Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 23 95K
2: EX-10.7 Material Contract 14 69K
3: EX-11 Statement re: Computation of Earnings Per Share 1 6K
4: EX-13 Annual or Quarterly Report to Security Holders 23 138K
5: EX-21 Subsidiaries of the Registrant 1 4K
6: EX-23 Consent of Experts or Counsel 1 6K
7: EX-27 Financial Data Schedule (Pre-XBRL) 2 9K
EX-13 — Annual or Quarterly Report to Security Holders
Exhibit Table of Contents
EXHIBIT 13
TO ANNUAL REPORT ON FORM 10-K
Annual Report to Shareholders for the year ended December 31, 1995.
This annual report shall not be deemed to be filed with the commission except to
the extent that information is specifically incorporated herein by reference.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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). 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 $4,056,000 or $2.46 per share on a fully-diluted basis in
1995. This compares to $3,101,000 or $1.89 per share and $2,515,000 or
$1.54 per share in 1994 and 1993, respectively. The increase in 1995
earnings was attributable to several factors, the most notable of which
was net interest income growth. Earnings include an 18.2% increase in
fully taxable equivalent net interest income. All components of non-
interest income increased resulting in an increase in total non-interest
income of 34.1%. Partially offsetting the overall income increases were
increases in non-interest expenses of 16.8%. Non-interest expenses
increased in all categories except FDIC premiums. These increases are
primarily related to continued expansion of our 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 interest
earning assets and the rate expensed on interest bearing liabilities. Net
interest margin represents net interest income on a taxable equivalent
basis as a percentage of 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.
Net interest income was $14,783,000, $12,502,000 and $10,019,000 for 1995,
1994 and 1993, respectively. This represents an 18.2% increase for 1995
over 1994 and a 24.8% increase for 1994 over 1993. These improvements in
net interest income resulted from an increase in average earning assets
and a relatively stable net interest spread. Average earning assets
increased $39,521,000 to $278,314,000 in 1995 and increased $15,062,000 to
$238,793,000 in 1994.
Net interest spread and net interest margin were 4.37% and 5.31%,
respectively, in 1995 and 4.48% and 5.24%, respectively, in 1994. Rates rose
in the first quarter of 1995, held steady until mid year and then began
falling. The Bank's prime lending rate was 8.5% at both December 31, 1995 and
1994. Its highest point was from February through early July of 1995 at 9.0%.
Average rates earned on earning assets increased 104 basis points and average
rates paid on interesting bearing liabilities increased 115 basis points when
comparing 1995 to 1994.
As shown by the Interest Rate Sensitivity Analysis, 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 falling rates,
variable rate loans reprice immediately. While deposit rates will respond
by dropping, they will not drop as quickly nor as drastically. To mitigate
the impact of falling rates, Bancorp's interest rate risk management
strategy has included a shift from primarily variable rate loans to a mix
of variable and fixed rate loans, which at December 31, 1995, was 52% and
48%, respectively. For purposes of the Interest Rate Sensitivity Analysis,
Bancorp includes 50% of interest bearing checking accounts in the 0-365
day categories and 50% of these accounts in the 1-5 year category. At
December 31, 1995, the negative interest sensitivity gap was 1.9% through
one year. Bancorp's one year cumulative gap position as of December 31,
1994 was a positive position of 1.4%.
As interest rates change in the market, rates earned on assets do not
necessarily move identically with rates paid on liabilities. Proper asset
and liability management involves the matching of short-term interest
sensitive assets and liabilities to reduce interest rate risk. The Bank
manages its interest rate risk by adjusting the mix of fixed and variable
rate loans. The Bank also attempts to match fixed rate loans and
securities against longer term fixed rate time deposits.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1995
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NON-
INTEREST
0-90 91-180 181-365 1-5 OVER 5 BEARING
(Dollars in thousands) DAYS DAYS DAYS YEARS YEARS FUNDS TOTAL
--------------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans, net of unearned income $141,098 $ 5,971 $11,138 $81,302 $16,126 $ 1,212 $256,847
Securities 5,125 1,115 4,260 25,380 6,375 878 43,133
Other assets - - - - - 24,374 24,374
-------- -------- -------- --------- -------- -------- --------
TOTAL ASSETS 146,223 7,086 15,398 106,682 22,501 26,464 $324,354
-------- -------- -------- --------- -------- -------- --------
--------
SOURCES OF FUNDS
Interest bearing deposits 82,627 20,483 58,522 69,600 901 - $232,133
Short-term borrowings 13,094 - - - - - 13,094
Subordinated debentures - - - - 607 - 607
Non-interest bearing deposits - - - - - 48,460 48,460
Other liabilities - - - - - 2,446 2,446
Stockholders' equity - - - - - 27,614 27,614
-------- -------- -------- --------- -------- -------- --------
TOTAL SOURCES OF FUNDS 95,721 20,483 58,522 69,600 1,508 78,520 $324,354
-------- -------- -------- --------- -------- -------- --------
--------
INTEREST SENSITIVITY GAP 50,502 (13,397) (43,124) 37,082 20,993 (52,056)
-------- -------- -------- --------- -------- --------
-------- -------- -------- --------- -------- --------
CUMULATIVE INTEREST
SENSITIVITY GAP $ 50,502 $ 37,105 (6,019) $ 31,063 $ 52,056 $ -
-------- -------- -------- --------- -------- --------
-------- -------- -------- --------- -------- --------
CUMULATIVE INTEREST
SENSITIVITY GAP AS A PERCENT
OF TOTAL ASSETS AT PERIOD END 15.6% 11.4% (1.9)% 9.6% 16.0%
------ ----- ------ ------ ------
------ ----- ------ ------ ------
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 1995 was impacted by volume increases and the higher average
interest rate environment. The tax equivalent adjustments are based on a 34% tax
rate.
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TAXABLE EQUIVALENT RATE/VOLUME ANALYSIS
1995/1994 1994/1993
-----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
NET DUE TO NET DUE TO
(In thousands) CHANGE RATE VOLUME CHANGE RATE VOLUME
-----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $5,813 $2,208 $3,605 $2,369 $1,332 $1,037
Federal funds sold 34 176 (142) 223 115 108
Mortgage loans held for sale 134 (2) 136 33 23 10
Securities
U.S. Treasury and federal agencies (13) 8 (21) (15) (5) (10)
States and political subdivisions 90 (32) 122 (82) (20) (62)
Other securities 31 28 3 20 18 2
------- ------ ------ ------ ------ ------
TOTAL INTEREST INcome 6,089 2,386 3,703 2,548 1,463 1,085
------- ------ ------ ------ ------ ------
INTEREST EXPENSE
Deposits
Interest bearing demand deposits 180 81 99 128 (6) 134
Savings deposits 238 118 120 111 18 93
Money market deposits 111 364 (253) 203 94 109
Time deposits 3,178 1,228 1,950 (541) (462) (79)
Securities sold under agreements
to repurchase and federal
funds purchased 42 200 (158) 148 174 (26)
Short-term borrowings 45 44 1 16 15 1
Subordinated debentures 14 15 (1) - - -
------- ------ ------ ------ ------ ------
TOTAL INTEREST EXPENSE 3,808 2,050 1,758 65 (167) 232
------- ------ ------ ------ ------ ------
NET INTEREST INCOME $2,281 336 $1,945 $2,483 $1,630 853
------- ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PROVISION FOR LOAN LOSSES
In determining the provision for loan losses charged to expense, management
carefully 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. Responding to these factors, management provided $1,260,000 in 1995.
The provision for loan losses was $1,000,000 in 1994 and $820,000 in 1993. At
December 31, 1995, the allowance for loan losses was 1.78% of year-end loans
compared to 1.76% at December 31, 1994. While the Bank's charge off history has
been well below industry average, management felt it prudent to increase the
allowance for loan losses in 1995. The Bank has expanded to new locations and
the loan portfolio has grown significantly. Management also considered the
economic outlook as well as the credits on the classified and watch loan lists.
The increased provision responded to these factors.
The Bank's loan portfolio continues to be 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, 1995, is adequate to
absorb anticipated losses in the loan portfolio as of this date.
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan," became effective for Bancorp in 1995. SFAS
No. 114, as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan -- Income Recognition and Disclosures," sets forth methodology to be used
in determining any impairment of loans where it is probable that a creditor will
be unable to collect all principal and interest amounts due according to the
contractual terms of the note. The adoption of SFAS Nos. 114 and 118 did not
have a significant impact on Bancorp's financial condition or results of its
operations.
Presented below is a schedule of loan loss experience and selected data relating
to the allowance for loan losses.
SUMMARY OF LOAN LOSS EXPERIENCE
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YEARS ENDED DECEMBER 31
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(Dollars in thousands) 1995 1994 1993
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Balance January 1 $3,649 $2,752 $2,179
Provision for loan losses 1,260 1,000 820
Loan charge-offs, net of recoveries (402) (103) (247)
-------- -------- --------
Balance December 31 $4,507 $3,649 $2,752
-------- -------- --------
-------- -------- --------
Average loans, net of unearned income $229,674 $190,409 $177,629
Loans outstanding at year end, net of unearned income $252,937 $207,274 $187,700
RATIOS
Provision for loan losses to average loans .55% .53% .46%
Net charge-offs to average loans .18% .05% .14%
Allowance for loan losses to average loans 1.96% 1.92% 1.55%
Allowance for loan losses to year end loans 1.78% 1.76% 1.47%
Loan loss coverage 17.95x 53.51x 17.57x
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NON-INTEREST INCOME AND EXPENSES
Non-interest income increased by 34.1% in 1995 as compared to 1994, and
decreased .2% in 1994 as compared to 1993.
The largest component of non-interest income is investment management and trust
fee income which increased 38.6% in 1995 and 12.3% in 1994. The investment
management and trust department has established a reputation of personalized
service and superior investment returns. Trust assets under management, through
customer retention and attraction of new business, grew to $343 million as of
December 31, 1995 as compared to $231 million as of December 31, 1994. Growth in
the department's assets include both personal and employee benefit accounts.
Service charges on deposit accounts increased 19.9% over 1994. Growth in deposit
accounts, arising primarily from new banking locations, presented opportunities
for increased fee income in this area. Additionally, rates for some deposit
services were raised in 1995.
The Bank operates a mortgage banking company as a department of the Bank. This
department originates residential mortgage loans and sells the loans in the
secondary market. The department 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. Gains on sales of mortgage loans were
$736,000 in 1995 as compared to $525,000 and $624,000 in 1994 and 1993,
respectively. Interest rates on conventional mortgage loans directly impact the
volume of business transacted by the mortgage banking department. Rates were at
a twenty year low during 1993 and high loan volume boosted earnings in that
year; as rates rose throughout 1994, the volume of loans originated declined.
Falling rates in 1995 stimulated the volume of loans originated, and the
increase in gains on sales of these loans is reflective of volume increases.
Other non-interest income increased in 1995 as compared to 1994 by $153,000 or
49.8% and decreased $197,000 in 1994 compared to 1993. The 1995 increase is due
to several contributing factors, none of which are individually significant.
Other non-interest income was unusually high in 1993 due to insurance proceeds
reimbursing prior years' losses and higher levels of fee income generated by the
mortgage banking company.
Total non-interest expenses increased 16.9% in 1995 over 1994, and 15.2% in 1994
over 1993.
Salaries and employee benefits, the largest non-interest expense category,
increased 17.6% in 1995 and 19.6% in 1994. The 1995 and 1994 increases occurred,
in part, as a result of regular salary increases and new employees added to
support the Bank's expansion. As of December 31, 1995, the Bank had 188 full
time equivalent employees (FTEs). As of December 31, 1994, that total was 162
FTEs. Additionally, a performance incentive program was implemented in 1993;
increasing earnings in 1993, 1994 and 1995 have qualified certain bank employees
for incentive compensation. Further, as salary expense increases, so do
corresponding employee benefit expenses. It should be noted there are no
significant obligations for post-retirement or post-employment benefits.
Net occupancy expense increased 19.3% in 1995 and 20.3% in 1994. Occupancy
expenses have increased as the Bank has continued its expansion plans. In 1995
the Bank opened its Outer Loop banking center and Elizabethtown loan production
office. In 1994 the Bank's Dixie Highway banking center opened. In 1993 and
1992, the Poplar Level, St. Matthews and Middletown banking centers were opened.
Furniture and equipment expense increased 22.9% in 1995 compared to 1994 and
1.8% in 1994 compared to 1993. Expansion and investments in computer technology
resulted in the significant 1995 increase.
FDIC insurance premiums decreased 41.4% for 1995 and increased 5.2% for 1994.
The decrease for 1995 is due entirely to revised premium rates charged to banks.
The Bank is assessed the lowest possible premium rates based on evaluation
factors addressed by regulators. In 1996 the Bank will pay only the $2,000
minimum charge assessed on well capitalized, well managed institutions.
Other non-interest expenses increased 22.8% in 1995 and 11.8% in 1994. The
increase in both years largely related to the Bank's expansion. Among costs
which increased significantly were delivery, communication and supplies.
Management continues to identify cost containment opportunities where expense
reductions can be made without sacrificing the level of service to customers.
INCOME TAXES
Bancorp had income tax expense of $1,900,000 in 1995 compared to $1,411,000 in
1994 and $1,004,000 in 1993. The effective rates were 31.9%, 31.3%, and 28.5%,
respectively. The increases in the effective tax rates are largely due to a
decreasing proportion of tax exempt interest.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
EARNING ASSETS AND INTEREST BEARING LIABILITIES
Total consolidated assets of Bancorp at December 31, 1995 increased 18.4% to
$324,354,000 from $273,848,000 at December 31, 1994. Average assets for 1995
increased 16.9% over 1994 to $295,892,000.
During 1995, Bancorp increased its net average earning assets to $55,310,000
from $50,062,000 during 1994.
The growth of average earning assets was primarily in the area of loans with
lesser increases in the areas of mortgage loans held for sale and securities.
Loan demand continued to increase during 1995. Commercial and industrial loans
increased 3.7% and real estate mortgage loans increased 34.9%. Consumer loans
increased 27.6% and lease financing receivables decreased 53.6% as compared to
the end of 1994. The Bank has made a management decision not to pursue lease
financing as a primary line of business.
Effective January 1, 1994, Bancorp adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The primary effects of the adoption
of this accounting principle were that securities available for sale are carried
at fair value, and unrealized gain and/or losses are reported, net of tax
effect, as a separate component of stockholders' equity.
As permitted by transition guidelines for SFAS No. 115, Bancorp reassessed the
appropriateness of the classification of securities and, in December 1995,
transferred securities with a book value of $15,117,000 and an unrealized gain
of $370,000 from the held to maturity category to the available for sale
category.
Neither the Bank nor Bancorp holds any derivative financial instruments as
defined by SFAS No. 119, "Disclosures About Derivative Financial Instruments
and Fair Value of Financial Instruments." The Bank does have, in its
portfolios of securities, FHLMC and FNMA issued collateralized mortgage
obligations (CMOs) with a par value of approximately $9,600,000. Management
monitors these securities on an ongoing basis and has determined these not to
be high risk. With respect to the total portfolio of securities held to
maturity, market value exceeded amortized cost at December 31, 1995 by 1.3%.
At December 31, 1994, amortized cost exceeded market value by 2.8%.
Growth of average interest bearing liabilities occurred in most categories;
however money market deposit accounts and securities sold under agreements to
repurchase decreased during 1995. With interest rates falling in the last half
of 1995, some depositors chose to shift funds to time deposit accounts. Average
time deposits increased 46% in 1995 from the 1994 average. Interest bearing
demand deposits increased 19%, and savings accounts averaged 34% higher in 1995
as compared to 1994. Overall, average interest bearing deposits increased 22% in
1995. Average balances of securities sold under agreements to repurchase
decreased 21% in 1995. 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 then used to purchase securities sold under
agreements to repurchase. Another sweep alternative was introduced in 1994
whereby excess balances are invested in third party mutual funds. Since that
time, average balances of securities sold under agreements to repurchase have
declined.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
AVERAGE BALANCES AND INTEREST RATES - TAXABLE EQUIVALENT BASIS
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YEAR 1995 YEAR 1994
-----------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(Dollars in thousands) BALANCES INTEREST RATE BALANCES INTEREST RATE
-----------------------------------------------------------------------------------------------------------
EARNING ASSETS
Federal funds sold $ 7,635 $ 477 6.25% $ 10,490 $ 443 4.22%
Mortgage loans held for sale 3,158 248 7.85 1,430 114 7.97
Securities
U.S. Treasury and federal agencies 31,294 2,164 6.92 31,591 2,177 6.89
States and political subdivisions 5,706 415 7.27 4,073 325 7.98
Other securities 847 86 10.15 800 55 6.88
Loans, net of unearned income 229,674 22,038 9.60 190,409 16,225 8.52
-------- ------- ---- -------- ------- ----
TOTAL EARNING ASSETS 278,314 25,428 9.14 238,793 19,339 8.10
------- ----
Less allowance for loan losses 4,115 3,157
-------- --------
274,199 235,636
NON-EARNING ASSETS
Cash and due from banks 10,721 9,180
Premises and equipment 5,672 4,057
Accrued interest receivable and
other assets 5,300 4,266
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TOTAL ASSETS $295,892 $253,139
-------- --------
-------- --------
INTEREST BEARING LIABILITIES
Deposits
Interest bearing demand deposits $25,471 $ 649 2.55% $ 21,325 $ 469 2.20%
Savings deposits 14,733 541 3.67 11,012 303 2.75
Money market deposits 48,540 1,833 3.78 56,155 1,722 3.07
Time deposits 118,611 6,755 5.70 81,098 3,577 4.41
Securities sold under agreements
to repurchase and federal funds
purchased 13,128 707 5.39 16,626 665 4.00
Short-term borrowings 1,914 115 6.01 1,898 70 3.69
Subordinated debentures 607 45 7.41 617 31 5.02
-------- ------- ---- -------- ------- ----
TOTAL INTEREST BEARING LIABILITIES 223,004 10,645 4.77 188,731 6,837 3.62
-------- ------- ---- -------- ------- ----
NON-INTEREST BEARING LIABILITIES
Non-interest bearing demand deposits 44,340 39,377
Accrued interest payable and
other liabilities 2,584 1,711
-------- --------
TOTAL LIABILITIES 269,928 229,819
STOCKHOLDERS' EQUITY 25,964 23,320
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $295,892 $253,139
-------- --------
-------- --------
NET INTEREST INCOME $14,783 $12,502
------- -------
------- -------
NET INTEREST SPREAD 4.37% 4.48%
---- ----
---- ----
NET INTEREST MARGIN 5.31% 5.24%
---- ----
---- ----
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NONPERFORMING LOANS AND ASSETS
AND ALLOWANCE FOR LOAN LOSSES
Nonperforming loans, which include nonaccrual loans and restructured loans,
totaled $1,212,000 at December 31, 1995. The threshold at which loans are
generally transferred to nonaccrual of interest status is 90 days past due, and
at December 31, 1995, there were no accruing loans which were past due over
ninety days which were not well secured and in the process of collection.
Nonperforming loans aggregated $428,000 at December 31, 1994. These loans
represent .48% of total loans at year end 1995 compared to .21% in 1994.
Nonperforming assets include nonperforming loans and other real estate owned.
Because there was no other real estate owned at December 31, 1995, nonperforming
assets totaled $1,212,000. This represents .37% of total assets at year end
compared to .16% in 1994.
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 financial difficulties. These loans of approximately $5,700,000 are
monitored by management and considered in determining the level of the allowance
for loan losses. Management feels these loans present no significant loss
exposure. The allowance for loan losses is discussed in detail under the heading
"Provision for Loan Losses."
LIQUIDITY
The role of liquidity 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. However, because the Bank has approximately 2% of the market share in
its market area, management 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. An increase in loans affects liquidity as the repayment of principal and
interest are a daily source of funds. The deposit base, consisting of consumer
and commercial deposits and large dollar denomination ($100,000 and over)
certificates of deposit, is another source of funds. The majority of these
deposits are from long-term customers and are a stable source of funds. 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 used.
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. To date, the Bank
has not accessed this source of funds.
Bancorp's liquidity depends primarily on the dividends paid to it as the sole
shareholder of the Bank. As discussed in note 12 to Bancorp's consolidated
financial statements, the Bank may pay up to $5,162,000 in dividends to Bancorp
without regulatory approval.
CAPITAL
At December 31, 1995, stockholders' equity totaled $27,614,000, an increase of
$3,279,000 or 13.5% over 1994. This increase was due to the strong earnings of
1995 coupled with a philosophy to retain approximately 70% of earnings in
equity. Cash dividends declared increased 26.3% over 1994 to $.72 per share.
In September 1994 and 1993, the Board of Directors declared 10% stock dividends
which were distributed in November, 1994 and 1993, respectively. These dividends
were declared to enhance shareholder value by increasing the shares of Bancorp's
stock outstanding and therefore provide for a wider distribution and improved
marketability of Bancorp shares.
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.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
At December 31, 1995, Bancorp's tier 1 and total risk based capital ratios were
11.1% and 12.0%, respectively. These ratios exceed the 4.0% tier 1 and 8.0%
total risk based capital minimums. A minimum leverage ratio, adopted by the
Federal Reserve Board to assist in the assessment of capital adequacy,
supplements the risk based capital requirements. The minimum leverage ratio is
3.0%; however, most bank holding companies are required to maintain a minimum in
excess of that amount. Bancorp's leverage ratio at December 31, 1995 and 1994
was 8.4% and 8.9%, respectively.
ACCOUNTING PRONOUNCEMENTS EFFECTIVE IN 1996
The Financial Accounting Standards Board issued several statements during 1995
which are effective for Bancorp beginning in 1996.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," requires long-lived assets be reviewed for
appropriate valuation. Should events or changes in circumstances indicate future
cash flows from the asset to be less than the carrying value, a loss should be
recognized based upon the fair value of the asset. Long-lived assets to be
disposed of will be reported at the lower of carrying value or fair value less
costs to sell. For a banking organization, bank premises and equipment and other
real estate acquired in satisfaction of a debt would be the most likely assets
subject to this pronouncement. Because Bancorp's other real estate assets are
carried at the lower of cost or fair value minus estimated selling costs, and
bank premises and equipment are deployed in operating facilities, management
does not expect the adoption of SFAS No. 121 to have an effect on Bancorp's
financial position or results of operations.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," applies to all
companies with mortgage banking operations. The Statement requires
capitalization of mortgage servicing rights, regardless of whether they were
acquired through purchase or origination activities. Prior to the issuance of
the Statement, only purchased mortgage servicing rights were capitalized. The
new standard effectively eliminates the accounting distinction between
originated and purchased mortgage servicing rights. Bancorp's mortgage division
sells loans servicing released and does not purchase loans or servicing rights.
Therefore, this new standard will have no effect on Bancorp's financial position
or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation," introduces the use of a
new fair value based method of accounting for stock-based compensation
arrangements, but permits companies to retain the current intrinsic value based
method prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the fair value based method of
accounting, compensation expense would be recognized for stock options and other
equity instruments granted to employees based upon their fair value at the grant
date. The intrinsic value based method prescribed by APB No. 25 recognizes
compensation cost for stock options when the option exercise price is less than
the market value of the underlying stock. Companies not following the new fair
value method will be required to provide expanded disclosures of net income and
earnings per share as if they had adopted the fair value accounting method.
Bancorp intends to continue using the intrinsic value based method and will
provide expanded disclosures related to the fair value method of accounting for
stock-based compensation.
14
MARKET DATA AND SELECTED FINANCIAL DATA
Bancorp's common stock is traded on the NASDAQ Small Cap market under the symbol
SYBA. The table below sets forth the quarterly high and low market prices of
Bancorp's common stock, and dividends declared per share. The payments of
dividends by Bank to Bancorp is subject to the restriction described in note 12
to the consolidated financial statements. On December 31, 1995, Bancorp had 706
shareholders of record.
MARKET DATA
[Enlarge/Download Table]
YEAR 1995 YEAR 1994
----------------------------------------------------------------------------------------
CASH DIVIDENDS CASH DIVIDENDS
QUARTER HIGH LOW DECLARED HIGH LOW DECLARED
----------------------------------------------------------------------------------------
First $34.00 $29.00 $.160 $26.36 $25.00 $.120
Second 39.25 32.75 .180 28.18 25.68 .145
Third 39.38 36.50 .180 28.41 26.59 .145
Fourth 42.50 39.25 .200 29.50 27.25 .160
SELECTED FINANCIAL DATA
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------
Net interest income $ 14,609 $ 12,338 $ 9,811 $ 8,729 $ 7,892
Provision for loan losses 1,260 1,000 820 720 720
Net income 4,056 3,101 2,515 2,005 1,907
PER SHARE DATA
Primary net income $ 2.46 $ 1.89 $ 1.54 $ 1.24 $ 1.18
Fully diluted net income 2.46 1.89 1.54 1.23 1.18
Cash dividends declared .72 .57 .41 .33 .32
AVERAGES
Stockholders' equity $ 25,964 $ 23,320 $ 21,011 $ 19,064 $ 17,349
Assets 295,892 253,139 236,015 225,704 203,021
Subordinated debentures 607 617 617 634 634
RATIOS
Average stockholders' equity to
average assets 8.77% 9.21% 8.90% 8.45% 8.55%
Return on average stockholders' equity 15.62 13.30 11.97 10.52 10.99
Return on average assets 1.37 1.23 1.07 .89 .94
15
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
[Enlarge/Download Table]
DECEMBER 31
--------------------------------------------------------------------------------------
(In thousands, except share data) 1995 1994
--------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (note 2) $ 16,229 $ 10,350
Federal funds sold - 8,000
Mortgage loans held for sale 3,910 2,035
Securities available for sale (amortized cost $15,117 in
1995 and $4,002 in 1994) (note 3) 15,545 4,034
Securities held to maturity (approximate market value
$27,933 in 1995 and $35,283 in 1994) (note 3) 27,588 36,277
Loans (note 4) 252,978 207,412
Less
Allowance for loan losses 4,507 3,649
Unearned income 41 138
-------- --------
Net loans 248,430 203,625
Premises and equipment (note 5) 6,817 4,900
Accrued interest receivable 2,192 1,822
Other assets (note 6) 3,643 2,805
-------- --------
TOTAL ASSETS $324,354 $273,848
-------- --------
-------- --------
LIABILITIES
Deposits (note 7)
Non-interest bearing $ 48,460 $ 47,974
Interest bearing 232,133 181,802
-------- --------
Total deposits 280,593 229,776
Securities sold under agreements to repurchase 12,349 14,483
Short-term borrowings 745 2,831
Accrued interest payable and other liabilities (note 10) 2,446 1,816
Subordinated debentures (note 8) 607 607
-------- --------
TOTAL LIABILITIES 296,740 249,513
-------- --------
STOCKHOLDERS' EQUITY
Common stock, no par value; 3,000,000 shares authorized;
issued and outstanding 1,627,334 in 1995 and
1,620,311 in 1994 (note 11) 5,423 5,400
Surplus 13,245 13,137
Retained earnings (note 12) 8,664 5,777
Net unrealized gain on securities available for sale (note 3) 282 21
-------- --------
TOTAL STOCKHOLDERS' EQUITY 27,614 24,335
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $324,354 $273,848
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
16
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------------------
(In thousands, except per share data) 1995 1994 1993
--------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $21,988 $16,156 $13,767
Federal funds sold 477 443 220
Mortgage loans held for sale 248 114 81
U.S. Treasury and federal agencies 2,164 2,177 2,192
Obligations of states and political subdivisions 291 230 288
Other securities 86 55 35
------- ------- -------
TOTAL INTEREST INCOME 25,254 19,175 16,583
------- ------- -------
INTEREST EXPENSE
Deposits 9,778 6,071 6,170
Securities sold under agreements to repurchase and
federal funds purchased 707 665 517
Short-term borrowings 115 70 54
Subordinated debentures 45 31 31
------- ------- -------
TOTAL INTEREST EXPENSE 10,645 6,837 6,772
------- ------- -------
NET INTEREST INCOME 14,609 12,338 9,811
Provision for loan losses (note 4) 1,260 1,000 820
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,349 11,338 8,991
------- ------- -------
NON-INTEREST INCOME
Investment management and trust services 2,086 1,505 1,340
Gain on sales of securities available for sale - - 119
Gain on sales of mortgage loans held for sale 736 525 624
Service charges on deposit accounts 1,241 1,035 793
Other 460 307 504
------- ------- -------
TOTAL NON-INTEREST INCOME 4,523 3,372 3,380
------- ------- -------
NON-INTEREST EXPENSES
Salaries and employee benefits (note 10) 6,694 5,692 4,761
Net occupancy expense 904 758 630
Furniture and equipment expense 1,175 956 939
FDIC insurance 261 445 423
Other 2,882 2,347 2,099
------- ------- -------
TOTAL NON-INTEREST EXPENSES 11,916 10,198 8,852
------- ------- -------
INCOME BEFORE INCOME TAXES 5,956 4,512 3,519
Income tax expense (note 6) 1,900 1,411 1,004
------- ------- -------
NET INCOME 4,056 3,101 2,515
------- ------- -------
------- ------- -------
NET INCOME PER SHARE (NOTE 1)
PRIMARY $ 2.46 $ 1.89 $ 1.54
------- ------- -------
------- ------- -------
FULLY DILUTED 2.46 1.89 1.54
------- ------- -------
------- ------- -------
See accompanying notes to consolidated financial statements.
17
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
[Enlarge/Download Table]
THREE YEARS ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
NUMBER RETAINED NET UNREALIZED
(In thousands, except for share and per share data) OF SHARES AMOUNT SURPLUS EARNINGS SECURITIES GAINS TOTAL
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1992 1,322,520 4,408 6,754 8,907 - 20,069
Net income - - - 2,515 - 2,515
Stock options exercised 5,860 20 51 - - 71
Cash dividends, $.41 per share - - - (654) - (654)
10% stock dividend 132,420 441 2,631 (3,072) - -
--------- ------ ------- ------ ---- -------
Balance December 31, 1993 1,460,800 4,869 9,436 7,696 - 22,001
Net income - - - 3,101 - 3,101
Stock options exercised 12,912 42 88 - - 130
Cash dividends, $.57 per share - - - (918) - (918)
10% stock dividend 146,599 489 3,613 (4,102) - -
Net unrealized gain on securities
available for sale - - - - 21 21
--------- ------ ------- ------ ---- -------
Balance December 31, 1994 1,620,311 5,400 13,137 5,777 21 24,335
NET INCOME - - - 4,056 - 4,056
STOCK OPTIONS EXERCISED 7,023 23 108 - - 131
CASH DIVIDENDS, $.72 PER SHARE - - - (1,169) - (1,169)
NET UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE - - - - 261 261
--------- ------ ------- ------ ---- -------
BALANCE DECEMBER 31, 1995 1,627,334 $5,423 $13,245 $8,664 $282 $27,614
--------- ------ ------- ------ ---- -------
--------- ------ ------- ------ ---- -------
See accompanying notes to consolidated financial statements.
18
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1993
----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 4,056 $ 3,101 $ 2,515
Adjustments to reconcile net income to cash provided by
operating activities
Provision for loan losses 1,260 1,000 820
Depreciation, amortization and accretion, net 819 736 733
Provision for deferred income taxes (247) (342) (179)
Gain on sales of mortgage loans held for sale (736) (525) (624)
Gain on sales of securities available for sale - - (119)
Gain on sales of other real estate owned - - (19)
(Increase) decrease in mortgage loans held for sale (1,139) 2,230 (743)
(Increase) decrease in accrued interest receivable (370) (438) 12
(Increase) decrease in other assets (694) (654) 72
Increase (decrease) in accrued interest payable 415 92 (257)
Increase in other liabilities 149 255 223
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,513 5,455 2,434
---------- ---------- ----------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 8,000 (5,000) (1,000)
Purchases of securities available for sale - (6,994) -
Proceeds from sales of securities available for sale - - 1,839
Proceeds from maturities of securities available for sale 4,034 9,472 323
Purchases of securities held to maturity (36,967) (45,903) (29,100)
Proceeds from maturities of securities held to maturity 30,483 45,805 29,166
Net increase in loans (46,065) (19,677) (15,148)
Purchases of premises and equipment (2,712) (1,839) (1,206)
Proceeds from sales of other real estate owned - - 563
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (43,227) (24,136) (14,563)
---------- ---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 50,817 30,243 6,730
Net increase (decrease) in securities sold under agreements
to repurchase and federal funds purchased (2,134) (5,710) 805
Net increase (decrease) in short-term borrowings (2,086) (1,225) 966
Decrease in subordinated debentures - (10) -
Exercise of stock options 99 105 56
Cash dividends paid (1,103) (848) (597)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 45,593 22,555 7,960
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,879 3,874 (4,169)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,350 6,476 10,645
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,229 $ 10,350 $ 6,476
---------- ---------- ----------
---------- ---------- ----------
Income tax payments were $2,266,000 in 1995, $1,699,000 in 1994 and $1,258,000
in 1993.
Cash paid for interest was $10,230,000 in 1995, $6,745,000 in 1994 and
$7,029,000 in 1993.
Noncash investing and financing activities aggregated $15,203,000 in 1995,
$24,000 in 1994 and $6,737,000 in 1993. Included in these totals
were transfers from loans to other real estate owned of $22,000 in 1995 and
$225,000 in 1993, and a transfer of securities held to maturity
to securities available for sale of $15,149,000 in 1995 and $6,500,000 in
1993.
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP). The accounting policies which
have a significant effect on financial position, results of operations and cash
flows are summarized below.
PRINCIPLES OF CONSOLIDATION, NATURE OF OPERATIONS
AND USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of S.Y. Bancorp, Inc.
(Bancorp) and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (the
Bank). Significant intercompany transactions and accounts have been eliminated
in consolidation. The Bank engages in commercial and retail banking services,
trust and investment management services, and mortgage banking services. The
Bank's offices are located throughout Louisville and Jefferson County, Kentucky
and its market area is Louisville and surrounding communities.
The preparation of financial statements in conformity with GAAP 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, Bancorp considers cash and due from banks
to be cash equivalents.
SECURITIES
Effective January 1, 1994, Bancorp adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The primary effects of the adoption of this principle were that
securities available for sale are carried at fair value, and unrealized gains
and/or losses are reported net of tax effect, as a separate component of
stockholders' equity.
Securities which are intended to be held until maturity are carried at amortized
historical cost. Securities available for sale include securities which may be
sold in response to changes in interest rates, resultant prepayment risk and
other factors. 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.
LOANS
Loans are stated at the unpaid principal balance. Interest income on loans is
recorded on the accrual basis except for those loans in a nonaccrual income
status. Interest received on non-accrual loans is either applied to principal or
recorded as interest income according to management's judgement as to
collectibility of principal. 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.
Effective January 1, 1995, Bancorp adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures." These
statements require that impaired loans be measured based on the present value of
future cash flows discounted at the loan's effective interest rate or as a
practical alternative, at the loan's observable market price or fair value of
the collateral if the loan is collateral dependent. The implementation of these
accounting standards did not have a significant impact on Bancorp's financial
position or results of operations.
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.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that adequately provides
for potential losses. 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 categories of loans 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
the terms of the related lease or over the useful life of the improvements,
whichever is shorter.
OTHER ASSETS
Included in other assets is real estate acquired in settlement of loans. Other
real estate owned 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 for the period.
INCOME TAXES
Bancorp accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes," which requires the use of the asset and liability approach to
accounting for income taxes. 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. Under Statement No. 109, the effect on deferred taxes and
liabilities of a change in tax rates is recognized as income in the period that
includes the enactment date.
NET INCOME PER SHARE
Net income per share has been computed on the basis of the weighted average
number of shares of common stock outstanding each year, adjusted for the effects
of common stock equivalents (stock options). Average shares outstanding for
primary and fully diluted net income per share are presented below.
[Download Table]
1995 1994 1993
-----------------------------------------------------------
Primary 1,648,824 1,642,228 1,635,667
Fully diluted 1,649,682 1,644,327 1,638,521
(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, 1995, the
amount of those required reserve balances was approximately $3,374,000.
(3) SECURITIES
The amortized cost and approximate market value of securities available for sale
as of December 31, 1995 and 1994 follow:
[Download Table]
APPROXIMATE
AMORTIZED UNREALIZED MARKET
(In thousands) COST GAINS LOSSES VALUE
------------------------------------------------------------------------
DECEMBER 31, 1995
U.S. Treasury and
federal agencies $13,972 $427 $ - $14,399
Mortgage-backed
securities 1,145 1 - 1,146
------- ---- ---- -------
$15,117 $428 $ - $15,545
------- ---- ---- -------
------- ---- ---- -------
DECEMBER 31, 1994
U.S. Treasury and
federal agencies 4,002 32 $ - 4,034
------- ---- ---- -------
------- ---- ---- -------
The amortized cost and approximate market value of securities held to maturity
as of December 31, 1995 and 1994 follow:
[Download Table]
Approximate
Amortized Unrealized Market
(In thousands) Cost Gains Losses Value
------------------------------------------------------------------------
DECEMBER 31, 1995
U.S. Treasury and
federal agencies $ 9,079 $127 $ - $ 9,206
Mortgage-backed
securities 10,046 127 11 10,162
Obligations of states
and political
subdivisions 7,585 127 25 7,687
Other 878 - - 878
------- ---- --- -------
$27,588 $381 $36 $27,933
------- ---- --- -------
------- ---- --- -------
DECEMBER 31, 1994
U.S. Treasury and
federal agencies $24,798 $ 31 $ 623 $24,206
Mortgage-backed
securities 6,957 3 342 6,618
Obligations of states
and political
subdivisions 3,697 2 65 3,634
Other 825 - - 825
------- ---- ------ -------
$36,277 $ 36 $1,030 $35,283
------- ---- ------ -------
------- ---- ------ -------
As permitted under certain 1995 transition guidelines for SFAS No. 115, Bancorp
reassessed the appropriateness of the classification of securities and, in
December 1995, transferred securities with a book value of $15,117,000 and an
unrealized net gain of $370,000 from the held to maturity to the available for
sale category.
A summary of debt securities as of December 31, 1995 based on maturity is
presented below. Actual maturities may differ
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
from contractual maturities because issuers may have the right to call or prepay
obligations. Therefore, in the case of mortgage backed securities, the expected
remaining life is reflected rather than contractual maturities.
[Download Table]
SECURITIES SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
------------------------------------------------------------------------
AMORTIZED APPROXIMATE AMORTIZED APPROXIMATE
(In thousands) COST MARKET VALUE COST MARKET VALUE
------------------------------------------------------------------------
Due within
one year $ 7,275 $ 7,301 $ 3,182 $ 3,225
Due after one
year through
five years 13,060 13,346 11,935 12,320
Due after five
years through
ten years 6,375 6,408 - -
Securities with a par value, which approximates carrying value, of approximately
$29,816,000 at December 31, 1995 and $32,862,000 at December 31, 1994 were
pledged to secure public deposits and certain borrowings.
(4) LOANS
The composition of loans as of December 31, 1995 and 1994 follows:
[Download Table]
(In thousands) 1995 1994
--------------------------------------------------------
Commercial and industrial $ 80,520 $ 77,661
Real estate mortgage 152,945 113,351
Consumer 18,708 14,664
Lease financing 805 1,736
-------- --------
$252,978 $207,412
-------- --------
-------- --------
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.
The principal balance of impaired loans at December 31, 1995 was approximately
$1,212,000. Impaired loans with a Statement No. 114 valuation allowance were
approximately $231,000. The amount of Statement No. 114 valuation allowance was
$109,000. Impaired loans with no Statement No. 114 valuation allowance was
$981,000. The average balance of impaired loans for 1995 was approximately
$1,438,000. Interest income recorded on these loans was recorded on the cash
basis and totaled $175,000.
The principal balance of nonaccrual and restructured loans at December 31, 1994
was $428,000. Interest that would have been recorded if all such loans were on a
current status in accordance with their original terms was approximately $37,000
in 1994 and $17,000 in 1993. The amount of interest income recorded for such
loans was approximately $32,000 in 1994 and $25,000 in 1993.
Loans to directors and their associates, including loans to companies of which
directors are principal owners, and executive officers amounted to approximately
$1,610,000 and $3,946,000 at December 31, 1995 and 1994, 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
1995 new loans of $4,004,000 were made to officers and directors and affiliated
companies, repayments amounted to $4,305,000 and changes in directors, and/or
their affiliated companies, involved a net decrease of $2,035,000.
An analysis of the changes in the allowance for loan losses for the years ended
December 31, 1995, 1994 and 1993 follows:
[Download Table]
(In thousands) 1995 1994 1993
--------------------------------------------------------------------
BALANCE AT JANUARY 1 $3,649 $2,752 $2,179
Provision for loan losses 1,260 1,000 820
------ ------ ------
4,909 3,752 2,999
------ ------ ------
Loans charged off 530 184 327
Recoveries 128 81 80
------ ------ ------
Net loan charge-offs 402 103 247
------ ------ ------
BALANCE AT DECEMBER 31 $4,507 $3,649 $2,752
------ ------ ------
------ ------ ------
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
[Download Table]
DECEMBER 31
--------------------------------------------------------------------
(In thousands) 1995 1994
--------------------------------------------------------------------
Land $ 1,403 $ 656
Buildings and improvements 5,049 4,047
Furniture and equipment 4,989 4,363
------- ------
$11,441 9,066
Less accumulated depreciation
and amortization 4,624 4,166
------- ------
$ 6,817 $4,900
------- ------
------- ------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
(6) INCOME TAXES
Income taxes consist of the following:
[Download Table]
(In thousands) 1995 1994 1993
---------------------------------------------------------------------
APPLICABLE TO OPERATIONS:
Current $2,147 $1,753 $1,183
Deferred (247) (342) (179)
------- ------- -------
Total applicable to operations 1,900 1,411 1,004
CHARGED (CREDITED) TO
STOCKHOLDERS' EQUITY:
Unrealized gain on securities
available for sale 134 11 -
Stock options exercised (32) (25) (15)
------- ------- -------
$2,002 $1,397 989
------- ------- -------
------- ------- -------
An analysis of the difference between the statutory and effective tax rates
follows:
[Download Table]
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------
(In thousands) 1995 1994 1993
---------------------------------------------------------------------
U.S. Federal income tax rate 34.0% 34.0% 34.0%
Changes from statutory rate
resulting from tax exempt
interest (1.9) (2.4) (4.1)
Other, net (.2) (.3) (1.4)
-------- -------- --------
31.9% 31.3% 28.5%
-------- -------- --------
-------- -------- --------
The effects of temporary differences that gave rise to significant portions of
the deferred tax assets and deferred tax liabilities were as follows:
[Download Table]
YEARS ENDED DECEMBER 31
------------------------------------------------------------
(In thousands) 1995 1994
------------------------------------------------------------
DEFERRED TAX ASSETS
Allowance for loan losses $1,309 $1,018
Deferred compensation 296 264
Other 51 42
------ ------
TOTAL DEFERRED TAX ASSETS 1,656 1,324
------ ------
------ ------
DEFERRED TAX LIABILITIES
Property and equipment 271 234
Securities 242 60
------ ------
TOTAL DEFERRED TAX LIABILITIES 513 294
------ ------
NET DEFERRED TAX ASSETS $1,143 $1,030
------ ------
------ ------
No valuation allowance for deferred tax assets was recorded as of December 31,
1995 because Bancorp and the Bank have had sufficient taxable income to allow
for utilization of the future deductible amounts within the carryback period.
(7) DEPOSITS
Included in deposits are certificates of deposit and other time deposits in
denominations of $100,000 or more in the amounts of $33,398,000 and $22,482,000
at December 31, 1995 and 1994, respectively. Interest expense related to
certificates of deposit and other time deposits in denominations of $100,000 or
more was $1,545,000, $837,000 and $1,074,000, respectively, for the years ended
December 31, 1995, 1994 and 1993.
(8) SUBORDINATED DEBENTURES
The Bank has redeemable subordinated debentures outstanding which are due
October 1, 2049. The 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 of
each year. The Bank's prime rate was 8.5% at December 31, 1995. The debentures
are subordinated in right of payment to the claims of creditors and depositors
of the Bank. The debentures are subject to redemption only by the Bank at 100%
of the principal amount thereof, 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.
(9) ADVANCES FROM THE FEDERAL
HOME LOAN BANK
The Bank has entered into 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.
(10) EMPLOYEE BENEFIT PLANS
The Bank has an employee stock ownership plan, a money purchase plan and a
deferred income (401(k)) profit sharing plan. These plans are defined
contribution plans and are available to all employees meeting the eligibility
requirements. The expenses related to all plans for 1995, 1994 and 1993 were
$457,000, $400,000 and $351,000, respectively. Contributions are made in
accordance with the terms of the plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
The Bank also sponsors an unfunded, non-qualified, defined benefit retirement
plan for certain key officers. At December 31, 1995 the accumulated obligation
for this plan was $1,025,000. Expense under the plan was $71,000 in 1995,
$104,000 in 1994 and $97,000 in 1993.
The Bank's obligation for other post-retirement and post-employment benefits is
not significant.
(11) COMMON STOCK OPTIONS
In 1995 shareholders approved a stock incentive plan which provides for granting
of options to Bank employees and non-employee directors to purchase up to 80,000
shares of common stock. Under this plan, options for 54,600 shares were granted
in 1995 leaving 25,400 available for future grant. Bancorp also has a stock
option plan under which all options have been granted. Outstanding options are
exercisable with the exception of those granted in 1995 and 1994 which vest 20%
per year over a five year period. All options were granted at the fair market
value of common stock at time of grant and expire ten years after grant except
for 18,700 options to purchase stock at $3.45 per share (below fair market value
at time of grant) which never expire.
Activity with respect to outstanding options follows:
[Download Table]
SHARES PRICE PER SHARE
------------------------------------------------------------------
Outstanding at December 31, 1992 56,265 $ 3.45 - $24.79
Exercised in 1993 (6,743) 3.45 - 24.79
Expired in 1993 (1,936) 17.35 - 24.79
--------
Outstanding at December 31, 1993 47,586 3.45 - 24.79
Exercised in 1994 (13,570) 7.03 - 17.35
Granted in 1994 12,680 25.68
--------
Outstanding at December 31, 1994 46,696 3.45 - 25.68
Exercised in 1995 (7,023) 7.03 - 29.00
Granted in 1995 54,600 29.00 - 33.50
--------
OUTSTANDING AT DECEMBER 31, 1995 94,273 $ 3.45 - $33.50
-------- ------ ------
-------- ------ ------
(12) 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, 1996, the retained earnings of the Bank
available for payment of dividends without regulatory approval were
approximately $5,162,000.
(13) COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1995, 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 $63,382,000, including standby letters of credit
of $8,156,000, represent normal banking transactions, and no significant losses
are anticipated to result therefrom. The Bank's exposure to credit loss in the
event of non-performance 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 it
does for on-balance sheet instruments. Market risk arises on fixed rate
commitments if interest rates move adversely subsequent to the extension of the
commitment.
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.
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.
Bancorp is involved in various claims and legal actions arising in the ordinary
course of business. Management believes the ultimate disposition of these
matters will not have a material adverse effect on Bancorp's consolidated
financial position or results of operations.
NOTES TO CONSOLIDATED FIANANCIAL STATEMENTS
24
The Bank leases certain facilities and improvements under non-cancelable
operating leases. Future minimum lease commitments for these leases are $439,000
in 1996, $424,000 in 1997, $397,000 in 1998, $322,000 in 1999 and $300,000 in
2000 and $1,487,000 in the aggregate thereafter until 2005. Rent expense, net of
sublease income, was $446,000 in 1995, $399,000 in 1994 and $292,000 in 1993.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of Bancorp's financial instruments are as follows:
[Download Table]
CARRYING FAIR
(In thousands) AMOUNT VALUE
------------------------------------------------------------
DECEMBER 31, 1995
FINANCIAL ASSETS
Cash and short-term investments $ 16,229 $ 16,229
Securities 43,133 43,478
Loans 252,340 253,332
FINANCIAL LIABILITIES
Deposits $ 280,593 $ 282,007
Short-term borrowings 13,094 13,094
Subordinated debentures 607 607
Commitments to extend credit - -
Standby letters of credit - 122
DECEMBER 31, 1994
FINANCIAL ASSETS
Cash and short-term investments $ 18,350 $ 18,350
Securities 40,311 39,317
Loans 205,660 201,896
FINANCIAL LIABILITIES
Deposits $ 229,776 $ 229,431
Short-term borrowings 17,314 17,314
Subordinated debentures 607 607
Commitments to extend credit - -
Standby letters of credit - 107
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 investments, 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 the 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-maturity certificates of deposit is estimated by discounting the future
cash flows using rates currently offered for deposits of similar remaining
maturities.
OTHER DEBT
Rates currently available to Bancorp for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
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 credit-worthiness 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.
LIMITATIONS
The fair value estimates are made at a discreet 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25
(15) S.Y. BANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
[Download Table]
DECEMBER 31
-----------------------------------------------------------------
(In thousands) 1995 1994
-----------------------------------------------------------------
ASSETS
Cash on deposit with subsidiary bank $ 723 $ 705
Investment in subsidiary bank 26,566 23,363
Dividend receivable 325 259
Other assets 453 267
------- -------
TOTAL ASSETS $28,067 $24,594
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 325 $ 259
Other liabilities 128 -
Stockholders' equity 27,614 24,335
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,067 $24,594
------- -------
------- -------
CONDENSED STATEMENTS OF INCOME
[Download Table]
YEARS ENDED DECEMBER 31
------------------------------------------------------------------
(In thousands) 1995 1994 1993
------------------------------------------------------------------
Income - Dividends from
subsidiary bank $1,169 $ 918 $ 654
Expenses 83 56 51
------ ----- -----
Income before income taxes and
equity in undistributed net
income of subsidiary 1,086 862 603
Federal income tax benefit 28 19 17
------ ----- -----
Income before equity in
undistributed net income of
subsidiary 1,114 881 620
Equity in undistributed net income
of subsidiary 2,942 2,220 1,895
------ ----- -----
NET INCOME $4,056 $3,101 $2,515
------ ----- -----
------ ----- -----
CONDENSED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1993
------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,056 $ 3,101 $ 2,515
Adjustment to reconcile net income to net
cash provided by operating activities
Equity in undistributed net income of subsidiary (2,942) (2,220) (1,895)
Increase in dividend receivable (66) (70) (57)
Increase in other assets (154) (23) (14)
Increase in other liabilities 128 - -
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,022 788 549
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 99 105 56
Cash dividends paid (1,103) (848) (597)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,004) (743) (541)
-------- -------- --------
NET INCREASE IN CASH 18 45 8
CASH AT BEGINNING OF YEAR 705 660 652
-------- -------- --------
CASH AT END OF YEAR $ 723 $ 705 $ 660
-------- -------- --------
-------- -------- --------
REPORT OF INDEPENDENT AUDITORS
26
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS,
S.Y. BANCORP, INC.:
We have audited the accompanying consolidated balance sheets of S.Y. Bancorp,
Inc. (Bancorp) and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
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 conducted 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, Bancorp adopted
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," in 1994.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
January 19, 1996
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10-K405’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| Filed on: | | 3/28/96 | | | | | | | None on these Dates |
| | 1/19/96 | | 23 |
| | 1/1/96 | | 20 |
| For Period End: | | 12/31/95 | | 1 | | 23 |
| | 1/1/95 | | 16 |
| | 12/31/94 | | 2 | | 23 |
| | 1/1/94 | | 7 | | 16 |
| | 12/31/93 | | 18 | | 19 |
| List all Filings |
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