FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 17262
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S. Y. BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1137529
(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
1040 East Main Street, Louisville, Kentucky, 40206
(Address of principal executive offices)
(Zip Code)
(502)582-2571
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Common Stock, no par value - 6,634,573
shares issued and outstanding at November 6, 2000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of S.Y. Bancorp,
Inc. and Subsidiary, Stock Yards Bank & Trust Company, are submitted
herewith:
-- Unaudited Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
-- Unaudited Consolidated Statements of Income
for the three months ended September 30, 2000 and 1999
-- Unaudited Consolidated Statements of Income
for the nine months ended September 30, 2000 and 1999
-- Unaudited Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and 1999
-- Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended September 30, 2000
-- Unaudited Consolidated Statements of Comprehensive Income
for the three and nine months ended September 30, 2000 and
-- Notes to Unaudited Consolidated Financial Statements
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
September 30, 2000 December 31, 1999
(In thousands, except share data)
Assets
Cash and due from banks $ 28,836 $ 27,813
Federal funds sold 8,000 6,000
Mortgage loans held for sale 2,993 2,608
Securities available for sale (amortized
cost $61,930 in 2000 and $64,705 in 1999) 60,771 62,833
Securities held to maturity (approximate market
value $17,688 in 2000 and $21,173 in 1999) 18,078 21,398
Loans 647,212 546,858
Allowance for loan losses 9,400 7,336
------- -------
Net loans 637,812 539,522
Premises and equipment 16,858 16,420
Accrued interest receivable and other assets 14,621 13,221
------- -------
Total Assets $787,969 $689,815
======= =======
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing $ 96,574 $ 88,975
Interest bearing 574,444 480,987
------- -------
Total deposits 671,018 569,962
Securities sold under agreements
to repurchase and federal funds purchased 42,606 53,455
Short-term borrowings 4,450 3,954
Accrued interest payable and
other liabilities 10,911 10,090
Long-term debt 2,100 2,100
------- -------
Total Liabilities 731,085 639,561
------- -------
Stockholders' equity
Common stock, no par value; 10,000,000
shares authorized; 6,626,155 and
6,647,059 shares issued and outstanding
in 2000 and 1999, respectively 5,559 5,627
Surplus 14,156 14,602
Retained earnings 38,057 31,376
Accumulated other comprehensive loss ( 888) ( 1,351)
------- -------
Total Stockholders' Equity 56,884 50,254
------- -------
Total Liabilities and Stockholders' Equity $787,969 $689,815
======= =======
See accompanying notes to unaudited consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income
For the three months ended September 30, 2000 and 1999
2000 1999
(In thousands, except share and per share data)
Interest income
Loans $14,576 $11,017
Federal funds sold 42 148
Mortgage loans held for sale 46 109
U.S. Treasury and Federal agencies 837 892
Obligations of states and political
subdivisions 255 211
------ ------
Total interest income 15,756 12,377
------ ------
Interest expense
Deposits 7,050 4,817
Securities sold under agreements
to repurchase and federal funds purchased 627 363
Short-term borrowings 41 20
Long-term debt 41 36
------ ------
Total interest expense 7,759 5,236
------ ------
Net interest income 7,997 7,141
Provision for loan losses 750 300
------ ------
Net interest income after
provision for loan losses 7,247 6,841
------ ------
Non-interest income
Investment management and trust services 1,690 1,30
Service charges on deposit accounts 1,524 896
Gains on sales of mortgage loans held for sale 260 377
Other 638 644
------ ------
Total non-interest income 4,112 3,226
------ ------
Non-interest expenses
Salaries and employee benefits 3,949 3,511
Furniture and equipment expense 557 598
Other 1,778 1,669
------ ------
Total non-interest expenses 6,743 6,227
------ ------
Income before income taxes 4,616 3,840
Income tax expense 1,505 1,246
------ ------
Net income $ 3,111 $ 2,594
====== ======
Net income per share
Basic $ .47 $ .39
====== ======
Diluted $ .46 $ .38
====== ======
Average common shares
Basic 6,633,613 6,668,368
========= =========
Diluted 6,819,255 6,874,624
========= =========
See accompanying notes to unaudited consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income
For the nine months ended September 30, 2000 and 1999
2000 1999
(In thousands, except share and per share data)
Interest income
Loans $40,283 $31,224
Federal funds sold 152 619
Mortgage loans held for sale 137 313
U.S. Treasury and Federal agencies 2,548 2,775
Obligations of states and political
subdivisions 765 601
------ ------
Total interest income 43,885 35,532
------ ------
Interest expense
Deposits 18,546 14,025
Securities sold under agreements
to repurchase and federal funds purchased 1,904 1,202
Short-term borrowings 113 56
Long-term debt 122 107
------ -----
Total interest expense 20,685 15,390
------ ------
Net interest income 23,200 20,142
Provision for loan losses 1,915 1,160
------ ------
Net interest income after
provision for loan losses 21,285 18,982
------ ------
Non-interest income
Investment management and trust services 4,668 3,927
Service charges on deposit accounts 4,047 2,563
Gains on sales of mortgage loans held for sale 813 1,248
Gains on sales of securities available for sale - 100
Other 1,908 1,654
------ ------
Total non-interest income 11,436 9,492
------ ------
Non-interest expenses
Salaries and employee benefits 11,830 10,088
Net occupancy expense 1,364 1,258
Furniture and equipment expense 1,754 1,685
Other 5,053 4,668
------ ------
Total non-interest expenses 20,001 17,699
------ ------
Income before income taxes 12,720 10,775
Income tax expense 4,115 3,494
------ ------
Net income $ 8,605 $ 7,281
====== ======
Net income per share
Basic $ 1.30 $ 1.09
====== ======
Diluted $ 1.26 $ 1.06
====== ======
Average common shares
Basic 6,634,678 6,649,903
========= =========
Diluted 6,822,265 6,869,025
========= =========
See accompanying notes to unaudited consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
For the nine months ended September 30, 2000 and 1999
2000 1999
(In thousands)
Operating activities
Net Income $ 8,605 $7,281
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 1,915 1,160
Depreciation, amortization and accretion, net 1,355 1,380
Gains on sales of mortgages held for sale ( 813) ( 1,248)
Gains on sales of securities available for sal - ( 100)
Origination of mortgage loans held for sale ( 38,843) (75,287)
Proceeds from sales of mortgage loans held for sale 39,271 82,142
(Increase) decrease in accrued interest receivable and
other assets ( 1,793) ( 731)
Increase (decrease) in accrued interest payable and
other liabilities 757 2,052
------ -------
Net cash provided (used) by operating activities 10,454 16,649
------ -------
Investing activities
Net (increase) decrease in federal funds sold ( 2,000) 7,000
Purchases of securities available for sale ( 2,916) ( 51,694)
Proceeds from maturities of securities available for sale 5,602 61,934
Proceeds from maturities of securities held to maturity 3,314 4,906
Proceeds from sales of securities available for sale - 5,637
Net (increase) decrease in loans (100,205) ( 69,353)
Purchases of premises and equipment ( 1,681) ( 2,176)
Proceeds from sales of other real estate 126 895
------ ------
Net cash provided (used) by investing activities ( 97,760) ( 42,851)
------ ------
Financing activities
Net increase (decrease) in deposits 101,056 37,655
Net increase (decrease) in securities sold under
agreements to repurchase and federal funds purchased ( 10,849) ( 9,356)
Net increase (decrease) in short-term borrowings 496 2,007
Issuance of common stock for options and dividend
reinvestment plan 369 780
Common stock purchases ( 883) -
Cash dividends paid ( 1,860) ( 1,561)
------ ------
Net cash provided (used) by financing activities 88,329 29,525
------ ------
Net increase (decrease) in cash and cash equivalents 1,023 3,323
Cash and cash equivalents at beginning of period 27,813 21,661
------- -------
Cash and cash equivalents at end of period $ 28,836 $ 24,984
======= =======
Income tax payments were $3,600 in 2000, and $4,775 in 1999.
Cash paid for interest was $20,552 in 2000, and $15,480 in 1999.
See accompanying notes to unaudited consolidated financial statements.
S.Y. BANCORP, INC. & SUBSIDIARY
Unaudited Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 2000
Accumulated
Common Stock Other
Number of Retained Comprehensive
Shares Amount Surplus Earnings Loss Total
(In thousands, except share
and per share data)
Balance December 31, 1999 6,647,059 $ 5,627 $ 14,602 $ 31,376 $( 1,351) $ 50,254
Net income - - - 8,605 - 8,605
Change in other
comprehensive loss,
net of tax - - - - 463 463
Shares issued for stock
options exercised dividend
reinvestment plan and
employee benefit plans 23,046 76 293 - - 369
Cash dividends, $.29 per
share - - - ( 1,924) - ( 1,924)
Shares repurchased ( 43,950) ( 144) ( 739) - - ( 883)
--------- ------ ------- ------ ------ ------
Balance September 30, 2000 6,626,155 $ 5,559 $ 14,156 $ 38,057 $( 888) $ 56,884
========= ====== ======= ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
S.Y. BANCORP, INC. & SUBSIDIARY
Unaudited Consolidated Statement of Comprehensive Income
For the nine months ended September 30, 2000 and 1999
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
(In thousands)
Net income $ 3,111 $ 2,594 $ 8,605 $ 7,281
Other comprehensive income
(loss), net of tax:
Unrealized holding gains
(losses) arising during
the period 564 34 463 (1,273)
Less reclassification
adjustment for gains
included in net income - - - 65
---- ---- ---- ----
Other comprehensive
income (loss) 564 34 463 (1,208)
---- ---- ---- -----
Comprehensive income $ 3,675 $ 2,628 $ 9,068 $ 6,073
===== ===== ===== =====
See accompanying notes to unaudited consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all information and footnotes required by generally accepted
accounting principles for complete financial statements. The
consolidated financial statements of S.Y. Bancorp, Inc. and Subsidiary
reflect all adjustments (consisting only of adjustments of a normal
recurring nature) which are, in the opinion of management, necessary
for a fair presentation of financial condition and results of
operations for the interim periods.
The consolidated financial statements include the accounts of
S.Y. Bancorp, Inc. and its wholly owned subsidiary, Stock Yards Bank
& Trust Company. All significant intercompany transactions have been
eliminated in consolidation.
A description of other significant accounting policies is presented
in the notes to the Consolidated Financial Statements for the year ended
December 31, 1999 included in S.Y. Bancorp, Inc.'s Annual Report on
Form 10-K for the year then ended.
Interim results for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results for
the entire year.
(2) Allowance for Loan Losses
An analysis of the changes in the allowance for loan losses for
the nine months ended September 30 follows (in thousands):
2000 1999
Beginning balance $7,336 $6,666
Provision for loan losses 1,915 1,160
Loans charged off ( 429) ( 609)
Recoveries 578 57
----- -----
Ending balance $9,400 $7,274
===== =====
(3) Net Income Per Share
The following table reflects, for the three and nine months
periods ended September 30, the numerators (net income)and
denominators (average shares outstanding) for the basic and diluted
net income per share computations.
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
(In thousands except per share data)
Net income, basic and diluted $ 3,111 $ 2,594 $ 8,605 $ 7,281
===== ===== ===== =====
Average shares outstanding 6,634 6,668 6,635 6,650
Effect of dilutive securities 185 207 187 219
----- ----- ----- -----
Average shares outstanding
including dilutive securities $ 6,819 $ 6,875 $ 6,822 $ 6,869
===== ===== ===== =====
Net income per share, basic $ .47 $ .39 $ 1.30 $ 1.09
===== ===== ===== =====
Net income per share, diluted $ .46 $ .38 $ 1.26 $ 1.06
===== ===== ===== =====
(4) Segments
The Bank's, and thus Bancorp's principal activities include
commercial and retail banking, investment management and trust,
and mortgage banking. Commercial and retail banking provides a full
range of loans and deposit products to individual consumers and
businesses. Investment management and trust provides wealth management
services including private banking, brokerage, estate planning and
administration, retirement plan management, and custodian or trustee
services. Mortgage banking originates residential loans and sells them,
servicing released, to the secondary market.
The financial information for each business segment reflects that
which is specifically identifiable or allocated based on an internal
allocation method. Allocations have been consistently applied for
all periods presented. The measurement of the performance of the business
segments is based on the management structure of the Bank and is not
necessarily comparable with similar information for any other
financial institution. The information presented is also not
necessarily indicative of the segments' operations if they were
independent entities.
Selected financial information by business segment for the three
and nine months ended September 30, 2000 and 1999 follows:
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
(In thousands)
Net interest income
Commercial and retail banking $ 7,858 $ 7,014 $ 22,813 $ 19,825
Investment management and trust 12 23 46 66
Mortgage banking 127 104 341 251
----- ----- ------ ------
Total $ 7,997 $ 7,141 $ 23,200 $ 20,142
===== ===== ====== ======
Non-interest income
Commercial and retail banking $ 1,928 $ 1,259 $ 5,228 $ 3,539
Investment management and trust 1,806 1,435 5,073 4,288
Mortgage banking 378 532 1,135 1,665
----- ----- ------ -----
Total $ 4,112 $ 3,226 $ 11,436 $ 9,492
===== ===== ====== =====
Net income
Commercial and retail banking $ 2,420 $ 1,784 $ 6,719 $ 5,649
Investment management and trust 574 836 1,588 1,364
Mortgage banking 117 ( 26) 298 268
----- ----- ----- -----
Total $ 3,111 $ 2,594 $ 8,605 $ 7,281
===== ===== ===== =====
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This item discusses the results of operations for S.Y.
Bancorp, Inc. ("Bancorp"), and its subsidiary, Stock Yards Bank & Trust
Company for the three and nine months ended September 30, 2000 and
compares those periods with the same periods of the previous year. Unless
otherwise indicated, all references in this discussion to the "Bank"
include Bancorp. In addition, the discussion describes the significant
changes in the financial condition of Bancorp and the Bank that have
occurred during the first nine months of 2000 compared to
December 31, 1999. This discussion should be read in conjunction
with the consolidated financial statements and accompanying notes
presented in Part I, Item 1 of this report.
This report contains forward-looking statements under the Private
Securities Litigation Reform act that involve risks and uncertainties.
Although Bancorp believes the assumptions underlying the forward-looking
statements contained herein are reasonable, any of these assumptions
could be inaccurate. Therefore, there can be no assurance forward-looking
statements included herein will prove to be accurate. Factors that could
cause actual results to differ from results discussed in forward-looking
statements include, but are not limited to: economic conditions both
generally and more specifically in the market in which Bancorp and
its subsidiary 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;
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.
A. RESULTS OF OPERATIONS
Net income of $3,111,000 for the three months ended September 30, 2000
increased $517,000 or 19.9% from the comparable 1999 period. Basic net
income per share was $.47 for the third quarter of 2000, an increase of
20.5% from the same period in 1999. Net income on a diluted basis was
$.46 for the third quarter of 2000 compared to $.38 for the third
quarter of 1999. This represents a 21.1% increase. Return on average
assets and return on average stockholders' equity were 1.62%
and 22.10%, respectively, for the third quarter of 2000, compared
to 1.60% and 21.13%, respectively, for the same period in 1999.
Net income of $8,605,000 for the nine months ended September
30, 2000 increased $1,324,000 or 18.2% from the comparable 1999 period.
Basic net income per share was $1.30 for the first nine months of 2000,
an increase of 19.3% from the same period in 1999. Net income on a
diluted basis was $1.26 for the first nine months of 2000 compared to
$1.06 for the first nine months of 1999. This represents an 18.9%
increase. Return on average assets and return on average stockholders'
equity were 1.58% and 21.56%, respectively, for the first nine
months of 2000, compared to 1.56% and 20.65%, respectively, for the
same period in 1999.
The following paragraphs provide an analysis of the
significant factors affecting operating results and financial condition.
Net Interest Income
(In thousands except percentages)
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
Interest income $15,756 $12,377 $43,885 $35,532
Tax equivalent 112 93 335 266
------ ------ ------ ------
Interest income, tax equivalent
basis 15,868 12,470 44,220 35,798
Total interest expense 7,759 5,236 20,685 15,390
------ ------ ------ ------
Net interest income, tax equivalent
basis (1) 8,109 $ 7,234 $23,535 $20,408
====== ====== ====== ======
Net interest spread (2), annualized 3.70% 4.12% 3.83% 4.02%
====== ====== ====== ======
Net interest margin (3), annualized 4.51% 4.82% 4.60% 4.71%
====== ====== ====== ======
Notes:
(1) interest income, the most significant component of the Banks'
earnings, is total interest income less total interest expense. The
level of net interest income is determined by the mix and volume
of interest earning assets, interest bearing deposits and borrowed
funds, and by changes in interest rates.
(2) interest spread is the difference between the taxable
equivalent rate earned on interest earning assets less the rate
expensed on interest bearing liabilities.
(3) 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 the interest rate
spread and the level of non-interest bearing sources of funds,
primarily consisting of demand deposits and stockholders' equity.
Fully taxable equivalent net interest income of $8,109,000 for the
three months ended September 30, 2000 increased $875,000 or 12.1% from
the same period last year. Increases in net interest income arose
from growth in earning assets (volume). As costs of funds, primarily
time deposits, have increased, interest spreads and margins have
declined. Net interest spread and net interest margin were 3.70%
and 4.51%, respectively, for the third quarter of 2000 and 4.12%
and 4.82%, respectively, for the third quarter of 1999.
Fully taxable equivalent net interest income of $23,535,000 for the
nine months ended September 30, 2000 increased $3,127,000 or 15.3% from
the same period last year. Net interest spread and net interest margin
were 3.83% and 4.60%, respectively, for the first nine months of 2000
and 4.02% and 4.71%, respectively, for the first nine months of 1999.
Average earning assets increased to $683,228,000 for the first nine
months of 2000 as compared to $579,799,000 for the same period of 1999.
Average interest bearing liabilities increased to $573,468,000 for the
first nine months of 2000 compared to $485,744,000 for the same period
of 1999.
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 using both on and off-balance sheet financial instruments, Bank
management evaluates interest rate sensitivity while attempting to
optimize net interest income within the constraints of prudent
capital adequacy, liquidity needs, market opportunities and customer
requirements.
Bancorp uses an earnings simulation model to measure and evaluate
the impact of changing interest rates on earnings. The simulation model
is designed to reflect the dynamics of all interest earning assets,
interest bearing liabilities and off-balance sheet financial instruments,
combining factors affecting rate sensitivity into a one year
forecast. By forecasting management's estimate of the most likely rate
environment and adjusting those rates up and down the model can reveal
approximate interest rate risk exposure. The September 30, 2000
simulation analysis indicates that an increase in interest rates
would have a positive effect on net interest income, and a decrease in
interest rates would have a negative effect on net interest income.
Interest Rate Simulation Sensitivity Analysis
Net Interest Net Income Diluted EPS
(Dollars in thousands except Income Change Change Change
per share information)
Increase 200bp $ 1,954 $1,286 $ 0.19
Increase 100bp 972 640 0.09
Decrease 100bp (967) (637) (0.09)
Decrease 200bp (1,957) (1,288) (0.19)
===== ===== ====
Provision for Loan Losses
The allowance for loan losses is based on management's continuing
review of individual credits, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans,
and such other factors that, in management's judgment, deserve current
recognition in estimating loan losses.
An analysis of the changes in the allowance for loan losses and
selected ratios follow:
Nine months ended
September 30
(In thousands except percentages)
2000 1999
Balance at January 1 $ 7,336 $ 6,666
Provision for loan losses 1,915 1,160
Loan charge-offs, net of recoveries 149 ( 552)
------- -------
Balance at September 30 $ 9,400 $ 7,274
======= =======
Average loans, net of unearned income $599,613 $479,368
======= =======
Provision for loan losses to average loans (1) .43% .32%
======= =======
Net loan charge-offs (recoveries) to average
loans (1) .03%) .15%
======= =======
Allowance for loan losses to average loans 1.57% 1.52%
======= =======
Allowance for loan losses to period-end loans 1.45% 1.41%
======= =======
(1) Amounts Annualized
Non-interest Income and Expenses
The following table sets forth the major components of non-interest
income and expenses for the three and nine months ended September 30, 2000
and 1999.
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2000 1999 2000 1999
Non-interest income
Investment management and trust
services $1,690 $1,309 $ 4,668 $ 3,927
Service charges on deposit accounts 1,524 896 4,047 2,563
Gains on sales of mortgage loans
held for sale 260 377 813 1,248
Gains on sales of securities
available for sale - - - 100
Other 638 644 1,908 1,654
----- ----- ------ -----
Total non-interest income $4,112 $3,226 $11,436 $ 9,492
===== ===== ====== =====
Non-interest expenses
Salaries and employee benefits $3,949 $3,511 $11,830 $10,088
Net occupancy expense 459 449 1,364 1,258
Furniture and equipment expense 557 598 1,754 1,685
Other 1,778 1,669 5,053 4,668
----- ----- ----- -----
Total non-interest expenses $6,743 $6,227 $20,001 $17,699
===== ===== ====== ======
Non-interest income increased $886,000, or 27.5%, for the third
quarter of 2000, compared to the same period in 1999. Trust income
increased $381,000 or 29.1% in the third quarter of 2000, as compared to
the same period in 1999. Trust assets under management at
September 30, 2000 were $1.072 billion as compared to $914 million at
December 31, 1999 and $828 million at September 30, 1999.
Non-interest income increased $1,944,000 or 20.5% for the first nine
months of 2000 compared to the same period in 1999. Trust income increased
$741,000 or 18.9% in the first nine months of 2000 as compared to the same
period.
Service charges on deposit accounts increased $628,000 or 70.1% in
the third quarter of 2000 and $1,484,000 or 57.9% in the first nine months
of 2000 as compared to the same periods in 1999. Opening new branch
offices and promotion of retail accounts have presented opportunities for
growth in deposit accounts and increased fee income. Additionally, in
March 2000 the Bank began offering an overdraft service to retail
depositors. The service allows checking customers meeting specific criteria
to incur overdrafts up to a predetermined limit, generally $500. For each
check paid resulting in or increasing an overdraft, the customer pays the
standard overdraft charge. These fees totaled approximately $80,000 for
the first quarter, $550,000 for the second quarter, and $475,000 for
the third quarter of 2000.
Gains on sales of mortgage loans were $260,000 in the third quarter
of 2000 and $813,000 in the first nine months of 2000 compared to
$377,000 and $1,248,000, respectively, in 1999. The Bank operates a
mortgage banking company which originates residential mortgage loans
and sells the loans in the secondary market. Favorable interest rates
in early 1999 stimulated home buying and refinancing. As interest
rates have increased mortgage loan volume, particularly refinancing,
has decreased, resulting in a corresponding decrease in revenues from
gains on sales of mortgage loans held for sale.
Gains on sales of securities available for sale during the first
quarter of 1999 occurred as management sold lower yielding, shorter
term securities for intermediate term, higher yielding securities.
No sales of securities have occurred in 2000.
Other non-interest income decreased $6,000 or 0.1% in the third
quarter of 2000 and increased $254,000 or 15.3% in the first nine
months of 2000 compared to 1999. Numerous factors contributed to the
year to date increase, including approximately $40,000 from full
service brokerage fees, $140,000 from check card income and
$65,000 from ATM surcharges.
Non-interest expenses increased $516,000 or 8.3% for the third
quarter of 2000 and $2,302,000 or 13.0% year to date 2000 compared
to the same periods in 1999. Salaries and employee benefits increased
$438,000, or 12.5%, for the third quarter of 2000 and $1,742,000 or
17.3% year to date 2000 compared to the same periods in 1999. Employees
continue to be added to support the Bank's growth. The Bank had
317 full time equivalent employees as of September 30, 2000 and 312
full time equivalents as of September 30, 1999. These increases also
arose in part from normal salary increases. Net occupancy expense
increased $10,000 or 2.2% in the third quarter of 2000 and $106,000 or
8.4% year to date 2000 as compared to 1999. Furniture and equipment
expense decreased $41,000, or 6.9%, for the third quarter of 2000
and increased $69,000 or 4.1% year to date 2000 compared to 1999.
Other non-interest expenses have increased $109,000 or 6.5% in the third
quarter of 2000 and $385,000 or 8.2% year to date 2000 as compared to
1999. The Bank's most recent addition to its banking center network was
in the first quarter of 1999. While the Bank continues its expansion
plans, the lull in opening new branches has resulted in more modest
increases in non interest expenses.
Income Taxes
Bancorp had income tax expense of $1,505,000 for the third quarter
of 2000 compared to $1,246,000 for the same period in 1999. The
effective rate for these periods was 32.60% and 32.45%, respectively.
Bancorp had income tax expense of $4,115,000 for the first nine
months of 2000, compared to $3,494,000 for the same period in 1999.
The effective rate was 32.4% in both 2000 and 1999.
B. FINANCIAL CONDITION
Total Assets
Total assets increased $98.2 million from December 31, 1999 to
September 30, 2000. Average assets for the first nine months of 2000
were $729.2 million. Total assets at September 30, 2000 increased
$140.5 million from September 30, 1999, representing a 21.7% increase.
Since year end, loans have increased approximately $100.4 million; cash
and due from banks and federal funds sold decreased $3.0 million;
securities available for sale decreased $2.1 million, and securities held
to maturity decreased $3.3 million. Mortgage loans available for sale
increased $.4 million. Loan demand has remained strong, and management
has priced deposits, primarily certificates of deposits, very
competitively to help fund loan growth.
Nonperforming Loans and Assets
Nonperforming loans, which include non-accrual and loans past due
over 90 days, totaled $5,305,000 at September 30, 2000 and $4,415,000 at
December 31, 1999. This represents .82% of total loans at September 30, 2000
and .81% at December 31, 1999.
Nonperforming assets, which include non-performing loans, other real
estate and repossessed assets, totaled $5,305,000 at September
30, 2000 and $4,500,000 at December 31, 1999. This represents
.67% of total assets at September 30, 2000 compared to .65% at
December 31, 1999.
C. LIQUIDITY
The role of liquidity is to ensure that funds are available to meet
depositors' withdrawal and borrowers' credit demands while at the
same time maximizing profitability. This is accomplished by balancing
changes in demand for funds with changes in the supply of those funds.
Liquidity to meet demand is provided by maturing assets, short-term
liquid assets that can be converted to cash, and the ability to attract
funds from external sources - principally deposits. Management believes
it has the ability to increase deposits at any time by offering rates
slightly higher than the market rate.
The Bank has a number of sources of funds to meet its liquidity needs
on a daily basis. The deposit base, consisting of relatively stable
consumer and commercial deposits, and large denomination
($100,000 and over) certificates of deposit, is a source of funds. The
majority of these deposits are from long term customers and are a stable
source of funds. The Bank has no brokered deposits. In addition,
federal funds purchased continue to be an available source of funds.
Other sources of funds available to meet daily needs include the
sale of securities under agreements to repurchase and funds made available
under a treasury tax and loan note agreement with the federal government.
Also, the Bank is a member of the Federal Home Loan Bank of Cincinnati
(FHLB). As a member of the FHLB, the Bank has access to credit products of
the FHLB. To date, the Bank has not needed to access this source of
funds. Additionally, the Bank has an available line of credit and
federal funds purchased lines with correspondent banks totaling $38 million.
Bancorp's liquidity depends primarily on the dividends paid to it as
the sole shareholder of the Bank. At September 30, 2000, the Bank may
pay up to $20,600,000 in dividends to Bancorp without regulatory approval
subject to the ongoing capital requirements of the Bank. During the
first nine months of 2000 the Bank paid dividends to Bancorp totaling
$2,028,000.
D. CAPITAL RESOURCES
At September 30, 2000, stockholders' equity totaled $56,884,000, an
increase of $6,630,000 since December 31, 1999. One component of
equity is accumulated other comprehensive income or loss which for
Bancorp consists of net unrealized gains or losses on securities
available for sale, and a minimum pension liability adjustment,
net of taxes. Accumulated other comprehensive losses were $888,000 at
September 30, 2000 and $1,351,000 at December 31, 1999. The change since
year end is a reflection of the effect of interest rates on the
valuation of the Bank's portfolio of securities available for sale.
In November, 1999, the Board of Directors authorized a 200,000
share common stock buy back program representing approximately 3% of
its common stock. The repurchased shares may be used for, among
other things, issuance of shares for the stock options or employee stock
ownership or purchase plans. As of September 30, 2000, 66,950
shares had been repurchased for a total cost of approximately $1,401,000.
Bank holding companies and their subsidiary banks are required by
regulators to meet risk based capital standards. These standards, or
ratios, measure the relationship of capital to a combination of balance
sheet and off-balance sheet risks. The values of both balance sheet and
off-balance sheet items are adjusted to reflect credit risks.
At September 30, 2000, Bancorp's tier 1, total risk based capital
and leverage ratios were 9.17%, 10.47% and 7.47%, respectively. These
ratios exceed the minimum required by regulators to be well capitalized.
E. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement standardizes the accounting for derivative
instruments. Under this standard, entities are required to carry
all derivative instruments on the balance sheet at fair value.
The accounting for changes in the fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. If certain conditions are met, entities may
elect to designate a derivative instrument as a hedge of exposures to
changes in fair values, cash flows, or foreign currencies. If the hedged
exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together
with the offsetting loss or gain on the hedged item attributable to the
risk being hedged. If the hedged exposure is a cash flow exposure,
the effective portion of the gain or loss on the derivative instrument
is reported initially as a component of other comprehensive income and
subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any amounts excluded from the
assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. Accounting
for foreign currency hedges is similar to the accounting for fair value
and cash flow hedges. If the derivative instrument is not designated as
a hedge, the gain or loss is recognized in earnings in the period of
change.
During 1999 the Financial Accounting Standards Board issued Statement
No. 137, "Accounting for Derivative Instruments and Hedging Activities
- -Deferral of the Effective Date of FASB Statement No. 133," which
delays the effective date of Statement 133 until January 1, 2001;
however, early adoption is permitted. During June of 2000, the Financial
Accounting Standards Board issued Statement No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities" which
provides guidance with respect to certain implementation issues related to
Statement No. 133. On adoption, the provisions of Statement 133 must
be applied prospectively. Bancorp will adopt Statement 133 on
January 1, 2001. Because Bancorp currently has no derivative instruments
or hedging activities, management believes the effect of adoption will
not have an impact on the consolidated financial statements. Any
derivative instruments acquired or hedging activities entered into will
be recorded in the financial statements as required by Statements No. 133
and 138.
In September, 2000, the Financial Accounting Standards Board
issued Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities that replaces
Statement No. 125. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The standards are based on
the consistent application of the financial components approach, where
upon after a transfer, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred and derecognizes
financial liabilities when extinguished.
This statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001.
This statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions
and collateral for fiscal years ending after December 15, 2000.
A transfer of financial assets in which the transferor surrenders
control is accounted for as a sale to the extent that consideration
other than beneficial interests in the transferred assets is received in
exchange. This statement requires that liabilities and derivatives
transferred be initially measured at fair value, if practicable.
Servicing assets and other retained interests in the transferred assets
are to be measured by allocating the previous carrying amount between the
assets and retained interest sold, if any, based on their relative fair
values are the date of the transfer.
This statement requires the servicing assets and liabilities be
subsequently measured by amortization in proportion to and over
the period of estimated net servicing income or loss and assessment
for asset impairment or increased obligation based on their fair values.
This statement requires that a liability be derecognized if the
debtor pays the creditor and is relieved of its obligation for the
liability or the debtor is legally released from being the primary
obligor under the liability either judicially or by the creditor.
As Bancorp currently has no servicing assets, management believes
the effect of the adoption will not have an impact on the consolidated
financial statements.
Part II - Other Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information required by this item is included in Item 2,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The registrant was not required to file a Form 8-K during the
quarter ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
S.Y. BANCORP, INC.
Date: November 10, 2000 By: /s/ David H. Brooks
David H. Brooks, Chairman
and Chief Executive Officer
Date: November 10, 2000 By: /s/ David P. Heintzman
David P. Heintzman, President
Date: November 10, 2000 By: /s/ Nancy B. Davis
Nancy B. Davis, Executive Vice
President, Treasurer and Chief
Financial Officer