FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 17262
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S.Y. BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1137529
(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
1040 East Main Street, Louisville, Kentucky, 40206
(Address of principal executive offices)
(Zip Code)
(502) 582-2571
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value - 6,635,162
shares issued and outstanding at August 4, 2000
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of S.Y. Bancorp,
Inc. and Subsidiary, Stock Yards Bank & Trust Company, are submitted
herewith:
-- Unaudited Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
-- Unaudited Consolidated Statements of Income
for the three months ended June 30, 2000 and 1999
-- Unaudited Consolidated Statements of Income
for the six months ended June 30, 2000 and 1999
-- Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999
-- Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 2000
-- Unaudited Consolidated Statement of Comprehensive Income
for the six months ended June 30, 2000 and 1999
-- Notes to Unaudited Consolidated Financial Statements
<PAGE>
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
June 30, 2000 December 31, 1999
(In thousands, except share data)
Assets
Cash and due from banks $ 29,070 $ 27,813
Federal funds sold 1,141 6,000
Mortgage loans held for sale 4,020 2,608
Securities available for sale (amortized
cost $60,920 in 2000 and $64,705 in 1999) 58,907 62,833
Securities held to maturity (approximate market
value $18,650 in 2000 and $21,173 in 1999) 18,915 21,398
Loans 619,328 546,858
Allowance for loan losses 8,717 7,336
------- -------
Net loans 610,611 539,522
Premises and equipment 16,725 16,420
Accrued interest receivable and other assets 14,588 13,221
------- -------
Total Assets $753,977 $689,815
======= =======
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing $ 97,908 $ 88,975
Interest bearing 533,579 480,987
------- -------
Total deposits 631,487 569,962
Securities sold under agreements
to repurchase and federal funds purchased 54,014 53,455
Short-term borrowings 2,479 3,954
Accrued interest payable and
other liabilities 9,837 10,090
Long-term debt 2,100 2,100
------- -------
Total Liabilities 699,917 639,561
------- -------
Stockholders' equity
Common stock, no par value; 10,000,000
shares authorized; 6,633,942 and
6,647,059 shares issued and outstanding
in 2000 and 1999, respectively 5,585 5,627
Surplus 14,317 14,602
Retained earnings 35,610 31,376
Accumulated other comprehensive loss ( 1,452) ( 1,351)
------- -------
Total Stockholders' Equity 54,060 50,254
------- -------
Total Liabilities and Stockholders' Equity $753,977 $689,815
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income
For the three months ended June 30, 2000 and 1999
2000 1999
(In thousands, except share and per share data)
Interest income
Loans $13,452 $10,303
Federal funds sold 51 335
Mortgage loans held for sale 47 78
U.S. Treasury and Federal agencies 844 935
Obligations of states and political
subdivisions 254 195
------ ------
Total interest income 14,648 11,846
------ ------
Interest expense
Deposits 6,129 4,728
Securities sold under agreements
to repurchase and federal funds purchased 645 429
Short-term borrowings 44 19
Long-term debt 40 35
------ ------
Total interest expense 6,858 5,211
------ ------
Net interest income 7,790 6,635
Provision for loan losses 585 300
------ ------
Net interest income after
provision for loan losses 7,205 6,335
------- ------
Non-interest income
Investment management and trust services 1,520 1,370
Service charges on deposit accounts 1,539 887
Gains on sales of mortgage loans held for sale 300 379
Other 643 599
------ ------
Total non-interest income 4,002 3,235
------ ------
Non-interest expenses
Salaries and employee benefits 4,058 3,438
Net occupancy expense 468 403
Furniture and equipment expense 594 563
Other 1,795 1,574
------ ------
Total non-interest expenses 6,915 5,978
------ ------
Income before income taxes 4,292 3,592
Income tax expense 1,390 1,149
------ ------
Net income $ 2,902 $ 2,443
====== ======
Net income per share Basic $ .44 $ .37
====== ======
Diluted $ .43 $ .36
====== ======
Average common shares
Basic 6,632,598 6,655,120
========= =========
Diluted 6,820,667 6,872,159
========= =========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income
For the six months ended June 30, 2000 and 1999
2000 1999
(In thousands, except share and per share data)
Interest income
Loans $25,707 $20,207
Federal funds sold 110 471
Mortgage loans held for sale 91 204
U.S. Treasury and Federal agencies 1,711 1,883
Obligations of states and political
subdivisions 510 390
------ ------
Total interest income 28,129 23,155
------ ------
Interest expense
Deposits 11,496 9,208
Securities sold under agreements
to repurchase and federal funds purchased 1,277 839
Short-term borrowings 72 36
Long-term debt 81 71
------ ------
Total interest expense 12,926 10,154
------ ------
Net interest income 15,203 13,001
Provision for loan losses 1,165 860
------ ------
Net interest income after
provision for loan losses 14,038 12,141
------ ------
Non-interest income
Investment management and trust services 2,978 2,618
Service charges on deposit accounts 2,523 1,667
Gains on sales of mortgage loans held for sale 553 871
Gains on sales of securities available for sale - 100
Other 1,270 1,010
------ ------
Total non-interest income 7,324 6,266
------ ------
Non-interest expenses
Salaries and employee benefits 7,881 6,577
Net occupancy expense 905 809
Furniture and equipment expense 1,197 1,087
Other 3,275 2,999
------ ------
Total non-interest expenses 13,258 11,472
------ ------
Income before income taxes 8,104 6,935
Income tax expense 2,610 2,248
------ ------
Net income $ 5,494 $ 4,687
====== ======
Net income per share
Basic $ .83 $ .71
====== ======
Diluted $ .81 $ .68
====== ======
Average common shares
Basic 6,635,217 6,640,517
========= =========
Diluted 6,823,787 6,872,647
========= =========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
For the six months ended June 30, 2000 and 1999
2000 1999
(In thousands)
Operating activities
Net Income
Adjustments to reconcile net income to net cash $ 5,494 $4,687
provided (used) by operating activities:
Provision for loan losses 1,165 860
Depreciation, amortization and accretion, net 955 896
Gains on sales of mortgages held for sale ( 553) ( 871)
Gains on sales of securities available for sale - ( 100)
Origination of mortgage loans held for sale ( 26,078) (50,817)
Proceeds from sales of mortgage loans held for sale 25,219 54,300
(Increase) decrease in accrued interest receivable
and other assets ( 1,344) ( 797)
Increase (decrease) in accrued interest payable
and other liabilities ( 316) 760
------ -------
Net cash provided (used) by operating activities 4,542 8,918
------ -------
Investing activities
Net (increase) decrease in federal funds sold 4,859 (12,000)
Purchases of securities available for sale ( 1,832) (47,690)
Proceeds from maturities of securities available for sale - 61,864
Proceeds from maturities of securities held to maturity 5,555 3,644
Proceeds from sales of securities available for sale 2,476 5,637
Net (increase) decrease in loans ( 72,254) ( 38,494)
Purchases of premises and equipment ( 1,174) ( 1,777)
------ ------
Net cash provided (used) by investing activities ( 62,370) ( 28,816)
------ ------
Financing activities
Net increase (decrease) in deposits 61,525 25,781
Net increase (decrease) in securities sold under
agreements to repurchase and federal funds purchased 559 ( 313)
Net increase (decrease) in short-term borrowings ( 1,475) 1,921
Issuance of common stock for options and dividend
reinvestment plan 359 633
Common stock purchases ( 686) -
Cash dividends paid ( 1,197) ( 1,027)
------ ------
Net cash provided (used) by financing activities 59,085 26,995
------ ------
Net increase (decrease) in cash and cash equivalents 1,257 7,097
Cash and cash equivalents at beginning of period 27,813 21,661
------- -------
Cash and cash equivalents at end of period $ 29,070 $ 28,758
======= =======
Income tax payments were $2,100,000 in 2000, and $3,375,000 in 1999.
Cash paid for interest was $12,882,000 in 2000, and $10,195,000 in 1999.
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
S.Y. BANCORP, INC. & SUBSIDIARY
Unaudited Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 2000
Accumulated
Common Stock Other
Number of Retained Comprehensive
Shares Amount Surplus Earnings Loss Total
(In thousands, except share
and per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 6,647,059 $ 5,627 $ 14,602 $ 31,376 $( 1,351) $ 50,254
Net income - - - 5,494 - 5,494
Change in other
comprehensive loss,
net of tax - - - - (101) (101)
Shares issued for stock
options exercised dividend
reinvestment plan and
employee benefit plans 20,633 68 291 - - 359
Cash dividends, $.19 per
share - - - ( 1,260) - ( 1,260)
Shares repurchased ( 33,750) ( 110)( 576) - - ( 686)
--------- ------ ------- ------ ------ ------
Balance June 30, 2000 6,633,942 $ 5,585 $ 14,317 $ 35,610 $( 1,452) $ 54,060
========= ====== ======= ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
S.Y. BANCORP, INC. & SUBSIDIARY
Unaudited Consolidated Statement of Comprehensive Income
For the six months ended June 30, 2000 and 1999
2000 1999
(In thousands)
Net income $ 2,902 $ 2,443
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising
during the period ( 101) ( 316)
Less reclassification adjustment for gains
included in net income - 65
----- ----
Other comprehensive income (loss) ( 101) ( 381)
---- ----
Comprehensive income $(2,801) $(2,062)
===== =====
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
S.Y. BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. The consolidated
financial statements of S.Y. Bancorp, Inc. and Subsidiary reflect all
adjustments (consisting only of adjustments of a normal recurring nature)
which are, in the opinion of management, necessary for a fair presentation
of financial condition and results of operations for the interim periods.
The consolidated financial statements include the accounts of
S.Y. Bancorp, Inc. and its wholly owned subsidiary, Stock Yards Bank &
Trust Company. All significant intercompany transactions have been
eliminated in consolidation.
A description of other significant accounting policies is presented
in the notes to the Consolidated Financial Statements for the year ended
December 31, 1999 included in S.Y. Bancorp, Inc.'s Annual Report on
Form 10-K for the year then ended.
Interim results for the quarter and three and six months ended
June 30, 2000 are not necessarily indicative of the results for the
entire year.
(2) Allowance for Loan Losses
An analysis of the changes in the allowance for loan losses for
the six months ended June 30 follows (in thousands)
2000 1999
Beginning balance $7,336 $6,666
Provision for loan losses 1,165 860
Loans charged off ( 336) ( 296)
Recoveries 552 23
----- -----
Ending balance $8,717 $7,253
===== =====
<PAGE>
(3) Net Income Per Share
The following table reflects, for the three and six months
periods ended June 30, the numerators (net income)and denominators
(average shares outstanding) for the basic and diluted net income
per share computations.
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
(In thousands except per share data)
Net income, basic and diluted $ 2,902 $ 2,443 $ 5,494 $ 4,687
===== ===== ===== =====
Average shares outstanding 6,633 6,655 6,635 6,641
Effect of dilutive securities 188 217 189 232
----- ----- ----- -----
Average shares outstanding
including dilutive securities $ 6,821 $ 6,872 $ 6,824 $ 6,873
===== ===== ===== =====
Net income per share, basic $ .44 $ .37 $ .83 $ .71
===== ===== ===== =====
Net income per share, diluted $ .43 $ .36 $ .81 $ .68
===== ===== ===== =====
<PAGE>
(4) Segments
The Bank's, and thus Bancorp's principal activities include
commercial and retail banking, investment management and trust, and
mortgage banking. Commercial and retail banking provides a full range
of loans and deposit products to individual consumers and businesses.
Investment management and trust provides wealth management services
including private banking, brokerage, estate planning and administration,
retirement plan management, and custodian or trustee services. Mortgage
banking originates residential loans and sells them, servicing released,
to the secondary market.
The financial information for each business segment reflects that
which is specifically identifiable or allocated based on an internal
allocation method. Allocations have been consistently applied for all
periods presented. The measurement of the performance of the business
segments is based on the management structure of the Bank and is not
necessarily comparable with similar information for any other
financial institution. The information presented is also not
necessarily indicative of the segments' operations if they were
independent entities.
Selected financial information by business segment for the three
and six months ended June 30, 2000 and 1999 follows:
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
(In thousands)
Net interest income
Commercial and retail banking $ 7,386 $ 6,240 $ 14,293 $ 12,247
Investment management and trust 291 320 688 607
Mortgage banking 113 75 222 147
----- ----- ----- ----
Total $ 7,790 $ 6,635 $ 15,203 $ 13,001
===== ===== ====== ======
Non-interest income
Commercial and retail banking $ 1,928 $ 1,185 $ 3,271 $ 2,258
Investment management and trust 1,668 1,546 3,304 2,875
Mortgage banking 406 504 749 1,133
----- ----- ----- -----
Total $ 4,002 $ 3,235 $ 7,324 $ 6,266
===== ===== ===== =====
Net income
Commercial and retail banking $ 2,044 $ 1,909 $ 3,958 $ 3,491
Investment management and trust 739 360 1,355 902
Mortgage banking 119 174 181 294
----- ----- ----- -----
Total $ 2,902 $ 2,443 $ 5,494 $ 4,687
===== ===== ===== =====
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This item discusses the results of operations for S.Y. Bancorp, Inc.
("Bancorp"), and its subsidiary, Stock Yards Bank & Trust Company for the
three and six months ended June 30, 2000 and compares those periods with
the same periods of the previous year. Unless otherwise indicated, all
references in this discussion to the "Bank" include Bancorp. In addition,
the discussion describes the significant changes in the financial
condition of Bancorp and the Bank that have occurred during the first
six months of 2000 compared to December 31, 1999. This discussion should
be read in conjunction with the consolidated financial statements and
accompanying notes presented in Part I, Item 1 of this report.
This report contains forward-looking statements under the Private
Securities Litigation Reform act that involve risks and uncertainties.
Although Bancorp believes the assumptions underlying the forward-looking
statements contained herein are reasonable, any of these assumptions
could be inaccurate. Therefore, there can be no assurance
forward-looking statements included herein will prove to be accurate.
Factors that could cause actual results to differ from results
discussed in forward-looking statements include, but are not limited
to: economic conditions both generally and more specifically in the
market in which Bancorp and its subsidiary operate; competition for
Bancorp's customers from other providers of financial services;
government legislation and regulation which change from time to time
and over which Bancorp has no control; changes in interest rates;
material unforeseen changes in liquidity, results of operations,
or financial condition of Bancorp's customers; other risks detailed
in Bancorp's filings with the Securities and Exchange Commission,
all of which are difficult to predict and many of which are beyond
the control of Bancorp.
A. RESULTS OF OPERATIONS
Net income of $2,902,000 for the three months ended June 30, 2000
increased $459,000 or 18.8% from the comparable 1999 period. Basic net
income per share was $.44 for the second quarter of 2000, an increase of
18.9% from the same period in 1999. Net income on a diluted basis was
$.43 for the second quarter of 2000 compared to $.36 for the second
quarter of 1999. This represents a 19.4% increase. Return on average
assets and return on average stockholders' equity were 1.59% and 21.97%,
respectively, for the second quarter of 2000, compared to 1.54% and
20.68%, respectively, for the same period in 1999.
Net income of $5,494,000 for the six months ended June 30, 2000
increased $807,000 or 17.2% from the comparable 1999 period. Basic net
income per share was $.83 for the first six months of 2000, an increase
of 16.9% from the same period in 1999. Net income on a diluted basis was
$.81 for the first six months of 2000 compared to $.68 for the first six
months of 1999. This represents a 19.1% increase. Return on average
assets and return on average stockholders' equity were 1.55% and 21.26%,
respectively, for the first six months of 2000, compared to 1.53% and
20.40%, respectively, for the same period in 1999.
<PAGE>
The following paragraphs provide an analysis of the significant
factors affecting operating results and financial condition.
Net Interest Income
In thousands except percentages
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
Interest income $14,648 $11,846 $28,129 $23,155
Tax equivalent 111 86 224 173
------ ------ ------ ------
Interest income, tax
equivalent basis 14,759 11,932 28,353 23,328
Total interest expense 6,858 5,211 12,926 10,154
------ ------ ------ ------
Net interest income, tax
equivalent basis (1) $ 7,901 $ 6,721 $15,427 $13,174
====== ====== ====== ======
Net interest spread (2),
annualized 3.82% 3.91% 3.91% 3.96%
====== ====== ==== ====
Net interest margin (3),
annualized 4.60% 4.58% 4.66% 4.64%
====== ====== ==== ====
Notes:
(1) Net interest income, the most significant component of the Banks'
earnings, is total interest income less total interest expense. The
level of net interest income is determined by the mix and volume of
interest earning assets, interest bearing deposits and borrowed
funds, and by changes in interest rates.
(2) Net interest spread is the difference between the taxable equivalent
rate earned on interest earning assets less the rate expensed on
interest bearing liabilities.
(3) Net interest margin represents net interest income on a taxable
equivalent basis as a percentage of average interest earning assets.
Net interest margin is affected by both the interest rate spread and
the level of non-interest bearing sources of funds, primarily
consisting of demand deposits and stockholders' equity.
Fully taxable equivalent net interest income of $7,901,000 for the
three months ended June 30, 2000 increased $1,180,000 or 17.6% from the
same period last year. Net interest spread and net interest margin were
3.82% and 4.60%, respectively, for the second quarter of 2000 and 3.91%
and 4.58%, respectively, for the second quarter of 1999.
Fully taxable equivalent net interest income of $15,427,000 for the
six months ended June 30, 2000 increased $2,253,000 or 17.1% from the
same period last year. Net interest spread and net interest margin were
3.91% and 4.66%, respectively, for the first half of 2000 and 3.96% and
4.64%, respectively, for the first half of 1999.
<PAGE>
Average earning assets increased to $666,946,000 for the first half
of 2000. Average interest bearing liabilities increased to $558,997,000
for the first half of 2000.
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 June 30, 2000 simulation analysis
indicates that an increase in interest rates would have a positive effect
on net interest income, and a decrease in interest rates would have a
negative effect on net interest income.
Interest Rate Simulation Sensitivity Analysis
(Dollars in thousands except per share information)
Net Interest Net Income Diluted EPS
Income Change Change Change
Increase 200bp $ 1,689 $1,105 $ 0.16
Increase 100bp 841 550 0.08
Decrease 100bp (839) (548) (0.08)
Decrease 200bp (1,697) (1,109) (0.16)
===== ===== ====
<PAGE>
Provision for Loan Losses
The allowance for loan losses is based on management's continuing
review of individual credits, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans,
and such other factors that, in management's judgment, deserve current
recognition in estimating loan losses.
An analysis of the changes in the allowance for loan losses and
selected ratios follow:
Six months ended
June 30
(In thousands except percentages)
2000 1999
Balance at January 1 $ 7,336 $ 6,666
Provision for loan losses 1,165 860
Loan charge-offs, net of recoveries 216 ( 273)
------- -------
Balance at March 31 $ 8,717 $ 7,253
======= =======
Average loans, net of unearned income $582,893 $466,990
======= =======
Provision for loan losses to average loans (1) .40% .37%
======= =======
Net loan charge-offs (recoveries) to
average loans (1) ( .07%) .12%
======= =======
Allowance for loan losses to average loans 1.50% 1.55%
======= =======
Allowance for loan losses to period-end loans 1.41% 1.49%
======= =======
(1) Amounts annualized
<PAGE>
Non-interest Income and Expenses
The following table sets forth the major components of non-interest
income and expenses for the three and six months ended June 30, 2000
and 1999.
In thousands
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
Non-interest income
Investment management and trust
services $1,520 $1,370 $2,978 $2,618
Service charges on deposit
accounts 1,539 887 2,523 1,667
Gains on sales of mortgage loans
held for sale 300 379 553 871
Gains on sales of securities
available for sale - - - 100
Other 643 599 1,270 1,010
----- ----- ----- -----
Total non-interest income $4,002 $3,235 $7,324 $6,266
===== ===== ===== =====
Non-interest expenses
Salaries and employee benefits $4,058 $3,438 $7,881 $6,577
Net occupancy expense 468 403 905 809
Furniture and equipment expense 594 563 1,197 1,087
Other 1,795 1,574 3,275 2,999
----- ----- ----- -----
Total non-interest expenses $6,915 $5,978 $13,258 $11,472
===== ===== ====== ======
Non-interest income increased $767,000, or 23.7%, for the second
quarter of 2000, compared to the same period in 1999. Trust income
increased $150,000 or 11.0% in the second quarter of 2000, as compared
to the same period in 1999. Trust assets under management at
June 30, 2000 were $1.027 billion as compared to $914 million at
December 31, 1999 and $822 million at June 30, 1999.
Non-interest income increased $1,058,000 or 16.9% for the first
half of 2000 compared to the same period in 1999. Trust income
increased $360,000 or 13.8% in the first half of 2000 as compared to the
same period.
<PAGE>
Service charges on deposit accounts increased $652,000 or 73.5% in
the first quarter of 2000 and $856,000 or 51.4% in the first half of 2000
as compared to the same periods in 1999. Opening new branch offices and
promotion of retail accounts have presented opportunities for growth in
deposit accounts and increased fee income. Additionally, in March the
Bank began offering an overdraft service to retail depositors. The
service allows checking customers meeting specific criteria to incur
overdrafts up to a predetermined limit, generally $500. For each check
paid resulting in or increasing an overdraft, the customer pays the
standard overdraft charge. During March, 2000, these fees totaled
approximately $80,000, and for the second quarter of 2000, these fees
totaled approximately $550,000.
Gains on sales of mortgage loans were $300,000 in the second quarter
of 2000 and $553,000 in the first half of 2000 compared to $379,000 and
$871,000, respectively, in 1999. The Bank operates a mortgage banking
company which originates residential mortgage loans and sells the loans
in the secondary market. Favorable interest rates in early 1999
stimulated home buying and refinancing. As interest rates have
increased mortgage loan volume, particularly refinancing, has decreased,
resulting in a corresponding decrease in revenues from gains on sales of
mortgage loans held for sale.
Gains on sales of securities available for sale during the first
quarter of 1999 occurred as management sold lower yielding, shorter term
securities for intermediate term, higher yielding securities. No sales
of securities have occurred in 2000.
Other non-interest income increased $44,000 or 7.3% in the second
quarter of 2000 and $260,000 or 25.7% in the first half of 2000 compared
to 1999. Numerous factors contributed to this increase, including
(year to date) $55,000 from full service brokerage fees, $103,000 from
check card income and $84,000 from ATM surcharges.
Non-interest expenses increased $937,000 or 15.7% for the second
quarter of 2000 and $1,786,000 or 15.6% year to date 2000 compared to
the same periods in 1999. Salaries and employee benefits increased
$620,000, or 18.0%, for the second quarter of 2000 and $1,304,000 or
19.8% year to date 2000 compared to the same periods in 1999. Employees
continue to be added to support the Bank's growth. The Bank had 321
full time equivalent employees as of June 30, 2000 and 314 full time
equivalents as of June 30, 1999. These increases also arose in part
from normal salary increases. Net occupancy expense increased $65,000
r 16.1% in the second quarter of 2000 and $96,000 or 11.9% year to date
2000 as compared to 1999. Furniture and equipment expense increased
$31,000, or 5.5%, for the second quarter of 2000 and $110,000 or 10.1%
year to date 2000 compared to 1999. These increases are largely due to
the addition of new banking centers. Other non-interest expenses have
increased $221,000 or 14.0% in the second quarter of 2000 and $276,000
or 9.2% year to date 2000 as compared to 1999.
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Income Taxes
Bancorp had income tax expense of $2,610,000 for the first six
months of 2000, compared to $2,248,000 for the same period in 1999.
The effective rate was 32.2% in 2000 and 32.4% in 1999.
B. FINANCIAL CONDITION
Total Assets
Total assets increased $64,162,000 from December 31, 1999 to
June 30, 2000. Average assets for the first six months of 2000 were
$712,110,000. Total assets at June 30, 2000 increased $112,989,000 from
June 30, 1999, representing a 17.6% increase. Since year end, loans have
increased approximately $72.5 million; cash and due from banks and federal
funds sold decreased $3.6 million; securities available for sale decreased
$3.9 million, and securities held to maturity decreased $2.5 million.
Mortgage loans available for sale increased $1.4 million.
Nonperforming Loans and Assets
Nonperforming loans, which include non-accrual and loans past due over
90 days, totaled $5,046,000 at June 30, 2000 and $4,415,000 at
December 31, 1999. This represents .81% of total loans at June 30, 2000
and December 31, 1999.
Nonperforming assets, which include non-performing loans, other real
estate and repossessed assets, totaled $5,173,000 at June 30, 2000 and
$4,500,000 at December 31, 1999. This represents .69% of total assets at
June 30, 2000 compared to .65% at December 31, 1999.
C LIQUIDITY
The role of liquidity is to ensure that funds are available to meet
depositors' withdrawal and borrowers' credit demands while at the same
time maximizing profitability. This is accomplished by balancing changes
in demand for funds with changes in the supply of those funds. Liquidity
to meet demand is provided by maturing assets, short-term liquid assets
that can be converted to cash, and the ability to attract funds from
external sources - principally deposits. Management believes it has the
ability to increase deposits at any time by offering rates slightly
higher than the market rate.
The Bank has a number of sources of funds to meet its liquidity needs
on a daily basis. The deposit base, consisting of relatively stable
consumer and commercial deposits, and large denomination ($100,000 and over)
certificates of deposit, is a source of funds. The majority of these
deposits are from long term customers and are a stable source of funds.
The Bank has no brokered deposits. In addition, federal funds purchased
continue to be an available source of funds.
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Other sources of funds available to meet daily needs include the sale
of securities under agreements to repurchase and funds made available under
a treasury tax and loan note agreement with the federal government. Also,
the Bank is a member of the Federal Home Loan Bank of Cincinnati (FHLB).
As a member of the FHLB, the Bank has access to credit products of the FHLB.
To date, the Bank has not needed to access this source of funds.
Additionally, the Bank has an available line of credit and federal funds
purchased lines with correspondent banks totaling $38 million.
Bancorp's liquidity depends primarily on the dividends paid to it as
the sole shareholder of the Bank. At June 30, 2000, the Bank may pay up
to $18,200,000 in dividends to Bancorp without regulatory approval subject
to the ongoing capital requirements of the Bank. During the first and
second quarters of 2000 the Bank paid dividends to Bancorp totaling
$1,330,000.
D. CAPITAL RESOURCES
At June 30, 2000, stockholders' equity totaled $54,060,000, an
increase of $3,806,000 since December 31, 1999. One component of equity
is accumulated other comprehensive income which for Bancorp consists of
net unrealized gains on securities available for sale, and a minimum
pension liability adjustment, net of taxes. Accumulated other
comprehensive losses were $1,452,000 at June 30, 2000 and $1,351,000 at
December 31, 1999. The change since year end is a reflection of the
effect of rising interest rates on the valuation of the Bank's portfolio
of securities available for sale.
In November, 1999, the Board of Directors authorized a 200,000 share
common stock buy back program representing approximately 3% of its common
stock. The repurchased shares may be used for, among other things,
issuance of shares for the stock options or employee stock ownership or
purchase plans. As of June 30, 2000, 56,750 shares had been repurchased
for a total cost of $1,204,000.
Bank holding companies and their subsidiary banks are required by
regulators to meet risk based capital standards. These standards, or
ratios, measure the relationship of capital to a combination of
balance-sheet and off-balance sheet risks. The values of both
balance-sheet and off-balance sheet items are adjusted to reflect
credit risks.
At June 30, 2000, Bancorp's tier 1 total risk based capital and
leverage ratios were 9.11%, 10.41% and 7.44%, respectively. These
ratios exceed the minimum required by regulators to be well capitalized.
E RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement standardizes the accounting for derivative
instruments. Under this standard, entities are required to carry all
derivative instruments on the balance sheet at fair value.
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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
comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Any amounts excluded from the
assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. Accounting for
foreign currency hedges is similar to the accounting for fair value and
cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of
change.
During 1999 the Financial Accounting Standards Board issued Statement
No. 137 which delays the effective date of Statement 133 until
January 1, 2001; however, early adoption is permitted. During
June of 2000, the Financial Accounting Standards Board issued Statement
No. 138, (Accounting for Certain Derivative Instruments and Certain
Hedging Activities) which provides guidance with respect to certain
implementation issues related to Statement No. 133. On adoption, the
provisions of Statement 133 must be applied prospectively. Bancorp 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.
<PAGE>
Part II - Other Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information required by this item is included in Item 2,
"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Item 4. Submission of Matters to a Vote of Security Holders
On April 26, 2000, at the Annual Meeting of Shareholders of
S.Y. Bancorp, Inc., the following matters were submitted to a
vote of shareholders. Represented in person or by proxy were
5,495,476 shares, and those shares were as follows.
(1) Fixing the number of directors at fourteen (14) and electing at
the Annual Meeting five (5) directors:
FOR 5,459,514
AGAINST 12,692
ABSTAIN 23,270
(2) Election of Directors: Bancorp has a staggered Board of Directors.
The following individuals were nominated in 2000. All nominees
were elected.
The results below reflect cumulative voting.
FOR AGAINST ABSTAIN WITHHOLD
James E. Carrico 27,437,963 - - 39,420
Jack M. Crowner 27,429,263 - - 48,120
George R. Keller 27,426,941 - - 50,443
Bruce P. Madison 27,441,723 - - 35,660
Jefferson T. McMahon 27,439,523 - - 37,860
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The registrant was not required to file a Form 8-K during the
quarter ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
S.Y. BANCORP, INC.
Date: August 10, 2000 By: /s/ David H. Brooks
David H. Brooks, Chairman
and Chief Executive Officer
Date: August 10, 2000 By: /s/ David P. Heintzman
David P. Heintzman, President
Date: August 10, 2000 By: /s/ Nancy B. Davis
Nancy B. Davis, Executive Vice
President, Treasurer and Chief
Financial Officer
