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, 1997
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
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 - 3,281,145
shares issued and outstanding at November 12, 1997
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of S.Y. Bancorp, Inc.
and Subsidiaries, Stock Yards Bank & Trust Company (Kentucky)
and Stock Yards Bank & Trust Company (Indiana), are submitted herewith:
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
Consolidated Statements of Income
for the three months ended September 30, 1997 and 1996
Consolidated Statements of Income
for the nine months ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
S.Y. BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
September 30, 1997 December 31, 1996
(In thousands, except share data)
Assets
Cash and due from banks $ 19,747 $ 15,348
Federal funds sold 12,000 4,500
Mortgage loans held for sale 5,192 4,362
Securities available for sale (amortized
cost $31,494 in 1997 and $19,111 in 1996) 31,802 19,441
Securities held to maturity (approximate market
value $30,899 in 1997 and $56,055 in 1996) 30,693 56,079
Loans 344,002 301,548
Allowance for loan losses 5,671 5,155
------- -------
Net loans 338,331 296,393
Premises and equipment 13,225 10,079
Accrued interest receivable 2,760 2,299
Other assets 6,968 6,864
------- -------
TOTAL ASSETS $460,718 $415,365
======= =======
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing $ 70,218 $ 63,627
Interest bearing 332,684 291,624
------- -------
Total deposits 402,902 355,251
Securities sold under agreements
to repurchase and federal funds purchased 11,865 19,728
Short-term borrowings 4,838 2,668
Accrued interest payable and
other liabilities 3,560 3,427
Long-term debt 2,115 2,697
------- -------
TOTAL LIABILITIES 425,280 383,771
------- -------
Stockholders' equity
Common stock, no par value; 5,000,000
shares authorized; 3,278,801 and
3,271,480 shares issued and
outstanding in 1997 and 1996, respectively 5,476 5,451
Surplus 13,532 13,390
Retained earnings 16,226 12,535
Net unrealized gains on securities
available for sale, net of tax 204 218
------- -------
TOTAL STOCKHOLDERS' EQUITY 35,438 31,594
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $460,718 $ 415,365
======= =======
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the three months ended September 30, 1997 and 1996
1997 1996
(In thousands, except share and per share data)
Interest income
Loans $7,788 $6,446
Federal funds sold 209 120
Mortgage loans held for sale 82 136
U.S. Treasury and Federal agencies 871 687
Obligations of states and political
subdivisions 100 95
----- -----
Total interest income 9,050 7,484
----- -----
Interest expense
Deposits 3,820 3,017
Securities sold under agreements
to repurchase and federal funds purchased 178 157
Short-term borrowings 29 23
Long-term debt 41 11
----- -----
Total interest expense 4,068 3,208
----- -----
Net interest income 4,982 4,276
Provision for loan losses 225 180
----- -----
Net interest income after
provision for loan losses 4,757 4,096
----- -----
Non-interest income
Investment management and trust services 868 603
Service charges on deposit accounts 487 394
Gains on sales of mortgage loans
held for sale 283 260
Other 247 150
----- -----
Total non- interest income 1,885 1,407
----- -----
Non- interest expenses
Salaries and employee benefits 2,423 2,061
Net occupancy expense 324 240
Furniture and equipment expense 442 363
Other 985 664
----- -----
Total non-interest expenses 4,174 3,328
----- -----
Income before income taxes 2,468 2,175
Income tax expense 800 715
----- -----
Net income $1,668 $1,460
===== =====
Net income per share
Primary $ .49 $ .44
===== =====
Fully diluted $ .49 $ .43
===== =====
Average common shares
Primary 3,397,979 3,370,198
========= =========
Fully diluted 3,406,393 3,384,510
========= =========
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the nine months ended September 30, 1997 and 1996
1997 1996
(In thousands, except share and per share data)
Interest income
Loans $22,254 $18,427
Federal funds sold 452 196
Mortgage loans held for sale 211 367
U.S. Treasury and Federal agencies 2,609 1,820
Obligations of states and political
subdivisions 294 290
------ ------
Total interest income 25,820 21,100
------ ------
Interest expense
Deposits 10,572 8,502
Securities sold under agreements
to repurchase and federal funds purchased 573 491
Short-term borrowings 81 61
Long-term debt 127 34
------ ------
Total interest expense 11,353 9,088
------ ------
Net interest income 14,467 12,012
Provision for loan losses 675 540
Net interest income after ------ ------
provision for loan losses 13,792 11,472
------ ------
Non-interest income
Investment management and trust services 2,376 1,742
Service charges on deposit accounts 1,427 1,129
Gains on sales of mortgage loans
held for sale 771 749
Gains on sales of securities
available for sale 80 35
Other 664 399
----- -----
Total non-interest income 5,318 4,054
----- -----
Non-interest expenses
Salaries and employee benefits 7,056 5,783
Net occupancy expense 857 724
Furniture and equipment expense 1,213 1,035
Other 2,735 2,241
------ -----
Total non-interest expenses 11,861 9,783
------ -----
Income before income taxes 7,249 5,743
Income tax expense 2,377 1,875
------ -----
Net income $ 4,872 $3,868
Net income per share ====== =====
Primary $ 1.44 $ 1.15
====== =====
Fully diluted $ 1.43 $ 1.15
====== =====
Average common shares
Primary 3,392,695 3,362,462
========= =========
Fully diluted 3,407,148 3,383,008
========= =========
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996
1997 1996
(In thousands)
Operating Activities
Net income $ 4,872 $ 3,868
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Provision for loan losses 675 540
Depreciation, amortization and accretion, net 1,068 800
Gains on sales of mortgages held for sale ( 771) 749)
Gains on sales of securities available for sale ( 80) ( 35)
(Increase) decrease in mortgage loans held for sale ( 59) ( 597)
(Increase) decrease in accrued interest receivable ( 461) 7)
(Increase) decrease in other assets ( 320) ( 932)
Increase (decrease) in accrued interest payable ( 160) ( 307)
Increase (decrease) in other liabilities 227 514
------ -----
Net cash provided (used) by operating activities 4,991 3,095
------ -----
Investing Activities
Net (increase) decrease in federal funds sold ( 7,500) ( 6,500)
Purchases of securities held to maturity ( 10,994) 20,854)
Purchases of securities available for sale ( 20,245) ( 6,996)
Proceeds from maturities of securities held to maturity 36,372 14,852
Proceeds from maturities of securities available for sale 3,910 3,057
Proceeds from sales of securities available for sale 4,026 4,850
Proceeds from sales of other real estate owned 172 -
Net (increase) decrease in loans ( 42,613) ( 33,483)
Purchases of premises and equipment ( 4,149) ( 2,831)
------ ------
Net cash provided (used) by investing activities ( 41,021) ( 47,905)
------ ------
Financing Activities
Net increase (decrease) in deposits 47,651 44,436
Net increase (decrease) in securities sold under
agreements to repurchase and federal funds purchased ( 7,863) ( 1,518)
Net increase (decrease) in short-term borrowings 2,170 2,946
Issuance of common stock for options and dividend
reinvestment plan 167 91
Cash dividends paid ( 1,114) ( 982)
Repayments of long-term debt ( 582) -
------ ------
Net cash provided (used) by financing activities 40,429 44,973
------ ------
Net increase (decrease) in cash and cash equivalents 4,399 163
Cash and cash equivalents at beginning of period 15,348 16,229
------- -------
Cash and cash equivalents at end of period $ 19,747 $ 16,392
======= =======
Income tax payments were $2,480,000 in 1997, and $1,798,000 in 1996.
Cash paid for interest was $11,513,000 in 1997, and $9,395,000 in 1996.
See accompanying notes to consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARIES
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
Subsidiaries 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 subsidiaries, Stock Yards Bank &
Trust Company, a Kentucky bank, and Stock Yards Bank & Trust Company,
an Indiana bank. All significant intercompany transactions have been
eliminated in consolidation. The Indiana Bank was acquired on October 1,
1996, and its operations are reflected in the consolidated financial
statements subsequent to that date.
A description of other significant accounting policies is presented
in the Consolidated Financial Statements for the year ended
December 31, 1996 included in S.Y. Bancorp, Inc.'s Annual Report,
and its Form 10-K for the year then ended.
Interim results for the quarter and/or nine month period ended
September 30, 1997 are not necessarily indicative of the results
for the entire year.
On January 1, 1997, Bancorp implemented Statement of Financial
Accounting Standard ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."
Under this standard, accounting for transfers and servicing of
financial assets and extinguishments of liabilities is based on control
After a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. The implementation of SFAS
No. 125 did not have a material effect on Bancorp's consolidated
financial statements because Bancorp does not have significant transactions
of this nature.
(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):
1997 1996
Beginning balance $5,155 $4,507
Provision for loan losses 675 540
Loans charged off ( 199) ( 205)
Recoveries 40 46
----- -----
Ending balance $5,671 $4,888
===== =====
Information regarding impaired loans at September 30, 1997 follows:
Recorded investment in impaired loans $ 439,000
Impaired loans with Statement 114 valuation allowance $ 66,000
Amount of Statement 114 valuation allowance $ 66,000
Amount of impaired loans without Statement 114
valuation allowance $ 373,000
=======
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 subsidiaries, Stock Yards Bank & Trust Company
("the Kentucky Bank") and Stock Yards Bank & Trust Company ("the Indiana Bank")
for the three and nine months ended September 30, 1997 and compares those
periods with the same periods of the previous year. Unless otherwise indicated,
all references in this discussion to the "Banks" include Bancorp. In addition,
the discussion describes the significant changes in the financial condition
of the Banks that have occurred during the first nine months of 1997 compared
to December 31, 1996. 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 $1,668,000 for the three months ended September 30, 1997
increased $208,000 or 14.25% from $1,460,000 for the comparable 1996
period. Net income per share on a fully diluted basis was $.49 for
the third quarter of 1997, an increase of 14.0% from the $.43 for the
same period in 1996. Return on average assets and return on average
stockholders' equity were 1.49% and 19.07%, respectively, for the third
quarter of 1997, compared to 1.71% and 19.12%, respectively, for the same
period in 1996.
Net income of $4,872,000 for the nine months ended September 30, 1997
increased $1,004,000 or 26.0% from $3,868,000 for the comparable 1996 period.
Net income per share on a fully diluted basis was $1.43 for the first nine
months of 1997, an increase of 24.4% from the $1.15 for the same period in
1996. Return on average assets and return on average stockholders' equity
were 1.53% and 19.46%, respectively, for the first nine months of 1997,
compared to 1.52% and 17.76%, respectively, for the same period in 1996.
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
1997 1996 1997 1996
Interest income $ 9,050 $ 7,484 $ 25,820 $ 21,100
Tax equivalent 44 48 133 147
Interest income, tax ------ ------ ------ ------
equivalent basis 9,094 7,532 25,953 21,247
Total interest expense 4,068 3,208 11,353 9,088
Net interest income , tax ------ ------ ------ ------
equivalent basis (1) $ 5,026 $ 4,324 $ 14,600 $ 12,159
====== ====== ====== ======
Net interest spread (2),
annualized 4.38% 4.16% 4.20% 4.16%
Net interest margin (3), ====== ====== ====== ======
annualized 5.03% 5.05% 4.97% 5.07%
====== ====== ====== ======
Notes:
(1) Net 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) 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 $5,026,000 for the three
months ended September 30, 1997 increased $702,000 or 16.2% from $4,324,000
for the same period last year. For the nine months ended September 30, 1997,
net interest income of $14,600,000 increased $2,441,000 or 20.1 % from
$12,159,000 for the same period last year. Net interest spread and net
interest margin were 4.38% and 5.03%, respectively, for the third quarter of
1997 and 4.16% and 5.05%, respectively, for the third quarter of 1996. Net
interest spread and margin were 4.20% and 4.97%, respectively, for the first
nine months of 1997 and 4.16% and 5.07%, respectively, for the same period in
1996. In the relatively stable interest rate environment, higher yielding
interest earning assets have matured. Thus, net interest spread and margin
are decreasing.
Average earning assets increased $72,104,000, or 22.5% to $392,483,000
for the first nine months of 1997 compared to 1996. Average interest bearing
liabilities increased $68,802,000 or 26.6% to $327,358,000 for the first nine
months of 1997 compared to 1996.
Interest rate sensitivity has a major impact on the earnings of the Banks.
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 Banks manage interest rate
risk by primarily making variable rate loans. The Banks do, however, make
fixed rate loans which are matched, along with investment securities against
longer term fixed rate time deposits. The Banks' largest interest earning
asset is loans and approximately half of the loan portfolio is comprised of
variable rate loans. Variable rate loans reprice immediately with a change
in prime rates. Deposits, the Banks' largest interest bearing liability, do
not respond nearly as quickly nor as significantly to changes in market
interest rates. At September 30, 1997, interest bearing liabilities
repricing within one year slightly exceeded interest earning assets repricing
within one year. 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. The cumulative interest sensitivity
gap through one year was approximately (1%) and Bancorp believes it 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 such other
factors that, in management's judgement, 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)
1997 1996
Balance at January 1 $ 5,155 $ 4,507
Provision for loan losses 675 540
Loan charge-offs, net of recoveries ( 159) ( 159)
------- -------
Balance at September 30 $ 5,671 $ 4,888
======= =======
Average loans, net of unearned income $315,224 $265,839
======= =======
Provision for loan losses to average loans (1) .29% .27%
======= =======
Net loan charge-offs to average loans (1) .07% .08%
======= =======
Allowance for loan losses to average loans 1.80% 1.84%
======= =======
Allowance for loan losses to period-end loans 1.65% 1.71%
======= =======
(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, 1997
and 1996.
In thousands
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Non-interest income
Investment management and
trust services $ 868 $ 603 $ 2,376 $ 1,742
Service charges on
deposit accounts 487 394 1,427 1,129
Gains on sales of mortgage
loans held for sale 283 260 771 749
Gains on sales of securities
available for sale - - 80 35
Other 247 150 664 399
----- ----- ---- -----
Total non-interest income $1,885 $1,407 $ 5,318 $ 4,054
===== ===== ====== ======
Non-interest expenses
Salaries and employee
benefits $2,423 $2,061 $ 7,056 $ 5,783
Net occupancy expense 324 240 857 724
Furniture and equipment
expense 442 363 1,213 1,035
Other 985 664 2,735 2,241
------ ----- ----- ----
Total non-interest
expenses $4,174 $3,328 $11,861 $ 9,783
===== ===== ====== =====
Non-interest income increased $478,000, or 34.0%, for the third quarter
of 1997, and $1,264,000 or 31.2% for the first nine months of 1997, compared to
the same periods in 1996. Trust income increased $265,0000 or 44.0% in the
third quarter of 1997 and $634,000 or 36.4% in the first nine months of 1997, as
compared to the same periods in 1996. Trust assets under management at
September 30, 1997 were $630,000,000 as compared to $470,000,000 at
December 31, 1996.
Service charges on deposit accounts increased $93,000 or 23.6% in the
third quarter of 1997 and $298,000 or 26.4% in the first nine months of 1997,
as compared to the same periods in 1996. Growth in deposit accounts spurred
by the introduction of new deposit products and by the opening of new branch
offices has presented opportunities for increased fee income in this area.
Additionally, rates for some deposit services were raised in the third
quarter of 1996.
Gains on sales of mortgage loans were $283,000 in the third quarter of
1997 compared to $260,000 in 1996 and $771,000 in the first nine months of
1997, as compared to $749,000 in 1996. The Kentucky Bank operates a
mortgage banking company which originates residential mortgage loans
and sells the loans in the secondary market. The volume of loans
originated by the mortgage company has increased more than the gains
on sales would indicate. Profit margins on these loans have
decreased markedly as competition in the industry has increased.
Gains on sales of securities available for sale during the first
quarter of both 1997 and 1996 occurred as management sold lower yielding,
shorter term securities for intermediate term, higher yielding securities.
Other non-interest income increased $97,000 or 64.7% in the third
quarter of 1997 and $265,000 or 66.4% in the first nine months of 1997
compared to 1996. Numerous factors contribute to this increase including
the addition of a brokerage function in the first quarter of 1996.
Non-interest expenses increased $846,000 or 25.4% for the third quarter
of 1997 and $2,078,000 or 21.2% for the first nine months of 1997 compared to
the same periods in 1996. Salaries and employee benefits increased $362,000,
or 17.6%, for the third quarter of 1997 and $1,273,000 or 22.0% for the first
nine months of 1997 compared to the same periods in 1996. These increases arose
in part from regular salary increases. Also, employees have been added
throughout 1997 and 1996 with the opening of new branches. The Banks had 237
full time equivalent employees as of September 30, 1997 and 224 full time
equivalents as of September 30, 1996. In addition, the Banks have an incentive
plan in place which is based on profitability and employee performance.
Expense accrues throughout the year, and with higher earnings and a growing
employee base, these incentives have increased. Net occupancy expense
increased $84,000 or 35.0% in the third quarter of 1997 and $133,000 or 18.4%
for the first nine months of 1997, as compared to 1996. Furniture and equipment
expense increased $79,000, or 21.8, for the third quarter of 1997 and $178,000
or 17.2% for the first nine months of 1997 compared to 1996. These increases
are largely due to the opening of new banking centers. In 1996 the Kentucky
Bank opened its Stony Brook and Springhurst banking centers and the Indiana
Bank was acquired. In 1997, the Stony Brook branch moved into its permanent
facility, and the historic rehabilitation of the Bourbon Stockyards Exchange
building was completed. Virtually all non-customer contact employees moved
into this building during the second quarter of 1997. Additionally, the
Banks continue to update computer equipment and software as technology
advances. These additions flow through the statement of income as
depreciation expense. Other non-interest expenses have increased 48.3% in
the third quarter and 22.0% in the first nine months of 1997 as compared to
1996. Again, these increases are reflective of the Banks'expansion.
Also, goodwill amortization related to the Indiana Bank acquisition
is included in 1997 totals. That amount was $52,000 in the first nine months
of 1997.
Income Taxes
Bancorp had income tax expense of $2,377,000 for the first nine months of
1997, compared to $1,875,000 for the same period in 1996. The effective rate
was 32.8% in 1997 and 32.6% in 1996. The slight increase in the effective tax
rate is due to a decreasing proportion of tax exempt interest.
B. FINANCIAL CONDITION
Total Assets
Total assets increased $45,353,000 from December 31, 1996 to
September 30, 1997 Average assets for the first nine months of 1997
were $426,481,000 Total assets at September 30, 1997 increased
$87,387,000 from September 30,1996, representing a 23.4% increase.
Since year end, loans have increased approximately $42.4 million;
cash and due from banks and federal funds sold increased $11.9 million;
securities available for sale increased $12.4 million, and
securities held to maturity decreased $25.4 million.
Nonperforming Loans and Assets
Nonperforming loans, which include nonaccrual and loans past due over
90 days, totaled $439,000 at September 30, 1997 and $854,000 at
December 31, 1996. This represents .13% of total loans at
September 30, 1997 compared to .28% at December 31, 1996.
Nonperforming assets, which include nonperforming loans, other real
estate owned and repossessed assets, totaled $439,000 at September 30, 1997
and $1,129,000 at December 31, 1996. This represents .10% of total
assets at September 30, 1997 compared to .27% at December 31, 1996.
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 Banks have 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 Kentucky
Bank is a member of the Federal Home Loan Bank of Cincinnati (FHLB). As a
member of the FHLB, the Kentucky Bank has access to credit products of the
FHLB. These credit services provide the Kentucky Bank with another source of
funds. To date, the Kentucky 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 Banks. At September 30, 1997, the Banks may pay
up to $9,173,000 in dividends to Bancorp without regulatory approval.
D. CAPITAL RESOURCES
At September 30, 1997, stockholders' equity totaled $35,438,000, an
increase of $3,844,000 since December 31, 1996. One component of equity
is net unrealized gains (losses) on securities available for sale, net of
tax. Fluctuations in the bond market resulted in a net unrealized
gains as of September 30, 1997. The unrealized gains on securities
available for sale, net of tax, showed a $218,000 net gain at year end and
a $204,000 net gain as of September 30, 1997.
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, 1997, Bancorp's tier 1 total risk based capital and
leverage ratios were 9.85%, 11.19% and 7.62%, respectively.
These ratios exceed the 4.00% tier 1, 8.0% total risk based capital
and 4% leverage ratio minimums. Capital ratios of the Kentucky
Bank and the consolidated entity have decreased slowly. Despite record
earnings and conservative dividend policies, with the rapid expansion of
the Kentucky Bank assets have increased faster than capital has grown.
Management monitors this situation and plans to maintain capital ratios
within well capitalized parameters.
E. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information
About Capital Structure." SFAS No. 128 simplifies the computation of earnings
per share ("EPS") by replacing the presentation of primary EPS with a
presentation of basic EPS. The Statement requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted EPS.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and requires
restatement of all prior period EPS data presented. Bancorp does not
expect the implementation of this Statement to have a material effect
on the financial statements.
SFAS No. 129 establishes standards for disclosing information about an
entity's capital structure. This Statement contains no change in
disclosure requirements for companies that were subject to previously
existing requirements. This Statement was issued to eliminate the exemption
of nonpublic entities from certain previously issued disclosure requirements.
This Statement is effective for financial statements for periods ending
after December 15, 1997. Implementation of this Statement will not have a
material effect on Bancorp's financial statements.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
None
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, 1997.
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 12, 1997 By: /s/ David H. Brooks
David H. Brooks, Chairman
and Chief Executive Officer
Date: November 12, 1997 By: /s/ David P. Heintzman
David P. Heintzman, President
Date: November 12, 1997 By: /s/ Nancy B. Davis
Nancy B. Davis, Senior Vice
President, Treasurer and Chief
Financial Officer