| | | | | | Large accelerated filer ☒ | ☑ | Accelerated filer ☐ | | Non-accelerated filer ☐ | | Smaller reporting company ☐ | Non-accelerated filer (Do not check if a smaller reporting Company) | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Act). ☐ Yes ☐☒ No ☑ The number of shares outstanding of the registrant’s Common Stock, no par value, outstanding as of July 23, 201831, 2019, was 22,747,342.22,723,643. Stock Yards Bancorp, inc. and subsidiary Index
TABLE OF CONTENTS Stock Yards Bancorp, inc. and subsidiary Index
PART I – FINANCIAL INFORMATION Glossary of Acronyms and Terms The following listing provides a comprehensive reference of common acronyms and terms used throughout the document: Acronym | | Definition | | Acronym | | Definition | AFS | | Available for sale | | HELOC | | Home equity line of credit | Allowance | | Allowance for loan and lease losses | | HTM | | Held to maturity | ASC | | Accounting Standards Codification | | King | | King Bancorp, Inc. | ASU | | Accounting Standards Update | | KSBT | | King Bancorp Statutory Trust I | AUM | | Assets under management | | LIBOR | | London Interbank Offering Rate | Bancorp | | Stock Yards Bancorp, Inc. | | Loans | | Loans and leases | Bank | | Stock Yards Bank & Trust CompanyCo. | | MSA | | Metropolitan statistical area | BOLI | | Bank Owned Life Insuranceowned life insurance | | MSR | | Mortgage servicing right | BPBPS
| | Basis Pointpoint = 1/100th of one percent | | NA | | Not applicable | C&D | | Construction and development | | OAEM | | Other assets especially mentioned | C&I | | Commercial and industrial | | OCI | | Other comprehensive income | CECL | | Current Expected Credit Losses | | OREO | | Other real estate owned | CEO | | Chief Executive Officer | | OTTI | | Other than temporarily impaired | COSO | | Committee of Sponsoring Organizations | | PCI | | Purchased credit impaired | CRA | | Community Reinvestment Act of 1977 | | Provision | | Provision for loan and lease losses | CRE | | Commercial real estate | | PSU | | Performance stock unit | Dodd-Frank Act | | Dodd-Frank Wall Street Reform and Consumer Protection Act | | ROA | | Return on average assets | EPS | | Earnings Per Shareper share | | ROE | | Return on average equity | EVP | | Executive Vice President | | RSA | | Restricted stock award | FASB | | Financial Accounting Standards Board | | RSU | | Restricted stock unit | FDIC | | Federal Deposit Insurance Corporation | | SAR | | Stock appreciate right | FHA | Federal Housing Administration
| FHLB
| Federal Home Loan Bank | FHLMChousing Administration
| Federal Home Loan Mortgage Corporation
| FNMA
| Federal National Mortgage Association
| GNMA
| Government National Mortgage Association
| LIBOR
| London Interbank Offered Rate
| MSR
| Mortgage Servicing Right
| OAEM
| Other Assets Especially Mentioned
| OREO
| Other Real Estate Owned
| PSU
| Performance Stock Unit
| RSU
| Restricted Stock Unit
| SAR
| Stock Appreciation Right
| SEC | | Securities and Exchange Commission | FHLB | | Federal Home Loan Bank | | SSUAR | | Securities sold under agreements to repurchase | FHLMC | | Federal Home Loan Mortgage Corporation | | TBOC | | THE Bank of Oldham County | FNMA | | Federal National Mortgage Association | | TCE | | Tangible common equity | FRB | | Federal Reserve Bank | | TDR | | Troubled Debt Restructuring | US GAAP
| | United StatesU.S. Generally Accepted Accounting Principles
| | VA | | U.S. Department of Veterans Affairs | GNMA | | Government National Mortgage Association | | WM&T | | Wealth Management and Trust |
Stock Yards Bancorp, inc. and subsidiary
Item 1. Financial Statements | CONSOLIDATED BALANCE SHEETS | June 30, 2019 (unaudited) and December 31, 2018 |
(In thousands, except share data) | | | | | | | | | | | June 30, | | | December 31, | | | | 2019 | | | 2018 | | Assets | | | | | | | | | Cash and due from banks | | $ | 51,264 | | | $ | 51,892 | | Federal funds sold and interest bearing due from banks | | | 64,775 | | | | 147,047 | | Cash and cash equivalents | | | 116,039 | | | | 198,939 | | Mortgage loans held for sale | | | 3,922 | | | | 1,675 | | Securities available for sale | | | 423,579 | | | | 436,995 | | Federal Home Loan Bank stock, at cost | | | 11,316 | | | | 10,370 | | Loans and leases | | | 2,763,880 | | | | 2,548,171 | | Allowance for loan and lease losses | | | 26,416 | | | | 25,534 | | Net loans and leases | | | 2,737,464 | | | | 2,522,637 | | | | | | | | | | | Premises and equipment, net | | | 65,069 | | | | 44,764 | | Bank owned life insurance | | | 32,631 | | | | 32,273 | | Accrued interest receivable | | | 9,633 | | | | 8,360 | | Goodwill | | | 12,826 | | | | 682 | | Core deposit intangible | | | 2,461 | | | | 1,057 | | Other assets | | | 48,883 | | | | 45,172 | | Total assets | | $ | 3,463,823 | | | $ | 3,302,924 | | | | | | | | | | | Liabilities | | | | | | | | | Deposits: | | | | | | | | | Non-interest bearing | | $ | 777,652 | | | $ | 711,023 | | Interest bearing | | | 2,105,801 | | | | 2,083,333 | | Total deposits | | | 2,883,453 | | | | 2,794,356 | | | | | | | | | | | Securities sold under agreements to repurchase | | | 33,809 | | | | 36,094 | | Federal funds purchased | | | 12,012 | | | | 10,247 | | Federal Home Loan Bank advances | | | 84,279 | | | | 48,177 | | Accrued interest payable | | | 1,008 | | | | 762 | | Other liabilities | | | 59,897 | | | | 46,788 | | Total liabilities | | | 3,074,458 | | | | 2,936,424 | | | | | | | | | | | Commitments and contingent liabilities (note 15) | | | — | | | | — | | | | | | | | | | | 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 22,721,027 and 22,749,139 shares in 2019 and 2018, respectively | | | 36,596 | | | | 36,689 | | Additional paid-in capital | | | 37,776 | | | | 36,797 | | Retained earnings | | | 313,927 | | | | 298,156 | | Accumulated other comprehensive income (loss) | | | 1,066 | | | | (5,142 | ) | Total stockholders’ equity | | | 389,365 | | | | 366,500 | | Total liabilities and stockholders’ equity | | $ | 3,463,823 | | | $ | 3,302,924 | |
See accompanying notes to unaudited consolidated financial statements. |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | For the three and six months ended June 30, 2019 and 2018 |
| | Three months ended | | | Six months ended | | (In thousands, except per share data) | | June 30, | | | June 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Interest income: | | | | | | | | | | | | | | | | | Loans and leases | | $ | 33,419 | | | $ | 29,456 | | | $ | 64,963 | | | $ | 56,518 | | Federal funds sold and interest bearing due from banks | | | 830 | | | | 163 | | | | 1,563 | | | | 431 | | Mortgage loans held for sale | | | 43 | | | | 44 | | | | 80 | | | | 79 | | Securities available for sale | | | | | | | | | | | | | | | | | Taxable | | | 2,546 | | | | 2,105 | | | | 5,114 | | | | 4,243 | | Tax-exempt | | | 130 | | | | 236 | | | | 277 | | | | 477 | | Total interest income | | | 36,968 | | | | 32,004 | | | | 71,997 | | | | 61,748 | | Interest expense: | | | | | | | | | | | | | | | | | Deposits | | | 5,652 | | | | 2,674 | | | | 10,718 | | | | 4,751 | | Securities sold under agreements to repurchase | | | 28 | | | | 30 | | | | 53 | | | | 67 | | Federal funds purchased and other short-term borrowing | | | 64 | | | | 397 | | | | 124 | | | | 483 | | Federal Home Loan Bank advances | | | 424 | | | | 229 | | | | 645 | | | | 464 | | Subordinated debentures | | | 26 | | | | — | | | | 26 | | | | — | | Total interest expense | | | 6,194 | | | | 3,330 | | | | 11,566 | | | | 5,765 | | Net interest income | | | 30,774 | | | | 28,674 | | | | 60,431 | | | | 55,983 | | Provision for loan and lease losses | | | — | | | | 1,235 | | | | 600 | | | | 1,970 | | Net interest income after provision | | | 30,774 | | | | 27,439 | | | | 59,831 | | | | 54,013 | | Non-interest income: | | | | | | | | | | | | | | | | | Wealth management and trust services | | | 5,662 | | | | 5,344 | | | | 11,101 | | | | 10,844 | | Deposit service charges | | | 1,336 | | | | 1,447 | | | | 2,583 | | | | 2,858 | | Debit and credit card income | | | 2,168 | | | | 1,689 | | | | 3,912 | | | | 3,197 | | Treasury management fees | | | 1,202 | | | | 1,113 | | | | 2,359 | | | | 2,160 | | Mortgage banking income | | | 796 | | | | 746 | | | | 1,278 | | | | 1,322 | | Net investment product sales commissions and fees | | | 364 | | | | 397 | | | | 720 | | | | 801 | | Bank owned life insurance | | | 184 | | | | 191 | | | | 362 | | | | 378 | | Other | | | 551 | | | | 508 | | | | 1,010 | | | | 784 | | Total non-interest income | | | 12,263 | | | | 11,435 | | | | 23,325 | | | | 22,344 | | Non-interest expenses: | | | | | | | | | | | | | | | | | Compensation | | | 12,715 | | | | 11,703 | | | | 24,516 | | | | 22,673 | | Employee benefits | | | 2,908 | | | | 2,512 | | | | 5,550 | | | | 5,145 | | Net occupancy and equipment | | | 1,976 | | | | 1,811 | | | | 3,834 | | | | 3,629 | | Technology and communication | | | 1,848 | | | | 1,685 | | | | 3,621 | | | | 3,315 | | Debit and credit card processing | | | 631 | | | | 579 | | | | 1,218 | | | | 1,145 | | Marketing and business development | | | 903 | | | | 805 | | | | 1,528 | | | | 1,451 | | Postage, printing, and supplies | | | 410 | | | | 400 | | | | 816 | | | | 791 | | Legal and professional | | | 1,523 | | | | 504 | | | | 2,057 | | | | 997 | | FDIC insurance | | | 248 | | | | 238 | | | | 486 | | | | 480 | | Amortization/impairment of investments in tax credit partnerships | | | 52 | | | | 58 | | | | 104 | | | | 58 | | Capital and deposit based taxes | | | 967 | | | | 862 | | | | 1,871 | | | | 1,714 | | Other | | | 1,283 | | | | 979 | | | | 2,502 | | | | 1,765 | | Total non-interest expenses | | | 25,464 | | | | 22,136 | | | | 48,103 | | | | 43,163 | | Income before income tax expense | | | 17,573 | | | | 16,738 | | | | 35,053 | | | | 33,194 | | Income tax expense | | | 1,030 | | | | 3,159 | | | | 2,869 | | | | 6,211 | | Net income | | $ | 16,543 | | | $ | 13,579 | | | $ | 32,184 | | | $ | 26,983 | | Net income per share, basic | | $ | 0.73 | | | $ | 0.60 | | | $ | 1.42 | | | $ | 1.19 | | Net income per share, diluted | | $ | 0.72 | | | $ | 0.59 | | | $ | 1.40 | | | $ | 1.17 | | Weighted average common shares: | | | | | | | | | | | | | | | | | Basic | | | 22,689 | | | | 22,625 | | | | 22,675 | | | | 22,601 | | Diluted | | | 22,949 | | | | 22,967 | | | | 22,948 | | | | 22,959 | |
See accompanying notes to unaudited consolidated financial statements. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | For the three and six months ended June 30, 2019 and 2018 |
| | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | Net income | | $ | 16,543 | | | $ | 13,579 | | | $ | 32,184 | | | $ | 26,983 | | Other comprehensive income: | | | | | | | | | | | | | | | | | Change in unrealized gain (loss) on available for sale debt securities | | | 5,021 | | | | (1,618 | ) | | | 8,446 | | | | (6,325 | ) | Change in fair value of derivatives used in cash flow hedges | | | (321 | ) | | | 99 | | | | (530 | ) | | | 491 | | Total other comprehensive income (loss), before income tax | | | 4,700 | | | | (1,519 | ) | | | 7,916 | | | | (5,834 | ) | Tax effect | | | 1,121 | | | | (319 | ) | | | 1,708 | | | | (1,226 | ) | Total other comprehensive income (loss), net of tax | | | 3,579 | | | | (1,200 | ) | | | 6,208 | | | | (4,608 | ) | Comprehensive income | | $ | 20,122 | | | $ | 12,379 | | | $ | 38,392 | | | $ | 22,375 | |
See accompanying notes to unaudited consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) | For the six months ended June 30, 2019 with quarterly subtotals |
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | Common stock | | | Additional | | | | | | | other | | | Total | | | | Number of | | | | | | | paid-in | | | Retained | | | comprehensive | | | stockholders' | | (In thousands, except per share data) | | shares | | | Amount | | | capital | | | earnings | | | income (loss) | | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2019 | | | 22,749 | | | $ | 36,689 | | | $ | 36,797 | | | $ | 298,156 | | | $ | (5,142 | ) | | $ | 366,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | Activity for three months ended March 31, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | 15,641 | | | | — | | | | 15,641 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net change in accumulated other comprehensive income (loss) | | | — | | | | — | | | | — | | | | — | | | | 2,629 | | | | 2,629 | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock compensation expense | | | — | | | | — | | | | 863 | | | | — | | | | — | | | | 863 | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award | | | 74 | | | | 245 | | | | 2,254 | | | | (4,452 | ) | | | — | | | | (1,953 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared, $0.25 per share | | | — | | | | — | | | | — | | | | (5,686 | ) | | | — | | | | (5,686 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, March 31, 2019 | | | 22,823 | | | $ | 36,934 | | | $ | 39,914 | | | $ | 303,659 | | | $ | (2,513 | ) | | $ | 377,994 | | | | | | | | | | | | | | | | | | | | | | | | | | | Activity for three months ended June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | 16,543 | | | | — | | | | 16,543 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net change in accumulated other comprehensive income (loss) | | | — | | | | — | | | | — | | | | — | | | | 3,579 | | | | 3,579 | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock compensation expense | | | — | | | | — | | | | 993 | | | | — | | | | — | | | | 993 | | | | | | | | | | | | | | | | | | | | | | | | | | | Common stock repurchased | | | (107 | ) | | | (357 | ) | | | (3,308 | ) | | | — | | | | — | | | | (3,665 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award | | | 5 | | | | 19 | | | | 182 | | | | (363 | ) | | | — | | | | (162 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared, $0.26 per share | | | — | | | | — | | | | — | | | | (5,917 | ) | | | — | | | | (5,917 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Shares cancelled | | | — | | | | — | | | | (5 | ) | | | 5 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, June 30, 2019 | | | 22,721 | | | $ | 36,596 | | | $ | 37,776 | | | $ | 313,927 | | | $ | 1,066 | | | $ | 389,365 | |
See accompanying notes to unaudited consolidated financial statements. |
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) | For the six months ended June 30, 2018 with quarterly subtotals |
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | Common stock | | | Additional | | | | | | | other | | | Total | | | | Number of | | | | | | | paid-in | | | Retained | | | comprehensive | | | stockholders' | | (In thousands, except per share data) | | shares | | | Amount | | | capital | | | earnings | | | loss | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2018 | | | 22,679 | | | $ | 36,457 | | | $ | 31,924 | | | $ | 267,193 | | | $ | (1,930 | ) | | $ | 333,644 | | | | | | | | | | | | | | | | | | | | | | | | | | | Activity for three months ended March 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | 13,404 | | | | — | | | | 13,404 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net change in accumulated other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (3,408 | ) | | | (3,408 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Reclassification adjustment under Accounting Standards Update 2018-02 | | | — | | | | — | | | | — | | | | 506 | | | | (506 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock compensation expense | | | — | | | | — | | | | 823 | | | | — | | | | — | | | | 823 | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award | | | 52 | | | | 174 | | | | 205 | | | | (1,914 | ) | | | — | | | | (1,535 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared, $0.23 per share | | | — | | | | — | | | | — | | | | (5,226 | ) | | | — | | | | (5,226 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Shares cancelled | | | (1 | ) | | | (4 | ) | | | (35 | ) | | | 39 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, March 31, 2018 | | | 22,730 | | | $ | 36,627 | | | $ | 32,917 | | | $ | 274,002 | | | $ | (5,844 | ) | | $ | 337,702 | | | | | | | | | | | | | | | | | | | | | | | | | | | Activity for three months ended June 30, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | 13,579 | | | | — | | | | 13,579 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net change in accumulated other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (1,200 | ) | | | (1,200 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Stock compensation expense | | | — | | | | — | | | | 1,212 | | | | — | | | | — | | | | 1,212 | | | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase of common stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award | | | 17 | | | | 57 | | | | 618 | | | | (1,226 | ) | | | — | | | | (551 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared, $0.23 per share | | | — | | | | — | | | | — | | | | (5,227 | ) | | | — | | | | (5,227 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Shares cancelled | | | (1 | ) | | | (4 | ) | | | (32 | ) | | | 36 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, June 30, 2018 | | | 22,746 | | | $ | 36,680 | | | $ | 34,715 | | | $ | 281,164 | | | $ | (7,044 | ) | | $ | 345,515 | |
STOCK YARDS BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2018 (unaudited) and December 31, 2017
(In thousands, except share data)
See accompanying notes to unaudited consolidated financial statements. |
| | June 30, | | | December 31, | | | | 2018 | | | 2017 | | Assets | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 44,052 | | | $ | 41,982 | | Federal funds sold and interest bearing due from banks | | | 10,948 | | | | 97,266 | | Cash and cash equivalents | | | 55,000 | | | | 139,248 | | Mortgage loans held for sale | | | 2,053 | | | | 2,964 | | Securities available-for-sale (amortized cost of $583,777 in 2018 and $577,406 in 2017) | | | 574,570 | | | | 574,524 | | Federal Home Loan Bank stock | | | 10,370 | | | | 7,646 | | Loans | | | 2,577,960 | | | | 2,409,570 | | Less allowance for loan losses | | | 24,873 | | | | 24,885 | | Net loans | | | 2,553,087 | | | | 2,384,685 | | Premises and equipment, net | | | 42,354 | | | | 41,655 | | Bank owned life insurance | | | 32,427 | | | | 32,049 | | Accrued interest receivable | | | 8,743 | | | | 8,369 | | Other assets | | | 45,236 | | | | 48,506 | | Total assets | | $ | 3,323,840 | | | $ | 3,239,646 | | | | | | | | | | | Liabilities and Stockholders’ Equity | | | | | | | | | Deposits: | | | | | | | | | Non-interest bearing | | $ | 715,974 | | | $ | 674,697 | | Interest bearing | | | 1,824,487 | | | | 1,903,598 | | Total deposits | | | 2,540,461 | | | | 2,578,295 | | Securities sold under agreements to repurchase | | | 58,808 | | | | 70,473 | | Federal funds purchased and other short-term borrowing | | | 286,460 | | | | 161,352 | | Federal Home Loan Bank advances | | | 48,821 | | | | 49,458 | | Accrued interest payable | | | 500 | | | | 232 | | Other liabilities | | | 43,275 | | | | 46,192 | | Total liabilities | | | 2,978,325 | | | | 2,906,002 | | 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 22,746,283 and 22,679,362 shares in 2018 and 2017, respectively | | | 36,680 | | | | 36,457 | | Additional paid-in capital | | | 34,715 | | | | 31,924 | | Retained earnings | | | 281,164 | | | | 267,193 | | Accumulated other comprehensive loss | | | (7,044 | ) | | | (1,930 | ) | Total stockholders’ equity | | | 345,515 | | | | 333,644 | | Total liabilities and stockholders’ equity | | $ | 3,323,840 | | | $ | 3,239,646 | |
8
CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited) | For the six months ended June 30, 2019 and 2018 |
See accompanying notes to unaudited consolidated financial statements.
(In thousands) | | 2019 | | | 2018 | | Operating activities: | | | | | | | | | Net income | | $ | 32,184 | | | $ | 26,983 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | Provision for loan and lease losses | | | 600 | | | | 1,970 | | Depreciation, amortization and accretion, net | | | 1,679 | | | | 2,680 | | Deferred income tax (benefit) expense | | | (3,959 | ) | | | 40 | | Gain on sales of mortgage loans held for sale | | | (719 | ) | | | (769 | ) | Origination of mortgage loans held for sale | | | (38,081 | ) | | | (37,803 | ) | Proceeds from sale of mortgage loans held for sale | | | 36,553 | | | | 39,483 | | Bank owned life insurance income | | | (362 | ) | | | (378 | ) | Loss (gain) on the disposal of premises and equipment | | | 6 | | | | (14 | ) | Gain on the sale of other real estate | | | (63 | ) | | | (109 | ) | Stock compensation expense | | | 1,856 | | | | 2,035 | | Excess tax benefits from share-based compensation arrangements | | | (392 | ) | | | (525 | ) | Net change in accrued interest receivable and other assets | | | (3,429 | ) | | | 2,236 | | Net change in accrued interest payable and other liabilities | | | (3,974 | ) | | | 247 | | Net cash provided by operating activities | | | 21,899 | | | | 36,076 | | Investing activities: | | | | | | | | | Purchases of securities available for sale | | | (373,761 | ) | | | (399,911 | ) | Proceeds from sales of securities | | | 12,427 | | | | — | | Proceeds from maturities and paydowns of securities available for sale | | | 396,367 | | | | 392,855 | | Purchase of Federal Home Loan Bank stock | | | — | | | | (2,724 | ) | Proceeds from redemptions of Federal Home Loan Bank stock | | | 591 | | | | — | | Proceeds from redemption of Federal Reserve Bank stock | | | 490 | | | | — | | Proceeds from redemption of interest bearing due from banks | | | 1,761 | | | | — | | Net change in loans | | | (49,280 | ) | | | (170,843 | ) | Purchases of premises and equipment | | | (3,321 | ) | | | (2,694 | ) | Proceeds from disposal of premises and equipment | | | 45 | | | | 230 | | Proceeds from surrender of acquired bank bank owned life insurance | | | 3,431 | | | | — | | Proceeds from bank owned life insurance mortality benefit | | | 909 | | | | — | | Other investment activities | | | (1,532 | ) | | | (2,542 | ) | Proceeds from sale of foreclosed assets | | | 868 | | | | 2,860 | | Cash for acquisition, net of cash acquired | | | (24,684 | ) | | | — | | Net cash used in investing activities | | | (35,689 | ) | | | (182,769 | ) | Financing activities: | | | | | | | | | Net change in deposits | | | (36,464 | ) | | | (37,834 | ) | Net change in securities sold under agreements to repurchase and federal funds purchased | | | (2,086 | ) | | | 113,443 | | Proceeds from Federal Home Loan Bank advances | | | 60,000 | | | | 60,000 | | Repayments of Federal Home Loan Bank advances | | | (67,250 | ) | | | (60,637 | ) | Repayment of acquired bank holding company line of credit | | | (2,300 | ) | | | — | | Redemption of acquired bank subordinated debentures | | | (3,609 | ) | | | — | | Common stock repurchases | | | (5,780 | ) | | | (2,086 | ) | Cash dividends paid | | | (11,621 | ) | | | (10,441 | ) | Net cash provided by (used in) financing activities | | | (69,110 | ) | | | 62,445 | | Net change in cash and cash equivalents | | | (82,900 | ) | | | (84,248 | ) | Cash and cash equivalents at beginning of period | | | 198,939 | | | | 139,248 | | Cash and cash equivalents at end of period | | $ | 116,039 | | | $ | 55,000 | |
STOCK YARDS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
CONSOLIDATED STATEMENTS OF CASHFLOWS (continued) (Unaudited) For the three and six months ended June 30, 2018 and 2017
(In thousands, except per share data)
| For the six months ended June 30, 2019 and 2018 |
| | For three months ended | | | For six months ended | | | | June 30, | | | June 30, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Interest income | | | | | | | | | | | | | | | | | Loans | | $ | 29,456 | | | $ | 24,364 | | | $ | 56,518 | | | $ | 48,446 | | Federal funds sold and interest bearing deposits | | | 163 | | | | 276 | | | | 431 | | | | 410 | | Mortgage loans held for sale | | | 44 | | | | 53 | | | | 79 | | | | 97 | | Securities | | | | | | | | | | | | | | | | | Taxable | | | 2,105 | | | | 2,056 | | | | 4,243 | | | | 4,170 | | Tax-exempt | | | 236 | | | | 277 | | | | 477 | | | | 558 | | Total Interest income | | | 32,004 | | | | 27,026 | | | | 61,748 | | | | 53,681 | | Interest expense | | | | | | | | | | | | | | | | | Deposits | | | 2,674 | | | | 1,481 | | | | 4,751 | | | | 2,644 | | Securities sold under agreements to repurchase and other short-term borrowings | | | 427 | | | | 61 | | | | 550 | | | | 115 | | Long term debt | | | 229 | | | | 239 | | | | 464 | | | | 471 | | Total interest expense | | | 3,330 | | | | 1,781 | | | | 5,765 | | | | 3,230 | | Net interest income | | | 28,674 | | | | 25,245 | | | | 55,983 | | | | 50,451 | | Provision for loan losses | | | 1,235 | | | | 600 | | | | 1,970 | | | | 1,500 | | Net interest income after provision for loan losses | | | 27,439 | | | | 24,645 | | | | 54,013 | | | | 48,951 | | Non-interest income | | | | | | | | | | | | | | | | | Wealth management and trust services | | | 5,344 | | | | 5,153 | | | | 10,844 | | | | 10,247 | | Deposit service charges | | | 1,447 | | | | 1,516 | | | | 2,858 | | | | 3,015 | | Debit and credit cards | | | 1,689 | | | | 1,514 | | | | 3,197 | | | | 2,920 | | Treasury management | | | 1,113 | | | | 1,082 | | | | 2,160 | | | | 2,104 | | Mortgage banking | | | 746 | | | | 897 | | | | 1,322 | | | | 1,599 | | Net investment product sales commissions and fees | | | 397 | | | | 357 | | | | 801 | | | | 743 | | Bank owned life insurance | | | 191 | | | | 556 | | | | 378 | | | | 760 | | Other | | | 508 | | | | 450 | | | | 784 | | | | 759 | | Total non-interest income | | | 11,435 | | | | 11,525 | | | | 22,344 | | | | 22,147 | | Non-interest expenses | | | | | | | | | | | | | | | | | Compensation | | | 11,703 | | | | 10,566 | | | | 22,673 | | | | 21,235 | | Employee benefits | | | 2,512 | | | | 2,282 | | | | 5,145 | | | | 5,024 | | Net occupancy and equipment | | | 1,811 | | | | 1,782 | | | | 3,629 | | | | 3,689 | | Technology and communication | | | 2,264 | | | | 2,120 | | | | 4,460 | | | | 3,968 | | Marketing and business development | | | 805 | | | | 687 | | | | 1,451 | | | | 1,132 | | Postage, printing and supplies | | | 400 | | | | 382 | | | | 791 | | | | 753 | | Legal and professional | | | 504 | | | | 642 | | | | 997 | | | | 1,071 | | FDIC insurance | | | 238 | | | | 244 | | | | 480 | | | | 474 | | Amortization/impairment of investments in tax credit partnerships | | | 58 | | | | 615 | | | | 58 | | | | 1,231 | | Capital and deposit based taxes | | | 862 | | | | 766 | | | | 1,714 | | | | 1,530 | | Other | | | 979 | | | | 1,123 | | | | 1,765 | | | | 2,097 | | Total non-interest expense | | | 22,136 | | | | 21,209 | | | | 43,163 | | | | 42,204 | | Income before income taxes | | | 16,738 | | | | 14,961 | | | | 33,194 | | | | 28,894 | | Income tax expense | | | 3,159 | | | | 4,359 | | | | 6,211 | | | | 7,501 | | Net income | | $ | 13,579 | | | $ | 10,602 | | | $ | 26,983 | | | $ | 21,393 | | Net income per share | | | | | | | | | | | | | | | | | Basic | | $ | 0.60 | | | $ | 0.47 | | | $ | 1.19 | | | $ | 0.95 | | Diluted | | $ | 0.59 | | | $ | 0.46 | | | $ | 1.17 | | | $ | 0.93 | | Average common shares | | | | | | | | | | | | | | | | | Basic | | | 22,625 | | | | 22,538 | | | | 22,601 | | | | 22,515 | | Diluted | | | 22,979 | | | | 22,996 | | | | 22,975 | | | | 22,998 | |
(In thousands) | | 2019 | | | 2018 | | Supplemental cash flow information: | | | | | | | | | Cash paid during the period for: | | | | | | | | | Income tax payments, net of refunds | | $ | 5,382 | | | $ | 1,800 | | Cash paid for interest | | | 11,320 | | | | 5,497 | | Supplemental non-cash activity: | | | | | | | | | Initital recognition of right-of-use lease assets | | $ | 16,747 | | | $ | — | | Initital recognition operating lease liabilities | | | 18,067 | | | | — | | Transfers from loans to real estate acquired in settlement of loans | | | — | | | | 471 | | | | | | | | | | | Liabilities assumed in conjunction with King Bancorp acquisition: | | | | | | | | | Fair value of assets acquired | | $ | 204,613 | | | $ | — | | Cash paid in acqusition | | | 28,000 | | | | — | | Liabilities assumed | | $ | 176,613 | | | $ | — | |
See accompanying notes to unaudited consolidated financial statements. |
See accompanying notes to unaudited consolidated financial statements
STOCK YARDS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Unaudited)
For the three and six months ended June 30, 2018 and 2017
(In thousands)
| | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Net income | | $ | 13,579 | | | $ | 10,602 | | | $ | 26,983 | | | $ | 21,393 | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | Unrealized gains (losses) on securities available for sale: | | | | | | | | | | | | | | | | | Unrealized (losses) gains arising during the period (net of tax of ($339), $112, (1,328), and $482, respectively) | | | (1,279 | ) | | | 206 | | | | (4,997 | ) | | | 895 | | Unrealized losses on hedging instruments: | | | | | | | | | | | | | | | | | Unrealized gains (losses) arising during the period (net of tax of $20, ($49), $102, and ($2), respectively) | | | 79 | | | | (90 | ) | | | 389 | | | | (5 | ) | Other comprehensive income (loss), net of tax | | | (1,200 | ) | | | 116 | | | | (4,608 | ) | | | 890 | | Comprehensive income | | $ | 12,379 | | | $ | 10,718 | | | $ | 22,375 | | | $ | 22,283 | |
See accompanying notes to unaudited consolidated financial statements
STOCK YARDS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the six months ended June 30, 2018 and 2017
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | Common stock | | | Additional | | | | | | | other | | | | | | | | Number of | | | | | | | paid-in | | | Retained | | | comprehensive | | | | | | | | shares | | | Amount | | | capital | | | earnings | | | income (loss) | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance December 31, 2016 | | | 22,617 | | | | 36,250 | | | | 26,682 | | | | 252,439 | | | | (1,499 | ) | | | 313,872 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | - | | | | - | | | | - | | | | 21,393 | | | | - | | | | 21,393 | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax | | | - | | | | - | | | | - | | | | - | | | | 890 | | | | 890 | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock compensation expense | | | - | | | | - | | | | 1,342 | | | | - | | | | - | | | | 1,342 | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award | | | 50 | | | | 164 | | | | 1,820 | | | | (4,146 | ) | | | - | | | | (2,162 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends, $0.39 per share | | | - | | | | - | | | | - | | | | (8,835 | ) | | | - | | | | (8,835 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Shares cancelled | | | (5 | ) | | | (14 | ) | | | (91 | ) | | | 105 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance June 30, 2017 | | | 22,662 | | | $ | 36,400 | | | $ | 29,753 | | | $ | 260,956 | | | $ | (609 | ) | | $ | 326,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance December 31, 2017 | | | 22,679 | | | | 36,457 | | | | 31,924 | | | | 267,193 | | | | (1,930 | ) | | | 333,644 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | - | | | | - | | | | - | | | | 26,983 | | | | - | | | | 26,983 | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax | | | - | | | | - | | | | - | | | | - | | | | (4,608 | ) | | | (4,608 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Reclassification adjustment under Accounting Standard Update 2018-02 | | | | | | | | | | | | | | | 506 | | | | (506 | ) | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock compensation expense | | | - | | | | - | | | | 2,035 | | | | - | | | | - | | | | 2,035 | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award | | | 69 | | | | 231 | | | | 823 | | | | (3,140 | ) | | | - | | | | (2,086 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends, $0.46 per share | | | - | | | | - | | | | - | | | | (10,453 | ) | | | - | | | | (10,453 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Shares cancelled | | | (2 | ) | | | (8 | ) | | | (67 | ) | | | 75 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance June 30, 2018 | | | 22,746 | | | $ | 36,680 | | | $ | 34,715 | | | $ | 281,164 | | | $ | (7,044 | ) | | $ | 345,515 | |
See accompanying notes to unaudited consolidated financial statements.
STOCK YARDS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended June 30, 2018 and 2017
(In thousands)
| | 2018 | | | 2017 | | Operating activities: | | | | | | | | | Net income | | $ | 26,983 | | | $ | 21,393 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | Provision for loan losses | | | 1,970 | | | | 1,500 | | Depreciation, amortization and accretion, net | | | 2,680 | | | | 4,399 | | Deferred income tax provision | | | 40 | | | | (517 | ) | Gain on sales of mortgage loans held for sale | | | (769 | ) | | | (963 | ) | Origination of mortgage loans held for sale | | | (37,803 | ) | | | (49,168 | ) | Proceeds from sale of mortgage loans held for sale | | | 39,483 | | | | 50,289 | | Bank owned life insurance income | | | (378 | ) | | | (760 | ) | Gain on the disposal of premises and equipment | | | (14 | ) | | | - | | (Gain) loss on the sale of other real estate | | | (109 | ) | | | 64 | | Stock compensation expense | | | 2,035 | | | | 1,342 | | Excess tax benefits from share-based compensation arrangements | | | (525 | ) | | | (1,120 | ) | Decrease (increase) in accrued interest receivable and other assets | | | 2,077 | | | | (4,015 | ) | (Decrease) increase in accrued interest payable and other liabilities | | | (2,136 | ) | | | 6,883 | | | | | | | | | | | Net cash provided by operating activities | | | 33,534 | | | | 29,327 | | | | | | | | | | | Investing activities: | | | | | | | | | Purchases of securities available for sale | | | (399,911 | ) | | | (251,196 | ) | Proceeds from maturities of securities available for sale | | | 392,855 | | | | 245,010 | | Purchases of Federal Home Loan Bank stock | | | (2,724 | ) | | | (1,319 | ) | Net increase in loans | | | (170,843 | ) | | | (4,685 | ) | Purchases of premises and equipment | | | (2,694 | ) | | | (839 | ) | Proceeds from disposal of premises and equipment | | | 230 | | | | 207 | | Proceeds from mortality benefit of bank owned life insurance | | | — | | | | 970 | | Proceeds from sale of foreclosed assets | | | 2,860 | | | | 1,784 | | | | | | | | | | | Net cash used in investing activities | | | (180,227 | ) | | | (10,068 | ) | | | | | | | | | | Financing activities: | | | | | | | | | Net decrease in deposits | | | (37,834 | ) | | | (42,002 | ) | Net increase in securities sold under agreements to repurchase and federal funds purchased | | | 113,443 | | | | 111,518 | | Proceeds from Federal Home Loan Bank advances | | | 60,000 | | | | 60,000 | | Repayments of Federal Home Loan Bank advances | | | (60,637 | ) | | | (60,642 | ) | Repurchase common stock for performance stock units | | | (155 | ) | | | (216 | ) | Common stock repurchases of restricted shares surrendered for taxes | | | (1,931 | ) | | | (1,946 | ) | Cash dividends paid | | | (10,441 | ) | | | (8,819 | ) | | | | | | | | | | Net cash provided by financing activities | | | 62,445 | | | | 57,893 | | | | | | | | | | | Net (decrease) increase in cash and cash equivalents | | | (84,248 | ) | | | 77,152 | | Cash and cash equivalents at beginning of period | | | 139,248 | | | | 47,973 | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 55,000 | | | $ | 125,125 | | Supplemental cash flow information: | | | | | | | | | Income tax payments | | $ | 1,800 | | | $ | 4,473 | | Cash paid for interest | | | 5,497 | | | | 3,187 | | Supplemental non-cash activity: | | | | | | | | | Transfers from loans to other real estate owned | | $ | 471 | | | $ | - | |
See accompanying notes to unaudited consolidated financial statements.
Stock Yards Bancorp, inc. and subsidiaryNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
(1)(1)
| Basis of Presentation and Summary of Significant Accounting Policies |
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (US GAAP) for complete financial statements. The consolidated unaudited financial statementsBasis of Stock Yards Bancorp, Inc. (“Bancorp”) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods.
Presentation – The unaudited consolidated financial statements include the accounts of Stock Yards Bancorp, Inc. (“Holding Company”), and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (“Bank”). SignificantAll significant inter-company transactions and accounts have been eliminated in consolidation. All companies are collectively referred to as “Bancorp” or the “Company.”
As a result of its acquisition of King, Bancorp, Inc. on May 1, 2019, Bancorp became the 100% successor owner of King Bancorp Statutory Trust I (“KBST”), an unconsolidated finance subsidiary. As permitted under the terms of KBST’s governing documents, Bancorp redeemed the trust-preferred securities at the par amount of approximately $3.6 million on June 17, 2019.
The Bank, chartered in 1904, is a Louisville, Kentucky-based, state-chartered non-member financial institution that provides services in the Louisville, Kentucky, Indianapolis, Indiana and Cincinnati, Ohio Metropolitan Statistical Areas (“MSAs”) through 43 full service banking center locations.
As of June 30, 2019, Bancorp was divided into two reportable segments: Commercial Banking and Wealth Management & Trust (“WM&T”):
Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses through commercial lending, retail lending, deposit services, treasury management services, private banking, online banking, mobile banking, 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.
WM&T, with over $3 billion in assets under management (“AUM”), provides custom-tailored financial planning, investment management, retirement planning and trust and estate services in all markets in which Bancorp operates.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31,2019. For further information, refer to the consolidated financial statements and notes thereto included in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2018. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications. Significant Accounting Policies - In preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of related revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of available-for sale securities, other real estate owned and income tax assets, and estimated liabilities and expense. A description of other significant accounting policies is presented in the notes to Consolidated Financial StatementsBancorp’s Annual Report on Form 10-K for the year ended December 31, 2017 included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.2018. Interim resultsCritical Accounting Policies - An allowance has been established to provide for probable losses on loans that may not be fully repaid. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries. 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 six month period ended June 30, 2018 are not necessarily indicativenet realizable value based upon evaluation of the results for the entire year.related underlying collateral, including Bancorp’s expectation of resolution.
Critical Accounting Policies
The allowance for loan lossesmethodology is management’s estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors. Since the application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change. The provision for loan losses reflects an allowance methodology driven by risk ratings, historical losses, specific loan loss allocations, and qualitative factors. Assumptions include manyThe level of the June 30, 2019 allowance reflected a number of factors, such as changes in borrowers’ financial conditionincluding credit quality metrics which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicativewere generally consistent with prior periods, and expansion of future losses. Consistent with Bancorp’s methodology, in the first quarter of 2018, Bancorp extended the historical look-back period usedfrom 32 to capture Bancorp’s historical loss ratios from 28 quarters to 3236 quarters in order to capture the effects March of a full economic cycle.2019. This extensionexpansion of the historical period was applied to all classes and segments of ourthe portfolio. Expansion of the look-back period for historical loss rates used in the quantitative allocation caused review of the overall methodology for qualitative factors to ensure we were appropriately capturing risk not addressed in the quantitative historical loss rate. 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.
By extending Based on the look-back period to 32 quarters to capture historical loss data for a full economic cycle,extension, the allowance level increased approximately $1.3$2.0 million compared with a 28 quarter look-back period asfor 2019. Key indicators of March 31, 2018. The change in look-back period wasloan quality continued to trend at levels consistent with management’s judgment regardingprior periods, however management recognizes that due to the risk in the loan portfolio and consistent with internal analysis showing continued strong asset quality related not only in the Company’s loan portfolio, but the Bank’s peer group as well, validating the continuationcyclical nature of the current economic cycle and thuslending business, these trends will likely normalize over the reasoning to extendlong term. Additional information regarding Bancorp’s methodology for evaluating the look-back period. Management will continue to evaluate the appropriatenessadequacy of the look-back period basedallowance can be read in Bancorp’s Annual Report on Form 10-K.
Accounting Standards Updates (“ASUs”)
The following ASU was issued prior to June 30, 2019 and is considered relevant to Bancorp’s financial statements. 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 June 2016, the statusFinancial Accounting Standards Board (“FASB”) issued ASU 2016-13,Measurement of Credit Losses on Financial Instruments, (“CECL”). This ASU significantly changes the economic cycle. To the extent that management’s assumptions prove incorrect, results from operations could be materially affectedway entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. Bancorp expects to recognize a higher or lower provision for loan losses. The accounting policy relatedone-time cumulative-effect adjustment to the allowance on January 1, 2020. Interagency guidance issued in December 2018 allows for loan losses is applicablea three year phase-in of the cumulative-effect adjustment for regulatory capital reporting.
As a result of this ASU, Bancorp could experience an increase in its allowance. Bancorp has formed a committee to oversee its transition to the commercial bankingCECL methodology. Bancorp has devoted internal resources and purchased a third party software solution to analyze, compute and report upon the CECL disclosure requirements. In addition, Bancorp has analyzed loan-level data and is determining its CECL loan segmentation and initial segment calculation methodologies. Bancorp is currently exploring regression techniques and has begun to run forecasting scenarios.
Recently Adopted Accounting Standards
Bancorp adopted ASU 2016-02,Leases and related amendments using an alternative transition method, effective January 1, 2019 and upon adoption recorded $17 million of Bancorp.right-of-use lease assets and $18 million of operating lease liabilities on its balance sheet as of June 30, 2019. Prior periods have not been restated. The right-of-use lease asset and operating lease liability are recorded in premises and equipment and other liabilities, respectively, on the consolidated balance sheet. Bancorp elected all applicable practical expedients, including the option to expense short-term leases, which are defined as leases with a term of one year or less. Bancorp also elected not to separate lease components from non-lease components.
The adoption of this ASU did not have a meaningful impact on Bancorp's performance metrics, including regulatory capital ratios and any associated risks relatedreturn on average assets. Additionally, Bancorp does not believe that the adoption of this ASU by its clients will have a significant impact on Bancorp's ability to underwrite credit when client financial statements are presented inclusive of the requirements of this policyASU. See the note titled “Leases” for additional information on Bancorp’s business operations are discussed in the “Allowance for Loan Losses” section below.lease activities. Stock Yards Bancorp, inc. and subsidiary
(2) | Acquisition of King Bancorp, Inc. |
Bancorp’s allowance calculation includes allocations to loan portfolio segments at June 30, 2018On May 1, 2019, Bancorp completed its acquisition of King Bancorp, Inc, and its wholly-owned subsidiary King Southern Bank (“King”), for qualitative factors including, among other factors, local economic and business conditions$28 million in each of our primary markets, quality and experience of lending staff and management, exceptions to lending policies, levels of and trendscash. The acquisition expands the Company’s market area into nearby Nelson County, Kentucky, while growing its customer base in past due loans and loan classifications, concentrations of credit such as collateral type, trends in portfolio growth, trends in value of underlying collateral for collateral-dependent loans, effect of other external factors such as the national economic and business trends, quality and depth of the loan review function, and management’s judgement of current trends and potential risks. Bancorp utilizes the sum of all allowance amounts derived as described above as the appropriate level of allowance for loan and lease losses. Changes in criteria used in this evaluation or availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan and lease losses based on their judgments and estimates.Louisville, Kentucky.
The amortizedfollowing 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 subject to further adjustment. Acquisition of King Bancorp, Inc. | Summary of Assets Aquired and Liabilities Assumed |
| | May 1, 2019 | | | | As Recorded | | | Fair Value | | | | As Recorded | | (In thousands) | | by King | | | Adjustments (1) | | | | by Bancorp | | Assets aquired: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 3,316 | | | $ | — | | | | $ | 3,316 | | Interest bearing due from banks | | | 1,761 | | | | — | | | | | 1,761 | | Available for sale securities | | | 12,404 | | | | 23 | | a | | | 12,427 | | Loans | | | 165,744 | | | | (1,597 | ) | b | | | 164,147 | | Allowance for loan and lease losses | | | (1,812 | ) | | | 1,812 | | b | | | - | | Loans, net | | | 163,932 | | | | 215 | | | | | 164,147 | | Federal Home Loan Bank stock, at cost | | | 1,517 | | | | — | | | | | 1,517 | | Federal Reserve Bank stock, at cost | | | 490 | | | | — | | | | | 490 | | Premises and equipment, net | | | 4,358 | | | | (1,328 | ) | c | | | 3,030 | | Core deposit intangible | | | — | | | | 1,519 | | d | | | 1,519 | | Bank owned life insurance | | | 3,431 | | | | — | | | | | 3,431 | | Other real estate owned | | | 325 | | | | (325 | ) | e | | | — | | Other assets and accrued interest receivable | | | 867 | | | | (36 | ) | f | | | 831 | | | | | | | | | | | | | | | | Total assets acquired | | $ | 192,401 | | | $ | 68 | | | | $ | 192,469 | | | | | | | | | | | | | | | | Liabilities assumed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits | | | | | | | | | | | | | | Non-interest bearing | | $ | 24,939 | | | $ | — | | | | $ | 24,939 | | Interest bearing | | | 100,839 | | | | (252 | ) | g | | | 100,587 | | Total deposits | | | 125,778 | | | | (252 | ) | | | | 125,526 | | | | | | | | | | | | | | | | Federal funds purchased | | | 1,566 | | | | — | | | | | 1,566 | | Federal Home Loan Bank advances | | | 43,718 | | | | (419 | ) | h | | | 43,299 | | Subordinated Note | | | 3,609 | | | | — | | | | | 3,609 | | Holding Company line of credit | | | 2,300 | | | | — | | | | | 2,300 | | Other liabilities and accrued interest payable | | | 313 | | | | — | | | | | 313 | | | | | | | | | | | | | | | | Total liabilities assumed | | | 177,284 | | | | (671 | ) | | | | 176,613 | | | | | | | | | | | | | | | | Net assets acquired | | $ | 15,117 | | | $ | 739 | | | | $ | 15,856 | | | | | | | | | | | | | | | | Cash consideration paid | | | | | | | | | | | | (28,000 | ) | | | | | | | | | | | | | | | Goodwill | | | | | | | | | | | $ | 12,144 | |
| (1) | Bancorp’s acquisition of King closed on May 1, 2019. Accordingly, the fair value adjustments shown are preliminary estimates of the purchase accounting adjustments. Management is continuing to evaluate each of these fair value adjustments and may revise one or more of such fair value adjustments in future periods based on this continuing evaluation. To the extent that any of these preliminary fair value adjustments are revised in future periods, the resultant fair values and the amount of goodwill recorded by the Company will change. |
Explanation of fair value adjustments | a. | Reflects the fair value adjustment based on Bancorp’s evaluation of the acquired investment portfolio. | | b. | Reflects the fair value adjustment based on Bancorp’s evaluation of the acquired loan portfolio and to eliminate King’s recorded allowance. | | c. | Reflects the fair value adjustment based on Bancorp’s evaluation of the premises and equipment acquired. |
| d. | Reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition. | | e. | Reflects the fair value adjustment based upon Bancorp’s evaluation of the foreclosed real estate acquired. | | f. | Reflects the write-off of a miscellaneous other asset. |
| g. | Reflects the fair value adjustment based on the Company’s evaluation of the assumed time deposits. | | h. | Reflects the fair value adjustment based upon Bancorp’s evaluation of the assumed FHLB advances. Goodwill of approximately $12 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, is expected to be recorded in the King acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Commercial Banking segment and is not expected to be deductible for tax purposes. 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 King acquisition will change. As a result of the King transaction, and based upon the proximity to existing branch locations, Bancorp expects to sell three acquired branch buildings in the third quarter of 2019, while retaining the associated customer relationships. These branches are considered held available for sale as of June 30, 2019. If consummated, goodwill will be adjusted in that period. Revenue attributed to King totaled $1.6 million for the three and six months ended June 30, 2019. Prior year pro-forma financial statements were not presented due to the immateriality of the transaction. |
All of Bancorp’s securities are classified as available for sale. Amortized cost, unrealized gains and losses, and fair value of securities available-for-sale follows:follow: (In thousands) | | Amortized | | | Unrealized | | | Fair | | | Amortized | | | Unrealized | | | | | June 30, 2018 | | cost | | | Gains | | | Losses | | | value | | | June 30, 2019 | | | cost | | | Gains | | | Losses | | | Fair value | | | | | | | | | | | | | | | | | | | | Government sponsored enterprise obligations | | $ | 392,833 | | | $ | 31 | | | $ | (4,268 | ) | | $ | 388,596 | | | $ | 266,579 | | | $ | 1,755 | | | $ | (319 | ) | | $ | 268,015 | | Mortgage-backed securities - government agencies | | | 148,068 | | | | 110 | | | | (5,043 | ) | | | 143,135 | | | Mortgage backed securities - government agencies | | | 131,447 | | | 938 | | | (787 | ) | | 131,598 | | Obligations of states and political subdivisions | | | 42,876 | | | | 202 | | | | (239 | ) | | | 42,839 | | | | 23,854 | | | | 118 | | | | (6 | ) | | | 23,966 | | | | | | | | | | | | | | | | | | | | Total securities available for sale | | $ | 583,777 | | | $ | 343 | | | $ | (9,550 | ) | | $ | 574,570 | | | $ | 421,880 | | | $ | 2,811 | | | $ | (1,112 | ) | | $ | 423,579 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury and other U.S. Government obligations | | $ | 149,996 | | | $ | - | | | $ | (12 | ) | | $ | 149,984 | | | December 31, 2018 | | | | | | | | | | | | | | | | | | Government sponsored enterprise obligations | | | 214,852 | | | | 474 | | | | (1,482 | ) | | | 213,844 | | | 264,234 | | | 156 | | | (3,351 | ) | | 261,039 | | Mortgage-backed securities - government agencies | | | 163,571 | | | | 383 | | | | (2,447 | ) | | | 161,507 | | | Mortgage backed securities - government agencies | | | 149,748 | | | 282 | | | (3,753 | ) | | 146,277 | | Obligations of states and political subdivisions | | | 48,987 | | | | 365 | | | | (163 | ) | | | 49,189 | | | | 29,760 | | | | 107 | | | | (188 | ) | | | 29,679 | | | | | | | | | | | | | | | | | | | | Total securities available for sale | | $ | 577,406 | | | $ | 1,222 | | | $ | (4,104 | ) | | $ | 574,524 | | | $ | 443,742 | | | $ | 545 | | | $ | (7,292 | ) | | $ | 436,995 | |
At June 30, 2019 and December 31, 2018, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity. There were no gains or losses on sales or calls of securities classified as held to maturity as of June 30, 2018 or December 31, 2017. Bancorp sold no securities duringfor the three or -month and six month periods ending June 30, 2018 2019 or 2017.
Stock Yards Bancorp, inc. and subsidiary
2018. Securities owned by King, totaling $12.4 million, were sold immediately following the acquisition with no gain or loss realized in the income statement. A summary of the available-for-sale investment securities available for sale by contractual maturity groupings as of June 30, 2018 is shown below.follows: (In thousands) | | | | | | | Securities available-for-sale | | Amortized cost | | | Fair value | | | | | | | | | | | Due within 1 year | | $ | 221,824 | | | $ | 221,798 | | Due after 1 but within 5 years | | | 95,466 | | | | 93,884 | | Due after 5 but within 10 years | | | 9,722 | | | | 9,434 | | Due after 10 years | | | 108,697 | | | | 106,319 | | Mortgage-backed securities – government agencies | | | 148,068 | | | | 143,135 | | | | | | | | | | | Total securities available-for-sale | | $ | 583,777 | | | $ | 574,570 | |
(In thousands) | | Amortized cost | | | Fair value | | | | | | | | | | | Due within 1 year | | $ | 132,158 | | | $ | 132,133 | | Due after 1 year but within 5 years | | | 56,040 | | | | 56,033 | | Due after 5 years but within 10 years | | | 7,157 | | | | 7,232 | | Due after 10 years | | | 95,078 | | | | 96,583 | | Mortgage backed securities - government agencies | | | 131,447 | | | | 131,598 | | Total securities available for sale | | $ | 421,880 | | | $ | 423,579 | |
Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations.obligations with or without prepayment penalties. The investment portfolio includes agency mortgage-backedmortgage backed securities, which are guaranteed by agencies such as the FHLMC, FNMA,Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), and GNMA.Government National Mortgage Association (“GNMA”). These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral. Bancorp pledges portions of its investment securities portfolio to secure public fund deposits, cash balances of uninsured portions of wealth management and trust accounts, and securities sold under agreements to repurchase. TheSecurities with a carrying value of these$336.5 million and $355.1 million were pledged securities was approximately $326.2 million at June 30, 2018 2019 and $384.7 million at December 31, 2017.2018, respectively, to secure accounts of commercial depositors in cash management accounts, public deposits, and uninsured cash balances for WM&T accounts.
Securities with unrealized losses at June 30, 2018 2019 and December 31, 2017, not recognized2018, aggregated by investment category and length of time securities have been in the statements of income are asa continuous unrealized loss position follows: (In thousands) | | Less than 12 months | | | 12 months or more | | | Total | | | Less than 12 months | | | 12 months or more | | | Total | | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | | | | | | | | | | | | | June 30, 2018 | | value | | | losses | | | value | | | losses | | | value | | | losses | | | | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | June 30, 2019 | | | value | | | losses | | | value | | | losses | | | value | | | losses | | | | | Government sponsored enterprise obligations | | $ | 338,170 | | | $ | (3,061 | ) | | $ | 41,051 | | | $ | (1,207 | ) | | $ | 379,221 | | | $ | (4,268 | ) | | $ | — | | | $ | — | | | $ | 57,505 | | | $ | (319 | ) | | $ | 57,505 | | | $ | (319 | ) | Mortgage-backed securities - government agencies | | | 75,738 | | | | (1,952 | ) | | | 60,124 | | | | (3,091 | ) | | | 135,862 | | | | (5,043 | ) | | — | | | — | | | 82,088 | | | (787 | ) | | 82,088 | | | (787 | ) | Obligations of states and political subdivisions | | | 19,840 | | | | (165 | ) | | | 5,243 | | | | (74 | ) | | | 25,083 | | | | (239 | ) | | | — | | | | — | | | | 6,485 | | | | (6 | ) | | | 6,485 | | | | (6 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Total temporarily impaired securities | | $ | 433,748 | | | $ | (5,178 | ) | | $ | 106,418 | | | $ | (4,372 | ) | | $ | 540,166 | | | $ | (9,550 | ) | | $ | — | | | $ | — | | | $ | 146,078 | | | $ | (1,112 | ) | | $ | 146,078 | | | $ | (1,112 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury and U.S. obligations | | $ | 149,984 | | | $ | (12 | ) | | $ | - | | | $ | - | | | $ | 149,984 | | | $ | (12 | ) | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | Government sponsored enterprise obligations | | | 95,139 | | | | (586 | ) | | | 49,870 | | | | (896 | ) | | | 145,009 | | | | (1,482 | ) | | 96,740 | | | (38 | ) | | 149,320 | | | (3,313 | ) | | 246,060 | | | (3,351 | ) | Mortgage-backed securities - government agencies | | | 69,290 | | | | (440 | ) | | | 67,047 | | | | (2,007 | ) | | | 136,337 | | | | (2,447 | ) | | 3,108 | | | (5 | ) | | 120,848 | | | (3,748 | ) | | 123,956 | | | (3,753 | ) | Obligations of states and political subdivisions | | | 22,366 | | | | (107 | ) | | | 5,064 | | | | (56 | ) | | | 27,430 | | | | (163 | ) | | | 814 | | | | (1 | ) | | | 17,639 | | | | (187 | ) | | | 18,453 | | | | (188 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Total temporarily impaired securities | | $ | 336,779 | | | $ | (1,145 | ) | | $ | 121,981 | | | $ | (2,959 | ) | | $ | 458,760 | | | $ | (4,104 | ) | | $ | 100,662 | | | $ | (44 | ) | | $ | 287,807 | | | $ | (7,248 | ) | | $ | 388,469 | | | $ | (7,292 | ) |
Applicable dates for determining when securities are in an unrealized loss position are June 30, 2018 2019 and December 31, 2017. 2018. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past twelve months, but is not in the “Investments with an Unrealized Loss of less“Less than 12 months” category above. Unrealized losses on Bancorp’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is due to changes in the prevailing interest rate environment since the purchase date. Fair value is expected to recover as securities reach their maturity date and/or the interest rate environment returns to conditions similar to when these securities were purchased. These investments consist of 13261 and 117 separate investment positions as of June 30, 2018 2019 and December 31, 2017, 2018, respectively. Because management does not intend to sell the investments,securities, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at June 30, 2018.2019. FHLBThe term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for the anticipated credit losses.
Federal Home Loan Bank of Cincinnati (“FHLB”) stock is an investment held by Bancorp which is not readily marketable and is carried at cost adjusted for identified impairment. No impairment was indicated as of June 30, 2018.Impairment is evaluated on an annual basis in the fourth quarter. Holdings of Federal Home Loan Bank of Cincinnati (FHLB)FHLB stock are required for access to FHLB borrowing.advances. Stock Yards Bancorp, inc. and subsidiary
Composition of loans, net of deferred fees and costs, by primary loan portfolio class follows: (In thousands) | | June 30, 2018 | | | December 31, 2017 | | Commercial and industrial | | $ | 855,015 | | | $ | 779,014 | | Construction and development, excluding undeveloped land | | | 216,068 | | | | 195,912 | | Undeveloped land | | | 22,156 | | | | 18,988 | | | | | | | | | | | Real estate mortgage: | | | | | | | | | Commercial investment | | | 622,777 | | | | 594,902 | | Owner occupied commercial | | | 420,999 | | | | 398,685 | | 1-4 family residential | | | 277,735 | | | | 262,110 | | Home equity - first lien | | | 53,257 | | | | 57,110 | | Home equity - junior lien | | | 66,323 | | | | 63,981 | | Subtotal: Real estate mortgage | | | 1,441,091 | | | | 1,376,788 | | | | | | | | | | | Consumer | | | 43,630 | | | | 38,868 | | | | | | | | | | | Total loans | | $ | 2,577,960 | | | $ | 2,409,570 | |
Stock Yards Bancorp, inc. and subsidiary
The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of June 30, 2018 and December 31, 2017.
(In thousands) | | Type of loan | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development | | | | | | | | | | | | | | | | | | | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | June 30, 2018 | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | $ | 855,015 | | | $ | 216,068 | | | $ | 22,156 | | | $ | 1,441,091 | | | $ | 43,630 | | | $ | 2,577,960 | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans collectively evaluated for impairment | | $ | 852,566 | | | $ | 215,688 | | | $ | 21,682 | | | $ | 1,437,155 | | | $ | 43,630 | | | $ | 2,570,721 | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans individually evaluated for impairment | | $ | 2,449 | | | $ | 380 | | | $ | 474 | | | $ | 3,936 | | | $ | - | | | $ | 7,239 | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans acquired with deteriorated credit quality | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development | | | | | | | | | | | | | | | | | | | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | $ | 11,276 | | | $ | 1,724 | | | $ | 521 | | | $ | 11,012 | | | $ | 352 | | | $ | 24,885 | | Provision (credit) | | | 2,769 | | | | 214 | | | | (20 | ) | | | (1,104 | ) | | | 111 | | | | 1,970 | | Charge-offs | | | (1,939 | ) | | | - | | | | - | | | | - | | | | (236 | ) | | | (2,175 | ) | Recoveries | | | 12 | | | | - | | | | - | | | | 6 | | | | 175 | | | | 193 | | At June 30, 2018 | | $ | 12,118 | | | $ | 1,938 | | | $ | 501 | | | $ | 9,914 | | | $ | 402 | | | $ | 24,873 | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans collectively evaluated for impairment | | $ | 11,769 | | | $ | 1,938 | | | $ | 501 | | | $ | 9,586 | | | $ | 402 | | | $ | 24,196 | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans individually evaluated for impairment | | $ | 349 | | | $ | - | | | $ | - | | | $ | 328 | | | $ | - | | | $ | 677 | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans acquired with deteriorated credit quality | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Stock Yards Bancorp, inc. and subsidiary
(In thousands) | | Type of loan | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development | | | | | | | | | | | | | | | | | | | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | December 31, 2017 | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | $ | 779,014 | | | $ | 195,912 | | | $ | 18,988 | | | $ | 1,376,788 | | | $ | 38,868 | | | $ | 2,409,570 | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans collectively evaluated for impairment | | $ | 777,838 | | | $ | 195,248 | | | $ | 18,514 | | | $ | 1,371,246 | | | $ | 38,868 | | | $ | 2,401,714 | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans individually evaluated for impairment | | $ | 1,176 | | | $ | 664 | | | $ | 474 | | | $ | 5,066 | | | $ | - | | | $ | 7,380 | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans acquired with deteriorated credit quality | | $ | - | | | $ | - | | | $ | - | | | $ | 476 | | | $ | - | | | $ | 476 | |
| | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development | | | | | | | | | | | | | | | | | | | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | $ | 10,483 | | | $ | 1,923 | | | $ | 684 | | | $ | 10,573 | | | $ | 344 | | | $ | 24,007 | | Provision (credit) | | | 2,373 | | | | (199 | ) | | | (163 | ) | | | 383 | | | | 156 | | | | 2,550 | | Charge-offs | | | (1,782 | ) | | | - | | | | - | | | | (98 | ) | | | (549 | ) | | | (2,429 | ) | Recoveries | | | 202 | | | | - | | | | - | | | | 154 | | | | 401 | | | | 757 | | At December 31, 2017 | | $ | 11,276 | | | $ | 1,724 | | | $ | 521 | | | $ | 11,012 | | | $ | 352 | | | $ | 24,885 | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans collectively evaluated for impairment | | $ | 11,242 | | | $ | 1,724 | | | $ | 521 | | | $ | 10,998 | | | $ | 352 | | | $ | 24,837 | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans individually evaluated for impairment | | $ | 34 | | | $ | - | | | $ | - | | | $ | 14 | | | $ | - | | | $ | 48 | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans acquired with deteriorated credit quality | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
The considerations by Bancorp in computing its allowance for loan losses are determined based on the various risk characteristics of each loan segment. Relevant risk characteristics are as follows:
(In thousands) | | June 30, 2019 | | | December 31, 2018 | | | | | | | | | | | Commercial and industrial | | $ | 860,085 | | | $ | 833,524 | | Construction and development, excluding undeveloped land(1) | | | 222,632 | | | | 225,050 | | Undeveloped land | | | 35,169 | | | | 30,092 | | | | | | | | | | | Real estate mortgage: | | | | | | | | | Commercial investment | | | 696,421 | | | | 588,610 | | Owner occupied commercial | | | 452,719 | | | | 426,373 | | 1-4 family residential | | | 338,957 | | | | 276,017 | | Home equity - first lien | | | 46,012 | | | | 49,500 | | Home equity - junior lien | | | 67,948 | | | | 70,947 | | Subtotal: Real estate mortgage | | | 1,602,057 | | | | 1,411,447 | | | | | | | | | | | Consumer | | | 43,937 | | | | 48,058 | | Total loans(2) | | $ | 2,763,880 | | | $ | 2,548,171 | |
| ●
| Commercial and industrial loans: Loans in this category are made to businesses. Generally these loans are secured by assets(1) Consists of the business and repayment is expected from cash flows of the business. A decline in the strength of the business or a weakened economy and resultant decreased consumer and/or business spending may have an effect on the credit quality in this loan category.
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| ●
| Construction and development, excluding undeveloped land: Loans in this category primarily include owner-occupied and investment construction loans and commercial development projects. In most cases, construction loans require only interest to be paid during construction. Upon completion or stabilization, the construction loans generally convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing, to the extent such permanent financing is not being provided by Bancorp.
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Stock Yards Bancorp, inc. and subsidiary
| ●
| Undeveloped land: Loans in this category are secured by land acquired for development by the borrower, but for which no development has yet taken place. Credit risk is primarily dependent upon the financial strengthplace.
| (2) Total loans are presented inclusive of the borrower, but can also be affected by market conditionspremiums, discounts, and time to sell lots at an adequate price in the future. Credit risk is also affected by availability of permanent financing, including to the end user, to the extent such permanent financing is not being provided by Bancorp. |
| ●net loan origination fees and costs.
| Real estate mortgage: Loans in this category are made to and secured by owner-occupied residential real estate, owner-occupied real estate used for business purposes, and income-producing investment properties. For owner occupied residential and owner-occupied commercial real estate, repayment is dependent on financial strength of the borrower. For income-producing investment properties, repayment is dependent on financial strength of tenants, and to a lesser extent the borrowers’ financial strength, once the project is stabilized. Underlying properties are generally located in Bancorp's primary market area. Cash flows of income producing investment properties may be adversely impacted by a downturn in the economy as reflected in increased vacancy rates, which in turn, will have an effect on credit quality and property values. Overall health of the economy, including unemployment rates and real estate prices, has an effect on credit quality in this loan category.
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| ●
| Consumer: Loans in this category may be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, adequacy of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates as well as home and securities prices, will have a significant effect on credit quality in this loan category.
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Stock Yards Bancorp, inc. and subsidiary
The following tables presentLoans to directors and their related interests, including loans individually evaluatedto companies for impairmentwhich directors are principal owners and executive officers totaled $53.7 million and $52.7 million, as of June 30, 2018 2019 and December 31, 2017.
(In thousands) | | | | | | Unpaid | | | | | | | Average | | | | Recorded | | | principal | | | Related | | | recorded | | June 30, 2018 | | investment | | | balance | | | allowance | | | investment | | | | | | | | | | | | | | | | | | | Loans with no related allowance recorded: | | | | | | | | | | | | | | Commercial and industrial | | $ | 238 | | | $ | 321 | | | $ | - | | | $ | 531 | | Construction and development, excluding undeveloped land | | | 380 | | | | 550 | | | | - | | | | 571 | | Undeveloped land | | | 474 | | | | 506 | | | | - | | | | 474 | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | Commercial investment | | | - | | | | - | | | | - | | | | 17 | | Owner occupied commercial | | | 1,232 | | | | 1,690 | | | | - | | | | 2,667 | | 1-4 family residential | | | 1,107 | | | | 1,128 | | | | - | | | | 1,446 | | Home equity - first lien | | | - | | | | - | | | | - | | | | - | | Home equity - junior lien | | | 5 | | | | 5 | | | | - | | | | 22 | | Subtotal: Real estate mortgage | | | 2,344 | | | | 2,823 | | | | - | | | | 4,152 | | | | | | | | | | | | | | | | | | | Consumer | | | - | | | | - | | | | - | | | | 30 | | Subtotal | | $ | 3,436 | | | $ | 4,200 | | | $ | - | | | $ | 5,758 | | | | | | | | | | | | | | | | | | | Loans with an allowance recorded: | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 2,211 | | | $ | 3,389 | | | $ | 349 | | | $ | 2,061 | | Construction and development, excluding undeveloped land | | | - | | | | - | | | | - | | | | - | | Undeveloped land | | | - | | | | - | | | | - | | | | 32 | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | Commercial investment | | | - | | | | - | | | | - | | | | - | | Owner occupied commercial | | | 1,578 | | | | 1,578 | | | | 314 | | | | 1,097 | | 1-4 family residential | | | 14 | | | | 14 | | | | 14 | | | | 14 | | Home equity - first lien | | | - | | | | - | | | | - | | | | - | | Home equity - junior lien | | | - | | | | - | | | | - | | | | - | | Subtotal: Real estate mortgage | | | 1,592 | | | | 1,592 | | | | 328 | | | | 1,111 | | | | | | | | | | | | | | | | | | | Consumer | | | - | | | | - | | | | - | | | | - | | Subtotal | | $ | 3,803 | | | $ | 4,981 | | | $ | 677 | | | $ | 3,204 | | | | | | | | | | | | | | | | | | | Total: | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 2,449 | | | $ | 3,710 | | | $ | 349 | | | $ | 2,592 | | Construction and development, excluding undeveloped land | | | 380 | | | | 550 | | | | - | | | | 571 | | Undeveloped land | | | 474 | | | | 506 | | | | - | | | | 506 | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | Commercial investment | | | - | | | | - | | | | - | | | | 17 | | Owner occupied commercial | | | 2,810 | | | | 3,268 | | | | 314 | | | | 3,764 | | 1-4 family residential | | | 1,121 | | | | 1,142 | | | | 14 | | | | 1,460 | | Home equity - first lien | | | - | | | | - | | | | - | | | | - | | Home equity - junior lien | | | 5 | | | | 5 | | | | - | | | | 22 | | Subtotal: Real estate mortgage | | | 3,936 | | | | 4,415 | | | | 328 | | | | 5,263 | | | | | | | | | | | | | | | | | | | Consumer | | | - | | | | - | | | | - | | | | 30 | | Total | | $ | 7,239 | | | $ | 9,181 | | | $ | 677 | | | $ | 8,962 | |
Stock Yards Bancorp, inc. and subsidiary2018, respectively.
(In thousands) | | | | | | Unpaid | | | | | | | Average | | | | Recorded | | | principal | | | Related | | | recorded | | December 31, 2017 | | investment | | | balance | | | allowance | | | investment | | | | | | | | | | | | | | | | | | | Loans with no related allowance recorded: | | | | | | | | | | | | | | Commercial and industrial | | $ | 1,142 | | | $ | 2,202 | | | $ | - | | | $ | 411 | | Construction and development, excluding undeveloped land | | | 664 | | | | 834 | | | | - | | | | 559 | | Undeveloped land | | | 474 | | | | 506 | | | | - | | | | 425 | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | Commercial investment | | | 52 | | | | 53 | | | | - | | | | 110 | | Owner occupied commercial | | | 3,332 | | | | 3,789 | | | | - | | | | 1,678 | | 1-4 family residential | | | 1,637 | | | | 1,657 | | | | - | | | | 935 | | Home equity - first lien | | | - | | | | - | | | | - | | | | - | | Home equity - junior lien | | | 31 | | | | 31 | | | | - | | | | 186 | | Subtotal: Real estate mortgage | | | 5,052 | | | | 5,530 | | | | - | | | | 2,909 | | | | | | | | | | | | | | | | | | | Consumer | | | - | | | | - | | | | - | | | | - | | Subtotal | | $ | 7,332 | | | $ | 9,072 | | | $ | - | | | $ | 4,304 | | | | | | | | | | | | | | | | | | | Loans with an allowance recorded: | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 34 | | | $ | 34 | | | $ | 34 | | | $ | 1,882 | | Construction and development, excluding undeveloped land | | | - | | | | - | | | | - | | | | - | | Undeveloped land | | | - | | | | - | | | | - | | | | 48 | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | Commercial investment | | | - | | | | - | | | | - | | | | - | | Owner occupied commercial | | | - | | | | - | | | | - | | | | - | | 1-4 family residential | | | 14 | | | | 14 | | | | 14 | | | | 5 | | Home equity - first lien | | | - | | | | - | | | | - | | | | - | | Home equity - junior lien | | | - | | | | - | | | | - | | | | - | | Subtotal: Real estate mortgage | | | 14 | | | | 14 | | | | 14 | | | | 5 | | | | | | | | | | | | | | | | | | | Consumer | | | - | | | | - | | | | - | | | | 46 | | Subtotal | | $ | 48 | | | $ | 48 | | | $ | 48 | | | $ | 1,981 | | | | | | | | | | | | | | | | | | | Total: | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 1,176 | | | $ | 2,236 | | | $ | 34 | | | $ | 2,293 | | Construction and development, excluding undeveloped land | | | 664 | | | | 834 | | | | - | | | | 559 | | Undeveloped land | | | 474 | | | | 506 | | | | - | | | | 473 | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | - | | | | - | | | | - | | | | - | | Commercial investment | | | 52 | | | | 53 | | | | - | | | | 110 | | Owner occupied commercial | | | 3,332 | | | | 3,789 | | | | - | | | | 1,678 | | 1-4 family residential | | | 1,651 | | | | 1,671 | | | | 14 | | | | 940 | | Home equity - first lien | | | - | | | | - | | | | - | | | | - | | Home equity - junior lien | | | 31 | | | | 31 | | | | - | | | | 186 | | Subtotal: Real estate mortgage | | | 5,066 | | | | 5,544 | | | | 14 | | | | 2,914 | | | | | | | | | | | | | | | | | | | Consumer | | | - | | | | - | | | | - | | | | 46 | | Total | | $ | 7,380 | | | $ | 9,120 | | | $ | 48 | | | $ | 6,285 | |
Differences between recorded investment amounts and unpaid principal balance amounts less related allowance are due to partial charge-offs which have occurred over the life of certain loans.
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 $134 thousand past due more than 90 days and still accruing interest at June 30, 2018, compared with $2 thousand at December 31, 2017, and $231 thousand at June 30, 2017.
Stock Yards Bancorp, inc. and subsidiary
The following table presents the recorded investment in non-accrual loans as of June 30, 2018 and December 31, 2017.
(In thousands) | | June 30, 2018 | | | December 31, 2017 | | | | | | | | | | | Commercial and industrial | | $ | 1,646 | | | $ | 321 | | Construction and development, excluding undeveloped land | | | 380 | | | | 664 | | Undeveloped land | | | 474 | | | | 474 | | | | | | | | | | | Real estate mortgage | | | | | | | | | Commercial investment | | | - | | | | 52 | | Owner occupied commercial | | | 2,809 | | | | 3,332 | | 1-4 family residential | | | 1,108 | | | | 1,637 | | Home equity - first lien | | | - | | | | - | | Home equity - junior lien | | | 5 | | | | 31 | | Subtotal: Real estate mortgage | | | 3,922 | | | | 5,052 | | | | | | | | | | | Consumer | | | - | | | | - | | | | | | | | | | | Total | | $ | 6,422 | | | $ | 6,511 | |
In the course of working with borrowers, Bancorp may elect to restructure the contractual terms of certain loans. Troubled debt restructurings (TDRs) occur when, for economic, legal, or other reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would not otherwise consider.
At June 30, 2018 and December 31, 2017, Bancorp had $817 thousand and $869 thousand of accruing loans classified as TDRs, respectively. Bancorp did not modify and classify any additional loans as TDRs during the three-month or six-month periods ended June 30, 2018. No loans were modified and classified as TDRs during the three-month period ended June 30, 2017. One commercial loan, with a recorded investment of $37,000 at June 30, 2017 was modified and classified as a TDR in the six-month period ended June 30, 2017. The pre and post-modification balance for this loan was $39,000. The monthly payment amount of this loan was modified to enable the borrower to fulfill the loan agreement. A specific reserve was established for the entire recorded investment of this loan.
No loans classified and reported as troubled debt restructured within the twelve months prior to June 30, 2018 defaulted during the three or six month periods ended June 30, 2018. Loans accounted for as TDRs include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties. Loans accounted for as TDRs are individually evaluated for impairment and, at June 30, 2018, had a total allowance allocation of $83 thousand, compared with $48 thousand at December 31, 2017.
At June 30, 2018 and December 31, 2017, Bancorp did not have any outstanding commitments to lend additional funds to borrowers whose loans have been modified as TDRs.
Stock Yards Bancorp, inc. and subsidiary
At June 30, 2018 formal foreclosure proceedings were in process on five consumer mortgage loans with a total recorded investment of $551 thousand, all secured by residential real estate properties. The recorded investments for these properties ranged from $30 thousand to $350 thousand, and these loans were reported as non-accrual as of June 30, 2018. As of December 31, 2017, formal foreclosure proceedings were in process for two loans with a total recorded investment of $62 thousand.
The following table presentssummarizes loans acquired in the aging ofKing acquisition based upon valuation method: | | May 1, 2019 | | | | Contractual | | | Non-accretable | | | Accretable | | | Acquisition-day | | (In thousands) | | receivable | | | amount | | | amount | | | fair value | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 8,249 | | | $ | — | | | $ | (23 | ) | | $ | 8,226 | | Construction and development | | | 10,764 | | | | — | | | | 43 | | | | 10,807 | | Raw Land | | | 7,974 | | | | — | | | | 43 | | | | 8,017 | | Real estate mortgage: | | | | | | | | | | | | | | | | | Commercial real estate | | | 84,219 | | | | — | | | | (408 | ) | | | 83,811 | | 1-4 family residential | | | 50,556 | | | | — | | | | 322 | | | | 50,878 | | Home equity - first lien | | | 196 | | | | — | | | | 3 | | | | 199 | | Home equity - junior lien | | | 679 | | | | — | | | | 5 | | | | 684 | | Subtotal: Real estate mortgage | | | 135,650 | | | | — | | | | (78 | ) | | | 135,572 | | | | | | | | | | | | | | | | | | | Consumer | | | 1,528 | | | | — | | | | (3 | ) | | | 1,525 | | | | | | | | | | | | | | | | | | | Total loans ASC 310-20 | | | 164,165 | | | | — | | | | (18 | ) | | | 164,147 | | | | | | | | | | | | | | | | | | | Commercial and industrial | | | | | | | | | | | | | | | | | Construction and development | | | — | | | | — | | | | — | | | | — | | Raw Land | | | — | | | | — | | | | — | | | | — | | Real estate mortgage: | | | | | | | | | | | | | | | | | Commercial real estate | | | 1,351 | | | | (1,351 | ) | | | — | | | | — | | 1-4 family residential | | | 228 | | | | (228 | ) | | | — | | | | — | | Home equity - first lien | | | — | | | | — | | | | — | | | | — | | Home equity - junior lien | | | — | | | | — | | | | — | | | | — | | Subtotal: Real estate mortgage | | | 1,579 | | | | (1,579 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | Consumer | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total loans ASC 310 purchased- credit-impaired loans | | | 1,579 | | | | (1,579 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total loans | | $ | 165,744 | | | $ | (1,579 | ) | | $ | (18 | ) | | $ | 164,147 | |
Purchased-Credit-Impaired (“PCI”) Loans The Bank acquired PCI loans on May 1, 2019 in its King acquisition and during the recorded investment in loans as of June 30, 2018 and year ended December 31, 2017.2012 in the TBOC acquisition. PCI loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Management utilized the following PCI criteria for the May 1, 2019 King acquisition: ● Loans assigned a non-accretable mark ● Loans classified as substandard, doubtful or loss ● Loans classified as non-accrual when acquired ● Loans past due 90 days or more when acquired | | | | | | | | | | | | | | | | | | | | | | | | | | Recorded | | (In thousands) | | | | | | | | | | | | | | 90 or more | | | | | | | | | | | investment | | | | | | | | | | | | | | | | days past | | | | | | | | | | | > 90 days | | | | | | | | 30-59 days | | | 60-89 days | | | due (includes) | | | Total | | | Total | | | and | | June 30, 2018 | | Current | | | past due | | | past due | | | non-accrual) | | | past due | | | loans | | | accruing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 852,845 | | | $ | 524 | | | $ | - | | | $ | 1,646 | | | $ | 2,170 | | | $ | 855,015 | | | $ | - | | Construction and development, excluding undeveloped land | | | 215,688 | | | | - | | | | - | | | | 380 | | | | 380 | | | | 216,068 | | | | - | | Undeveloped land | | | 21,682 | | | | - | | | | - | | | | 474 | | | | 474 | | | | 22,156 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 619,370 | | | | 3,407 | | | | - | | | | - | | | | 3,407 | | | | 622,777 | | | | - | | Owner occupied commercial | | | 417,474 | | | | 716 | | | | - | | | | 2,809 | | | | 3,525 | | | | 420,999 | | | | - | | 1-4 family residential | | | 274,980 | | | | 954 | | | | 559 | | | | 1,242 | | | | 2,755 | | | | 277,735 | | | | 134 | | Home equity - first lien | | | 53,015 | | | | 242 | | | | - | | | | - | | | | 242 | | | | 53,257 | | | | - | | Home equity - junior lien | | | 65,978 | | | | 241 | | | | 99 | | | | 5 | | | | 345 | | | | 66,323 | | | | - | | Subtotal: Real estate mortgage | | | 1,430,817 | | | | 5,560 | | | | 658 | | | | 4,056 | | | | 10,274 | | | | 1,441,091 | | | | 134 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | 43,626 | | | | 1 | | | | 3 | | | | - | | | | 4 | | | | 43,630 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,564,658 | | | $ | 6,085 | | | $ | 661 | | | $ | 6,556 | | | $ | 13,302 | | | $ | 2,577,960 | | | $ | 134 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 776,118 | | | $ | 2,571 | | | $ | 4 | | | $ | 321 | | | $ | 2,896 | | | $ | 779,014 | | | $ | - | | Construction and development, excluding undeveloped land | | | 194,936 | | | | - | | | | 312 | | | | 664 | | | | 976 | | | | 195,912 | | | | - | | Undeveloped land | | | 18,514 | | | | - | | | | - | | | | 474 | | | | 474 | | | | 18,988 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 594,242 | | | | 608 | | | | - | | | | 52 | | | | 660 | | | | 594,902 | | | | - | | Owner occupied commercial | | | 394,623 | | | | 455 | | | | 275 | | | | 3,332 | | | | 4,062 | | | | 398,685 | | | | - | | 1-4 family residential | | | 259,994 | | | | 172 | | | | 307 | | | | 1,637 | | | | 2,116 | | | | 262,110 | | | | - | | Home equity - first lien | | | 56,938 | | | | 172 | | | | - | | | | - | | | | 172 | | | | 57,110 | | | | - | | Home equity - junior lien | | | 63,667 | | | | 87 | | | | 194 | | | | 33 | | | | 314 | | | | 63,981 | | | | 2 | | Subtotal: Real estate mortgage | | | 1,369,464 | | | | 1,494 | | | | 776 | | | | 5,054 | | | | 7,324 | | | | 1,376,788 | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | 38,699 | | | | 86 | | | | 83 | | | | - | | | | 169 | | | | 38,868 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,397,731 | | | $ | 4,151 | | | $ | 1,175 | | | $ | 6,513 | | | $ | 11,839 | | | $ | 2,409,570 | | | $ | 2 | |
Stock Yards Bancorp, inc.
The following table reconciles the contractually required and subsidiarycarrying amounts of all PCI loans: In thousands | | June 30, 2019 | | | December 31, 2018 | | | | | | | | | | | Contractually-required principal | | $ | 1,864 | | | $ | 432 | | Non-accretable amount | | | (1,577 | ) | | | — | | Accretable amount | | | (57 | ) | | | (68 | ) | Carrying value of loans | | $ | 230 | | | $ | 364 | |
The following table presents a rollforward of the accretable amount on all PCI loans: | | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | Balance, beginning of period | | $ | (62 | ) | | $ | (95 | ) | | $ | (68 | ) | | $ | (106 | ) | Transfers between non-accretable and accretable | | | — | | | | — | | | | — | | | | — | | Net accretion into interest income on loans, including loan fees | | | 5 | | | | 10 | | | | 11 | | | | 21 | | Generated from acquisition of King | | | — | | | | — | | | | — | | | | — | | Balance, end of period | | $ | (57 | ) | | $ | (85 | ) | | $ | (57 | ) | | $ | (85 | ) |
Consistent with regulatory guidance, Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans included all risk-rated loans other than those classified as other assets especially mentioned, substandard, and doubtful, which are defined below: | ● | Other assets especially mentioned (“OAEM”): Loans classified as OAEM have potential weaknesses that deserve management's close attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp's credit position at some future date. |
| ● | 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 a well-defined weakness or weaknesses that jeopardize ultimate repayment of the debt. Default is a distinct possibility if the deficiencies are not corrected. |
| ● | 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 troubled debt restructurings. 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. While on non-accrual status, payments of interest are applied to reduce the recorded investment in the loan. |
| ● | Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as doubtful have allsubstandard, with the added characteristic that 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 Yards Bancorp, inc. and subsidiary
As of June 30, 2018 and December 31, 2017, the internallyInternally assigned risk grades of loans by loan portfolio class classification category were as follows:
(In thousands) | | | | | | | | | | | | | | Substandard | | | | | | | Total | | | | | | | | | | | | | | | Substandard | | | | | | Total | | June 30, 2018 | | Pass | | | OAEM | | | Substandard | | | non-performing | | | Doubtful | | | loans | | | June 30, 2019 | | | Pass | | | OAEM | | | Substandard | | | non-performing | | | Doubtful | | | loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 818,660 | | | $ | 21,166 | | | $ | 12,740 | | | $ | 2,449 | | | $ | - | | | $ | 855,015 | | | $ | 817,645 | | | $ | 23,907 | | | $ | 18,241 | | | $ | 292 | | | $ | — | | | $ | 860,085 | | Construction and development, excluding undeveloped land | | | 215,688 | | | | - | | | | - | | | | 380 | | | | - | | | | 216,068 | | | 222,632 | | | — | | | — | | | — | | | — | | | 222,632 | | Undeveloped land | | | 21,652 | | | | - | | | | 30 | | | | 474 | | | | - | | | | 22,156 | | | 35,169 | | | — | | | — | | | — | | | — | | | 35,169 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage: | | | | | | | | | | | | | | | Commercial investment | | | 619,939 | | | | 2,715 | | | | 123 | | | | - | | | | - | | | | 622,777 | | | 687,304 | | | 4,202 | | | 4,213 | | | 702 | | | — | | | 696,421 | | Owner occupied commercial | | | 403,998 | | | | 12,453 | | | | 1,738 | | | | 2,810 | | | | - | | | | 420,999 | | | 429,070 | | | 17,757 | | | 4,228 | | | 1,664 | | | — | | | 452,719 | | 1-4 family residential | | | 273,792 | | | | 1,858 | | | | 830 | | | | 1,255 | | | | - | | | | 277,735 | | | 336,312 | | | 1,686 | | | 159 | | | 800 | | | — | | | 338,957 | | Home equity - first lien | | | 53,257 | | | | - | | | | - | | | | - | | | | - | | | | 53,257 | | | 46,012 | | | — | | | — | | | — | | | — | | | 46,012 | | Home equity - junior lien | | | 65,843 | | | | 100 | | | | 375 | | | | 5 | | | | - | | | | 66,323 | | | | 67,236 | | | | 224 | | | | 18 | | | | 470 | | | | — | | | | 67,948 | | Subtotal: Real estate mortgage | | | 1,416,829 | | | | 17,126 | | | | 3,066 | | | | 4,070 | | | | - | | | | 1,441,091 | | | 1,565,934 | | | 23,869 | | | 8,618 | | | 3,636 | | | — | | | 1,602,057 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | 43,523 | | | | 107 | | | | - | | | | - | | | | - | | | | 43,630 | | | 43,937 | | | — | | | — | | | — | | | — | | | 43,937 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,516,352 | | | $ | 38,399 | | | $ | 15,836 | | | $ | 7,373 | | | $ | - | | | $ | 2,577,960 | | | $ | 2,685,317 | | | $ | 47,776 | | | $ | 26,859 | | | $ | 3,928 | | | $ | — | | | $ | 2,763,880 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 751,628 | | | $ | 12,032 | | | $ | 14,178 | | | $ | 1,176 | | | $ | - | | | $ | 779,014 | | | $ | 803,073 | | | $ | 11,516 | | | $ | 18,703 | | | $ | 232 | | | $ | — | | | $ | 833,524 | | Construction and development, excluding undeveloped land | | | 195,248 | | | | - | | | | - | | | | 664 | | | | - | | | | 195,912 | | | 220,532 | | | 4,200 | | | — | | | 318 | | | — | | | 225,050 | | Undeveloped land | | | 18,484 | | | | - | | | | 30 | | | | 474 | | | | - | | | | 18,988 | | | 29,618 | | | — | | | — | | | 474 | | | — | | | 30,092 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage: | | | | | | | | | | | | | | | Commercial investment | | | 591,232 | | | | 3,599 | | | | 19 | | | | 52 | | | | - | | | | 594,902 | | | 586,543 | | | 1,815 | | | 15 | | | 237 | | | — | | | 588,610 | | Owner occupied commercial | | | 383,455 | | | | 8,683 | | | | 3,215 | | | | 3,332 | | | | - | | | | 398,685 | | | 411,722 | | | 9,030 | | | 4,500 | | | 1,121 | | | — | | | 426,373 | | 1-4 family residential | | | 256,968 | | | | 2,477 | | | | 1,014 | | | | 1,651 | | | | - | | | | 262,110 | | | 273,537 | | | 1,544 | | | 162 | | | 774 | | | — | | | 276,017 | | Home equity - first lien | | | 57,110 | | | | - | | | | - | | | | - | | | | - | | | | 57,110 | | | 49,500 | | | — | | | — | | | — | | | — | | | 49,500 | | Home equity - junior lien | | | 63,471 | | | | 247 | | | | 230 | | | | 33 | | | | - | | | | 63,981 | | | | 70,437 | | | | 249 | | | | 19 | | | | 242 | | | | — | | | | 70,947 | | Subtotal: Real estate mortgage | | | 1,352,236 | | | | 15,006 | | | | 4,478 | | | | 5,068 | | | | - | | | | 1,376,788 | | | 1,391,739 | | | 12,638 | | | 4,696 | | | 2,374 | | | — | | | 1,411,447 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | 38,747 | | | | 117 | | | | 4 | | | | - | | | | - | | | | 38,868 | | | 48,058 | | | — | | | — | | | — | | | — | | | 48,058 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,356,343 | | | $ | 27,155 | | | $ | 18,690 | | | $ | 7,382 | | | $ | - | | | $ | 2,409,570 | | | $ | 2,493,020 | | | $ | 28,354 | | | $ | 23,399 | | | $ | 3,398 | | | $ | — | | | $ | 2,548,171 | |
Stock Yards Bancorp, inc. and subsidiary
The following table presents the activity in the allowance by loan portfolio class: | | Type of loan | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development, | | | | | | | | | | | | | | | | | | Three months ended | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | (In thousands) | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, April 1, 2019 | | $ | 11,762 | | | $ | 1,884 | | | $ | 662 | | | $ | 12,001 | | | $ | 155 | | | $ | 26,464 | | Provision (credit) | | | 92 | | | | (74 | ) | | | (61 | ) | | | 10 | | | | 33 | | | | - | | Charge-offs | | | — | | | | — | | | | — | | | | (13 | ) | | | (148 | ) | | | (161 | ) | Recoveries | | | 4 | | | | — | | | | — | | | | 32 | | | | 77 | | | | 113 | | Balance, June 30, 2019 | | $ | 11,858 | | | $ | 1,810 | | | $ | 601 | | | $ | 12,030 | | | $ | 117 | | | $ | 26,416 | |
| | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development, | | | | | | | | | | | | | | | | | | | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | (In thousands) | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, April 1, 2018 | | $ | 10,638 | | | $ | 2,020 | | | $ | 482 | | | $ | 10,707 | | | $ | 356 | | | $ | 24,203 | | Provision (credit) | | | 2,008 | | | | (82 | ) | | | 19 | | | | (795 | ) | | | 85 | | | | 1,235 | | Charge-offs | | | (530 | ) | | | — | | | | — | | | | — | | | | (117 | ) | | | (647 | ) | Recoveries | | | 2 | | | | — | | | | — | | | | 2 | | | | 78 | | | | 82 | | Balance, June 30, 2018 | | $ | 12,118 | | | $ | 1,938 | | | $ | 501 | | | $ | 9,914 | | | $ | 402 | | | $ | 24,873 | |
| | Type of loan | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development, | | | | | | | | | | | | | | | | | | Six months ended | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | (In thousands) | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2019 | | $ | 11,965 | | | $ | 1,760 | | | $ | 752 | | | $ | 10,681 | | | $ | 376 | | | $ | 25,534 | | Provision (credit) | | | (210 | ) | | | (153 | ) | | | (151 | ) | | | 1,310 | | | | (196 | ) | | | 600 | | Charge-offs | | | (3 | ) | | | — | | | | — | | | | (13 | ) | | | (244 | ) | | | (260 | ) | Recoveries | | | 106 | | | | 203 | | | | — | | | | 52 | | | | 181 | | | | 542 | | Balance, June 30, 2019 | | $ | 11,858 | | | $ | 1,810 | | | $ | 601 | | | $ | 12,030 | | | $ | 117 | | | $ | 26,416 | |
| | | | | | Construction | | | | | | | | | | | | | | | | | | | | | | | | and development, | | | | | | | | | | | | | | | | | | | | Commercial | | | excluding | | | | | | | | | | | | | | | | | | | | and | | | undeveloped | | | Undeveloped | | | Real estate | | | | | | | | | | (In thousands) | | industrial | | | land | | | land | | | mortgage | | | Consumer | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2018 | | $ | 11,276 | | | $ | 1,724 | | | $ | 521 | | | $ | 11,012 | | | $ | 352 | | | $ | 24,885 | | Provision (credit) | | | 2,769 | | | | 214 | | | | (20 | ) | | | (1,104 | ) | | | 111 | | | | 1,970 | | Charge-offs | | | (1,939 | ) | | | — | | | | — | | | | — | | | | (236 | ) | | | (2,175 | ) | Recoveries | | | 12 | | | | — | | | | — | | | | 6 | | | | 175 | | | | 193 | | Balance, June 30, 2018 | | $ | 12,118 | | | $ | 1,938 | | | $ | 501 | | | $ | 9,914 | | | $ | 402 | | | $ | 24,873 | |
The considerations by Bancorp in computing its allowance are determined based on the various risk characteristics of each loan segment. Relevant risk characteristics are as follows: | (4)●
| GoodwillCommercial and Intangible Assetsindustrial: Loans in this category are made to businesses. Generally these loans are secured by assets of the business and repayment is expected from cash flows of the business. A decline in the strength of the business or a weakened economy and resultant decreased consumer and/or business spending may have an effect on the credit quality in this loan category.
|
| ● | Construction and development, excluding undeveloped land: Loans in this category primarily include owner-occupied and investment construction loans and commercial development projects. In most cases, construction loans require only interest to be paid during the construction period. Upon completion or stabilization, the construction loans generally convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing; to the extent such permanent financing is not being provided by Bancorp. |
| ● | Undeveloped land: Loans in this category are secured by land acquired for development by the borrower, but for which no development has yet taken place. Credit risk is primarily dependent upon the financial strength of the borrower, but can also be affected by market conditions and time to sell lots at an adequate price in the future. Credit risk is also affected by availability of permanent financing, including to the end user, to the extent such permanent financing is not being provided by Bancorp. |
| ● | Real estate mortgage: Loans in this category are made to and secured by owner-occupied residential real estate, owner-occupied real estate used for business purposes, and income-producing investment properties. Underlying properties are generally located in Bancorp's primary market areas. A decline in the strength of the borrower or a weakened economy may have an effect on the credit quality of this type of loan. For owner occupied residential and owner-occupied commercial real estate, repayment is dependent on financial strength of the borrower. For income-producing investment properties, repayment is dependent on financial strength of tenants, and to a lesser extent the borrowers’ financial strength, once the project is stabilized. Cash flows of income producing investment properties may be adversely impacted by a downturn in the economy as reflected by increased vacancy rates, which in turn, will have an effect on credit quality and property values. Overall health of the economy, including unemployment rates and real estate prices, has an effect on credit quality in this loan category. |
| ● | Consumer: Loans in this category may be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, adequacy of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates, as well as home and securities prices, will have a significant effect on credit quality in this loan category. |
USImpaired 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.
The following table presents the recorded investment in non-accrual loans: (In thousands) | | June 30, 2019 | | | December 31, 2018 | | | | | | | | | | | Commercial and industrial | | $ | 96 | | | $ | 192 | | Construction and development, excluding undeveloped land | | | — | | | | 318 | | Undeveloped land | | | — | | | | 474 | | | | | | | | | | | Real estate mortgage: | | | | | | | | | Commercial investment | | | 305 | | | | 138 | | Owner occupied commercial | | | 1,444 | | | | 586 | | 1-4 family residential | | | 715 | | | | 760 | | Home equity - first lien | | | — | | | | — | | Home equity - junior lien | | | 470 | | | | 143 | | Subtotal: Real estate mortgage | | | 2,934 | | | | 1,627 | | Consumer | | | — | | | | — | | Total non-accrual loans | | $ | 3,030 | | | $ | 2,611 | |
In the course of working with borrowers, Bancorp may elect to restructure the contractual terms of certain loans. TDRs occur when, for economic, legal, or other reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would not otherwise consider. Bancorp did not recognize new TDRs, nor did any TDRs default, in the three and six months periods ended June 30, 2019 and 2018. Detail of outstanding TDRs follows: | | June 30, 2019 | | | December 31, 2018 | | (In thousands) | | | | | | Specific | | | Additional | | | | | | | Specific | | | Additional | | | | | | | | reserve | | | commitment | | | | | | | reserve | | | commitment | | TDRs | | Balance | | | allocation | | | to lend | | | Balance | | | allocation | | | to lend | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 23 | | | $ | 23 | | | $ | — | | | $ | 28 | | | $ | 28 | | | $ | — | | 1-4 family residential | | | 14 | | | | 14 | | | | — | | | | 14 | | | | 14 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total TDRs | | $ | 37 | | | $ | 37 | | | $ | — | | | $ | 42 | | | $ | 42 | | | $ | — | |
As of June 30, 2019 formal foreclosure proceedings were in process on 1-4 family residential mortgage loans with a total recorded investment of $795 thousand, as compared with $528 thousand as of December 31, 2018. The following tables present the balance in the recorded investment in loans and allowance for loans by portfolio loan class and based on impairment evaluation method: (In thousands) | | Loans | | | Allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2019 | | Loans individually evaluated for impairment | | | Loans collectively evaluated for impairment | | | Loans acquired with deteriorated credit quality | | | Total loans | | | Loans individually evaluated for impairment | | | Loans collectively evaluated for impairment | | | Loans acquired with deteriorated credit quality | | | Total allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 119 | | | $ | 859,966 | | | $ | — | | | $ | 860,085 | | | $ | 23 | | | $ | 11,835 | | | $ | — | | | $ | 11,858 | | Construction and development, excluding undeveloped land | | | — | | | | 222,632 | | | | — | | | | 222,632 | | | | — | | | | 1,810 | | | | — | | | | 1,810 | | Undeveloped land | | | — | | | | 35,169 | | | | — | | | | 35,169 | | | | — | | | | 601 | | | | — | | | | 601 | | Real estate mortgage | | | 2,948 | | | | 1,599,109 | | | | — | | | | 1,602,057 | | | | 14 | | | | 12,016 | | | | — | | | | 12,030 | | Consumer | | | — | | | | 43,937 | | | | — | | | | 43,937 | | | | — | | | | 117 | | | | — | | | | 117 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 3,067 | | | $ | 2,760,813 | | | $ | — | | | $ | 2,763,880 | | | $ | 37 | | | $ | 26,379 | | | $ | — | | | $ | 26,416 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Loans | | | Allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | Loans individually evaluated for impairment | | | Loans collectively evaluated for impairment | | | Loans acquired with deteriorated credit quality | | | Total loans | | | Loans individually evaluated for impairment | | | Loans collectively evaluated for impairment | | | Loans acquired with deteriorated credit quality | | | Total allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 220 | | | $ | 833,304 | | | $ | — | | | $ | 833,524 | | | $ | 28 | | | $ | 11,937 | | | $ | — | | | $ | 11,965 | | Construction and development, excluding undeveloped land | | | 318 | | | | 224,732 | | | | — | | | | 225,050 | | | | — | | | | 1,760 | | | | — | | | | 1,760 | | Undeveloped land | | | 474 | | | | 29,618 | | | | — | | | | 30,092 | | | | — | | | | 752 | | | | — | | | | 752 | | Real estate mortgage | | | 1,641 | | | | 1,409,806 | | | | — | | | | 1,411,447 | | | | 14 | | | | 10,667 | | | | — | | | | 10,681 | | Consumer | | | — | | | | 48,058 | | | | — | | | | 48,058 | | | | — | | | | 376 | | | | — | | | | 376 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,653 | | | $ | 2,545,518 | | | $ | — | | | $ | 2,548,171 | | | $ | 42 | | | $ | 25,492 | | | $ | — | | | $ | 25,534 | |
The following tables present loans individually evaluated for impairment by loan portfolio class: | | As of | | | Three months ended | | | Six months ended | | | | June 30, 2019 | | | June 30, 2019 | | | June 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unpaid | | | | | | | Average | | | Interest | | | Average | | | Interest | | | | Recorded | | | principal | | | Related | | | recorded | | | income | | | recorded | | | income | | (In thousands) | | investment | | | balance | | | allowance | | | investment | | | recognized | | | investment | | | recognized | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans with no related allowance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 96 | | | $ | 96 | | | $ | — | | | $ | 144 | | | $ | — | | | $ | 160 | | | $ | — | | Construction and development, excluding undeveloped land | | | — | | | | — | | | | — | | | | — | | | | — | | | | 106 | | | | — | | Undeveloped land | | | — | | | | — | | | | — | | | | — | | | | — | | | | 158 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 306 | | | | 306 | | | | — | | | | 311 | | | | — | | | | 254 | | | | — | | Owner occupied commercial | | | 1,444 | | | | 1,882 | | | | — | | | | 1,455 | | | | — | | | | 1,165 | | | | — | | 1-4 family residential | | | 715 | | | | 715 | | | | — | | | | 779 | | | | — | | | | 773 | | | | — | | Home equity - first lien | | | — | | | | - | | | | — | | | | — | | | | — | | | | — | | | | — | | Home equity - junior lien | | | 469 | | | | 469 | | | | — | | | | 462 | | | | — | | | | 356 | | | | — | | Subtotal: Real estate mortgage | | | 2,934 | | | | 3,372 | | | | — | | | | 3,007 | | | | — | | | | 2,548 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Subtotal | | $ | 3,030 | | | $ | 3,468 | | | $ | — | | | $ | 3,151 | | | $ | — | | | $ | 2,972 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans with an allowance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 23 | | | $ | 23 | | | $ | 23 | | | $ | 24 | | | $ | — | | | $ | 26 | | | $ | 1 | | Construction and development, excluding undeveloped land | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Undeveloped land | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Owner occupied commercial | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | 1-4 family residential | | | 14 | | | | 14 | | | | 14 | | | | 14 | | | | — | | | | 14 | | | | — | | Home equity - first lien | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Home equity - junior lien | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Subtotal: Real estate mortgage | | | 14 | | | | 14 | | | | 14 | | | | 14 | | | | — | | | | 14 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Subtotal | | $ | 37 | | | $ | 37 | | | $ | 37 | | | $ | 38 | | | $ | — | | | $ | 40 | | | $ | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 119 | | | $ | 119 | | | $ | 23 | | | $ | 168 | | | $ | — | | | $ | 186 | | | $ | 1 | | Construction and development, excluding undeveloped land | | | — | | | | — | | | | — | | | | — | | | | — | | | | 106 | | | | — | | Undeveloped land | | | — | | | | — | | | | — | | | | — | | | | — | | | | 158 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 306 | | | | 306 | | | | — | | | | 311 | | | | — | | | | 254 | | | | — | | Owner occupied commercial | | | 1,444 | | | | 1,882 | | | | — | | | | 1,455 | | | | — | | | | 1,165 | | | | — | | 1-4 family residential | | | 729 | | | | 729 | | | | 14 | | | | 793 | | | | — | | | | 787 | | | | — | | Home equity - first lien | | | — | | | | — | | | | — | | | | - | | | | — | | | | - | | | | — | | Home equity - junior lien | | | 469 | | | | 469 | | | | — | | | | 462 | | | | — | | | | 356 | | | | — | | Subtotal: Real estate mortgage | | | 2,948 | | | | 3,386 | | | | 14 | | | | 3,021 | | | | — | | | | 2,562 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Total impaired loans | | $ | 3,067 | | | $ | 3,505 | | | $ | 37 | | | $ | 3,189 | | | $ | — | | | $ | 3,012 | | | $ | 1 | |
| | As of | | | Three months ended | | | Six months ended | | | | December 31, 2018 | | | June 30, 2018 | | | June 30, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unpaid | | | | | | | Average | | | Interest | | | Average | | | Interest | | | | Recorded | | | principal | | | Related | | | recorded | | | income | | | recorded | | | income | | (In thousands) | | investment | | | balance | | | allowance | | | investment | | | recognized | | | investment | | | recognized | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans with no related allowance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 192 | | | $ | 707 | | | $ | — | | | $ | 225 | | | $ | — | | | $ | 531 | | | $ | — | | Construction and development, excluding undeveloped land | | | 318 | | | | 489 | | | | — | | | | 525 | | | | — | | | | 571 | | | | — | | Undeveloped land | | | 474 | | | | 506 | | | | — | | | | 474 | | | | — | | | | 474 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 138 | | | | 138 | | | | — | | | | - | | | | — | | | | 17 | | | | — | | Owner occupied commercial | | | 586 | | | | 1,023 | | | | — | | | | 2,335 | | | | — | | | | 2,667 | | | | — | | 1-4 family residential | | | 760 | | | | 760 | | | | — | | | | 1,350 | | | | — | | | | 1,446 | | | | — | | Home equity - first lien | | | — | | | | - | | | | — | | | | - | | | | — | | | | - | | | | — | | Home equity - junior lien | | | 143 | | | | 143 | | | | — | | | | 17 | | | | — | | | | 22 | | | | — | | Subtotal: Real estate mortgage | | | 1,627 | | | | 2,064 | | | | — | | | | 3,702 | | | | — | | | | 4,152 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | — | | | | — | | | | — | | | | 46 | | | | — | | | | 30 | | | | — | | Subtotal | | $ | 2,611 | | | $ | 3,766 | | | $ | — | | | $ | 4,972 | | | $ | — | | | $ | 5,758 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans with an allowance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 28 | | | $ | 28 | | | $ | 28 | | | $ | 3,074 | | | $ | — | | | $ | 2,061 | | | $ | — | | Construction and development, excluding undeveloped land | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Undeveloped land | | | — | | | | — | | | | — | | | | 48 | | | | — | | | | 32 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Owner occupied commercial | | | — | | | | — | | | | — | | | | 1,645 | | | | — | | | | 1,097 | | | | — | | 1-4 family residential | | | 14 | | | | 14 | | | | 14 | | | | 14 | | | | — | | | | 14 | | | | — | | Home equity - first lien | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Home equity - junior lien | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Subtotal: Real estate mortgage | | | 14 | | | | 14 | | | | 14 | | | | 1,659 | | | | — | | | | 1,111 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Subtotal | | $ | 42 | | | $ | 42 | | | $ | 42 | | | $ | 4,781 | | | $ | — | | | $ | 3,204 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 220 | | | $ | 735 | | | $ | 28 | | | $ | 3,299 | | | $ | — | | | $ | 2,592 | | | $ | — | | Construction and development, excluding undeveloped land | | | 318 | | | | 489 | | | | — | | | | 525 | | | | — | | | | 571 | | | | — | | Undeveloped land | | | 474 | | | | 506 | | | | — | | | | 522 | | | | — | | | | 506 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 138 | | | | 138 | | | | — | | | | - | | | | — | | | | 17 | | | | — | | Owner occupied commercial | | | 586 | | | | 1,023 | | | | — | | | | 3,980 | | | | — | | | | 3,764 | | | | — | | 1-4 family residential | | | 774 | | | | 774 | | | | 14 | | | | 1,364 | | | | — | | | | 1,460 | | | | — | | Home equity - first lien | | | — | | | | — | | | | — | | | | - | | | | — | | | | - | | | | — | | Home equity - junior lien | | | 143 | | | | 143 | | | | — | | | | 17 | | | | — | | | | 22 | | | | — | | Subtotal: Real estate mortgage | | | 1,641 | | | | 2,078 | | | | 14 | | | | 5,361 | | | | — | | | | 5,263 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | — | | | | — | | | | — | | | | 46 | | | | — | | | | 30 | | | | — | | Total impaired loans | | $ | 2,653 | | | $ | 3,808 | | | $ | 42 | | | $ | 9,753 | | | $ | — | | | $ | 8,962 | | | $ | — | |
Differences between recorded investment amounts and unpaid principal balance amounts less related allowance are due to partial charge-offs which have occurred over the lives of certain loans. The following table presents the aging of the recorded investment in loans by portfolio class: | | | | | | | | | | | | | | | | | | | | | | | | | | Recorded | | (In thousands) | | | | | | | | | | | | | | 90 or more | | | | | | | | | | | investment | | | | | | | | | | | | | | | | days past due | | | | | | | | | | | > 90 days | | | | | | | | 30-59 days | | | 60-89 days | | | (includes all | | | Total | | | Total | | | and | | June 30, 2019 | | Current | | | past due | | | past due | | | non-accrual) | | | past due | | | loans | | | accruing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 858,853 | | | $ | 572 | | | $ | 391 | | | $ | 269 | | | $ | 1,232 | | | $ | 860,085 | | | $ | 173 | | Construction and development, excluding undeveloped land | | | 222,632 | | | | — | | | | — | | | | — | | | | — | | | | 222,632 | | | | — | | Undeveloped land | | | 35,169 | | | | — | | | | — | | | | — | | | | — | | | | 35,169 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 692,612 | | | | 1 | | | | 3,107 | | | | 701 | | | | 3,809 | | | | 696,421 | | | | 396 | | Owner occupied commercial | | | 450,140 | | | | 643 | | | | 272 | | | | 1,664 | | | | 2,579 | | | | 452,719 | | | | 220 | | 1-4 family residential | | | 336,548 | | | | 749 | | | | 873 | | | | 787 | | | | 2,409 | | | | 338,957 | | | | 72 | | Home equity - first lien | | | 45,963 | | | | 49 | | | | — | | | | — | | | | 49 | | | | 46,012 | | | | — | | Home equity - junior lien | | | 67,408 | | | | 70 | | | | — | | | | 470 | | | | 540 | | | | 67,948 | | | | — | | Subtotal: Real estate mortgage | | | 1,592,671 | | | | 1,512 | | | | 4,252 | | | | 3,622 | | | | 9,386 | | | | 1,602,057 | | | | 688 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | 43,901 | | | | 9 | | | | 27 | | | | — | | | | 36 | | | | 43,937 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,753,226 | | | $ | 2,093 | | | $ | 4,670 | | | $ | 3,891 | | | $ | 10,654 | | | $ | 2,763,880 | | | $ | 861 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | $ | 832,923 | | | $ | 197 | | | $ | 200 | | | $ | 204 | | | $ | 601 | | | $ | 833,524 | | | $ | 12 | | Construction and development, excluding undeveloped land | | | 224,732 | | | | — | | | | — | | | | 318 | | | | 318 | | | | 225,050 | | | | — | | Undeveloped land | | | 29,552 | | | | 66 | | | | — | | | | 474 | | | | 540 | | | | 30,092 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate mortgage: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial investment | | | 586,884 | | | | 1,382 | | | | 107 | | | | 237 | | | | 1,726 | | | | 588,610 | | | | 99 | | Owner occupied commercial | | | 421,143 | | | | 2,732 | | | | 1,377 | | | | 1,121 | | | | 5,230 | | | | 426,373 | | | | 535 | | 1-4 family residential | | | 274,547 | | | | 374 | | | | 336 | | | | 760 | | | | 1,470 | | | | 276,017 | | | | — | | Home equity - first lien | | | 49,321 | | | | 179 | | | | — | | | | — | | | | 179 | | | | 49,500 | | | | — | | Home equity - junior lien | | | 70,467 | | | | 182 | | | | 56 | | | | 242 | | | | 480 | | | | 70,947 | | | | 99 | | Subtotal: Real estate mortgage | | | 1,402,362 | | | | 4,849 | | | | 1,876 | | | | 2,360 | | | | 9,085 | | | | 1,411,447 | | | | 733 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | 48,058 | | | | — | | | | — | | | | — | | | | — | | | | 48,058 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,537,627 | | | $ | 5,112 | | | $ | 2,076 | | | $ | 3,356 | | | $ | 10,544 | | | $ | 2,548,171 | | | $ | 745 | |
(5) | Goodwill and Intangible Assets |
Goodwill, recorded on the acquisition date of an entity, represents $12.1 million related to the May 1, 2019 King acquisition and $682 thousand related to the 1996 purchase of a bank in southern Indiana. 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. During this measurement period, Bancorp may record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date. The goodwill balance at June 30, 2019 relates entirely to the Commercial Banking segment of Bancorp. GAAP requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment at least annually. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. Bancorp’s annual goodwill impairment test is conducted as of December 31 of each year or more often as situations dictate. At December 31, 2018, Bancorp’s Commercial Banking reporting unit had positive equity and Bancorp currently has goodwill in the amount of $682 thousand from the 1996 acquisition of an Indiana bank. No impairment charges have been deemed necessary or recordedelected to date, asperform a qualitative assessment to determine if it was more-likely-than-not that the fair value is substantially in excess of the 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. This goodwill is assigned toTherefore, Bancorp did not complete the commercial banking segmenttwo-step impairment test as of Bancorp.December 31, 2018. BancorpChanges in the carrying value of goodwill follows:
| | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Balance at beginning of period | | $ | 682 | | | $ | 682 | | | $ | 682 | | | $ | 682 | | Goodwill acquired | | | 12,144 | | | | — | | | | 12,144 | | | | — | | Impairment | | | — | | | | — | | | | — | | | | — | | Balance at end of period | | $ | 12,826 | | | $ | 682 | | | $ | 12,826 | | | $ | 682 | |
The Company recorded a gross core deposit intangible totalingassets of $1.5 million and $2.5 million as a resultin association with its May 1, 2019 King and 2013 TBOC acquisitions, respectively. Details regarding the King acquisition are discussed in the Acquisitions footnote. Changes in the net carrying amount of its 2013 acquisition of THE BANCorp, Inc. This intangible is being amortized over the expected life of the underlying deposits to which the intangible is attributable. At June 30, 2018, the unamortized core deposit intangible was $1.1 million.intangibles follow: | | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Balance at beginning of period | | $ | 1,015 | | | $ | 1,182 | | | $ | 1,056 | | | $ | 1,225 | | Core deposit intangible acquired | | | 1,519 | | | | — | | | | 1,519 | | | | — | | Amortization | | | (73 | ) | | | (43 | ) | | | (114 | ) | | | (86 | ) | | | | | | | | | | | | | | | | | | Balance at end of period | | $ | 2,461 | | | $ | 1,139 | | | $ | 2,461 | | | $ | 1,139 | |
Mortgage servicing rights (MSRs)(“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. Estimated fair values of MSRs at June 30, 2018 2019 and December 31, 2017 2018 were $3.5$2.9 million and $3.1$3.6 million, respectively. Total outstanding principal balances of loans serviced for others were $331.5$325.1 million and $344.5$327.9 million at June 30, 2018, 2019, and December 31, 2017, 2018, respectively. Changes in the net carrying amount of MSRs follows: | | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Balance at beginning of period | | $ | 1,070 | | | $ | 861 | | | $ | 1,022 | | | $ | 875 | | Additions for mortgage loans sold | | | 134 | | | | 74 | | | | 214 | | | | 95 | | Amortization | | | (36 | ) | | | (37 | ) | | | (68 | ) | | | (72 | ) | | | | | | | | | | | | | | | | | | Balance at end of period | | $ | 1,168 | | | $ | 898 | | | $ | 1,168 | | | $ | 898 | |
In March 2019, the Kentucky Legislature passed HB354 requiring financial institutions to transition from a capital based franchise tax to the Kentucky corporate income tax beginning in 2021. Historically, the franchise tax, a component of non-interest expenses, was assessed at 1.1% of net capital and averaged $2.5 million annually over the prior two year-end periods. The Kentucky corporate income tax will be assessed at 5% of Kentucky taxable income and will be included as a component of current and deferred state income tax expense. Associated with this change, during the first quarter of 2019, Bancorp established a Kentucky state deferred tax asset related to existing temporary differences estimated to reverse after the effective date of the law change. Bancorp recorded a corresponding state tax benefit, net of federal impact of $1.3 million, or approximately $0.06 per diluted share for the threefirst quarter 2019. While this is positive in the short-term, Bancorp anticipates an unfavorable impact of approximately $200 thousand per year beginning in 2021. In April 2019, the Kentucky legislature passed HB458 allowing banks and their holding companies to be combined together for Kentucky tax return filings. The combined filing will allow Bancorp’s holding company net operating losses to offset against net revenue generated by The Bank and reduce Bancorp’s tax liability. Bancorp recorded s state tax benefit associated with this change of $2.4 million in the second quarter of 2019, or approximately $0.11 per diluted share for the three and six months month periods ended June 30, 2018 and 2017 are shown in the following table:2019. | | For the three months | | | For the six months | | | | ended June 30, | | | ended June 30, | | (In thousands) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Balance at beginning of period | | $ | 861 | | | $ | 891 | | | $ | 875 | | | $ | 921 | | Additions for mortgage loans sold | | | 74 | | | | 51 | | | | 95 | | | | 93 | | Amortization | | | (37 | ) | | | (73 | ) | | | (72 | ) | | | (145 | ) | Balance at end of period | | $ | 898 | | | $ | 869 | | | $ | 898 | | | $ | 869 | |
Components of income tax expense (benefit) from operations follow: | | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Current income tax expense: | | | | | | | | | | | | | | | | | Federal | | $ | 3,772 | | | $ | 3,426 | | | $ | 6,498 | | | $ | 5,862 | | State | | | 189 | | | | 182 | | | | 330 | | | | 310 | | Total current income tax expense | | | 3,961 | | | | 3,608 | | | | 6,828 | | | | 6,172 | | | | | | | | | | | | | | | | | | | Deferred income tax expense (benefit) : | | | | | | | | | | | | | | | | | Federal | | | 224 | | | | (421 | ) | | | 789 | | | | 46 | | State | | | (3,155 | ) | | | (28 | ) | | | (4,768 | ) | | | (7 | ) | Total deferred income tax expense | | | (2,931 | ) | | | (449 | ) | | | (3,979 | ) | | | 39 | | Change in valuation allowance | | | — | | | | — | | | | 20 | | | | — | | Total income tax expense | | $ | 1,030 | | | $ | 3,159 | | | $ | 2,869 | | | $ | 6,211 | |
Stock Yards Bancorp, inc. and subsidiary
Components of income tax expense from operations were as follows:
| | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Current income tax expense | | | | | | | | | | | | | | | | | Federal | | $ | 3,426 | | | $ | 4,722 | | | $ | 5,862 | | | $ | 7,725 | | State | | | 182 | | | | 179 | | | | 310 | | | | 293 | | Total current income tax expense | | | 3,608 | | | | 4,901 | | | | 6,172 | | | | 8,018 | | | | | | | | | | | | | | | | | | | Deferred income tax (benefit) expense | | | | | | | | | | | | | | | | | Federal | | | (421 | ) | | | (631 | ) | | | 46 | | | | (657 | ) | State | | | (28 | ) | | | (24 | ) | | | (7 | ) | | | 14 | | Total deferred income tax expense | | | (449 | ) | | | (655 | ) | | | 39 | | | | (643 | ) | Change in valuation allowance | | | - | | | | 113 | | | | - | | | | 126 | | Total income tax expense | | $ | 3,159 | | | $ | 4,359 | | | $ | 6,211 | | | $ | 7,501 | |
An analysis of the difference between statutory and effective income tax rates for the three and six months ended June 30, 2018 and 2017 follows: | | | Three months ended | | Six months ended | | | | Three months ended June 30, | | | Six months ended June 30, | | | June 30, | | | June 30, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | U.S. federal statutory income tax rate | | | 21.0 | % | | | 35.0 | % | | | 21.0 | % | | | 35.0 | % | | 21.0 | % | | 21.0 | % | | 21.0 | % | | 21.0 | % | Excess tax benefits from share-based compensation arrangements | | | (1.2 | ) | | | (0.7 | ) | | | (1.5 | ) | | | (3.8 | ) | | Kentucky state income tax enactments | | | (14.1 | ) | | — | | | (10.7 | ) | | — | | Excess tax benefits from stock-based compensation arrangements | | | (0.4 | ) | | (1.2 | ) | | (1.1 | ) | | (1.5 | ) | Increase in cash surrender value of life insurance | | | (0.6 | ) | �� | | (1.2 | ) | | (0.9 | ) | | (0.6 | ) | Tax credits | | | (0.7 | ) | | | (5.1 | ) | | | (0.5 | ) | | | (5.3 | ) | | (0.7 | ) | | (0.7 | ) | | (0.7 | ) | | (0.5 | ) | Tax exempt interest income | | | (0.5 | ) | | | (1.1 | ) | | | (0.5 | ) | | | (1.1 | ) | | (0.3 | ) | | (0.5 | ) | | (0.3 | ) | | (0.5 | ) | Increase in cash surrender value of life insurance | | | (1.2 | ) | | | (1.9 | ) | | | (0.6 | ) | | | (1.6 | ) | | State income taxes, net of federal benefit | | | 0.7 | | | | 0.7 | | | | 0.7 | | | | 0.7 | | | 0.8 | | | 0.7 | | | 0.8 | | | 0.7 | | Other, net | | | 0.8 | | | | 2.2 | | | | 0.1 | | | | 2.1 | | | | 0.2 | | | | 0.8 | | | | 0.1 | | | | 0.1 | | Effective income tax rate | | | 18.9 | % | | | 29.1 | % | | | 18.7 | % | | | 26.0 | % | | | 5.9 | % | | | 18.9 | % | | | 8.2 | % | | | 18.7 | % |
StateCurrently, state income tax expense represents tax owed into the state of Indiana. Kentucky and Ohio state bank taxes are currently based on capital levels, and are recorded as other non-interest expense. See comment above regarding recent changes in Kentucky tax law.
In December 2017 the Tax Cuts and Jobs Act was enacted and, among other matters, it reduced Bancorp’s marginal federal income tax rate from 35% to 21%. Largely offsetting that decrease, the effective tax rate for the three and six month periods ending June 30, 2018 as compared with the year earlier periods were affected by substantially lower benefit from excess tax benefits from share-based compensation arrangements and from tax credits.
Stock Yards Bancorp, inc. and subsidiary
In December 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of tax reform in situations where a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB 118 allows a measurement period not to extend beyond one year from the tax reform’s enactment date to complete the necessary accounting.
In two areas, Bancorp recorded provisional amounts of deferred taxes as of December 31, 2017, where the information was not available to complete the accounting: 1) the Company’s deferred tax assets of $565 thousand for temporary differences in certain tax credit investments is awaiting receipt of Schedules K-1 from outside preparers. Management believe the Company used a reasonable estimate to account for this item; however, there may be provisions of the new tax law that could impact the partnerships’ calculation of taxable income, which in effect could affect the Company’s share of taxable income. The final effect will not be known until receipt of Schedules K-1. 2) Bancorp estimated that no reductions are required to deferred tax assets included in the $19 thousand of future deductions for compensation that might be subject to new limitations under Code Sec. 162(m) which, generally, limits to $1 million annual deductions for certain compensation paid to certain executives. There is uncertainty in applying new rules to existing contracts, and Bancorp is seeking clarification before finalizing its analysis. In a third area, the Company recorded no provisional amounts to its deferred tax liability for temporary differences between the tax and financial reporting bases of certain property and equipment items. These cannot be reasonably estimated. Bancorp’s deferred tax liability of $541 thousand for temporary differences between the tax and financial reporting bases of fixed assets is awaiting completion of a cost segregation study to take advantage of additional depreciation deductions available through tax reform. Bancorp will complete and record income tax effects of tax reform during the period the necessary information becomes available. This measurement period will not extend beyond December 22, 2018.
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’s judgment about the level of uncertainty, status of examination, litigation and legislative activity and addition or elimination of uncertain tax positions. As of June 30, 2018 2019 and December 31, 2017, 2018, the gross amount of unrecognized tax benefits was immaterial to the consolidated financial statements of the Company. Federal and state income tax returns are subject to examination for the years after 2013.2015.
Stock Yards Bancorp, inc. and subsidiary
The composition of the Bank’s deposits outstanding at June 30, 2018 (unaudited) and December 31, 2017 is as follows: | | June 30, | | | December 31, | | | (In thousands) | | 2018 | | | 2017 | | | June 30, 2019 | | | December 31, 2018 | | | | | | | | | | | | Non-interest bearing demand | | $ | 715,974 | | | $ | 674,697 | | | Non-interest bearing demand deposits | | | $ | 777,652 | | | $ | 711,023 | | | | | | | | | | | | Interest bearing deposits: | | | | | | | | | | | | | | Interest bearing demand | | | 781,460 | | | | 833,450 | | | 824,324 | | | 892,867 | | Savings | | | 158,756 | | | | 152,348 | | | 171,471 | | | 155,007 | | Money market | | | 633,065 | | | | 682,226 | | | 675,221 | | | 688,744 | | | | | | | | | | | | Time deposits of more than $250,000 | | | 38,888 | | | | 38,439 | | | Other time deposits | | | 212,318 | | | | 197,135 | | | Time deposits of $250 thousand or more | | | 71,952 | | | 55,182 | | Other time deposits(1) | | | | 362,833 | | | | 291,533 | | Total time deposits | | | 251,206 | | | | 235,574 | | | 434,785 | | | 346,715 | | | | | | | | | | | | Total interest bearing deposits | | | 1,824,487 | | | | 1,903,598 | | | 2,105,801 | | | 2,083,333 | | | | | | | | | | | | | | | | Total deposits | | $ | 2,540,461 | | | $ | 2,578,295 | | | $ | 2,883,453 | | | $ | 2,794,356 | |
| (1) | Includes $29.8 million in brokered deposits as of both June 30, 2019 and December 31, 2018. |
Deposits totaling $125.5 million were acquired on May 1, 2019, associated with the King acquisition. Maturities of time deposits of more than $250,000, outstanding at June 30, 2018, are summarized as follows:
(In thousands) | | Amount | | | | | | | 3 months or less | | $ | 10,874 | | Over 3 through 6 months | | | 5,470 | | Over 6 through 12 months | | | 12,663 | | Over 1 through 3 years | | | 8,409 | | Over 3 years | | | 1,472 | | Total | | $ | 38,888 | |
30
(7)(8)
| Securities Sold Under Agreements to Repurchase |
Securities sold under agreements to repurchase, whichSSUAR 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 $58.8 millionaccounts. Such repurchase agreements are considered financing agreements and $70.5 million at mature within one business day from the transaction date. At June 30, 2018 and December 31, 2017, respectively. Bancorp enters into sales of securities under agreement to repurchase at a specified future date. At June 30, 2018, 2019, all of these financing arrangements had overnight maturities and were secured by government sponsored enterprise obligations and government agency mortgage-backed securities which were owned and under the control ofcontrolled by Bancorp.
Information concerning SSUAR follows: (Dollars in thousands) | | June 30, 2019 | | | December 31, 2018 | | Outstanding balance at end of period | | $ | 33,809 | | | $ | 36,094 | | Weighted average interest rate at end of period | | | 0.31 | % | | | 0.24 | % |
Stock Yards Bancorp, inc. and subsidiary
| | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (Dollars in thousands) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Average outstanding balance during the period | | $ | 39,969 | | | $ | 61,993 | | | $ | 38,755 | | | $ | 66,609 | | Average interest rate during the period | | | 0.28 | % | | | 0.21 | % | | | 0.28 | % | | | 0.20 | | Maximum outstanding at any month end during the period | | $ | 43,160 | | | $ | 60,801 | | | $ | 43,160 | | | $ | 74,725 | |
(8)(9)
| Federal Home Loan Bank Advances |
Bancorp had outstanding borrowings58 separate advances totaling $48.8$84.3 million and $49.5 million at as of June 30, 2018 and 2019, as compared with 14 separate advances totaling $48.2 million as of December 31, 2017, respectively, via 14 separate fixed-rate advances.2018. As a result of the King acquisition, Bancorp assumed 46 advances totaling $43.3 million, with maturities ranging from 2019 to 2028. These advances were discounted to fair value as of the acquisition date. See the acquisition footnote for details. As of June 30, 2018, 2019, for two16 advances totaling $30$51 million, bothall of which are non-callable, interest payments are due monthly, with principal due at maturity. For the remaining advances, totaling $18.8 million, principal and interest payments are due monthly based on an amortization schedule. The following is a summary of the contractual maturities and average effective rates of outstanding advances: (In thousands) | | June 30, 2019 | | | December 31, 2018 | | Maturity | | | | | | Weighted average | | | | | | | Weighted average | | Year | | Advance | | | Fixed Rate | | | Advance | | | Fixed Rate | | 2019 | | $ | 30,850 | | | | 2.42 | % | | $ | 30,000 | | | | 2.54 | % | 2020 | | | 20,390 | | | | 2.38 | | | | 1,691 | | | | 2.23 | | 2021 | | | 2,561 | | | | 2.46 | | | | 215 | | | | 2.12 | | 2023 | | | 579 | | | | 1.01 | | | | — | | | | — | | 2024 | | | 2,131 | | | | 2.36 | | | | 2,240 | | | | 2.36 | | 2025 | | | 4,192 | | | | 2.42 | | | | 4,626 | | | | 2.42 | | 2026 | | | 8,470 | | | | 1.95 | | | | 8,185 | | | | 1.99 | | 2027 | | | 8,771 | | | | 1.75 | | | | — | | | | — | | 2028 | | | 6,335 | | | | 2.38 | | | | 1,220 | | | | 1.49 | | | | | | | | | | | | | | | | | | | Total | | $ | 84,279 | | | | 2.28 | % | | $ | 48,177 | | | | 2.39 | % |
(In thousands) | | June 30, 2018 | | | December 31, 2017 | | Year | | Advance | | | Fixed Rate | | | Advance | | | Fixed Rate | | 2018 | | $ | 30,000 | | | | 2.13 | % | | $ | 30,000 | | | | 1.48 | % | 2020 | | | 1,716 | | | | 2.23 | | | | 1,741 | | | | 2.23 | | 2021 | | | 251 | | | | 2.12 | | | | 288 | | | | 2.12 | | 2024 | | | 2,348 | | | | 2.36 | | | | 2,454 | | | | 2.36 | | 2025 | | | 4,889 | | | | 2.42 | | | | 5,149 | | | | 2.42 | | 2026 | | | 8,376 | | | | 1.99 | | | | 8,564 | | | | 1.99 | | 2028 | | | 1,241 | | | | 1.49 | | | | 1,262 | | | | 1.49 | | | | | | | | | | | | | | | | | | | Total | | $ | 48,821 | | | | 2.13 | % | | $ | 49,458 | | | | 1.74 | % |
In addition to fixed-rateFHLB advances listed above, Bancorp had cash management advances from the FHLB of $275 million, and $150 million as of June 30, 2018 and December 31, 2017, respectively. These advances typically have a term of one week. $200 million of the $275 million advances as of June 30, 2018, and all of the $150 million in advances as of December 31, 2017 were part of a quarterly tax minimization strategy and matured in the first week following the end of the quarter. $75 million of the June 30, 2018 advances were used to supplement liquidity as part of Bancorp’s management of its’ overall cash position. Due to the short-term nature of the cash management advances, they were recorded on the consolidated balance sheet within federal funds purchased.
Advances from the FHLB are collateralized by certain commercial and residential real estate mortgage loans under a blanket mortgage collateral pledge agreement and FHLB stock. Bancorp believesviews these borrowingsadvances to be an effective alternative to higher cost timebrokered deposits to manage interest rate risk associated with long-term fixed rate loans.fund loan growth. At June 30, 2019, and December 31, 2018, the amount of available credit from the FHLB totaled $205.8 million.$484.0 million, and $537.0 million, respectively. Bancorp also had $105 million in federal funds lines available from correspondent banks at both June 30, 2019, and December 31, 2018.
(9)(10)
| Other Comprehensive Income (Loss) |
The following tables illustrate activity within the balances in accumulated other comprehensive income (AOCI)(“OCI”) by component, and is shown for the three and six month periods ended June 30, 2018 and 2017. The tables also include $506 thousand reclassified from AOCI to retained earnings related to the adoption of ASU 2018-02 in the first quarter of 2018. ASU 2018-02 provides for the reclassification of tax effects stranded in other comprehensive income as a result of the 2017 Tax Cuts and Jobs Act into retained earnings. The Tax Reform reduced the US Federal corporate tax rate from 35% to 21% effective January 1, 2018. As a result, Bancorp was required to remeasure its net deferred tax assets at the lower rate and recognize the adjustment through income tax expense in 2017. The adjustment through income tax expense left items presented in AOCI, for which the related income tax effects were originally recognized in other comprehensive income, unadjusted for the new tax rate. The reclassification upon adoption of ASU 2018-02 results in AOCI reflecting the new tax rate.component: | | Net unrealized | | | Net unrealized | | | Minimum | | | | | | | | gains (losses) | | | gains (losses) | | | pension | | | | | | Three months ended June 30, 2019 | | on securities | | | on cash | | | liability | | | | | | (In thousands) | | available for sale | | | flow hedges | | | adjustment | | | Total | | | | | | | | | | | | | | | | | | | Balance, beginning of period | | $ | (2,536 | ) | | $ | 234 | | | $ | (211 | ) | | $ | (2,513 | ) | Net current period other comprehensive income (loss) | | | 3,827 | | | | (248 | ) | | | — | | | | 3,579 | | Balance, end of period | | $ | 1,291 | | | $ | (14 | ) | | $ | (211 | ) | | $ | 1,066 | | | | | | | | | | | | | | | | | | | Three months ended June 30, 2018 | | | | | | | | | | | | | | | | | Balance, beginning of period | | $ | (5,995 | ) | | $ | 544 | | | $ | (393 | ) | | $ | (5,844 | ) | Net current period other comprehensive income (loss) | | | (1,279 | ) | | | 79 | | | | — | | | | (1,200 | ) | Balance, end of period | | $ | (7,274 | ) | | $ | 623 | | | $ | (393 | ) | | $ | (7,044 | ) |
Stock Yards Bancorp, inc. and subsidiary
| | 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 March 31, 2017 | | $ | (522 | ) | | $ | 69 | | | $ | (272 | ) | | $ | (725 | ) | | | | | | | | | | | | | | | | | | Net current period other comprehensive gain (loss) | | | 206 | | | | (90 | ) | | | - | | | | 116 | | Balance at June 30, 2017 | | $ | (316 | ) | | $ | (21 | ) | | $ | (272 | ) | | $ | (609 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at March 31, 2018 | | $ | (5,995 | ) | | $ | 544 | | | $ | (393 | ) | | $ | (5,844 | ) | | | | | | | | | | | | | | | | | | Net current period other comprehensive income gain (loss) | | | (1,279 | ) | | | 79 | | | | - | | | | (1,200 | ) | Balance at June 30, 2018 | | $ | (7,274 | ) | | $ | 623 | | | $ | (393 | ) | | $ | (7,044 | ) |
| | 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, 2016 | | $ | (1,211 | ) | | $ | (16 | ) | | $ | (272 | ) | | $ | (1,499 | ) | | | | | | | | | | | | | | | | | | Net current period other comprehensive gain (loss) | | | 895 | | | | (5 | ) | | | - | | | | 890 | | Balance at June 30, 2017 | | $ | (316 | ) | | $ | (21 | ) | | $ | (272 | ) | | $ | (609 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 (1) | | $ | (1,781 | ) | | $ | 193 | | | $ | (342 | ) | | $ | (1,930 | ) | | | | | | | | | | | | | | | | | | Net current period other comprehensive income gain (loss) | | | (4,997 | ) | | | 389 | | | | - | | | | (4,608 | ) | Reclassification adjustment under ASU 2018-02 | | | (496 | ) | | | 41 | | | | (51 | ) | | | (506 | ) | Balance at June 30, 2018 | | $ | (7,274 | ) | | $ | 623 | | | $ | (393 | ) | | $ | (7,044 | ) |
| (1)
| December 31, 2017 AOCI component balances reflect a correction of incorrectly reported year-end balances in Note 12 of the 2017 Form 10-K, which were presented as $(2,278), $234, and $(392) for securities available-for-sale, cash flow hedges, and minimum pension liability, respectively.
|
Stock Yards Bancorp, inc. and subsidiary
| | Net unrealized | | | Net unrealized | | | Minimum | | | | | | | | gains (losses) | | | gains (losses) | | | pension | | | | | | Six months ended June 30, 2019 | | on securities | | | on cash | | | liability | | | | | | (In thousands) | | available for sale | | | flow hedges | | | adjustment | | | Total | | | | | | | | | | | | | | | | | | | Balance, beginning of period | | $ | (5,330 | ) | | $ | 408 | | | $ | (220 | ) | | $ | (5,142 | ) | Net current period other comprehensive income (loss) | | | 6,621 | | | | (422 | ) | | | 9 | | | | 6,208 | | Balance, end of period | | $ | 1,291 | | | $ | (14 | ) | | $ | (211 | ) | | $ | 1,066 | | | | | | | | | | | | | | | | | | | Six months ended June 30, 2018 | | | | | | | | | | | | | | | | | Balance, beginning of period | | $ | (1,781 | ) | | $ | 193 | | | $ | (342 | ) | | $ | (1,930 | ) | Net current period other comprehensive income (loss) | | | (4,997 | ) | | | 389 | | | | — | | | $ | (4,608 | ) | Reclassification adjustment for adoption of ASU 2018-02 | | | (496 | ) | | | 41 | | | | (51 | ) | | | (506 | ) | Balance, end of period | | $ | (7,274 | ) | | $ | 623 | | | $ | (393 | ) | | $ | (7,044 | ) |
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. (11)(12)
| Net Income Per Share |
The following table reflects, for the three and six months ended June 30, 2018 2019 and 2017,2018, net income (numerator) and average shares outstanding (denominator) for basic and diluted net income per share computations: | | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | (In thousands, except per share data) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Net income | | $ | 16,543 | | | $ | 13,579 | | | $ | 32,184 | | | $ | 26,983 | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding - basic | | | 22,689 | | | | 22,625 | | | | 22,675 | | | | 22,601 | | Dilutive securities | | | 260 | | | | 342 | | | | 273 | | | | 358 | | Weighted average shares outstanding- diluted | | | 22,949 | | | | 22,967 | | | | 22,948 | | | | 22,959 | | | | | | | | | | | | | | | | | | | Net income per share, basic | | $ | 0.73 | | | $ | 0.60 | | | $ | 1.42 | | | $ | 1.19 | | Net income per share, diluted | | | 0.72 | | | | 0.59 | | | | 1.40 | | | | 1.17 | |
| | Three months ended | | | Six months ended | | (In thousands, except per share data) | | June 30, | | | June 30, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Net income | | $ | 13,579 | | | $ | 10,602 | | | $ | 26,983 | | | $ | 21,393 | | Average shares outstanding | | | 22,625 | | | | 22,538 | | | | 22,601 | | | | 22,515 | | Dilutive securities | | | 354 | | | | 458 | | | | 374 | | | | 483 | | | | | | | | | | | | | | | | | | | Average shares outstanding including dilutive securities including dilutive securities | | | 22,979 | | | | 22,996 | | | | 22,975 | | | | 22,998 | | | | | | | | | | | | | | | | | | | Net income per share, basic | | $ | 0.60 | | | $ | 0.47 | | | $ | 1.19 | | | $ | 0.95 | | Net income per share, diluted | | $ | 0.59 | | | $ | 0.46 | | | $ | 1.17 | | | $ | 0.93 | |
33
Stock appreciation rights (“SARs”) excluded from the earnings per share calculation because their impact was antidilutive follows: As of June 30, 2018, SARs totaling 47,410 granted in March 2017 and January 2018 with strike prices of $40 and $38.30, respectively, were not included in the six months ended June 30 EPS calculation, nor were 46,410 issued in March 2017 included in the quarterly calculation as they were antidilutive;
| | Three | | | Six | | | | months ended | | | months ended | | (In thousands) | | June 30, | | | June 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Antidilutive SARs | | | 200 | | | | 93 | | | | 200 | | | | 93 | |
These shares while antidilutive, could however, they could be dilutive to EPSearnings per share (“EPS”) in the future. (12)(13)
| Defined Benefit Plan |
Bancorp sponsors an unfunded, non-qualified, defined benefit retirement plan for three key officers (two(one current and onetwo retired), and has no plans to increase the number of or benefits to participants. Benefits vest based on 25 years of service and allAll participants are fully vested. Actuarially determined pension costs are expensed and accrued over the service period, and benefits are paid from Bancorp’s assets. Information aboutBancorp maintains life insurance policies, for which it is the componentsbeneficiary, on participants and certain former executives. Income from these policies is utilized to offset costs of the netbenefits. Net periodic benefit cost of the defined benefit plan, recorded in compensation expense, is as follows: | | Three months ended | | | Six months ended | | | | June 30, | | | June 30, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | (In thousands) | | | | | | | | | | | | | | | | | Components of net periodic benefit cost | | | | | | | | | | | | | | | | | Service cost | | $ | - | | | $ | - | | | $ | - | | | $ | - | | Interest cost (1) | | | 20 | | | | 18 | | | | 40 | | | | 36 | | Expected return on plan assets | | | - | | | | - | | | | - | | | | - | | Amortization of prior service cost | | | - | | | | - | | | | - | | | | - | | Amortization of net losses (1) | | | 18 | | | | 17 | | | | 36 | | | | 33 | | Net periodic benefit cost | | $ | 38 | | | $ | 35 | | | $ | 76 | | | $ | 69 | |
(1) Bancorp elected as a practical expedient to use amounts disclosed in the 2017 consolidated financial statements as a basiswas immaterial for estimating quarterly application of components of defined benefit cost.
Stock Yards Bancorp, inc. and subsidiary
all respective periods. (13)(14)
| 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. 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. The 2005 Stock Incentive Plan expired in April 2015; however,In 2018 shareholders approved an additional 500 thousand additional shares were made available infor issuance under the second quarter of 2018. SARs granted under this plan expire as late as 2025.plan. As of June 30, 2018, 2019, there were 694,533505 thousand shares available for future awards.
Options, which have not been granted since 2007, generallyStock Options – Bancorp had a vesting scheduleno stock options outstanding as of 20%. The last remaining options were exercised in the first quarter of 2017.June 30, 2019 and December 31, 2018.
Stock appreciation rights (“SARs”)SARs – SARs granted have a vesting schedule of 20% per year and expire ten10 years after the grant date unless forfeited due to employment termination.
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 are entitled to dividend payments during the vesting period. For grants in 2015 and forward, forfeitable dividends are deferred until shares are vested. Fair value of restricted shares is equal to the market value of the shares on the date of grant.
Grants of performance stock units (“PSUs”) vest based upon a single 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. Grants require a one year post-vesting holding periods and the fair value of such grants incorporates a liquidity discount related to the holding period of 4.26%, 5.12% and 4.50% for 2018, 2017, and 2016, respectively.
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 estimated based on fair value of underlying shares on the date of grant.
Stock Yards Bancorp, inc. and subsidiary
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 six months ended | | | | June 30, | | | June 30, | | (In thousands) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | | | | | | | | | | | | | | | | Stock-based compensation expense before income taxes | | $ | 1,213 | | | $ | 682 | | | $ | 2,035 | | | $ | 1,342 | | | | | | | | | | | | | | | | | | | Less: deferred tax benefit | | | (255 | ) | | | (239 | ) | | | (427 | ) | | | (470 | ) | Reduction of net income | | $ | 958 | | | $ | 443 | | | $ | 1,608 | | | $ | 872 | |
Bancorp expects to record an additional $1.8 million of stock-based compensation expense in 2018 for equity grants outstanding as of June 30, 2018. As of June 30, 2018, Bancorp has $6.8 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 $155 thousand during the first six months of 2018 for the purchase of shares upon the vesting of restricted stock units. This compares with cash used of $216 thousand during the first six months of 2017 for the purchase of shares upon the vesting of restricted stock units net of cash received for options exercised.
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.such value. This model requires usethe input of assumptions, changes to which can materially affect the fair value estimate. The following assumptions were used in SAR valuations at the grant date in each year: | | 2019 | | | 2018 | | | | | | | | | | | Dividend yield | | | 2.54 | % | | | 2.56 | % | Expected volatility | | | 20.39 | % | | | 20.17 | % | Risk free interest rate | | | 2.52 | % | | | 2.96 | % | Expected life of SARs (in years) | | | 7.2 | | | | 7.0 | |
| | 2018 | | | 2017 | | | | | | | | | | | Dividend yield | | | 2.57 | % | | | 2.72 | % | Expected volatility | | | 20.60 | % | | | 19.47 | % | Risk free interest rate | | | 2.82 | % | | | 2.29 | % | Expected life of SARs (in years) | | | 7.0 | | | | 7.0 | |
Dividend yield and expected volatility are based on historical information for Bancorp corresponding to the expected life of options and SARs granted. Expected volatility is the volatility of the underlying shares for the expected term 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 options.awards. The expected life of SARs is based on actualpast experience of past like-termsimilar-life SARs. Bancorp evaluates historical exercise and post-vesting termination behavior when determining the expected life. 2934
Restricted stock awards (“RSAs”) – RSAs granted to officers vest over 5 years. For all grants prior to 2015, grantees are entitled to dividend payments during the vesting period. For grants in 2015 and forward, forfeitable 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. Grants of performance stock units (“PSUs”) – PSUs vest based upon service and a 3-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 1 year post-vesting holding period and the fair value of such grants incorporates a liquidity discount related to the holding period of 4.1%, 4.3% and 5.1% for 2019,2018, and 2017, respectively. Grants of restricted stock units (“RSUs”) – 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, fair value of the RSUs equals market value of underlying shares on the date of grant. Bancorp utilized cash of $272 thousand during the firstsix months of 2019 for the purchase of shares upon the vesting of RSUs. This compares with cash used of $155 thousand during the firstsix months of 2018 for the purchase of shares. In the first quarter of 2019, Bancorp awarded 9,834 RSUs to non-employee directors of Bancorp with a grant date fair value of $330 thousand. 35
Stock Yards Bancorp inc.has recognized stock-based compensation expense for SARs, RSAs, and subsidiaryPSUs within compensation expense, and RSUs for directors within other non-interest expense, as follows:
| | Three months ended June 30, 2019 | | (In thousands) | | Stock Appreciation Rights | | | Restricted Stock Awards | | | Restricted Stock Units | | | Performance Stock Units | | | Total | | | | | | | | | | | | | | | | | | | | | | | Expense | | $ | 86 | | | $ | 306 | | | $ | 83 | | | $ | 518 | | | $ | 993 | | Deferred tax benefit | | | (18 | ) | | | (65 | ) | | | (17 | ) | | | (109 | ) | | | (209 | ) | Total net expense | | $ | 68 | | | $ | 241 | | | $ | 66 | | | $ | 409 | | | $ | 784 | |
| | Three months ended June 30, 2018 | | (In thousands) | | Stock Appreciation Rights | | | Restricted Stock Awards | | | Restricted Stock Units | | | Performance Stock Units | | | Total | | | | | | | | | | | | | | | | | | | | | | | Expense | | $ | 77 | | | $ | 275 | | | $ | 62 | | | $ | 798 | | | $ | 1,212 | | Deferred tax benefit | | | (16 | ) | | | (58 | ) | | | (13 | ) | | | (167 | ) | | | (254 | ) | Total net expense | | $ | 61 | | | $ | 217 | | | $ | 49 | | | $ | 631 | | | $ | 958 | |
| | Six months ended June 30, 2019 | | (In thousands) | | Stock Appreciation Rights | | | Restricted Stock Awards | | | Restricted Stock Units | | | Performance Stock Units | | | Total | | | | | | | | | | | | | | | | | | | | | | | Expense | | $ | 170 | | | $ | 599 | | | $ | 164 | | | $ | 923 | | | $ | 1,856 | | Deferred tax benefit | | | (36 | ) | | | (126 | ) | | | (34 | ) | | | (194 | ) | | | (390 | ) | Total net expense | | $ | 134 | | | $ | 473 | | | $ | 130 | | | $ | 729 | | | $ | 1,466 | |
| | Six months ended June 30, 2018 | | (In thousands) | | Stock Appreciation Rights | | | Restricted Stock Awards | | | Restricted Stock Units | | | Performance Stock Units | | | Total | | | | | | | | | | | | | | | | | | | | | | | Expense | | $ | 150 | | | $ | 551 | | | $ | 124 | | | $ | 1,210 | | | $ | 2,035 | | Deferred tax benefit | | | (32 | ) | | | (116 | ) | | | (26 | ) | | | (253 | ) | | | (427 | ) | Total net expense | | $ | 118 | | | $ | 435 | | | $ | 98 | | | $ | 957 | | | $ | 1,608 | |
36
As of June 30, 2019, Bancorp has $7.4 million of unrecognized stock-based compensation expense estimated to be recorded as follows: (In thousands)
Year ended | | Stock Appreciation Rights | | | Restricted Stock Awards | | | Restricted Stock Units | | | Performance Stock Units | | | Total | | | | | | | | | | | | | | | | | | | | | | | Remainder of 2019 | | $ | 175 | | | $ | 599 | | | $ | 166 | | | $ | 999 | | | $ | 1,939 | | 2020 | | | 306 | | | | 1,049 | | | | 2 | | | | 1,325 | | | | 2,682 | | 2021 | | | 248 | | | | 830 | | | | — | | | | 466 | | | | 1,544 | | 2022 | | | 193 | | | | 559 | | | | — | | | | — | | | | 752 | | 2023 | | | 118 | | | | 308 | | | | — | | | | — | | | | 426 | | 2024 | | | 11 | | | | 25 | | | | — | | | | — | | | | 36 | | Total estimated expense | | $ | 1,051 | | | $ | 3,370 | | | $ | 168 | | | $ | 2,790 | | | $ | 7,379 | |
A summary of stock option andThe following table summarizes SARs activity and related information for the twelve month period ended December 31, 2017 and the six month period ended June 30, 2018 follows:information:
| | | | | | | | | | | | | | | | | | | | | | | | Weighted | | | | | | | | | | | | | | | | | | | | | | | | Weighted | | | | | | | | | | | | | | Weighted | | | Aggregate | | | Weighted | | | average | | | | | | | | | | | | Weighted | | | | | | Weighted | | average | | | | Options | | | | | | | | | average | | | intrinsic | | | average | | | remaining | | | | | | | | | | | | average | | Aggregate | | average | | remaining | | | | and SARs | | | Exercise | | | exercise | | | value | | | fair | | | contractual | | | | | | | Exercise | | exercise | | intrinsic | | fair | | contractual | | (In thousands, except per share data) | | | SARs | | | price | | | price | | | value(1) | | | value | | | life (in years) | | | | (In thousands) | | | price | | | price | | | (In thousands) | | | value | | | life (In years) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding, January 1, 2018 | | | 704 | | $14.02 | - | $40.00 | | $ | 19.51 | | $ | 12,923 | | $ | 3.47 | | 5.1 | | Granted | | | 46 | | | | 40.00 | - | 40.00 | | | | 40.00 | | | | - | | | | 6.34 | | | | | | | 100 | | | 35.90 | - | 39.32 | | | 37.75 | | | — | | | 6.07 | | | | | Exercised | | | (77 | ) | | | 14.02 | - | 17.89 | | | | 15.41 | | | | 1,855 | | | | 3.18 | | | | | | | (73 | ) | | 14.02 | - | 19.37 | | | 15.32 | | | 1,654 | | | 3.43 | | | | | Forfeited | | | - | | | | | - | | | | | - | | | | - | | | | - | | | | | | | | — | | | | - | | | | - | | | — | | | — | | | | | Outstanding, December 31, 2018 | | | | 731 | | | $14.02 | - | $40.00 | | | $ | 22.42 | | | $ | 8,422 | | | $ | 3.82 | | | 5.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vested and exercisable | | | 490 | | | | 14.02 | - | 33.08 | | | | 16.46 | | | | 10,408 | | | | 3.16 | | | | 4.0 | | | Unvested | | | 214 | | | | 15.26 | - | 40.00 | | | | 26.46 | | | | 2,515 | | | | 4.17 | | | | 7.7 | | | Total outstanding | | | 704 | | | | 14.02 | - | 40.00 | | | | 19.51 | | | | 12,923 | | | | 3.47 | | | | 5.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding, January 1, 2019 | | | 731 | | $14.02 | - | $40.00 | | $ | 22.42 | | $ | 8,422 | | $ | 3.82 | | | | Granted | | | 46 | | | | 35.90 | - | 38.30 | | | | 35.95 | | | | 102 | | | | 6.66 | | | | | | | 53 | | | 36.65 | - | 38.18 | | | 37.01 | | | — | | | 6.24 | | | | | Exercised | | | (62 | ) | | | 14.02 | - | 19.37 | | | | 15.42 | | | | 1,459 | | | | 3.41 | | | | | | | (47 | ) | | 14.02 | - | 22.96 | | | 17.16 | | | 830 | | | 3.62 | | | | | Forfeited | | | - | | | | | - | | | | | - | | | | - | | | | - | | | | | | | | — | | | | - | | | | - | | | — | | | — | | | | | Outstanding, June 30, 2019 | | | | 737 | | | $14.02 | - | $40.00 | | | $ | 23.79 | | | $ | 9,505 | | | $ | 4.01 | | | 5.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At June 30, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vested and exercisable | | | 502 | | | | 14.02 | - | 40.00 | | | | 17.62 | | | | 10,331 | | | | 3.22 | | | | 4.2 | | | 525 | | $14.02 | - | $40.00 | | $ | 19.20 | | $ | 8,975 | | $ | 3.38 | | 3.5 | | Unvested | | | 186 | | | | 19.37 | - | 40.00 | | | | 30.08 | | | | 1,570 | | | | 4.96 | | | | 8.0 | | | | 212 | | | 22.96 | - | 40.00 | | | 35.14 | | | | 530 | | | 5.58 | | | 8.5 | | Total outstanding | | | 688 | | | | 14.02 | - | 40.00 | | | | 20.99 | | | | 11,901 | | | | 3.69 | | | | 5.2 | | | Outstanding, June 30, 2019 | | | | 737 | | $14.02 | - | $40.00 | | $ | 23.79 | | $ | 9,505 | | $ | 4.01 | | 5.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vested year-to-date | | | 75 | | | | $15.26 | - | 40.00 | | | $ | 23.35 | | | $ | 1,123 | | | $ | 3.77 | | | | | | | Vested at June 30, 2019 | | | | 79 | | $19.37 | - | $40.00 | | $ | 27.39 | | $ | 740 | | $ | 4.55 | | | |
Intrinsic(1) - 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 grantprice.
Stock Yards Bancorp, inc. and subsidiaryThe following table summarizes activity for RSAs granted to officers:
| | | | | | Grant date | | | | | | | | weighted | | (In thousands, except per share data) | | RSAs | | | average cost | | | | | | | | | | | Unvested at January 1, 2018 | | | 119 | | | $ | 27.62 | | Shares awarded | | | 40 | | | | 35.89 | | Restrictions lapsed and shares released | | | (44 | ) | | | 23.62 | | Shares forfeited | | | (5 | ) | | | 31.35 | | Unvested at December 31, 2018 | | | 110 | | | $ | 32.09 | | | | | | | | | | | Unvested at January 1, 2019 | | | 110 | | | $ | 32.09 | | Shares awarded | | | 39 | | | | 34.88 | | Restrictions lapsed and shares released | | | (39 | ) | | | 28.70 | | Shares forfeited | | | — | | | | — | | Unvested at June 30, 2019 | | | 110 | | | $ | 34.32 | |
A summary of activityExpected shares to be awarded for the twelve month period ending December 31, 2017 and the six month period ending June 30, 2018 for restricted shares of common stockPSUs granted to officers is in the following table:
| | | | | | Grant date | | | | | | | | weighted- | | | | Number | | | average cost | | Unvested at December 31, 2016 | | | 145,235 | | | $ | 21.57 | | Shares awarded | | | 28,625 | | | | 44.85 | | Restrictions lapsed and shares released | | | (46,797 | ) | | | 19.79 | | Shares forfeited | | | (7,691 | ) | | | 25.18 | | Unvested at December 31, 2017 | | | 119,372 | | | | 27.62 | | | | | | | | | | | Shares awarded | | | 38,205 | | | | 36.00 | | Restrictions lapsed and shares released | | | (44,372 | ) | | | 23.58 | | Shares forfeited | | | (2,488 | ) | | | 30.35 | | Unvested at June 30, 2018 | | | 110,717 | | | $ | 32.07 | |
Bancorp awarded performance-based restricted stock units (“PSUs”) to executive officers of Bancorp, the single three-yearthree-year performance period for which began January 1 of the award year. The following table outlines the PSU grants.year are as follows:
| | Vesting | | | | | | | Expected | | Grant | | period | | | Fair | | | shares to | | year | | in years | | | value | | | be awarded | | 2016 | | | 3 | | | $ | 22.61 | | | | 69,161 | | 2017 | | | 3 | | | | 35.66 | | | | 61,893 | | 2018 | | | 3 | | | | 31.54 | | | | 50,352 | |
In the first quarter of 2018, Bancorp awarded 6,525 RSUs to directors of Bancorp with a grant date fair value of $247 thousand.
| | Vesting | | | | | | | Expected | | Grant | | period | | | Fair | | | shares to | | year | | in years | | | value | | | be awarded | | 2017 | | | 3 | | | $ | 35.66 | | | | 61,893 | | 2018 | | | 3 | | | | 31.54 | | | | 71,932 | | 2019 | | | 3 | | | | 32.03 | | | | 43,602 | |
(14)(15)
| Commitments and Contingent Liabilities |
As of June 30, 2019 and December 31, 2018, Bancorp had various commitments outstanding that arose in the normal course of business, including standby letterssuch as unused commitments or lines of credit and commitments made to extend credit,lend in the future, which are properly not reflected in the consolidated financial statements. In management’s opinion, at June 30, 2018Total off balance sheet commitments to extend credit of $687.7 million, including standby letters of credit of $18.9 million, represent normal banking transactions. Commitments to extend credit were $688.3 million, including letters of credit of $14.8 million, as of December 31, 2017. follows: (In thousands) | | June 30, 2019 | | | December 31, 2018 | | Commercial and Industrial | | $ | 381,824 | | | $ | 309,920 | | Construction - Commercial | | | 224,641 | | | | 163,314 | | Construction - Residential | | | 15,631 | | | | 16,050 | | Home Equity | | | 154,030 | | | | 147,907 | | Credit Cards | | | 21,222 | | | | 20,003 | | Overdrafts | | | 21,777 | | | | 21,751 | | Letters of credit | | | 23,359 | | | | 20,891 | | Other | | | 43,572 | | | | 33,369 | | Future loan commitments | | | 213,687 | | | | 101,399 | | | | | | | | | | | Total off balance sheet commitments to extend credit | | $ | 1,099,743 | | | $ | 834,604 | |
Commitments to extend credit are an agreement to lend to a customer as long as collateral is available as agreed upon and there is no violation of any condition established in the contract. 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 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 June 30, 2019 and December 31, 2018, Bancorp has recordedhad accrued $350 thousand in other liabilities for inherent risks related to unfunded credit commitments. Stock Yards Bancorp, inc. and subsidiary
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. Those guarantees are primarily issued to support customer commercial transactions. Standby letters of credit generally have maturities of one1 to two2 years. As of June 30, 2018, 2019, in the normal course of business, there were pending legal actions and proceedings in which claims for damages are 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 results of operations of Bancorp. (15)(16)
| 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. Bancorp adopted ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, effective January 1, 2018. The most significant change impacting Bancorp was a change in valuation methods for the loan portfolio for fair value reporting. GAAP no longer allows for valuing financial instruments for fair value purposes using an “entrance” pricing methodology. The use of an “exit” price methodology requires greater assumptions regarding life of loan losses and is a more complex calculation, the results of which can be seen below.
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 reliability of assumptionsinputs that may be used to determinemeasure fair value. These levels are:values:
| ● | Level 1: Valuation is based upon quoted (unadjusted) prices for identical instruments traded in active markets. |
| ● | Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
| ● | Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect internal estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques could include pricing models, discounted cash flows and other similar techniques. |
Authoritative guidance requires maximummaximization of use of observable inputs and minimumminimization of use of unobservable inputs 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 on an actual sale or immediate settlement of the asset or liability. Stock Yards Bancorp, inc. At June 30, 2019 and subsidiary
December 31, 2018, Bancorp’s investment securities available-for-saleavailable for sale portfolio and interest rate swaps arewere recorded at 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 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 otheravailable for sale 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.2.
Interest rate swaps are valued using primarily Level 2 inputs. Fair value measurements generallyfor interest rate swaps are 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 counterparty’s inability to perform and the change in value of derivative assets and liabilities attributable to credit risk was not significant during 2018.the reporting period. Interest rate swaps are valued using primarily Level 2 inputs.
BelowMortgage servicing rights, impaired loans and OREO are recorded at fair value on a non-recurring basis, generally in the carryingapplication of lower of cost or market adjustments or write-downs of specific assets.
39
Carrying values of assets measured at fair value on a recurring basis.basis follows: (In thousands) | | Fair value at June 30, 2018 | | Assets | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | Investment securities available-for-sale | | | | | | | | | | | | | | | | | Government sponsored enterprise obligations | | $ | 388,596 | | | $ | - | | | $ | 388,596 | | | $ | - | | Mortgage-backed securities - government agencies | | | 143,135 | | | | - | | | | 143,135 | | | | - | | Obligations of states and political subdivisions | | | 42,839 | | | | - | | | | 42,839 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total investment securities available-for-sale | | | 574,570 | | | | - | | | | 574,570 | | | | - | | | | | | | | | | | | | | | | | | | Interest rate swaps | | | 2,214 | | | | - | | | | 2,214 | | | | - | | | | | | | | | | | | | | | | | | | Total assets | | $ | 576,784 | | | $ | - | | | $ | 576,784 | | | $ | - | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | 1,461 | | | $ | - | | | $ | 1,461 | | | $ | - | |
Stock Yards Bancorp, inc. and subsidiary
(In thousands) | | Fair value at June 30, 2019 | | Assets | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | Securities available for sale: | | | | | | | | | | | | | | | | | Government sponsored enterprise obligations | | $ | 268,015 | | | $ | — | | | $ | 268,015 | | | $ | — | | Mortgage backed securities - government agencies | | | 131,598 | | | | — | | | | 131,598 | | | | — | | Obligations of states and political subdivisions | | | 23,966 | | | | — | | | | 23,966 | | | | — | | | | | | | | | | | | | | | | | | | Total Securities available for sale | | | 423,579 | | | | — | | | | 423,579 | | | | — | | | | | | | | | | | | | | | | | | | Interest rate swaps | | | 1,813 | | | | — | | | | 1,813 | | | | — | | | | | | | | | | | | | | | | | | | Total assets | | $ | 425,392 | | | $ | — | | | $ | 425,392 | | | $ | — | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | 1,849 | | | $ | — | | | $ | 1,849 | | | $ | — | |
(In thousands) | | Fair value at December 31, 2017 | | | Fair value at December 31, 2018 | | Assets | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | Investment securities available-for-sale | | | | | | | | | | | | | | | | | | U.S. Treasury and other U.S. government obligations | | $ | 149,984 | | | $ | 149,984 | | | $ | - | | | $ | - | | | Securities available for sale: | | | | | | | | | | | | | | | | | | Government sponsored enterprise obligations | | | 213,844 | | | | - | | | | 213,844 | | | | - | | | $ | 261,039 | | | $ | — | | | $ | 261,039 | | | $ | — | | Mortgage-backed securities - government agencies | | | 161,507 | | | | - | | | | 161,507 | | | | - | | | Mortgage backed securities - government agencies | | | 146,277 | | | — | | | 146,277 | | | — | | Obligations of states and political subdivisions | | | 49,189 | | | | - | | | | 49,189 | | | | - | | | | 29,679 | | | | — | | | | 29,679 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total investment securities available-for-sale | | | 574,524 | | | | 149,984 | | | | 424,540 | | | | - | | | Total Securities available for sale | | | | 436,995 | | | | — | | | | 436,995 | | | | — | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | | 579 | | | | - | | | | 579 | | | | - | | | | 1,035 | | | | — | | | | 1,035 | | | | — | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 575,103 | | | $ | 149,984 | | | $ | 425,119 | | | $ | - | | | $ | 438,030 | | | $ | — | | | $ | 438,030 | | | $ | — | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | 259 | | | $ | - | | | $ | 259 | | | $ | - | | | $ | 543 | | | $ | — | | | $ | 543 | | | $ | — | |
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 and liabilities measured at fair value is such that transfers in and out of any level are expected to be rare. For the three and six months ended June 30, 2019, there were no transfers between Levels 1,2, or 3. Bancorp had no financialnofinancial instruments classified within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis at June 30, 2018 2019 or December 31, 2017.2018. 40
MSRs are recorded
Discussion of assets measured at fair value upon capitalization,on a non-recurring basis follows: Mortgage Servicing Rights – On at least a quarterly basis, MSRs 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 June 30, 2018 2019 and December 31, 2017 2018, there was no valuationnovaluation allowance for the mortgage servicing rights, as the fair value exceeded the cost. Accordingly, the MSRs are not included in either table belowthe following tabular disclosure for June 30, 2018 2019 or December 31, 2017. See Note 4 for more information regarding MSRs. Stock Yards Bancorp, inc. and subsidiary2018.
ForImpaired loans - Collateral-dependent impaired loans ingenerally reflect partial charge-downs to their respective fair value, which is commonly based on recent real estate appraisals or other sources of valuations based upon the table below,underlying collateral. Also, fair value is calculated as the carrying value of only loans with a specific valuation allowance, less the specific allowance, and the carrying value of collateral dependent loans that have been charged down to their fair value.valuation allowance. Fair value of impaired loans was primarily measured based on the value of collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. Bancorp determines the value of real estate collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’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 of asset value, based on information provided by the borrower, following methodologies similar to those described for real estate. As of June 30, 2018, 2019, total impaired collateral dependent loans charged down to their fair value and impaired loans with a valuation allowance were $5.4 million,$389 thousand, and the specific allowance totaled $677$37 thousand, resulting in a fair value of $4.7 million,$352 thousand, compared with total collateral dependent loans charged down to their fair value and impaired loans with a valuation allowance of $2.6 million,$967 thousand, and the specific allowance allocation totaling $48$42 thousand, resulting in a fair value of $2.6 million$925 thousand at December 31, 2017. 2018. Losses represent charge offs and changes in specific allowances for the periods indicated.
Other real estate owned (“OREO”), which is carried - Assets acquired through or instead of loan foreclosure are initially recorded at thefair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value is periodically assessed for impairment based on fair value at the reporting date.less estimated costs to sell. Fair value is commonly based on recent real estate 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 the most recent appraisal. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3. For OREO in the following table, below, fair value is the carrying value of only parcels of OREO which have a carrying value equal to appraised value. Losses represent write-downs which occurred during the period indicated. At June 30, 2018 2019 and December 31, 2017, 2018, carrying value of all other real estate owned was $360$563 thousand and $2.6$1.0 million, respectively. 41
Below are the carrying values of assets measured at fair value on a non-recurring basis. (In thousands) | | Fair value at June 30, 2018 | | | Losses for 6 month | | | Fair value at June 30, 2019 | | | Losses recorded: | | | | | | | | | | | | | | | | | | | | period ended | | | | | | | | | | | | | | | | | | | Three months | | Six months | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | June 30, 2018 | | | | | | | | | | | | | | | | | | | ended | | ended | | Collateral dependent impaired loans | | $ | 4,735 | | | $ | - | | | $ | - | | | $ | 4,735 | | | $ | (1,419 | ) | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | June 30, 2019 | | | June 30, 2019 | | Impaired loans | | | $ | 352 | | | $ | — | | | $ | — | | | $ | 352 | | | $ | — | | | $ | — | | Other real estate owned | | | 360 | | | | - | | | | - | | | | 360 | | | | - | | | 239 | | | — | | | — | | | 239 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 5,095 | | | $ | - | | | $ | - | | | $ | 5,095 | | | $ | (1,419 | ) | |
(in thousands) | | Fair value at December 31, 2017 | | | Losses for 6 month | | | | | | | | | | | | | | | | | | | | period ended | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | June 30, 2017 | | Collateral dependent impaired loans | | $ | 2,569 | | | $ | - | | | $ | - | | | $ | 2,569 | | | $ | (307 | ) | Other real estate owned | | | 2,640 | | | | - | | | | - | | | | 2,640 | | | | (171 | ) | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 5,209 | | | $ | - | | | $ | - | | | $ | 5,209 | | | $ | (478 | ) |
Stock Yards Bancorp, inc. and subsidiary
(In thousands) | | Fair value at December 31, 2018 | | | Losses recorded: | | | | | | | | | | | | | | | | | | | | Three months | | | Six months | | | | | | | | | | | | | | | | | | | | ended | | | ended | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | June 30, 2018 | | | June 30, 2018 | | Impaired loans | | $ | 925 | | | $ | — | | | $ | — | | | $ | 925 | | | $ | 304 | | | $ | 1,419 | | Other real estate owned | | | 239 | | | | — | | | | — | | | | 239 | | | | — | | | | — | |
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 and liabilities measured at fair value is such that transfers in and out of any level are expected to be rare. For the six months ended June 30, 2018, there were no transfers between Levels 1, 2, or 3. For Level 3 assets measured at fair value on a non-recurring basis as of June 30, 2018 2019 and December 31, 2017, 2018, the significant unobservable inputs used in the fair value measurements are presented below. June 30, 2018 | | | | | | | Significant | | Weighted | | | June 30, 2019 | | June 30, 2019 | | | | Fair | | Valuation | | unobservable | | average of | | | Fair | | Valuation | | Unobservable | | (weighted | | (Dollars in thousands) | | value | | technique | | input | | input | | | value | | technique | | inputs | | average) | | | | | | | | | | | | | | | | | | | | | | | Impaired loans - collateral dependent | | $ | 4,735 | | Appraisal | | Appraisal discounts | | | 21.5 | % | | $ | 352 | | Appraisal | | Appraisal discounts | | 10.0 | % | Other real estate owned | | | 360 | | Appraisal | | Appraisal discounts | | | 10.0 | | | 239 | | Appraisal | | Appraisal discounts | | 22.0 | |
December 31, 2018 | | | | Fair | | Valuation | | Unobservable | | (weighted | | (Dollars in thousands) | | value | | technique | | inputs | | average) | | | | | | | | | | | | | | Impaired loans - collateral dependent | | $ | 925 | | Appraisal | | Appraisal discounts | | | 9.9 | % | Other real estate owned | | | 1,018 | | Appraisal | | Appraisal discounts | | | 12.2 | |
December 31, 2017 | | | | | | | Significant | | Weighted | | | | Fair | | Valuation | | unobservable | | average of | | (Dollars in thousands) | | value | | technique | | input | | input | | | | | | | | | | | | | | Impaired loans - collateral dependent | | $ | 2,569 | | Appraisal | | Appraisal discounts | | | 11.5 | % | Other real estate owned | | | 2,640 | | Appraisal | | Appraisal discounts | | | 23.4 | |
Stock Yards Bancorp, inc. and subsidiary
(16)(17)
| 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, estimated fair values, and placement in the fair value hierarchy of Bancorp’s financial instruments are as follows:
(In thousands) | | Carrying | | | | | | | | | | | | | | | | | | June 30, 2018 | | amount | | | Fair value | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | Financial assets | | | | | | | | | | | | | | | | | | | | | Cash and short-term investments | | $ | 55,000 | | | $ | 55,000 | | | $ | 55,000 | | | $ | - | | | $ | - | | Mortgage loans held for sale | | | 2,053 | | | | 2,142 | | | | - | | | | 2,142 | | | | - | | Federal Home Loan Bank stock and other securities | | | 10,370 | | | | 10,370 | | | | - | | | | 10,370 | | | | - | | Loans, net | | | 2,553,087 | | | | 2,551,409 | | | | - | | | | - | | | | 2,551,409 | | Accrued interest receivable | | | 8,743 | | | | 8,743 | | | | 8,743 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities | | | | | | | | | | | | | | | | | | | | | Deposits | | | 2,540,461 | | | | 2,538,054 | | | | - | | | | - | | | | 2,538,054 | | Short-term borrowings | | | 345,268 | | | | 345,268 | | | | - | | | | 345,268 | | | | - | | FHLB advances | | | 48,821 | | | | 47,374 | | | | - | | | | 47,374 | | | | - | | Accrued interest payable | | | 500 | | | | 500 | | | | 500 | | | | - | | | | - | |
(In thousands) | | Carrying | | | | | | | | | | | | | | | | | | June 30, 2019 | | amount | | | Fair value | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 116,039 | | | $ | 116,039 | | | $ | 116,039 | | | $ | — | | | $ | — | | Mortgage loans held for sale | | | 3,922 | | | | 4,023 | | | | — | | | | 4,023 | | | | — | | Federal Home Loan Bank stock | | | 11,316 | | | | 11,316 | | | | — | | | | 11,316 | | | | — | | Loans, net | | | 2,737,464 | | | | 2,749,157 | | | | — | | | | — | | | | 2,749,157 | | Accrued interest receivable | | | 9,633 | | | | 9,633 | | | | 9,633 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | Non-interest bearing deposits | | | 777,652 | | | | 777,652 | | | | 777,652 | | | | — | | | | — | | Transaction deposits | | | 1,671,016 | | | | 1,671,016 | | | | — | | | | 1,671,016 | | | | — | | Time deposits | | | 434,785 | | | | 436,451 | | | | — | | | | 436,451 | | | | — | | Securities sold under agreement to repurchase | | | 33,809 | | | | 33,809 | | | | — | | | | 33,809 | | | | — | | Federal funds purchased | | | 12,012 | | | | 12,012 | | | | — | | | | 12,012 | | | | — | | FHLB advances | | | 84,279 | | | | 84,505 | | | | — | | | | 84,505 | | | | — | | Accrued interest payable | | | 1,008 | | | | 1,008 | | | | 1,008 | | | | — | | | | — | |
(In thousands) | | Carrying | | | | | | | | | | | | | | | | | | December 31, 2017 | | amount | | | Fair value | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | Financial assets | | | | | | | | | | | | | | | | | | | | | Cash and short-term investments | | $ | 139,248 | | | $ | 139,248 | | | $ | 139,248 | | | $ | - | | | $ | - | | Mortgage loans held for sale | | | 2,964 | | | | 2,964 | | | | - | | | | 2,964 | | | | - | | Federal Home Loan Bank stock and other securities | | | 7,646 | | | | 7,646 | | | | - | | | | 7,646 | | | | - | | Loans, net | | | 2,384,685 | | | | 2,338,464 | | | | - | | | | - | | | | 2,338,464 | | Accrued interest receivable | | | 8,369 | | | | 8,369 | | | | 8,369 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities | | | | | | | | | | | | | | | | | | | | | Deposits | | | 2,578,295 | | | | 2,576,385 | | | | - | | | | - | | | | 2,576,385 | | Short-term borrowings | | | 231,825 | | | | 231,825 | | | | - | | | | 231,825 | | | | - | | FHLB advances | | | 49,458 | | | | 48,642 | | | | - | | | | 48,642 | | | | - | | Accrued interest payable | | | 232 | | | | 232 | | | | 232 | | | | - | | | | - | |
(In thousands) | | Carrying | | | | | | | | | | | | | | | | | | December 31, 2018 | | amount | | | Fair value | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 198,939 | | | $ | 198,939 | | | $ | 198,939 | | | $ | — | | | $ | — | | Mortgage loans held for sale | | | 1,675 | | | | 1,743 | | | | — | | | | 1,743 | | | | — | | Federal Home Loan Bank stock | | | 10,370 | | | | 10,370 | | | | — | | | | 10,370 | | | | — | | Loans, net | | | 2,522,637 | | | | 2,508,587 | | | | — | | | | — | | | | 2,508,587 | | Accrued interest receivable | | | 8,360 | | | | 8,360 | | | | 8,360 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | Non-interest bearing deposits | | | 711,023 | | | | 711,023 | | | | 711,023 | | | | — | | | | — | | Transaction deposits | | | 1,736,618 | | | | 1,736,618 | | | | — | | | | 1,736,618 | | | | — | | Time deposits | | | 346,715 | | | | 345,273 | | | | — | | | | 345,273 | | | | — | | Securities sold under agreement to repurchase | | | 36,094 | | | | 36,094 | | | | — | | | | 36,094 | | | | — | | Federal funds purchased | | | 10,247 | | | | 10,247 | | | | — | | | | 10,247 | | | | — | | FHLB advances | | | 48,177 | | | | 47,227 | | | | — | | | | 47,227 | | | | — | | Accrued interest payable | | | 762 | | | | 762 | | | | 762 | | | | — | | | | — | |
Limitations 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’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 affect estimates. Stock Yards Bancorp, inc. and subsidiary
(17)(18)
| Derivative Financial Instruments |
Periodically, Bancorp enters into an interest rate swap transactiontransactions with a borrower,borrowers who desiresdesire 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. 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. Exchanges of cash flows related to undesignated interest rate swap agreements for the firstsix months of 20182019 were offsetting and therefore had no 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 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 nonperformance 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. 44
At June 30, 2018 2019 and December 31, 2017, 2018, Bancorp had outstanding undesignated interest rate swap contracts as follows: (Dollar amounts in thousands) | | Receiving | | | Paying | | | (Dollars in thousands) | | | Receiving | | | Paying | | | | June 30, | | | December 31, | | | June 30, | | | December 31, | | | June 30, | | December 31, | | June 30, | | December 31, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Notional amount | | $ | 61,555 | | | $ | 54,964 | | | $ | 61,555 | | | $ | 54,964 | | | $ | 60,607 | | | $ | 55,505 | | | $ | 60,607 | | | $ | 55,505 | | Weighted average maturity (years) | | | 8.5 | | | | 8.7 | | | | 8.5 | | | | 8.7 | | | 7.4 | | | 8.0 | | | 7.4 | | | 8.0 | | Fair value | | $ | 1,426 | | | $ | 259 | | | $ | 1,461 | | | $ | 283 | | | $ | 1,813 | | | $ | 519 | | | $ | 1,835 | | | $ | 543 | |
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. 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 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’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, and is subsequently reclassified into earnings as an adjustment to interest expense in periods in which the hedged forecasted transaction affects earnings. Stock Yards Bancorp, inc. and subsidiary
The following table details Bancorp’s derivative position designated as a cash flow hedge, and the fair values as of June 30, 2018 2019 and December 31, 2017.2018. Notional | | Maturity | | Receive (variable) | | Pay fixed | | | assets (liabilities) | | amount | | date | | index | | swap rate | | | June 30, 2018 | | | December 31, 2017 | | $ | 10,000 | | 12/6/2021 | | US 3 Month LIBOR | | | 1.89 | % | | $ | 311 | | | $ | 106 | | | 20,000 | | 12/6/2020 | | US 3 Month LIBOR | | | 1.79 | % | | | 477 | | | | 190 | | $ | 30,000 | | | | | | | 1.82 | % | | $ | 788 | | | $ | 296 | |
(Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | Fair value | | Notional | | Maturity | | Receive (variable) | | Pay fixed | | | assets (liabilities) | | amount | | date | | index | | swap rate | | | June 30, 2019 | | | December 31, 2018 | | $ | 10,000 | | 12/6/2021 | | US 3 Month LIBOR | | | 1.89 | % | | $ | (37 | ) | | $ | 193 | | | 20,000 | | 12/6/2020 | | US 3 Month LIBOR | | | 1.79 | % | | | 23 | | | | 323 | | $ | 30,000 | | | | | | | 1.82 | % | | $ | (14 | ) | | $ | 516 | |
(18)(19)
| 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, prescribedin part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by banking regulationsregulators that, if undertaken, could have a direct material effect on Bancorp’s financial statements. Under capital adequacy guidelines and administered by state and federal banking agencies. Under these requirements, Bancorpthe regulatory 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, common equity Tier 1, and total capital, as defined, 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. In 2013,Banking regulators have categorized the Federal Reserve BoardBank as well-capitalized. For prompt corrective action, the regulations in accordance with Basel III define “well capitalized” as a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, a 10.0% Total Risk-Based Capital ratio and the FDIC approved rules that substantially amended regulatory risk-baseda 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital rules applicabledistributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank. The rules implemented regulatoryBank must hold a capital reformsconservation buffer composed of the Basel Committee on Banking Supervision reflected in "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems" (Basel III) and changes required by the Dodd-Frank Act. Basel III regulatory capital reforms became effective for Bancorp and the Bank on January Common Equity Tier 1 2015, and include new Risk-Based Capital above their minimum risk-based capital requirements. The capital conservation buffer phased in from 2016 to 2019 on the following schedule: a capital conservation buffer of 0.625% effective January 1, 2016; 1.25% effective January 1, 2017; 1.875% effective January 1, 2018; and leverage ratios. Bancorp and the Bank met alla fully phased in capital requirements to which they were subject asconservation buffer of June 30, 2018.2.5% on January 1, 2019.
Stock Yards Bancorp inc.continues to exceed the regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based, Tier I Risk Based Capital and subsidiary
Tier I Leverage Capital. 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 table sets forth consolidated Bancorp’s and the Bank’s risk based capital amounts and ratios as of June 30, 2018 and December 31, 2017.ratios: (Dollars in thousands) | | Actual | | | Minimum for adequately capitalized | | | Minimum for well capitalized | | | Actual | | Minimum for adequately capitalized | | Minimum for well capitalized | | June 30, 2018 | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | June 30, 2019 | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital (1) | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | $ | 376,209 | | | | 13.06 | % | | $ | 230,450 | | | | 8.00 | % | | NA | | | NA | | | $ | 400,314 | | | 12.67 | % | | $ | 252,821 | | | 8.00 | % | | NA | | NA | | Bank | | | 365,470 | | | | 12.70 | | | | 230,217 | | | | 8.00 | | | $ | 287,772 | | | | 10.00 | % | | 392,705 | | | 12.45 | | | 252,265 | | | 8.00 | | | $ | 315,331 | | | 10.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Common equity tier 1 risk-based capital | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | | 350,986 | | | | 12.18 | | | | 129,675 | | | | 4.50 | | | NA | | | NA | | | 373,548 | | | 11.82 | | | 142,212 | | | 4.50 | | | NA | | NA | | Bank | | | 340,247 | | | | 11.82 | | | | 129,536 | | | | 4.50 | | | | 187,107 | | | | 6.50 | | | 365,939 | | | 11.60 | | | 141,899 | | | 4.50 | | | 204,965 | | | 6.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 risk-based capital (1) | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | | 350,986 | | | | 12.18 | | | | 172,900 | | | | 6.00 | | | NA | | | NA | | | 373,548 | | | 11.82 | | | 189,616 | | | 6.00 | | | NA | | NA | | Bank | | | 340,247 | | | | 11.82 | | | | 172,714 | | | | 6.00 | | | | 230,286 | | | | 8.00 | | | 365,939 | | | 11.60 | | | 189,198 | | | 6.00 | | | 252,265 | | | 8.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Leverage (2) | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | | 350,986 | | | | 11.19 | | | | 125,464 | | | | 4.00 | | | NA | | | NA | | | 373,548 | | | 10.91 | | | 136,955 | | | 4.00 | | | NA | | NA | | Bank | | | 340,247 | | | | 10.85 | | | | 125,437 | | | | 4.00 | | | | 156,796 | | | | 5.00 | | | 365,939 | | | 10.70 | | | 136,784 | | | 4.00 | | | 170,980 | | | 5.00 | |
(Dollars in thousands) | | Actual | | | Minimum for adequately capitalized | | | Minimum for well capitalized | | | Actual | | Minimum for adequately capitalized | | Minimum for well capitalized | | December 31, 2017 | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | December 31, 2018 | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total risk-based capital (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | $ | 359,866 | | | | 13.52 | % | | $ | 213,012 | | | | 8.00 | % | | NA | | | NA | | | $ | 396,019 | | | 13.91 | % | | $ | 227,714 | | | 8.00 | % | | NA | | NA | | Bank | | | 347,840 | | | | 13.07 | | | | 212,891 | | | | 8.00 | | | $ | 266,114 | | | | 10.00 | % | | 385,637 | | | 13.56 | | | 227,462 | | | 8.00 | | | $ | 284,327 | | | | 10.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common equity tier 1 risk-based capital | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | | 334,631 | | | | 12.57 | | | | 119,820 | | | | 4.50 | | | NA | | | NA | | | 370,135 | | | 13.00 | | | 128,089 | | | 4.50 | | | NA | | NA | | Bank | | | 322,605 | | | | 12.12 | | | | 212,891 | | | | 4.50 | | | | 172,974 | | | | 6.50 | | | 359,753 | | | 12.65 | | | 127,947 | | | 4.50 | | | 184,813 | | | | 6.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 risk-based capital (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | | 334,631 | | | | 12.57 | | | | 159,760 | | | | 6.00 | | | NA | | | NA | | | 370,135 | | | 13.00 | | | 170,785 | | | 6.00 | | | NA | | NA | | Bank | | | 322,605 | | | | 12.12 | | | | 159,668 | | | | 6.00 | | | | 212,891 | | | | 8.00 | | | 359,753 | | | 12.65 | | | 170,596 | | | 6.00 | | | 227,462 | | | | 8.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Leverage (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | | 334,631 | | | | 10.70 | | | | 125,122 | | | | 4.00 | | | NA | | | NA | | | 370,135 | | | 11.33 | | | 130,698 | | | 4.00 | | | NA | | NA | | Bank | | | 322,605 | | | | 10.32 | | | | 125,040 | | | | 4.00 | | | | 156,300 | | | | 5.00 | | | 359,753 | | | 11.02 | | | 130,569 | | | 4.00 | | | 163,211 | | | | 5.00 | |
| (1)(1)
| Ratio is computed in relation to risk-weighted assets. |
| (2)(2)
| Ratio is computed in relation to average assets. |
| NA | Not applicable. Regulatory framework does not define well capitalized for holding companies.companies. |
46
Bancorp’s principal activities include commercial banking and wealth management and trust.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 origination and investment products sales activity. Wealth management and trustWM&T provides financial management services including investment management, trust and estate administration, and retirement plan services. Stock Yards Bancorp, inc. and subsidiary
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 exempt activity. All tax exempt activity and provision for loan losses have been allocated 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’ 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 $12.8 million, of which $682 thousand relatedrelates to a bank acquisition in 1996, which and $12.1 million resulted from the King acquisition, has been assigned to the commercial banking segment. Assets assigned to the Wealth Management & Trust Group (WM&T)WM&T primarily consist of net premises and equipment, net of accumulated depreciation.equipment. Selected financial information by business segment for the three and six month periods ended June 30, 2018 2019 and 20172018 follows: | | | | | | Wealth | | | | | | | | | | | Wealth | | | | | | | Commercial | | | management | | | | | | | Commercial | | Management | | | | | (In thousands) | | banking | | | and trust | | | Total | | | Banking | | | and Trust | | | Total Company | | | | | | | | | | | | | | | | Three months ended June 30, 2018 | | | | | | | | | | | | | | Three months ended June 30, 2019 | | | | | | | | | | | | | | Net interest income | | $ | 28,612 | | | $ | 62 | | | $ | 28,674 | | | $ | 30,690 | | | $ | 84 | | | $ | 30,774 | | Provision for loan losses | | | 1,235 | | | | - | | | | 1,235 | | | Provision | | | — | | | — | | | — | | Wealth management and trust services | | | - | | | | 5,344 | | | | 5,344 | | | — | | | 5,662 | | | 5,662 | | All other non-interest income | | | 6,091 | | | | - | | | | 6,091 | | | 6,601 | | | — | | | 6,601 | | Non-interest expense | | | 18,938 | | | | 3,198 | | | | 22,136 | | | Income before income taxes | | | 14,530 | | | | 2,208 | | | | 16,738 | | | Non-interest expenses | | | | 22,297 | | | | 3,167 | | | | 25,464 | | Income before income tax expense | | | 14,994 | | | 2,579 | | | 17,573 | | Income tax expense | | | 2,644 | | | | 515 | | | | 3,159 | | | | 471 | | | | 559 | | | | 1,030 | | Net income | | $ | 11,886 | | | $ | 1,693 | | | $ | 13,579 | | | $ | 14,523 | | | $ | 2,020 | | | $ | 16,543 | | | | | | | | | | | | | | | | Segment assets | | $ | 3,321,948 | | | $ | 1,892 | | | $ | 3,323,840 | | | $ | 3,462,105 | | | $ | 1,718 | | | $ | 3,463,823 | | Three months ended June 30, 2017 | | | | | | | | | | | | | | | | | Three months ended June 30, 2018 | | | | | | | | | | | | | | Net interest income | | $ | 25,165 | | | $ | 80 | | | $ | 25,245 | | | $ | 28,612 | | | $ | 62 | | | $ | 28,674 | | Provision for loan losses | | | 600 | | | | - | | | | 600 | | | Provision | | | 1,235 | | | — | | | 1,235 | | Wealth management and trust services | | | - | | | | 5,153 | | | | 5,153 | | | — | | | 5,344 | | | 5,344 | | All other non-interest income | | | 6,372 | | | | - | | | | 6,372 | | | 6,091 | | | — | | | 6,091 | | Non-interest expense | | | 18,027 | | | | 3,182 | | | | 21,209 | | | Income before income taxes | | | 12,910 | | | | 2,051 | | | | 14,961 | | | Non-interest expenses | | | | 18,938 | | | | 3,198 | | | | 22,136 | | Income before income tax expense | | | 14,530 | | | 2,208 | | | 16,738 | | Income tax expense | | | 3,626 | | | | 733 | | | | 4,359 | | | | 2,644 | | | | 515 | | | | 3,159 | | Net income | | $ | 9,284 | | | $ | 1,318 | | | $ | 10,602 | | | $ | 11,886 | | | $ | 1,693 | | | $ | 13,579 | | | | | | | | | | | | | | | | Segment assets | | $ | 3,124,522 | | | $ | 2,240 | | | $ | 3,126,762 | | | $ | 3,321,948 | | | $ | 1,892 | | | $ | 3,323,840 | |
Stock Yards Bancorp, inc. and subsidiary
| | | | | | Wealth | | | | | | | | Commercial | | | management | | | | | | (In thousands) | | Banking | | | and Trust | | | Total Company | | | | | | | | | | | | | | | Six months ended June 30, 2019 | | | | | | | | | | | | | Net interest income | | $ | 60,271 | | | $ | 160 | | | $ | 60,431 | | Provision | | | 600 | | | | — | | | | 600 | | Wealth management and trust services | | | — | | | | 11,101 | | | | 11,101 | | All other non-interest income | | | 12,224 | | | | — | | | | 12,224 | | Non-interest expenses | | | 41,903 | | | | 6,200 | | | | 48,103 | | Income before income tax expense | | | 29,992 | | | | 5,061 | | | | 35,053 | | Income tax expense | | | 1,771 | | | | 1,098 | | | | 2,869 | | Net income | | $ | 28,221 | | | $ | 3,963 | | | $ | 32,184 | | | | | | | | | | | | | | | Segment assets | | $ | 3,462,105 | | | $ | 1,718 | | | $ | 3,463,823 | | | | | | | | | | | | | | | Six months ended June 30, 2018 | | | | | | | | | | | | | Net interest income | | $ | 55,850 | | | $ | 133 | | | $ | 55,983 | | Provision | | | 1,970 | | | | — | | | | 1,970 | | Wealth management and trust services | | | — | | | | 10,844 | | | | 10,844 | | All other non-interest income | | | 11,500 | | | | — | | | | 11,500 | | Non-interest expenses | | | 36,798 | | | | 6,365 | | | | 43,163 | | Income before income tax expense | | | 28,582 | | | | 4,612 | | | | 33,194 | | Income tax expense | | | 5,210 | | | | 1,001 | | | | 6,211 | | Net income | | $ | 23,372 | | | $ | 3,611 | | | $ | 26,983 | | | | | | | | | | | | | | | Segment assets | | $ | 3,321,948 | | | $ | 1,892 | | | $ | 3,323,840 | |
| | | | | | Wealth | | | | | | | | Commercial | | | management | | | | | | (In thousands) | | banking | | | and trust | | | Total | | | | | | | | | | | | | | | Six months ended June 30, 2018 | | | | | | | | | | | | | Net interest income | | $ | 55,850 | | | $ | 133 | | | $ | 55,983 | | Provision for loan losses | | | 1,970 | | | | - | | | | 1,970 | | Wealth management and trust services | | | - | | | | 10,844 | | | | 10,844 | | All other non-interest income | | | 11,500 | | | | - | | | | 11,500 | | Non-interest expense | | | 36,798 | | | | 6,365 | | | | 43,163 | | Income before income taxes | | | 28,582 | | | | 4,612 | | | | 33,194 | | Income tax expense | | | 5,210 | | | | 1,001 | | | | 6,211 | | Net income | | $ | 23,372 | | | $ | 3,611 | | | $ | 26,983 | | | | | | | | | | | | | | | Segment assets | | $ | 3,321,948 | | | $ | 1,892 | | | $ | 3,323,840 | | Six months ended June 30, 2017 | | | | | | | | | | | | | Net interest income | | $ | 50,294 | | | $ | 157 | | | $ | 50,451 | | Provision for loan losses | | | 1,500 | | | | - | | | | 1,500 | | Wealth management and trust services | | | - | | | | 10,247 | | | | 10,247 | | All other non-interest income | | | 11,900 | | | | - | | | | 11,900 | | Non-interest expense | | | 35,975 | | | | 6,229 | | | | 42,204 | | Income before income taxes | | | 24,719 | | | | 4,175 | | | | 28,894 | | Income tax expense | | | 6,010 | | | | 1,491 | | | | 7,501 | | Net income | | $ | 18,709 | | | $ | 2,684 | | | $ | 21,393 | | | | | | | | | | | | | | | Segment assets | | $ | 3,124,522 | | | $ | 2,240 | | | $ | 3,126,762 | |
48
(20)(21)
| Revenue from Contracts with Customers |
Bancorp adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers and all related amendments (ASC 606), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, effective January 1, 2018 using the full retrospective method. Bancorp recognizes revenue upon satisfying a performance obligation as services are rendered to a customer. All of Bancorp’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The only impact to financial statement presentation was reclassification from expense to contra income costs incurred to obtain and fulfill contracts associated with investment product sales. All periods presented in these financial statements have been adjusted to reflect the reclassification. The table below presents the Company’sBancorp’s sources of non-interest income for the three and six months ended June 30, 2018 and 2017. Itemswith items outside the scope of ASC 606 are noted as such.such:
Stock Yards Bancorp, inc. and subsidiary
| | Three months ended June 30, 2019 | | | Three months ended June 30, 2018 | | (Dollars in thousands) | | Commercial | | | WM&T | | | Total | | | Commercial | | | WM&T | | | Total | | Wealth management and trust services | | $ | — | | | $ | 5,662 | | | $ | 5,662 | | | $ | — | | | $ | 5,344 | | | $ | 5,344 | | Deposit service charges | | | 1,336 | | | | — | | | | 1,336 | | | | 1,447 | | | | — | | | | 1,447 | | Debit and credit card income | | | 2,168 | | | | — | | | | 2,168 | | | | 1,689 | | | | — | | | | 1,689 | | Treasury management fees | | | 1,202 | | | | — | | | | 1,202 | | | | 1,113 | | | | — | | | | 1,113 | | Mortgage banking income(1) | | | 796 | | | | — | | | | 796 | | | | 746 | | | | — | | | | 746 | | Net investment product sales commissions and fees | | | 364 | | | | — | | | | 364 | | | | 397 | | | | — | | | | 397 | | Bank owned life insurance(1) | | | 184 | | | | — | | | | 184 | | | | 191 | | | | — | | | | 191 | | Other(2) | | | 551 | | | | — | | | | 551 | | | | 508 | | | | — | | | | 508 | | Total non-interest income | | $ | 6,601 | | | $ | 5,662 | | | $ | 12,263 | | | $ | 6,091 | | | $ | 5,344 | | | $ | 11,435 | |
| | For the three months ended | | | For the six months ended | | Revenue by operating segment | | June 30, 2018 | | | June 30, 2018 | | (In thousands) | | Commercial | | | WM&T | | | Consolidated | | | Commercial | | | WM&T | | | Consolidated | | Wealth management and trust services | | $ | - | | | $ | 5,344 | | | $ | 5,344 | | | $ | - | | | $ | 10,844 | | | $ | 10,844 | | Deposit service charges | | | 1,447 | | | | | | | | 1,447 | | | | 2,858 | | | | | | | | 2,858 | | Debit and credit card revenue | | | 1,689 | | | | | | | | 1,689 | | | | 3,197 | | | | | | | | 3,197 | | Treasury management fees | | | 1,113 | | | | | | | | 1,113 | | | | 2,160 | | | | | | | | 2,160 | | Mortgage banking revenue (1) | | | 746 | | | | | | | | 746 | | | | 1,322 | | | | | | | | 1,322 | | Investment product sales commissions and fees | | | 397 | | | | | | | | 397 | | | | 801 | | | | | | | | 801 | | Bank owned life insurance income (1) | | | 191 | | | | | | | | 191 | | | | 378 | | | | | | | | 378 | | Other income (2) | | | 508 | | | | | | | | 508 | | | | 784 | | | | | | | | 784 | | Total non-interest income | | $ | 6,091 | | | $ | 5,344 | | | $ | 11,435 | | | $ | 11,500 | | | $ | 10,844 | | | $ | 22,344 | |
| | Six months ended June 30, 2019 | | | Six months ended June 30, 2018 | | (Dollars in thousands) | | Commercial | | | WM&T | | | Total | | | Commercial | | | WM&T | | | Total | | Wealth management and trust services | | $ | — | | | $ | 11,101 | | | $ | 11,101 | | | $ | — | | | $ | 10,844 | | | $ | 10,844 | | Deposit service charges | | | 2,583 | | | | — | | | | 2,583 | | | | 2,858 | | | | — | | | | 2,858 | | Debit and credit card income | | | 3,912 | | | | — | | | | 3,912 | | | | 3,197 | | | | — | | | | 3,197 | | Treasury management fees | | | 2,359 | | | | — | | | | 2,359 | | | | 2,160 | | | | — | | | | 2,160 | | Mortgage banking income(1) | | | 1,278 | | | | — | | | | 1,278 | | | | 1,322 | | | | — | | | | 1,322 | | Net investment product sales commissions and fees | | | 720 | | | | — | | | | 720 | | | | 801 | | | | — | | | | 801 | | Bank owned life insurance(1) | | | 362 | | | | — | | | | 362 | | | | 378 | | | | — | | | | 378 | | Other(2) | | | 1,010 | | | | — | | | | 1,010 | | | | 784 | | | | — | | | | 784 | | Total non-interest income | | $ | 12,224 | | | $ | 11,101 | | | $ | 23,325 | | | $ | 11,500 | | | $ | 10,844 | | | $ | 22,344 | |
(1) Not within(1) Outside of the scope of ASC 606
| (2) Includes safe box deposit fees of $46,000 quarterly and $91,000 year-to-date included within the scope of ASC 606
|
| | For the three months ended | | | For the six months ended | | Revenue by operating segment | | June 30, 2017 | | | June 30, 2017 | | (In thousands) | | Commercial | | | WM&T | | | Consolidated | | | Commercial | | | WM&T | | | Consolidated | | Wealth management and trust services | | $ | - | | | $ | 5,153 | | | $ | 5,153 | | | $ | - | | | $ | 10,247 | | | $ | 10,247 | | Deposit service charges | | | 1,516 | | | | | | | | 1,516 | | | | 3,015 | | | | | | | | 3,015 | | Debit and credit card revenue | | | 1,514 | | | | | | | | 1,514 | | | | 2,920 | | | | | | | | 2,920 | | Treasury management fees | | | 1,082 | | | | | | | | 1,082 | | | | 2,104 | | | | | | | | 2,104 | | Mortgage banking revenue (1) | | | 897 | | | | | | | | 897 | | | | 1,599 | | | | | | | | 1,599 | | Investment product sales commissions and fees | | | 357 | | | | | | | | 357 | | | | 743 | | | | | | | | 743 | | Bank owned life insurance income (1) | | | 556 | | | | | | | | 556 | | | | 760 | | | | | | | | 760 | | Other income (2) | | | 450 | | | | | | | | 450 | | | | 759 | | | | | | | | 759 | | Total non-interest income | | $ | 6,372 | | | $ | 5,153 | | | $ | 11,525 | | | $ | 11,900 | | | $ | 10,247 | | | $ | 22,147 | |
(1) Not within the scope of ASC 606
| (2) Includes safe box deposit fees of $40,000 quarterly and $85,000 year-to-date included within the scope of ASC 606
|
Revenue sources within the scope of ASC 606 are discussed below.below: The CompanyBancorp earns fees from its deposit customers for transactions-based, account management, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payments fees, and ACH 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. Overdraft fees are recognized at the point in time that the overdraft occurs. Deposit service charges are withdrawn from customer’s account balances.
Treasury management transaction 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 fees are withdrawn from customer’s account balances. Stock Yards Bancorp, inc. and subsidiary
The Wealth Management and Trust GroupWM&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 clients do not permit performance based fees and accordingly, none of the fees earned by WM&T are performance based. Trust fees receivable as of June 30, 2019 were $2.1 million compared with $1.9 million as of December 31, 2018.
49
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 value and are assessed, collected, and recognized on a quarterly basis. Variable costs considered costs of obtainingBecause the contracts related toBank 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 activities includecommissions and fees are reported net of related costs, including nominal incentive compensation, expense and trading activity charges. The incentive compensation has been reclassified from compensation expensecharges of $257 and $261 thousand, for the trading activity fees from technology six month periods ended June 30, 2019, and communication in prior years’ presentation to a reduction of income.2018 respectively. Debit and credit card revenue primarily consists of debit and credit card interchange revenueincome. 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 firstsix month period ending June 30, 2018. Trust fees receivable as months of June 30, 2018 were $2.2 million compared with $2.2 million as of December 31, 2017.2019. 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. (21)(22)
| Recently Adopted Accounting PronouncementsLeases
|
Accounting Standards Update (ASU) 2014-09, Revenue – RevenueBancorp has operating leases for various branch locations with terms remaining from Contracts3 months to 14 years, some of which include options to extend the leases in 5 year increments. Options reasonably expected to be exercised are included in determination of the right of use asset. Bancorp elected the practical expedient to expense short-term lease expense associated with Customers.leases with original terms 12 months or less. Bancorp adopted ASU 2014-09elected not to separate non-lease components from lease components for its operating leases. The right-of-use lease asset and all related amendments (ASC 606), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancialoperating lease liability are recorded in others assets effective January 1, 2018 using the full retrospective method. The great majority of Bancorp’s revenue consists of interest income generated by loans, leases, securities, and other investments, which is outsideliabilities, respectively, on the scope of ASC 606. Significant judgements related to the nature and timing of revenue recognition were not impacted by implementing ASU 2014-09. Existing accrual practices for income earned but not collected proved consistent with the change in guidance to recognize revenue upon satisfying a performance obligation and as such no adjustment to retained earnings was needed. Services within the scope of ASC 606 include deposit service charges, WM&T revenue, investment product sales commissions and fees, interchange income, and the sale of other foreclosed assets. See note 20 for more revenue recognition details.
The only impact to financial statement presentation was reclassification from expense to contra income costs incurred to obtain and fulfill contracts associated with investment product sales. All periods presented in these financial statements have been adjusted to reflect the reclassification, the effect of which can be seen below.consolidated balance sheet.
Stock Yards Bancorp, inc.Balance sheet, income statement, and subsidiarycash flow detail regarding operating leases follows:
(In thousands) | | | | | | | | | | | | | | | | | | Balance Sheet | | June 30, 2019 | | | | | | | | | | | | | | | Operating lease right-of-use assets | | $ | 16,056 | | | included in premises and equipment | | Operating lease liabilities | | | 17,373 | | | included in other liabilities | | | | | | | | | | Weighted average remaining lease term (in years) | | 12.42 | | | | | Weighted average discount rate | | | 3.61 | % | | | | | | | | | | | | | Maturities of lease liabilities: | | | | | | | | | One year or less | | $ | 1,949 | | | | | | Year 2 | | | 1,929 | | | | | | Year 3 | | | 1,919 | | | | | | Year 4 | | | 1,955 | | | | | | Year 5 | | | 1,935 | | | | | | Greater than 5 years | | | 11,870 | | | | | | Total lease payments | | $ | 21,557 | | | | | | Less imputed interest | | | 4,184 | | | | | | Total | | $ | 17,373 | | | | | |
| | For the three months ended | | | For the three months ended | | | | June 30, 2018 | | | June 30, 2017 | | (In thousands) | | As reported | | | Under legacy GAAP | | | Impact of ASC 606 | | | As reported | | | Under legacy GAAP | | | Impact of ASC 606 | | Non-interest income | | | | | | | | | | | | | | | | | | | | | | | | | Investment product sales commissions and fees | | $ | 397 | | | $ | 521 | | | $ | (124 | ) | | $ | 357 | | | $ | 494 | | | $ | (137 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest expense | | | | | | | | | | | | | | | | | | | | | | | | | Compensation | | | 11,703 | | | | 11,704 | | | | (1 | ) | | | 10,566 | | | | 10,567 | | | | (1 | ) | Technology and communication | | | 2,264 | | | | 2,387 | | | | (123 | ) | | | 2,120 | | | | 2,256 | | | | (136 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net impact | | | | | | | | | | $ | - | | | | | | | | | | | $ | - | |
(In thousands) | | Three months ended | | | Six months ended | | Income Statement | | June 30, 2019 | | | June 30, 2019 | | | | | | | | | | | Components of lease expense: | | | | | | | | | Operating lease cost | | $ | 489 | | | $ | 997 | | Variable lease cost | | | 24 | | | | 63 | | Less sublease income | | | 13 | | | | 27 | | Total lease cost | | $ | 500 | | | $ | 1,033 | | | | | | | | | | |
| | For the six months ended | | | For the six months ended | | | | June 30, 2018 | | | June 30, 2017 | | (In thousands) | | As reported | | | Under legacy GAAP | | | Impact of ASC 606 | | | As reported | | | Under legacy GAAP | | | Impact of ASC 606 | | Non-interest income | | | | | | | | | | | | | | | | | | | | | | | | | Investment product sales commissions and fees | | $ | 801 | | | $ | 1,063 | | | $ | (262 | ) | | $ | 743 | | | $ | 1,033 | | | $ | (290 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest expense | | | | | | | | | | | | | | | | | | | | | | | | | Compensation | | | 22,673 | | | | 22,674 | | | | (1 | ) | | | 21,235 | | | | 21,237 | | | | (2 | ) | Technology and communication | | | 4,460 | | | | 4,721 | | | | (261 | ) | | | 3,968 | | | | 4,256 | | | | (288 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net impact | | | | | | | | | | $ | - | | | | | | | | | | | $ | - | |
(In thousands) | | Six months ended | | | | | | Cash flow Statement | | June 30, 2019 | | | | | | | | | | | | | | | Supplemental cash flow information: | | | | | | | | | Operating cash flows from operating leases | | $ | 694 | | | | | |
ASU 2016-01, Financial Instruments – Overall: Recognition and MeasurementAs of Financial Assets and Financial Liabilities. June 30, 2019 Bancorp adopted ASU 2016-01 effective January 1, 2018. The most significant impacthad not entered into any lease agreements that had yet to Bancorp was a change in valuation methods for the loan portfolio for fair value reporting. GAAP no longer allows for valuing financial instruments for fair value purposes using an “entrance” pricing methodology. The use of an “exit” price methodology requires greater assumptions regarding life of loan losses and is a more complex calculation, the results of which are documented in note 16.
ASU 2018-02, Income Statement Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Bancorp adopted ASU 2018-02 in the first quarter of 2018. Stranded items in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017 totaling $506 thousand were reclassified into retained earnings.commence.
Stock Yards Bancorp, inc. and subsidiary
(22)
| Recently Issued Accounting Pronouncements
|
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 standard 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 expects to record a right-of-use asset and lease liability of approximately $11 million upon adoption. Bancorp’s financial condition and results of operations are not otherwise expected to be impacted.
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. While the impact of implementing the CECL model cannot be quantified at this time, Bancorp expects to recognize a one-time cumulative-effect adjustment to the allowance in the first quarter of 2020, consistent with interagency guidance issued in 2016.
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 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.
In February 2018, FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10):Recognition and Measurement of Financial Assets and Financial Liabilities, which makes technical corrections to certain aspects of ASU 2016-01 regarding recognition of financial assets and liabilities. Transition guidance is provided for equity securities without a readily determinable fair value. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods. Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018, are not required to adopt the amendments until the interim period beginning after June 15, 2018. Bancorp does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the Company.
In June 2018, FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Consistent with the accounting for employee share-based payment awards, nonemployee share-based payment awards will be measured at grant-date fair value of the equity instruments obligated to be issued when the good has been delivered or the service rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. This ASU is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. Bancorp does not expect adoption of this standard to have a significant impacted on the consolidated financial statements of the company.
Stock Yards Bancorp, inc. and subsidiary
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This item discusses the results ofand operations for Stock Yards Bancorp, Inc. (“Bancorp” or “Company”Holding Company”), and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (“Bank”) for the three and six months ended June 30, 20182019 and compares these periods with the same periods of the previous year. Unless otherwise indicated, all referencesAll significant inter-company transactions and accounts have been eliminated in this discussionconsolidation. All companies are collectively referred to as “Bancorp” or the Bank include Bancorp. In addition,“Company.”
As a result of its acquisition of King, Bancorp, Inc. on May 1, 2019, Bancorp became the discussion describes changes in100% successor owner of King Bancorp Statutory Trust I (“KBST”), an unconsolidated finance subsidiary. As permitted under the financial conditionterms of KBST’s governing documents, Bancorp redeemed the trust-preferred securities at the par amount of approximately $3.6 million on June 17, 2019. Management’s Discussion and the Bank that have occurred during the first six monthsAnalysis of 2018 compared with the same period in 2017. This discussionFinancial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and accompanying notes presented in Part 1 Item 1 of this report.“Financial Statements.” Stock Yards Bancorp, Inc. is a financial holding company headquartered in Louisville, Kentucky. The Bank, chartered in 1904, is a state-chartered non-member financial institution that provides services in the Louisville, Kentucky, Indianapolis, Indiana and Cincinnati, Ohio Metropolitan Statistical Areas (“MSAs”) through 43 full service banking center locations. This report contains forward-looking statements under the Private Securities Litigation Reform Act that involve risks and uncertainties. Although Bancorp believes assumptions underlying forward-looking statements contained herein are reasonable, any of these assumptions could be inaccurate. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to the following: economic 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, results of operations, or financial condition of Bancorp’s customers; and other risks detailed in Bancorp’s filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of Bancorp. Acquisition of King Bancorp, Inc.and its wholly-owned subsidiary King Southern Bank(“King”) On May 1, 2019, Bancorp completed its acquisition of King Bancorp Inc., and its wholly-owned subsidiary King Southern Bank (collectively referred to as “King”), for $28 million in cash. The acquisition expands the Company’s market area into nearby Nelson County, Kentucky, while expanding the customer base in Louisville, Kentucky. At May 1, 2019, King reported approximately $192 million in total assets, approximately $164 million in loans, and approximately $126 million in deposits. As a result of the completion of the acquisition, Bancorp incurred pre-tax transaction charges totaling $1.3 million for the three and six months ended June 30, 2019. Net income from the King acquisition is expected to be accretive to Bancorp’s overall operating results on a quarterly basis going forward. Issued but Not Yet Effective Accounting Standards Updates (“ASUs”) For disclosure regarding the impact to Bancorp’s financial statements of issued-but-not-yet-effective ASUs, see Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.” Business Segment Overview As of June 30, 2019, Bancorp was divided into two reportable segments: Commercial Banking and Wealth Management & Trust (“WM&T”): Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses through commercial lending, retail lending, deposit services, treasury management services, private banking, online banking, mobile banking, 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. WM&T, with over $3 billion in assets under management (“AUM”), provides custom-tailored financial planning, investment management, retirement planning and trust and estate services in all markets in which Bancorp operates. Summary - Three and Six Months Ended June 30, 2019 Compared to the Three and Six Months Ended June 30, 2018 Three months ended June 30, (In thousands, except per share data) | | 2019 | | | 2018 | | | $ Change | | | % Change | | | | | | | | | | | | | | | | | | | Net income | | $ | 16,543 | | | $ | 13,579 | | | $ | 2,964 | | | | 21.8 | % | Diluted earnings per share | | $ | 0.72 | | | $ | 0.59 | | | $ | 0.13 | | | | 22.0 | % | Annualized return on average assets | | | 1.93 | % | | | 1.74 | % | | 19 bps | | | | 10.9 | % | Annualized return on average equity | | | 17.40 | % | | | 15.94 | % | | 146 bps | | | | 9.2 | % |
Six months ended June 30, (In thousands, except per share data) | | 2019 | | | 2018 | | | $ Change | | | % Change | | | | | | | | | | | | | | | | | | | Net income | | $ | 32,184 | | | $ | 26,983 | | | $ | 5,201 | | | | 19.3 | % | Diluted earnings per share | | $ | 1.40 | | | $ | 1.17 | | | $ | 0.23 | | | | 19.7 | % | Annualized return on average assets | | | 1.93 | % | | | 1.75 | % | | 18 bps | | | | 10.3 | % | Annualized return on average equity | | | 17.25 | % | | | 16.05 | % | | 120 bps | | | | 7.5 | % |
Overview of 2018 throughsix months ended June 30, 2019 compared with same period in 2018 Bancorp completed the first six months of 20182019 with record net income of $27.0$32.2 million, a 26.1%19.3% increase over the comparable period in 2017.2018. The increase is primarily due to higher net interest income driven by exceptionalyear-over-year average loan growth, higher non-interest income led by WM&T and higher interest rates,debit and credit card income, and a lower effective income tax rate resulting from Kentucky tax reform.law changes. Diluted earnings per share for the first six months of 20182019 were $1.17,$1.40, compared with $0.93to $1.17 for the first six months of 2017. Bancorp's performance2018. Key factors affecting Bancorp’s results for the first six months of 2018 reflected several positive factors, including:ended June 30, 2019 included: | ● | ExceptionalAverage loans increased $115.4 million, or 4.7%, year over year as a result of strong loan production and the May 1, 2019 King acquisition, contributing to a 16.6% increase in interest income. Total average deposits increased 9.8% to support loan growth, which increasedreflecting strong growth in time deposits and the Company’s loan portfolio 7% on a year-to-date basis and 12% year over year;impact of the King acquisition;
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| ● | A higher netNet interest margin, reflecting bothincome increased rate and volume;$4.4 million or 7.9% for the six months ended June 30, 2019, due largely to a $8.4 million increase in interest income earned on loans;
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| ● | A continuationNet interest margin rose 1 basis point compared with the same period of historically strong credit quality metrics;2018 as interest income stemming from asset growth offset increased interest expense resulting from deposit rate increases;
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| ● | Another solid performance byCredit quality metrics remained sound, including net loan loss recoveries for the Wealth Managementfirst six months of 2019, leading to reduced provision for loan and Trust Group; andlease losses (“provision”) of $600 thousand, as compared with $2.0 million for the comparable 2018 period;
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| ● | The benefit ofWM&T, buoyed by a lower marginal tax rate.strong second quarter market and new business generation, achieved 2.4% revenue growth year over year;
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As is the case with most banks, Bancorp’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. New business volume is influenced by economic factors including market interest rates, business spending, consumer confidence and competitive conditions within the marketplace.
● | Card income and treasury management fees, bolstered by increased volume and usage, continued to stand out as diversifying non-interest revenue streams; and |
● | Bancorp’s effective income tax rate declined to 8.2% for the six months ended June 30, 2019 based on changes made to Kentucky state tax law during the first and second quarters of 2019. |
Net interest income increased $5.5$4.4 million, or 11.0%7.9%, for the first six months of 2018,2019, as compared with the same period in 2017.2018. Net interest margin increased to 3.85% for the first six months of 2019, compared with 3.84% for the same period of 2018. Increasing average rates earned on interest earning assets, along with the impact of increased loan balancesvolumes of loans and short-term investments contributed to higher interest income for the first six months of 2018,2019, as interest income increased $8.1$10.2 million, or 15.0%16.6%, over the same period in 2017.2018. Average earning asset growth attributable to the May 1, 2019 King acquisition totaled $56 million for the six-month comparison period. Higher fundinglong-term borrowing costs onassumed in the King acquisition, along with a shift in deposits and borrowingsfrom non-interest bearing accounts to interest bearing accounts resulted in an increase in interest expense of $2.5$5.8 million. Interest paying liabilities assumed as part of the King acquisition contributed $47.1 million of the total $149.6 million average interest bearing liabilities growth for the six month comparison. The average balance of time deposits increased $144.8 million, or 78.5%, year over year. Bancorp benefited61.2% in recent yearsthe first six months of 2019, as compared with the same period in 2018, as a result primarily of targeted marketing campaigns initiated in 2018 to support loan growth and add liquidity to the balance sheet. The corresponding cost of time deposits increased from historically low costs of funding, so that a modest increase in interest expense results in a significant percentage change over prior periods. Net interest margin increased to 3.84%0.86% for the first six months of 2018 compared with 3.62%to 1.93% for the same period of 2017. Stock Yards Bancorp, inc. and subsidiary
in 2019. For the six-month period ended June 30, 2018,2019, Bancorp recorded a $2.0 million$600 thousand provision, for loan losses, compared with $1.5$2.0 million for the same period in 2017. Key loan quality indicators remained consistent with prior periods.2018. The provision for loan losses represents a charge to earnings necessary to maintain an allowance for loan losses that, in management’s evaluation,estimation, is adequate to provide coverage for the inherent losses on outstanding loans. The provision reflects many factors including trends in the portfolio, as well as changes in quantitative and qualitative factors. Reflecting continued strong credit quality metrics, and net recoveries of $282 thousand in the first six months of 2019, the allowance for loan losses to total loans was 0.96% as of June 30, 2018,2019, compared with 1.09%0.96% as of June 30, 2017. The decline in allowance for loan losses was largely2018. In management’s opinion, the effect of loan growth in the first six months of 2018 and charge offs that had been previously reserved. The allowance remained adequate to cover potential losses inwithin the portfolio, in management’s opinion.portfolio. Total non-interest income infor the first six months of 20182019 increased $197$981 thousand, or 0.9%4.4%, compared with the same period in 2017, and2018. Non-interest income comprised 28.5%27.9% of total revenues, defined as net interest income and non-interest income, as compared with 30.5%28.5% for the same period in 2017. Continuing2018. Bancorp’s WM&T services comprised 47.6% of Bancorp’s non-interest income. Debit and credit card revenue, as a result of increasing transaction volumes and incentives paid by the trendscredit card processor, increased $715 thousand, or 22.4% in the first six months of 2017, Bancorp’s Wealth Management and Trust Group led the increase2019, as compared with a 5.8%, or $597 thousand increase over the same period in 2017. This growth, which reflected2018. Treasury management fees, a steadily growing source of revenue for Bancorp, increased $199 thousand, or 9.2%, in the additionfirst half of new customer relationships2019, as compared with the first half of 2018. These items offset declines of $275 thousand, and stock market performance, is expected to continue at 4%-6%$81 thousand, for deposit service charges and investment product sales commissions and fees, respectively, for the first six months of 2019, as compared with 2018. Total non-interest expense in the first six months of 20182019 increased $959 thousand$4.9 million, or 2.3%11.4%, compared with the same period in 2017.2018. Increases in compensation, technology and communication, legal and marketingprofessional fees, and business developmentother expenses drove the increase. Costs associated with the King acquisition recognized during 2019 totaled $1.3 million approximately, or $0.05 net income per diluted share, and were partially offset by a reduction in amortization/impairment of investment in tax credit partnerships due to the sporadic timing of such opportunities, which can cause corresponding expensesspread primarily between compensation and tax benefits to vary widely.legal and professional fees. Bancorp's efficiency ratio, calculated on a fully tax-equivalent basis,reflecting the one-time transaction costs associated with the King acquisition recognized in the first six months of 20182019 was 55.0%57.36%, as compared with 57.8%54.98% in the same period in 2017. Excluding amortization2018. Bancorp recorded income tax expense of the investments in tax credit partnerships, the adjusted efficiency ratio, a non-GAAP measure, would have been 54.9%$2.9 million for the first six months of 2018 and 56.1%2019, compared to $6.2 million for the same period in 2017. See2018. The effective rate for the Non-GAAP Financial Measures section for details on reconcilement to US GAAP measures. Bancorp’s effective tax rate decreased tocorresponding six month periods was 8.2% and 18.7% in 2018 from 26.0% in 2017., respectively. The decrease in the effective tax rate from 20172018 to 2018 was largely the result2019 related primarily to Kentucky state tax law changes as discussed below:
| ● | In March 2019, the Kentucky Legislature passed HB354 requiring financial institutions to transition from a capital based franchise tax to the Kentucky corporate income tax beginning in 2021. Historically, the franchise tax, a component of non-interest expenses, was assessed at 1.1% of net capital and averaged $2.5 million annually over the prior two year-end periods. The Kentucky corporate income tax will be assessed at 5% of Kentucky taxable income and will be included as a component of current and deferred state income tax expense. Associated with this change, during the first quarter of 2019, Bancorp established a Kentucky state deferred tax asset related to existing temporary differences estimated to reverse after the effective date of the law change. Bancorp recorded a corresponding state tax benefit, net of federal impact of $1.3 million, or approximately $0.06 per diluted share for the first six months of 2019. While this is positive in the short-term, Bancorp anticipates an unfavorable impact of approximately $200 thousand per year beginning in 2021. |
| ● | In April 2019, the Kentucky legislature passed HB458 allowing banks and their holding companies to be combined together for Kentucky tax return filings beginning in 2021. The combined filing will allow Bancorp’s Holding Company net operating losses to offset against net revenue generated by The Bank and reduce Bancorp’s tax liability. Bancorp recorded a state tax benefit associated with this change of $2.4 million in the second quarter of 2019, or approximately $0.11 per diluted share for the first six months of 2019. |
The ratio of shareholder’sstockholder’s equity to total assets was 10.40%11.24% as of June 30, 20182019, as compared with 10.30%11.10% at December 31, 2017. Tangible2018, and 10.40% at June 30, 2018. Total equity increased $22.9 million in the first six months of 2019, as net income of $32.2 million was offset by dividends declared of $11.6 million and stock repurchases totaling $5.8 million. Bancorp’s ratio of tangible common equity (TCE)(“TCE”) to total tangible assets was 10.85% as of June 30, 2019, compared with 11.05% at December 31, 2018, and 10.35% at June 30, 2018, with the decline attributable to the KSB acquisition. TCE, (a non-U.S. Generally Accepted Accounting Principle (“GAAP”) measure), a non-GAAP measure, is a measure of a company's capital which is useful in evaluating the quality and adequacy of capital. See the Non-GAAP Financial Measures section for details on reconcilement to US GAAP measures. The ratio of tangible common equity to total tangible assets was 10.35% as of June 30, 2018, compared with 10.25% at December 31, 2017. The following sections provide more details on subjects presented in this overview.Results of Operations
Stock Yards Bancorp, inc. and subsidiary
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Net income of $13.6$16.5 million for the three months ended June 30, 20182019 increased $3.0 million, or 28.1%21.8%, from $10.6$13.6 million for the comparable 20172018 period. Basic net income per share was $0.73 for the second quarter of 2019, an increase of 21.7% from the $0.60 for the second quarter of 2018, an increase of 27.7% from the $0.47 for the same period of 2017.2018. Net income per share on a diluted basis was $0.59$0.72 for the three month period ended June 30, 2018,second quarter of 2019, an increase of 28.3%22.0% from the $0.46$0.59 for the same period in 2017.2018. See Note 1112 for additional information related to net income per share. Annualized return on average assets and annualized return on average stockholders’ equity were 1.74%1.93% and 15.94%17.40%, respectively, for the second quarter of 2018,2019, compared with 1.42%1.74% and 13.12%15.94%, respectively, for the same period in 2017.2018. Net income of $27.0$32.2 million for the six months ended June 30, 20182019 increased $5.6$5.2 million, or 26.1%19.3%, from $21.4$27.0 million for the comparable 20172018 period. Basic net income per share was $1.19$1.42 for the first six months of 2018,2019, an increase of 25.3%19.3% from $0.95the $1.19 for the same period of 2017.2018. Net income per share on a diluted basis was $1.17$1.40 for the six month period ended June 30, 2018,first half of 2019, an increase of 25.8%19.7% from 0.93the $1.17 for the same period in 2017.2018. See Note 1112 for additional information related to net income per share. Annualized return on average assets and annualized return on average stockholders’ equity were 1.75%1.93% and 16.05%17.25%, respectively, for the six months ended June 30, 2018,2019, compared with 1.44%1.75% and 13.45%16.05%, respectively, for the same period in 2017. 2018. Stock Yards Bancorp, inc. and subsidiary
Net Interest Income The following tables present average balance sheets for the three and six month periods ended June 30, 20182019 and 20172018 along with the related calculation of tax-equivalent net interest income, net interest margin and net interest spread for the related periods. See the notes following the tables for further explanation. Average Balances and Interest Rates - Taxable Equivalent Basis | | | | | Three months ended June 30, | | | Three months ended June 30, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | | Average | | | | | | | Average | | | Average | | | | | | | Average | | | Average | | | | | | Average | | Average | | | | | | Average | | (Dollars in thousands) | | balances | | | Interest | | | rate | | | balances | | | Interest | | | rate | | | balances | | | Interest | | | rate | | | balances | | | Interest | | | rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal funds sold and interest bearing deposits | | $ | 36,985 | | | $ | 163 | | | | 1.77 | % | | $ | 105,786 | | | $ | 276 | | | | 1.05 | % | | Federal funds sold and interest bearing due from banks | | | $ | 137,130 | | | $ | 830 | | | 2.43 | % | | $ | 36,985 | | | $ | 163 | | | 1.77 | % | Mortgage loans held for sale | | | 2,975 | | | | 44 | | | | 5.93 | | | | 4,505 | | | | 53 | | | | 4.72 | | | | 3,794 | | | 43 | | | 4.55 | | | 2,975 | | | 44 | | | 5.93 | | Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | Securities available for sale: | | | | | | | | | | | | | | | | Taxable | | | 358,637 | | | | 1,996 | | | | 2.23 | | | | 400,935 | | | | 1,982 | | | | 1.98 | | | | 410,201 | | | 2,395 | | | 2.34 | | | 358,637 | | | 1,996 | | | 2.23 | | Tax-exempt | | | 42,732 | | | | 288 | | | | 2.70 | | | | 53,899 | | | | 396 | | | | 2.95 | | | | 25,190 | | | 162 | | | 2.58 | | | 42,732 | | | 288 | | | 2.70 | | FHLB stock and other securities | | | 8,925 | | | | 109 | | | | 4.90 | | | | 6,376 | | | | 74 | | | | 4.66 | | | FHLB stock | | | | 10,590 | | | 151 | | | 5.72 | | | 8,925 | | | 109 | | | 4.90 | | Loans, net of unearned income | | | 2,523,450 | | | | 29,489 | | | | 4.69 | | | | 2,258,710 | | | | 24,447 | | | | 4.34 | | | | 2,658,036 | | | | 33,442 | | | 5.05 | | | | 2,523,450 | | | | 29,489 | | | 4.69 | | | | | | | | | | | | | | | | | | | | | | | Total earning assets | | | 2,973,704 | | | | 32,089 | | | | 4.33 | | | | 2,830,211 | | | | 27,228 | | | | 3.86 | | | | 3,244,941 | | | | 37,023 | | | 4.58 | | | 2,973,704 | | | | 32,089 | | | 4.33 | | | | | | | | | | | | | | | | | | | | | | | Less allowance for loan losses | | | 24,433 | | | | | | | | | | | | 24,849 | | | | | | | | | | | | 27,190 | | | | | | | | | 24,433 | | | | | | | | | | 2,949,271 | | | | | | | | | | | | 2,805,362 | | | | | | | | | | | | 3,217,751 | | | | | | | | 2,949,271 | | | | | | | Non-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | | 40,607 | | | | | | | | | | | | 39,989 | | | | | | | | | | | | 43,955 | | | | | | | | 40,607 | | | | | | | Premises and equipment | | | 42,000 | | | | | | | | | | | | 41,754 | | | | | | | | | | | Premises and equipment, net | | | | 64,238 | | | | | | | | 42,000 | | | | | | | Accrued interest receivable and other assets | | | 100,616 | | | | | | | | | | | | 107,104 | | | | | | | | | | | | 110,231 | | | | | | | | | | 100,616 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 3,132,494 | | | | | | | | | | | $ | 2,994,209 | | | | | | | | | | | $ | 3,436,175 | | | | | | | | | $ | 3,132,494 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing demand deposits | | $ | 792,193 | | | $ | 839 | | | | 0.42 | % | | $ | 736,896 | | | $ | 391 | | | | 0.21 | % | | $ | 843,768 | | | $ | 1,408 | | | 0.67 | % | | $ | 792,193 | | | $ | 839 | | | 0.42 | % | Savings deposits | | | 158,561 | | | | 61 | | | | 0.15 | | | | 148,824 | | | | 54 | | | | 0.15 | | | | 169,883 | | | 109 | | | 0.26 | | | 158,561 | | | 61 | | | 0.15 | | Money market deposits | | | 657,230 | | | | 1,206 | | | | 0.74 | | | | 688,237 | | | | 683 | | | | 0.40 | | | | 689,954 | | | 2,079 | | | 1.21 | | | 657,230 | | | 1,206 | | | 0.74 | | Time deposits | | | 238,746 | | | | 568 | | | | 0.95 | | | | 238,333 | | | | 353 | | | | 0.59 | | | | 409,163 | | | | 2,056 | | | 2.02 | | | | 238,746 | | | | 568 | | | 0.95 | | Total interest bearing deposits | | | | 2,112,768 | | | 5,652 | | | 1.07 | | | 1,846,730 | | | 2,674 | | | 0.58 | | Securities sold under agreements to repurchase | | | 61,993 | | | | 33 | | | | 0.21 | | | | 60,336 | | | | 32 | | | | 0.21 | | | | 39,969 | | | 28 | | | 0.28 | | | 61,993 | | | 33 | | | 0.21 | | Federal funds purchased and other short term borrowings | | | 88,180 | | | | 394 | | | | 1.79 | | | | 18,451 | | | | 29 | | | | 0.63 | | | | 11,774 | | | 64 | | | 2.18 | | | 88,180 | | | 394 | | | 1.79 | | FHLB advances | | | 48,929 | | | | 229 | | | | 1.88 | | | | 50,543 | | | | 239 | | | | 1.90 | | | | 72,923 | | | 424 | | | 2.33 | | | 48,929 | | | 229 | | | 1.88 | | Subordinated debt | | | | 1,497 | | | | 26 | | | 6.97 | | | | — | | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing liabilities | | | 2,045,832 | | | | 3,330 | | | | 0.65 | | | | 1,941,620 | | | | 1,781 | | | | 0.37 | | | | 2,238,931 | | | | 6,194 | | | 1.11 | | | 2,045,832 | | | | 3,330 | | | 0.65 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest bearing demand deposits | | | 701,642 | | | | | | | | | | | | 683,966 | | | | | | | | | | | | 754,592 | | | | | | | | 701,642 | | | | | | | Accrued interest payable and other liabilities | | | 43,383 | | | | | | | | | | | | 44,609 | | | | | | | | | | | | 61,382 | | | | | | | | | 43,383 | | | | | | | Total liabilities | | | 2,790,857 | | | | | | | | | | | | 2,670,195 | | | | | | | | | | | | 3,054,905 | | | | | | | | 2,790,857 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stockholders’ equity | | | 341,637 | | | | | | | | | | | | 324,014 | | | | | | | | | | | | 381,270 | | | | | | | | | 341,637 | | | | | | | Total liabilities and stockholders’ equity | | $ | 3,132,494 | | | | | | | | | | | $ | 2,994,209 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and stockholder's equity | | | $ | 3,436,175 | | | | | | | | $ | 3,132,494 | | | | | | | Net interest income | | | | | | $ | 28,759 | | | | | | | | | | | $ | 25,447 | | | | | | | | | | | $ | 30,829 | | | | | | | | $ | 28,759 | | | | | Net interest spread | | | | | | | | | | | 3.68 | % | | | | | | | | | | | 3.49 | % | | | | | | | | 3.47 | % | | | | | | | 3.68 | % | Net interest margin | | | | | | | | | | | 3.88 | % | | | | | | | | | | | 3.60 | % | | | | | | | | 3.81 | % | | | | | | | 3.88 | % |
Stock Yards Bancorp, inc. and subsidiary
Average Balances and Interest Rates - Taxable Equivalent Basis
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| | Six months ended June 30, | | | Six months ended June 30, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | | Average | | | | | | | Average | | | Average | | | | | | | Average | | | Average | | | | | | Average | | Average | | | | | | Average | | (Dollars in thousands) | | balances | | | Interest | | | rate | | | balances | | | Interest | | | rate | | | balances | | | Interest | | | rate | | | balances | | | Interest | | | rate | | | | | | | | | | | | | | | | | Earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal funds sold and interest bearing deposits | | $ | 53,991 | | | $ | 431 | | | | 1.61 | % | | $ | 85,657 | | | $ | 410 | | | | 0.97 | % | | Federal funds sold and interest bearing due from banks | | | $ | 129,701 | | | $ | 1,563 | | | 2.43 | % | | $ | 53,991 | | | $ | 431 | | | 1.61 | % | Mortgage loans held for sale | | | 2,539 | | | | 79 | | | | 6.27 | | | | 3,729 | | | | 97 | | | | 5.25 | | | 2,766 | | | 80 | | | 5.83 | | | 2,539 | | | 79 | | | 6.27 | | Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | Securities available for sale: | | | Taxable | | | 365,935 | | | | 4,024 | | | | 2.22 | | | | 416,022 | | | | 4,024 | | | | 1.95 | | | 410,018 | | | 4,806 | | | 2.36 | | | 365,935 | | | 4,024 | | | 2.22 | | Tax-exempt | | | 43,558 | | | | 583 | | | | 2.70 | | | | 54,413 | | | | 798 | | | | 2.96 | | | 26,480 | | | 337 | | | 2.57 | | | 43,558 | | | 583 | | | 2.70 | | FHLB stock and other securities | | | 8,310 | | | | 219 | | | | 5.31 | | | | 6,361 | | | | 146 | | | | 4.63 | | | FHLB stock | | | 10,392 | | | 308 | | | 5.98 | | | 8,310 | | | 219 | | | 5.31 | | Loans, net of unearned income | | | 2,478,305 | | | | 56,590 | | | | 4.60 | | | | 2,268,146 | | | | 48,606 | | | | 4.32 | | | | 2,593,712 | | | | 65,014 | | | 5.05 | | | | 2,478,305 | | | | 56,590 | | | 4.60 | | | | | | | | | | | | | | | | | | | | | | Total earning assets | | | 2,952,638 | | | | 61,926 | | | | 4.23 | | | | 2,834,328 | | | | 54,081 | | | | 3.85 | | | 3,173,069 | | | | 72,108 | | | 4.58 | | | 2,952,638 | | | | 61,926 | | | 4.23 | | | | | | | | | | | | | | | | | | | | | | Less allowance for loan losses | | | 24,746 | | | | | | | | | | | | 24,615 | | | | | | | | | | | | 26,662 | | | | | | | | | 24,746 | | | | | | | | | | 2,927,892 | | | | | | | | | | | | 2,809,713 | | | | | | | | | | | 3,146,407 | | | | | | | | 2,927,892 | | | | | | | Non-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | | 40,298 | | | | | | | | | | | | 40,037 | | | | | | | | | | | 42,810 | | | | | | | | 40,298 | | | | | | | Premises and equipment | | | 41,945 | | | | | | | | | | | | 42,003 | | | | | | | | | | | Premises and equipment, net | | | 63,083 | | | | | | | | 41,945 | | | | | | | Accrued interest receivable and other assets | | | 101,672 | | | | | | | | | | | | 104,814 | | | | | | | | | | | | 101,872 | | | | | | | | | 101,672 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 3,111,807 | | | | | | | | | | | $ | 2,996,567 | | | | | | | | | | | $ | 3,354,172 | | | | | | | | $ | 3,111,807 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing demand deposits | | $ | 804,810 | | | $ | 1,462 | | | | 0.37 | % | | $ | 746,144 | | | $ | 658 | | | | 0.18 | % | | $ | 852,347 | | | $ | 2,811 | | | 0.67 | % | | $ | 804,810 | | | $ | 1,462 | | | 0.37 | % | Savings deposits | | | 156,594 | | | | 117 | | | | 0.15 | | | | 146,016 | | | | 68 | | | | 0.09 | | | 163,504 | | | 205 | | | 0.25 | | | 156,594 | | | 117 | | | 0.15 | | Money market deposits | | | 671,883 | | | | 2,159 | | | | 0.65 | | | | 694,636 | | | | 1,227 | | | | 0.36 | | | 683,767 | | | 4,054 | | | 1.20 | | | 671,883 | | | 2,159 | | | 0.65 | | Time deposits | | | 236,577 | | | | 1,013 | | | | 0.86 | | | | 242,543 | | | | 691 | | | | 0.57 | | | | 381,358 | | | | 3,648 | | | 1.93 | | | | 236,577 | | | | 1,013 | | | 0.86 | | Total interest bearing deposits | | | 2,080,976 | | | 10,718 | | | 1.04 | | | 1,869,864 | | | 4,751 | | | 0.51 | | Securities sold under agreements to repurchase | | | 66,609 | | | | 67 | | | | 0.20 | | | | 64,379 | | | | 67 | | | | 0.21 | | | 38,755 | | | 53 | | | 0.28 | | | 66,609 | | | 67 | | | 0.20 | | Federal funds purchased and other short term borrowings | | | 57,391 | | | | 483 | | | | 1.70 | | | | 17,046 | | | | 48 | | | | 0.57 | | | 11,602 | | | 124 | | | 2.16 | | | 57,391 | | | 483 | | | 1.70 | | FHLB advances | | | 49,087 | | | | 464 | | | | 1.91 | | | | 50,704 | | | | 471 | | | | 1.87 | | | 60,512 | | | 645 | | | 2.15 | | | 49,087 | | | 464 | | | 1.91 | | Subordinated debt | | | | 752 | | | | 26 | | | 6.97 | | | | — | | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing liabilities | | | 2,042,951 | | | | 5,765 | | | | 0.57 | | | | 1,961,468 | | | | 3,230 | | | | 0.33 | | | 2,192,597 | | | | 11,566 | | | 1.06 | | | 2,042,951 | | | | 5,765 | | | 0.57 | | | | | | | | | | | | | | | | | Non-interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest bearing demand deposits | | | 685,873 | | | | | | | | | | | | 672,199 | | | | | | | | | | | 724,896 | | | | | | | | 685,873 | | | | | | | Accrued interest payable and other liabilities | | | 43,866 | | | | | | | | | | | | 42,034 | | | | | | | | | | | | 60,481 | | | | | | | | | 43,866 | | | | | | | Total liabilities | | | 2,772,690 | | | | | | | | | | | | 2,675,701 | | | | | | | | | | | 2,977,974 | | | | | | | | 2,772,690 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stockholders’ equity | | | 339,117 | �� | | | | | | | | | | | 320,866 | | | | | | | | | | | | 376,198 | | | | | | | | | 339,117 | | | | | | | Total liabilities and stockholders’ equity | | $ | 3,111,807 | | | | | | | | | | | $ | 2,996,567 | | | | | | | | | | | | | | Total liabilities and stockholder's equity | | | $ | 3,354,172 | | | | | | | | $ | 3,111,807 | | | | | | | Net interest income | | | | | | $ | 56,161 | | | | | | | | | | | $ | 50,851 | | | | | | | | | | $ | 60,542 | | | | | | | | $ | 56,161 | | | | | Net interest spread | | | | | | | | | | | 3.66 | % | | | | | | | | | | | 3.52 | % | | | | | | | | 3.52 | % | | | | | | | 3.66 | % | Net interest margin | | | | | | | | | | | 3.84 | % | | | | | | | | | | | 3.62 | % | | | | | | | | 3.85 | % | | | | | | | 3.84 | % |
Stock Yards Bancorp, inc. and subsidiary
Notes to the average balance and interest rate tables: | ● | Net interest income,Average balances for loans include the most significant componentprincipal balance of non-accrual loans, as well as all loan premiums, discounts, fees and costs, and exclude participation loans accounted for as secured borrowings. Participation loans averaged $10.0 million and $17.1 million, respectively, for the Bank's earnings is total interest income less total interest expense. The level of net interest income is determined by mixthree month periods ended June 30, 2019 and volume of interest earning assets, interest bearing deposits2018, and borrowed funds,$10.2 million and changes in interest rates.$17.6 million, respectively for the six month periods ended June 30, 2019 and 2018.
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| ● | Net interest spread is the difference between taxable equivalent rates earned on interest earning assets less the rate expensed on interest bearing liabilities.
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| Net interest margin represents net interest income on a taxable equivalent basis as a percentage of average interest earning assets. Net interest margin is affected by both interest rate spread and the level of non-interest bearing sources of funds, primarily consisting of demand deposits and stockholders’ equity.
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| Interest income on a fully tax equivalent basis includes additional amounts 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 taxes yielding the same after-tax income. Interest income on municipal securities and tax-exempt loans has been calculated on a fully tax equivalent basis using a federal income tax rate of 21% for 20182019 and 35% for 2017.2018. Approximate tax equivalent adjustments to interest income were $85$55 thousand and $203$85 thousand, respectively, for the three month periods ended June 30, 2019 and 2018, and 2017,$111 thousand and $178 thousand and $400 thousand for the respective six month periods ended June 30, 20182019 and 2017.2018. |
| ● | Average balances for loans include the principal balanceInterest income includes loan fees of non-accrual loans$295 thousand and exclude participation loans accounted for as secured borrowings. These participation loans averaged $17.1 million and $21.4 million, respectively,$297 thousand for the three month periodsmonths ended June 30, 2019, and 2018, respectively, and 2017$776 thousand and $17.6 million and $18.7 million, respectively,$514 thousand for the respective six month periods ended June 30, 20182019 and 2017.2018.
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| ● | Net interest income, the most significant component of the Bank'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. |
| ● | Net interest spread is the difference between taxable equivalent rates earned on interest earning assets less the cost of interest bearing liabilities. |
| ● | Net interest margin represents net interest income on a taxable equivalent basis as a percentage of average interest earning assets. Net interest margin is impacted by both interest rate spread and the level of non-interest bearing sources of funds, primarily consisting of demand deposits and stockholders’ equity. |
Net interest spread and net interest margin were 3.47% and 3.81%, respectively, for the second quarter of 2019, and 3.68% and 3.88%, respectively, for the second quarter of 2018. Net interest margin was challenged in the second quarter of 2019 primarily due to the following: | ● | While the Company has not aggressively pursued deposits since mid-2018, nor has it significantly raised rates, it has become more rate sensitive as deposit balances have migrated from non-interest bearing accounts to interest bearing accounts. |
| ● | Asset yields were impacted by the downward trending of the overall rate environment, as fixed rate loan pricing and LIBOR based loans were impacted. |
| ● | The second quarter 2018 margin was elevated by prepayment fees collected, with a much lighter impact experienced in the second quarter of 2019. |
| ● | The King portfolio mix of earning assets and interest bearing liabilities had a slightly negative impact on margin overall. |
Fully taxable equivalent net interest income of $28.8$30.8 million for the three months ended June 201830, 2019 increased $3.3$2.1 million, or 13.1%7.2%, from $25.4$28.8 million for the same period in 2017. Positive effects of2018. Fully taxable equivalent interest income increased average balances on loans, resulting from strong loan growth year over year, and increased interest rates on loans and investments were partially offset by the negative effect of increasing rates on deposit accounts and other funding sources. Net interest spread and net interest margin were 3.68% and 3.88%, respectively,$4.9 million or 15.4% for the second quarter of 2019, as compared with the second quarter of 2018, due primarily to increased average loan balances stemming from loan growth fueled by record loan production and 3.49%the King acquisition, as well as increased rates earned on loans. Wall Street Journal Prime interest rate was 50 to 75 basis points (“bps”) higher for much of the first half of 2019, as compared with 2018, which benefited short-term loan and 3.60%investment pricing. Taxable securities, and federal funds sold and interest bearing due from banks average balances also increased in the first half of 2019, as compared with 2018, as a result of Bancorp deploying excess liquidity into short-term investments, which earned higher yields year over year. In total, average earning assets increased $271.2 million or 9.1% to $3.2 billion for the three month period ended June 30, 2019, as compared with the same period in 2018, with the average rate on earnings assets increasing 25 bps to 4.58%. Earning assets resulting from the King acquisition averaged $119.6 million, and yielded 5.28% for the three months ended June 30, 2019. Interest expense increased due primarily to rising deposit costs, growth in interest bearing demand deposits and time deposits, and deposits assumed in the King acquisition. While the Company has not aggressively pursued deposits since mid-2018, nor has it significantly raised rates, deposit balances migrated from non-interest bearing accounts to interest bearing accounts during the period. Average interest bearing liabilities increased $193.0 million, or 9.4%, respectively,to $2.2 billion for the three month period ended June 30, 2019, as compared with the same period in 2018. Average interest bearing liabilities resulting from the King acquisition totaled $93.8 million in the second quarter. Growth in average interest bearing deposits was partially offset by declines in securities sold under agreements to repurchase (“SSUARs”). The average cost of interest bearing liabilities increased 46 bps to 1.11% for the second quarter of 2017. Interest expense remained under rate pressure due2019, as compared with the second quarter of 2018. Bancorp increased rates paid on money market accounts in the first half of 2018 in addition to risinglaunching a marketing campaign promoting certificate of deposit costsaccounts. Costs of money market deposit accounts and time deposits increased utilization47 bps, and 107 bps, respectively, in the second quarter of short-term borrowings for liquidity purposes. Management expects deposit rate pressure to continue to increase over2019, as compared with the same period in 2018. The average balance of 2018. Depositors are becoming more rate sensitive, competition is increasing, and Bancorp intendssecurities sold under agreements to grow its deposit baserepurchase (“SSUARs”) decreased $22.0 million, or 35.5%, as customers migrated from lower yielding collateralized products to support loan growth. Raising deposits more aggressively than that of our normal account acquisition strategies will require paying higher rates for deposits. Given these circumstances positive effects of prime rate increases on loans could be offset by higher costs ofyielding non-collateralized deposits. Fully taxable equivalent net interest income of $56.2$60.5 million for the six months ended June 30, 20182019 increased $5.3$4.4 million, or 10.5%7.8%, from $50.8$56.2 million for the same period in 2017.2018. Positive effects of increased average balances on loans, resulting primarily from strong second quarter loan growth coupled with loans added in 2018,the King acquisition, and increased balances and rates on other earning assets, were partially offset by the negative effect of increasing rates and average balances for all funding sources. Interest earning assets and interest bearing liabilities increased $220.4 million, or 7.5%, and $149.6 million, or 7.3%, respectively, for the six month periods ended June 30, 2019 and June 30, 2018. Net interest spread and net interest margin were 3.52% and 3.85%, respectively, for the first six months of 2019 and 3.66% and 3.84%, respectively, for the first six months of 2018 and 3.52% and 3.62%, respectively, for the first six months of 2017. Stock Yards Bancorp, inc. and subsidiary2018.
Going forward, yield curve inversion could pose a significant challenge if loans were to be originated and repriced at a relatively low five-year portion of the treasury yield curve, while deposits and other funding sources priced or re-priced based upon a higher short end of the curve. Average earning assets increased $143.4 million or 5.1%, to $2.97 billion for
The Federal Reserve Bank (“FRB”) reduced the three month period ended June 30, as comparedfederal funds rate 25 bps in late July, with the same periodprime lending rate experiencing a corresponding 25 bps decrease. Bancorp’s strategy in 2017, reflecting increasesresponse to the rate reduction is to reduce deposit rates in order to fully offset the loan portfolio partiallyloss in revenue. Future rate decreases could have a negative impact on net interest margin, as additional reductions in deposit rates may not be sufficient to offset by decreasesthe potential loss in federal funds sold and available-for-sale investments. Average interest bearing liabilities increased $104.2 million, or 5.4%, to $2.0 billion for the second quarter of 2018, as compared with the same period in 2017, primarily due to increases in the volume of interest bearing demand deposits, savings deposits, and federal funds purchased and other short term borrowings, partially offset by decreases in money market deposits. Average earning assets increased $118.3 million or 4.2%, to $2.95 billion for the first six months of 2018 as compared with 2017, reflecting increases in the loan portfolio partially offset by decreases in federal funds sold and available for sale securities. Average interest bearing liabilities increased $81.5 million, or 4.2%, to $2.0 billion for the first six months of 2018, as compared with the same period in 2017. Increases in the volume of interest bearing demand deposits, savings deposits, and federal funds purchased and other short term borrowings were partially offset by decreases in volume of money markets deposits and time deposits.revenue. 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 year forecast. The simulation model is designed to reflect dynamics of interest earning assets and interest bearing 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 June 30, 20182019 simulation analysis, which shows minimal interest rate sensitivity, indicates that increases in interest rates of 100 to 200 basis points would have a positive effect on net interest income, and decreases of 100 to 200 basis points in interest rates would have a negative effect on net interest income. If rates rise 200 bps, net interest income increases 2.11%. The relatively smallmix of assets and liabilities acquired in the King transaction slightly increased Bancorp’s exposure to falling rates. The overall minimal increase in net interest income forin the rising rate scenarios is primarily due to variable rate loans and short-term investments repricing more quickly than deposits and short-term borrowings. Asset balances subject to immediate repricing cause an estimated decline in net interest income in down 100 and 200 basis point rate scenarios, as rates on non-maturity deposits cannot be lowered sufficiently to offset declining interest income. These estimates are summarized below. | | Net interest | | Change in Rates | | | | | -200 | | | | -100 | | | +100 | | | +200 | | | | Basis Points | | | Basis Points | | | Basis Points | | | Basis Points | | % Change from base net interest income at June 30, 2019 | | | -10.14 | % | | | -1.37 | % | | | 3.01 | % | | | 6.03 | % |
income %
change
| | Increase 200 bp
| | | 2.11 | | Increase 100 bp
| | | 1.06 | | Decrease 100 bp
| | | (0.94) | | Decrease 200 bp
| | | (7.07) | |
Approximately 60% of Bancorp’s loan portfolio has fixed rates andwith 40% of its loan portfolio is priced at variable rates. With the Prime rate currently at 5.00%, virtually all of Bancorp’s variable rate loans now have interest rates at orare above their floors. This effect is captured in the simulation analysis above. Newfloors and renewed fixed-rate loan pricing is subject to competitive conditions and prevailing interest rates. Fixed-rate loan pricing is generally indexed to the five-year treasury rate, andwill reprice as the yield curve continues to flatten, fixed-rate loans may not provide a significant lift in yields. Stock Yards Bancorp, inc. and subsidiary
rates change. Undesignated derivative instruments described in Note 17 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 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. Derivatives designated as cash flow hedges described in Note 1718 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 net of tax in other comprehensive income. Provision for Loan and Lease Losses The provision for loan losses represents a charge to earnings necessary to maintain an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for inherent losses on outstanding loans. The allowance for loan losses is calculated after considering credit quality factors, and ultimately relies on an overall internal analysis of risk in the loan portfolio. Based on this analysis, the provision for loan losses is determined and recorded. The provision reflects the results of an allowance methodology that is driven by risk ratings, historical losses, specific loan loss allocations, and qualitative factors. Bancorp recorded provision of $0 and $600 thousand for the three and six month periods ended June 30, 2019, respectively, as compared with $1.2 million and $2.0 million for the same periods in 2018. The provision represents a charge to earnings necessary to maintain an allowance that, in management’s evaluation, is adequate to provide coverage for the inherent losses on outstanding loans. The provision reflects many factors including trends in the portfolio, as well as changes in quantitative and qualitative factors. Continued strong credit metrics and net recoveries of $282 thousand for the first six months of 2018,2019 resulted in an allowance to total loans of 0.96% as of June 30, 2019, compared with 0.96% as of June 30, 2018. In management’s opinion, the allowance remained adequate to cover potential losses within the portfolio. Key indicators of loan quality remained consistent with the prior year with the exception of increased classified balances, defined as other assets especially mentioned (“OAEM”), substandard, and non-performing loans, which increased $23.4 million during the resulting allowance level, reflected a numberfirst half of factors, including application of qualitative considerations resulting2019, as compared with December 31, 2018. The increase was concentrated in OAEM loans, as two commercial relationships, which were well-secured, moved from exceptional loan growth.the Watch category into OAEM. Consistent with Bancorp’s methodology, the historical look-back period was extended from 2832 to 3236 quarters in the first quarter of 2018 in order to capture the effects of a full economic cycle. This expansion of the look-back period was applied2019 to all classes and segments of the portfolio. Management believes the expansion of the look-back period more accurately represents the current level of risk in the loan portfolio. By extendingportfolio, and captures the effects of a full economic cycle. Based on the look-back period to 32 quarters to capture historical loss data for a full economic cycle,extension, the allowance level increased approximately $1.3 million compared with a 28 quarter look-back period as of March 31, 2018. Bancorp recorded loan loss provision of $1.2 million and $2.0 million for 2019. Additional information regarding Bancorp’s methodology for evaluating the threeadequacy of the allowance can be read in the Company’s Annual Report on Form 10-K.
Non-performing loans, consisting of TDRs, non-accrual loans, and six month periods endedloans over 90 days past due still accruing, increased to $3.9 million at June 30, 2019 from $3.4 million at December 31, 2018, respectively, as compared with $600 thousand and $1.5while decreasing $3.5 million for the same periods in 2017. The increases corresponded with significant loan growth experienced in the first six months of 2018 and other qualitative considerations. Key indicators of loan quality remained consistent with prior years.from $7.4 million at June 30, 2018. Bancorp considers the present asset quality metrics to be strong;exceptional; however, recognizing the cyclical nature of the lending business, this trend is expected to normalize over the long term. Non-performing loans, consisting of TDRs, non-accrual loans, and loans over 90 days past due still accruing, decreased to $7.4 million at June 30, 2018 from $9.3 million at June 30, 2017. Bancorp’s loan portfolio is diversified with no significant concentrations of credit. Geographically, most loans are extended to borrowers in the metropolitan areas of Louisville, Indianapolis and Cincinnati. The adequacy of the allowance is monitored on an ongoing basis and it is the opinion of management that the balance of the allowance for loan losses at June 30, 20182019 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date. Stock Yards Bancorp, inc. and subsidiary
An analysis of the changes in the allowance for loan losses and selected ratios for the three and six month periods ended June 30, 2018 and 2017 follows: (Dollars in thousands) | | Three months ended June 30, | | | Six months ended June 30, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | | | | | | | | | | | | | | | | Balance at the beginning of the period | | $ | 24,203 | | | $ | 24,481 | | | $ | 24,885 | | | $ | 24,007 | | Provision for loan losses | | | 1,235 | | | | 600 | | | | 1,970 | | | | 1,500 | | Loan charge-offs, net of recoveries | | | (565 | ) | | | 34 | | | | (1,982 | ) | | | (392 | ) | Balance at the end of the period | | $ | 24,873 | | | $ | 25,115 | | | $ | 24,873 | | | $ | 25,115 | | Average loans, net of unearned income | | $ | 2,523,450 | | | $ | 2,280,122 | | | $ | 2,478,305 | | | $ | 2,286,795 | | Provision for loan losses to average loans (1) | | | 0.05 | % | | | 0.03 | % | | | 0.08 | % | | | 0.07 | % | Net loan charge-offs to average loans (1) | | | 0.02 | % | | | 0.00 | % | | | 0.08 | % | | | 0.02 | % | Allowance for loan losses to average loans | | | 0.99 | % | | | 1.10 | % | | | 1.00 | % | | | 1.10 | % | Allowance for loan losses to period-end loans | | | 0.96 | % | | | 1.09 | % | | | 0.96 | % | | | 1.09 | % |
(Dollars in thousands) | | Three months ended June 30, | | | Six months ended June 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | Balance at the beginning of the period | | $ | 26,464 | | | $ | 24,203 | | | $ | 25,534 | | | $ | 24,885 | | Provision | | | — | | | | 1,235 | | | | 600 | | | | 1,970 | | Total charge-offs | | | 161 | | | | 647 | | | | 260 | | | | 2,175 | | Total recoveries | | | (113 | ) | | | (82 | ) | | | (542 | ) | | | (193 | ) | Total net loan charge-offs (recoveries) | | | 48 | | | | 565 | | | | (282 | ) | | | 1,982 | | Balance at the end of the period | | $ | 26,416 | | | $ | 24,873 | | | $ | 26,416 | | | $ | 24,873 | | Average loans, net of unearned income | | $ | 2,658,036 | | | $ | 2,523,450 | | | $ | 2,593,712 | | | $ | 2,478,305 | | | | | | | | | | | | | | | | | | | Provision to average loans (1) | | | 0.00 | % | | | 0.05 | % | | | 0.02 | % | | | 0.08 | % | Net loan charge-offs (recoveries) to average loans (1) | | | 0.00 | % | | | 0.02 | % | | | (0.01 | )% | | | 0.08 | % | Allowance to average loans | | | 0.99 | % | | | 0.99 | % | | | 1.02 | % | | | 1.00 | % | Allowance to total loans | | | 0.96 | % | | | 0.96 | % | | | 0.96 | % | | | 0.96 | % |
(1) Amounts not annualized |
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