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 30,1996
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------------- to -----------------.
Commission file number 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
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(Address of principal executive offices)
(502) 582-2571
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(Registrant's telephone number, including area code)
Not Applicable
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(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 - 3,271,430
shares issued and outstanding at November 10, 1996
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:
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
Consolidated Statements of Income
for the three months ended September 30, 1996 and 1995
Consolidated Statements of Income
for the nine months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
S.Y. BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheet
September 30, 1996 and December 31, 1995
September 30, 1996 December 31, 1995
------------------ -----------------
(In thousands, except share data)
Assets
------
Cash and due from banks $ 16,392 $ 16,229
Federal funds sold 6,500 -
Mortgage loans held for sale 5,256 3,910
Securities available for sale (amortized
cost $14,401 in 1996 and $15,117 in 1995) 14,596 15,545
Securities held to maturity (approximate market
value $32,144 in 1996 and $27,055 in 1995) 32,544 26,710
Loans 286,261 252,937
Less
Allowance for loan losses 4,888 4,507
------- -------
Net loans 281,373 248,430
Premises and equipment 8,856 6,817
Accrued interest receivable 2,199 2,192
Other assets 5,615 4,521
------- -------
TOTAL ASSETS $373,331 $324,354
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Non-interest bearing $ 56,885 $ 48,460
Interest bearing 268,144 232,133
------- -------
Total deposits 325,029 280,593
Securities sold under agreements
to repurchase and federal funds purchased 10,831 12,349
Short-term borrowings 3,691 745
Accrued interest payable and
other liabilities 2,653 2,446
Subordinated debentures 607 607
------- -------
TOTAL LIABILITIES 342,811 296,740
------- -------
Stockholders' equity
Common stock, no par value; 5,000,000
shares authorized; 3,271,430 and
3,250,428 shares issued and outstanding
in 1996 and 1995, respectively (note 1) 5,451 5,423
Surplus 13,390 13,245
Retained earnings 11,550 8,664
Net unrealized gain
on securities available for sale (net of tax) 129 282
------- -------
TOTAL STOCKHOLDERS' EQUITY 30,520 27,614
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $373,331 $ 324,354
======= =======
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three months ended September 30, 1996 and 1995
1996 1995
---- ----
(In thousands, except share and per share data)
Interest income
Loans $6,446 $5,759
Federal funds sold 120 102
Mortgage loans held for sale 136 98
U.S. Treasury and Federal agencies 663 546
Obligations of states and political
subdivisions 95 93
Other securities 24 20
----- -----
Total interest income 7,484 6,618
----- -----
Interest expense
Deposits 3,017 2,669
Securities sold under agreements
to repurchase and federal funds purchased 157 173
Short-term borrowings 23 38
Subordinated debentures 11 11
----- -----
Total interest expense 3,208 2,891
----- -----
Net interest income 4,276 3,727
Provision for loan losses 180 380
----- -----
Net interest income after
provision for loan losses 4,096 3,347
----- -----
Non-interest income
Investment management and trust services 603 543
Service charges on deposit accounts 394 318
Gains on sales of mortgage loans
held for sale 260 246
Other 150 97
----- -----
Total non-interest income 1,407 1,204
----- -----
Non-interest expenses
Salaries and employee benefits 2,061 1,652
Net occupancy expense 240 305
Furniture and equipment expense 363 303
FDIC insurance 1 (13)
Other 663 700
----- -----
Total non-interest expenses 3,328 2,947
----- -----
Income before income taxes 2,175 1,604
Income tax expense 715 516
----- -----
Net income $1,460 $1,088
===== =====
Net income per share (note 1)
Primary $ .44 $ .33
===== =====
Fully diluted .43 .33
===== =====
Average common shares (note 1)
Primary 3,370,198 3,306,076
========= =========
Fully diluted 3,384,510 3,306,974
========= =========
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the nine months ended September 30, 1996 and 1995
1996 1995
(In thousands, except share and per share data) ---- ----
Interest income
Loans $18,427 $16,015
Federal Funds sold 196 439
Mortgage loans held for sale 367 167
U.S. Treasury and Federal agencies 1,752 1,624
Obligations of states and political
subdivisions 290 197
Other securities 68 62
------ ------
Total interest income 21,100 18,504
------ ------
Interest expense
Deposits 8,502 7,042
Securities sold under agreements
to repurchase and federal funds purchased 491 533
Short-term borrowings 61 94
Subordinated debentures 34 34
------ ------
Total interest expense 9,088 7,703
------ ------
Net interest income 12,012 10,801
Provision for loan losses 540 1,080
------ ------
Net interest income after
provision for loan losses 11,472 9,721
------ ------
Non-interest income
Investment management and trust services 1,742 1,546
Service charges on deposit accounts 1,129 913
Gains on sales of mortgage loans
held for sale 749 545
Gains on sales of securities
available for sale 35 -
Other 399 335
----- -----
Total non-interest income 4,054 3,339
----- -----
Non-interest expenses
Salaries and employee benefits 5,783 4,677
Net occupancy expense 724 663
Furniture and equipment expense 1,035 819
FDIC insurance 2 236
Other 2,239 2,077
----- -----
Total non-interest expenses 9,783 8,472
----- -----
Income before income taxes 5,743 4,588
Income tax expense 1,875 1,496
----- -----
Net income $3,868 $3,092
===== =====
Net income per share (note 1)
Primary and fully diluted $ 1.15 $ .94
===== =====
Average common shares (note 1)
Primary 3,362,462 3,300,794
========= =========
Fully diluted 3,383,008 3,303,946
========= =========
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1996 and 1995
(In thousands) 1996 1995
---- ----
Operating Activities
Net income $ 3,868 $ 3,092
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 540 1,080
Depreciation, amortization and accretion, net 800 480
Gains on sales of mortgages held for sale ( 749) ( 545)
(Increase) decrease in mortgage loans held for sale ( 597) ( 3,756)
(Increase) decrease in accrued interest receivable ( 7) ( 324)
(Increase) decrease in other assets ( 932) ( 1,075)
Increase (decrease) in accrued interest payable ( 307) 254
Increase (decrease) in other liabilities 514 ( 389)
------ ------
Net cash provided (used) by operating
activities 3,130 ( 1,183)
------ ------
Investing Activities
Net (increase) decrease in federal funds sold ( 6,500) 8,000
Purchases of securities held to maturity (20,854) (32,973)
Purchases of securities available for sale ( 6,996) -
Proceeds from maturities of securities
held to maturity 14,852 29,536
Maturities of securities available for sale 3,022 3,002
Proceeds from sales of securities
available for sale 4,850 -
Net (increase) decrease in loans (33,483) (37,118)
Purchases of premises and equipment ( 2,831) ( 1,574)
------ ------
Net cash provided (used) by investing
activities (47,940) (31,127)
------ ------
Financing Activities
Net increase (decrease) in deposits 44,436 35,594
Net increase (decrease) in securities sold under
agreements to repurchase and federal funds purchased( 1,518) ( 577)
Net increase (decrease) in short-term borrowings 2,946 ( 185)
Exercise of stock options 91 61
Cash dividends paid ( 982) ( 810)
------ ------
Net cash provided (used)
by financing activities 44,973 34,083
------ ------
Net increase (decrease) in cash and cash equivalents 163 1,773
Cash and cash equivalents at beginning of period 16,229 10,350
------ ------
Cash and cash equivalents at end of period $16,392 $12,123
====== ======
Income tax payments were $1,798,000 in 1996, and $1,766,000 in 1995.
Cash paid for interest was $9,395,000 in 1996, and $7,449,000 in 1995.
Noncash investing and financing activities aggregated $467,000 in 1996 and
$86,000 in 1995.
See accompanying notes to 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. (Bancorp) and its wholly owned subsidiary, Stock Yards Bank &
Trust Company. All significant intercompany transactions have been
eliminated in consolidation.
In June, 1996, Bancorp entered into agreements to purchase 100% of the
outstanding stock of the Austin State Bank in Scott County Indiana. That
transaction was completed on October 1, 1996. The transaction was accounted
for as a purchase. Accordingly, financial information for Austin State Bank
will be included in the consolidated financial statements beginning October 1,
1996.
Effective January 1, 1996, Bancorp adopted three new accounting
pronouncements. SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," requires long-lived assets
such as bank premises and equipment and real estate acquired in satisfaction
of debt, be reviewed for appropriate valuation. SFAS No. 122, "Accounting for
Mortgage Servicing Rights," applies to all companies with mortgage banking
operations and requires capitalization of mortgage servicing rights,
regardless of whether they were acquired through purchase or origination
activities. The implementation of these accounting standards did not have a
significant impact on Bancorp's financial position or results of
operations. SFAS No. 123, "Accounting for Stock-Based Compensation,"
introduces the use of a new fair value based method of accounting for stock-
based compensation arrangements, but permits companies to retain the
intrinsic value based method prescribed by Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." Bancorp intends
to continue using the intrinsic value based method and will provide expanded
disclosures related to the fair value method of accounting for stock-based
compensation in its 1996 annual report. These disclosures are not required
for interim financial statements.
A description of other significant accounting policies is presented in the
Consolidated Financial Statements for the year ended December 31, 1995
included in S.Y. Bancorp, Inc.'s Annual Report, and its Form 10-K for the
year then ended.
Interim results for the three and nine month periods ended September 30,
1996 are not necessarily indicative of the results for the entire year.
Bancorp's common stock split 2-for-1 for shareholders of record on
August 30, 1996. The split was effected in the form of a 100% stock dividend
and was paid September 17, 1996. All share and per share information has
been restated to reflect the stock split.
(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):
1996 1995
---- ----
Beginning balance $4,507 $3,649
Provision for loan losses 540 1,080
Loans charged off ( 205) ( 505)
Recoveries 46 129
----- -----
Ending balance $4,888 $4,353
===== =====
Information regarding impaired loans at September 30, 1996 follows:
Recorded investment in impaired loans $ 856,000
Impaired loans with Statement 114 valuation allowance $ 221,000
Amount of Statement 114 valuation allowance $ 221,000
Amount of impaired loans without Statement 114
valuation allowance $ 635,000
(3) Subsequent Event
On October 1, 1996, S.Y. Bancorp, Inc. purchased 100% of the common stock of
the Austin State Bank (Austin) in Austin, Indiana. Austin's assets totaled
$ 9million; equity totaled $1.8 million. Total purchase price was $2,675,000.
Bancorp now owns two banks. Austin will be able, subject to regulatory
approval, to branch in southern Indiana, a natural part of Bancorp's market
area.
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 ("the Bank")
for the three and nine months ended September 30, 1996 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 the Bank that have occurred since December 31, 1995. This
discussion should be read in conjunction with the consolidated financial
statements and accompanying notes presented in Part I Item 1 of this report.
A. RESULTS OF OPERATIONS
Net income of $1,460,000 for the three months ended September 30, 1996
increased $372,000 or 34.2% from $1,088,000 for the comparable 1995 period.
Net income per share on a fully diluted basis was $.43 for the third quarter
of 1996, an increase of 30.3% from the $.33 for the same period in 1995.
Return on average assets and return on average stockholders' equity was 1.71%
and 19.12%, respectively, for the third quarter of 1996, compared to 1.41% and
16.37%, respectively, for the same period in 1995.
Net income of $3,868,000 for the nine months ended September 30, 1996
increased $776,000 or 25.1% from $3,092,000 for the comparable 1995 period.
Net income per share on a fully diluted basis was $1.15 for the first nine
months of 1996, an increase of 22.3% from the $.94 for the same period in 1995.
Return on average assets and return on average stockholders' equity was 1.52%
and 17.76%, respectively, for the first nine months of 1996 compared to 1.43%
and 16.17%, respectively, for the same period in 1995.
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
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Interest income $ 7,484 $ 6,618 $ 21,100 $ 18,504
Tax equivalent adjustment 48 52 147 124
----- ----- ------ ------
Interest income, tax
equivalent basis 7,532 6,670 21,247 18,628
Total interest expense 3,208 2,891 9,088 7,703
----- ----- ------ ------
Net interest income, tax
equivalent basis (1) $ 4,324 $ 3,779 $ 12,159 $ 10,925
===== ===== ====== ======
Net interest spread (2),
annualized 4.16% 4.24% 4.16% 4.41%
===== ===== ====== ======
Net interest margin(3),
annualized 5.05% 5.20% 5.07% 5.35%
===== ===== ====== ======
Notes:
(1) Net interest income, the most significant component of the Bank's 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) Net interest spread is the difference between the taxable equivalent rate
earned on interest earning assets less the rate expensed on interest
bearing liabilities.
(3) 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 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 $4,324,000 for the three
months ended September 30, 1996 increased $545,000 or 14.4% from $3,779,000
for the same period last year. For the nine months ended September 30, 1996,
net interest income of $12,159,000 increased $1,234,000 or 11.3% from
$10,925,000 for the same period last year. Net interest spread and net
interest margin were 4.16% and 5.05%, respectively, for the third quarter of
1996 and 4.24% and 5.20%, respectively, for the third quarter of 1995. Net
interest spread and net interest margin were 4.16% and 5.07%, respectively,
for the first nine months of 1996 and 4.41% and 5.35%, respectively, for the
same period in 1995. Interest rates have declined steadily since mid 1995. As
discussed in the second following paragraph the Bank is liability
sensitive. Variable rate loans, approximately 50% of the Bank's largest
interest earning asset, reprice immediately with a change in prime rates;
whereas deposits, the Bank's largest interest bearing liability, do not respond
as quickly. Also, the Bank is experiencing loan growth; however, the average
rate earned on these loans has decreased as rates have fallen. Thus, net
interest spread and margin are decreasing.
Average earning assets increased $47,592,000 or 17.4% to $320,379,000 for
the first nine months of 1996 compared to 1995. Average interest bearing
liabilities increased $40,269,000 or 18.4% to $258,556,000 for the first nine
months of 1996 compared to 1995.
Interest rate sensitivity has a major impact on the earnings of the Bank.
As interest rates change in the market, rates earned on assets do not
necessarily move identically with rates paid on liabilities. Proper asset and
liability management involves the matching of interest sensitive assets and
liabilities to reduce interest rate risk. The Bank manages its interest rate
risk by primarily making variable rate loans. The Bank does, however, make
fixed rate loans which it matches, along with investment securities, against
longer term fixed rate time deposits. At September 30, 1996, interest bearing
liabilities repricing within one year slightly exceeded interest earning assets
repricing within one year. The negative cumulative interest sensitivity gap
through one year was approximately 3%.
A position of interest bearing liabilities repricing more quickly than interest
earning assets generally allows for a negative impact on net interest income in
periods of rising interest rates and a positive impact in periods of declining
interest rates. Bank management is aware, however, that while interest rates on
approximately 50% of the loan portfolio are contractually fixed, it will be
necessary to re-negotiate rates on some of these loans if prime rate drops. In
early June, 1996, the Bank entered into a two year interest rate swap contract
with a correspondent bank which effectively converts certain floating rate loans
to fixed rates. The notional amount of the contract is $20 million. Bancorp
has the ability to effectively manage its interest sensitivity gap to
control the degree of interest rate risk on the balance sheet.
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 other such 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 follows:
Nine months ended
September 30
(In thousands except percentages) ------------
1996 1995
---- ----
Balance at January 1 $ 4,507 $ 3,649
Provision for loan losses 540 1,080
Loan charge-offs, net of recoveries ( 159) ( 376)
------- -------
Balance at September 30 $ 4,888 $ 4,353
======= =======
Average loans, net of unearned income $265,839 $222,926
======= =======
Provision for loan losses to average loans (1) .27% .65%
======= =======
Net loan charge-offs
to average loans (1) .08% .23%
======= =======
Allowance for loan losses to average loans 1.84% 1.95%
======= =======
Allowance for loan losses to period-end loans 1.71% 1.78%
======= =======
(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, 1996 and 1995.
In thousands
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Non-interest income
Investment management
and trust services $ 603 $ 543 $1,742 $1,546
Service charges on
deposit accounts 394 318 1,129 913
Gains on sales of mortgage
loans held for sale 260 246 749 545
Gains on sales of securities
available for sale - - 35 -
Other 150 97 399 335
----- ----- ----- -----
Total non-interest income $1,407 $1,204 $4,054 $3,339
===== ===== ===== =====
Non-interest expenses
Salaries and employee
benefits $2,061 $1,652 $5,783 $4,677
Net occupancy expense 240 305 724 663
Furniture and equipment
expense 363 303 1,035 819
FDIC insurance 1 ( 13) 2 236
Other 663 700 2,239 2,077
----- ----- ----- -----
Total non-interest
expenses $3,328 $2,947 $9,783 $8,472
===== ===== ===== =====
Non-interest income increased $203,000, or 16.9%, for the third quarter of
1996, and $715,000 or 21.4% for the first nine months of 1996 compared to the
same periods in 1995. Trust income increased $60,000 or 11.1% and $196,000
or 12.7% in the first nine months of 1996, as compared to the same periods in
1995. Trust assets under management at September 30, 1996 were $402,900,000
as compared to $343,000,000 at December 31, 1995.
Service charges on deposit accounts increased $76,000 or 23.9% in the third
quarter of 1996, and $216,000 or 23.7% in the first nine months of 1996, as
compared to the same periods in 1995. Growth in deposit accounts spurred by
the introduction of new deposit products and by opening of new branch offices
has presented opportunities for increased fee income in this area.
Additionally, rates for deposit services are raised periodically.
Gains on sales of mortgage loans were $260,000 in the third quarter of 1996
compared to $246,000 in 1995 and $749,000 in the first nine months of 1996
compared to $545,000 in 1995. The Bank operates a mortgage banking division
which originatesresidential mortgage loans and sells the loans in the
secondary market. As interest rates decreased in the second half of 1995 and
again in February, 1996, the volume of loans originated and sold has increased.
Somewhat offsetting these volume increases have been shrinking profit margins
on loans sold in the secondary market.
Gains on sales of securities available for sale during the first quarter
of 1996 occurred when management sold lower yielding, shorter term securities
for intermediate term, higher yielding securities.
Other non-interest income increased $53,000 or 54.6% in the third quarter
of 1996 and increased $64,000 or 19.1% in the first nine months of 1996 compared
to 1995. The Bank has begun offering brokerage services and income from those
services accounts for most of the increases.
Non-interest expenses increased $381,000 or 12.9% for the third quarter of
1996 and $1,311,000 or 15.5% for the first nine months of 1996 as compared to
the same periods in 1995. Salaries and employee benefits increased $409,000,
or 24.8%, for the third quarter of 1996 and $1,106,000 or 23.6% for the first
nine months of 1996 compared to the same periods in 1995. These increases
arose in part from regular salary increases. Also, employees have been added
throughout 1995 and 1996 with the opening of new branches. The Bank had 224
full time equivalent employees as of September 30, 1996 and 182 full time
equivalents as of September 30, 1995. Net occupancy expense decreased $65,000
or 21.3% in the third quarter of 1996, and increased $61,000 or 9.2% in the
first nine months of 1996 as compared to 1995. The Bank had some one time
relocation expenses in the third quarter of 1995. Furniture and equipment
expense increased $60,000, or 19.8%, for the third quarter of 1996 and
$216,000 or 26.4% in the first nine months of 1996 compared to 1995. These
increases are largely due to the opening of new banking centers. In 1995 the
Bank opened its Outer Loop banking center and Elizabethtown loan production
office. In the first quarter of 1996, a loan production office in Lexington
was opened.
Expansion in facilities and technology resulted in increased occupancy and
equipment expenses. FDIC insurance expense decreased by almost 100% in 1996
as compared to 1995. During the third quarter of 1995, the FDIC determined the
Bank Insurance Fund had been replenished effective May, 1995. Accordingly they
reduced the premium paid by well capitalized banks from 23 cents per $100 of
deposits to 4 cents per $100 of deposits. Additionally, overpayments of deposit
insurance premiums were refunded. Subsequently the FDIC has reduced its
assessment on well capitalized banks to the minimum assessment payment allowed
of $1,000 per semiannual period. Beginning in 1997 banks will begin paying a
portion of the interest on debt incurred by the savings and loan bailout.
Banks will pay 1.29 cents for each $100 of deposits, or $42,000 annually at
our current level of deposits. Other non-interest expenses have decreased 5.3%
in the third quarter and increased 7.8% in the first nine months of 1996. Again,
the year to date increase is reflective of the Bank's expansion.
Income Taxes
Bancorp had income tax expense of $1,875,000 for the first nine months of
1996, compared to $1,496,000 for the same period in 1995. The effective rate
was 32.6% in 1996 and 32.8% in 1995.
B. FINANCIAL CONDITION
Total Assets
Total assets increased $48,977,000 from December 31, 1995 to September 30,
1996. Average assets for the first nine months of 1996 were $339,732,000. Total
assets at September 30, 1996 increased $62,441,000 from September 30, 1995,
representing a 20.1% increase. Since year end, loans have increased
approximately $33.3 million; cash due from banks and federal funds sold
increased $6.7 million; mortgage loans held for sale increased $1.3 million;
securities available for sale decreased $1 million, and securities held to
maturity increased $5.8 million.
Nonperforming Loans and Assets
Nonperforming loans, which include restructured, nonaccrual and loans past
due over 90 days, totaled $856,000 at September 30, 1996 and $1,212,000 at
December 31, 1995. This represents .30% of total loans at September 30, 1996
compared to .48% at December 31, 1995.
Nonperforming assets, which include nonperforming loans and other real estate
owned, (the Bank had no other real estate owned at December 31, 1995) totaled
$1,242,000 at September 30, 1996 and $1,212,000 at December 31, 1995. This
represents .33% of total assets at September 30, 1996 compared to .37% at
December 31, 1995.
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.
The Bank has a number of sources of funds to meet its liquidity needs on a
daily basis. An increase in loans affects liquidity as the repayment of
principal and interest are a daily source of funds. The deposit base,
consisting of relatively stable consumer and commercial deposits, and large
denomination ($100,000 and over) certificates of deposit, is another source
of funds. The majority of these deposits are from long term customers and
are a stable source of funds. In addition, federal funds purchased continue
to be a 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. These credit products provide the Bank with another source of funds.
To date, the Bank has not accessed this source of funds.
Bancorp's liquidity depends primarily on the dividends paid to it as the sole
shareholder of the Bank. At September 30, 1996, the Bank may pay up to
$8,106,000 in dividends to Bancorp without regulatory approval.
D. CAPITAL RESOURCES
At September 30, 1996, stockholders' equity totaled $30,520,000, an
increase of $2,906,000 or 10.5% since December 31, 1995.
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, 1996, Bancorp's tier 1 and total risk based capital
ratios were 10.4% and 11.8%, respectively, compared to 11.1% and 12.0%,
respectively, at December 31, 1995. These ratios exceed the 4.00% tier 1 and
8.0% total risk based capital minimums. A minimum leverage ratio, adopted by
the Federal Reserve Board to assist in the assessment of capital adequacy,
supplements the risk-based capital requirements. The minimum leverage ratio
is 3%; however, most bank holding companies are required to maintain a minimum
in excess of this percentage. Bancorp's leverage ratio at September 30, 1996 was
8.1% compared to 8.4% at December 31, 1995.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Per Share Earnings
(b) Reports on Form 8-K
The registrant was not required to file a Form 8-K for any of the three
months ended September 30, 1996.
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 13, 1996 By
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David H. Brooks, Chairman
and Chief Executive Officer
Date: November 13, 1996 By
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David P. Heintzman, President
Date: November 13, 1996 By:
-----------------------------
Nancy B. Davis, Senior Vice
President, Treasurer and
Chief Financial Officer