Federal funds sold and interest bearing deposits | $ | 97,543 | $ | 798 | 1.09 | % | $ | 100,653 | $ | 395 | 0.52 | % | ||||||||||||
Mortgage loans held for sale | 3,656 | 145 | 5.30 | 4,918 | 185 | 5.02 | ||||||||||||||||||
Securities: | ||||||||||||||||||||||||
Taxable | 406,476 | 5,944 | 1.96 | 413,508 | 6,135 | 1.98 | ||||||||||||||||||
Tax-exempt | 53,568 | 1,186 | 2.96 | 61,417 | 1,298 | 2.82 | ||||||||||||||||||
FHLB stock and other securities | 6,801 | 229 | 4.50 | 6,347 | 190 | 4.00 | ||||||||||||||||||
Loans, net of unearned income | 2,275,320 | 74,055 | 4.35 | 2,113,744 | 68,238 | 4.31 | ||||||||||||||||||
Total earning assets | 2,843,364 | 82,357 | 3.87 | 2,700,587 | 76,441 | 3.78 | ||||||||||||||||||
Less allowance for loan losses | 24,891 | 23,057 | ||||||||||||||||||||||
2,818,473 | 2,677,530 | |||||||||||||||||||||||
Non-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 40,547 | 40,097 | ||||||||||||||||||||||
Premises and equipment | 41,798 | 41,500 | ||||||||||||||||||||||
Accrued interest receivable and other assets | 106,035 | 94,263 | ||||||||||||||||||||||
Total assets | $ | 3,006,853 | $ | 2,853,390 | ||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Interest bearing demand deposits | $ | 739,295 | $ | 1,076 | 0.19 | % | $ | 710,417 | $ | 735 | 0.14 | % | ||||||||||||
Savings deposits | 147,471 | 123 | 0.11 | 134,004 | 35 | 0.03 | ||||||||||||||||||
Money market deposits | 693,656 | 1,968 | 0.38 | 652,406 | 1,060 | 0.22 | ||||||||||||||||||
Time deposits | 239,250 | 1,070 | 0.60 | 254,172 | 1,086 | 0.57 | ||||||||||||||||||
Securities sold under agreements to repurchase | 67,556 | 100 | 0.20 | 60,438 | 100 | 0.22 | ||||||||||||||||||
Federal funds purchased and other short term borrowings | 20,581 | 125 | 0.81 | 25,021 | 57 | 0.30 | ||||||||||||||||||
FHLB advances | 50,541 | 715 | 1.89 | 43,533 | 552 | 1.69 | ||||||||||||||||||
Total interest bearing liabilities | 1,958,350 | 5,177 | 0.35 | 1,879,991 | 3,625 | 0.26 | ||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||
Non-interest bearing demand deposits | 680,831 | 637,812 | ||||||||||||||||||||||
Accrued interest payable and other liabilities | 43,437 | 34,844 | ||||||||||||||||||||||
Total liabilities | 2,682,618 | 2,552,647 | ||||||||||||||||||||||
Stockholders’ equity | 324,235 | 300,743 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 3,006,853 | $ | 2,853,390 | ||||||||||||||||||||
Net interest income | $ | 77,180 | $ | 72,816 | ||||||||||||||||||||
Net interest spread | 3.52 | % | 3.52 | % | ||||||||||||||||||||
Net interest margin | 3.63 | % | 3.60 | % |
Stock Yards Bancorp, inc. and subsidiary
Notes to the average balance and interest rate tables:
● |
|
● |
|
● |
|
● | Substantial balance sheet growth, both organic and acquisition-related, which resulted in total average earning asset growth of $1.6 billion, or 40%, and average interest-bearing liability growth of $987 million, or 38%, for the three months ended September 30, 2021 compared to the same period of 2020. Approximately $1.0 billion of average earning asset growth and $800 million of interest-bearing liability growth was attributed to the acquisition for the three months ended September 30, 2021 compared to the same period of 2020. |
● | The lowering of deposit rates in tandem with FRB interest |
Net interest income increased $11.9 million, or 35%, for the three months ended September 30, 2021 compared to the same period of 2020, largely as a result of acquisition-related activity, but also driven in part by strong organic loan growth and substantial investment in the AFS debt securities portfolio.
Total average interest earning assets increased $1.6 billion, or 40%, to $5.8 billion for the three months ended September 30, 2021, as compared to the same period of 2020, with the average rate earned on total interest earning assets contracting 26 bps to 3.24%.
● | Average total loan balances increased $729 million, or 21%, for the three months ended September 30, 2021 compared to the same period of 2020. Average non-PPP loan growth of $1.1 billion, or 39%, was driven by $738 million of acquisition-related growth and strong organic growth, which was partially offset by a |
● | Average AFS debt securities grew $593 million for the three months ended September 30, 2021 compared to the same period of 2020. While approximately $288 million of this growth was attributed to the acquisition, Bancorp has invested $325 million in the AFS debt securities portfolio in 2021, as a |
Total interest income increased $10.9 million, or 30%, to $47.1 million for the three months ended September 30, 2021, as compared to the same period of 2020.
● | Interest and fee income on loans increased $9.5 million, or 28%, to $43.4 million and the yield on the total loan portfolio increased 21 bps to 4.13% for the three months ended September 30, 2021 compared to the same period of 2020, attributed largely to fee income associated with the PPP portfolio. While average balances on the non-PPP loan portfolio grew substantially and interest income on the non-PPP loan portfolio increased $9.3 million, or 31%, for the three months ended September 30, 2021 compared to the same period of 2020 largely as a result of the KB acquisition, the yield on the non-PPP loan portfolio decreased 24 bps to 3.98% as a result of the substantially lower interest rate environment. |
● | Despite significant growth in average AFS debt securities and a $1.3 million increase interest income on the portfolio for the three months ended September 30, 2021 compared to the same period of 2020, the lower interest rate environment experienced over the past twelve months weighed heavily on fixed income security yields, which decreased 54 bps, or 30%. |
Total average interest bearing liabilities increased $987 million, or 38%, to $3.6 billion for the three-month period ended September 30, 2021 compared with the same period in 2020, with the total average cost declining 21 bps to 0.16%.
● | Average interest bearing deposits increased $1.0 billion, or 40%, for the three months ended September 30, 2021 compared to the same period in 2020, with interest-bearing demand deposits accounting for $555 million of the increase. Average interest bearing deposits added as a result of the KB acquisition drove $797 million of the increase along with significant federal stimulus action over the past year, such as PPP funding, which has propelled deposit balances to record levels over the past 12 months. Further, general economic uncertainty surrounding the pandemic has resulted in the customer base maintaining higher levels of liquidity, similar to customer behavior seen during the Great Recession. |
● | Consistent with the higher interest bearing deposit balances noted above, average SSUAR balances increased $30 million, or 74%, for the three months ended September 30, 2021 compared to the same period of 2020. SSUAR balances added as a result of the KB acquisition accounted for $11 million of the increase. |
● | Average FHLB advances decreased $49 million, or 83%, for the three months ended September 30, 2021 compared to the same period of 2020, as advances have continued to mature without renewal or replacement over the past year, including a $20 million three month advance relating to a cash flow hedge interest rate swap. In addition, Bancorp elected to pay down certain advances during the first quarter of 2021 prior to maturity without incurring pre-payment penalties. |
Total interest expense decreased $984,000, or 40%, for the three months ended September 30, 2021 compared to the same period of 2020, a direct result of deposit rate reductions implemented in response to the falling interest rate environment and to a lesser extent, the reduction in interest expense on FHLB advances.
● | Total interest bearing deposit expense decreased $704,000, or 33%, driving a 17 bps decrease in the cost of average total interest bearing deposits. |
● | Interest expense on FHLB advances declined $282,000, or 85%, as a result of the substantial reduction in average FHLB advances outstanding. |
Net Interest Income (FTE) – Nine months ended September 30, 2021 compared to September 30, 2020
Net interest spread and NIM were 3.22% and 3.29%, for the six months ended September 30, 2021 compared to 3.22% and 3.40% for the same period in 2020, respectively. NIM during the nine months ended September 30, 2021 was significantly impacted by the following:
● | A sustained low interest rate environment, driven by the lowering of the FFTR in March 2020 to a range of 0% - 0.25%, which resulted in Prime dropping to 3.25%, where it remained as of September 30, 2021. |
● | PPP originations, which began in the second quarter of 2020 and continued through expiration of the program on May 31, 2021, as well as the related forgiveness activity, which accelerates the recognition of fee income on these loans and continues to have a significant effect on NIM. The PPP portfolio contributed a 20 bps benefit to NIM for the nine months ended September 30, 2021 as a result of forgiveness-driven fee recognition. In comparison, the PPP portfolio had a negative impact of 9 bps on NIM for the nine months ended September 30, 2020 due to the large amount of originations that occurred in 2020 and the affect that these low-yielding, 1% stated rate notes had on NIM for the period. |
● | Overall excess balance sheet liquidity, which contributed approximately 19 bps of NIM compression for the nine months ended September 30, 2021. By comparison, excess balance sheet liquidity contributed approximately 13 bps of NIM compression for the same period of 2020. Excess liquidity within the banking system in general has led to a highly competitive loan rate environment. |
● | Substantial balance sheet growth, both organic and acquisition-related, which resulted in total average earning asset growth of $1.2 billion, or 30%, and average interest-bearing liability growth of $663 million, or 26%, for the nine months ended September 30, 2021 compared to the same period of 2020. Approximately $481 million of average earning asset growth and $363 million of interest-bearing liability growth was attributed to the acquisition for the nine months ended September 30, 2021 compared to the same period of 2020. |
● | The lowering of deposit rates in tandem with FRB interest rate actions and beyond to levels at or below rates offered during the Great Recession, where they remained as of September 30, 2021. |
Net interest income increased $25.3 million, or 25%, for the nine months ended September 30, 2021 compared to the same period of 2020, due to interest and fee income associated with the PPP portfolio, substantial growth in the non-PPP loan portfolio and AFS debt securities portfolio, and the aforementioned lowering of deposit rates.
Total average interest earning assets increased $1.2 billion, or 30%, to $5.1 billion for the nine months ended September 30, 2021, as compared to the same period of 2020, with the average rate earned on total interest earning assets contracting 32 bps to 3.41%.
● | Average total loans increased $632 million, or 19%, for the nine months ended September 30, 2021 compared to the same period of 2020. Average non-PPP loan balances grew $549 million, or 19%, for the nine months ended September 30, 2021 compared to the same period of 2020, approximately $329 million of which was attributed to the acquisition, the remaining increase being the result of the strong organic growth. Average PPP loan balances increased $83 million, or 21%, for the nine months ended September 30, 2021 compared to the same period of 2020, as the prior year period had yet to experience the full effects of second round PPP originations. |
● | Average AFS debt securities grew $397 million, or 92%, for the nine months ended September 30, 2021 compared to the same period of 2020. The majority of this increase was attributed to strategic efforts to deploy excess liquidity through AFS debt security purchases, while $129 million of the increase was attributed to the acquisition. |
Total interest income increased $20.2 million, or 18%, to $129.9 million for the nine months ended September 30, 2021, as compared to the same period of 2020.
● | Interest and fee income on loans increased $18.8 million, or 18%, to $120.6 million for the nine months ended September 30, 2021 compared to the same period of 2020, driven by accelerated recognition of the fee income related to forgiveness activity within the PPP portfolio and the contribution attributed to the KB acquisition. |
● | Significant growth in average AFS debt securities drove an increase of $1.8 million, or 27%, for interest income on the portfolio for the nine months ended September 30, 2021 compared to the same period of 2020. However, the lower interest rate environment experienced over the past twelve months weighed heavily on fixed income security yields, which decreased 69 bps, or 34%. |
Total average interest bearing liabilities increased $663 million, or 26%, to $3.2 billion for the nine-month period ended September 30, 2021 compared with the same period in 2020, with the total average cost declining 32 bps to 0.19%.
● | Average interest bearing deposits increased $688 million, or 28%, for the nine months ended September 30, 2021 compared to the same period in 2020, with interest-bearing demand deposits accounting for $429 million of the increase. Interest bearing deposits added as a result of the KB acquisition accounted for $358 million of the increase along with significant federal stimulus action, such as PPP funding, which has propelled deposit balances to record levels over the past 12 months. Further, general economic uncertainty surrounding the pandemic has resulted in the customer base maintaining higher levels of liquidity, similar to customer behavior seen during the Great Recession. |
● | Consistent with the higher interest bearing deposit balances noted above, average SSUAR balances increased $19 million, or 50%, for the nine months ended September 30, 2021 compared to the same period of 2020. SSUAR added as a result of the KB acquisition drove $5 million of the increase. |
● | Average FHLB advances decreased $46 million, or 70%, for the nine months ended September 30, 2021 compared to the same period of 2020, as advances have continued to mature without renewal or replacement over the past year, including a $20 million three month advance relating to a cash flow hedge interest rate swap. In addition, Bancorp elected to pay down certain advances during the first quarter of 2021 prior to maturity without incurring pre-payment penalties. During the second quarter of 2021, Bancorp chose to payoff $14 million of term advances, with a weighted average cost of 2.03%, prior to their maturity incurring an early-termination fee of $474,000, recorded as a component non-interest expense. Bancorp made this decision due to its excess liquidity driven by the substantial deposit growth it achieved over the past 12 months, combined with the near-term outlook for low interest rates. |
Total interest expense decreased $5.2 million, or 53%, for the nine months ended September 30, 2021 compared to the same period of 2020, a direct result of deposit rate reductions implemented in response to the falling interest rate environment and to a lesser extent, the reduction in interest expense on FHLB advances.
● | Total interest bearing deposit expense decreased $4.3 million, or 50%, driving a 28 bps decrease in the cost of average total interest bearing deposits. |
● | Interest expense on FHLB advances declined $822,000, or 73%, as a result of the substantial reduction in average FHLB advances outstanding. |
Average Balance Sheets and Interest Rates (FTE) – Three-Month Comparison
Three months ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
(dollars in thousands) | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||
Federal funds sold and interest bearing due from banks | $ | 532,549 | $ | 208 | 0.15 | % | $ | 194,100 | $ | 54 | 0.11 | % | ||||||||||||
Mortgage loans held for sale | 8,875 | 53 | 2.37 | 28,520 | 173 | 2.41 | ||||||||||||||||||
Available for sale debt securities: | ||||||||||||||||||||||||
Taxable | 1,009,674 | 3,206 | 1.26 | 433,923 | 1,973 | 1.81 | ||||||||||||||||||
Tax-exempt | 25,038 | 122 | 1.93 | 8,166 | 55 | 2.68 | ||||||||||||||||||
Total securities | 1,034,712 | 3,328 | 1.28 | 442,089 | 2,028 | 1.82 | ||||||||||||||||||
Federal Home Loan Bank stock, at cost | 11,364 | 83 | 2.90 | 11,284 | 56 | 1.97 | ||||||||||||||||||
SBA Paycheck Protection Program (PPP) loans | 281,420 | 4,423 | 6.24 | 640,998 | 4,181 | 2.59 | ||||||||||||||||||
Non-PPP loans | 3,891,840 | 39,013 | 3.98 | 2,803,409 | 29,725 | 4.22 | ||||||||||||||||||
Total loans | 4,173,260 | 43,436 | 4.13 | 3,444,407 | 33,906 | 3.92 | ||||||||||||||||||
Total interest earning assets | 5,760,760 | 47,108 | 3.24 | 4,120,400 | 36,217 | 3.50 | ||||||||||||||||||
Less allowance for credit losses on loans | 61,324 | 48,331 | ||||||||||||||||||||||
Non-interest earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 65,682 | 47,535 | ||||||||||||||||||||||
Premises and equipment, net | 77,855 | 57,121 | ||||||||||||||||||||||
Bank owned life insurance | 52,631 | 32,988 | ||||||||||||||||||||||
Goodwill | 136,369 | 12,513 | ||||||||||||||||||||||
Accrued interest receivable and other | 107,203 | 103,274 | ||||||||||||||||||||||
Total assets | $ | 6,139,176 | $ | 4,325,500 | ||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Deposits: | �� | |||||||||||||||||||||||
Interest bearing demand | $ | 1,700,631 | $ | 470 | 0.11 | % | $ | 1,145,791 | $ | 298 | 0.10 | % | ||||||||||||
Savings | 400,288 | 37 | 0.04 | 198,533 | 6 | 0.01 | ||||||||||||||||||
Money market | 965,518 | 168 | 0.07 | 772,600 | 159 | 0.08 | ||||||||||||||||||
Time | 459,348 | 728 | 0.63 | 404,914 | 1,644 | 1.62 | ||||||||||||||||||
Total interest bearing deposits | 3,525,785 | 1,403 | 0.16 | 2,521,838 | 2,107 | 0.33 | ||||||||||||||||||
Securities sold under agreements to repurchase | 71,065 | 6 | 0.03 | 40,832 | 7 | 0.07 | ||||||||||||||||||
Federal funds purchased | 10,983 | 5 | 0.18 | 8,877 | 2 | 0.09 | ||||||||||||||||||
Federal Home Loan Bank advances | 10,000 | 51 | 2.02 | 59,487 | 333 | 2.23 | ||||||||||||||||||
Total interest bearing liabilities | 3,617,833 | 1,465 | 0.16 | 2,631,034 | 2,449 | 0.37 | ||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||
Non-interest bearing demand deposits | 1,771,432 | 1,186,007 | ||||||||||||||||||||||
Accrued interest payable and other | 89,812 | 82,410 | ||||||||||||||||||||||
Total liabilities | 5,479,077 | 3,899,451 | ||||||||||||||||||||||
Stockholders’ equity | 660,099 | 426,049 | ||||||||||||||||||||||
Total liabilities and stockholder's equity | $ | 6,139,176 | $ | 4,325,500 | ||||||||||||||||||||
Net interest income | $ | 45,643 | $ | 33,768 | ||||||||||||||||||||
Net interest spread | 3.08 | % | 3.13 | % | ||||||||||||||||||||
Net interest margin | 3.14 | % | 3.26 | % |
Average Balance Sheets and Interest Rates (FTE) – Nine-Month Comparison
Nine months ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
(dollars in thousands) | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||
Federal funds sold and interest bearing due from banks | $ | 361,713 | $ | 358 | 0.13 | % | $ | 216,014 | $ | 673 | 0.42 | % | ||||||||||||
Mortgage loans held for sale | 10,703 | 175 | 2.19 | 17,202 | 359 | 2.79 | ||||||||||||||||||
Available for sale debt securities: | ||||||||||||||||||||||||
Taxable | 813,199 | 8,245 | 1.36 | 422,687 | 6,434 | 2.03 | ||||||||||||||||||
Tax-exempt | 18,030 | 228 | 1.69 | 11,057 | 217 | 2.62 | ||||||||||||||||||
Total securities | 831,229 | 8,473 | 1.36 | 433,744 | 6,651 | 2.05 | ||||||||||||||||||
Federal Home Loan Bank stock, at cost | 11,312 | 204 | 2.41 | 11,284 | 197 | 2.33 | ||||||||||||||||||
SBA Paycheck Protection Program (PPP) loans | 473,185 | 18,359 | 5.19 | 390,120 | 7,573 | 2.59 | ||||||||||||||||||
Non-PPP loans | 3,403,454 | 102,285 | 4.02 | 2,854,891 | 94,244 | 4.41 | ||||||||||||||||||
Total loans | 3,876,639 | 120,644 | 4.16 | 3,245,011 | 101,817 | 4.19 | ||||||||||||||||||
Total interest earning assets | 5,091,596 | 129,854 | 3.41 | 3,923,255 | 109,697 | 3.73 | ||||||||||||||||||
Less allowance for credit losses on loans | 57,620 | 42,894 | ||||||||||||||||||||||
Non-interest earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 55,707 | 45,032 | ||||||||||||||||||||||
Premises and equipment, net | 66,818 | 57,455 | ||||||||||||||||||||||
Bank owned life insurance | 41,962 | 32,813 | ||||||||||||||||||||||
Goodwill | 67,674 | 12,513 | ||||||||||||||||||||||
Accrued interest receivable and other | 97,984 | 90,267 | ||||||||||||||||||||||
Total assets | $ | 5,364,121 | $ | 4,118,441 | ||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Interest bearing demand | $ | 1,515,903 | $ | 1,242 | 0.11 | % | $ | 1,086,866 | $ | 1,460 | 0.18 | % | ||||||||||||
Savings | 303,150 | 59 | 0.03 | 185,892 | 29 | 0.02 | ||||||||||||||||||
Money market | 902,040 | 423 | 0.06 | 755,747 | 1,362 | 0.24 | ||||||||||||||||||
Time | 413,885 | 2,624 | 0.85 | 418,080 | 5,825 | 1.86 | ||||||||||||||||||
Total interest bearing deposits | 3,134,978 | 4,348 | 0.19 | 2,446,585 | 8,676 | 0.47 | ||||||||||||||||||
Securities sold under agreements to repurchase | 57,980 | 16 | 0.04 | 38,595 | 31 | 0.11 | ||||||||||||||||||
Federal funds purchased | 10,505 | 11 | 0.14 | 9,208 | 33 | 0.48 | ||||||||||||||||||
Federal Home Loan Bank advances | 19,398 | 301 | 2.07 | 65,751 | 1,123 | 2.28 | ||||||||||||||||||
Total interest bearing liabilities | 3,222,861 | 4,676 | 0.19 | 2,560,139 | 9,863 | 0.51 | ||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||
Non-interest bearing demand deposits | 1,517,423 | 1,067,969 | ||||||||||||||||||||||
Accrued interest payable and other | 82,599 | 74,738 | ||||||||||||||||||||||
Total liabilities | 4,822,883 | 3,702,846 | ||||||||||||||||||||||
Stockholders’ equity | 541,238 | 415,595 | ||||||||||||||||||||||
Total liabilities and stockholder's equity | $ | 5,364,121 | $ | 4,118,441 | ||||||||||||||||||||
Net interest income | $ | 125,178 | $ | 99,834 | ||||||||||||||||||||
Net interest spread | 3.22 | % | 3.22 | % | ||||||||||||||||||||
Net interest margin | 3.29 | % | 3.40 | % |
Supplemental Information - Average Balance Sheets and Interest Rates (FTE)
● | Average loan balances include the principal balance of non-accrual loans, as well as unearned income such as loan premiums, discounts, fees/costs and exclude participation loans accounted for as secured borrowings. Participation loans averaged $5 million and $8 million for the three-month periods ended September 30, 2021 and 2020, respectively, and $7 million and $8 million for the nine-month periods ended September 30, 2021 and 2020, respectively. |
● | Interest income on a |
● |
|
Fully taxable equivalent net interest income of $26.4 million for the three months ended September 30, 2017 increased $1.4 million, or 5.6%, from $25.0 million for the same period in 2016. Bancorp recognized positive effects of increased average balances on loans, resulting from loan growth in 2016, and increased rates on all earning asset categories following rate increases by the Federal Reserve, were partially offset by the negative effect of increased rates for all funding sources, and increased average balances for all funding sources except certificate of deposit accounts. To date in 2017 the Federal Reserve twice raised the target Fed Funds rate with 25 basis point increases in both March and June. Management increased rates paid on retail deposits accounts in conjunction with the March rate hike. Those deposit customers had not seen a rate increase on their accounts in over ten years. The June increase resulted in most of the variable rate loan portfolio breaking through applicable floor rates which will enhance margin going forward. Net interest spread and net interest margin were 3.53% and 3.66%, respectively, for the third quarter of 2017 and 3.57% and 3.65%, respectively, for the third quarter of 2016. Heightened competition on pricing, effects of liquidity and a flattening yield curve contributed to pressure on net interest margin.
● | Net interest income, the most significant component of Bancorp's earnings, represents total interest income less total interest expense. The level of net interest income is determined by mix and volume of interest earning assets, interest bearing deposits and borrowed funds, and changes in interest rates. |
● | NIM represents net interest income on a FTE basis as a percentage of total average interest earning assets. |
Fully taxable equivalent net interest income of $77.2 million for the nine months ended September 30, 2017 increased $4.4 million, or 6.0%, from $72.8 million for the same period in 2016. Positive effects of increased average balances on loans, resulting from loan growth in 2016, and increased rates on other earning assets, were partially offset by the negative effect of increasing rates and average balances for all funding sources except certificates of deposits. Average rates on loans increased period to period while the rates on taxable securities decreased. Net interest spread and net interest margin were 3.52% and 3.63%, respectively, for the first nine months of 2017 and 3.52% and 3.60%, respectively, for the first nine months of 2016.
● | Net interest spread (FTE) is the difference between taxable equivalent rates earned on total interest earning assets less the cost of interest bearing liabilities. |
● | The fair market value adjustment on investment securities resulting from ASC 320, “Investments – Debt and Equity Securities” is included as a component of other assets. |
Stock Yards Bancorp, inc. and subsidiary
Average earning assets increased $138.8 million or 5.1% to $2.9 billion for the three month period ended September 30, 2017 as compared to the same time period in 2016, reflecting growth in the loan portfolio and to a lesser extent fed funds sold. Average interest bearing liabilities increased $77 million or 4.1% for the third quarter of September 30, 2017 as compared to the third quarter of 2016. A decrease in volume of time deposits partially offset increases in all other interest bearing deposit and borrowing categories. Average earning assets increased $142.8 million or 5.3%, to $2.8 billion for the first nine months of 2017 as compared with 2016, reflecting increases in the loan portfolio, the majority of which was garnered in 2016. Average interest bearing liabilities increased $78.4 million, or 4.1%, to $1.95 billion for the first nine months of 2017, as compared with the same period in 2016. Increases in the volume of interest bearing demand deposits, savings deposits, money market deposit accounts, securities sold under agreements to repurchase, and FHLB advances, were partially offset by decreases in volume of time deposits, and other short term borrowing products.
Asset/Liability Management and Interest Rate Risk
Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet financial instruments, management evaluates interest rate sensitivity with the goal of optimizing net interest income within the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer requirements.
Interest Rate Simulation Sensitivity Analysis
Bancorp uses an earnings simulation model to estimate and evaluate the impact of an immediate change in interest rates on earnings in a one yearone-year forecast. The simulation model is designed to reflect dynamics of interest earning assets and interest bearing liabilities and off-balance sheet financial instruments.liabilities. By estimating effects of interest rate increases and decreases,fluctuations, the model can reveal approximate interest rate risk exposure. This simulation model is used by management to gauge approximate results given a specific change in interest rates at a given point in time. The model is therefore a tool to indicate earnings trends in given interest rate scenarios and may not indicate actual or expected results.
The September 30, 2017 simulation analysis, which shows minimalBancorp’s interest rate simulation sensitivity indicatesanalysis details that Bancorp is asset sensitive as increases in interest rates of 100 toand 200 basis pointsbps would have a positivenegative effect on net interest income. Ifincome, respectively. These results are attributed to over half of the variable rate loan portfolio being currently at or near floor rates, raise 200 basis points,as these yields will not increase until short-term rates exceed these floor rates. For example, a significant portion of the variable rate loan portfolio is tied to Prime, with floor rates of 4.00%. Given Prime is at 3.25% as of September 30, 2021, short-term rates would have to increase over 75 bps for these loans to move above their floor rates.
The decrease in net interest income would increase 2.12%. The excess liquidity held in interest bearing deposit accounts and other short-term investments along withthe rising rate scenarios is primarily due to variable rate loans now at or above their floors gives Bancorp significant assets that will reprice as rates move. Those sameand short-term investments repricing slower than deposits and short-term borrowings. Asset balances subject to immediate repricing cause an estimated decline in net interest income in athe down 100 basis point rate scenario.bps scenario, as rates on non-maturity deposits cannot be lowered sufficiently to offset declining interest income. These estimates are summarized below.
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Change in Rates | ||||||||||||||||
-200 | -100 | +100 | +200 | |||||||||||||
Basis Points | Basis Points | Basis Points | Basis Points | |||||||||||||
% Change from base net interest income at September 30, 2021 | N/A | -3.36 | % | -2.54 | % | -1.76 | % |
Approximately 61% of Bancorp’s loan portfolio has fixed rates and 39% of itsBancorp’s loan portfolio is priced at variable rates. With the Prime rate currently at 4.25%,composed of approximately 71% fixed and after the .25% increase in Prime in June of 2017, the majority of Bancorp’s29% variable rate loans, now havewith the fixed rate portion pricing (including PPP loans) generally based on a spread to the five-year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 66%) or one-month LIBOR (approximately 34%). Bancorp’s loan portfolio (excluding PPP loans) at September 30, 2021 was composed of approximately 69% fixed and 31% variable rate loans.
Periodically, Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at or above their floors.
Stock Yards Bancorp, inc. and subsidiary
Undesignatedthe same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments described in Note 18 to Bancorp’s consolidated financial statementsand are recognized on the consolidated balance sheet at fair value, with changes in fair value due to changes in prevailing interest rates, recorded in other non-interest income.income as interest rates fluctuate. Because of matching terms of offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings, and are therefore not included in the simulation analysis results above. For additional information, see the footnote titled “Assets and Liabilities Measured and Reported at Fair Value.”
DerivativesIn addition, Bancorp uses derivative financial instruments as part of its interest rate risk management, including interest rate swaps. These interest rate swaps are designated as cash flow hedges as described in Note 18 to Bancorp’s consolidated financial statements are recognized on the consolidated balance sheet at fair value, with changes in fair value due to changes in prevailing interest rates, recorded netfootnote titled “Derivative Financial Instruments.” For these derivatives, the effective portion of tax in other comprehensive income.
Provision for Loan Losses
The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for inherent losses on outstanding loans. The allowance for loangains or losses is calculated after considering credit quality factors,reported as a component of OCI, and ultimately relies onis subsequently reclassified into earnings as an overall internal analysis of riskadjustment to interest expense in the loan portfolio. The provision reflects an allowance methodology that is driven by risk ratings, historical losses, and qualitative factors. The provision for the first nine months of 2017, and the resulting allowance level, reflected a number of factors, including stable and acceptable credit quality metrics, modest loan growth during the period, and an expansion of the historical look-back period from 24 quarters to 28 quarters. This expansion of the look-back period was applied to all classes and segments of the portfolio. The expansion of the look-back period for the historical loss rates used in the quantitative allocation caused management to review the overall methodology for the qualitative factors to ensure Bancorp was appropriately capturing the risk not addressed in the historical loss rates used in the quantitative allocation, resulting in the same expansion of the look-back period for the qualitative factors. Management believes the extension of the look-back period is appropriate to ensure capture of the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio. Key indicators of loan quality continued to show improvement during 2017, with levels of non-performing loans continuing a five year downward trend. Classified assets, after experiencing a slight elevation the prior quarter stabilized in the third quarter. Bancorp recorded provision for loan losses of $150 thousand and $1.7 million for the first three and nine month periods of 2017, respectively, as compared to $1.3 million and $2.5 million for the same periods in 2016.
Management uses loan grading procedures which result in specific allowance allocations for estimated inherent risk of loss. For all loans graded, but not individually reviewed for allowance purposes, a general allowance allocation is computed using historical data based on actual loss experience. Specific and general allocations plus consideration of qualitative factors represent management’s best estimate of probable losses contained in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses. Based on this detailed analysis of credit risk, management considers the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at September 30, 2017.hedged forecasted transaction impacts earnings.
Stock Yards Bancorp, inc. and subsidiary
Provision for Credit Losses
An analysis of the changes in the allowanceACL for loan lossesloans, including provision, and selected ratios for the three and nine month periods ended September 30, 2017 and 2016 follows:follow:
(dollars in thousands) | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Balance at the beginning of the period | $ | 25,115 | $ | 23,141 | $ | 24,007 | $ | 22,441 | ||||||||
Provision for loan losses | 150 | 1,250 | 1,650 | 2,500 | ||||||||||||
Loan charge-offs, net of recoveries | (317 | ) | (22 | ) | (709 | ) | (572 | ) | ||||||||
Balance at the end of the period | $ | 24,948 | $ | 24,369 | $ | 24,948 | $ | 24,369 | ||||||||
Average loans, net of unearned income | $ | 2,289,436 | $ | 2,188,089 | $ | 2,275,320 | $ | 2,124,921 | ||||||||
Provision for loan losses to average loans (1) | 0.01 | % | 0.06 | % | 0.07 | % | 0.12 | % | ||||||||
Net loan charge-offs to average loans (1) | 0.01 | % | 0.00 | % | 0.03 | % | 0.03 | % | ||||||||
Allowance for loan losses to average loans | 1.09 | % | 1.11 | % | 1.09 | % | 1.15 | % | ||||||||
Allowance for loan losses to period-end loans | 1.07 | % | 1.10 | % | 1.07 | % | 1.10 | % | ||||||||
(1) Amounts not annualized |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Beginning balance | $ | 59,424 | $ | 47,708 | $ | 51,920 | $ | 26,791 | ||||||||
KB acquisition - PCD loans (goodwill adjustment) | — | — | 6,757 | — | ||||||||||||
CECL - cumulative adjustment | — | — | — | 9,856 | ||||||||||||
Adjusted balance | 59,424 | 47,708 | 58,677 | 36,647 | ||||||||||||
Provision for credit losses - loans | (1,000 | ) | 4,418 | (4,900 | ) | 15,518 | ||||||||||
Provision for credit losses - KB acquisition | — | — | 7,397 | — | ||||||||||||
Total charge-offs | (2,215 | ) | (1,698 | ) | (5,779 | ) | (1,970 | ) | ||||||||
Total recoveries | 324 | 73 | 1,138 | 306 | ||||||||||||
Net loan (charge-offs) recoveries | (1,891 | ) | (1,625 | ) | (4,641 | ) | (1,664 | ) | ||||||||
Ending balance | $ | 56,533 | $ | 50,501 | $ | 56,533 | $ | 50,501 | ||||||||
Average loans | $ | 4,173,260 | $ | 3,444,407 | $ | 3,876,639 | $ | 3,245,011 | ||||||||
Provision for credit losses on loans to average loans (1) | -0.02 | % | 0.13 | % | 0.06 | % | 0.48 | % | ||||||||
Net loan (charge-offs) recoveries to average loans (1) | -0.05 | % | -0.05 | % | -0.12 | % | -0.05 | % | ||||||||
ACL on loans to total loans | 1.35 | % | 1.45 | % | 1.35 | % | 1.45 | % | ||||||||
ACL on loans to total loans (excluding PPP) (2) | 1.43 | % | 1.78 | % | 1.43 | % | 1.78 | % | ||||||||
ACL on loans to average loans | 1.35 | % | 1.47 | % | 1.46 | % | 1.56 | % |
Loans are charged off when deemed uncollectible and a loss is identified or after underlying collateral has been liquidated; however, collection efforts may continue and future recoveries may occur. Periodically, loans are partially charged off to net realizable value based upon collateral analysis and collection status.
An analysis of net charge-offs by loan category for the three and nine month periods ended September 30, 2017 and 2016 follows:
(in thousands) | Three months | Nine months | ||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||
Net loan charge-offs (recoveries) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Commercial and industrial | $ | 280 | $ | 18 | $ | 642 | $ | 375 | ||||||||
Construction and development, excluding undeveloped land | - | (11 | ) | - | (21 | ) | ||||||||||
Undeveloped land | - | - | - | - | ||||||||||||
Real estate mortgage - commercial investment | (16 | ) | (67 | ) | (52 | ) | (226 | ) | ||||||||
Real estate mortgage - owner occupied commercial | - | (9 | ) | - | 305 | |||||||||||
Real estate mortgage - 1-4 family residential | (1 | ) | 64 | (5 | ) | 63 | ||||||||||
Home equity | (5 | ) | (34 | ) | 4 | (34 | ) | |||||||||
Consumer | 59 | 61 | 120 | 110 | ||||||||||||
Total net loan charge-offs (recoveries) | $ | 317 | $ | 22 | $ | 709 | $ | 572 |
Stock Yards Bancorp, inc. and subsidiary
Non-interest Income and Expenses
(1) Ratios are not annualized |
(2) See the section titled “Non-GAAP Financial Measures” for reconcilement of Non-GAAP to GAAP measures |
The following table sets forth major componentsACL for loans totaled $57 million as of non-interest income and expenses for the three and nine month periods ended September 30, 20172021 compared to $52 million at December 31, 2020, representing an ACL to total loans ratio of 1.35% and 2016.
Three months | Nine months | |||||||||||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||||||||||
(In thousands) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||
Wealth management and trust services | $ | 5,025 | $ | 4,800 | 4.7 | % | $ | 15,272 | $ | 14,219 | 7.4 | % | ||||||||||||
Service charges on deposit accounts | 2,522 | 2,544 | (0.9 | ) | 7,368 | 6,952 | 6.0 | |||||||||||||||||
Bankcard transactions | 1,492 | 1,455 | 2.5 | 4,412 | 4,198 | 5.1 | ||||||||||||||||||
Mortgage banking | 781 | 1,072 | (27.1 | ) | 2,380 | 2,896 | (17.8 | ) | ||||||||||||||||
Gain (loss) on calls of securities available for sale | 31 | - | 0.0 | 31 | - | 0.0 | ||||||||||||||||||
Securities brokerage | 551 | 558 | (1.3 | ) | 1,584 | 1,539 | 2.9 | |||||||||||||||||
Bank owned life insurance | 204 | 216 | (5.6 | ) | 964 | 657 | 46.7 | |||||||||||||||||
Other | 497 | 713 | (30.3 | ) | 1,564 | 1,757 | (11.0 | ) | ||||||||||||||||
Total non-interest income | $ | 11,103 | $ | 11,358 | (2.2 | )% | $ | 33,575 | $ | 32,218 | 4.2 | % | ||||||||||||
Non-interest expenses: | ||||||||||||||||||||||||
Salaries and employee benefits | $ | 12,983 | $ | 12,048 | 7.8 | % | $ | 39,244 | $ | 36,214 | 8.4 | % | ||||||||||||
Net occupancy | 1,621 | 1,646 | (1.5 | ) | 4,765 | 4,716 | 1.0 | |||||||||||||||||
Data processing | 1,920 | 1,747 | 9.9 | 5,909 | 5,172 | 14.2 | ||||||||||||||||||
Furniture and equipment | 316 | 277 | 14.1 | 861 | 853 | 0.9 | ||||||||||||||||||
FDIC insurance | 242 | 356 | (32.0 | ) | 716 | 1,035 | (30.8 | ) | ||||||||||||||||
Amortization of investment in tax credit partnerships | 616 | 1,015 | (39.3 | ) | 1,847 | 3,046 | (39.4 | ) | ||||||||||||||||
Other | 3,619 | 3,429 | 5.5 | 10,469 | 9,215 | 13.6 | ||||||||||||||||||
Total non-interest expenses | $ | 21,317 | $ | 20,518 | 3.9 | % | $ | 63,811 | $ | 60,251 | 5.9 | % |
1.47% for those periods, respectively. The largest component of non-interest income is wealth management and trust (“WM&T”) revenue. The magnitude of WM&T revenue distinguishes Bancorp from most other community banks of similar asset size. WM&T assets under management (AUM) totaled $2.7 billionACL to total loans (excluding PPP loans) was 1.43% at September 30, 2017, a 12.5% increase2021 compared to $2.4 billion1.74% at December 31, 2020. Based on the 100% SBA guarantee of the PPP loan portfolio, which totaled $231 million (net of unamortized deferred fees) at September 30, 2016. AUM are stated2021 and $550 million at market valueDecember 31, 2020, Bancorp did not generally reserve for potential losses for these loans within the ACL. See the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
Upon adoption of ASC 326 effective January 1, 2020, Bancorp recorded an increase of $8.2 million to the ACL for loans and while the 2017 increase was partially the result of a rising stock market during the period, primarily it represents a continuancecorresponding decrease to retained earnings, net of the 2016 trendDTA impact. In addition, non-accretable yield marks of $1.6 million related to formerly classified PCI loans were reclassed between the amortized cost basis of loans and corresponding ACL, which were subsequently charged-off in the third quarter of 2020 with no resulting impact to provision expense. The adjustment upon adoption of ASC 326 raised the ACL for new clients added. WM&T revenue, which constitutes an averageloans balance to $37 million on January 1, 2020.
Due to continued improvement in the unemployment forecast, updates to Bancorp’s CECL modeling and strong historic credit metrics, benefits (excluding acquisition-related activity) of 45% of non-interest income, increased $225 thousand, or 4.7%$1.0 million and $1.1$4.9 million or 7.4%were recorded for the three and nine month periods ended September 30, 2017 respectively,2021, respectively. Offsetting the reduction for the nine-month period ended September 30, 2021, was credit loss expense on loans associated with the non-PCD loan portfolio added as a result of the KB acquisition, which was recorded during the second quarter and totaled $7.4 million.
The activity noted above drove provision expense decreases of $5.4 million and $13.0 million compared to the same periods of 2020. The significantly higher expense recorded for the three and nine months ended September 30, 2020 was the result of adopting of CECL effective January 1, 2020 and the subsequent pandemic-related developments experienced in 2016. Recurring fees, which generally comprise over 98%the first three quarters of 2021, particularly elevated unemployment forecasts.
In addition to the provision activity noted above for the first nine months of 2021, the ACL for loans was also increased $6.8 million as a result of the WM&T revenue,PCD loan portfolio added through the KB acquisition during the second quarter, with the corresponding offset recorded to goodwill (as opposed to provision expense). Partially offsetting this increase was net charge off activity of $1.9 million and $4.6 million for the three and nine-month periods ended September 30, 2021, respectively, serving to reduce the ACL for loans. Net charge off activity for 2021 has been highlighted by the charge off of two CRE relationships totaling $4.4 million, as the charged off amounts were fully reserved and had no income statement impact for the three and nine months ended September 30, 2021, in addition to a $555,000 recovery of a note that was fully charged off in 2020.
Provision for credit losses on loans at September 30, 2021 represents the amount of expense that, based on Management’s judgment, is required to maintain the ACL for loans at an appropriate level under the CECL model. The determination of the amount of the ACL for loans is complex and involves a high degree of judgment and subjectivity. See the footnote titled “Basis of Presentation and Summary of Significant Accounting Policies” for detailed discussion regarding Bancorp’s ACL methodology by loan segment in this document and Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020.
While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures experienced a decrease between December 31, 2020 and September 30, 2021. Net benefits were recorded for the three and nine-month periods ended September 30, 2021, respectively, as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and improvement in line of credit utilization. The ACL for off balance sheet credit exposures stood at $4.3 million as of September 30, 2021 compared to $5.4 million as of December 31, 2020.
Bancorp’s loan portfolio is diversified with no significant concentrations of credit. Geographically, most loans are extended to borrowers in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis and Cincinnati metropolitan markets. The adequacy of the allowance is monitored on an ongoing basis and it is the opinion of management that the balance of the allowance at September 30, 2021 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date.
Non-interest Income
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||
Wealth management and trust services | $ | 7,128 | $ | 5,657 | $ | 1,471 | 26 | % | $ | 20,234 | $ | 17,601 | $ | 2,633 | 15 | % | ||||||||||||||||
Deposit service charges | 1,768 | 998 | 770 | 77 | 3,945 | 3,081 | 864 | 28 | ||||||||||||||||||||||||
Debit and credit card income | 3,887 | 2,218 | 1,669 | 75 | 9,444 | 6,261 | 3,183 | 51 | ||||||||||||||||||||||||
Treasury management fees | 1,771 | 1,368 | 403 | 29 | 5,041 | 3,901 | 1,140 | 29 | ||||||||||||||||||||||||
Mortgage banking income | 915 | 1,979 | (1,064 | ) | (54 | ) | 3,662 | 4,447 | (785 | ) | (18 | ) | ||||||||||||||||||||
Net investment product sales commissions and fees | 780 | 431 | 349 | 81 | 1,789 | 1,288 | 501 | 39 | ||||||||||||||||||||||||
Bank owned life insurance | 275 | 172 | 103 | 60 | 642 | 527 | 115 | 22 | ||||||||||||||||||||||||
Other | 1,090 | 220 | 870 | 395 | 2,489 | 1,095 | 1,394 | 127 | ||||||||||||||||||||||||
Total non-interest income | $ | 17,614 | $ | 13,043 | $ | 4,571 | 35 | % | $ | 47,246 | $ | 38,201 | $ | 9,045 | 24 | % |
Total non-interest income increased $340 thousand or 7.4% and $1.4$4.6 million, or 10.7%35%, and $9.0 million, or 24%, for the respectivethree and nine-month periods ended September 30, 2021 compared to the same periods of 2020, respectively. Non-interest income comprised 27.9% and 27.4% of total revenues, defined as net interest income and non-interest income, for the three and nine month periods ended September 30, 2017, as2021 compared to 27.9% and 27.7% for the same periods of 2020, respectively. WM&T services comprised 40.5% and 42.8% of total non-interest income for the three and nine-month periods ended September 30, 2021 compared to 43.4% and 46.1% for the same periods of 2020, respectively. The KB acquisition added $3.0 million and $4.3 million in 2016. total non-interest income for the three and nine-month periods ended September 30, 2021, concentrated most notably in deposit service charges, debit and credit card income, and mortgage banking income.
WM&T Services:
The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased $1.5 million, or 26%, and $2.6 million, or 15%, for the three and nine month periods ended September 30, 2021, as compared with the same periods of 2020, respectively. Stock market appreciation, coupled with record net new business development, drove the substantial revenue increases for these periods. WM&T income of $333,000 and $455,000 was recorded in relation to the KB acquisition for the three and nine-month periods ended September 30, 2021.
Recurring fees earned for managing accounts are based on a percentage of market value of AUM and are typically assessed on a monthly basis. Some revenuesRecurring fees, which generally comprise the vast majority of WM&T revenue, increased $1.3 million, or 23% and $2.8 million, or 17% for the three and nine-month periods ended September 30, 2021, as compared with the same periods of 2020. The increases for the three and nine month periods stem from significant stock market appreciation experienced in addition to both organic and acquisition-related growth in net new business.
A portion of WM&T revenue, most notably executor insurance, and somecertain employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities, and is also based on the market value of AUM.activities. For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees increased $180,000 and decreased $115 thousand and $393 thousand$192,000, for the three and nine monthsmonth periods ended September 30, 2017,2021, as compared towith the same periods in 2016, primarily dueof 2020. The increase for the three-month period is attributed to a decrease in estate fees recorded during the third quarter of 2021, while the decrease for the nine month period was driven by a large estate fee recorded in the first quarter of 2020.
AUM, stated at market value, totaled $4.5 billion at September 30, 2021 compared with $3.4 billion at September 30, 2020 and $3.9 billion at December 31, 2020. The large increase in AUM between September 30, 2020 and September 30, 2021 is attributed mainly to period. significant stock market appreciation experienced in addition to growth in net new business and AUM of $250 million added through the KB acquisition.
Contracts between WM&T and their clientscustomers do not permit performance basedperformance-based fees and accordingly, none of the fees earned by WM&T arerevenue is performance based. Management believes the WM&T department will continue to factor significantly in Bancorp’s financial results and provide strategic diversity to revenue streams.
Stock Yards Bancorp, inc. and subsidiaryWM&T Service Income by Account Type:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Investment advisory | $ | 3,148 | $ | 2,491 | $ | 8,823 | $ | 7,190 | ||||||||
Personal trust | 1,855 | 1,482 | 5,481 | 5,572 | ||||||||||||
Personal investment retirement | 1,330 | 1,118 | 3,823 | 3,181 | ||||||||||||
Company retirement | 503 | 355 | 1,302 | 1,049 | ||||||||||||
Foundation and endowment | 208 | 152 | 581 | 434 | ||||||||||||
Custody and safekeeping | 40 | 34 | 112 | 94 | ||||||||||||
Brokerage and insurance services | 25 | 18 | 69 | 37 | ||||||||||||
Other | 19 | 7 | 43 | 44 | ||||||||||||
Total WM&T services income | $ | 7,128 | $ | 5,657 | $ | 20,234 | $ | 17,601 |
The followingpreceding table provides information regarding AUM by WM&T as of September 30, 2017 and 2016. This table demonstrates that:
• Approximately 80% of WM&T’s assets are actively managed.
• Corporate retirement plan accounts consist primarily of participant directed assets.
• The amount of custody and safekeeping accounts is insignificant, and
• The majority of WM&T’s managed assets are in personal trust and investment advisory accounts.
Assets Under Management by Account Type | ||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||
Assets | Assets | |||||||||||||||
(in thousands) | Managed | Non- managed (1) | Managed | Non- managed (1) | ||||||||||||
Personal trust accounts | $ | 567,222 | $ | 96,005 | $ | 512,905 | $ | 62,221 | ||||||||
Personal investment retirement accounts | 340,159 | 7,142 | 311,215 | 10,024 | ||||||||||||
Corporate retirement accounts | 56,515 | 382,803 | 53,190 | 335,613 | ||||||||||||
Investment advisory accounts | 995,769 | 20,169 | 867,776 | - | ||||||||||||
Foundation and endowment accounts | 220,722 | - | 224,213 | - | ||||||||||||
Total fiduciary accounts | $ | 2,180,387 | $ | 506,119 | $ | 1,969,299 | $ | 407,858 | ||||||||
Custody and safekeeping accounts | - | 59,490 | - | 35,773 | ||||||||||||
Totals | $ | 2,180,387 | $ | 565,609 | $ | 1,969,299 | $ | 443,631 | ||||||||
Total managed and non-managed assets | $ | 2,745,996 | $ | 2,412,930 |
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Stock Yards Bancorp, inc. and subsidiary
The table below presents data regarding WM&T managed assets by class of investment for the periods ending September 30, 2017 and 2016. This table demonstrates that:
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No Stock Yards Bank propriety mutual funds exist, and therefore no such investment options are available to WM&T clients.
Managed Assets by Class of Investment | ||||||||
As of September 30, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Interest bearing deposits | $ | 122,787 | $ | 127,570 | ||||
US Treasury and government agency obligations | 42,293 | 50,020 | ||||||
State, county and municipal obligations | 132,431 | 126,394 | ||||||
Money market mutual funds | 8,211 | 13,718 | ||||||
Equity mutual funds | 548,972 | 453,995 | ||||||
Other mutual funds - fixed, balanced, and municipal | 310,779 | 319,240 | ||||||
Other notes and bonds | 120,155 | 88,463 | ||||||
Common and preferred stocks | 795,732 | 688,543 | ||||||
Real estate mortgages | 373 | 392 | ||||||
Real estate | 43,664 | 44,572 | ||||||
Other miscellaneous assets (1) | 54,990 | 56,392 | ||||||
Total managed assets | $ | 2,180,387 | $ | 1,969,299 |
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Stock Yards Bancorp, inc. and subsidiary
The table below provides information regarding fee income earned by Bancorp’s WM&T department for the three and nine-month periods ended September 30, 2017 and 2016. It demonstrates that WM&T fee revenue is earned most significantly fromconcentrated within investment advisory and personal trust and investment advisory accounts. FeesWM&T fees are predominantly based on AUM and tailored for individualindividual/company accounts and/or relationships. WM&T uses arelationships with fee structure that considers and tailorsstructures customized based on account type of account and other factors.factors with larger relationships paying a lower percentage of AUM in fees. For example, recurring AUM fee structures are in place for investment management, irrevocable trusts, revocable trusts, IRApersonal investment retirement accounts and accounts holding only fixed income securities. There are also fee structures for estate settlements, which are non-recurring, andCompany retirement plan services which typicallycan consist of a one-time conversion fee with recurring AUM fees to follow. All feesWhile there are based on the market value of each account and are tiered based on account size. Feesalso fee structures for estate settlements, income received is often non-recurring in nature. Fee structures are agreed upon at the time theof account is opened and theseopening and any subsequent revisions are communicated in writing to the customer. Fees earned are not performance basedperformance-based nor are they based on investment strategy or transactions.
Wealth Management and Trust Services Income | ||||||||||||||||
Three months | Nine months | |||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Personal trust accounts | $ | 1,691 | $ | 1,707 | $ | 5,523 | $ | 5,427 | ||||||||
Personal retirement accounts | 832 | 778 | 2,426 | 2,229 | ||||||||||||
Corporate retirement accounts | 373 | 408 | 1,161 | 1,162 | ||||||||||||
Investment advisory accounts | 1,895 | 1,681 | 5,471 | 4,789 | ||||||||||||
Foundation and endowment | 135 | 126 | 400 | 364 | ||||||||||||
Custody and safekeeping | 36 | 27 | 119 | 73 | ||||||||||||
Brokerage and insurance | 9 | 13 | 28 | 35 | ||||||||||||
Other | 54 | 60 | 144 | 140 | ||||||||||||
Total | $ | 5,025 | $ | 4,800 | $ | 15,272 | $ | 14,219 |
Assets Under Management by Account Type:
Other Non-interest IncomeAUM (not included on balance sheet) increased from $3.9 billion at December 31, 2020 to $4.5 billion at September 30, 2021 as follows:
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
(in thousands) | Managed | Non-managed (1) | Total | Managed | Non-managed (1) | Total | ||||||||||||||||||
Investment advisory | $ | 1,754,255 | $ | 36,468 | $ | 1,790,723 | $ | 1,547,742 | $ | 72,696 | $ | 1,620,438 | ||||||||||||
Personal trust | 914,433 | 130,292 | 1,044,725 | 721,150 | 112,053 | 833,203 | ||||||||||||||||||
Personal investment retirement | 578,739 | 3,385 | 582,124 | 506,005 | 3,241 | 509,246 | ||||||||||||||||||
Company retirement | 37,423 | 608,217 | 645,640 | 40,006 | 481,222 | 521,228 | ||||||||||||||||||
Foundation and endowment | 318,572 | 2,620 | 321,192 | 281,986 | 2,532 | 284,518 | ||||||||||||||||||
Subtotal | $ | 3,603,422 | $ | 780,982 | $ | 4,384,404 | $ | 3,096,889 | $ | 671,744 | $ | 3,768,633 | ||||||||||||
Custody and safekeeping | — | 121,159 | 121,159 | — | 83,004 | 83,004 | ||||||||||||||||||
Total | $ | 3,603,422 | $ | 902,141 | $ | 4,505,563 | $ | 3,096,889 | $ | 754,748 | $ | 3,851,637 |
(1) Non-managed assets represent those for which the WM&T department does not hold investment discretion. |
As of both September 30, 2021 and Non-interest ExpenseDecember 31, 2020, approximately 80%, respectively, of AUM were actively managed. Company retirement plan accounts primarily consist of participant-directed assets. The amount of custody and safekeeping accounts are insignificant.
ServiceManaged Trust Assets under Management by Class of Investment:
(in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Interest bearing deposits | $ | 117,852 | $ | 168,344 | ||||
Treasury and government agency obligations | 23,584 | 31,719 | ||||||
State, county and municipal obligations | 113,420 | 119,344 | ||||||
Money market mutual funds | 3,470 | 58,493 | ||||||
Equity mutual funds | 883,681 | 752,476 | ||||||
Other mutual funds - fixed, balanced, and municipal | 553,632 | 441,275 | ||||||
Other notes and bonds | 167,771 | 165,828 | ||||||
Common and preferred stocks | 1,598,320 | 1,238,973 | ||||||
Real estate mortgages | 2,101 | 190 | ||||||
Real estate | 59,397 | 51,682 | ||||||
Other miscellaneous assets (1) | 80,194 | 68,565 | ||||||
Total managed assets | $ | 3,603,422 | $ | 3,096,889 |
(1) Includes client directed instruments including rights, warrants, annuities, insurance policies, unit investment trusts,and oil and gas rights. |
Managed assets are invested in instruments for which market values can be readily determined, the majority of which are sensitive to market fluctuations and consist of approximately 68% in equities and 32% in fixed income securities as of September 30, 2021 compared to 64% and 36% as of December 31, 2020. This composition has been relatively consistent from period to period and the WM&T Department holds no proprietary mutual funds.
Additional Sources of Non-interest income:
Deposit service charges, on deposit accounts decreased $22 thousandwhich consist of non-sufficient funds charges and to a lesser extent, other activity based charges, increased $770,000, or 1% while increasing $416 thousand,77%, and $864,000, or 6.0%28%, for the three and nine month periods of 2017, respectively,ended September 30, 2021, as compared with the same periods of 2020, respectively. These increases were attributed largely to the contribution associated with the KB acquisition, however, the prior year periods were also negatively impacted by the pandemic. Consistent with the industry, customer behavior and transaction volume have been impacted by the pandemic and continued government efforts to minimize its impact on the economy, such as stimulus payments, PPP funding and more lucrative unemployment compensation. Deposit balances have remained at or near record levels for several months as a result, which has in 2016. The decline quarter over quarter was driven by aturn led to fewer overdrawn accounts. These trends have significantly exacerbated the industry-wide decline in the volume of fees assessed on overdrawn checking accounts. This component of service charge income is generally driven by transaction volume, which can fluctuate throughout the year. Cash management services offered to commercial customers through our treasury management area continues to be a growing source of revenue. Treasury generated gross revenue grew 12% over the nine month period ended September 30, 2017, as compared to the same period in 2016. Fees chargedearned on overdrawn checking accounts declined 4% yearexperienced over year.the past several years. While Bancorp has experienced notable improvement since first experiencing significant pandemic-related declines in transaction volume in April 2020, Management expectsis not able to predict when, or if, this sourcerevenue stream will return to pre-pandemic levels.
Debit and credit card income consists of interchange revenue, to slowly decline due to changes in customer behaviorancillary fees and ongoing regulatory restrictions. Service charges were further impacted by the introduction of a new checking account product in the third quarter of 2016. The product provides ancillary services to customers, while carrying a monthly service charge. The income associated with the new checking account product was approximately $641 thousandincentives received from card processors. Debit and credit card revenue increased $1.7 million, or 75%, and $3.2 million, or 51%, for the first nine months of 2017, as compared to $198 thousand for the same period in 2016.
Bankcard transaction revenue increased $37 thousand or 2.5% for the third quarter of 2017,three and $214 thousand, or 5.1% for the first nine months of 2017, as comparednine-month periods ended September 30, 2021, as compared with the same periods in 2016. Bankcardof 2020, as a result of increased transaction revenue primarily represents incomevolume and continued expansion of the Bank derives from customers’ use of debitcustomer bases, both organically and through acquisition-related activity. Debit and credit cards.card revenue of approximately $1.1 million and $1.5 million was added for the three and nine-month periods ended September 30, 2021 as a result of the KB acquisition. Total debit card income increased $1.2 million, or 81%, and $2.3 million, or 53%, and total credit card income increased $449,000, or 63%, and $896,000, or 46%, for the three and nine-month periods ended September 30, 2021 compared the same periods of the prior year.
Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. This category continues to stand out as a consistent, growing source of revenue for Bancorp began offering credit cards to business customers late in 2015. Revenue on credit cards totaled $276 thousand and $795 thousandincreased $403,000, or 29%, and $1.1 million, or 29%, for the three and nine month periods of 2017, respectively,ending September 30, 2021, as compared to $206 thousand and $520 thousand forwith the same periods of 2020, respectively. New product sales and expansion of its customer base have helped Bancorp’s Treasury Management department overcome challenges presented by the pandemic. Demand for Bancorp’s treasury products has increased during the pandemic, as these products allow customers to operate more efficiently in 2016.a decentralized environment. In addition, sales efforts involving existing customers has led to increases in online services, reporting, ACH origination, remote deposit and fraud mitigation services during the first three quarters of 2021. Bancorp expects volume of credit card transactionsanticipates this income category will continue to increase as this product is expandedbased on continued customer base growth and the expanding suite of services offered within the commercial customer base. Interchange income on debit cards declined $35 thousand and $66 thousand in the three and nine month periods of 2017, respectively, compared to the same periods in 2016. Bancorp expects future decreases in interchange rates on debit cards as merchants structure their technology and processes to take advantage of lower transactional pricing options, which do not favor Bancorp or the banking industry as a whole.
Stock Yards Bancorp, inc. and subsidiary
Bancorp’s treasury management platform.
Mortgage banking revenueincome primarily includes gains on sales of mortgage loans. Bancorp’sloans and loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary market.market, primarily to FNMA. Interest rates on the mortgage loans sold are locked with the borrower and investor prior to loan closing, the loans, thus Bancorp bears no interest rate risk related to these loans. The departmentloans held for sale. Bancorp offers conventional, VA and FHA financing for purchases and refinances, as well as programs for first-time home buyers. Changes in interesthomebuyers. Interest rates on mortgage loans directly impactinfluence the volume of business transacted by the mortgage bankingmortgage-banking department. Mortgage banking revenue decreased $291 thousand$1.1 million, or 27.1%54%, and $516 thousand,$785,000, or 17.8%18%, for the respective three and nine month periods ended September 30, 20172021, as compared with the same periods in 2016, primarily due to lower transaction volume. In Bancorp’s primary market of Louisville, Kentucky the housing inventory2020, respectively. Mortgage banking revenue of approximately $330,000 and $592,000 was low, particularly in the first half of 2017, contributing to this decline.
Securities brokerage commissions and fees decreased $7 thousand or 1.3% while increasing $45 thousand, or 2.9%,added for the respective three and nine monthnine-month periods ended September 30, 20172021 as compared witha result of the sameKB acquisition. The following activity also influenced mortgage banking income for the periods in 2016. Revenue fluctuations correspond primarily to overall brokerage volume. Brokeragenoted above:
● | Sustained low long-term rates have incentivized refinancing and purchasing activity, which has resulted in elevated mortgage banking income over the past year. Including the gain on sale earned, Bancorp sold $46 million and $188 million loans during the three and nine-month periods ended September 30, 2021 compared to $94 million and $191 million for the same periods of 2020, respectively. Bancorp expects volume to continue normalizing as the pool of potential customers who have yet to refinance shrinks, general housing inventory remains limited and interest rates rise above the absolute low levels experienced over the past year. |
● | Beginning in the fourth quarter of 2020, the Bank elected to retain a select portion of FNMA qualified secondary market single family residential real estate loan production from the mortgage banking department on balance sheet in an effort to deploy a portion of excess liquidity in lieu of buying mortgage-backed securities within the AFS debt securities portfolio. Continuing into 2021, approximately $63 million in 15 and 30 year fixed rate loans were retained in the first nine months of 2021 as part of this strategy, forgoing approximately $2.2 million in year-to-date gain on sale that would typically have been recognized in Mortgage banking income. |
Net investment product sales commissions and fees earned consistare generated primarily ofon stock, bond and mutual fund sales, as well as wrap fees on brokerage accounts. Wrap fees arerepresent charges for investment programs that bundle together a suite of services, such as brokerage, advisory, research and management and are based on a percentage of assets. Bancorp deploys its brokersfinancial advisors primarily through its branch network via an arrangement with a third party broker-dealer, while larger managed accounts are serviced in the Bank’sby Bancorp’s WM&T department.
Bank Owned Life Insurance (BOLI) income totaled $204 thousandDepartment. Net investment product sales commissions and fees increased $349,000, or 81%, and $501,000, or 39%, for the third quarterthree and $964 thousand for the first nine months of 2017,month periods ended September 30, 2021, as compared to $216 thousand and $657 thousand forwith the same periods in 2016. The year to date increase in 2017 over 2016, was primarily due to $348 thousand in death benefit proceeds recorded inof 2020, respectively. Net investment product sales commissions and fees associated with the second quarter of 2017. KB acquisition totaled approximately $239,000 and $298,000 for the three and nine-month periods ended September 30, 2021.
BOLI assets represent the cash surrender value forof life insurance policies on certain currentactive and priornon-active employees who have provided consent for Bancorp to be the beneficiary offor a portion of such policies. BOLI income results from theThe related change in cash surrender value and any death benefits received under the policies.policies are recorded as non-interest income. This income helpsserves to offset the cost of various employee benefits. BOLI income increased $103,000, or 60%, and $115,000, or 22%, for the three and nine month periods ending September 30, 2021 compared to the same periods of the prior year attributed almost entirely to the contribution of the KB acquisition.
Other non-interest income decreased $216 thousandincreased $870,000 and $1.4 million for the three and nine-month periods ended September 30, 2021 as compared with the same periods of 2020, respectively. These increases were driven by a plethora of activity, most notably the addition of the insurance captive, stronger market returns on insurance policies outside of traditional BOLI, increased swap fee income and gains on OREO sold.
Non-interest Expenses
Three months ended September 30, | Nine months ended September 30 | |||||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||
Compensation | $ | 17,381 | $ | 13,300 | $ | 4,081 | 31 | % | $ | 45,888 | $ | 37,296 | $ | 8,592 | 23 | % | ||||||||||||||||
Employee benefits | 3,662 | 2,853 | 809 | 28 | 10,290 | 8,891 | 1,399 | 16 | ||||||||||||||||||||||||
Net occupancy and equipment | 2,732 | 2,177 | 555 | 25 | 7,021 | 6,045 | 976 | 16 | ||||||||||||||||||||||||
Technology and communication | 3,173 | 2,323 | 850 | 37 | 8,189 | 6,385 | 1,804 | 28 | ||||||||||||||||||||||||
Debit and credit card processing | 1,479 | 649 | 830 | 128 | 3,160 | 1,908 | 1,252 | 66 | ||||||||||||||||||||||||
Marketing and business development | 1,011 | 523 | 488 | 93 | 2,357 | 1,548 | 809 | 52 | ||||||||||||||||||||||||
Postage, printing, and supplies | 630 | 472 | 158 | 33 | 1,499 | 1,355 | 144 | 11 | ||||||||||||||||||||||||
Legal and professional | 700 | 544 | 156 | 29 | 1,828 | 1,795 | 33 | 2 | ||||||||||||||||||||||||
FDIC insurance | 387 | 435 | (48 | ) | (11 | ) | 1,141 | 894 | 247 | 28 | ||||||||||||||||||||||
Amortization of investments in tax credit partnerships | 53 | 52 | 1 | 2 | 315 | 141 | 174 | 123 | ||||||||||||||||||||||||
Capital and deposit based taxes | 556 | 1,076 | (520 | ) | (48 | ) | 1,541 | 3,331 | (1,790 | ) | (54 | ) | ||||||||||||||||||||
Merger expenses | 525 | - | 525 | 100 | 19,025 | - | 19,025 | 100 | ||||||||||||||||||||||||
FHLB early termination penalty | - | - | - | 0 | 474 | - | 474 | 100 | ||||||||||||||||||||||||
Other | 2,269 | 1,242 | 1,027 | 83 | 4,980 | 3,041 | 1,939 | 64 | ||||||||||||||||||||||||
Total non-interest expenses | $ | 34,558 | $ | 25,646 | $ | 8,912 | 35 | % | $ | 107,708 | $ | 72,630 | $ | 35,078 | 48 | % |
Total non-interest expenses increased $8.9 million, or 30.3%35%, and $193 thousand,$35.1 million, or 11%48%, for the respectivethree and nine-month periods ended September 30, 2021 compared to the same periods of 2020, respectively. Compensation and employee benefits comprised 60.9% and 52.2% of Bancorp’s total non-interest expenses for the three and nine-month periods ended September 30, 2021, compared to 63.0% and 63.6% for the same periods of 2020, respectively. Excluding merger expenses, compensation and employee benefits comprised 61.8% and 63.3% of total non-interest expenses for the three and nine-month periods ended September 30, 2021. On-going non-interest expense totaling $6.5 million and $8.8 million were added for the three and nine-month periods ended September 30, 2021 as a result of the KB acquisition (excluding merger expenses).
Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased $4.1 million, or 31%, and $8.6 million, or 23%, for the three and nine month periods ended September 30, 2017 compared with the same periods in 2016. The primary driver of the decline was swap fee income, which declined $116 thousand in the third quarter and $251 thousand for the first nine months of 2017,2021, as compared with the same periods of 2020, respectively. The increases were attributed to growth in 2016. These fees are an infrequent source of revenue duefull time equivalent employees, annual merit-based salary increases and higher incentive compensation expense. Net full time equivalent employees totaled 793 at September 30, 2021 compared to 641 at December 31, 2020 and 626 at September 30, 2020. The large increase compared to prior periods was attributed to the unique natureaddition of 156 FTEs as a result of the transactions. This category containsKB acquisition. Compensation expense totaling approximately $3.0 million and $3.9 million was recorded for the three and nine-month periods ended September 30, 2021 as a varietyresult of other income sources none of which resulted in individually significant variances.the acquisition.
SalariesEmployee benefits consists of all personnel-related expense not included in compensation, with the most significant items being health insurance, payroll taxes and employee retirement plan contributions. Employee benefits increased $935 thousand$809,000 or 7.8% for the third quarter of 2017,28%, and $3.0$1.4 million, or 8.4%16%, for the firstthree and nine months of 2017,month periods ended September 30, 2021, as compared with the same periods in 2016. The increases are largely due to higher compensation expenses, reflecting addition of personnel and to a lesser extent, increased health care costs. The additions to staff were driven by expanding market presence in Cincinnati and Indianapolis, along2020, consistent with the need for front line lending and loan support staff across all markets. The Bank’s employee health insurance is a self-insured plan and related expenses fluctuate with claims experience. At September 30, 2017, Bancorp had 581 full-timeoverall increase in full time equivalent employees compared with 558 at September 30, 2016.
Net occupancynoted above. Employee benefits expense decreased $25 thousand or 1.5%totaling approximately $444,000 and $653,000 was recorded for the third quarterthree and increased $49 thousand or 1.0% for the nine months ended September 30, 2017, as compared with2021, respectively, in relation to the same periods in 2016. The quarterly decrease was the result of timing of normal maintenance activities. The increase year over year was largely due to increased recurring expenses for multiple bank properties and a decrease in sub-lease rents.
Stock Yards Bancorp, inc. and subsidiaryKB acquisition.
Data processing expense increased $173 thousand or 9.9% in the third quarter of 2017 and $737 thousand, or 14.2% in the first nine months of 2017, as compared with the same periods in 2016. The increase was primarily a result of increases in computer infrastructure and maintenance costs. These expenses include ongoing computer software amortization, equipment depreciation, and expenditures related to investments in technology needed to maintain and improve the quality of delivery channels and internal resources.
FurnitureNet occupancy and equipment expense increased $39 thousand or 14.1% in the third quarter of 2017expenses primarily include depreciation, rent, property taxes, utilities and $8 thousand or 0.9% for the first nine months of 2017, as compared with the same periods in 2016.maintenance. Costs of capital asset additions flow through the statement of income over the lives of the assets in the form of depreciation expense.
FDIC insurance expense decreased $114 thousand Net occupancy increased $555,000, or 32%25%, and $319 thousand,$976,000, or 30.7%16%, for the respective three and nine month periods of 2017, as compared with the same periods in 2016. The expense assessment is calculated by the FDIC on a quarterly basis. During 2016 the FDIC revised the assessment criteria to more closely align FDIC insurance expense with each financial institution’s risk profile. Bancorp benefited from this change.
Amortization of investments in tax credit partnerships decreased $399 thousand for the third quarter of 2017 and $1.2 million for the first nine months of 2017,ended September 30, 2021, as compared with the same periods of 2016. This expense reflects2020, respectively. The KB acquisition resulted in the addition of 19 locations throughout central and eastern Kentucky and was the primary driver of the increases over prior period, contributing net occupancy and equipment expenses totaling approximately $608,000 and $837,000 for the three and nine month periods ending September 30, 2021, respectively.
Technology and communication expenses include computer software amortization, ofequipment depreciation and expenditures related to investments in technology needed to maintain and improve the quality of customer delivery channels, information security and internal resources. Technology expense increased $850,000, or 37%, and $1.8 million, or 28%, for the three and nine-month periods ended September 30, 2021, attributed mainly to the acquisition. Expenses totaling approximately $897,000 and $1.2 million were recorded as a result of the KB acquisition for the three and nine-month periods ended September 30, 2021, respectively. The KB system conversion occurred in August 2021and technology-related expenses are expected to moderate into the fourth quarter.
Bancorp outsources processing for debit and commercial credit card operations, which generate significant revenue for the Company. These expenses fluctuate consistent with transaction volumes. Debit and credit card processing expense increased $830,000 and $1.3 million for the three and nine month periods ending September 30, 2021 compared to the same period of last year, correlating in part with the increase in transaction volume and customer base expansion resulting from both organic and acquisition-related growth that served to increase debit and credit card non-interest income. Related expense associated with the KB acquisition totaled $651,000 and $868,000 for the three and nine-month periods ended September 30, 2021.
Marketing and business development expenses include all costs associated with promoting Bancorp including community support, retaining customers and acquiring new business. Marketing and business development expenses increased $488,000, or 93%, and $809,000, or 52%, for the three and nine month periods ending September 30, 2021, as compared to the same periods of 2020. The increases correspond with more physical customer interaction as a result of continued easing of pandemic-related restrictions, which has led to increased travel and entertainment expense compared to the same periods of 2020. Marketing and business development expense associated with the KB acquisition totaled $157,000 and $208,000 for the three and nine months ended September 30, 2021.
Legal and professional fees increased $156,000, or 29%, and $33,000, or 2%, for the three and nine-month periods ended September 30, 2021 compared to the same periods of last year, respectively. Legal and professional fees related to the merger are captured in merger expenses below. Legal and professional expenses unrelated to the merger, but attributable to KB totaled approximately $132,000 for the three and nine months ended September 30, 2021.
FDIC insurance decreased $48,000, or 11%, and increased $247,000, or 28%, for the three and nine month periods ended September 30, 2021, as compared to the same period of 2020. FDIC insurance expense related to the KB acquisition totaled $75,000 and $105,000 for the three and nine-month periods ended September 30, 2021. The three-month decrease was attributed mainly to a lower assessment rate, and thus a lower premium for the third quarter. The nine month period increase was driven by the acquisition and PPP-driven larger balance sheet in addition to the first quarter of 2020 benefitting from the last portion of small institution credits first issued by the FDIC in 2019 upon the national FDIC Reserve Ratio reaching its targeted level.
Tax credit partnerships which generate federal income tax credits, and vary widely depending upon the timing and magnitude of investments and related amortization. Forfor each of Bancorp’s investments in tax credit partnerships, the tax benefit, compared with the amortizationnet of related expenses, results in a positive effect on net income. SeeAmounts of credits and corresponding expenses can vary widely depending upon the Income Taxes section belowtiming and magnitude of the underlying investments. Amortization expense associated with these investments increased $1,000 and $174,000 for details on amortization and income tax impact for these credits.
Other non-interest expenses increased $190 thousand or 5.5% and $1.3 million or 13.6% in the respective three and nine month periods ending September 30, 2017, as2021 compared withto the same period of last year. No tax credit amortization was recorded in relation to the KB acquisition of the three and nine-month periods in 2016. The quarterly increase was largely due to recording a $266 thousand liability related to an estimated loss from certain administrative proceedings arising in the course of our business. The increase for the year to date 2017 period was largely due to a combination of numerous items, the largest of which are detailed below:
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Stock Yards Bancorp, inc. and subsidiaryended September 30, 2021.
Income Taxes
Bancorp recorded income tax expense of $4.1Capital and deposit based taxes decreased $520,000, or 48%, and $1.8 million, and $11.6 millionor 54%, for the three and nine month periods ended September 30, 2017, respectively, as2021 compared to the same periods of 2020 consistent with $3.9 millionthe state of Kentucky transitioning financial institutions from a capital-based franchise tax to the Kentucky corporate income tax effective January 1, 2021. Capital and $11.2deposit based tax expense related to the KB acquisition was $82,000 and $109,000 for the three and nine month periods ended September 30, 2021, respectively.
Merger expenses represent non-recurring expenses associated with completion of the KB acquisition and consist primarily of investment banker fees, various compensation-related expenses, legal fees, early termination fees relating to various contracts and system conversion expenses. Merger expenses totaled $525,000 and $19.0 million for the samethree and nine-month periods ended September 30, 2021. Merger expenses for the three-month period ended September 30, 2021 were attributed to the pending Commonwealth acquisition.
An early termination fee of $474,000 was recorded during the second quarter of 2021 in 2016. The effective raterelation to the pre-payment of FHLB advances totaling $14 million prior to their respective contractual maturities. Bancorp chose to payoff these term advances, with a weighted average cost of 2.03%, due to its excess liquidity driven by the substantial deposit growth it achieved over the past 12 months, combined with the near-term outlook for bothlow interest rates.
Other non-interest expenses increased $1.0 million, or 83%, and $1.9 million, or 64%, for the three and nine month periods ended September 30, 2021, as compared to the same periods of 2020. These increases were driven by a number of factors, including the first full quarter of other non-interest expenses attributed to the KB acquisition, including amortization of the CDI related to KB’s deposit portfolio, expenses associated with the addition of the insurance captive and other miscellaneous expenses. Further, large credits to expense were recorded in the prior year associated with a gain on a bank-owned property sold in the first quarter of 2020 and the reversal of an accrual in the second quarter of 2020 related to a potential IRS penalty that was ultimately dismissed.
Income Tax Expense
A comparison of income tax expense and ETR follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||
Income before income tax expense | $ | 30,064 | $ | 16,124 | $ | 13,940 | 86 | % | $ | 63,283 | $ | 47,322 | $ | 15,961 | 34 | % | ||||||||||||||||
Income tax expense | 6,902 | 1,591 | 5,311 | 334 | 13,227 | 6,189 | 7,038 | 114 | ||||||||||||||||||||||||
Effective tax rate | 23.0 | % | 9.9 | % | 20.9 | % | 13.1 | % |
Fluctuations in the ETR are primarily attributed to the following:
● | Bancorp invests in certain partnerships that yield federal income tax credits. Taken as a whole, the tax benefit of these investments exceeds amortization expense, resulting in a positive impact on net income. The timing and magnitude of these transactions may vary widely from period to period. The ETR for 2020 included the anticipated full year benefit of a large historic tax credit project that was completed in December, serving to reduce the ETR by 5.5% and 5.8% for the three and nine months ended September 30, 2020. |
● | The stock based compensation component of the ETR fluctuates consistent with the level of SAR exercise activity. The ETR was reduced 0.1% and 1.7% for the three and nine months ended September 30, 2021 compared to reductions of 2.6% and 0.9% for the same periods of 2020, respectively, as a result of varying levels of exercise activity. |
● | The state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital based franchise tax to the Kentucky corporate income tax beginning in 2021 and allows entities filing a combined Kentucky income tax return to share certain tax attributes, including net operating loss carryforwards. These changes served to increase the ETR 3.6% and 3.4% for the three and nine months ended September 30, 2021. |
Financial Condition – September 30, 2021 Compared to December 31, 2020 |
Overview
Total assets increased $1.6 billion, or 34%, to $6.2 billion at September 30, 2021 from $4.6 billion at December 31, 2020. Total assets of $1.3 billion were added on May 31, 2021 as a result of the KB acquisition, including loans of $755 million (including PPP) and total AFS debt securities of $396 million. In addition, goodwill of $123 million was recorded in relation to the transaction. Further, total loans (excluding loans added through the acquisition and the PPP portfolio) grew $221 million, or 7%, between December 31, 2020 and September 30, 2021.
Total liabilities increased $1.3 billion, or 32%, to $5.5 billion at September 30, 2021 from $4.2 billion at December 31, 2020. Total liabilities of $1.2 billion were assumed on May 31, 2021 as a result of the KB acquisition, including total deposits of $1.0 billion. Excluding deposits assumed through the acquisition, deposit balances remained at record levels as of September 30, 2021, growing $353 million, or 9%, since December 31, 2020, as federal stimulus efforts have bolstered deposits and uncertainty surrounding the pandemic has resulted in Bancorp’s customer base maintaining higher balances in general over the past several months.
Cash and Cash Equivalents
Cash and cash equivalents increased $267 million, or 84%, ending at $585 million at September 30, 2021 compared to $318 million at December 31, 2020. The average balance of cash and cash equivalents increased $156 million, or 60%, over the past twelve months. Bancorp continues to maintain higher levels of liquidity attributable to the PPP, continued growth in deposits and the overall interest rate environment.
AFS Debt Securities
AFS debt securities increased $483 million, or 82%, to $1.1 billion at September 30, 2021 compared to $587 million at December 31, 2020. AFS debt securities totaling $396 million were added as a result of the KB acquisition, approximately $91 million of which were sold shortly after acquisition. In addition, Bancorp continued to actively invest in the securities portfolio during 2021 in an effort to deploy a portion of excess liquidity, a strategy enacted in the latter half of 2020, by purchasing $325 million of AFS debt securities for the nine months ended September 30, 2017,2021. Partially offsetting growth associated with purchasing activity was 25.9%scheduled amortization and elevated prepayment activity, largely within the MBS portfolio, as well as market depreciation stemming from an upward move in 2017the interest rate environment experienced through the first nine months of 2021. As a result of the activity above, average AFS debt securities grew $397 million, or 92%, over the past twelve months.
Premises and Equipment
Premises and equipment are presented on the consolidated balance sheets net of related depreciation on the respective assets as well as fair value adjustments associated with purchase accounting. As result of the KB acquisition, which added 19 locations throughout central and eastern Kentucky, premises and equipment increased $19 million, or 33%, to $77 million at September 30, 2021 from $58 million at December 31, 2020.
BOLI
Bank-owned life insurance assets increased $20 million, or 59%, to $53 million at September 30, 2021, compared to 27.1%$33 million at December 31, 2020, the increase stemming directly from life insurance assets added as a result of the KB acquisition.
Goodwill
At September 30, 2021, Bancorp had $136 million in goodwill recorded on its balance sheet, including $124 million recorded in association with the acquisition of KB. As permitted under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and 27.0%assumed liabilities related to the KB acquisition. During this measurement period, Bancorp may record subsequent adjustments to goodwill for provisional amounts recorded at the threeacquisition date. Net adjustments attributed to the KB acquisition totaling $700,000 reduced goodwill attributed to KB to $123 million as of September 30, 2021.
Other Assets and Other Liabilities
Other assets increased $17 million, or 24%, to $88 million at September 30, 2021. Other liabilities decreased $8 million, or 9%, to $80 million at September 30, 2021.
The increase in other assets was attributed to OREO added due to foreclosure of a large CRE property, additional investment in tax credit partnerships and general increases in other assets related to the KB acquisition. Partially offsetting the increase was market depreciation on interest rate swap assets stemming from an improving interest rate environment, which also served to decrease to correlating interest rate swap liabilities. The remaining decrease in other liabilities was attributed to the reduction of various accrued liabilities.
As of September 30, 2021, Bancorp did not incur any impairment with respect to its other intangible assets (MSRs and CDIs) or other long-lived assets.
Loans
Composition of loans, net of deferred fees and costs, by primary loan portfolio class follows:
(dollars in thousands) | September 30, 2021 | December 31, 2020 | $ Change | % Change | ||||||||||||
Commercial real estate - non-owner occupied | $ | 1,142,647 | $ | 833,470 | $ | 309,177 | 37 | % | ||||||||
Commercial real estate - owner occupied | 652,631 | 508,672 | 143,959 | 28 | % | |||||||||||
Total commercial real estate | 1,795,278 | 1,342,142 | 453,136 | 34 | % | |||||||||||
Commercial and industrial - term | 581,804 | 525,776 | 56,028 | 11 | % | |||||||||||
Commercial and industrial - term - PPP | 231,335 | 550,186 | (318,851 | ) | -58 | % | ||||||||||
Commercial and industrial - lines of credit | 329,119 | 249,378 | 79,741 | 32 | % | |||||||||||
Total commercial and industrial | 1,142,258 | 1,325,340 | (183,082 | ) | -14 | % | ||||||||||
Residential real estate - owner occupied | 398,069 | 239,191 | 158,878 | 66 | % | |||||||||||
Residential real estate - non-owner occupied | 277,045 | 140,930 | 136,115 | 97 | % | |||||||||||
Total residential real estate | 675,114 | 380,121 | 294,993 | 78 | % | |||||||||||
Construction and land development | 303,642 | 291,764 | 11,878 | 4 | % | |||||||||||
Home equity lines of credit | 140,027 | 95,366 | 44,661 | 47 | % | |||||||||||
Consumer | 104,629 | 71,874 | 32,755 | 46 | % | |||||||||||
Leases | 12,348 | 14,786 | (2,438 | ) | -16 | % | ||||||||||
Credits cards | 15,821 | 10,203 | 5,618 | 55 | % | |||||||||||
Total loans (1) | $ | 4,189,117 | $ | 3,531,596 | $ | 657,521 | 19 | % |
(1) Total loans are presented inclusive of premiums, discounts, and net loan origination fees and costs. |
Composition of loans, net of deferred fees and costs, by primary loan portfolio class and bifurcated between Bancorp’s legacy loan portfolio and the loan portfolio attributed to KB:
As of September 30, 2021 | ||||||||||||
(dollars in thousands) | Legacy | KB | Total | |||||||||
Commercial real estate - non-owner occupied | $ | 907,477 | $ | 235,170 | $ | 1,142,647 | ||||||
Commercial real estate - owner occupied | 552,732 | 99,899 | 652,631 | |||||||||
Total commercial real estate | 1,460,209 | 335,069 | 1,795,278 | |||||||||
Commercial and industrial - term | 522,262 | 59,542 | 581,804 | |||||||||
Commercial and industrial - term - PPP | 219,775 | 11,560 | 231,335 | |||||||||
Commercial and industrial - lines of credit | 293,612 | 35,507 | 329,119 | |||||||||
Total commercial and industrial | 1,035,649 | 106,609 | 1,142,258 | |||||||||
Residential real estate - owner occupied | 309,315 | 88,754 | 398,069 | |||||||||
Residential real estate - non-owner occupied | 126,089 | 150,956 | 277,045 | |||||||||
Total residential real estate | 435,404 | 239,710 | 675,114 | |||||||||
Construction and land development | 289,189 | 14,453 | 303,642 | |||||||||
Home equity lines of credit | 91,620 | 48,407 | 140,027 | |||||||||
Consumer | 87,599 | 17,030 | 104,629 | |||||||||
Leases | 12,348 | - | 12,348 | |||||||||
Credits cards | 13,749 | 2,072 | 15,821 | |||||||||
Total loans (1) | $ | 3,425,767 | $ | 763,350 | $ | 4,189,117 |
(1) Total loans are presented inclusive of premiums, discounts, and net loan origination fees and costs. |
Total loans increased $658 million, or 19%, from December 31, 2020 to September 30, 2021, driven by the addition of $755 million in loans associated with the KB acquisition. Loan balances attributed to the acquired portfolio and related market grew to $763 million as of September 30, 2021, and while organic growth was also strong for the nine months ended September 30, 2016, respectively. Refer to Footnote 5 to2021, significant forgiveness-related contractions was experienced within the consolidated financial statements for a reconciliation of the statutoryPPP portfolio between December 31, 2020 and effective income tax rates.September 30, 2021.
Bancorp invests in certain partnerships with customers that yield federal income tax credits,Excluding the loan portfolio acquired through the KB acquisition, loan contraction of $97 million, or 3%, was experienced between December 31, 2020 and these tax credits reduce the effective tax rate. The level of this activity for the first nine months of 2017 was less than that of the comparable period in 2016 as is reflected in the comparable effect on effective tax rates for those periods. Taken as a whole, the tax benefit of these investments exceeds amortization expense associated with them, resulting in a positive impact on net income.
The effective tax rate in 2017 was largely reduced by the result of the adoption of ASU 2016-09 “Compensation – Stock Compensation Improvements to Employee Share-Based Payment Accounting”. The new standard requires excess tax benefits and deficiencies related to share-based payment awards to be reflected in the statement of operations as a component of the provision for income taxes. For the three and nine months ended September 30, 2017 Bancorp recorded a benefit of $241 thousand and $1.4 million, respectively for such excess benefits against2021, as the provision for income tax expense. Prior to adoption of ASU 2016-09 these tax benefits were recorded directly to additional paid-in capital. Tax benefits recorded to capital for the three and nine months ended September 30, 2016 were $443 thousand and $963 thousand, respectively.
Commitments
Bancorp uses a variety of financial instrumentsaforementioned forgiveness activity resulted in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. A discussion of Bancorp’s commitments is included in Note 15.
Other commitments discussed in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2016, have not materially changed since that report was filed, relative to qualitative and quantitative disclosures of fixed and determinable contractual obligations.
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Balance Sheet
Total assets increased $116.4PPP portfolio balances declining $319 million, or 3.8%58%, to $3.2 billion at September 30, 2017 as compared to $3.0 billion at December 31, 2016. Loans increased $29.7 million, or 1.3%, period to period, with increases primarily in commercial and industrial loans, commercial real estate, and to a lesser degree, 1-4 family residential loans. The most significant decrease was seen in commercial construction and development loans, primarily the result of significant loan principal repayments where maturing loans were not replaced with permanent financing. Securities available-for-sale increased by $1.4 million during the first nine months of 2017. The majority2021. Partially offsetting the large decline in PPP balances was organic growth of this increase$221 million, or 7%, over half of which, or $118 million, was attributed to strong loan production within the resultCRE portfolio. Further, the strategic retention of short-term investments made at quarter end largely offset by maturities duringa portion of qualified secondary market single family residential real estate loan production from the mortgage banking department and gradually improving line of credit utilization helped drive growth of $55 million and $41 million in the residential real estate and C&I line of credit portfolios, respectively, over the first nine months of 2017. Included in securities available-for-sale are short-term U.S. government sponsored entities. These securities, which totaled $150 million2021.
While improving for the third straight quarter, line of credit usage remained well below pre-pandemic levels through the first nine months of 2021, as the availability of the more favorable PPP lending facility continued to disparage utilization until the program expired on May 31, 2021. Overall, total line of credit usage did increase to 40.6% at September 30, 2017 and $100 million2021 compared to 38.0% at December 31, 2016, normally have a maturity of less than one month,2020 and are purchased at quarter-end as part of a tax minimization strategy. The remaining variance was attributable to reduction in unrealized losses on the securities portfolio to $431 thousand37.0% at September 30, 20172020.
PPP loans of $231 million ($239 million gross of unamortized deferred fees and costs) were outstanding at September 30, 2021, including $12 million attributed to the KB acquisition. Bancorp has $8 million in net unrecognized fees related to the PPP as comparedof September 30, 2021, which would be recognized immediately once the loans are paid off or forgiven by the SBA. The timing of such forgiveness is expected to unrealized losseshave a major impact on operating results for the remainder of $1.9 million at December 31, 2016. Funds from maturing available-for-sale investments were held as cash, or invested short term,2021 and into early to fund future loan growth.mid-2022.
Stock Yards Bancorp inc.originated $637 million PPP loans ($657 million gross of unamortized fees and subsidiarycosts) as part of round one of the program, which expired in August of 2020. As of September 30, 2021, 96% of the dollars originated in round one have been forgiven. In addition, approximately 99% of the $19.6 million in fee income received for round one originations has been recognized life to date.
Total liabilities increased $96.0Bancorp originated $250 million December($261 million gross of unamortized deferred fees and costs) as part of round two of the PPP program, which expired May 31, 2016 to2021. As of September 30, 2017, from $2.7 billion to $2.8 billion, respectively. Federal funds purchased2021, 24% of the dollars originated have been forgiven and other short-term borrowing increased $114.6 million, period to period, primarily34% of the result of $150 million in borrowingfees received for the short-term investments mentioned above. Bancorp uses short-term linessecond round of creditthe program have been recognized life to manage its overall liquidity position. Duedate. As second round borrowers are not required to normal cyclical activity total deposits decreased $38.6 million or 1.5%, periodmake payments for 16 months, it is probable that a significant portion of the borrowing base will seek forgiveness in early to period. Interest bearing demand deposits accounts decreased, $42.7 million, or 5.6%; time deposits, $17.8 million, or 7.1%; and non-interest bearing demand deposit accounts, $3.3 million, or 0.5%. Money market deposit accounts and savings accounts increased, period to period, $15.7 million, or 2.3%, and $9.6 million, or 6.8%, respectively. Securities sold under agreements to repurchase increased $4.3 million, or 6.3%. Other liabilities increased $16.7 million, or 42.9%.mid-2022 in connection with tax return preparation.
ElementsIn accordance with Section 4013 of Loan Portfolio
The following table sets forth the major classificationsCARES Act and in response to requests from borrowers who experienced business interruptions related to the pandemic, Bancorp extended payment deferrals for those affected borrowers. Depending on the demonstrated need of the customer, Bancorp deferred either the full loan payment or the principal-only portion of respective loan payments for 90 or 180 days for some borrowers directly impacted by the pandemic. As of September 30, 2021 outstanding full payment loan deferrals totaled $355,000, representing 0.01% of the loan portfolio.
(in thousands) | ||||||||
Loans by Type | September 30, 2017 | December 31, 2016 | ||||||
Commercial and industrial | $ | 750,728 | $ | 736,841 | ||||
Construction and development, excluding undeveloped land | 174,310 | 192,348 | ||||||
Undeveloped land (1) | 20,989 | 21,496 | ||||||
Real estate mortgage: | ||||||||
Commercial investment | 576,810 | 538,886 | ||||||
Owner occupied commercial | 397,804 | 408,292 | ||||||
1-4 family residential | 261,707 | 249,498 | ||||||
Home equity - first lien | 51,925 | 55,325 | ||||||
Home equity - junior lien | 63,416 | 67,519 | ||||||
Subtotal: real estate mortgage | 1,351,662 | 1,319,520 | ||||||
Consumer | 37,431 | 35,170 | ||||||
Total loans | $ | 2,335,120 | $ | 2,305,375 |
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Stock Yards Bancorp, inc. and subsidiarytotal loans (excluding PPP loans), at December 31, 2020.
LoanBancorp’s credit exposure is diversified with secured and unsecured loans to individuals and businesses. No specific industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, growth built further ona customer’s ability to honor contracts is somewhat dependent upon the momentum experiencedeconomic stability and/or industry in the second quarter of 2017, driven by solid loan productionwhich that continued to exceed the average pace recorded over the last three years. While all of the Company's markets participated in this growth,customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass Louisville, Kentucky, central and eastern Kentucky, Indianapolis, through excellent leadershipIndiana and a growing lending team, led the way. Still, the conversion of loan production into portfolio growth continued to track below the exceedingly strong rate that characterized 2016 due to several factors, including principal repayments primarily related to commercial construction projects and borrowers who sold collateral or their business. Also, management believes that business owners remain more cautious about the longer-term direction of the economy, awaiting greater clarity on possible tax reform. Considering its loan pipeline, management anticipates continued momentum in net loan growth in the fourth quarter of 2017, although net loan growth could be challenging if loan payoffs persist at high levels.Cincinnati, Ohio.
Bancorp occasionally enters into loan participation agreements with other banks to diversify credit risk. For certain sold participation loans sold, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their ownership share of the loan without permission from Bancorp. US GAAP requires the participated portion of these loans to be recorded as secured borrowings. These participated loans are included in the commercialC&I and industrial and real estate mortgageCRE loan totals above, andportfolio segments with a corresponding liability is recorded in other liabilities. At September 30, 20172021 and December 31, 2016,2020, the total participated portionsportion of loans of this nature were $18.3totaled $5 million and $15.8$10 million, respectively.
Allowance for loan losses
An allowance for loan losses has been established to provide for probable losses on loans that may not be fully repaid. The allowance for loan losses is increased by provisions charged to expense and decreased by charge-offs, net of recoveries, if any. Loans are typically charged off when management deems them uncollectible and after underlying collateral has been liquidated; however, collection efforts continue and future recoveries may occur. Periodically, loans are partially charged off to the net realizable value based upon evaluation of related underlying collateral, including Bancorp’s bias for resolution.
The allowance methodology is driven by risk ratings, historical losses, and qualitative factors. The provision for the first nine months of 2017, and the resulting allowance level, reflected a number of factors, including a slight elevation in classified loans and an expansion of the historical look-back period from 24 quarters to 28 quarters. This expansion of the look-back period was applied to all classes and segments of the portfolio. The expansion of the look-back period for the historical loss rates used in the quantitative allocation caused management to review the overall methodology for the qualitative factors to ensure Bancorp was appropriately capturing the risk not addressed in the historical loss rates used in the quantitative allocation. Management believes the extension of the look-back period is appropriate to ensure capture of the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio. Key indicators of loan quality continued to show improvement during 2017, with levels of non-performing loans continuing a five year downward trend. During its review of qualitative factors in the first nine months of 2017, Bancorp noted a potential exposure for one pool of classified loans. Due to this potential exposure, Bancorp increased its qualitative allocation for the allowance for the nine month period.
Additional information regarding Bancorp’s methodology for evaluating the adequacy of the allowance for loan loss can be read in the Company’s annual 10K.
As of September 30, 2017 the allowance for loan loss was $24.9 million, a $900 thousand increase over the December 31, 2016 balance of $24.0 million. For the comparative periods, the allowance as a percent of average loans was 1.09% and 1.11%, respectively. The allowance as a percent of period end loans, as of each period end, was 1.07% and 1.04%, respectively.
Stock Yards Bancorp, inc. and subsidiary
Non-performing Loans and Non-performing Assets
Information summarizing non-performing loans and assets including non-accrual loans follows:
(dollars in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Non-accrual loans (1) | $ | 4,858 | $ | 5,295 | ||||
Troubled debt restructuring | 949 | 974 | ||||||
Loans past due 90 days or more and still accruing | 261 | 438 | ||||||
Non-performing loans | 6,068 | 6,707 | ||||||
Foreclosed real estate | 2,640 | 5,033 | ||||||
Non-performing assets | $ | 8,708 | $ | 11,740 | ||||
Non-performing loans as a percentage of total loans | 0.26 | % | 0.29 | % | ||||
Non-performing assets as a percentage of total assets | 0.28 | % | 0.39 | % |
(dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Non-accrual loans | $ | 5,036 | $ | 12,514 | ||||
Troubled debt restructurings | 13 | 16 | ||||||
Loans past due 90 days or more and still accruing | - | 649 | ||||||
Total non-performing loans | 5,049 | 13,179 | ||||||
Other real estate owned | 7,229 | 281 | ||||||
Total non-performing assets | $ | 12,278 | $ | 13,460 | ||||
Non-performing loans to total loans | 0.12 | % | 0.37 | % | ||||
Non-performing loans to total loans (excluding PPP) | 0.13 | % | 0.44 | % | ||||
Non-performing assets to total assets | 0.20 | % | 0.29 | % | ||||
ACL for loans to total non-performing loans | 1120 | % | 394 | % |
Non-performingSee the section titled “Non-GAAP Financial Measures” for reconcilement of non-GAAP to GAAP measures.
In total, non-performing assets as of September 30, 20172021 were comprised of 33 non-accrual67 loans, ranging in amount fromindividual amounts up to $1 to $907 thousand, fivemillion, one accruing TDRs,TDR loan and foreclosed real estate held for sale. Foreclosed real estate held at September 30, 20172021 included two CRE properties and two residential real estate properties.
The following table presents the recorded investment in non-accrual loans by portfolio:
(in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Commercial real estate - non-owner occupied | $ | 771 | $ | 10,278 | ||||
Commercial real estate - owner occupied | 669 | 1,403 | ||||||
Total commercial real estate | 1,440 | 11,681 | ||||||
Commercial and industrial - term | 1,000 | 6 | ||||||
Commercial and industrial - lines of credit | 79 | 88 | ||||||
Total commercial and industrial | 1,079 | 94 | ||||||
Residential real estate - owner occupied | 1,912 | 413 | ||||||
Residential real estate - non-owner occupied | 300 | 101 | ||||||
Total residential real estate | 2,212 | 514 | ||||||
Construction and land development | — | — | ||||||
Home equity lines of credit | 181 | 221 | ||||||
Consumer | 124 | 4 | ||||||
Leases | — | — | ||||||
Credit cards - commercial | — | — | ||||||
Total non-accrual loans | $ | 5,036 | $ | 12,514 |
As of $2.6 million. At September 30, 2017 there were two properties, with2021, non-accrual loans totaled $5.0 million. The decrease in total non-accrual loans decreased between December 31, 2020 and September 30, 2021 as a combined recorded investmentresult of $75 thousand,the partial charge off of a large non-accrual CRE relationship that was fully reserved for in the process of foreclosure.2020 (and thus had no income statement impact for 2021).
Delinquent Loans Delinquent loans (consisting of all loans 30 days or more past due) totaled $13 million at September 30, 2021 compared to $17 million at December 31, 2020. Delinquent loans to total loans were 0.31% and 0.48% at September 30, 2021 and December 31, 2020, respectively. Delinquent loans to total loans (excluding PPP loans) were 0.33% at September 30, 2021 compared to 0.57% at December 31, 2020. Allowance for Credit Losses The ACL for loans is a valuation allowance for loans estimated at each balance sheet date in accordance with GAAP. When Bancorp deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See the footnote titled “Summary of Significant Accounting Policies”for discussion of Bancorp’s ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire ACL for loans is available for any loan that, in Bancorp’s judgment, should be charged-off. |
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The following table sets forth the major classificationsACL by category of non-accrual loans:loan (excluding PPP):
Non-accrual loans by type | ||||||||
(in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Commercial and industrial | $ | 1,256 | $ | 1,767 | ||||
Construction and development, excluding undeveloped land | 737 | 538 | ||||||
Undeveloped land | 474 | 474 | ||||||
Real estate mortgage | ||||||||
Real estate mortgage - commercial investment | 55 | 107 | ||||||
Real estate mortgage - owner occupied commercial | 1,470 | 1,042 | ||||||
Real estate mortgage - 1-4 family residential | 785 | 984 | ||||||
Home equity | 81 | 383 | ||||||
Subtotal: Real estate mortgage | 2,391 | 2,516 | ||||||
Home equity and consumer loans | - | - | ||||||
Total loans | $ | 4,858 | $ | 5,295 |
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
(dollars in thousands) | Allocated Allowance | % of Total ACL | ACL to Total Loans (1) | Allocated Allowance | % of Total ACL | ACL to Total Loans (1) | ||||||||||||||||||
Commercial real estate - non-owner occupied | $ | 16,171 | 29 | % | 1.42 | % | $ | 19,396 | 37 | % | 2.33 | % | ||||||||||||
Commercial real estate - owner occupied | 10,318 | 18 | % | 1.58 | % | 6,983 | 13 | % | 1.37 | % | ||||||||||||||
Total commercial real estate | 26,489 | 47 | % | 1.48 | % | 26,379 | 50 | % | 1.97 | % | ||||||||||||||
Commercial and industrial - term (1) | 9,766 | 17 | % | 1.68 | % | 8,970 | 17 | % | 1.71 | % | ||||||||||||||
Commercial and industrial - lines of credit | 4,912 | 9 | % | 1.49 | % | 3,614 | 7 | % | 1.31 | % | ||||||||||||||
Total commercial and industrial | 14,678 | 26 | % | 1.61 | % | 12,584 | 24 | % | 1.57 | % | ||||||||||||||
Residential real estate - owner occupied | 4,457 | 8 | % | 1.12 | % | 3,389 | 7 | % | 1.42 | % | ||||||||||||||
Residential real estate - non-owner occupied | 3,530 | 6 | % | 1.27 | % | 1,818 | 3 | % | 1.29 | % | ||||||||||||||
Total residential real estate | 7,987 | 14 | % | 1.18 | % | 5,207 | 10 | % | 1.37 | % | ||||||||||||||
Construction and land development | 5,238 | 9 | % | 1.73 | % | 6,119 | 12 | % | 2.10 | % | ||||||||||||||
Home equity lines of credit | 1,057 | 2 | % | 0.75 | % | 895 | 2 | % | 0.94 | % | ||||||||||||||
Consumer | 727 | 1 | % | 0.69 | % | 340 | 1 | % | 0.76 | % | ||||||||||||||
Leases | 194 | 1 | % | 1.57 | % | 261 | 1 | % | 1.77 | % | ||||||||||||||
Credit cards | 163 | 0 | % | 1.03 | % | 135 | 0 | % | 1.32 | % | ||||||||||||||
Total | $ | 56,533 | 100 | % | 1.43 | % | $ | 51,920 | 100 | % | 1.74 | % |
(1) Excludes the PPP loan portfolio, which was not reserved for based on the underlying 100% SBA guarantee. The allowance allocated for the commercial & industrial –term segment includes $813,000 related to PCD PPP loans.
Bancorp’s ACL for loans was $56.5 million as of September 30, 2021 compared to $51.9 million as of December 31, 2020. The change in the ACL for loans was driven by a number of competing factors, which resulted in the $4.6 million, or 9%, increase experienced for the first nine months of 2021. Acquisition-related activity was responsible for a total increase to the ACL for loans of $14.2 million, comprised of a $6.8 million day one adjustment for specific reserves placed on acquired PCD loans (offset to goodwill) and $7.4 million of provision expense related to the remaining acquired non-PCD loan portfolio. Partially offsetting the acquisition-related increases was a net reduction of the ACL for loans of $4.9 million for the first nine months of 2021 stemming from an improved unemployment forecast, general improvement in other underlying CECL model factors compared to recent periods and updates to Bancorp’s CECL model. Further reducing the ACL for loans were net charge offs of $4.6 million for the period, which were driven by the charge off of two CRE relationships totaling $4.4 million. Both relationships were fully reserved and had no income statement impact for the three and nine months ended September 30, 2021. Partially offsetting these charge offs was a $555,000 recovery of a note that was fully charged off in 2020.
The FRB’s Seasonally Adjusted National Civilian Unemployment Rate is the primary loss driver within Bancorp’s CECL model and has steadily improved over the past several months after spiking to 14.8% in April of 2020, standing at 4.8% as of September 30, 2021. The pandemic has had a material impact on Bancorp’s quarterly ACL for loans calculations. While Bancorp has not yet experienced credit quality issues resulting in charge-offs related to the pandemic, the ACL for loans calculation and resulting credit loss expense is significantly impacted by changes in forecasted economic conditions. Should the forecast for economic conditions worsen, Bancorp could experience further increases in its required ACL for loans and record additional credit loss expense. While the execution of payment deferrals under the CARES ACT has assisted credit quality ratios, it is possible that asset quality could worsen at future measurement periods if the effects of the pandemic are prolonged.
While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced a decrease between December 31, 2020 and September 30, 2021. A net benefit was recorded for provision for credit losses for off balance sheet exposures during the first nine months of 2021, as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and continued improvement in line of credit utilization. The ACL for off balance sheet credit exposures stood at $4.3 million as of September 30, 2021 compared to $5.4 million as of December 31, 2020.
Stock Yards Bancorp, inc.Deposits
(dollars in thousands) | September 30, 2021 | December 31, 2020 | $ Change | % Change | ||||||||||||
Non-interest bearing demand deposits | $ | 1,744,790 | $ | 1,187,057 | $ | 557,733 | 47 | % | ||||||||
Interest bearing deposits: | ||||||||||||||||
Interest bearing demand | 1,794,816 | 1,355,985 | 438,831 | 32 | % | |||||||||||
Savings | 397,875 | 208,774 | 189,101 | 91 | % | |||||||||||
Money market | 955,200 | 844,414 | 110,786 | 13 | % | |||||||||||
Time deposits of $250 thousand or more | 89,420 | 73,065 | 16,355 | 22 | % | |||||||||||
Other time deposits | 359,923 | 319,339 | 40,584 | 13 | % | |||||||||||
Total time deposits | 449,343 | 392,404 | 56,939 | 15 | % | |||||||||||
Total interest bearing deposits | 3,597,234 | 2,801,577 | 795,657 | 28 | % | |||||||||||
Total deposits (1) | $ | 5,342,024 | $ | 3,988,634 | $ | 1,353,390 | 34 | % |
(1) Includes $4 million and subsidiary$25 million in brokered deposits as of September 30, 2021 and December 31, 2020, respectively.
Composition of deposits, bifurcated between Bancorp’s legacy deposit portfolio and the deposit portfolio acquired through the KB acquisition, follows:
Total deposits increased $1.4 billion, or 34%, from December 31, 2020 to September 30, 2021. Deposits totaling $1.0 billion were assumed as a result of the KB acquisition. Deposit balances attributed to the acquired portfolio and related market decreased slightly to $995 million as of September 30, 2021. Excluding the deposits acquired through the KB acquisition, deposits grew $358 million, or 9%, during the first nine months of 2021, with non-interest bearing balances representing virtually the entire increase. Average deposit balances have increased $688 million, or 28%, over the past 12 months, as federal programs such as the PPP, stimulus checks and enhanced unemployment benefits drove both ending and average deposit balances to record levels as of September 30, 2021 in addition to deposits added as a result of the acquisition, which contributed $448 million of the average balance increase. Securities Sold Under Agreements to Repurchase SSUARs are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under the Bank’s control. The majority of SSUARs are indexed to immediately repricing indices such as the FFTR. SSUARs totaled $74 million and $48 million at September 30, 2021 and December 31, 2020, respectively, as SSUAR totaling $11 million were assumed as part of the KB acquisition. The remaining increase in SSUAR is consistent with the general trend of customers maintaining elevated deposit balances. FHLB Advances FHLB advances decreased $22 million, or 68%, between December 31, 2020 and September 30, 2021 due to maturing advances not being renewed or replaced in addition to elective pay offs. During the first quarter of 2021, Bancorp elected to pay down certain advances prior to maturity without incurring pre-payment penalties. During the second quarter of 2021, Bancorp paid off $14 million of term advances, with a weighted average cost of 2.03%, prior to their maturity incurring an early-termination fee of $474,000. Bancorp based this decision on its excess liquidity position driven by the substantial deposit growth it achieved during 2020 and the first half of 2021, combined with the then near-term outlook for low interest rates. Bancorp believes it will substantially “earn back” the early termination penalty through lower interest expense over the next two years assuming short-term interest rates remain at current low levels. As a result of the KB acquisition, FHLB advances totaling $91 million were assumed and paid off immediately upon acquisition based on lack of necessity and current levels of excess liquidity. Early termination penalties totaling $2.5 million were incurred as a result of the payoffs, but had no income statement impact for the three and nine-month periods ended September 30, 2021 due to the fair value adjustment recorded through goodwill at acquisition. Liquidity |
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The role of liquidity management is to ensure funds are available to meet depositors’depositors’ withdrawal and borrowers’ credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity is provided by short-term liquid assets that can be converted to cash, investmentAFS debt securities, available-for-sale, various lines of credit available to Bancorp, and the ability to attract funds from external sources, principally deposits. Management believes it has the ability to increase deposits at any time by offering rates slightly higher than market rate.
Bancorp’sBancorp’s Asset/Liability Committee is comprised of senior management and has direct oversight responsibility for Bancorp’s liquidity position and profile. A combination of reports provided to management details internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, and exposure to contingent draws on Bancorp’s liquidity.
Bancorp’s most liquid assets are comprised of cash and due from banks, available-for-sale marketable investment securities, federal funds soldFFS and interest bearing deposits with banks. Federal funds soldAFS debt securities. FFS and interest bearing deposits totaled $81.4$500 million and $275 million at September 30, 2017. These2021 and December 31, 2020, respectively. The large increase in FFS and interest bearing deposits experienced over the first nine months of 2021 is attributed largely to PPP forgiveness activity, as cash received for the forgiveness of these notes has outpaced efforts to invest cash through the typical investments, such as loan production and AFS debt security purchases. FFS normally have overnight maturities andwhile interest-bearing deposits in banks are accessible on demand. These investments are used for general daily liquidity purposes.
The fair value of the available-for-sale investmentAFS debt security portfolio was $571.5$1.1 billion and $587 million at September 30, 2017.2021 and December 31, 2020, respectively. The $483 million, or 82%, increase experienced over the first nine months of 2021 is attributed to the KB acquisition and the strategic, aggressive growth of portfolio through security purchases in an effort to deploy excess liquidity. The portfolio includes maturities of $30 million and cash flows on amortizing AFS debt securities of approximately $216.7$220 million (based on assumed prepayment speeds as of September 30, 2021) expected over the next twelve months, including $150 million of short-term securities which matured in October 2017.months. Combined with federal funds soldFFS and interest bearing deposits thesefrom banks, AFS debt securities offer substantial resources to meet either new loan demandgrowth or reductions in Bancorp’s deposit funding base. Bancorp pledges portions of its investment securities portfolio to secure public fund deposits,funds, cash balances of certain wealth management and trustWM&T accounts and securities sold under agreements to repurchase.SSUAR. At September 30, 2017,2021, total investment securities pledged for these purposes comprised 58%64% of the available-for-sale investmentAFS debt securities portfolio, leaving $241.8approximately $383 million of unpledged securities, including $150 million which matured the first week of October..AFS debt securities.
Bancorp defines
Bancorp’s deposit base consists mainly of core deposits, defined as time deposits less than or equal to $250,000, demand, savings, and money market deposit accounts and certificates of deposit less than or equal to $250,000. excludes public funds and brokered deposits. At September 30, 2017,2021, such deposits totaled $2.4$4.8 billion and represented 99%89% of Bancorp’s total deposits, as compared to $2.5with $3.5 billion, or 98%89% of total deposits at December 31, 2016.2020. Because these core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they do not put heavyplace undue pressure on liquidity. However, many of Bancorp’s customers’ depositindividual depositors are currently maintaining historically high balances. These excess balances are historically high.may be more sensitive to market rates, with potential decreases possibly straining Bancorp’s liquidity position.
As of September 30, 20172021 and December 31, 2020, Bancorp had no brokered deposits. This compares to $498 thousand, or 0.02% of total deposits, inheld brokered deposits at December 31, 2016.totaling $4 million and $25 million, respectively, all of which is attributed to deposits added through the KB acquisition.
Included in the total deposit balances at September 30, 2017 is $122.42021 are $499 million ofin public funds deposits generally comprised of accounts fromwith local government agencies and public school districts in Bancorp’s markets.the markets in which Bancorp operates, including public funds deposits totaling $187 million added as a result of the KB acquisition. At December 31, 2020, public funds deposits totaled $355 million.
Other sourcesBancorp is a member of funds available to meet daily needs includethe FHLB advances.of Cincinnati. As a member of the FHLB, of Cincinnati, Bancorp has access to credit products offered byof the FHLB. Bancorp views these borrowings as a potential low cost alternative to other timebrokered deposits. At September 30, 2017,2021 and December 31, 2020, available credit from the FHLB totaled $367.3 million.$892 million and $804 million, respectively. The increase in available credit over the first nine months of 2021 is due to an increase in eligible loans (those pledged for collateral-based borrowing capacity) and the payoff of advances prior to maturity during the first three quarters of 2021. See the footnote titled “FHLB Advances” for additional detail. Additionally, Bancorp had unsecured available federal funds purchasedFFP lines with correspondent banks totaling $105$80 million at both September 30, 2017.2021 and December 31, 2020.
At September 30, 2017 During the normal course of business, Bancorp had a $150 million cashenters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through Bancorp’s various risk management advance from the FHLB. This advance maturedprocesses. Management considers both on-balance sheet and off-balance sheet transactions in the first weekits evaluation of October, 2017 and was used to manage Bancorp’s overall cash position. Due to the short term of the advance, it was recorded on the consolidated balance sheet within Federal funds purchased and other short-term borrowings.
Stock Yards Bancorp, inc. and subsidiaryliquidity.
Bancorp’sBancorp’s principal source of cash is dividends paid to it as the sole shareholder of the Bank. At September 30, 2017,As discussed in the footnote titled “Commitments and Contingent Liabilities,” as of January 1st of any year, the Bank may pay updividends in an amount equal to $70.3the Bank’s net income of the prior two years less any dividends paid for the same two years. At September 30, 2021, the Bank could pay an amount equal to $36 million in dividends to Bancorp without regulatory approval subject to the ongoing capital requirements of the Bank.
Sources and Uses of Cash Cash flow is provided primarily through financing activities of Bancorp, which include raising deposits and borrowing funds from institutional sources such as advances from FHLB and FFP, as well as scheduled loan repayments and cash flows from AFS debt securities. These funds are primarily used to facilitate investment activities of Bancorp, which include making loans and purchasing securities for the investment portfolio. Another important source of cash is net income of the Bank from operating activities. For further detail regarding the sources and uses of cash, see the “Consolidated Statements of Cash Flows” in Bancorp’s consolidated financial statements. Commitments In the normal course of business, Bancorp is party to activities that contain credit, market and operational risk that are not reflected in whole or in part in Bancorp’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases and long-term debt. Bancorp provides customers with off-balance sheet credit support through loan commitments and standby letters of credit. Unused loan commitments increased $282 million as of September 30, 2021 compared to December 31, 2020, the increase being driven by both the KB acquisition and new lines of credit. Total average line of credit utilization improved to 40.6% at September 30, 2021 as compared to 38.0% at December 31, 2020 and 37.0% at September 30, 2020. While improving over the prior quarter, depressed C&I line of credit usage has driven the dramatic decline in utilization experienced over the past year as customers took advantage of the more favorable financing provided by the PPP. For reference, C&I line of credit utilization was 28.9% at September 30, 2021 compared to 26.1% at December 31, 2020 and the pre-pandemic average of 42.9% experienced in 2019. Commitments to extend credit are agreements to lend to customers as long as collateral is available as agreed upon and there is no violation of any condition established in the contracts. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, securities, equipment and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments. The ACL for off balance sheet credit exposures, which is separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, stood at $4.3 million and $5.4 million as of September 30, 2021 and December 31, 2020, respectively. A net benefit of was recorded as provision for credit losses for off balance sheet exposures during the first nine months of 2021, as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors as well as increased utilization, driving down available credit used to calculate exposure. Standby letters of credit are conditional commitments issued by Bancorp to guarantee the performance of a customer to a third party beneficiary. Those guarantees are primarily issued to support commercial transactions. Standby letters of credit generally have maturities of one to two years. In addition to owned banking facilities, Bancorp has entered into long-term leasing arrangements for certain branch facilities. Bancorp also has required future payments for a non-qualified defined benefit retirement plan, FHLB advances and the maturity of time deposits. See the footnote titled “Commitments and Contingent Liabilities” for additional detail. Capital |
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At September 30, 2017,2021, stockholders’ equity totaled $334.3$664 million, representing an increase of $20.4$223 million, sinceor 51%, compared to December 31, 2016. See2020. The large increase over the Consolidated Statementfirst nine months of Changes2021 was attributed mainly to stock issued in Stockholders’ Equity for further detailrelation to the KB acquisition, which totaled $205 million. Further, net income of $50 million was partially offset by a larger negative change in AOCI and dividends declared during the changes in equity since the endfirst nine months of 2015. One component of equity is accumulated other comprehensive income which, for Bancorp,2021. AOCI consists of net unrealized gains or losses on AFS debt securities available-for-sale and hedging instruments, as well as a minimum pension liability, each net of income taxes. Accumulated other comprehensive loss was $531 thousand atAOCI declined $11 million from December 31, 2020 to September 30, 2017 compared2021, with a loss of $1.5 million on December 31, 2016. The $968 thousand positive difference is primarily a reflection of the effect offluctuation stemming from the changing interest rate environment duringand corresponding valuation of the AFS debt securities portfolio. See the “Consolidated Statement of Changes in Stockholders’ Equity”for further detail of changes in equity.
In May 2021, Bancorp’s Board of Directors extended its share repurchase program authorizing the repurchase of up to 1 million shares, or approximately 4% of Bancorp’s total common shares outstanding at the time. The plan, which will expire in May 2023 unless otherwise extended or completed at an earlier date, does not obligate Bancorp to repurchase any specific dollar amount or number of shares prior to the plan’s expiration. Based on economic developments over the past year and the increased importance of capital preservation, no shares were repurchased in 2020 nor the first nine months of 2017 as short term rates increased slightly, while long term rates decreased, which decreased Bancorp’s unrealized loss on securities available2021. Approximately 741,000 shares remain eligible for sale.repurchase under the current repurchase plan.
AsBank holding companies and their subsidiary banks are required by regulators to meet risk-based capital standards. These standards, or ratios, measure the relationship of September 30, 2017,capital to a combination of balance sheet and off-balance sheet risks. The value of both balance sheet and off-balance sheet items are adjusted to reflect credit risks. See the footnote titled “Regulatory Matters” for additional detail regarding regulatory capital requirements, as well as capital ratios of Bancorp meets alland the Bank. The Bank exceeds regulatory capital ratios required to be well-capitalized. Regulatory framework does not define well capitalized for holding companies. Management considers the effects of growth on capital ratios as it contemplates plans for expansion.
The following table sets forth consolidated Bancorp’s and the Bank’s risk based capital ratios:
September 30, 2021 | December 31, 2020 | |||||||
Total risk-based capital(1) | ||||||||
Consolidated | 12.61 | % | 13.36 | % | ||||
Bank | 12.26 | 12.99 | ||||||
Common equity tier 1 risk-based capital(1) | ||||||||
Consolidated | 11.69 | 12.23 | ||||||
Bank | 11.34 | 11.85 | ||||||
Tier 1 risk-based capital(1) | ||||||||
Consolidated | 11.69 | 12.23 | ||||||
Bank | 11.34 | 11.85 | ||||||
Leverage(2) | ||||||||
Consolidated | 8.98 | 9.57 | ||||||
Bank | 8.69 | 9.26 |
(1) Under regulatory risk-based capital guidelines, assets and credit-equivalent amounts of derivatives and off-balance sheet credit exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. Weighted values are added together, resulting in Bancorp's total risk-weighted assets. These ratios are computed in relation to average assets.
(2) Ratio is computed in relation to average assets.
Banking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized for prompt corrective action requirements, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0% Tier 1 Leverage ratio.
Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above the minimum risk-based capital requirements for the Common Equity Tier 1 Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and Total Risk-Based Capital ratio necessary to be considered well capitalized underadequately-capitalized. At September 30, 2021, the adequately-capitalized minimums, including the capital conservation buffer, were a 6.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5% Total Risk-Based Capital ratio.
Bancorp continues to exceed the regulatory risk-basedrequirements for all calculations. Bancorp and the Bank intend to maintain a capital rules,position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and is not subject to limitations duethe FDIC, in addition to the capital conservation buffer. See Footnote 19
As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, Bancorp elected the option to delay the estimated impact on regulatory capital related to the consolidated financialsadoption of ASC 326 “Financial Instruments – Credit Losses,”or CECL, which was effective January 1, 2020. The initial impact of adoption of ASC 326, as well as 25% of the quarterly increases in the ACL subsequent to adoption of ASC 326 (collectively the “transition adjustments”) were declared to be delayed for more information regarding Bancorp’stwo years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three-year period, with 75% recognized in year three, 50% recognized in year four and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed. Had Bancorp not elected to defer the regulatory capital impact of CECL, the post ASC 326 adoption capital ratios of Bancorp and the Bank’s risk-based capital amounts and ratios as of September 30, 2017 and December 31, 2016.Bank would have exceeded the well-capitalized level.
| Non-GAAP Financial Measures |
InThe following table provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity, a non-GAAP disclosure. Bancorp provides the tangible book value per share, a non-GAAP measure, in addition to capital ratiosthose defined by banking regulators, Bancorp considers various ratios when evaluating capital adequacy and overhead, including tangible common equity to tangible assets, tangible common equity per share, and adjusted efficiency ratio, all of which are non-GAAP measures.
Bancorp believes the tangible common equity ratios are important because of theirits widespread use by investors as a means to evaluate capital adequacy, as they reflect the level of capital available to withstand unexpected market conditions. Because US GAAP does not include capital ratio measures, there are no US GAAP financial measures comparable to these ratios.adequacy.
Stock Yards Bancorp, inc. and subsidiary
(dollars in thousands, except per share data) | September 30, 2021 | December 31, 2020 | ||||||
Total stockholders' equity - GAAP (a) | $ | 663,547 | $ | 440,701 | ||||
Less: Goodwill | (135,830 | ) | (12,513 | ) | ||||
Less: Core deposit intangible | (5,871 | ) | (1,962 | ) | ||||
Tangible common equity - Non-GAAP (b) | $ | 521,846 | $ | 426,226 | ||||
Total assets - GAAP (c) | $ | 6,181,188 | $ | 4,608,629 | ||||
Less: Goodwill | (135,830 | ) | (12,513 | ) | ||||
Less: Core deposit intangible | (5,871 | ) | (1,962 | ) | ||||
Tangible assets - Non-GAAP (d) | $ | 6,039,487 | $ | 4,594,154 | ||||
Total stockholders' equity to total assets - GAAP (a/c) | 10.73 | % | 9.56 | % | ||||
Tangible common equity to tangible assets - Non-GAAP (b/d) | 8.64 | % | 9.28 | % | ||||
Total shares outstanding (e) | 26,585 | 22,692 | ||||||
Book value per share - GAAP (a/e) | $ | 24.96 | $ | 19.42 | ||||
Tangible common equity per share - Non-GAAP (b/e) | 19.63 | 18.78 |
The following table reconcilesACL for loans to total non-PPP loans represents the ACL for loans, divided by total loans less PPP loans. Non-performing loans to total non-PPP loans represents non-performing loans, divided by total loans less PPP loans. Delinquent loans to total non-PPP loans represents delinquent loans (consisting of all loans 30 days or more past due), divided by total loans less PPP loans. Bancorp’s calculation of tangible common equity to amounts reported under US GAAP. believes these non-GAAP ratios are important because they provide comparable ratios after eliminating PPP loans, which are fully guaranteed by the SBA and have not been allocated for within the ACL.
(in thousands, except per share data) | September 30, 2017 | December 31, 2016 | ||||||
Total equity | $ | 334,255 | $ | 313,872 | ||||
Less core deposit intangible | (1,269 | ) | (1,405 | ) | ||||
Less goodwill | (682 | ) | (682 | ) | ||||
Tangible common equity | $ | 332,304 | $ | 311,785 | ||||
Total assets | $ | 3,155,913 | $ | 3,039,481 | ||||
Less core deposit intangible | (1,269 | ) | (1,405 | ) | ||||
Less goodwill | (682 | ) | (682 | ) | ||||
Total tangible assets | $ | 3,153,962 | $ | 3,037,394 | ||||
Total shareholders' equity to total assets | 10.59 | % | 10.33 | % | ||||
Tangible common equity ratio | 10.54 | 10.26 | ||||||
Number of outstanding shares | 22,669 | 22,617 | ||||||
Book value per share | $ | 14.75 | $ | 13.88 | ||||
Tangible common equity per share | 14.66 | 13.79 |
(dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Total loans - GAAP (a) | $ | 4,189,117 | $ | 3,531,596 | ||||
Less: PPP loans | (231,335 | ) | (550,186 | ) | ||||
Total non-PPP loans - Non-GAAP (b) | $ | 3,957,782 | $ | 2,981,410 | ||||
ACL on loans (c) | $ | 56,533 | $ | 51,920 | ||||
Non-performing loans (d) | 5,049 | 13,179 | ||||||
Delinquent loans (e) | 12,886 | 16,939 | ||||||
ACL on loans to total loans - GAAP (c/a) | 1.35 | % | 1.47 | % | ||||
ACL on loans to total loans - Non-GAAP (c/b) | 1.43 | % | 1.74 | % | ||||
Non-performing loans to total loans - GAAP (d/a) | 0.12 | % | 0.37 | % | ||||
Non-performing loans to total loans - Non-GAAP (d/b) | 0.13 | % | 0.44 | % | ||||
Delinquent loans to total loans - GAAP (e/a) | 0.31 | % | 0.48 | % | ||||
Delinquent loans to total loans - Non-GAAP (e/b) | 0.33 | % | 0.57 | % |
InThe efficiency ratio, a non-GAAP measure, equals total non-interest expenses divided by the sum of net interest income FTE and non-interest income. The ratio excludes net gains (losses) on sales, calls, and impairment of investment securities, if applicable. In addition to the efficiency ratio, normally presented, Bancorp considers an adjusted efficiency ratio. Bancorp believes excludingit is important because it provides a comparable ratio after eliminating the fluctuation in non-interest expenses related to amortization of investments in tax credit partnerships from non-interest expense in this ratio is important because it provides a meaningful comparison to both prior periods, since amortization expense can fluctuate widely between periods depending upon timing of tax credits, and to other companies who do not invest in these partnerships.non-recurring merger expenses.
Stock Yards Bancorp, inc.Net interest income on a FTE basis includes the additional amount of interest income that would have been earned if investments in certain tax-exempt interest earning assets had been made in assets subject to federal, state and subsidiarylocal taxes yielding the same after-tax income.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Total non-interest expenses - GAAP (a) | $ | 34,558 | $ | 25,646 | $ | 107,708 | $ | 72,630 | ||||||||
Less: Non-recurring merger expenses | (525 | ) | - | (19,025 | ) | - | ||||||||||
Less: Amortization of investments in tax credit partnerships | (53 | ) | (52 | ) | (315 | ) | (141 | ) | ||||||||
Total non-interest expenses - Non-GAAP (b) | $ | 33,980 | $ | 25,594 | $ | 88,368 | $ | 72,489 | ||||||||
Total net interest income, FTE | $ | 45,643 | $ | 33,768 | $ | 125,178 | $ | 99,834 | ||||||||
Total non-interest income | 17,614 | 13,043 | 47,246 | 38,201 | ||||||||||||
Less: Gain/loss on sale of securities | — | — | — | — | ||||||||||||
Total revenue - GAAP (c ) | $ | 63,257 | $ | 46,811 | $ | 172,424 | $ | 138,035 | ||||||||
Efficiency ratio - GAAP (a/c) | 54.63 | % | 54.79 | % | 62.47 | % | 52.62 | % | ||||||||
Efficiency ratio - Non-GAAP (b/c) | 53.72 | % | 54.68 | % | 51.25 | % | 52.51 | % |
The following table reconciles Bancorp’s calculation of adjusted efficiency ratios to the ratio reported under US GAAP.
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(amounts in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Non-interest expense | $ | 21,317 | $ | 20,518 | $ | 63,811 | $ | 60,251 | ||||||||
Net interest income (tax-equivalent) | 26,363 | 24,963 | 77,179 | 72,816 | ||||||||||||
Non-interest income | 11,103 | 11,358 | 33,575 | 32,218 | ||||||||||||
Total revenue | $ | 37,466 | $ | 36,321 | $ | 110,754 | $ | 105,034 | ||||||||
Efficiency ratio | 56.9 | % | 56.5 | % | 57.6 | % | 57.4 | % |
(amounts in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Non-interest expense | $ | 21,317 | $ | 20,518 | $ | 63,811 | $ | 60,251 | ||||||||
Less: amortization of investments in tax credit partnerships | (616 | ) | (1,015 | ) | (1,847 | ) | (3,046 | ) | ||||||||
Adjusted non-interest expense | 20,701 | 19,503 | 61,964 | 57,205 | ||||||||||||
Net interest income (tax-equivalent) | 26,363 | 24,963 | 77,179 | 72,816 | ||||||||||||
Non-interest income | 11,103 | 11,358 | 33,575 | 32,218 | ||||||||||||
Total revenue | $ | 37,466 | $ | 36,321 | $ | 110,754 | $ | 105,034 | ||||||||
Adjusted efficiency ratio | 55.3 | % | 53.7 | % | 55.9 | % | 54.5 | % |
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In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance. The ASU was originally effective for fiscal years and interim periods beginning after December 15, 2016. In August 2015, FASB issued ASU 2015-14 which delayed the effective date. The effective date will be annual reporting periods beginning after December 15, 2017, and the interim periods within that year. Bancorp has reviewed existing contractual arrangements and believes the majority of revenue earned is excluded from the scope of the pronouncement and the impact of adoption if any would be minimal. Bancorp continues to evaluate and develop processes and controls for procedural and disclosure requirements of the standard.
The FASB also issued a series of other ASUs, which update ASU 2014-09. The effective dates for ASU 2014-09 have been updated by ASU 2015-14, Deferral of the Effective Date. For public business entities, certain employee benefit plans, and certain not-for-profit entities, ASU 2014-09 is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Earlier application is permitted only as of annual and interim periods in fiscal years beginning after December 15, 2016. Bancorp is including these ASUs in its evaluation and implementation efforts relative to ASU 2014-09.
• ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
• ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
Stock Yards Bancorp, inc. and subsidiary
• ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
• ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments to be measured at fair value with changes in fair value recognized in net income. The ASU is effective for fiscal years and interim periods beginning after December 15, 2017. Because Bancorp does not have significant investments in equity securities, the adoption of ASU 2016-01 is not expected to have a significant impact on Bancorp’s operations or financial statements.
In February 2016, FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize on the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The amendment should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. Bancorp has evaluated existing lease commitments and does not expect adoption to significantly impact Bancorp’s financial condition or results of operations.
In June 2016, FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This standard will likely have a significant impact on the way Bancorp recognizes credit impairment on loans. Under current US GAAP, credit impairment losses are determined using an incurred-loss model, which recognizes credit losses only when it is probable that all contractual cash flows will not be collected. The initial recognition of loss under CECL differs from current US GAAP because recognition of credit losses will not be based on any triggering event. This should generally result in credit impairment being recognized earlier and immediately after the financial asset is originated or purchased. Bancorp continues to evaluate existing accounting processes, internal controls, and technology capabilities to determine what additional changes will be needed to address the new requirements. These processes and controls require significant judgment, collection and analysis of additional data, and use of estimates. Technology and other resources have been upgraded or modified to capture additional data to support the accounting and disclosure requirements. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019.
In August 2016, FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU’s amendments add or clarify guidance on eight cash flow issues. The guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. Bancorp does not anticipate that adoption of the ASU will have a significant impact on the consolidated financial statements of the Company.
Stock Yards Bancorp, inc. and subsidiary
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize at the transaction date the income tax consequences of inter-company asset transfers other than inventory. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Entities may early adopt the ASU, but only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, adjustments should be reflected at the beginning of the fiscal year that includes that interim period. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. For all other entities, the ASU is effective for annual periods in fiscal years beginning after December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. Entities may early adopt the ASU and apply it to transactions that have not been reported in financial statements that have been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update), which incorporates into the FASB Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The SEC staff had previously announced that registrants should include the disclosures starting with their December 2017 financial statements. Bancorp is evaluating the potential impact of implementation of this standard on the consolidated financial statements of the Company.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The changes are effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019. All entities may early adopt the standard for goodwill impairment tests with measurement dates after January 1, 2017. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the guidance in Subtopic 610-20 on accounting for derecognition of a nonfinancial asset. The ASU also defines in-substance nonfinancial assets and includes guidance on partial sales of nonfinancial assets. An entity is required to apply the amendments in this ASU at the same time that it applies ASU 2014-09. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
Stock Yards Bancorp, inc. and subsidiary
In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires companies to present the service cost component of net benefit cost in the same line items in which they report compensation cost. Companies will present all other components of net benefit cost outside operating income, if this subtotal is presented. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting which clarifies what constitutes a modification of a share-based payment award. This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260),Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815); I. Accounting for Certain Financial Instruments with Down Round Features. II. Replacement of the Indefinite Deferral for Mandatory Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatory Redeemable Noncontrolling Interests with a Scope Exception, which makes limited changes to as to classifying certain financial instruments as either liabilities or equity. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.Early adoption is permitted, including adoption in an interim period. Because Bancorp does not have financial instruments with a down round feature, the implementation of ASU 2017-11 is not expected to have a significant impact on the consolidated financial statements of the Company.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815); Targeted Improvements for Accounting for Hedging Activities, which amends the hedge accounting recognition and presentation requirements under ASC 815. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption of this standard is permitted upon its issuance. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
Item 3.Quantitative and Qualitative Disclosures about Market RiskRisk.
Information required by this item is included in Part I Item 2, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 4.Controls and Procedures.
As of the end of the period covered by this report, an evaluation was carried out by Stock Yards Bancorp, inc. and subsidiary
Item 4.Controls and Procedures
Disclosure Controls and Procedures
Bancorp maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it filesInc.’s management, with the Securitiesparticipation of its CEO and Exchange Commission (SEC), and to record, process, summarize and disclose this information within the time periods specified in the rulesCFO, of the SEC.
Based on their evaluation of Bancorp’s disclosure controls and procedures, the Chief Executive and Chief Financial Officers have concluded that, becauseeffectiveness of the material weakness described in Management’s Report on Internal Control Over Financial Reporting in our Annual Report on Form 10-K for the year ended December 31, 2016, Bancorp’sCompany’s disclosure controls and procedures (as defined in RulesRule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective as of September 30, 2017. However, based on a number of factors, we believe. Based upon that evaluation, the consolidated financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial positionCompany’s CEO and results of operation and cash flows for the periods presented in conformity with US GAAP.
Changes in Internal Control over Financial Reporting
With regard to the material weakness, our remediation efforts began during the first quarter of 2017. We continue to strengthen how certain controls are designed, performed and documented. We have increased staffing in the internal loan review department, and engaged a third party to assist with loan review. We must now demonstrate the effectiveness ofCFO concluded that these changes with an appropriate amount of consistency and for a sufficient period of time to conclude that the control is functioning properly. Other than these changes, based on the evaluation of Bancorp’s disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in the Chief Executive and Chief Financial Officers, there were no significant changes during the quarter ended September 30, 2017 in Bancorp’sCompany’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, Bancorp’sthe Company’s internal control over financial reporting.
The Bank is a defendant in various legal proceedings that arise in the ordinary course of business. There is no such proceeding pending or, to the knowledge of management, threatened in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Bancorp or the Bank.
Item 2.Unregistered Sales of Equity Securities and Use of ProceedsProceeds.
The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended September 30, 2017.2021.
Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plan | Maximum number of shares that may yet be purchased under the plan | Total number of shares purchased(1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Average price paid per share | Maximum number of shares that may yet be purchased under the plans or programs | ||||||||||||||||||||||||||||
July 1 - July 31 | - | $ | - | - | - | 1,090 | $ | 39.18 | — | $ | — | |||||||||||||||||||||||||
August 1 - August 31 | 2,280 | $ | 35.62 | - | - | 79 | 51.19 | — | — | |||||||||||||||||||||||||||
Sep 1 - Sep 30 | 2,306 | $ | 37.52 | - | - | |||||||||||||||||||||||||||||||
September 1 - September 30 | 1,749 | 41.06 | — | — | ||||||||||||||||||||||||||||||||
Total | 4,586 | $ | 36.58 | - | - | 2,918 | $ | 40.63 | — | $ | 40.63 | 741,196 |
(1) | Shares repurchased during the three-month period ended September 30, 2021 represent shares withheld to pay taxes due. |
(1) Activity representsEffective May 22, 2019, Bancorp’s Board of Directors approved a share repurchase program authorizing the repurchase of 1 million shares, or approximately 4% of stock withheldBancorp’s total common shares outstanding at the time. Stock repurchases are expected to pay taxes due upon exercisebe made from time to time on the open market or in privately negotiated transactions, subject to applicable securities laws. The plan, which was extended in May 2021 and will expire in May 2023 unless otherwise extended or completed at an earlier date, does not obligate the Company to repurchase any specific dollar amount or number of stock appreciation rights.
Stock Yards Bancorp, inc. and subsidiary2021. Management does not intend to resume repurchasing in the near-term. Approximately 741,000 shares remain eligible for repurchase.
There were no equity securities of the registrant sold without registration during the quarter covered by this report.
The following exhibits are filed or furnished as a part of this report:
Exhibit Number | Description of exhibit | |
31.1 | ||
31.2 | ||
32 | ||
101 | The following |
| inline XBRL: (i) the Condensed Consolidated Balance Sheets, |
| (ii) the Condensed Consolidated Statements of Income, |
| (iii) the Condensed Consolidated Statements of Comprehensive Income, |
| (iv) the Condensed Consolidated |
| (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements. |
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104 | The cover page from Stock Yards Bancorp Inc.’s Form 10-Q Report for the quarterly period ended September 30, 2021 formatted in inline XBRL and contained in Exhibit 101. |
Stock Yards Bancorp, inc. and subsidiary
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STOCK YARDS BANCORP, (Registrant) | |||
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Date: November | By: | /s/
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James A. Hillebrand | |||
Chairman and CEO (Principal Executive | |||
Date: November 8, 2021 | /s/ T. Clay Stinnett | ||
T. Clay Stinnett | |||
EVP, Treasurer and |
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