sybt20170630_10q.htm Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the quarterly period ended June 30, 2017

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           1-13661     

STOCK YARDS BANCORP, INC.     

(Exact name of registrant as specified in its charter)

 

Kentucky

 

 

 

61-1137529 

(State or other jurisdiction of

 

 

 

(I.R.S. Employer

incorporation or organization)       Identification No.)

 

1040 East Main Street, Louisville, Kentucky 40206     

(Address of principal executive offices including 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 required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     ☑               No     

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                          Yes ☑               No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated filer

Non-accelerated filer (Do not check if a smaller reporting Company)

Smaller reporting company

Emerging growth company

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐           

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).

Yes     ☐               No     

 

 

The number of shares of the registrant’s Common Stock, no par value, outstanding as of July 26, 2017 was 22,659,928.

 

 
 

Table of Contents
 

 

Stock Yards Bancorp, inc. and subsidiary

 

Index

 

 

Item Page
   

part I – financial information

 
   
   

Item 1. Financial Statements

 
   

The following consolidated financial statements of Stock Yards Bancorp, Inc. and Subsidiary are submitted herewith:

 
   

Consolidated Balance Sheets June 30, 2017 (Unaudited) and December 31, 2016

3

   

Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2017 and 2016

4

   

Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2017 and 2016

5

   

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2017 and 2016

6

   

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016

7

   

Notes to Consolidated Financial Statements (Unaudited)

8

   
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 42
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 68
   
Item 4. Controls and Procedures 68
   
   
PART II – OTHER INFORMATION  
   
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 69
   
Item 6. Exhibits 69

 

 
1

Table of Contents
 

 

Stock Yards Bancorp, inc. and subsidiary

 

Index

 

 

PART I – FINANCIAL INFORMATION

 

 

Glossary of Acronyms and Terms

 

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:

 

ASU

Accounting Standards Update

Bancorp

Stock Yards Bancorp, Inc.

Bank

Stock Yards Bank & Trust Company

BOLI

Bank Owned Life Insurance

BP

Basis Point = 1/100th of one percent

COSO

Committee of Sponsoring Organizations

CRA

Community Reinvestment Act of 1977

Dodd-Frank Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

EPS

Earnings Per Share

FASB

Financial Accounting Standards Board

FDIC

Federal Deposit Insurance Corporation

FHA

Federal Housing Administration

FHLB

Federal Home Loan Bank

FHLMC

Federal Home Loan Mortgage Corporation

FNMA

Federal National Mortgage Association

GNMA

Government National Mortgage Association

WM&T

Wealth management and trust department

LIBOR

London Interbank Offered Rate

MSR

Mortgage Servicing Right

OAEM

Other Assets Especially Mentioned

OREO

Other Real Estate Owned

PSU

Performance Stock Unit

RSU

Restricted Stock Unit

SAR

Stock Appreciation Right

SEC

Securities and Exchange Commission

TDRs

Troubled Debt Restructurings

US GAAP

United States Generally Accepted Accounting Principles

VA

U.S. Department of Veterans Affairs

 

 
2

Table of Contents
 

 

Item 1. Financial Statements

 

STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

June 30, 2017 (unaudited) and December 31, 2016

(In thousands, except share data)

 

   

June 30,

   

December 31,

 

 

 

2017

   

2016

 
Assets            
                 

Cash and due from banks

  $ 44,902     $ 39,709  

Federal funds sold and interest bearing deposits

    80,223       8,264  

Cash and cash equivalents

    125,125       47,973  

Mortgage loans held for sale

    3,055       3,213  

Securities available-for-sale (amortized cost of $576,776 in 2017 and $571,936 in 2016)

    576,291       570,074  

Federal Home Loan Bank stock and other securities

    7,666       6,347  

Loans

    2,309,668       2,305,375  

Less allowance for loan losses

    25,115       24,007  

Net loans

    2,284,553       2,281,368  
                 

Premises and equipment, net

    41,431       42,384  

Bank owned life insurance

    31,656       31,867  

Accrued interest receivable

    6,865       6,878  

Other assets

    50,120       49,377  

Total assets

  $ 3,126,762     $ 3,039,481  
                 
                 

Liabilities and Stockholders’ Equity

               

Deposits:

               

Non-interest bearing

  $ 696,085     $ 680,156  

Interest bearing

    1,782,461       1,840,392  

Total deposits

    2,478,546       2,520,548  
                 

Securities sold under agreements to repurchase

    65,024       67,595  

Federal funds purchased and other short-term borrowings

    161,463       47,374  

Federal Home Loan Bank advances

    50,433       51,075  

Accrued interest payable

    187       144  

Other liabilities

    44,609       38,873  

Total liabilities

    2,800,262       2,725,609  
                 

Stockholders’ equity:

               

Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outsanding

    -       -  

Common stock, no par value. Authorized 40,000,000 shares; issued and outstanding 22,662,338 and 22,617,098 shares in 2017 and 2016, respectively

    36,400       36,250  

Additional paid-in capital

    29,753       26,682  

Retained earnings

    260,956       252,439  

Accumulated other comprehensive loss

    (609 )     (1,499 )

Total stockholders’ equity

    326,500       313,872  

Total liabilities and stockholders’ equity

  $ 3,126,762     $ 3,039,481  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income (Unaudited)

For the three and six months ended June 30, 2017 and 2016

(In thousands, except per share data)

 

   

For three months ended

   

For the six months ended

 
   

June 30,

   

June 30,

 
   

2017

   

2016

   

2017

   

2016

 

Interest income:

                               

Loans

  $ 24,351     $ 22,563     $ 48,411     $ 44,556  

Federal funds sold and interest bearing deposits

    276       111       410       300  

Mortgage loans held for sale

    53       59       97       119  

Securities – taxable

    2,056       2,123       4,170       4,278  

Securities – tax-exempt

    277       306       558       609  

Total interest income

    27,013       25,162       53,646       49,862  

Interest expense:

                               

Deposits

    1,481       979       2,644       1,975  

Federal funds purchased and other short-term borrowing

    29       23       48       38  

Securities sold under agreements to repurchase

    32       29       67       62  

Federal Home Loan Bank advances

    239       181       471       368  

Total interest expense

    1,781       1,212       3,230       2,443  

Net interest income

    25,232       23,950       50,416       47,419  

Provision for loan losses

    600       750       1,500       1,250  

Net interest income after provision for loan losses

    24,632       23,200       48,916       46,169  

Non-interest income:

                               

Wealth management and trust services

    5,153       4,807       10,247       9,419  

Service charges on deposit accounts

    2,439       2,262       4,846       4,408  

Bankcard transactions

    1,514       1,433       2,920       2,743  

Mortgage banking

    897       1,030       1,599       1,824  

Securities brokerage

    494       538       1,033       981  

Bank owned life insurance

    556       220       760       441  

Other

    622       488       1,067       1,044  

Total non-interest income

    11,675       10,778       22,472       20,860  

Non-interest expenses:

                               

Salaries and employee benefits

    12,849       11,971       26,261       24,166  

Net occupancy

    1,514       1,546       3,144       3,070  

Data processing

    2,121       1,881       3,989       3,425  

Furniture and equipment

    268       291       545       576  

FDIC insurance

    244       351       474       679  

Amortization of investments in tax credit partnerships

    615       1,016       1,231       2,031  

Other

    3,735       3,137       6,850       5,786  

Total non-interest expenses

    21,346       20,193       42,494       39,733  

Income before income taxes

    14,961       13,785       28,894       27,296  

Income tax expense

    4,359       3,676       7,501       7,352  

Net income

  $ 10,602     $ 10,109     $ 21,393     $ 19,944  

Net income per share:

                               

Basic

  $ 0.47     $ 0.45     $ 0.94     $ 0.89  

Diluted

  $ 0.46     $ 0.45     $ 0.92     $ 0.88  

Average common shares:

                               

Basic

    22,783       22,336       22,788       22,295  

Diluted

    23,241       22,704       23,271       22,658  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
4

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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

For the three and six months ended June 30, 2017 and 2016

(In thousands)

 

   

Three months ended

   

Six months ended

 
   

June 30,

   

June 30,

 
   

2017

   

2016

   

2017

   

2016

 

Net income

  $ 10,602     $ 10,109     $ 21,393     $ 19,944  

Other comprehensive income, net of tax:

                               

Unrealized gains on securities available for sale:

                               

Unrealized gains arising during the period , net of tax expense of $112, $863, $482, and $2,831, respectively

    206       1,603       895       5,256  

Unrealized losses on hedging instruments:

                               

Unrealized losses arising during the period, net of tax benefit of $49, $53, $2, $236, respectively

    (90 )     (99 )     (5 )     (438 )

Other comprehensive income, net of tax

    116       1,504       890       4,818  

Comprehensive income

  $ 10,718     $ 11,613     $ 22,283     $ 24,762  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
5

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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the six months ended June 30, 2017 and 2016

(In thousands, except per share data)

 

                                   

Accumulated

         
   

Common stock

   

Additional

           

other

         
   

Number of

           

paid-in

   

Retained

   

comprehensive

         
   

shares

   

Amount

   

capital

   

earnings

   

income (loss)

   

Total

 
                                                 
                                                 

Balance December 31, 2015

    14,919     $ 10,616     $ 44,180     $ 231,091     $ 632     $ 286,519  

Net income

    -       -       -       19,944       -       19,944  
                                                 

Other comprehensive income, net of tax

    -       -       -       -       4,818       4,818  
                                                 

Stock compensation expense

    -       -       1,073       -       -       1,073  
                                                 

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    103       342       1,829       (1,689 )     -       482  
                                                 

3 for 2 stock split

    7,494       24,956       (24,956 )                        
                                                 

Cash dividends, $0.35 per share

    -       -       -       (7,785 )     -       (7,785 )
                                                 

Shares cancelled

    (6 )     (20 )     (164 )     184       -       -  
                                                 

Balance June 30, 2016

    22,510     $ 35,894     $ 21,962     $ 241,745     $ 5,450     $ 305,051  
                                                 

Balance December 31, 2016

    22,617     $ 36,250     $ 26,682     $ 252,439     $ (1,499 )   $ 313,872  

Net income

    -       -       -       21,393       -       21,393  
                                                 

Other comprehensive income, net of tax

    -       -       -       -       890       890  
                                                 

Stock compensation expense

    -       -       1,342       -       -       1,342  
                                                 

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    50       164       1,820       (4,146 )     -       (2,162 )
                                                 

Cash dividends, $0.39 per share

    -       -       -       (8,835 )     -       (8,835 )
                                                 

Shares cancelled

    (5 )     (14 )     (91 )     105       -       -  
                                                 

Balance June 30, 2017

    22,662     $ 36,400     $ 29,753     $ 260,956     $ (609 )   $ 326,500  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2017 and 2016

(In thousands)

 

   

2017

   

2016

 

Operating activities:

               

Net income

  $ 21,393     $ 19,944  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for loan losses

    1,500       1,250  

Depreciation, amortization and accretion, net

    4,399       5,292  

Deferred income tax provision

    (517 )     447  

Gain on sales of mortgage loans held for sale

    (963 )     (1,103 )

Origination of mortgage loans held for sale

    (49,168 )     (57,433 )

Proceeds from sale of mortgage loans held for sale

    50,289       58,931  

Bank owned life insurance income

    (760 )     (441 )

Loss (gain) on the sale of other real estate

    64       (443 )

Stock compensation expense

    1,342       1,073  

Excess tax benefits from share-based compensation arrangements

    (1,120 )     (520 )

Decrease in accrued interest receivable and other assets

    (4,015 )     (5,246 )

Increase in accrued interest payable and other liabilities

    6,883       12,321  

Net cash provided by operating activities

    29,327       34,072  

Investing activities:

               

Purchases of securities available for sale

    (251,196 )     (227,714 )

Proceeds from sale of securities available for sale

    -       -  

Proceeds from maturities of securities available for sale

    245,010       232,825  

Purchase of Federal Home Loan Bank stock

    (1,319 )     -  

Net increase in loans

    (4,685 )     (144,605 )

Purchases of premises and equipment

    (839 )     (4,660 )

Proceeds from disposal of premises and equipment

    207       -  

Proceeds from mortality benefit of bank owned life insurance

    970       -  

Proceeds from sale of foreclosed assets

    1,784       1,401  

Net cash used in investing activities

    (10,068 )     (142,753 )

Financing activities:

               

Net decrease in deposits

    (42,002 )     (21,754 )

Net increase in securities sold under agreements to repurchase and federal funds purchased

    111,518       84,588  

Proceeds from Federal Home Loan Bank advances

    60,000       160,000  

Repayments of Federal Home Loan Bank advances

    (60,642 )     (160,466 )

Proceeds (used for) and received from settlement of stock awards

    (216 )     1,045  

Excess tax benefits from share-based compensation arrangements

    -       520  

Common stock repurchases

    (1,946 )     (1,083 )

Cash dividends paid

    (8,819 )     (7,768 )

Net cash provided by financing activities

    57,893       55,082  

Net increase (decrease) in cash and cash equivalents

    77,152       (53,599 )

Cash and cash equivalents at beginning of period

    47,973       103,833  

Cash and cash equivalents at end of period

  $ 125,125     $ 50,234  

Supplemental cash flow information:

               

Income tax payments

  $ 4,473     $ 5,490  

Cash paid for interest

    3,187       2,438  

Supplemental non-cash activity:

               

Transfers from loans to other real estate owned

  $ -     $ 1,511  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
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Stock Yards Bancorp, inc. and subsidiary

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

(1)

Summary of Significant Accounting Policies

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (US GAAP) for complete financial statements. The consolidated unaudited financial statements of Stock Yards Bancorp, Inc. (“Bancorp”) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods.

 

The unaudited consolidated financial statements include the accounts of Stock Yards Bancorp, Inc. and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (“Bank”). Significant inter-company transactions and accounts have been eliminated in consolidation. In preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of related revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to determination of the allowance for loan losses, valuation of available-for sale securities, other real estate owned and income tax assets, and estimated liabilities and expense.

 

A description of other significant accounting policies is presented in the notes to Consolidated Financial Statements for the year ended December 31, 2016 included in Stock Yards Bancorp, Inc.’s Annual Report on Form 10-K. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.

 

Interim results for the three and six-month periods ended June 30, 2017 are not necessarily indicative of results for the entire year.

 

Critical Accounting Policies

 

The allowance for loan losses is management’s estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Loan losses are charged against the allowance when management believes uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

Management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors. Since application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change. The provision for loan losses reflects an allowance methodology driven by risk ratings, historical losses, specific loan loss allocations, and qualitative factors. Assumptions include many factors such as changes in borrowers’ financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses. In the first quarter of 2017, Bancorp extended the historical period used to capture Bancorp’s historical loss ratios from 24 quarters to 28 quarters. This extension of the historical period was applied to all classes and segments of the portfolio. The expansion of the look-back period for the historical loss rates used in the quantitative allocation caused management to review the overall methodology for the qualitative factors to ensure Bancorp was appropriately capturing the risk not addressed in the historical loss rates used in the quantitative allocation, resulting in the same expansion of the look-back period for the qualitative factors. Management believes the extension of the look-back period is appropriate to capture the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio. To the extent that management’s assumptions prove incorrect, results from operations could be materially affected by a higher or lower provision for loan losses. The accounting policy related to the allowance for loan losses is applicable to the commercial banking segment of Bancorp. The impact and any associated risks related to this policy on Bancorp’s business operations are discussed in the “Allowance for Loan Losses” section below.

 

 
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Stock Yards Bancorp, inc. and subsidiary

 

 

Bancorp’s allowance calculation includes allocations to loan portfolio segments at June 30, 2017 for qualitative factors including, among other factors, local economic and business conditions in each of our primary markets, quality and experience of lending staff and management, exceptions to lending policies, levels of and trends in past due loans and loan classifications, concentrations of credit such as collateral type, trends in portfolio growth, changes in value of underlying collateral for collateral-dependent loans, effect of other external factors such as the national economic and business trends, quality and depth of the loan review function, and management’s judgement of current trends and potential risks. Bancorp utilizes the sum of all allowance amounts derived as described above as the appropriate level of allowance for loan and lease losses. Changes in criteria used in this evaluation or availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan losses based on their judgments and estimates.

 

(2)

Securities

 

The amortized cost, unrealized gains and losses, and fair value of securities available-for-sale follow:

 

(in thousands)

 

Amortized

   

Unrealized

   

Fair

 

June 30, 2017

  cost    

Gains

   

Losses

    value  
                                 

Government sponsored enterprise obligations

  $ 366,762     $ 789     $ 873     $ 366,678  

Mortgage-backed securities - government agencies

    155,933       709       1,768       154,874  

Obligations of states and political subdivisions

    53,428       710       102       54,036  

Corporate equity securities

    653       50       -       703  
                                 

Total securities available for sale

  $ 576,776     $ 2,258     $ 2,743     $ 576,291  
                                 

December 31, 2016

                               
                                 

U.S. Treasury and other U.S. Government obligations

  $ 74,997     $ 1     $ -     $ 74,998  

Government sponsored enterprise obligations

    268,784       800       1,494       268,090  

Mortgage-backed securities - government agencies

    170,344       735       2,236       168,843  

Obligations of states and political subdivisions

    57,158       682       396       57,444  

Corporate equity securities

    653       46       -       699  
                                 

Total securities available for sale

  $ 571,936     $ 2,264     $ 4,126     $ 570,074  

 

 

Corporate equity securities consist of common stock in a publicly-traded business development company.

 

There were no securities classified as held to maturity as of June 30, 2017 or December 31, 2016.

 

Bancorp sold no securities during the three or six month periods ending June 30, 2016 or 2017.

 

 
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Stock Yards Bancorp, inc. and subsidiary

 

 

A summary of the available-for-sale investment securities by contractual maturity groupings as of June 30, 2017 is shown below.

 

(in thousands)

 

 

       

Securities available-for-sale

  Amortized cost     Fair value  
                 

Due within 1 year

  $ 222,639     $ 222,690  

Due after 1 but within 5 years

    80,328       80,586  

Due after 5 but within 10 years

    15,689       15,626  

Due after 10 years

    101,534       101,812  

Mortgage-backed securities – government agencies

    155,933       154,874  

Corporate equity securities

    653       703  
                 

Total securities available-for-sale

  $ 576,776     $ 576,291  

 

 

Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations. In addition to equity securities, the investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, and GNMA. These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on underlying collateral.

 

Bancorp pledges portions of its investment securities portfolio to secure public fund deposits, cash balances of certain wealth management and trust accounts, and securities sold under agreements to repurchase. The carrying value of these pledged securities was approximately $314.2 million at June 30, 2017 and $380.4 million at December 31, 2016.

 

 
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Stock Yards Bancorp, inc. and subsidiary

 

 

Securities with unrealized losses at June 30, 2017 and December 31, 2016, not recognized in the statements of income are as follows:

 

(in thousands)

 

Less than 12 months

   

12 months or more

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

June 30, 2017

 

value

   

losses

   

value

   

losses

   

value

   

losses

 
                                                 

Government sponsored enterprise obligations

  $ 185,503     $ 663     $ 37,819     $ 210     $ 223,322     $ 873  

Mortgage-backed securities - government agencies

    87,161       1,383       9,952       385       97,113       1,768  

Obligations of states and political subdivisions

    12,948       68       2,853       34       15,801       102  
                                                 

Total temporarily impaired securities

  $ 285,612     $ 2,114     $ 50,624     $ 629     $ 336,236     $ 2,743  
                                                 

December 31, 2016

                                               

Government sponsored enterprise obligations

  $ 154,951     $ 1,344     $ 3,485     $ 150     $ 158,436     $ 1,494  

Mortgage-backed securities - government agencies

    115,374       1,873       9,914       363       125,288       2,236  

Obligations of states and political subdivisions

    29,893       380       1,478       16       31,371       396  
                                                 

Total temporarily impaired securities

  $ 300,218     $ 3,597     $ 14,877     $ 529     $ 315,095     $ 4,126  

 

 

Applicable dates for determining when securities are in an unrealized loss position are June 30, 2017 and December 31, 2016. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past twelve months, but is not in the “investments with an unrealized loss of less than 12 months” category above.

 

Unrealized losses on Bancorp’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is due to changes in the prevailing interest rate environment since the purchase date. Fair value is expected to recover as securities reach their maturity date and/or the interest rate environment returns to conditions similar to when these securities were purchased. Because management does not intend to sell the investments, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at June 30, 2017.

 

FHLB stock and other securities are investments held by Bancorp which are not readily marketable and are carried at cost. This category includes holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock which are required for access to FHLB borrowing, and are classified as restricted securities.

 

 
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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

 

 

(3)

Loans

 

Composition of loans, net of deferred fees and costs, by primary loan portfolio class follows:

 

(in thousands)

 

June 30, 2017

   

December 31, 2016

 
                 

Commercial and industrial

  $ 749,036     $ 736,841  

Construction and development, excluding undeveloped land

    175,627       192,348  

Undeveloped land

    20,992       21,496  
                 

Real estate mortgage:

               

Commercial investment

    547,196       538,886  

Owner occupied commercial

    408,558       408,292  

1-4 family residential

    255,939       249,498  

Home equity - first lien

    52,560       55,325  

Home equity - junior lien

    65,344       67,519  

Subtotal: Real estate mortgage

    1,329,597       1,319,520  
                 

Consumer

    34,416       35,170  
                 

Total loans

  $ 2,309,668     $ 2,305,375  

 

 
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 STOCK YARDS BANCORP, INC. AND SUBSIDIARY

 

 

The following table presents the balance of the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of June 30, 2017 and December 31, 2016.

 

(in thousands)

 

Type of loan

         
           

Construction

                                 
           

and development

                                 
   

Commercial

   

excluding

                                 
   

and

   

undeveloped

   

Undeveloped

   

Real estate

                 

June 30, 2017

 

industrial

   

land

   

land

   

mortgage

   

Consumer

   

Total

 
                                                 

Loans

  $ 749,036     $ 175,627     $ 20,992     $ 1,329,597     $ 34,416     $ 2,309,668  
                                                 

Loans collectively evaluated for impairment

  $ 746,390     $ 175,215     $ 20,519     $ 1,326,705     $ 34,359     $ 2,303,188  
                                                 

Loans individually evaluated for impairment

  $ 2,624     $ 412     $ 473     $ 2,310     $ 57     $ 5,876  
                                                 

Loans acquired with deteriorated credit quality

  $ 22     $ -     $ -     $ 582     $ -     $ 604  

 

           

Construction

                                 
           

and development

                                 
   

Commercial

   

excluding

                                 
   

and

   

undeveloped

   

Undeveloped

   

Real estate

                 
   

industrial

   

land

   

land

   

mortgage

   

Consumer

   

Total

 

Allowance for loan losses

                                               

At December 31, 2016

  $ 10,483     $ 1,923     $ 684     $ 10,573     $ 344     $ 24,007  

Provision (credit)

    1,723       (110 )     (82 )     (129 )     98       1,500  

Charge-offs

    (482 )     -       -       (34 )     (257 )     (773 )

Recoveries

    120       -       -       64       197       381  

At June 30, 2017

  $ 11,844     $ 1,813     $ 602     $ 10,474     $ 382     $ 25,115  
                                                 

Allowance for loans collectively evaluated for impairment

  $ 10,916     $ 1,813     $ 602     $ 10,474     $ 325     $ 24,130  
                                                 

Allowance for loans individually evaluated for impairment

  $ 928     $ -     $ -     $ -     $ 57     $ 985  
                                                 

Allowance for loans acquired with deteriorated credit quality

  $ -     $ -     $ -     $ -     $ -     $ -  

 

 
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Stock Yards Bancorp, inc. and subsidiary     

 

 

(in thousands)

 

Type of loan

         
           

Construction

                                 
           

and development

                                 
   

Commercial

   

excluding

                                 
   

and

   

undeveloped

   

Undeveloped

   

Real estate

                 

December 31, 2016

 

industrial

   

land

   

land

   

mortgage

   

Consumer

   

Total

 
                                                 

Loans

  $ 736,841     $ 192,348     $ 21,496     $ 1,319,520     $ 35,170     $ 2,305,375  
                                                 

Loans collectively evaluated for impairment

  $ 734,139     $ 191,810     $ 21,022     $ 1,316,400     $ 35,111     $ 2,298,482  
                                                 

Loans individually evaluated for impairment

  $ 2,682     $ 538     $ 474     $ 2,516     $ 59     $ 6,269  
                                                 

Loans acquired with deteriorated credit quality

  $ 20     $ -     $ -     $ 604     $ -     $ 624  

 

           

Construction

                                 
           

and development

                                 
   

Commercial

   

excluding

                                 
   

and

   

undeveloped

   

Undeveloped

   

Real estate

                 
   

industrial

   

land

   

land

   

mortgage

   

Consumer

   

Total

 

Allowance for loan losses

                                               

At December 31, 2015

  $ 8,645     $ 1,760     $ 814     $ 10,875     $ 347     $ 22,441  

Provision (credit)

    2,775       275       (130 )     (68 )     148       3,000  

Charge-offs

    (1,216 )     (133 )     -       (576 )     (568 )     (2,493 )

Recoveries

    279       21       -       342       417       1,059  

At December 31, 2016

  $ 10,483     $ 1,923     $ 684     $ 10,573     $ 344     $ 24,007  
                                                 

Allowance for loans collectively evaluated for impairment

  $ 9,276     $ 1,923     $ 683     $ 10,573     $ 285     $ 22,740  
                                                 

Allowance for loans individually evaluated for impairment

  $ 1,207     $ -     $ 1     $ -     $ 59     $ 1,267  
                                                 

Allowance for loans acquired with deteriorated credit quality

  $ -     $ -     $ -     $ -     $ -     $ -  

 

 

The considerations by Bancorp in computing its allowance for loan losses are determined based on various risk characteristics of each loan segment. Relevant risk characteristics are as follows:

 

 

Commercial and industrial loans: Loans in this category are made to businesses. Generally these loans are secured by assets of the business and repayment is expected from cash flows of the business. A decline in the strength of the business or a weakened economy and resultant decreased consumer and/or business spending may have an effect on credit quality in this loan category.

 

 

Construction and development, excluding undeveloped land: Loans in this category primarily include owner-occupied and investment construction loans and commercial development projects. In most cases, construction loans require only interest to be paid during construction. Upon completion or stabilization, the construction loan may convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units including any pre-sold units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing, to the extent such permanent financing is not being provided by Bancorp.

 

 
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Stock Yards Bancorp, inc. and subsidiary     

 

 

 

Undeveloped land: Loans in this category are secured by land acquired for development by the borrower, but for which no development has yet taken place. Credit risk is primarily dependent upon the financial strength of the borrower, and can be affected by market conditions and time to develop land for ultimate sale. Credit risk is also affected by availability of development financing to the extent such financing is not being provided by Bancorp.  

 

 

Real estate mortgage: Loans in this category are made to and secured by owner-occupied residential real estate, owner-occupied real estate used for business purposes, and income-producing investment properties. For owner occupied residential and commercial real estate, repayment is dependent on financial strength of the borrower. For income-producing investment properties, repayment is dependent on financial strength of tenants in addition to the borrower. Underlying properties are generally located in Bancorp's primary market areas. Cash flows of income producing investment properties may be adversely impacted by a downturn in the economy that may cause increased vacancy rates, which in turn, could have an effect on credit quality. Overall health of the economy, including unemployment rates and real estate prices, has an effect on credit quality in this loan category.

 

 

Consumer: Loans in this category may be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, adequacy of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates, could have a significant effect on credit quality in this loan category.

 

Bancorp has loans that were acquired for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected. The carrying amount of those loans is included in the balance sheet amounts of loans at June 30, 2017 and December 31, 2016. Changes in the fair value adjustment for acquired impaired loans are shown in the following table:

 

(in thousands)

 

Accretable

discount

   

Non-

accretable

discount

 

Balance at December 31, 2015

  $ 3     $ 189  
                 

Accretion

    (3 )     (41 )

Reclassifications from (to) non-accretable discount

    -       -  

Disposals

    -       -  

Balance at December 31, 2016

  $ -     $ 148  
                 

Accretion

    -       -  

Reclassifications from (to) non-accretable discount

    -       -  

Disposals

    -       -  

Balance at June 30, 2017

  $ -     $ 148  

 

 
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STOCK YARDS BANCORP, INC. AND SUBSIDIARY

 

  

The following tables present loans individually evaluated for impairment as of June 30, 2017 and December 31, 2016.

 

 

           

Unpaid

           

Average

 

(in thousands)

 

Recorded

   

principal

   

Related

   

recorded

 

June 30, 2017

 

investment

   

balance

   

allowance

   

investment

 
                                 

Loans with no related allowance recorded:

                               

Commercial and industrial

  $ 40     $ 40     $ -     $ 187  

Construction and development, excluding undeveloped land

    412       412       -       465  

Undeveloped land

    473       473       -       393  
                                 

Real estate mortgage

                               

Commercial investment

    165       171