<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1999 1-13661
S.Y. BANCORP, INC.
1040 EAST MAIN STREET
LOUISVILLE, KENTUCKY 40206
(502) 582-2571
INCORPORATED IN KENTUCKY I.R.S. NO. 61-1137529
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class: Name of each exchange on which registered:
Common stock, no par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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_X__ NO_____
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of registrant's voting stock (Common Stock, no par
value) held by non-affiliates of the registrant as of February 25, 2000, was
$113,216,000.
The number of shares of registrant's Common Stock, no par value, outstanding as
of February 25, 2000, was 6,639,046.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement related to Registrant's
Annual Meeting of Stockholders to be held on April 26, 2000 (the "Proxy
Statement"), are incorporated by reference into Part III of this Form 10-K.
<PAGE>
S.Y. BANCORP, INC.
FORM 10-K
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I:
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II:
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 54
PART III:
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners
and Management 54
Item 13. Certain Relationships and Related Transactions 55
PART IV:
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 55
SIGNATURES 57
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
S. Y. Bancorp, Inc. ("Bancorp"), was incorporated in 1988 and is a Kentucky
corporation headquartered in Louisville, Kentucky. Bancorp is a bank holding
company registered with, and subject to supervision regulation and examination
by the Board of Governors of the Federal Reserve System. Bancorp has one
subsidiary, Stock Yards Bank & Trust Company. The subsidiary is wholly owned and
is a state chartered bank. Bancorp conducts no active business operations;
accordingly, the business of Bancorp is substantially the same as that of its
subsidiary bank.
STOCK YARDS BANK & TRUST COMPANY
Stock Yards Bank & Trust Company ("the Bank") was originally chartered in 1904.
In 1972, the Bank was granted full trust powers. In 1989, the Bank began to
branch and thereby expand its retail business. The Bank's historical market
niche has been providing commercial loans to small and mid-size companies. The
Bank's staff focuses on establishing and maintaining long term relationships
with customers. The Bank engages in a wide range of commercial and personal
banking activities, including checking, savings and time deposit accounts;
making of commercial, industrial, real estate, and consumer loans; issuance of
letter of credit; and rental of safe deposit boxes. The Bank also provides a
wide range of personal and corporate trust services. The Bank operates a
mortgage company as a division of the Bank. This division originates residential
mortgage loans and sells the loans in the secondary market. The mortgage
division provides customers with a variety of options for home mortgages,
including VA and FHA financing. The Bank offers full service brokerage products
through an affiliation with a third party. In addition, the Bank offers Visa
credit card services through an agreement with a non-affiliated bank. Customers
of the Bank have access to automatic teller machines through a regional network.
The Bank actively competes with other local and regional commercial banks and
financial services institutions such as credit unions, savings and loans
associations, insurance companies, brokerage companies, finance companies and
mutual funds. Many banks and other financial services institutions with which
the Bank competes have capital and resources substantially in excess of the
Bank. Many of these competitors have broader geographic markets, higher lending
limits, sell broader product lines and make more effective use of advertising
than can the Bank. While primarily serving Jefferson County, Kentucky, the Bank
also serves customers residing in the adjacent Kentucky counties of Oldham,
Shelby and Bullitt and in southern Indiana. Via a 1996 acquisition, Bancorp
established banking operations in southern Indiana, a part of the Louisville,
Kentucky metropolitan area. Factors affecting the Bank's ability to compete
effectively include pricing, product availability, and service.
The Bank has fourteen banking centers including the main office. Some of these
locations are owned while others are leased. See "ITEM 2. PROPERTIES."
At December 31, 1999, the Bank had 316 full-time equivalent employees. Employees
are not subject to a collective bargaining agreement. Bancorp and the Bank
consider their relationships with employees to be good.
See Note 20 to Bancorp's consolidated financial statements for the year ended
December 31, 1999 (page 53 herein) for information relating to the Bank's
business segments.
3
<PAGE>
SUPERVISION AND REGULATION
Bank holding companies and commercial banks are extensively regulated under both
federal and state law. Any change in applicable law or regulation may have a
material effect on the business and prospects of Bancorp and the Bank.
Bancorp, as a registered bank holding company, is subject to the supervision of
and regulation by the Federal Reserve Board under the Bank Holding Company Act
of 1956. In addition, Bancorp is subject to the provisions of Kentucky's banking
laws regulating bank acquisitions and certain activities of controlling bank
shareholders.
The Bank is subject to the supervision of and regular examination by the Federal
Deposit Insurance Corporation and the Kentucky Department of Financial
Institutions. The Federal Deposit Insurance Corporation insures the deposits of
the bank to the current maximum of $100,000 per depositor.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("the
1994 Act") removed state law barriers to interstate bank acquisitions and
permits the consolidation of interstate banking operations. Under the 1994 Act,
adequately capitalized and managed bank holding companies may acquire banks in
any state, subject to Community Reinvestment Act compliance, compliance with
federal and state antitrust laws and deposit concentration limits, and subject
to any state laws restricting the transaction. Kentucky banks are also permitted
to acquire a branch in another state if permitted by law of the other state.
Kentucky currently does not permit de novo branching by out-of-state banks into
Kentucky, and it does not permit an out-of-state bank to acquire a bank in
Kentucky that has been in existence less than five years.
In November 1999, the Gramm-Leach-Bliley Act ("the 1999 Act") to repeal the
Depression-era barrier between commercial and investment banking established
by the Glass-Steagall act, as well as the prohibition on the mixing of
banking and insurance established by the Bank Holding Company Act of 1956 was
signed into law. The 1999 Act will allow for affiliations among banks,
securities firms and insurance companies by means of a financial holding
company ("FHC"). The effective date for these new affiliation powers is 120
days from the date of enactment. Before that effective date the various
regulatory agencies are expected to issue related regulations implementing
the requirements of the new law. In most cases the creation of an FHC is a
simple election and notice to the Federal Reserve Board. The 1999 Act
requires that, at the time of establishment of an FHC, all depository
institutions within that corporate group must be "well managed" and "well
capitalized" and must have received a rating of "satisfactory" or better
under its most recent Community Reinvestment Act examination. Further,
non-banking financial firms (for example an insurance company or securities
firm) may establish an FHC and acquire a depository institution. While the
distinction between banks and non-banking financial firms has been blurring
over recent years, the 1999 Act will make it less cumbersome for banks to
offer services "financial in nature" but beyond traditional banking
activities. Likewise, non-banking financial firms may find it easier to offer
services which have, heretofore, been provided primarily by depository
institutions.
4
<PAGE>
ITEM 2. PROPERTIES
The principal offices of Bancorp and the Bank are located at 1040 East Main
Street, Louisville, Kentucky. Adjacent to the main location there are also a
drive-through facility and the Bank's operations center. In addition to the main
office complex, the Bank owned six branch properties at December 31, 1999 (one
of which is located on leased land). The Bank also leased seven branch
facilities. Of the fourteen banking locations, twelve are located in Louisville
and two are located in nearby southern Indiana. See Notes 5 and 15 to Bancorp's
consolidated financial statements for the year ended December 31, 1999, for
additional information relating to amounts invested in premises, equipment and
lease commitments.
ITEM 3. LEGAL PROCEEDINGS
See Note 15 to Bancorp's consolidated financial statements for the year ended
December 31, 1999, for information relating to legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
5
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names and ages (as of December 31, 1999) of all
current executive officers of Bancorp. Each executive officer is appointed by
the Bancorp's Board of Directors to serve at the pleasure of the Board. There is
no arrangement or understanding between any executive officer of Bancorp and any
other person(s) pursuant to which he/she was or is to be selected as an officer.
<TABLE>
<CAPTION>
Name and Age Position and offices
of Executive Officer with Bancorp
-------------------- ------------------------------------
<S> <C>
David H. Brooks Chairman and Chief Executive Officer
Age 57 and Director
David P. Heintzman President and Director
Age 40
Kathy C. Thompson Executive Vice President and Director
Age 38
Phillip S. Smith Executive Vice President
Age 42
Gregory A. Hoeck Executive Vice President
Age 49
Nancy B. Davis Executive Vice President, Secretary, Treasurer and
Age 44 Chief Financial Officer
</TABLE>
Mr. Brooks was appointed Chairman and Chief Executive Officer of Bancorp and the
Bank in 1993. Prior thereto, he was President of Bancorp and the Bank.
Mr. Heintzman was appointed President of Bancorp and the Bank in 1993. Prior
thereto, he served as Treasurer and Chief Financial Officer of Bancorp and
Executive Vice President of the Bank.
Ms. Thompson was appointed Executive Vice President of Bancorp and the Bank in
1996. She joined the Bank in 1992 as Senior Vice President and is Manager of the
Investment Management and Trust Department.
Mr. Smith was appointed Executive Vice President of the Bank in 1996. Prior
thereto, he was Senior Vice President of the Bank. He is primarily responsible
for the commercial lending area of the Bank.
Mr. Hoeck joined the Bank as Executive Vice President in 1998. He is primarily
responsible for the retail and marketing areas of the Bank. Prior to joining the
Bank, Mr. Hoeck was an Executive Vice President for PNC Bank and the Retail
Market Manager for the Kentucky and Indiana markets.
Ms. Davis was appointed Executive Vice President of Bancorp and the Bank in
1999. Prior thereto, she was Senior Vice President of Bancorp and the Bank. She
was appointed Chief Financial Officer of Bancorp in 1993.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Bancorp's common stock is traded on the American Stock Exchange under the ticker
symbol SYI. The table below sets forth the quarterly high and low market prices
of Bancorp's common stock and dividends declared per share. The payment of
dividends by the Bank to Bancorp is subject to the restriction described in note
14 to the consolidated financial statements. On December 31, 1999, Bancorp had
750 shareholders of record.
<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
Cash Dividends Cash Dividends
Quarter High Low Declared High Low Declared
- ------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
First $ 27.50 $23.00 $ .08 $ 20.75 $ 19.38 $ .06
Second 25.13 22.00 .08 28.00 21.00 .07
Third 25.25 22.00 .08 24.32 22.57 .08
Fourth 24.38 21.50 .09 25.25 21.38 .08
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
(Dollars in thousands except per share data) 1999 1998 1997 1996 1995
- -------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net interest income $ 27,470 $ 23,294 $ 19,723 $ 16,538 $ 14,609
Provision for loan losses 1,635 1,600 1,000 800 1,260
Net income 9,706 8,218 6,534 5,179 4,056
PER SHARE DATA
Net income, basic $ 1.46 $ 1.25 $ 1.00 $ .79 $ .63
Net income, diluted 1.41 1.21 .96 .77 .61
Cash dividends declared .33 .28 .24 .20 .18
AVERAGE BALANCES
Stockholders' equity $ 48,052 $ 40,691 $ 34,174 $ 29,675 $ 25,964
Assets 637,276 540,696 437,037 352,977 295,892
Long-term debt 2,100 2,100 2,259 1,171 607
RATIOS
Return on average assets 1.52% 1.52% 1.50% 1.47% 1.37%
Return on average stockholders' equity 20.20 20.20 19.12 17.45 15.62
Average stockholders' equity to average assets 7.54 7.53 7.82 8.41 8.77
</TABLE>
Per share information has been adjusted to reflect stock splits and stock
dividends.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to provide information as to the analysis of
the consolidated financial condition and results of operations of S.Y. Bancorp,
Inc. (Bancorp) and its wholly-owned subsidiary, Stock Yards Bank & Trust Company
(the Bank). Bancorp, incorporated in 1988, has no active business operations.
Thus Bancorp's business is substantially the same as that of the Bank. The Bank
has operated continuously since it opened in 1904. The Bank conducted business
at one location for 85 years and then began branching. At December 31, 1999, the
Bank had fourteen locations. The combined effect of added convenience with the
Bank's focus on flexible, attentive customer service has been key to the Bank's
growth and profitability. The wide range of services added by the wealth
management group (investment management and trust, private banking, and
brokerage) and by the mortgage department helps support the corporate philosophy
of capitalizing on full service customer relationships.
This report contains forward-looking statements under the Private Securities
Litigation Reform act that involve risks and uncertainties. Although Bancorp
believes the assumptions underlying the forward-looking statements contained
herein are reasonable, any of these assumptions could be inaccurate. Therefore,
there can be no assurance the forward-looking statements included herein will
prove to be accurate. Factors that could cause actual results to differ from
results discussed in forward-looking statements include, but are not limited to:
economic conditions both generally and more specifically in the market in which
Bancorp and its subsidiary operate; competition for Bancorp's customers from
other providers of financial services; government legislation and regulation
which change from time to time and over which Bancorp has no control; changes in
interest rates; material unforeseen changes in liquidity, results of operations,
or financial condition of Bancorp' customers; other risks detailed in Bancorp's
filings with the Securities and Exchange Commission, all of which are difficult
to predict and many of which are beyond the control of Bancorp.
This discussion should be read in conjunction with Bancorp's consolidated
financial statements and accompanying notes and other schedules presented
elsewhere in this report.
RESULTS OF OPERATIONS
Net income was $9,706,000 or $1.41 per share on a diluted basis in 1999. This
compares to $8,218,000 or $1.21 per share in 1998 and $6,534,000 or $.96 per
share in 1997. The increase in 1999 net income was attributable to growth in
both net interest income and non-interest income which was partially offset by
increased non-interest expenses. Earnings include a 18.3% increase in fully
taxable equivalent net interest income and a 11.0% increase in non-interest
income. Fees for investment management and trust services, service charges on
deposit accounts, and other non-interest income increased for the year.
Partially offsetting these increases, gains on sales of mortgage loans available
for sale and gains on sales of securities available for sale decreased in 1999.
Non-interest expenses increased 14.8%. Non-interest expenses increased in all
categories reflective of continued expansion of the banking center network.
The following paragraphs provide a more detailed analysis of the significant
factors affecting operating results.
NET INTEREST INCOME
Net interest income, the most significant component of Bancorp's earnings, is
total interest income less total interest expense. Net interest spread is the
difference between the taxable equivalent rate earned on average interest
earning assets and the rate expensed on average interest bearing liabilities.
Net interest margin represents net interest income on a taxable equivalent basis
as a percentage of average 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. 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. The discussion that follows is based on tax equivalent interest
data.
8
<PAGE>
Comparative information regarding net interest income is provided in the table
below.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997 1999/98 Change 1998/97 Change
- ---------------------- ---- ---- ---- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 27,839 $ 23,541 $ 19,899 16.7% 18.3%
Net interest spread 4.03% 3.94% 4.06% 9bp (12bp)
Net interest margin 4.72% 4.71% 4.89% 1bp (18bp)
Average earning assets $ 590,011 $ 499,598 $ 407,089 18.1% 22.7%
Prime rate at year end 8.50% 8.00% 8.50% 50bp (50bp)
Average prime rate 8.44% 8.35% 8.00% 9bp 35bp
</TABLE>
bp = basis point = 1/100 of a percent
Prime rate is included above to provide a general indication of the interest
rate environment in which the Bank operates. The Bank's variable rate loans are
indexed to prime rate and reprice as the prime rate changes.
ASSET / LIABILITY MANAGEMENT AND INTEREST RATE RISK
Managing interest rate risk is fundamental for the financial services industry.
The primary objective of interest rate risk management is to neutralize effects
of interest rate changes on net income. By using both on and off-balance sheet
financial instruments, Bank management evaluates interest rate sensitivity while
attempting to optimize net interest income within the constraints of prudent
capital adequacy, liquidity needs, market opportunities and customer
requirements.
Bancorp uses an earnings simulation model to measure and evaluate the impact of
changing interest rates on earnings. The simulation model is designed to reflect
the dynamics of all interest earning assets, interest bearing liabilities, and
off-balance sheet financial instruments, combining factors affecting rate
sensitivity into a one year forecast. By forecasting management's estimate of
the most likely rate environment and adjusting those rates up and down the model
can reveal approximate interest rate risk exposure. The December 31, 1999
simulation analysis indicates that an increase in interest rates would have a
positive effect on net interest income, and a decrease in interest rates would
have a negative effect on net interest income.
INTEREST RATE SIMULATION SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Net Income Diluted EPS
(Dollars in thousands except per share information) Income Change Change Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase 200 bp $ 912 $ 598 $ 0.09
Increase 100bp 357 238 0.03
Decrease 100 bp (743) (478) (0.07)
Decrease 200 bp (1,306) (861) (0.13)
</TABLE>
To assist in achieving a desired level of interest rate sensitivity, management
entered into an off-balance sheet interest rate collar which was designed to
mitigate the effect of a drop in interest rates. Derivative financial
instruments can be a cost and capital efficient method of modifying interest
rate risk sensitivity. See note 16 to the consolidated financial statements.
The following table provides information about Bancorp's financial instruments
that are sensitive to changes in interest rates. For loans, securities and
liabilities with contractual maturities, the table presents principal cash flows
and weighted average interest rates as well as Bancorp's experience of the
impact of interest rate fluctuations on the prepayment of mortgage-backed
securities. For deposits that have no contractual maturity (non interest bearing
checking, interest bearing checking and savings), the table presents information
regarding the most likely withdrawal behaviors. This information is based on
Bancorp's historical experience and management's judgments. For interest rate
collars, the table presents notional amounts. Notional amounts are used to
calculate the contractual payments to be exchanged under the contracts.
9
<PAGE>
Bancorp's interest bearing liabilities slightly exceed its interest earning
assets on a cumulative repricing basis through one year. This position, which is
termed a negative interest sensitivity gap, generally allows for a positive
impact on net interest income in periods of declining interest rates and a
negative impact on net interest income during periods of rising interest rates.
In Bancorp's case, during periods of changing rates, variable rate loans reprice
immediately. While deposit rates will respond, they will not change as quickly
nor as drastically. Bancorp's interest rate risk management strategy includes
monitoring the mix of variable rate loans and fixed rate loans, which at
December 31, 1999 were approximately 30% and 70%, respectively. Management is
aware, however, that it will be necessary to re-negotiate rates on some of the
fixed rate loans if the prime rate drops.
As interest rates change in the market, rates earned on assets do not
necessarily move identically with rates paid on liabilities.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term investments
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold (variable rate) $ 6,000 - - - - - $ 6,000 $ 6,000
Average interest rate 6.06% - - - - - 6.06%
Loans held for sale (fixed rate) $ 2,608 - - - - - $ 2,608 $ 2,608
Average interest rate 7.42% - - - - - 7.42%
Securities
Fixed rate $ 11,591 $ 12,101 $ 9,074 $ 9,651 $ 19,881 $ 21,933 $ 84,231 $ 84,006
Average interest rate 6.60% 6.57% 6.79% 6.24% 5.74% 6.36% 6.43%
Loans
Fixed rate $ 55,453 $ 49,522 $ 52,070 $ 50,093 $ 60,645 $108,048 $375,831 $369,354
Average interest rate 8.71% 8.65% 8.76% 8.55% 8.29% 8.29% 8.40%
Variable rate $ 73,865 $ 17,829 $ 7,589 $ 4,706 $ 5,674 $ 61,364 $171,027 $171,027
Average interest rate 8.92% 8.93% 8.83% 8.89% 8.90% 8.74% 8.85%
Deposits
Non-interest bearing checking $ 13,346 $ 13,346 $ 13,346 $ 13,346 $ 13,346 $ 22,245 $ 88,975 $ 88,975
Average interest rate - - - - - - -
Savings and interest
bearing checking $ 28,918 $ 28,918 $ 28,918 $ 28,918 $ 28,918 $ 48,199 $192,789 $192,789
Average interest rate 2.99% 2.99% 2.99% 2.99% 2.99% 2.99% 2.99%
Time deposits (fixed rate) $199,948 $ 57,701 $ 11,052 $ 10,311 $ 5,159 $ 4,027 $288,198 $288,570
Average interest rate 5.18% 5.28% 5.65% 5.51% 5.47% 5.80% 5.20%
Federal funds purchased,
securities sold under agreements
to repurchase and other
short-term borrowings
(variable rate) $ 57,409 - - - - - $ 57,409 $ 57,409
Average interest rate 4.75% - - - - - 4.75%
Long term debt (variable rate) $ - - - - - $ 2,100 $ 2,100 $ 2,100
Average interest rate -% - - - - 7.75% 7.75%
Interest rate collars
Notional amount $100,000 - - - - - $100,000 $ (298)
Cap strike rate 8.37% - - - - - - -
Floor strike rate 7.63% - - - - - - -
</TABLE>
10
<PAGE>
The following table presents the increases in net interest income due to
changes in volume and rate computed on a tax equivalent basis and indicates
how net interest income in 1999 and 1998 was impacted by volume increases and
the lower average interest rate environment. The tax equivalent adjustments
are based on a 35% tax rate. The change in interest due to both rate and
volume has been allocated to the change due to volume and change due to rate
in proportion to the relationship of the absolute dollar amounts of the
change in each.
TAXABLE EQUIVALENT RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
1999/1998 1998/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Net Due to Net Due to
Change Rate Volume Change Rate Volume
(Dollars In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C>
Loans $ 5,193 $(1,771) $ 6,965 $ 7,173 $ (470) $ 7,643
Federal funds sold 69 13 56 90 (40) 130
Mortgage loans held for sale (182) (9) (174) 241 (5) 246
Securities
Taxable 312 (73) 385 (164) (163) (1)
Tax-exempt 382 (34) 416 264 81 183
-------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME 5,774 (1,874) 7,648 7,604 (597) 8,201
-------- -------- -------- -------- -------- --------
INTEREST EXPENSE
Deposits
Interest bearing demand deposits 852 (58) 910 1,102 269 833
Savings deposits (25) (122) 97 (9) (60) 51
Money market deposits 36 (49) 85 (170) (39) (131)
Time deposits (166) (1,190) 1,024 2,907 (21) 2,928
Securities sold under
agreements to repurchase and
federal funds purchased 810 (76) 886 153 (48) 201
Other short-term borrowings (24) (14) (10) (7) 17 (24)
Long-term debt (7) (7) - (14) (2) (12)
-------- -------- -------- -------- -------- --------
TOTAL INTEREST EXPENSE 1,476 (1,516) 2,992 3,962 116 3,846
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME $ 4,298 $ (358) $ 4,656 $ 3,642 $ (713) $ 4,355
======== ======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
PROVISION FOR LOAN LOSSES
In determining the provision for loan losses charged to expense, management
considers many factors. Among these are the quality of the loan portfolio,
previous loss experience, the size and composition of the loan portfolio and an
assessment of the impact of current economic conditions on borrowers' ability to
pay. The provision for loan losses is summarized below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for loan losses $ 1,635 $ 1,600 $ 1,000
Allowance to loans at year end 1.34% 1.49% 1.60%
Allowance to average loans for year 1.49% 1.61% 1.80%
========= ========= =========
</TABLE>
The Bank's charge-off history has been below the levels of its peers and the
loan portfolio is diversified with no significant concentrations of credit.
Geographically, most loans are extended to borrowers in the Louisville, Kentucky
metropolitan area. The adequacy of the allowance is monitored on an ongoing
basis and it is the opinion of management that the balance of the allowance for
loan losses at December 31, 1999, is adequate to absorb losses inherent in the
loan portfolio as of this date. See "Financial Condition-Allowance for Loan
Losses" on page 19.
NON-INTEREST INCOME AND NON-INTEREST EXPENSES
The following table provides a comparison of the components of non-interest
income and expenses for 1999, 1998 and 1997. The table shows the dollar and
percentage charge from 1998 to 1999 and from 1997 to 1998. Below the table is a
discussion of significant charges and trends.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999/98 1998/97
(Dollars In thousands) 1999 1998 1997 Change % Change %
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Investment management and trust services $ 5,194 $ 4,573 $ 3,332 $ 621 13.6 % $ 1,241 37.2 %
Service charges on deposit accounts 3,484 2,886 1,936 598 20.7 950 49.1
Gains on sales of mortgage loans held for sale 1,511 2,047 1,077 (536) (26.2) 970 90.1
Gains on sales of securities available for sale 100 341 80 (241) (70.7) 261 326.3
Other 2,331 1,525 1,000 806 52.9 525 52.5
------- ------- ------- ------- ------ ------- -------
$12,620 $11,372 $ 7,425 $ 1,248 11.0 % $ 3,947 53.2 %
======= ======= ======= ======= ====== ======= =======
NON-INTEREST EXPENSES
Salaries and benefits $13,750 $11,660 $ 9,846 $ 2,090 17.9 % $ 1,814 18.4 %
Net occupancy expense 1,711 1,407 1,121 304 21.6 286 25.5
Furniture and equipment expense 2,282 2,009 1,633 273 13.6 376 23.0
Other 6,388 5,943 4,141 445 7.5 1,802 43.5
------- ------- ------- ------- ------ ------- -------
$24,131 $21,019 $16,741 $ 3,112 14.8 % $ 4,278 25.6 %
======= ======= ======= ======= ====== ======= =======
</TABLE>
The largest component of non-interest income is income from investment managment
and trust services. This area of the bank continues to grow through attraction
of new business, customer retention and market appreciation. At December 31,
1999 assets under managment totaled $914 million compared to $770 million at
December 31, 1998 and $632 million as of December 31, 1997. Included in these
totals are the assets of the Bank's investment portfolio. These amounts were $76
million at year end 1999, $100 million at year end 1998, and $60 million at year
end 1997. Growth in the department's assets include both personal and employee
benefit accounts.
Growth in service charges on deposit accounts is primarily due to increased
account volumes. Secondarily, rates for service charges are reviewed annually
and were increased in early 1999 and 1998. Growth in deposit account volume has
occurred from new banking locations and in reaction to discontent arising from
larger bank mergers and resultant changes.
12
<PAGE>
The Bank operates a mortgage banking company as a division of the Bank. This
division originates residential mortgage loans and sells the loans in the
secondary market. The division offers conventional, VA and FHA financing as well
as a program for low income first time home buyers. Loans are made for both
purchase and refinancing of homes. Virtually all loans originated by the
mortgage banking company are sold in the secondary market with servicing rights
released. Interest rates on conventional mortgage loans directly impact the
volume of business transacted by the mortgage banking division. Favorable rates
in 1998 and early 1999 stimulated home buying and refinancing, however,
beginning in the second quarter of 1999, rising rates resulted in lower levels
of activity, particularly refinancing. The mortage company began origination and
sale of sub-prime loans in 1998. This activity contributed $212,000 to the gains
on sales of mortgage loans in 1999 and $98,000 in 1998. Investors commit to
purchase both prime and sub-prime loans when such loans are originated, subject
to verification of certain underwriting criteria. The Bank retains none of these
sub-prime loans in its portfolio.
Significant changes in other non-interest income in 1999 as compared to 1998 and
1998 as compared to 1997 were largely due to the following factors.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Title services fees $314 $252 $ -
Check card income 408 236 121
Full service brokerage fees 491 286 221
ATM surcharge 108 - -
==== ==== ====
</TABLE>
As the Bank has marketed debit card more actively, corresponding check card
income has increased. Similarly, to further build full service relationships
with customers, the Bank has increased its staff of full service brokers to
three, and fee income has increased as the overall volume of business has grown.
Finally, in 1999 the Bank began surcharging non customers when they use a Stock
Yards Bank ATM.
Salaries and benefits are the largest component of non-interest expenses.
Increases in personnel expense arose in part from regular salary increases.
Officer increases are effective January 1 and non-officer increases are
effective on each individual's anniversary date. Also, the Bank continues to add
employees to support growth. At December 31, 1999, the Bank had 316 full-time
equivalent employees compared to 275 at the same date in 1998 and 250 for 1997.
There are no significant obligations for post-retirement or post-employment
benefits.
Net occupancy expenses have increased as the Bank has added banking centers.
During 1999, the Bank opened two locations; during 1998 the Bank opened one. At
December 31, 1999 the Bank had fourteen banking center locations including the
main office. Furniture and equipment expenses have increased with the addition
of banking centers. Further, the Bank continues to update computer equipment and
software as technology advances. Costs of capital asset additions flow through
the statement of income, over the lives of the assets, in the form of
depreciation expense.
Other non-interest expenses have increased from numerous factors and reflect the
Bank's growth. Among costs which increased significantly were courier and
delivery, communications and supplies.
INCOME TAXES
A three year comparison of income tax expense and effective tax rate follows.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense $4,618 $3,829 $2,873
Effective tax rate 32.2 % 31.8 % 30.5 %
====== ====== ======
</TABLE>
13
<PAGE>
FINANCIAL CONDITION
EARNING ASSETS AND INTEREST BEARING LIABILITIES
The following table presents summary information with regard to Bancorp's
financial condition.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1999/98 1998/97
(Dollars In thousands) 1999 1998 1997 Change % Change %
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Average earning assets $590,011 $499,598 $407,089 $ 90,413 18.1 % $ 92,509 22.7 %
Average interest bearing liabilities 493,866 417,574 335,007 76,292 18.3 82,567 24.6
Average total assets 637,276 540,696 437,037 96,580 17.9 103,659 23.7
Total year end assets 689,815 609,788 478,597 80,027 13.1 131,191 27.4
======== ======== ======== ======== ====== ======== ======
</TABLE>
The Bank has experienced significant growth over the last several years. Growth
of average earning assets occurred primarily in the area of loans. Loan demand
continued to be strong during 1999. From year end 1998 to year end 1999,
commercial and industrial loans increased 12.5%. Construction and development
loans increased 15.3%. Real estate mortgage loans increased 25.6%. Consumer
loans increased 26.9%. Partially offsetting growth in loans was a decrease in
investment securities.
The increase in average interest bearing liabilities from 1998 to 1999 occurred
in all categories. Interest bearing demand deposits showed the largest growth.
With rising interest rates, depositors chose shorter term accounts. Typically,
balances will shift more toward time deposits when depositors perceive rates to
have reached the top of the cycle. Another area of significant growth in 1998
was securities sold under agreements to repurchase. Commercial depositors have
the opportunity to enter into a sweep agreement whereby excess demand deposit
balances are transferred to a separate account. This balance is used to purchase
securities sold under agreements to repurchase. In the fourth quarter of 1999,
the Bank accepted up to $20 million in public funds from the Jefferson County,
Kentucky Sheriff. These funds were generated from the collection of property
taxes and were withdrawn from the Bank during January 2000. During 1998 the Bank
increased its emphasis on these sweep services. Also during 1998, "sweep"
accounts that had been invested in off balance sheet vehicles through a third
party were converted to securities sold under agreements to repurchase.
14
<PAGE>
AVERAGE BALANCES AND INTEREST RATES - TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
YEAR 1999 YEAR 1998 YEAR 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
(Dollars in thousands) Balances Interest Rate Balances Interest Rate Balances Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold $ 14,795 $ 781 5.28% $ 13,736 $ 712 5.18% $ 11,131 $ 622 5.59%
Mortgage loans held for sale 5,141 368 7.14 7,577 550 7.26 4,181 309 7.39
Securities
Taxable 59,860 3,640 6.08 53,552 3,328 6.21 53,567 3,492 6.52
Tax exempt 18,114 1,197 6.61 11,798 815 6.91 9,048 551 6.09
Loans, net of unearned income 492,101 42,907 8.72 412,935 37,714 9.13 329,162 30,541 9.28
------- ------ ---- ------- ------ ---- ------- ------ ----
TOTAL EARNING ASSETS 590,011 48,893 8.29 499,598 43,119 8.63 407,089 35,515 8.72
------ ---- ------ ---- ------ ----
Less allowance for loan losses 7,172 6,401 5,530
------- ------- -------
582,839 493,197 401,559
NON-EARNING ASSETS
Cash and due from banks 23,996 20,975 15,899
Premises and equipment 16,454 14,823 12,051
Accrued interest receivable and
other assets 13,987 11,701 7,528
TOTAL ASSETS $637,276 $540,696 $ 437,037
-------- -------- ---------
INTEREST BEARING LIABILITIES
Deposits
Interest bearing demand deposits $110,049 $ 3,222 2.93% $ 78,995 $ 2,370 3.00% 50,137 $1,268 2.53%
Savings deposits 28,345 740 2.61 24,953 765 3.07 23,352 774 3.31
Money market deposits 45,789 1,478 3.23 43,191 1,442 3.34 47,138 1,612 3.42
Time deposits 266,544 13,694 5.14 247,503 13,860 5.60 195,209 10,953 5.61
Securities sold under
agreements to repurchase
and federal funds purchased 39,231 1,692 4.31 18,813 882 4.69 14,408 729 5.06
Other short-term borrowings 1,808 82 4.54 2,019 106 5.25 2,504 113 4.51
Long-term debt 2,100 146 6.95 2,100 153 7.29 2,259 167 7.39
------- ------ ---- ------- ------ ---- ------- ------ ----
TOTAL INTEREST BEARING LIABILITIES 493,866 21,054 4.26 417,574 19,578 4.69 335,007 15,616 4.66
------ ---- ------ ---- ------ ----
NON-INTEREST BEARING LIABILITIES
Non-interest bearing demand deposits 87,609 75,332 63,857
Accrued interest payable and
other liabilities 7,749 7,099 3,999
------- ------- -------
TOTAL LIABILITIES 589,224 500,005 402,863
STOCKHOLDERS' EQUITY 48,052 40,691 34,174
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $637,276 $540,696 $ 437,037
======== ======== =========
NET INTEREST INCOME $ 27,839 $ 23,541 $19,899
======== ======== =======
NET INTEREST SPREAD 4.03% 3.94% 4.06%
==== ==== ====
NET INTEREST MARGIN 4.72% 4.71% 4.89%
==== ==== ====
</TABLE>
15
<PAGE>
Securities
The primary purpose of the securities portfolio is to provide another source of
interest income as well as liquidity management. In managing the composition of
the balance sheet, Bancorp seeks a balance among earnings sources and credit and
liquidity considerations.
The carrying value of securities is summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
DECEMBER 31
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and federal agency obligations $50,115 $67,297 $31,244
Mortgage-backed securities 1,128 -- --
Obligations of states and political subdivisions 9,662 4,774 218
Other 1,928 1,470 1,277
------- ------- -------
$62,833 $73,541 $32,739
======= ======= =======
SECURITIES HELD TO MATURITY
U.S. Treasury and federal agency obligations $ 1,000 $ 2,012 $ 3,864
Mortgage-backed securities 8,486 13,197 16,826
Obligations of states and political subdivisions 11,912 12,537 7,962
------- ------- -------
$21,398 $27,746 $28,652
======= ======= =======
</TABLE>
The maturity distribution and weighted average interest rates of debt securities
at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
After one but After five but
Within one year within five years within ten years After ten years
---------------- ------------------ ----------------- --------------------
(Dollars in thousands) Amount Rate Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------------------
MONI
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and
federal agency
obligations $ 4,994 5.67% $38,215 5.74% $ 6,906 6.12% $ -- --%
Mortgage-backed
securities 233 6.19 895 6.19 -- -- -- --
Obligations of states
and political
subdivisions -- -- 1,025 4.21 4,908 4.29 3,729 5.17
------- ------- ----- ---- ----- ---- ----- ----
$ 5,227 5.69% $40,135 5.71% $11,814 5.36% $ 3,729 5.17%
======= ==== ======= ==== ======= ==== ======== ====
SECURITIES HELD TO MATURITY
U.S. Treasury and
federal agency
obligations $ 1,000 6.34% $ -- --% $ -- --% $ -- --%
Mortgage-backed
securities 2,995 6.60 5,491 6.60 -- -- -- --
Obligations of states
and political
subdivisions 2,361 5.45 4,132 4.64 5,419 4.42 -- --
----- ---- ----- ---- ----- ---- ---- ----
$ 6,356 6.14% $ 9,623 5.76% $ 5,419 4.42% $ -- --%
======= ==== ======= ==== ======= ==== ======== ====
</TABLE>
16
<PAGE>
Loan Portfolio
Bancorp's primary source of income is interest on loans. The following table
presents the composition of loans as of the end of the last five years.
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 116,248 $ 103,345 $ 101,030 $ 88,352 $ 81,325
Construction and development 34,760 30,155 21,481 22,518 15,327
Real estate mortgage 349,164 277,994 217,830 166,574 137,618
Consumer 46,686 36,792 29,952 24,104 18,667
--------- --------- --------- -------- --------
$ 546,858 $ 448,286 $ 370,293 $301,548 $252,937
========= ========= ========= ======== ========
</TABLE>
The following tables show the amounts of commercial and industrial loans, and
construction and development loans, at December 31, 1999, which, based on
remaining scheduled repayments of principal, are due in the periods indicated.
Also shown are the amounts due after one year classified according to
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
Maturing
- --------------------------------------------------------------------------------------------------
After one but
Within one within five After five
(In thousands) year years years Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $ 31,431 $ 50,185 $ 34,632 $ 116,248
Construction and development 34,760 - - 34,760
======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Interest Sensitivity
- ------------------------------------------------------------------------------------
Fixed Variable
(In thousands) rate rate
- ------------------------------------------------------------------------------------
<S> <C> <C>
Due after one but within five years $ 43,161 $ 7,024
Due after five years 11,057 23,575
-------- --------
$ 54,218 $ 30,599
======== ========
</TABLE>
17
<PAGE>
Nonperforming Loans and Assets
The following table presents information summarizing nonperforming assets,
including nonaccrual loans.
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,770 $2,163 $ 290 $ 854 $1,212
Restructured loans -- -- -- -- --
Loans past due, 90 days or
more and still accruing 1,645 197 682 102 --
------ ------ ------ ------ ------
Nonperforming loans $4,415 $2,360 $ 972 $ 956 $1,212
Foreclosed real estate -- 1,836 -- 275 --
Other foreclosed property 85 58 -- -- --
------ ------ ------ ------ ------
Nonperforming assets $4,500 $4,254 $ 972 $1,231 $1,212
====== ====== ====== ====== ======
Nonperforming loans as a
percentage of total loans .81% .53% .26% .32% .48%
Nonperforming assets as a
percentage of total assets .65% .70% .20% .30% .37%
</TABLE>
The threshold at which loans are generally transferred to nonaccrual of interest
status is 90 days past due unless they are well secured and in the process of
collection. Interest income recorded on nonaccrual loans for 1999 totaled $0.
Interest income that would have been recorded if nonaccrual loans were on a
current basis in accordance with their original terms was $175,000.
In addition to the nonperforming loans discussed above, there were loans for
which payments were current or less than 90 days past due where borrowers are
experiencing significant financial difficulties. These loans of approximately
$704,000 are monitored by management and considered in determining the level of
the allowance for loan losses. Management believes these loans do not present
significant exposure to loss. The allowance for loan losses is discussed further
under the heading "Provision for Loan Losses" on page 12.
18
<PAGE>
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses has been established to provide for loans which may
not be fully repaid. Loan losses arise primarily from the loan portfolio, but
may also be generated from other sources such as commitments to extend credit,
guarantees, and standby letters of credit. The allowance for loan losses is
increased by provisions charged to expense and decreased by charge-offs, net of
recoveries. Loans are charged off by management when deemed uncollectible;
however, collection efforts continue and future recoveries may occur.
The allowance is maintained at a level considered by management to be adequate
to cover losses that are inherent in the loan portfolio. Factors considered
include past loss experience, general economic conditions, and information about
specific borrower situations including financial position and collateral values.
Estimating inherent loss on any loan is subjective and ultimate losses may vary
from current estimates. Estimates are reviewed periodically and adjustments are
reported in income through the provision for loan losses in the periods in which
they become known. The adequacy of the allowance for loan losses is monitored by
the internal loan review staff and reported quarterly to the Audit Committee of
the Board of Directors. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the adequacy of Bancorp's
allowance for loan losses. Such agencies may require Bancorp to make additional
provisions to the allowance based upon their judgements about information
available to them at the time of their examinations. Management believes that
the allowance for loan losses is adequate to absorb inherent losses on existing
loans that may become uncollectible. See "Results of Operations - Provision for
Loan Losses" on page 12.
19
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loans outstanding, changes in the
allowance for loan losses arising from loans charged off and recoveries on loans
previously charged off by loan category, and additions to the allowance charged
to expense:
<TABLE>
<CAPTION>
Years ended December 31
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans $492,101 $412,935 $329,162 $273,031 $229,674
======== ======== ======== ======== ========
Balance of allowance for loan
losses at beginning of year $ 6,666 $ 5,921 $ 5,155 $ 4,507 $ 3,649
Loans charged off
Commercial and industrial 644 146 75 107 435
Real estate mortgage 43 54 26 45 13
Consumer 348 735 183 112 82
-------- -------- -------- -------- --------
Total loans charged off 1,035 935 284 264 530
-------- -------- -------- -------- --------
Recoveries of loans
previously charged off
Commercial and industrial 5 14 3 27 95
Real estate mortgage 10 18 9 16 13
Consumer 55 48 38 47 20
-------- -------- -------- -------- --------
Total recoveries 70 80 50 90 128
-------- -------- -------- -------- --------
Net loans charged off 965 855 234 174 402
Additions to allowance
charged to expense 1,635 1,600 1,000 800 1,260
Balance of allowance of
acquired bank at date
of acquisition -- -- -- 22 --
-------- -------- -------- -------- --------
Balance at end of year $ 7,336 $ 6,666 $ 5,921 $ 5,155 $ 4,507
======== ======== ======== ======== ========
Ratio of net charge-offs
during year to average
loans .20% .21% .07% .06% .18%
=== === === === ===
</TABLE>
20
<PAGE>
The following table sets forth the allocation of the allowance for loan losses
for the loan categories shown. Although specific allocations exist, the entire
allowance is available to absorb losses in any particular loan category.
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $2,743 $2,625 $2,337 $1,913 $2,227
Construction and development 58 51 201 241 108
Real estate mortgage 1,351 1,739 2,034 1,775 964
Consumer 981 921 163 253 148
Unallocated 2,203 1,330 1,186 973 1,060
------ ------ ------ ------ ------
$7,336 $6,666 $5,921 $5,155 $4,507
====== ====== ====== ====== ======
</TABLE>
The ratio of loans in each category to total outstanding loans is as follows:
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial 21.2% 23.1% 27.3% 29.3% 32.1%
Construction and development 6.4 6.7 5.8 7.5 6.1
Real estate mortgage 63.8 62.0 58.8 55.2 54.4
Consumer 8.6 8.2 8.1 8.0 7.4
----- ----- ----- ----- ------
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Presented below are selected ratios relating to the allowance for loan losses:
<TABLE>
<CAPTION>
Years ended December 31
- ---------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for loan losses to average loans .33% .39% .30%
Net charge-offs to average loans .20% .21% .07%
Allowance for loan losses to average loans 1.49% 1.61% 1.80%
Allowance for loan losses to year end loans 1.34% 1.49% 1.60%
Loan loss coverage 16.54X 15.98X 44.47X
</TABLE>
21
<PAGE>
Deposits
Bancorp's core deposits consist of non-interest and interest-bearing demand
deposits, savings deposits, certificates of deposit under $100,000, certain
certificates of deposit over $100,000 and IRAs. These deposits, along with other
borrowed funds are used by Bancorp to support its asset base. By adjusting rates
offered to depositors, Bancorp is able to influence the amounts of deposits
needed to meet its funding requirements. The average amount of deposits in the
Bank and average rates paid on such deposits for the years indicated are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
---------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 87,609 -% $ 75,332 -% $ 63,857 -%
Interest bearing
demand deposits 110,049 2.93 78,995 3.00 50,137 2.53
Savings deposits 28,345 2.61 24,953 3.07 23,352 3.31
Money market deposits 45,789 3.23 43,191 3.34 47,138 3.42
Time deposits 266,544 5.14 247,503 5.60 195,209 5.61
----------- ======== --------- ======= --------- =======
$ 538,336 $469,974 $ 379,693
=========== ======== =========
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31,
1999, are summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(In thousands)
- -----------------------------------------------------------------------------------------------------------
Amount
<S> <C>
3 months or less $ 16,168
Over 3 through 6 months 16,153
Over 6 through 12 months 32,306
Over 12 months 18,171
--------
$ 82,798
========
</TABLE>
22
<PAGE>
Short-Term Borrowings
Federal funds purchased represent overnight borrowings. Repurchase agreements
have maturities of less than one month.
<TABLE>
<CAPTION>
Years ended December 31
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Securities sold under
agreements to repurchase
Year end balance $53,455 5.24% $33,529 4.15% $11,684 5.15%
Average during year 38,847 4.31 18,527 4.67 12,481 4.95
===== ==== ======
Maximum month end
balance during year 54,974 33,867 12,265
====== ====== ======
</TABLE>
Liquidity
The role of liquidity management is to ensure 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 the
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 depositors. Due to the nature of services offered by the Bank,
management prefers to focus on transaction accounts and full service
relationships with customers. Management believes it has the ability to increase
deposits at any time by offering rates slightly higher than the market rate.
The Bank has a number of sources of funds to meet liquidity needs on a daily
basis. The deposit base, consisting of consumer and commercial deposits and
large dollar denomination ($100,000 and over) certificates of deposit, is a
source of funds. The majority of these deposits are from long-term customers and
are a stable source of funds. The Bank has no brokered deposits, and has an
insignificant amount of deposits on which the rate paid exceeded the market rate
by more than 50 basis points when the account was established. In addition,
federal funds purchased continue to provide an available source of liquidity,
although this source is seldom needed by the Bank.
Other sources of funds available to meet daily needs include the sales 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. At December 31,
1999 the amount of available credit from the FHLB totaled $128 million. To date,
the Bank has not needed to access this source of funds. Additionally, the Bank
has $100 million available credit through the Federal Reserve Bank. Finally, the
Bank has federal funds purchased lines with correspondent banks totaling $46
million and Bancorp has a $6 million line of credit with a correspondent bank.
Bancorp's liquidity depends primarily on the dividends paid to it as the sole
shareholder of the Bank. As discussed in note 14 to Bancorp's consolidated
financial statements, the Bank may pay up to $13,951,000 in dividends to Bancorp
without regulatory approval subject to the ongoing capital requirements of the
Bank.
23
<PAGE>
Capital
Information pertaining to Bancorp's capital balances and ratios follows:
<TABLE>
<CAPTION>
Years ended December 31
- --------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Stockholder's equity $ 50,254 $ 43,943 14.4%
Dividends per share $ .33 $ .28 17.9%
Tier 1 risk-based capital 9.55% 9.50% 5bp
Total risk-based captial 10.86% 10.82% 4bp
Leverage ratio 7.56% 7.31% 25bp
==== ==== ==
</TABLE>
The increase in stockholders' equity from 1998 to 1999 was due to the strong
earnings of 1999 coupled with a philosophy to retain approximately 70% to 80% of
earnings in equity.
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 value of both balance sheet and off balance sheet items are adjusted
to reflect credit risks.
Note 18 to the consolidated financial statements provides more details of
regulatory capital requirements as well as capital ratios of the Bank. Bancorp
and the Bank exceed regulatory capital ratios required to be well capitalized.
These ratios for Bancorp and the Bank had decreased over the last several years
as assets grew more quickly than equity. This trend reversed somewhat during
1999 as equity growth began to catch up with asset growth and the Bank assumed a
more liquid balance sheet position in anticipation of the Year 2000 century date
change. Management considers the effects of growth on capital ratios as it
contemplates plans for expansion.
In January, 1999 and August, 1996, the Board of Directors declared 2-for-1 stock
splits to be effected in the form of 100% stock dividends. The new shares were
distributed in February, 1999 and September, 1996, respectively. These capital
changes were made to enhance shareholder value by increasing the number of
shares of Bancorp's stock outstanding and to reduce the per share market price
of the stock. Per share information has been restated to reflect the stock
splits. In November, 1999 Bancorp announced a 200,000 share common stock buy
back program representing approximately 3% of it's common stock. The repurchased
shares may be used for, among other things, issuance of shares for the stock
options or employee stock ownership or purchase plans. The buy back is not being
used to reduce excess capital.
A component of equity is accumulated other comprehensive income (losses) which
for Bancorp consists of net unrealized gains or losses on securities available
for sale and a minimum pension liability, both net of taxes. Accumulated other
comprehensive losses were $1,351,000 at December 31, 1999 and accumulated other
comprehensive income was $465,000 at December 31, 1998. The resulting $1,816,000
decrease in equity is primarily a reflection of the effect of rising interest
rates on the valuation of the Bank's portfolio of securities available for sale.
Return on Assets and Equity
The following table presents various key financial ratios:
<TABLE>
<CAPTION>
Years ended December 31
- -----------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average assets 1.52% 1.52% 1.50%
Return on average stockholders' equity 20.20 20.20 19.12
Dividend pay out ratio, based on basic EPS 22.60 22.40 24.12
Average stockholders' equity to average assets 7.54 7.53 7.82
==== ==== ====
</TABLE>
24
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement standardizes the accounting for derivative instruments. Under this
standard, entities are required to carry all derivative instruments on the
balance sheet at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value exposure, the gain or
loss on the derivative instrument is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item attributable
to the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately.
Accounting for foreign currency hedges is similar to the accounting for fair
value and cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of change.
During 1999 the Financial Account Standards Board issued Statement No. 137 which
delays the effective date of Statement 133 until January 1, 2001; however, early
adoption is permitted. On adoption, the provisions of Statement 133 must be
applied prospectively. Bancorp has not determined when it will adopt Statement
133 nor has it determined the impact that Statement 133 will have on its
financial statements. Management believes that such determination will not be
meaningful until closer to the date of initial adoption.
QUARTERLY OPERATING RESULTS
Following is a summary of quarterly operating results for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands,
except per share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st. Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st. Qtr.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $12,992 $12,377 $11,846 $11,309 $11,360 $11,003 $10,618 $ 9,891
Interest expense 5,664 5,236 5,211 4,943 5,079 5,122 4,918 4,459
------- ------- ------- ------- ------- ------- ------- -------
Net interest income 7,328 7,141 6,635 6,366 6,281 5,881 5,700 5,432
Provision for loan losses 475 300 300 560 575 375 350 300
------- ------- ------- ------- ------- ------- ------- -------
Net interest income
after provision 6,853 6,841 6,335 5,806 5,706 5,506 5,350 5,132
Non-interest income 3,128 3,226 3,235 3,031 2,971 3,132 2,841 2,428
Non-interest expenses 6,432 6,227 5,978 5,494 5,688 5,409 5,153 4,769
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes 3,549 3,840 3,592 3,343 2,989 3,229 3,038 2,791
Income tax expense 1,124 1,246 1,149 1,099 911 1,048 976 894
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 2,425 $ 2,594 $ 2,443 $ 2,244 $ 2,078 $ 2,181 $ 2,062 $ 1,897
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share $ 0.36 $ 0.39 $ 0.37 $ 0.34 $ 0.32 $ 0.33 $ 0.32 $ 0.29
Diluted earnings per share 0.35 0.38 0.36 0.33 0.31 0.32 0.30 0.28
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Per share information has been adjusted to reflect the February, 1999 2-for-1
stock split.
25
<PAGE>
YEAR 2000
SUMMARY
Challenges and problems anticipated with the Year 2000 (Y2K) received a great
deal of attention during the last several years. As described below, the Bank,
as well as many other businesses and consumers, prepared carefully and
thoroughly for the century date change. Management has noted no Y2K computer
problems which would have and effect on the Bank's financial position or results
of operations. Nor has it noted changes in customer behavior patterns, including
loan demand or repayment abilities. Because preparation for the year 2000 was a
significant event for the Bank, the following discussion is provided.
GENERAL NATURE AND IMPACT OF YEAR 2000 ISSUES
The underlying problem was that many computer systems used only the last two
digits of a year in reading a date. Thus, they could have interpreted dates with
the Year 2000 to be 1900. The concern was that, on January 1, 2000, computer
systems would stop working or generate erroneous data unless these problems were
corrected. In addition to information technology issues, equipment with embedded
micro-controllers might not have functioned properly. Examples of this equipment
would include thermostats, elevators, and electronics with time/date mechanisms.
Many companies incurred significant expenses to remediate anticipated Year 2000
problems.
Banking institutions were near the forefront in addressing Year 2000 issues as
bank regulators began focusing banks' attention on Year 2000 issues earlier than
most businesses. Year 2000 issues were first a part of banking regulatory review
at Stock Yards Bank & Trust Company in its November, 1997 examination by the
FDIC.
BANCORP'S GENERAL PLANS AND ACTIONS TO ADDRESS YEAR 2000 ISSUES, INCLUDING
RELATIONSHIPS WITH CUSTOMERS, VENDORS AND OTHERS
Bancorp's management undertook an evaluation of the effects Year 2000 might have
on its information systems and other important aspects of its business. Degrees
of risk were determined for various areas and each system was assigned a
priority for timing of renovation, testing and implementation. Through a
combination of consultations with and certifications from vendors, testing and
contingency planning, management prepared for the century date change.
Two other major areas of evaluation were the Bank's loan customers and fiduciary
relationships arising from the trust department. Borrowers' noncompliance with
Year 2000 issues could adversely affect their ability to service their debt. The
Bank requested written representation from significant loan customers to verify
and document customer Year 2000 readiness. Evaluation of the creditworthiness of
these customers included a review of the customer's self assessment as to
compliance with Year 2000 issues. Based upon the responses of customers, an
evaluation of the nature of these customers' businesses and their states of Y2K
readiness, and the collateral held on these loans, management concluded the
degree of risk of loss to the bank did not warrant a specific Y2K allowance for
loan losses.
Y2K related to the department's fiduciary responsibilities with regard to the
ability of investments to continue to maintain income and principal payment
streams, if applicable. Also, third party paying agents and processors needed be
able to continue providing timely and accurate services.
26
<PAGE>
COST TO ADDRESS BANCORP'S YEAR 2000 ISSUES
Costs to prepare for the Year 2000 included new hardware, software, internal
staff costs and consulting expenses. Bancorp's incremental expense related to
the Year 2000 was approximately $60,000 in 1999, 1998 and 1997. Capital
expenditures were primarily to replace desk top computers which were determined
not be Year 2000 compliant.
IMPACT OF YEAR 2000 ON BANCORP'S RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL
RESOURCES
In addition to the factors mentioned above, management reviewed the liquidity
position and needs of the Bank. Anticipating Year 2000, the Bank prepared to be
more liquid. Concerns included:
- Loan customers with lines of credit experiencing increased cash needs
and, therefore, drawing more on their lines of credit.
- Loan customers making payments more slowly if their cash positions
were tighter.
- Depositors withdrawing higher than average amounts of cash.
In preparing for these concerns, the Bank prepared by having higher than average
levels of cash on hand and additional available credit. See "Liquidity" on page
23.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is included in item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 8 through 11 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Bancorp and report of
independent auditors are included below.
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - years ended December 31, 1999, 1998, and
1997
Consolidated Statements of Changes in Stockholders' Equity - years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Comprehensive Income - years ended December 31, 1999,
1998, and 1997
Consolidated Statements of Cash Flows - years ended December 31, 1999, 1998, and
1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
Management's Report on Consolidated Financial Statements
27
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
- -------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 27,813 $ 21,661
Federal funds sold 6,000 7,000
Mortgage loans held for sale 2,608 9,791
Securities available for sale (amortized cost $64,705
in 1999 and $72,837 in 1998) 62,833 73,541
Securities held to maturity (approximate market
value $21,173 in 1999 and $28,404 in 1998) 21,398 27,746
Loans 546,858 448,286
Allowance for loan losses 7,336 6,666
--------- -------
Net loans 539,522 441,620
Premises and equipment 16,420 15,619
Accrued interest receivable and other assets 13,221 12,810
--------- -------
TOTAL ASSETS $ 689,815 $ 609,788
========= =======
LIABILITIES
Deposits
Non-interest bearing $ 88,975 $ 85,133
Interest bearing 480,987 432,479
--------- -------
Total deposits 569,962 517,612
Securities sold under agreements to repurchase
and federal funds purchased 53,455 38,529
Other short-term borrowings 3,954 859
Accrued interest payable and other liabilities 10,090 6,745
Long-term debt 2,100 2,100
--------- -------
TOTAL LIABILITIES 639,561 565,845
========= =======
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized;
issued and outstanding 6,647,059 in 1999 and
6,593,338 in 1998 5,627 5,535
Surplus 14,602 14,075
Retained earnings 31,376 23,868
Accumulated other comprehensive income (1,351) 465
--------- -------
TOTAL STOCKHOLDERS' EQUITY 50,254 43,943
--------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 689,815 $ 609,788
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997
- -----------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $42,899 $37,705 $30,523
Federal funds sold 781 712 622
Mortgage loans held for sale 368 550 309
Securities
Taxable 3,640 3,328 3,492
Tax exempt 836 577 393
------- ------- -------
TOTAL INTEREST INCOME 48,524 42,872 35,339
------- ------- -------
INTEREST EXPENSE
Deposits 19,134 18,437 14,607
Securities sold under agreements to repurchase
and federal funds purchased 1,692 882 729
Other short-term borrowings 82 106 113
Long-term debt 146 153 167
------- ------- -------
TOTAL INTEREST EXPENSE 21,054 19,578 15,616
------- ------- -------
NET INTEREST INCOME 27,470 23,294 19,723
Provision for loan losses 1,635 1,600 1,000
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 25,835 21,694 18,723
------- ------- -------
NON-INTEREST INCOME
Investment management and trust services 5,194 4,573 3,332
Service charges on deposit accounts 3,484 2,886 1,936
Gains on sales of mortgage loans held for sale 1,511 2,047 1,077
Gains on sales of securities available for sale 100 341 80
Other 2,331 1,525 1,000
------- ------- -------
TOTAL NON-INTEREST INCOME 12,620 11,372 7,425
======= ======= =======
NON-INTEREST EXPENSES
Salaries and employee benefits 13,750 11,660 9,846
Net occupancy expense 1,711 1,407 1,121
Furniture and equipment expense 2,282 2,009 1,633
Other 6,388 5,943 4,141
------- ------- -------
TOTAL NON-INTEREST EXPENSES 24,131 21,019 16,741
======= ======= =======
INCOME BEFORE INCOME TAXES 14,324 12,047 9,407
Income tax expense 4,618 3,829 2,873
------- ------- -------
NET INCOME $ 9,706 $ 8,218 $ 6,534
======= ======= =======
NET INCOME PER SHARE, BASIC $ 1.46 $ 1.25 $ 1.00
======= ======= =======
NET INCOME PER SHARE, DILUTED $ 1.41 $ 1.21 $ .96
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Accumulated Other
Number Retained Comprehensive
(In thousands, except share data) of Shares Amount Surplus Earnings Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 6,542,960 $ 5,451 $ 13,390 $ 12,535 $ 218 $ 31,594
Net income - - - 6,534 - 6,534
Change in other comprehensive
income, net of tax - - - - 74 74
Stock options exercised 11,104 18 87 - - 105
Shares issued for dividend reinvestment
and employee stock purchase plans 9,878 17 167 - - 184
Cash dividends, $ .24 per share - - - (1,574) - (1,574)
---------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 6,563,942 5,486 13,644 17,495 292 36,917
Net income - - - 8,218 - 8,218
Change in other comprehensive
income, net of tax - - - - 173 173
Stock options exercised 9,938 16 37 - - 53
Shares issued for dividend reinvestment
and employee stock purchase plans 19,458 33 394 - - 427
Cash dividends, $ .28 per share - - - (1,845) - (1,845)
---------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 6,593,338 5,535 14,075 23,868 465 43,943
Net income - - - 9,706 - 9,706
Change in other comprehensive
income, net of tax - - - - (1,816) (1,816)
Stock options exercised 51,340 106 416 - - 522
Shares issued for dividend reinvestment
and employee stock purchase plans 25,381 63 552 - - 615
Cash dividends, $ .33 per share - - - (2,198) - (2,198)
Shares repurchased (23,000) (77) (441) - - (518)
---------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 6,647,059 $ 5,627 $ 14,602 $ 31,376 $ (1,351) $ 50,254
========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 9,706 $ 8,218 $ 6,534
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
available for sale
Unrealized holding gains (losses) arising
during the period (1,628) 398 127
Less reclassification adjustment for gains
included in net income 65 225 53
Minimum pension liability adjustment (123) - -
-------- ------- -------
Other comprehensive income (loss) (1,816) 173 74
-------- ------- -------
COMPREHENSIVE INCOME $ 7,890 $ 8,391 $ 6,608
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 9,706 $ 8,218 $ 6,534
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses 1,635 1,600 1,000
Depreciation, amortization and accretion, net 1,493 1,702 1,360
Provision for deferred income taxes (203) (749) (286)
Gains on sales of securities available for sale (100) (341) (80)
Gains on sales of mortgage loans held for sale (1,511) (2,047) (1,077)
Origination of mortgage loans held for sale (89,097) (110,155) (58,009)
Proceeds from sales of mortgage loans held for sale 97,791 107,594 58,265
(Increase) decrease in accrued interest receivable and other assets (487) (2,623) (1,453)
Increase (decrease) in accrued interest payable and other liablilities 3,371 2,816 366
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,598 6,015 6,620
---------- ---------- ----------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 1,000 (1,000) (1,500)
Purchases of securities available for sale (77,492) (111,143) (23,487)
Purchases of securities held to maturity - (49,995) (11,380)
Proceeds from sales of securities available for sale 10,618 11,306 4,026
Proceeds from maturities of securities available for sale 75,016 59,637 6,604
Proceeds from maturities of securities held to maturity 6,391 50,807 39,567
Net increase in loans (99,537) (78,848) (68,979)
Purchases of premises and equipment (2,178) (3,255) (5,096)
Proceeds from sales of other real estate 1,235 - 172
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (84,947) (122,491) (60,073)
---------- ---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 52,350 100,041 62,320
Net increase (decrease) in securities sold under agreements
to repurchase and federal funds purchased 14,926 24,845 (6,044)
Net increase (decrease) in short-term borrowings 3,095 (3,624) 1,815
Proceeds from long-term debt - - 1,800
Repayments of long-term debt - (15) (2,382)
Issuance of common stock 743 480 257
Common stock repurchases (518) - -
Cash dividends paid (2,095) (1,743) (1,508)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68,501 119,984 56,258
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,152 3,508 2,805
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,661 18,153 15,348
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 27,813 $ 21,661 $ 18,153
========== ========== ==========
</TABLE>
Income tax payments were $5,915,000 in 1999, $2,803,000 in 1998, and $3,256,000
in 1997. Cash paid for interest was $21,099,000 in 1999, $19,762,000 in 1998,
and $15,767,000 in 1997.
See accompanying notes to consolidated financial statements.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The consolidated financial statements include the accounts of S.Y. Bancorp, Inc.
(Bancorp) and its wholly-owned subsidiary, Stock Yards Bank & Trust Company.
Significant intercompany transactions and accounts have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform with
the 1999 presentation.
The Bank is engaged in commercial and retail banking services, trust and
investment management services, and mortgage banking services. Bancorp's market
area is Louisville, Kentucky and surrounding communities including southern
Indiana.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of related revenues and expenses during the reporting
period. Actual results could differ from those estimates.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
SECURITIES
Securities which are intended to be held until maturity are carried at amortized
cost. Securities available for sale include securities which may be sold in
response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and prepayment risk changes. Securities
available for sale are carried at fair value with unrealized gains or losses,
net of tax effect, included in stockholders' equity. Amortization of premiums
and accretion of discounts are recorded using the interest method. Gains or
losses on sales of securities are computed on a specific identification cost
basis.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. Gains on sales of mortgage loans are recorded at the time of
funding by an investor at the difference between the sales proceeds and the
loan's carrying value.
LOANS
Loans are stated at the unpaid principal balance less deferred loan fees.
Interest income on loans is recorded on the accrual basis except for those loans
in a nonaccrual income status. Loans are placed in a nonaccrual income status
when the prospects for recovering both principal and accrued interest are
considered doubtful or when a default of principal or interest has existed for
90 days or more unless such a loan is well secured and in the process of
collection. Interest received on nonaccrual loans is generally applied to
principal. Nonaccrual loans are returned to accrual status once principal
recovery is reasonably assured.
33
<PAGE>
Loans are classified as impaired when it is probable the Bank will be unable to
collect interest and principal according to the terms of the loan agreement.
These loans are measured based on the present value of future cash flows
discounted at the loans' effective interest rate or at the fair value of the
loans' collateral, if applicable. Generally, impaired loans are also in
nonaccrual of interest status.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that adequately provides
for losses inherent in the loan portfolio. Management determines the adequacy of
the allowance based on reviews of individual credits, recent loss experience,
current economic conditions, the risk characteristics of the various loan
categories and such other factors that, in management's judgement, deserve
current recognition in estimating loan losses. The allowance for loan losses is
increased by the provision for loan losses and reduced by net loan charge-offs.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation of premises and equipment is computed using both
accelerated and straight-line methods over the estimated useful lives of the
assets. Leasehold improvements are amortized on the straight-line method over
the terms of the related leases or over the useful lives of the improvements,
whichever is shorter.
OTHER ASSETS
Goodwill is being amortized over 15 years on a straight-line basis. Bancorp
assesses the recoverability of goodwill by determining whether the carrying
value of the asset can be realized over its remaining projected life.
Undiscounted future operating cash flows of the acquired business are
considered. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting Bancorp's average cost of funds.
Other real estate is carried at the lower of cost or fair value minus estimated
selling costs. Any write downs to fair value at the date of acquisition are
charged to the allowance for loan losses. Expenses incurred in maintaining
assets, write downs to reflect subsequent declines in value and realized gains
or losses are reflected in operations.
INCOME TAXES
Bancorp accounts for income taxes using the asset and liability method. The
objective of the asset and liability method is to establish deferred tax assets
and liabilities for temporary differences between the financial reporting and
the tax bases of Bancorp's assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date.
34
<PAGE>
NET INCOME PER SHARE
Basic net income per common share is determined by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted net
income per share is determined by dividing net income by the weighted average
number of shares of common stock outstanding plus the weighted average number of
shares that would be issued upon exercise of dilutive options assuming proceeds
are used to repurchase shares pursuant to the treasury stock method.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement standardizes the accounting for derivative instruments. Under this
standard, entities are required to carry all derivative instruments in the
balance sheet at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value exposure, the gain or
loss on the derivative instrument is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item attributable
to the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness as
well as the ineffective portion of the gain or loss is reported in earnings
immediately. Accounting for foreign currency hedges is similar to the accounting
for fair value and cash flow hedges. If the derivative instrument is not
designated as a hedge, the gain or loss is recognized in earnings in the period
of change.
During 1999, the Financial Accounting Standards Board issued Statement 137 which
delays the effective date of Statement 133 until January 1, 2001; however, early
adoption is permitted. On adoption, the provisions of Statement 133 must be
applied prospectively. Bancorp has not determined when it will adopt Statement
133 nor has it determined the impact that Statement 133 will have on its
financial statements. Management believes that such determination will not be
meaningful until closer to the date of initial adoption.
(2) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain an average reserve balance in cash or with the
Federal Reserve Bank relating to customer deposits. At December 31, 1999, the
amount of those required reserve balances was approximately $4,913,000.
35
<PAGE>
(3) SECURITIES
The amortized cost and approximate market value of securities available for sale
follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Approximate
Amortized Unrealized Market
(In thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1999
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $51,609 $ 27 $ 1,521 $50,115
Mortgage-backed securities 1,166 - 38 1,128
Obligations of states and political subdivisions 10,002 8 348 9,662
Other 1,928 - - 1,928
------- ------- ------- -------
$64,705 $ 35 $ 1,907 $62,833
======= ======= ======= =======
DECEMBER 31, 1998
U.S. Treasury and federal agencies $66,613 $ 684 $ - $67,297
Obligations of states and political subdivisions 4,754 26 6 4,774
Other 1,470 - - 1,470
------- ------- ------- -------
$72,837 $ 710 $ 6 $73,541
======= ======= ======= =======
</TABLE>
The amortized cost and approximate market value of securities held to maturity
follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Approximate
Amortized Unrealized Market
(In thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1999
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $ 1,000 $ - $ - $ 1,000
Mortgage-backed securities 8,486 48 125 8,409
Obligations of states and political subdivisions 11,912 45 193 11,764
------- ------- ------- -------
$21,398 $ 93 $ 318 $21,173
======= ======= ======= =======
DECEMBER 31, 1998
U.S. Treasury and federal agencies $ 2,012 $ 32 $ - $ 2,044
Mortgage-backed securities 13,197 325 - 13,522
Obligations of states and political subdivisions 12,537 302 1 12,838
------- ------- ------- -------
$27,746 $ 659 $ 1 $28,404
======= ======= ======= =======
</TABLE>
36
<PAGE>
A summary of debt securities as of December 31, 1999 based on maturity is
presented below. Actual maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations. For
mortgage-backed securities, the expected remaining life is reflected rather than
contractual maturities.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY
- --------------------------------------------------------------------------------
Amortized Approximate Amortized Approximate
(In thousands) Cost Market Value Cost Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within one year $ 5,234 $ 5,227 $ 6,356 $ 6,346
Due after one year
through five years 41,269 40,135 9,623 9,600
Due after five years
through ten years 12,426 11,814 5,419 5,227
Due after ten years 3,848 3,729 -- --
------- ------- ------- -------
$62,777 $60,905 $21,398 $21,173
======= ======= ======= =======
</TABLE>
Securities with a carrying value of approximately $72,934,000 at December 31,
1999 and $53,542,000 at December 31, 1998 were pledged to secure public deposits
and certain borrowings.
(4) LOANS
<TABLE>
<CAPTION>
The composition of loans follows: DECEMBER 31,
- --------------------------------------------------------------------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $116,248 $103,345
Construction and development 34,760 30,155
Real estate mortgage 349,164 277,994
Consumer 46,686 36,792
-------- --------
$546,858 $448,286
======== ========
</TABLE>
The Bank's credit exposure is diversified with secured and unsecured loans to
individuals, small businesses and corporations. No specific industry
concentration exceeds 10% of loans. While the Bank has a diversified loan
portfolio, a customer's ability to honor contracts is reliant upon the economic
stability and geographic region and/or industry in which that customer does
business. Loans outstanding and related unfunded commitments are primarily
concentrated within the Bank's market area which encompasses Louisville,
Kentucky and surrounding communities including southern Indiana.
37
<PAGE>
<TABLE>
<CAPTION>
Information about impaired loans follows:
DECEMBER 31,
- --------------------------------------------------------------------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Principal balance of impaired loans $2,770 $2,163
Impaired loans with a Statement No. 114 valuation allowance - -
Amount of Statement No. 114 valuation allowance - -
Impaired loans with no Statement No. 114 valuation allowance 2,770 2,163
Average balance of impaired loans for year 2,223 1,298
===== =====
</TABLE>
Interest income on impaired loans (cash basis) was $0, $93,000, and $2,000 in
1999, 1998, and 1997, respectively.
Loans to directors and their associates, including loans to companies for which
directors are principal owners, and executive officers amounted to approximately
$6,498,000 and $5,215,000 at December 31, 1999 and 1998, respectively. These
loans were made on substantially the same terms, and interest rates and
collateral, as those prevailing at the same time for other customers. During
1999 new loans of $38,924,000 were made to officers and directors and affiliated
companies, repayments amounted to $37,221,000 and charges involving directors
and executive officers involved a decrease of $420,000.
An analysis of the changes in the allowance for loan losses for the years ended
December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1 $6,666 $5,921 $5,155
Provision for loan losses 1,635 1,600 1,000
Loans charged off 1,035 935 284
Recoveries 70 80 50
------ ------ ------
Net loan charge-offs 965 855 234
------ ------ ------
BALANCE AT DECEMBER 31 $7,336 $6,666 $5,921
====== ====== ======
</TABLE>
38
<PAGE>
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31
- ---------------------------------------------------------------------------
(In thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,898 $ 1,898
Buildings and improvements 13,302 12,108
Furniture and equipment 9,542 7,998
Construction in progress 101 661
------- -------
24,843 22,665
Accumulated depreciation and amortization 8,423 7,046
------- -------
$16,420 $15,619
======= =======
</TABLE>
(6) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
APPLICABLE TO OPERATIONS:
Current $4,821 $4,578 $3,159
Deferred (203) (749) (286)
------ ------ ------
Total applicable to operations 4,618 3,829 2,873
CHARGED (CREDITED) TO STOCKHOLDERS' EQUITY:
Unrealized gain (loss) on securities available for sale (895) 88 39
Stock options exercised (394) - (32)
Minimum pension liability adjustment (66) - -
------ ------ ------
$3,263 $3,917 $2,880
====== ====== ======
</TABLE>
An analysis of the difference between the statutory and effective tax rates
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax rate 35.0% 35.0% 34.0%
Tax exempt interest income (1.9) (1.5) (1.3)
Other, net (0.9) (1.7) (2.2)
---- ---- ----
Years Ended December 31 32.2% 31.8% 30.5%
==== ==== ====
</TABLE>
39
<PAGE>
The effects of temporary differences that gave rise to significant portions of
the deferred tax assets and deferred tax liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
- ------------------------------------------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Securities $ 436 $ -
Allowance for loan losses 2,337 2,104
Deferred compensation 561 486
Other 347 330
------ ------
TOTAL DEFERRED TAX ASSETS 3,681 2,920
------ ------
DEFERRED TAX LIABILITIES
Securities - 427
Property and equipment 289 270
Other 5 -
------ ------
TOTAL DEFERRED TAX LIABILITIES 294 697
------ ------
NET DEFERRED TAX ASSET $3,387 $2,223
====== ======
</TABLE>
No valuation allowance for deferred tax assets was recorded as of December 31,
1999 and 1998 because Bancorp has sufficient prior taxable income to allow for
utilization of the deductible temporary differences within the carryback period.
(7) Deposits
The composition of interest bearing deposits follows:
<TABLE>
<CAPTION>
DECEMBER 31
- --------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest bearing demand $116,276 $104,297 $ 61,905
Savings 28,288 26,692 23,167
Money market 48,225 43,394 41,530
Time deposits greater than $100,000 82,798 82,965 58,592
Other time deposits 205,400 175,131 160,274
-------- -------- --------
$480,987 $432,479 $345,468
======== ======== ========
</TABLE>
Interest expense related to certificates of deposit and other time deposits in
denominations of $100,000 or more was $3,737,000, $3,801,000, and $2,702,000,
respectively, for the years ended December 31, 1999, 1998, and 1997.
At December 31, 1999, the scheduled maturities of time deposits were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(In thousands)
- ---------------------------------------------------------
<S> <C>
1999 $199,949
2000 57,701
2001 11,052
2002 10,311
2003 and thereafter 9,185
--------
$288,198
========
</TABLE>
40
<PAGE>
(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Information concerning securities sold
under agreements to repurchase is summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(In thousands) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Average balance during the year $38,847 $18,527
Average interest rate during the year 4.31% 4.67%
Maximum month-end balance
during the year $54,974 $33,867
======= =======
</TABLE>
(9) LONG-TERM DEBT
Bancorp has a $6,000,000 line of credit with a correspondent bank. The balance
outstanding at December 31, 1999 and 1998 was $1,800,000. The interest rate on
the line was 7.852% at December 31, 1999 and is indexed to LIBOR with payments
due quarterly. The terms of the note include a number of financial and general
covenants, including capital and return on asset requirements as well as
restrictions on additional long term debt, future mergers and significant
dispositions without the consent of the lender. The note is renewable on an
annual basis.
The Bank also has subordinated debentures outstanding amounting to $300,000 at
both December 31, 1999 and 1998 which are due in October 2049. Interest on these
debentures is at a variable rate equal to one percent less than the Bank's prime
rate adjusted annually on January 1 (For 1999, the rate was 6.75%.) The
debentures are subordinated to the claims of creditors and depositors of the
Bank and are subject to redemption by the Bank at the principal amount
outstanding, upon the earlier of the death of the registered owners, or an event
of default by the registered owners with respect to loans from the Bank.
(10) NET INCOME PER SHARE AND COMMON STOCK DIVIDENDS
The following table reflects the numerators (net income) and denominators
(average shares outstanding) for the basic and diluted net income per share
computations:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, basic and diluted $9,706 $8,218 $6,534
====== ====== ======
Average shares outstanding 6,654 6,586 6,552
Effect of dilutive securities 217 226 240
------ ------ ------
Average shares outstanding including
dilutive securities 6,871 6,812 6,792
====== ====== ======
Net income per share, basic $ 1.46 $ 1.25 $ 1.00
====== ====== ======
Net income per share, diluted $ 1.41 $ 1.21 $ .96
====== ====== ======
</TABLE>
41
<PAGE>
In January, 1999 the Board of Directors declared a 2-for-1 stock split to be
effected in the form of a 100% stock dividend. Also in August 1996, the Board of
Directors declared a 2-for-1 stock split to be effected in the form of a 100%
stock dividend. All share and per share information presented herein reflects
these stock splits.
(11) ADVANCES FROM THE FEDERAL HOME LOAN BANK
The Bank has an agreement with the Federal Home Loan Bank of Cincinnati (FHLB)
which enables the Bank to borrow under terms to be established at the time of
the advance. Advances from the FHLB would be collateralized by certain first
mortgage loans under a blanket mortgage collateral agreement and FHLB stock. The
Bank has not taken any advances under this agreement.
(12) EMPLOYEE BENEFIT PLANS
The Bank has the following defined contribution plans: employee stock ownership
plan, money purchase plan and deferred income (401(k)) profit sharing plan. The
plans are available to all employees meeting certain eligibility requirements.
Expenses of the plans for 1999, 1998, and 1997 were $904,000, $847,000, and
$702,000, respectively. Contributions are made in accordance with the terms of
the plans.
The Bank also sponsors an unfunded, non-qualified, defined benefit retirement
plan for certain key officers. At December 31, 1999, 1998 and 1997 the
accumulated benefit obligations for the plan were $1,402,000, $1,543,000 and
$1,369,000, respectively. Expenses of the plan were $98,000 in 1999, $132,000 in
1998, and $130,000 in 1997.
Obligations for other post-retirement and post-employment benefits are not
significant.
(13) STOCK OPTIONS
In 1999 shareholders approved an amendment to the 1995 stock incentive plan to
reserve an additional 400,000 shares of common stock for issuance of stock
options to Bank employees and non-employee directors. As of December 31, 1999,
367,000 shares were available for future grant. The 320,000 shares of common
stock reserved in 1995 under the plan have all been granted. Bancorp also has an
older stock option plan under which all options have been granted. Options
granted which do not vest immediately are subject to a vesting schedule of 20%
per year. The options granted at an exercise price of $.861 per share were
granted below market value of the Company's common stock at the grant date and
do not expire. All other options were granted at an exercise price equal to the
market value of common stock at the time of grant and expire ten years after the
grant date.
42
<PAGE>
Activity with respect to outstanding options follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Weighted average
(In thousands) Shares price per share
- -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 343,468 $ 5.94
Granted 43,000 14.50
Exercised (11,104) 6.68
Forfeited (7,800) 7.25
-------
Outstanding at December 31, 1997 367,564 6.91
Granted 44,000 20.50
Exercised (9,938) 5.62
Forfeited (5,622) 11.16
-------
Outstanding at December 31, 1998 396,004 8.43
Granted 48,900 23.94
Exercised (51,340) 1.23
Forfeited (2,200) 18.86
-------
Outstanding at December 31, 1999 391,364 11.19
======= =====
</TABLE>
The weighted average fair values of options granted in 1999 and 1998 were $6.23
and $5.70, respectively.
Options outstanding at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Option price per share Expiration Shares Options exercisable
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
$ .861 none 14,220 14,220
4.339 2001 5,824 5,824
6.421 2004 49,720 49,720
7.250 2005 150,000 120,000
8.375 2005 42,400 33,920
14.500 2007 39,300 22,920
20.500 2008 41,000 14,600
23.397 2009 48,400 22,400
24.000 2009 500 -
------- -------
391,364 283,604
======= =======
</TABLE>
43
<PAGE>
Bancorp applies the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its stock
option plans. Accordingly, no compensation cost has been recognized for its
stock options granted at the market value of common stock at the time of grant.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
Bancorp's proforma net income and income per share would have been as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $9,706 $8,218 $6,534
Net income proforma 9,431 8,036 6,352
Income per share, basic as reported 1.46 1.25 1.00
Income per share, basic proforma 1.42 1.22 .98
Income per share, diluted as reported 1.41 1.21 .96
Income per share, diluted proforma 1.37 1.18 .94
====== ====== ======
</TABLE>
The fair value of each option grant is estimated as of the date of grant using
the Black-Scholes option pricing model. Assumptions used for grants were
dividend yields of 1.53%, 1.51% and 1.56%; expected volatility of 16.53%, 16.68%
and 16.11%; risk free interest rates of 5.15%, 5.75% and 5.86%, in 1999, 1998
and 1997 respectively; and expected lives of 7 years.
(14) DIVIDEND RESTRICTION
Bancorp's principal source of funds is dividends received from the Bank. Under
applicable banking laws, bank regulatory authorities must approve the
declaration of dividends in any year if such dividends are in an amount in
excess of the sum of net income of that year and retained earnings of the
preceding two years. At January 1, 2000, the retained earnings of the Bank
available for payment of dividends without regulatory approval were
approximately $13,951,000.
(15) COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1999, the Bank had various commitments and contingent
liabilities outstanding which arose in the normal course of business, such as
standby letters of credit and commitments to extend credit, which are properly
not reflected in the consolidated financial statements. In management's opinion,
commitments to extend credit of $132,100,000, including standby letters of
credit of $11,788,000, represent normal banking transactions, and no significant
losses are anticipated to result therefrom. The Bank's exposure to credit loss
in the event of nonperformance by the other party to these commitments is
represented by the contractual amount of these instruments. The Bank uses the
same credit and collateral policies in making commitments and conditional
guarantees as for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties.
44
<PAGE>
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support private borrowing
arrangements.
The Bank leases certain facilities, improvements and equipment under
non-cancelable operating leases. Future minimum lease commitments for these
leases are $663,000 in 2000, $662,000 in 2001, $665,000 in 2002, $529,000 in
2003, $383,000 in 2004 and $2,383,000 in the aggregate thereafter. Rent expense,
net of sublease income, was $623,000 in 1999, $429,000 in 1998, and $306,000 in
1997.
Also, as of December 31, 1999 there were various pending legal actions and
proceedings in which claims for damages are asserted. Management, after
discussion with legal counsel, believes the ultimate result of these legal
actions and proceedings will not have a material adverse effect on the
consolidated financial position or results of operations of Bancorp.
(16) INTEREST RATE CONTRACTS
Bancorp uses interest rate collars to hedge its interest rate risk on variable
rate loans. Under these agreements, Bancorp is the payer when the average prime
rate exceeds cap strike rates and the counterparty is the payer when the prime
rate declines below floor strike rates as set forth in the agreements. The
notional amount of the interest rate collars represents an agreed upon amount on
which the calculation of interest payments is based, and is significantly
greater than the amount at risk. Although Bancorp is exposed to credit risk in
the event of nonperformance by the counterparties to the agreements, this risk
is minimized by dealing with counterparties having high credit ratings. The cost
of replacing contracts in an unrealized gain position represents the measure of
credit risk.
Net receipts or payments under the collars are recognized as adjustments to
interest income on loans. The collars had an in material effect on Bancorp's
results of operations during 1999 and 1998.
At December 31, 1999, Bancorp had two outstanding interest rate collars. One
contract was originated in December, 1998 and expires in July, 2000. The
notional amount of the contract was $50 million and it had a floor rate of 7.25%
and a cap rate of 7.75%. The second was originated in December, 1997 and expired
in January 2000. The notional amount of this contract was $50 million and had a
floor rate of 8.00% and a cap rate of 9.00%.
45
<PAGE>
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments $ 33,813 $ 33,813 $ 28,661 $ 28,661
Mortgage loans held for sale 2,608 2,608 9,791 9,791
Securities 84,231 84,006 101,287 101,945
Loans 546,858 540,381 448,286 449,927
FINANCIAL LIABILITIES
Deposits $569,962 $570,334 $517,612 $519,493
Short-term borrowings 57,409 57,409 39,388 39,388
Long-term debt 2,100 2,100 2,100 2,100
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
Commitments to extend credit - - - -
Standby letters of credit - (177) - (171)
Interest rate collars - (298) - 68
======== ======== ======= ========
</TABLE>
Management used the following methods and assumptions were used to estimate the
fair value of each class of financial instrument for which it is practicable to
estimate that value.
CASH, SHORT-TERM INVESTMENTS AND SHORT-TERM BORROWINGS
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
SECURITIES
For securities, fair value equals quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities or dealer quotes.
LOANS
The fair value of loans is estimated by discounting future cash flows using
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-rate certificates of deposit is estimated by discounting the future
cash flows using the rates currently offered for deposits of similar remaining
maturities.
LONG-TERM DEBT
Rates currently available to Bancorp for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
46
<PAGE>
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair values of commitments to extend credit are estimated using fees
currently charged to enter into similar agreements and the creditworthiness of
the customers. The fair values of standby letters of credit are based on fees
currently charged for similar agreements or the estimated cost to terminate them
or otherwise settle the obligations with the counterparties at the reporting
date.
INTEREST RATE CONTRACTS
The fair value of interest rate contracts are the estimated amount, based on
market quotes, that Bancorp would receive to terminate the agreement at the
reporting date, considering interest rates and the remaining term of the
agreement.
LIMITATIONS
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of Bancorp's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
47
<PAGE>
(18) REGULATORY MATTERS
The Bank and Bancorp are subject to various capital requirements prescribed by
banking regulations and administered by federal banking agencies. Under these
requirements, the Bank and Bancorp must meet minimum amounts and percentages of
Tier 1 and total capital, as defined, to risk weighted assets and Tier 1 capital
to average assets. Risk weighted assets are determined by applying certain risk
weightings prescribed by the regulations to various categories of assets and off
balance sheet commitments. Capital and risk weighted assets may be further
subject to qualitative judgements by regulators as to components, risk weighting
and other factors. Failure to meet the capital requirements can result in
certain mandatory, and possibly discretionary, corrective actions prescribed by
the regulations or determined to be necessary by the regulators, which could
materially affect the consolidated financial statements. Management believes the
Bank and Bancorp meet all capital requirements to which it is subject as of
December 31, 1999.
As of December 1999 and 1998, the most recent notifications from the Bank's
primary regulator categorized the Bank as well capitalized under the regulatory
framework. To be categorized as well capitalized, the Bank must maintain a total
risk-based capital ratio of at least 10%; a Tier 1 ratio of at least 6%; and a
leverage ratio of at least 5%. There are no conditions or events since those
notifications that management believes have changed the institution's
categories.
A summary of Bancorp's and the Bank's capital ratios at December 31, 1999 and
1998 follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total risk-based capital (1)
Consolidated $57,740 10.86% $48,506 10.82%
Bank 57,581 10.85 48,931 10.94
Tier 1 risk-based capital (1)
Consolidated 50,784 9.55 42,587 9.50
Bank 50,636 9.54 43,025 9.62
Leverage (2)
Consolidated 50,784 7.56 42,587 7.31
Bank 50,636 7.55 43,025 7.39
======= ===== ======= =====
</TABLE>
(1) Ratio is computed in relation to risk-weighted assets.
(2) Ratio is computed in relation to average assets.
48
<PAGE>
(19) S.Y. BANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
- ---------------------------------------------------------------------------------------
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary bank $ 814 $ 726
Investment in and receivable from subsidiary bank 51,333 46,031
Other assets 1,461 967
------- -------
TOTAL ASSETS $53,608 $47,724
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 1,554 $ 1,981
Long-term debt 1,800 1,800
Stockholders' equity 50,254 43,943
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $53,608 $47,724
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income - Dividends from subsidiary bank $2,323 $1,977 $2,046
Expenses 243 257 187
------ ------ ------
Income before income taxes and
equity in undistributed net income of subsidiaries 2,080 1,720 1,859
Income tax benefit 85 88 64
------ ------ ------
Income before equity in
undistributed net income of subsidiaries 2,165 1,808 1,923
Equity in undistributed net income of subsidiaries 7,541 6,410 4,611
------ ------ ------
NET INCOME $9,706 $8,218 $6,534
====== ====== ======
</TABLE>
49
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,706 $ 8,218 $ 6,534
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of subsidiary (7,541) (6,410) (4,611)
(Increase) decrease in receivable from subsidiary (178) (1,361) 24
(Increase) decrease in other assets 106 2 (411)
(Increase) decrease in other liabilities (135) 1,194 190
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,958 1,643 1,726
------- ------- -------
FINANCING ACTIVITIES
Proceeds from long-term debt - - 1,800
Repayments of long-term debt - - (2,090)
Issuance of common stock 743 480 257
Common stock repurchases (518) - -
Cash dividends paid (2,095) (1,743) (1,508)
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES (1,870) (1,263) (1,541)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 88 380 185
CASH AT BEGINNING OF YEAR 726 346 161
------- ------- -------
CASH AT END OF YEAR $ 814 $ 726 $ 346
======= ======= =======
</TABLE>
50
<PAGE>
(20) SEGMENTS
The Bank's, and thus Bancorp's principal activities include commercial and
retail banking, investment management and trust, and mortgage banking.
Commercial and retail banking provides a full range of loans and deposit
products to individual consumers and businesses. Investment management and trust
provides wealth management services including private banking, brokerage, estate
planning and administration, retirement plan management, and custodian or
trustee services. Mortgage banking originates residential loans and sells them,
servicing released, to the secondary market.
The financial information for each business segment reflects that which is
specifically identifiable or allocated based on an internal allocation method.
Allocations have been consistently applied for all periods presented. The
measurement of the performance of the business segments is based on the
management structure of the Bank and is not necessarily comparable with similar
information for any other financial institution. The information presented is
also not necessarily indicative of the segments' operations if they were
independent entities.
Selected financial information by business segment follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- ---------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST INCOME
Commercial and retail banking $25,704 $22,123 $19,241
Investment management and trust 1,432 835 278
Mortgage banking 334 336 204
------- ------- -------
Total $27,470 $23,294 $19,723
======= ======= =======
NON-INTEREST INCOME
Commercial and retail banking $ 4,816 $ 3,922 $ 2,647
Investment management and trust 5,734 4,882 3,564
Mortgage banking 2,070 2,568 1,214
------- ------- -------
Total $12,620 $11,372 $ 7,425
======= ======= =======
NET INCOME
Commercial and retail banking $ 6,991 $ 5,929 $ 5,344
Investment management and trust 2,408 1,527 989
Mortgage banking 307 762 201
------- ------- -------
Total $ 9,706 $ 8,218 $ 6,534
======= ======= =======
</TABLE>
51
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
S.Y. BANCORP, INC.:
We have audited the accompanying consolidated balance sheets of S.Y. Bancorp,
Inc. (Bancorp) and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of Bancorp's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conduct our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of S.Y. Bancorp, Inc.
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Louisville, Kentucky
January 19, 2000
52
<PAGE>
MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements and other financial data were
prepared by the management of S.Y. Bancorp, Inc. (Bancorp), which has the
responsibility for the integrity of the information presented. The consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles and, as such, include amounts that are the best estimates
and judgments of management with consideration given to materiality.
Management is further responsible for maintaining a system of internal controls
designed to provide reasonable assurance that the books and records reflect the
transactions of Bancorp and that it established policies and procedures are
carefully followed. Management believes that Bancorp's system, taken as a whole,
provides reasonable assurance that transactions are executed in accordance with
management's general or specific authorization, transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets, access to assets is permitted only in accordance with management's
general or specific authorization, and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Management also seeks to assure the objectivity and integrity of Bancorp's
financial data by the careful selection and training of qualified personnel, an
internal audit function and organizational arrangements that provide an
appropriate division of responsibility.
Bancorp's independent auditors, KPMG LLP, have audited the consolidated
financial statements. Their audit was conducted in accordance with generally
accepted auditing standards, which provide for consideration of Bancorp's
internal controls to the extent necessary to determine the nature, timing, and
extent of their audit tests.
The Board of Directors pursues its oversight role for the consolidated financial
statements through the Audit Committee. The Audit Committee meets periodically
and privately with management, the internal auditor, and the independent
auditors to review matters relating to financial reporting, the internal control
systems, and the scope and results of audit efforts. The internal and
independent auditors have unrestricted access to the Audit Committee, with and
without the presence of management, to discuss accounting, auditing, and
financial reporting matters. The Audit Committee also recommends the appointment
of the independent auditors to the Board of Directors.
/s/ David H. Brooks
- ------------------------------------
David H. Brooks
Chairman and Chief Executive Officer
/s/ David P. Heintzman
- ------------------------------------
David P. Heintzman
President
/s/ Nancy B. Davis
- ------------------------------------
Nancy B. Davis
Executive Vice President
and Chief Financial Officer
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors and executive officers of Bancorp is
incorporated herein by reference to the discussion under the heading, "ELECTION
OF DIRECTORS," on pages 4 through 7 and Section 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE on page 8 of Bancorp's Proxy Statement for the 2000 Annual
Meeting of Shareholders and the section captioned EXECUTIVE OFFICERS OF THE
REGISTRANT on page 6 of this Form 10-K.
Information regarding principal occupation of directors of Bancorp follows:
David H. Brooks--Chairman and Chief Executive Officer, S.Y. Bancorp, Inc. and
Stock Yards Bank & Trust Company;
James E. Carrico--President, Acordia of Kentucky;
Jack M. Crowner--Owner, Jack Crowner & Associates;
Charles R. Edinger, III--Vice President, J. Edinger & Son, Inc.;
Carl T. Fischer, Jr.--Farmer and Horse Breeder;
Stanley A. Gall, M.D.--Professor and Chairman, Department of Obstetrics and
Gynecology, University of Louisville;
David P. Heintzman--President, S.Y. Bancorp, Inc. and Stock Yards Bank & Trust
Company;
Leonard Kaufman--Retired Chairman and Chief Executive Officer, S.Y. Bancorp,
Inc. and Stock Yards Bank & Trust Company;
George R. Keller--Founder, Tumbleweed Mexican Food, Inc.;
Bruce P. Madison--Vice President and Treasurer, Plumbers Supply Company, Inc.;
Jefferson T. McMahon--Retired; private investor;
Henry A. Meyer--President, Henry Fruechtenicht Co., Inc., Vice Chairman, S.Y.
Bancorp, Inc.;
Norman Tasman--President, Secretary and Treasurer, Tasman Industries, Inc. and
President, Tasman Hide Processing, Inc.;
Kathy C. Thompson--Executive Vice President, S.Y. Bancorp, Inc. and Stock Yards
Bank & Trust Company.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of Bancorp's executive officers and
directors is incorporated herein by reference to the discussion under the
heading, "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS" on pages 10 through
14 of Bancorp's Proxy Statement for the 2000 Annual Meeting of Shareholders.
Information appearing under the headings "REPORT OF COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION" on pages 9 and 10 and "Shareholder Return Performance
Graph" in the section entitled "COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS" contained on page 14 in Bancorp's Proxy Statement for the 2000 Annual
Meeting of Shareholders shall not be deemed to be incorporated by reference in
this report, notwithstanding any general statement contained herein
incorporating portions of such Proxy Statement by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the
discussion under the headings, "ELECTION OF DIRECTORS" on pages 4 through 7 and
"PRINCIPAL HOLDERS OF BANCORP'S COMMON STOCK," on pages 3 and 4 of Bancorp's
Proxy Statement for the 2000 Annual Meeting of Shareholders.
54
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the
discussion under the heading, "TRANSACTIONS WITH MANAGEMENT AND OTHERS," on page
15 of Bancorp's Proxy Statement for the 2000 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements are included on pages 28 through
52 of this Form 10-K:
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - years ended December 31, 1999,
1998, and 1997
Consolidated Statements of Changes in Stockholders' Equity - years
ended December 31, 1999, 1998, and 1997
Consolidated Statements of Comprehensive Income - years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows - years ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. List of Financial Statement Schedules
Schedules to the consolidated financial statements of Bancorp are
omitted since they are either not required under the related
instructions, are inapplicable, or the required information is shown
in the consolidated financial statements or notes thereto.
(a) 3. List of Exhibits
3.1 Articles of Incorporation of Bancorp filed with the Secretary of
State of Kentucky on January 12, 1988. Exhibit 3 to Registration
Statement on Form S-4 of Bancorp, File No. 33-22517, is
incorporated by reference herein.
3.2 Articles of Amendment to the Articles of Incorporation of Bancorp
filed with the Secretary of State of Kentucky on May 8, 1989.
Exhibit 19 to Annual Report on Form 10-K for the year ended
December 31, 1989, of Bancorp is incorporated by reference
herein.
3.3 Articles of Amendment to the Articles of Incorporation of Bancorp
filed with the Secretary of State of Kentucky on June 30, 1994.
Exhibit 3.3 to Annual Report on Form 10-K for the year ended
December 31, 1994, of Bancorp is incorporated by reference
herein.
3.4 Articles of Amendment to the Articles of Incorporation of Bancorp
filed with the Secretary of State of Kentucky on April 29, 1998.
Exhibit 3.4 to Annual Report on Form 10-K for the year ended
December 1998, of Bancorp is incorporated by reference herein.
3.5 Bylaws of Bancorp, as amended, currently in effect. Exhibit 3.4
to Annual Report on Form 10-K for the year ended December 31,
1994, of Bancorp is incorporated by reference herein.
10.1* S.Y. Bancorp, Inc. Stock Option Plan as amended. Exhibit 4 to
Registration Statement on Form S-8 of Bancorp, File No. 33-25885,
is incorporated by reference herein.
10.2* Stock Yards Bank & Trust Company Senior Officers Security Plan
adopted December 23, 1980. Exhibit 10 to Annual Report on Form
10-K for the year ended December 31, 1988, of Bancorp is
incorporated by reference herein.
10.3* Form of Indemnification agreement between Stock Yards Bank &
Trust Company, S.Y. Bancorp, Inc. and each member of the Board of
Directors. Exhibit 10.3 to the Annual Report on Form 10-K for the
year ended December 31, 1994, of Bancorp is incorporated by
reference herein.
55
<PAGE>
10.4* Senior Executive Severance Agreement executed in July, 1994
between Stock Yards Bank & Trust Company and David H. Brooks.
Exhibit 10.4 to the Annual Report on Form 10-K for the year ended
December 31, 1994, of Bancorp is incorporated by reference
herein.
10.5* Senior Executive Severance Agreement executed in July 1994
between Stock Yards Bank & Trust Company and David P. Heintzman.
Exhibit 10.5 to the Annual Report on Form 10-K for the year ended
December 31,1994, of Bancorp is incorporated by reference herein.
10.6* Senior Executive Severance Agreement executed in July, 1994
between Stock Yards Bank & Trust Company and Kathy C. Thompson.
Exhibit 10.6 to the Annual Report on Form 10-K for the year ended
December 31, 1994, of Bancorp is incorporated by reference
herein.
10.7* S.Y. Bancorp, Inc. 1995 Stock Incentive Plan. Exhibit 10.7 to
the Annual Report on Form 10-K for the year ended December 31,
1995, of Bancorp is incorporated by reference herein.
10.8* Amendment Number One to the Senior Executive Severance
Agreement executed in February, 1997 between Stock Yards Bank
& Trust Company and David H. Brooks. Exhibit 10.8 to the
Annual Report on form 10-K for the year ended December 31,
1996 is incorporated by reference herein.
10.9* Amendment Number One to the Senior Executive Severance Agreement
executed in February, 1997 between Stock Yards Bank & Trust
Company and David P. Heintzman is incorporated by reference
herein.
10.10* Amendment Number One to the Senior Executive Severance
Agreement executed in February, 1997 between Stock Yards Bank
& Trust Company and Kathy C. Thompson. Exhibit 10.10 to the
Annual Report on form 10-K for the year ended December 31,
1996 is incorporated by reference herein.
10.11* Senior Executive Severance Agreement, as amended, executed in
February, 1997 between Stock Yards Bank & Trust Company and
Nancy B. Davis. Exhibit 10.11 to the Annual Report on form
10-K for the year ended December 31, 1996 is incorporated by
reference herein.
10.12* S.Y. Bancorp, Inc. Amended and Restated Stock Incentive Plan.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
* Indicates matters related to executive compensation.
Copies of the foregoing Exhibits will be furnished to others upon request and
payment of Bancorp's reasonable expenses in furnishing the exhibits.
(b) Reports on Form 8-K
None
(c) Exhibits
The exhibits listed in response to Item 14(a) 3 are filed as a
part of this report.
(d) Financial Statement Schedules
None
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 14, 2000 S.Y. BANCORP, INC.
Director
BY: /s/ David H. Brooks
--------------------------
David H. Brooks
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ David H. Brooks Chairman and Chief Executive Officer March 14, 2000
- ---------------------------- and Director (principal executive officer)
David H. Brooks
/s/ David P. Heintzman President and Director March 14, 2000
- ----------------------------
David P. Heintzman
/s/ Nancy B. Davis Executive Vice President, Secretary, March 14, 2000
- ---------------------------- Treasurer and Chief Financial Officer
Nancy B. Davis (principal financial and accounting
officer)
/s/ James E. Carrico Director March 14, 2000
- ----------------------------
James E. Carrico
/s/ Jack M. Crowner Director March 14, 2000
- ----------------------------
Jack M. Crowner
/s/ Charles R. Edinger, III Director March 14, 2000
- ----------------------------
Charles R. Edinger, III
/s/ Carl T. Fischer, Jr. Director March 14, 2000
- ----------------------------
Carl T. Fischer, Jr.
/s/ Stanley A. Gall Director March 14, 2000
- ----------------------------
Stanley A. Gall, M.D.
/s/ Leonard Kaufman Director March 14, 2000
- ----------------------------
Leonard Kaufman
/s/ George R. Keller Director March 14, 2000
- ----------------------------
George R. Keller
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Bruce P. Madison Director March 14, 2000
- ----------------------------
Bruce P. Madison
/s/ Jefferson McMahon Director March 14, 2000
- ----------------------------
Jefferson McMahon
/s/ Henry A. Meyer Director March 14, 2000
- ----------------------------
Henry A. Meyer
/s/ Norman Tasman Director March 14, 2000
- ----------------------------
Norman Tasman
/s/ Kathy C. Thompson Executive Vice President and Director March 14, 2000
- ----------------------------
Kathy C. Thompson
</TABLE>
58
<PAGE>
Exhibit 10.12
S.Y. BANCORP, INC.
AMENDED AND RESTATED 1995 STOCK INCENTIVE PLAN
1. PURPOSE. The name of this plan is the S.Y. Bancorp, Inc. 1995 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to further the best
interests of S.Y. Bancorp, Inc. (the "Company") by (a) assisting the Company and
its Subsidiaries (as hereinafter defined) in attracting and retaining key
employees and nonemployee directors and (b) providing such persons with an
additional incentive to work to increase the value of the Company's stock by
granting them a stake in the future of the Company which corresponds to the
stake of each of the Company's shareholders.
2. DEFINITIONS.
As used in this Plan, the following terms shall have the meanings set
forth below:
(a) "1999 Amendments" shall mean the amendments to the Plan approved by
the shareholders of the Company at the Annual Meeting of Shareholders held on
April 20, 1999.
(b) "Award" shall mean any grant under the Plan in the form of Stock
Options, Stock Appreciation Rights or any combination thereof.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Business Combination" shall mean any business combination between
the Company or a Subsidiary and any entity other than the Company or Subsidiary
that does not constitute in change in control but which the Company intends to
reflect as a pooling of interests for accounting purposes.
(e) "Change in Control" shall be deemed to have occurred if:
(i) any Person (as defined in this Section 2(e) is or becomes the
Beneficial Owner (as defined in this Section 2(e) of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding securities (unless (A) such Person is the
Beneficial Owner of 20% or more of such securities as of April 26,
1995 or (B) the event causing the 20% threshold to be crossed is an
acquisition of securities directly from the Company);
(ii) during any period of two consecutive years beginning after
April 26, 1995, individuals who at the beginning of such period
constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i) (iii) or (iv)
of this Change in Control definition) whose election or nomination for
election was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved cease for any reason to constitute a
majority of the Board;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation (other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the entity surviving such merger or
consolidation), in combination with voting securities of the Company
or such surviving entity held by a trustee or other fiduciary pursuant
to any employee benefit plan of the Company or such surviving entity
or of any Subsidiary of the Company or such surviving entity, at least
80% of the combined voting power of the securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation); or
1
<PAGE>
(iv) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the
Company's assets.
For purposes of the definition of Change in Control, "Person" shall
have the meaning ascribed to such term in Section 3 (a) (9) of the Exchange Act
as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that
Person shall not include (i) the Company, any Subsidiary or any other Person
controlled by the Company, (ii) any trustee or other fiduciary holding
securities under any employee benefit plan of the Company or of any Subsidiary,
or (iii) a corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of securities
of the Company.
For purposes of the definition of Change of Control, a Person shall be
deemed the "Beneficial Owner" of any securities which such Person, directly or
indirectly, has the right to vote or dispose of or has "beneficial ownership"
(within the meaning of Rule 13d-3 under the Exchange Act) of, including pursuant
to any agreement, arrangement or understanding (whether or not in writing) ;
provided, however, that: (i) a Person shall not be deemed the Beneficial Owner
of any security as a result of an agreement, arrangement or understanding to
vote such security (x) arising solely from a revocable proxy or consent given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the Exchange Act and the applicable rules and regulations
thereunder or (y) made in connection with, or to otherwise participate in, a
proxy or consent solicitation made, or to be made, pursuant to, and in
accordance with, the applicable provisions of the Exchange Act and the
applicable rules and regulations thereunder; in either case described in clause
(x) or clause (y) above, whether or not such agreement, arrangement or
understanding is also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); and (ii) a Person engaged
in business as an underwriter of securities shall not be deemed to be the
Beneficial Owner of any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of forty
days after the date of such acquisition.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(g) "Committee" shall mean the Compensation Committee of the Board, or
any other committee the Board may subsequently appoint to administer the Plan.
The Committee shall be composed of not less than three directors, each of whom
is a Disinterested Person.
(h) "Disabled" or "Disability" shall have the meaning assigned thereto
in Section 22(e)(3) of the Code.
(i) "Disinterested Person" shall mean any person who is not and has not
within the prior one year been eligible for selection as a person to whom Stock
may be allocated or to whom Stock Options or Stock Appreciation Rights may be
granted pursuant to this Plan or any other plan of the Company or any of its
affiliates entitling the participants therein to acquire Stock, Stock Options,
or stock appreciation rights of the Company or any of its affiliates. For
purposes of this definition, the terms contained herein shall have the same
meaning as they have in Rule 16b-3 (d) (3) promulgated under the Securities
Exchange Act of 1934.
(j) "Eligible Employee, shall mean an employee of the Company, its
Parent, if any, or any Subsidiary described in Section 5 of the Plan.
(k) "Exercise Price" shall have the meaning set forth in Section 6 (c)
of the Plan.
2
<PAGE>
(l) "Fair Market Value" shall mean, as of any given date, with respect
to any Awards granted hereunder, the mean of the high and low trading price of
the stock on such date as reported on the National Association of Securities
Dealers Automated Quotation System or, if the stock is admitted to trade on a
national securities exchange, on such exchange; provided, however, that if any
such quotation system or exchange is closed on any day on which Fair Market
Value is to be determined, Fair Market Value shall be determined as of the first
day immediately preceding such day on which such exchange or quotation system
was open for trading.
(m) "Incentive Stock Option" shall mean any Stock Option intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Code.
(n) "Insider" shall mean any individual who is subject to Section 16
(b) of the Securities Exchange Act of 1934, as amended.
(o) "Nonemployee Director" shall mean any person who is not an employee
of the Company or any Subsidiary or affiliate (as such term is defined in Rule
405 of the Securities Act of 1933, as amended) of the Company and who on or
after April 26, 1995 serves as a member of the Board.
(p) "Nonqualified Stock Option" means any stock option granted under
the Plan that is not designated as an Incentive Stock Option.
(q) "Parent" shall have the meaning assigned thereto in Section 424 of
the Code and the regulations promulgated thereunder.
(r) "Rule 16b-3" shall mean Rule 16b-3, as promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or any successor regulation.
(s) "Stock" shall mean the common stock, no par value, of the Company.
(t) "Stock Appreciation Right" shall mean the right pursuant to an
Award granted under Section 7 of the Plan, (i) in the case of a Related Stock
Appreciation Right (as defined in Section 7 of the Plan), to surrender to the
Company all or a portion of the related Stock Option and receive an amount equal
to the excess of the Fair Market Value of one share of Stock as of the date such
Stock Option or portion thereof is surrendered over the Exercise Price per share
specified in such Stock Option, multiplied by the number of shares of Stock in
respect of which such Stock Option is being surrendered, and (ii) in the case of
a Freestanding Stock Appreciation Right (as defined in Section 7 of the Plan),
to exercise such Freestanding Stock Appreciation Right and receive an amount
equal to the excess of the Fair Market Value of one share of Stock as of the
date of exercise over the price per share specified in such Freestanding Stock
Appreciation Right, multiplied by the number of shares of Stock in respect of
which such Freestanding Stock Appreciation Right is being exercised.
(u) "Stock Option" shall mean any option to purchase shares of Stock
granted pursuant to Section 6 of the Plan.
(v) "Stock Ownership," whenever necessary to determine a person's stock
ownership in the Company, its Parent or any Subsidiary, shall include stock
actually owned and stock indirectly owned by application of the rules of
attribution contained in Section 424(d) of the Code.
(w) "Subsidiary" shall have the meaning assigned thereto in Section 424
of the Code and the regulations promulgated thereunder. A "Subsidiary" shall
include any entity which becomes a Subsidiary after the date of adoption of this
Plan.
(x) "Surrendered Shares" shall mean the shares of Stock described in
Section 7 of the Plan which (in lieu of being purchased) are surrendered for
cash or Stock, or for a combination of cash and Stock, in accordance with
Section 7.
3
<PAGE>
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee.
The Company, by action of the Committee, and subject to other
provisions and limitations of this Plan, may from time to time grant Awards to
such Eligible Employees as the Committee may in its sole discretion determine,
for such number of shares of the Company's Stock and on such terms and
conditions as the Committee may determine in its sole discretion.
The Committee may make, publish, amend, and rescind such rules and
practices as it may in its sole discretion deem necessary or helpful to the
administration of the Plan and the issuance and exercise of Awards granted
pursuant to the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan and as to the terms and conditions of any Award (and any agreements
relating thereto) shall be final and binding on all persons.
4. AVAILABLE SHARES. Subject to the provisions of Section II of this
Plan, the aggregate maximum number of shares of Stock reserved and available for
issuance under this Plan shall be seven hundred twenty thousand (720,000). All
such shares shall be reserved to the extent the Company deems appropriate from
authorized but unissued shares of Stock and from shares of Stock which have been
reacquired by the Company. Any shares of Stock subject to a Stock Option which
remain unissued after the cancellation, expiration or exchange of such Stock
Option shall again become available for use under the Plan, but any Surrendered
Shares which remain unissued after the surrender of a Stock Option under Section
7 of the Plan and any shares of Stock used to satisfy a withholding obligation
under Section 6(g) of the Plan shall not again become available for use under
the Plan.
5. EMPLOYEES ELIGIBLE TO PARTICIPATE IN THE PLAN. An Eligible Employee
shall mean a salaried employee of the Company, its Parent, if any, or its
Subsidiaries who is designated by the Committee, in its sole discretion, as
eligible to receive Awards pursuant to this Plan.
6. STOCK OPTIONS.
(a) FORM. The Stock Options granted pursuant to this Plan shall be in
such form as the Committee may from time to time approve. Each grant of a Stock
Option pursuant to this Plan shall be made in writing upon such terms and
conditions as may be determined by the Committee at the time of grant, subject
to the terms, conditions, and limitations set forth in this Plan. The grant of
an option shall be evidenced by a written agreement executed by the Secretary of
the Company and the Eligible Employee.
(b) NATURE OF OPTIONS. The Committee shall have the right to grant any
Eligible Employee either Incentive Stock Options or Nonqualified Stock Options,
or both, and shall have the right to grant new Stock Options in exchange for
outstanding Stock Options which have a higher or lower Exercise Price. Whether
an option is to be an Incentive Stock Option or a Nonqualified Stock Option
shall be determined by the Committee in its sole discretion. Each option that
the Committee intends to constitute an Incentive Stock Option shall be
specifically designated as such and each option that is not intended to
constitute an Incentive Stock Option shall specifically state "This option is
not an incentive stock option." If any option is issued without a specific
designation, it shall be deemed to constitute a Nonqualified Stock Option. The
Committee may, however, specifically provide that a Stock Option shall
constitute an Incentive Stock Option to the extent of its exercise as to any
particular number of shares and a Nonqualified Stock Option to the extent of the
remainder of the shares, provided the Committee specifically provides that the
Stock Option shall be deemed an Incentive Stock Option to the extent of the
first shares exercised up to the number of shares as to which the option is
intended to constitute an Incentive Stock Option, and that the option shall be
considered a Nonqualified Stock Option as to the remainder of the shares as to
which it is exercised.
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(c) EXERCISE PRICE. The Stock Options granted pursuant to this Plan
shall provide a specified price at which the shares subject to the Stock Option
may be purchased (hereinafter called the "Exercise Price") . If any Stock Option
issued pursuant to this Plan is designated as an Incentive Stock Option, the
Exercise Price for each share of Stock subject to the Incentive Stock Option
shall, except as hereinafter provided, be an amount at least equal to the Fair
Market Value of one share of Stock of the Company as of the date of grant of the
Incentive Stock Option. Notwithstanding the above, in the event that on the date
of grant of the Incentive Stock Option, an Eligible Employee owns stock (taking
into account all classes of stock which are then outstanding) in the Company
which possesses more than 10% of the total combined voting power of all classes
of stock of the Company or owns stock of a Parent or a Subsidiary of the Company
which possesses more than 10% of the total combined voting power of all classes
of stock of the Company's Parent or its Subsidiary, the Exercise Price for each
share of Stock subject to the Incentive Stock Option (to the extent required by
the Code at the time of grant) shall be an amount equal to at least 110% of the
Fair Market Value of one share of Stock of the Company as determined as of the
date of grant of the Incentive Stock Option. (For purposes of this paragraph,
the rules of attribution contained in Section 424 (d) of the Code (relating to
the attribution of Stock ownership) shall be applied to determine Stock
Ownership.)
(d) EXERCISE PERIOD. Each Stock Option by its terms shall provide the
period during which it is exercisable, provided, however, no Stock Option shall
be exercisable until the expiration of at least six months from the date the
Stock Option is granted. Each Stock Option granted under this Plan shall provide
an expiration date which date shall be set by the Committee but in no event
shall the expiration date of any Stock Option that is designated an Incentive
Stock Option be a date later than ten years from the date of grant of the
Incentive Stock Option or, if the grantee of the Incentive Stock Option, at the
time of grant, owns stock (taking into account all classes of stock then
outstanding) possessing more than 10% of the total combined voting power of all
classes of stock of the Company, its Parent, or any Subsidiary, the expiration
date of each such Incentive Stock Option (to the extent required by the Code at
the time of grant) shall not be more than five years from the date of grant.
(For purposes of this paragraph, the rules of attribution contained in Section
424(d) of the Code (relating to the attribution of Stock ownership) shall be
applied to determine Stock Ownership.) Each Incentive Stock Option issued under
this Plan shall provide for expiration within three months after the termination
of the Eligible Employee's employment with the Company due to retirement. Each
Incentive Stock Option issued pursuant to this Plan may provide that it shall be
exercisable within twelve months after termination of employment if the Eligible
Employee is Disabled. Further, each Incentive Stock Option issued pursuant to
this Plan may provide that in the case of termination of employment by reason of
the Eligible Employee's death, the Incentive Stock Option may be exercised by
the Eligible Employee's estate or other person who receives the Stock Option by
bequest or the laws of descent and distribution for a period of twelve months
after the Eligible Employee's death. In no event shall the exercise period be
extended beyond the time which the Eligible Employee would have been required to
exercise the Incentive Stock Option had he not terminated employment, become
disabled or died. The Committee shall, except as specifically restricted herein,
in its own discretion, determine the term of Nonqualified Stock Options that are
issued pursuant to this Plan and the circumstances in which such Nonqualified
Stock Options shall be exercisable beyond the termination of employment,
disability or death of the Eligible Employee; provided, that if the Nonqualified
Stock Option does not specifically state when it may be exercised after the
termination of the grantee's employment, death or disability, the Stock Option
shall be governed by the provisions stated above for Incentive Stock Options.
Except as otherwise provided in this Section 6 or Section 16 of the Plan, or as
determined by the Committee in its sole discretion, if an Eligible Employee's
employment with the Company, any Subsidiary or any Parent terminates (including
termination for cause, voluntary resignation or other termination under mutually
agreeable circumstances), all Stock Options held by the Eligible Employee will
terminate immediately upon the effective date and time of the Eligible
Employee's termination of employment.
(e) TRANSFERABILITY OF OPTIONS. Each Stock Option granted under this
Plan shall provide that such option shall be exercisable during the grantee's
lifetime only by the grantee and that such option shall not be transferable by
the grantee other than by will or the laws of descent and distribution. Stock
Options granted pursuant to this Plan may, but need not, provide for exercise by
the grantee's estate or other person who obtains the right to exercise the
option by bequest or pursuant to the laws of descent and distribution.
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(f) METHOD OF EXERCISE. Stock Options may be exercised by giving
written notice of exercise delivered in person or by mail at the Company's
principal executive office, specifying the number of shares of Stock with
respect to which the Stock Option is being exercised, accompanied by payment in
full of the Exercise Price. Each Stock Option shall provide that payment of the
Exercise Price may be made either in cash, by check acceptable to the Committee
or, at the discretion of the Committee, in a number of shares of Stock of the
Company having an aggregate Fair Market Value equal to the Exercise Price, or by
a combination of the foregoing forms of consideration. The Committee may also
(in its discretion) allow an Eligible Employee to pay such Exercise Price (in
whole or in part) by electing that the Company withhold shares of Stock (that
otherwise would be transferred to such Eligible Employee as a result of the
exercise of such Stock Option) to the extent necessary to pay such Exercise
Price. Any payment made in Stock shall be treated as equal to the Fair Market
Value of such Stock on the date that a properly endorsed certificate for such
Stock is delivered to the Committee or the date that Stock is treated by the
Committee as withheld from the exercise of the Stock Option. Each Stock Option
shall provide that the Exercise Price shall be payable upon or before the
issuance of the Stock of the Company to be received pursuant to the exercise of
the Stock Option.
(g) STATEMENT AS TO WITHHOLDING OF FEDERAL INCOME OR OTHER TAXES. The
exercise or surrender of any Stock Option granted under the Plan or the exercise
of a Freestanding Stock Appreciation Right shall constitute an Eligible
Employee's full and complete consent to whatever action the Committee deems
necessary to satisfy the federal and state tax withholding requirements, if any,
which the committee in its discretion deems applicable to such exercise or
surrender. The Committee shall also have the right to provide in an option
agreement that an Eligible Employee may elect to satisfy federal and state tax
withholding requirements through a reduction in the number of shares of Stock
actually transferred to him or her under the Plan, and if the Eligible Employee
is an Insider, any such election and any such reduction shall be effected so as
to satisfy the conditions to the exemption under Rule 16b-3.
(h) ADDITIONAL INCENTIVE STOCK OPTION LIMITATION. No Stock Option that
is designated an Incentive Stock Option shall be issued pursuant to terms under
which the right to exercise the Incentive Stock Option is affected by the
exercise of another Stock Option or the right to exercise another Stock Option
is affected by exercise of the Incentive Stock Option.
(i) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate Fair Market Value of Stock (determined as of the date an Incentive
Stock Option is granted) with respect to which Incentive Stock Options first
become exercisable in any calendar year exceeds $100,000, such Stock Options
shall be treated as Nonqualified Stock Options. The Fair Market Value of Stock
subject to any other option (determined as of the date such option is granted)
which (1) satisfies the requirements of Section 422 of the Code and (2) is
granted to an Eligible Employee under a plan maintained by the Company, a
Subsidiary or a Parent shall be treated (for purposes of this $100,000
limitation) as if granted under the Plan. The Committee shall interpret and
administer the limitations set forth in this Section 6(i) in accordance with
Section 422(d) of the Code.
7. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted either
in conjunction with all or part of any Stock Option granted under the Plan
("Related Stock Appreciation Rights") or alone ("Freestanding Stock Appreciation
Rights") and, in either case, in addition to other Awards granted under the
Plan. Eligible Employees shall enter into a Stock Appreciation Rights agreement
with the Company if requested by the Committee, in such form as the Committee
shall determine.
(i) TIME OF GRANT. Related Stock Appreciation Rights related to a
Nonqualified Stock Option may be granted either at or after the time
of the grant of such Nonqualified Stock Option. Related Stock
Appreciation Rights related to an Incentive Stock Option may be
granted only at the time of the grant of such Incentive Stock Option.
Freestanding Stock Appreciation Rights may be granted at any time.
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(ii) EXERCISABILITY. Related Stock Appreciation Rights shall be
exercisable only at such time or times and only to the extent that the
Stock Options to which they relate shall be exercisable in accordance
with their terms and Freestanding Stock Appreciation Rights shall be
exercisable from time to time in accordance with such terms and
conditions as shall be determined by the Committee in its sole
discretion at or after the time of grant; provided, however, that any
Stock Appreciation Right granted to an Insider shall not be
exercisable during the first six months from the date of grant of such
Stock Appreciation Right, except that this additional limitation shall
not apply in the event of death or Disability of the Insider prior to
the expiration of the six-month period. A Related Stock Appreciation
Right granted in connection with an Incentive Stock Option may be
exercised only if and when the Fair Market Value of the Stock subject
to the Incentive Stock Option exceeds the Exercise Price of such Stock
Option.
(iii) METHOD OF EXERCISE. Stock Appreciation Rights shall be
exercised by an Eligible Employee by giving written notice of exercise
delivered in person or by mail as required by the terms of any
agreement evidencing the Stock Appreciation Right at the Company's
principal executive office, specifying the number of shares of Stock
in respect of which the Stock Appreciation Right is being exercised.
If requested by the Committee, the Eligible Employee shall deliver to
the Company the agreement evidencing the Stock Appreciation Right
being exercised and, in the case of a Related Stock Appreciation
Right, the Stock Option agreement evidencing any related Stock Option,
for notation thereon of such exercise and return thereafter of such
agreements to the Eligible Employee.
(iv) AMOUNT PAYABLE. Upon the exercise of a Related Stock
Appreciation Right, an Eligible Employee shall be entitled to receive
an amount in cash or shares of Stock equal in value to the excess of
the Fair Market Value of one share of Stock on the date of exercise
over the Exercise Price per share specified in the related Stock
Option, multiplied by the number of shares of Stock in respect of
which the Related Stock Appreciation Right shall have been exercised,
with the Committee having in its sole discretion the right to
determine the form of payment.
Upon the exercise of a Freestanding Stock Appreciation Right, an
Eligible Employee shall be entitled to receive an amount in cash or
shares of Stock equal in value to the excess of the Fair Market Value
of one share of Stock on the date of exercise over the price per share
specified in the Freestanding Stock Appreciation Right, which shall be
not less than 100% of the Fair Market Value of the Stock on the date
of grant, multiplied by the number of shares of Stock in respect of
which the Freestanding Stock Appreciation Right shall have been
exercised, with the Committee having in its sole discretion the right
to determine the form of payment.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights granted under the
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable.
(i) TERM OF STOCK APPRECIATION RIGHTS. The term of a Related
Stock Appreciation Right shall be the same as the term of the related
Stock Option. A Related Stock Appreciation Right or applicable portion
thereof shall terminate and no longer be exercisable upon the
exercise, termination, cancellation or surrender of the related Stock
Option, except that, unless otherwise provided by the Committee in its
sole discretion at or after the time of grant, a Related Stock
Appreciation Right granted with respect to less than the full number
of shares of Stock covered by a related Stock Option shall terminate
and no longer be exercisable if and to the extent that the number of
shares of Stock covered by the exercise, termination, cancellation or
surrender of the related Stock Option exceeds the number of shares of
stock not covered by the Related Stock Appreciation Right.
The term of each Freestanding Stock Appreciation Right shall be fixed
by the Committee, but no Freestanding Stock Appreciation Right shall
be exercisable more than ten years after the date such right is
granted.
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(ii) TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be transferable only when and to the extent
that a Stock Option would be transferable under Section 6(e) of the
Plan.
(iii) TERMINATION OF EMPLOYMENT. In the event of the termination
of employment of an Eligible Employee holding a Related Stock
Appreciation Right, such right shall be exercisable to the same extent
that the related Stock Option is exercisable after such termination.
In the event of the termination of employment of the holder of a
Freestanding Stock Appreciation Right, such right shall be exercisable
to the same extent that a Stock Option with the same terms and
conditions as such Freestanding Stock Appreciation Right would have
been exercisable in the event of the termination of employment of the
holder of such Stock Option.
8. GRANT OF OPTIONS TO NONEMPLOYEE DIRECTORS. Each Nonemployee Director
who is serving as such on April 26, 1995, shall as of such date automatically
(without any action by the Committee) be granted a Nonqualified Stock Option to
purchase one thousand (1,000) shares of Stock for an Exercise Price equal to
100%; of the Fair Market Value of the Stock on such date. Each Nonemployee
Director who is first elected to serve as such after April 26, 1995 at any
annual or special meeting of shareholders of the Company shall as of the date of
such election automatically (without any action by the Committee) be granted a
Nonqualified Stock Option to purchase one thousand (1,000) shares of Stock for
an Exercise Price equal to 100% of the Fair Market Value of the Stock on such
date. Subject to Section 16 of the Plan, a Nonemployee Director must serve
continuously as a Nonemployee Director of the Company for a period of twelve
consecutive months after the date such Stock Option is granted before he or she
can exercise any part of such Stock Option. Thereafter, on and after the first
anniversary of the date of granting the Stock Option and before the second
anniversary, the Nonemployee Director may exercise the Stock Option with respect
to not more than 20% of the number of shares of Stock covered thereby; on and
after the second anniversary and before the third anniversary, the Nonemployee
Director may exercise the Stock Option with respect to not more than 40% of the
number of shares of Stock covered thereby; on and after the third anniversary
and before the fourth anniversary, the Nonemployee Director may exercise the
Stock Option with respect to not more than 60% of the number of shares of Stock
covered thereby; on and after the fourth anniversary and before the fifth
anniversary, the Nonemployee Director may exercise the Stock Option with respect
to not more than 80% of the number of shares of Stock covered thereby; and on
and after the fifth anniversary and before the expiration of the stated term of
the Stock Option, which shall be ten years from the date of its granting, the
Nonemployee Director may at any time or from time to time exercise the Stock
Option with respect to all or any portion of the shares of Stock covered
thereby. If a Nonemployee Director's service with the Company terminates by
reason of permanent or total disability, death or retirement or resignation from
active service as a director of the Company, any Stock Option held by such
Nonemployee Director may be exercised for a period of twelve months from the
date of such termination or until the expiration of the Stock Option, whichever
is shorter, to the extent to which the individual would on the date of exercise
have been entitled to exercise the Stock Option if such individual had continued
to serve as a Nonemployee Director; provided, however, if a Nonemployee
Director's service with the Company terminates by reason of his or her
attainment of the Company's mandatory retirement age for directors, all
outstanding Stock Options granted under the Plan shall become fully vested and
immediately exercisable. All applicable provisions of the Plan not inconsistent
with this Section 8 shall apply to Nonqualified Stock Options granted to
Nonemployee Directors; provided, however, that the Committee may not exercise
discretion under any provision of the Plan with respect to Stock Options granted
under this Section 8 to the extent that such discretion is inconsistent with
Rule 16b-3. The maximum number of shares of Stock as to which Stock Options may
be granted to any Nonemployee Director under the Plan, as in effect through
April 25, 2005, shall be one thousand (1,000) shares of Stock. A grant of a
Nonqualified Stock Option to a Nonemployee Director under this Section 8 is
intended to allow such Nonemployee Director to be a Disinterested Person and all
Nonqualified Stock Options granted to Nonemployee Directors as well as this
Section 8 shall be construed to effect such intent.
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9. TERMINATION OF EMPLOYMENT. The employment of an Eligible Employee by
the Company shall not be deemed to have terminated for purposes of this Plan if
the Eligible Employee is transferred to and becomes an employee of a Subsidiary
or Parent of the Company. Further, the Eligible Employee's employment by the
Company shall not be considered terminated if he becomes an employee of another
corporation (the "Other Company") which assumes the Stock Options issued
pursuant to this Plan or issues its own stock option in substitution of an
option issued under this Plan in a transaction to which Section 424(a) of the
Code applies, provided he becomes an employee of the other Company, its
Subsidiary or its Parent at the time of the transaction. Absence on leave,
whether paid or unpaid, approved by the management of the Company shall not
constitute the termination of employment for any purpose of this Plan, provided
the leave does not exceed ninety (90) days. To the extent required under Section
421 of the Code for favorable tax treatment for Incentive Stock Options, if the
period of leave of absence exceeds ninety (90) days, the leave of absence shall
be considered a termination of employment unless the Eligible Employee's right
to return is guaranteed by statute or contract. If the Eligible Employee's right
to return is not so guaranteed, the Eligible Employee shall be considered to
have terminated his employment, for purposes of this Plan, as of the end of the
ninetieth (90th) day of such absence. The immediately preceding two sentences
shall apply solely for tax treatment purposes and not for any other purpose
under the Plan.
10. REQUIREMENTS OF LAW. If any law, any regulation of the Securities
and Exchange Commission, or any regulation of any other commission or agency
having jurisdiction shall require the Company or the exercising optionee to take
any action with respect to the shares of Stock to be acquired upon exercise of a
Stock Option, then the date upon which the Company shall deliver or cause to be
delivered the certificate or certificates for the shares of Stock shall be
postponed until full compliance has been made with all such requirements of law
or regulations. Further, if the Company shall so require at or before the time
of the delivery of the shares with respect to which the exercise of a Stock
Option has been made, the exercising optionee shall deliver to the Company his
written statement that he intends to hold the shares so acquired by him on
exercise of the Stock Option for investment only and not with a view to resale
or other distribution thereof to the public. Further, in the event the Company
shall have determined that in compliance with the Securities Act of 1933 or
other applicable statute or regulation, it is necessary to register any of the
shares of Stock with respect to which the exercise of a Stock Option has been
made or qualify such shares for exemption from any requirements of the
Securities Act of 1933 or other applicable statutes or regulations, then the
Company shall take such action at its own expense, but not until such action has
been completed shall the shares subject to the Stock Option be delivered to the
exercising optionee. Further, in the event at the time of exercise of the Stock
Option shares of Stock of the Company shall be listed on any stock exchange,
then if required to do so, the Company shall register the shares with respect to
which exercise is so made in accordance with the provisions of the Securities
Act of 1933 or any other applicable law or regulations, and the Company shall
make prompt application for the listing of option shares on such stock exchange,
again at the expense of the Company.
11. ADJUSTMENT. The number, kind or class (or any combination thereof)
of shares of stock reserved under Section 4 of the Plan, the number, kind or
class (or any combination thereof) of shares of Stock subject to Awards granted
under the Plan, the Exercise Price of any outstanding Stock Options and the
price per share specified in a Freestanding Stock Appreciation Right shall be
adjusted by the Board in an equitable manner to reflect any change in the
capitalization of the Company, including, but not limited to, such changes as
stock dividends or stock splits. Furthermore, the Board shall have the right to
adjust (in a manner which satisfies the requirements of Section 424 (a) of the
Code) the number, kind or class (or any combination thereof) of shares of Stock
reserved under Section 4 of the Plan, the number, kind or class (or any
combination thereof) of shares of Stock subject to Awards granted under the
Plan, the Exercise Price of any outstanding Stock Options and the price per
share specified in a Freestanding Stock Appreciation Right in the event of any
corporate transaction described in Section 424(a) of the Code which provides for
the substitution or assumption of such Awards in order to take into account on
an equitable basis the effect of such transaction. If any adjustment under this
Section 11 would create a fractional share of Stock or a right to acquire a
fractional share of Stock, such fractional share shall be disregarded and the
number of shares of Stock reserved under the Plan and the number subject to any
Awards granted under the
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Plan shall be the next lower number of shares of Stock, rounding all fractions
downward. An adjustment made under this Section 11 by the Board shall be
conclusive and binding on all affected persons and, further, shall not
constitute an increase in "the number of shares reserved under Section 41,
within the meaning of Section 12 of the Plan.
12. AMENDMENT OR DISCONTINUANCE OF THE PLAN. The Plan may be amended by
the Board from time to time to the extent that the Board deems necessary or
appropriate; provided, however,
(1) no such amendment shall be made absent the approval of the
shareholders of the Company required under Section 422 of
the Code (a) to increase the number of shares of Stock
reserved for issuance under Section 4, or (b) to change the
class of employees eligible to receive Awards under Section
5,
(2) to the extent shareholder approval is required in order for
the exemption set forth in Rule l6b-3 to be available in
respect of Awards granted pursuant to the Plan, the Board
shall not amend the Plan absent the approval of the
shareholders of the Company in accordance with Rule 16b-3,
(a) to increase materially (within the meaning of Rule
16b-3) the benefits accruing to any insider under the Plan,
(b) to increase materially (within the meaning of Rule
16b-3) the number of securities which may be issued under
the Plan to Insiders, or (c) otherwise modify materially
(within the meaning of Rule 16b-3) the requirements as to
eligibility by Insiders for participation in the Plan,
(3) no amendment shall be made to change the terms and
conditions of a Stock Option which can be granted to a
Nonemployee Director absent the approval of the shareholders
of the Company, and
(4) no provision of the Plan (including Section 8) shall be
amended more than once every six months if amending such
provision would result in the loss of an exemption under
Rule 16b-3.
Any amendment which specifically applies to Nonqualified Stock Options or Stock
Appreciation Rights shall not require shareholder approval unless such approval
is necessary to comply with Section 16 of the Securities Exchange Act of 1934,
as amended, or Section 15 of the Plan. The Board also may suspend the granting
of Awards under the Plan at any time and may terminate the Plan at any time;
provided, however, the Board shall not have the right unilaterally to modify,
amend or cancel any Award granted before such suspension or termination or
otherwise impair any outstanding Award granted under the Plan unless (1) the
Eligible Employee or Nonemployee Director consents in writing to such
modification, amendment or cancellation or (2) there is a dissolution or
liquidation of the Company or a transaction described in Section 11, Section 14
or Section 16 of the Plan. The Board may also vest the administration of the
Plan in persons other than the Committee provided one member of any body that is
vested with the power to administer the Plan shall be a member of the Board and
all members of such body shall be Disinterested Persons. In the event that the
authority to administer the Plan is vested in any body other than the Committee,
the references herein to the Committee shall be considered to be references to
that body.
13. COMPANY'S RIGHT TO TERMINATE EMPLOYEES NOT IMPAIRED.
Notwithstanding the provisions of this Plan or the provisions of Awards
granted pursuant to this, Plan, the right of the company (or its Parent or
any Subsidiary) to terminate any employee shall not be in any manner affected
or impaired by the adoption of this Plan or by the grant of Awards pursuant
to the Plan.
14. LIQUIDATION OF THE COMPANY. In the event of the complete
liquidation or dissolution of the Company, any Awards granted pursuant to the
Plan remaining unexercised shall be deemed cancelled, without, regard to or
limitation by any other provisions of the Plan.
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I5. SHAREHOLDER APPROVAL. The Plan shall be submitted to a meeting of
the shareholders of the Company, either at the regular annual meeting thereof or
at a special meeting called for the purpose of the consideration of the Plan,
and the Plan shall not become effective unless its adoption is approved by the
shareholders of the Company within twelve (12) months of its adoption by the
Board. Upon approval by the shareholders, this Plan shall take effect without
further action by the Company, provided such approval is obtained, within twelve
(12) months of the adoption of this Plan by the Board. Any Awards granted under
the Plan prior to the Plan's approval by the shareholders of the Company shall
be granted subject to such approval, and, absent timely approval of the Plan by
such shareholders, such Awards shall be null and void.
16. CHANGE IN CONTROL.
(a) Change in Control. If there is a Change in Control and as a result
of the transactions contemplated by the Change in Control, a successor will
acquire all or a substantial portion of the assets or outstanding capital stock
of the Company, then the kind of shares of Common Stock which shall be subject
to the Plan and to each outstanding Stock Option shall automatically be
converted into and replaced by shares of Common Stock, or such other class of
equity securities having rights and preferences no less favorable than Common
Stock of the successor and the number of shares subject to the Stock Options and
the purchase price per share upon exercise of the Stock Options shall be
correspondingly adjusted, so that, by virtue of such Change in Control of the
Company, each optionee shall have the right to purchase (i) that number of
shares of the successor which, as of the date of the Change in Control, have a
fair market value equal to the fair market value of the shares of the Company
theretofore subject to an option, (ii) for a purchase price per share which,
when multiplied by the number of shares of the successor subject to the Stock
Option, shall equal the aggregate exercise price at which the optionee could
have acquired shares of the Company under such Stock Option.
(b) Acceleration. Notwithstanding the provisions of Section 6(d), if
there is a Change in Control, then the right to exercise all Stock Options shall
be accelerated (i) immediately upon the Change in Control if it occurs more than
two years following the adoption of the Plan by the stockholders of the Company;
(ii) immediately upon the Change in Control if the transaction in which it
occurs is not intended to be reflected as a pooling of interests for accounting
purposes; or (iii) if the Change in Control occurs within two years following
approval of the 1999 Amendments to this Plan by stockholders of the Company and
the transaction with respect to which the Change in Control occurs is intended
to be reflected as a pooling of interests for accounting purposes, on earlier to
occur of (x) the date which is three months after the occurrence of the Change
in Control or (y) the date of consummation of such transaction, unless prior to
that date the Board of Directors finds that the acceleration of the right to
exercise Stock Options would prevent the transaction being reflected as a
pooling of interests for accounting purposes. If the Company or a Subsidiary
engages in a Business Combination within two years following approval of the
1999 Amendments to this Plan by stockholders of the Company, and if the Board of
Directors finds that a future acceleration of the right to exercise Stock
Options upon the occurrence of a Change in Control would prevent the Business
Combination being reflected as a pooling of interests for accounting purposes,
the Board of Directors may, at any time prior to a Change in Control, revoke the
provisions of this Section 16(b) regarding acceleration of the right to exercise
with respect to any Stock Options granted prior the earlier of (i) the date of
the finding by the Board of Directors, or (ii) two years following the approval
of the 1999 Amendments to this Plan by stockholders of the Company.
17. QUALIFICATION OF OPTIONS ISSUED UNDER THE PLAN AS INCENTIVE STOCK
OPTIONS. It is the intention of the Company that those Stock Options that are
issued pursuant to the Plan that are designated as Incentive Stock Options shall
constitute "incentive stock options" within the meaning of Section 422 of the
Code. However, in the event that any Stock Option so designated does not
constitute an "incentive stock option" within the meaning of Section 422 of the
Code for any reason whatsoever, none of the Company, a Parent or Subsidiary or
their shareholders, directors, officers or employees, shall be liable to any
person for such failure to constitute an "incentive stock option." If the
characterization of any Stock Option as an "incentive stock option" within the
meaning of Section 422 of the Code is challenged by the Internal Revenue
Service, the Company may, but shall not
11
<PAGE>
be required to, pay the reasonable legal and accounting expenses incurred in an
attempt to establish the characterization of the Stock Options issued under the
Plan as "incentive stock options" within the meaning of Section 422 of the Code.
In all events, however, the Company shall make available to any Eligible
Employee such factual information which is reasonably necessary to establish the
characterization of the Stock Options for federal income tax purposes.
It is intended that any Stock Option granted under the Plan that is not
specifically designated as an Incentive Stock Option shall not constitute an
Incentive Stock Option.
18. EFFECTIVE DATE OF THE PLAN. The Plan shall be effective on the date
it is approved by the shareholders of the Company.
19. TERM OF THE PLAN. No Stock Option may be issued pursuant to the
Plan on or after the earlier of (i) its termination by action of the Board; (ii)
ten years from the earlier of the date of adoption of this Plan by the Board or
its approval by the shareholders of the Company; or (iii) the date on which all
of the Stock reserved under Section 4 of the Plan has (as a result of the
surrender or exercise of Stock Options granted under the Plan) been issued or is
no longer available for use under the Plan.
20. SHAREHOLDER RIGHTS. No Eligible Employee or Nonemployee Director
shall have any rights as a shareholder of the Company as a result of the grant
of an Award under the Plan or his or her exercise or surrender of such Award
pending the actual delivery of any Stock subject to such Award to such Eligible
Employee or Nonemployee Director.
21. CONSTRUCTION. The Plan shall be construed under the laws of the
state of Kentucky.
22. OTHER CONDITIONS. Each agreement evidencing an Award may require
that an Eligible Employee or Nonemployee Director (as a condition to the
exercise of such Award) enter into any agreement or make such representations
prepared by the Company, including any agreement which restricts the transfer of
Stock acquired pursuant to the exercise of an Award or provides for the purchase
of such Stock by the Company under certain circumstances.
12
<PAGE>
S.Y. Bancorp, Inc. Subsidiary
Stock Yard Bank & Trust Company, a Kentucky Banking Corporation
1040 East Main Street
Louisville, KY 40206
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
S.Y. Bancorp, Inc.
We consent to incorporation by reference in registration statement numbers
33-25885, 33-96740, 33-96742 and 333-30530 on Form S-8 and 33-96744 on Form
S-3 of S.Y. Bancorp, Inc. of our report dated January 19, 2000, relating to
the consolidated balance sheets of S.Y. Bancorp, Inc. and subsidiary as of
December 31, 1999 and 1998, and the related consolidated statements of
income, changes in stockholders' equity, comprehensive income, and cash flows
for each of the years in the three-year period ended December 31, 1999, which
report appears in the 1999 annual report on Form 10-K of S.Y. Bancorp, Inc.
/s/ KPMG LLP
Louisville, Kentucky
March 21, 2000
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<PAGE>
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