Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2013
OR
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission file number 1-13661
S.Y. BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky
61-1137529
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1040 East Main Street, Louisville, Kentucky 40206
(Address of principal executive offices including zip code)
(502) 582-2571
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes o No x
The number of shares of the registrant’s Common Stock, no par value, outstanding as of April 26, 2013, was 13,958,931.
S.Y. BANCORP, INC. AND SUBSIDIARY
Index
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:
–
Consolidated Balance Sheets March 31, 2013 (Unaudited) and December 31, 2012
Consolidated Statements of Income for the three months ended March 31, 2013 and 2012 (Unaudited)
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012 (Unaudited)
Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (Unaudited)
Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2013 (Unaudited)
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
1
Consolidated Balance Sheets
March 31, 2013 and December 31, 2012
(In thousands, except share data)
March 31,
December 31,
2013
2012
(Unaudited)
Assets
Cash and due from banks
$
31,715
42,610
Federal funds sold
27,745
25,093
Mortgage loans held for sale
4,576
14,047
Securities available for sale (amortized cost of $354,583 in 2013 and $377,383 in 2012)
362,904
386,440
Federal Home Loan Bank stock
5,180
Other securities
1,000
Loans
1,600,960
1,584,594
Less allowance for loan losses
32,022
31,881
Net loans
1,568,938
1,552,713
Premises and equipment, net
36,094
36,532
Bank owned life insurance
28,402
28,149
Accrued interest receivable
5,342
5,091
Other assets
49,170
51,407
Total assets
2,121,066
2,148,262
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing
376,972
396,159
Interest bearing
1,359,912
1,385,534
Total deposits
1,736,884
1,781,693
Securities sold under agreements to repurchase
50,879
59,045
Federal funds purchased
36,821
16,552
Accrued interest payable
140
166
Other liabilities
24,673
22,949
Federal Home Loan Bank advances
31,872
31,882
Subordinated debentures
30,900
Total liabilities
1,912,169
1,943,187
Stockholders’ equity:
Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding
—
Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 13,958,482 and 13,915,265 shares in 2013 and 2012, respectively
7,416
7,273
Additional paid-in capital
19,118
17,731
Retained earnings
177,420
174,650
Accumulated other comprehensive income
4,943
5,421
Total stockholders’ equity
208,897
205,075
Total liabilities and stockholders’ equity
See accompanying notes to unaudited consolidated financial statements.
2
Consolidated Statements of Income
For the three months ended March 31, 2013 and 2012 (Unaudited)
(In thousands, except per share data)
Interest income:
19,049
19,880
80
72
64
63
Securities – taxable
1,370
1,477
Securities – tax-exempt
272
320
Total interest income
20,835
21,812
Interest expense:
Deposits
1,339
2,046
Fed funds purchased
8
35
49
217
363
773
796
Total interest expense
2,372
3,262
Net interest income
18,463
18,550
Provision for loan losses
2,325
4,075
Net interest income after provision for loan losses
16,138
14,475
Non-interest income:
Investment management and trust services
3,886
3,490
Service charges on deposit accounts
2,000
2,055
Bankcard transaction revenue
961
965
Gains on sales of mortgage loans held for sale
867
739
Brokerage commissions and fees
615
541
Bank owned life insurance income
252
257
Other
647
1,198
Total non-interest income
9,228
9,245
Non-interest expenses:
Salaries and employee benefits
9,657
9,052
Net occupancy expense
1,231
1,369
Data processing expense
1,356
1,313
Furniture and equipment expense
291
292
FDIC insurance expense
350
351
2,694
2,359
Total non-interest expenses
15,579
14,736
Income before income taxes
9,787
8,984
Income tax expense
3,019
2,482
Net income
6,768
6,502
Net income per share:
Basic
0.49
0.47
Diluted
Average common shares:
13,814
13,844
13,851
13,890
3
Consolidated Statements of Comprehensive Income
(In thousands)
Three months ended
Other comprehensive income, net of tax:
Unrealized losses on securities available for sale:
Unrealized losses arising during the period (net of tax of ($257) and ($19), respectively)
(478
)
(35
Other comprehensive loss
Comprehensive income
6,290
6,467
4
Consolidated Statements of Cash Flows
Operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net
1,232
1,185
Deferred income tax benefit
(1,152
(714
Gain on sales of mortgage loans held for sale
(867
(739
Origination of mortgage loans held for sale
(47,036
(47,362
Proceeds from sale of mortgage loans held for sale
57,374
45,547
(252
(257
Increase in value of private investment fund
(627
Loss (gain) on the sale of other real estate
(25
Stock compensation expense
531
349
Excess tax benefits from share-based compensation arrangements
(18
(15
Decrease (increase) in accrued interest receivable and other assets
1,593
(335
Increase in accrued interest payable and other liabilities
1,716
6,955
Net cash provided by operating activities
22,249
14,539
Investing activities:
Purchases of securities available for sale
(106,748
(121,008
Proceeds from maturities of securities available for sale
129,192
124,133
Net (increase) decrease in loans
(18,649
9,029
Purchases of premises and equipment
(350
(2,105
Proceeds from sale of other real estate
1,778
707
Net cash provided by investing activities
5,223
10,756
Financing activities:
Net (decrease) increase in deposits
(44,809
9,578
Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased
12,103
(23,160
Repayments of Federal Home Loan Bank advances
(10
(3
Repayments of subordinated debentures
(10,000
Issuance of common stock for options and dividend reinvestment plan
61
130
18
15
Common stock repurchases
(286
(189
Cash dividends paid
(2,792
(2,635
Net cash used in financing activities
(35,715
(26,264
Net decrease in cash and cash equivalents
(8,243
(969
Cash and cash equivalents at beginning of period
67,703
54,920
Cash and cash equivalents at end of period
59,460
53,951
Supplemental cash flow information:
Income tax payments
400
Cash paid for interest
2,398
3,260
Supplemental non-cash activity:
Transfers from loans to other real estate owned
99
1,462
5
Consolidated Statement of Changes in Stockholders’ Equity
For the three months ended March 31, 2013 (Unaudited)
Accumulated
Common stock
other
Number of
Additional
Retained
comprehensive
shares
Amount
paid-in capital
earnings
income
Total
Balance December 31, 2012
13,915
Other comprehensive loss, net of tax
Stock issued for stock options exercised and dividend reinvestment plan
10
69
79
Stock issued for non-vested restricted stock
55
184
1,083
(1,267
Cash dividends, $0.20 per share
Shares repurchased or cancelled
(51
(296
Balance March 31, 2013
13,958
6
(1) Summary of Significant Accounting Policies
The accompanying 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 U.S. generally accepted accounting principles (US GAAP) for complete financial statements. The consolidated financial statements of S.Y. Bancorp, Inc. (“Bancorp”) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods.
The consolidated financial statements include the accounts of S.Y. Bancorp, Inc. and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (“Bank”). S.Y. Bancorp Capital Trust II is a Delaware statutory trust that is a wholly-owned unconsolidated finance subsidiary of S.Y. Bancorp, Inc. Significant intercompany transactions and accounts 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, 2012 included in S.Y. Bancorp, Inc.’s Annual Report on Form 10-K. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.
Interim results for the three month period ended March 31, 2013 are not necessarily indicative of the results for the entire year.
Critical Accounting Policies
Management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors. Since the application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Assumptions include many factors such as changes in borrowers’ financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses. To the extent that management’s assumptions prove incorrect, the results from operations could be materially affected by a higher or lower provision for loan losses. The accounting policy related to the allowance for loan losses is applicable to the commercial banking segment of Bancorp.
Additionally, management has identified the accounting policy related to accounting for income taxes as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in Bancorp’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences, including the effects of periodic IRS and state agency examinations, could materially impact Bancorp’s financial position and its results from operations.
7
(2) Securities
The amortized cost, unrealized gains and losses, and fair value of securities available for sale follow:
March 31, 2013
Amortized
Unrealized
Securities available for sale
cost
Gains
Losses
Fair value
(in thousands)
U.S. Treasury and other U.S. government obligations
40,000
Government sponsored enterprise obligations
122,445
2,680
71
125,054
Mortgage-backed securities
133,772
3,512
567
136,717
Obligations of states and political subdivisions
57,366
2,748
60,099
Trust preferred securities of financial institutions
34
1,034
Total securities available for sale
354,583
8,974
653
December 31, 2012
98,000
83,015
2,789
56
85,748
137,407
3,594
120
140,881
57,961
2,844
12
60,793
1,018
377,383
188
No securities were sold in 2013 or 2012. There are no securities held to maturity as of March 31, 2013 or December 31, 2012.
In addition to the available for sale portfolio, investment securities held by Bancorp include certain securities which are not readily marketable, and are carried at cost. This category includes holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock which are required for borrowing availability, and are classified as restricted securities. Other securities consist of a Community Reinvestment Act (CRA) investment which matures in 2014, and is fully collateralized with a government agency security of similar duration.
Bancorp reviewed the investment in FHLB stock as of March 31, 2013, considering the FHLB equity position, its continuance of dividend payments, liquidity position, and positive year-to-date net income. Based on this review, Bancorp is of the opinion that its investment in FHLB stock is not impaired.
A summary of the available for sale investment securities by maturity groupings as of March 31, 2013 is shown below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, and GNMA. These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral. Bancorp does not have exposure to subprime originated mortgage-backed or collateralized debt obligation instruments.
Amortized Cost
Fair Value
Due within 1 year
97,066
97,129
Due after 1 but within 5 years
74,088
77,078
Due after 5 but within 10 years
30,895
32,992
Due after 10 years
18,762
18,988
Securities with unrealized losses at March 31, 2013 and December 31, 2012, not recognized in income are as follows:
Less than 12 months
12 months or more
Fair
Value
60,030
25,613
2,022
Total temporarily impaired securities
87,665
29,996
16,609
2,292
48,897
9
Unrealized losses on Bancorp’s investment securities portfolio have not been recognized in income because the securities are of high credit quality, and the decline in fair values is largely due to changes in the prevailing interest rate environment since the purchase date. The fair value is expected to recover as the securities reach their maturity date and/or the interest rate environment returns to conditions similar to when the securities were purchased. These investments consist of 13 and 14 separate investment positions as of March 31, 2013 and December 31, 2012, respectively, which are not considered other-than-temporarily impaired. Because management does not intend to sell the investments, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
(3) Loans
The composition of loans by primary loan portfolio segment follows:
Commercial and industrial
455,258
426,930
Construction and development
125,624
131,253
Real estate mortgage
985,135
989,631
Consumer
34,943
36,780
Total loans
The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment method as of March 31, 2013 and December 31, 2012.
Type of loan
Commercial
Construction
Real estate
and industrial
and development
mortgage
Balance
Balance: loans individually evaluated for impairment
8,653
12,795
10,110
31,559
Balance: loans collectively evaluated for impairment
446,605
112,829
975,025
34,942
1,569,401
Unallocated
Allowance for loan losses
Beginning balance December 31, 2012
5,949
4,536
14,288
362
6,746
Provision
198
1,961
(201
385
Charge-offs
(62
(2,000
(341
(172
(2,575
Recoveries
33
164
20
174
391
Ending balance March 31, 2013
6,118
4,661
13,766
346
7,131
Balance: allowance for loans individually evaluated for impairment
283
2,898
1,260
4,441
Balance: allowance for loans collectively evaluated for impairment
5,835
1,763
12,506
27,581
8,667
10,863
9,795
29,329
418,263
120,390
979,836
36,776
1,555,265
Beginning balance December 31, 2011
7,364
3,546
11,182
540
7,113
29,745
3,024
2,716
6,308
(181
(367
11,500
(4,523
(1,726
(3,451
(798
(10,498
84
249
801
1,134
Ending balance December 31, 2012
156
563
3,617
5,793
1,638
13,725
28,264
11
Bancorp did not have any loans acquired with deteriorated credit quality at March 31, 2013 or December 31, 2012.
Management uses the following portfolio segments of loans when assessing and monitoring the risk and performance of the loan portfolio:
· Commercial and industrial
· Construction and development
· Real estate mortgage
· Consumer
The following table presents loans individually evaluated for impairment as of March 31, 2013 and December 31, 2012.
Unpaid
Average
Recorded
principal
Related
recorded
investment
balance
allowance
Loans with no related allowance recorded
6,770
10,797
6,753
285
1,957
319
4,445
5,360
5,721
17
Subtotal
11,501
18,131
12,796
Loans with an allowance recorded
1,883
1,908
12,510
15,135
11,510
5,665
5,912
4,232
20,058
22,930
17,650
12,680
8,661
17,092
11,829
11,272
9,953
41,061
30,446
6,735
7,591
6,226
352
2,187
2,097
6,996
7,752
5,397
25
21
14,087
17,555
13,741
1,932
5,103
3,294
10,511
11,135
5,929
2,799
2,948
6,145
15,242
19,186
15,368
12,694
9,520
13,322
8,026
10,700
11,542
36,741
29,109
Differences between the recorded investment amounts and the unpaid principal balance amounts are due to partial charge-offs which have occurred over the life of the loans.
Impaired loans include non-accrual loans and loans accounted for as troubled debt restructurings (TDR), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest. Loans past due more than 90 days or more and still accruing interest amounted to $1,952,000 at March 31, 2013, and $719,000 at December 31, 2012.
The following table presents the recorded investment in non-accrual loans as of March 31, 2013 and December 31, 2012.
1,500
1,554
6,265
5,939
20,561
18,360
13
For both March 31, 2013 and December 31, 2012, Bancorp had $11.0 million of loans classified as TDR. Bancorp did not modify and classify any loans as TDR during the three months ended March 31, 2013. The following table presents the recorded investment in loans modified and classified as TDR during the three months ended March 31, 2012.
Pre-modification
Post-modification
March 31, 2012
outstanding recorded
(dollars in thousands)
contracts
Commercial & industrial
5,752
505
6,257
Bancorp did not have any loans that were restructured and experience a payment default within the previous 12 months as of March 31, 2013. The following table presents the recorded investment in loans accounted for as TDR that were restructured and experienced a payment default within the previous 12 months as of March 31, 2012.
Contracts
Recorded Investment
1,583
2,099
3,682
At March 31, 2012, loans accounted for as TDR included modifications from original terms due to bankruptcy proceedings, modifications of amortization periods due to customer financial difficulties, and limited forgiveness of principal. Some loans accounted for as TDR included temporary suspension of principal payments, resulting in payment of interest only. Loans accounted for as TDR, which have not defaulted, are individually evaluated for impairment and, at March 31, 2013, had a total allowance allocation of $1,133,000, compared to $295,000 at December 31, 2012.
At March 31, 2013 and December 31, 2012, Bancorp had outstanding commitments to lend additional funds totaling $146,000 and $187,000, respectively, to borrowers who have had loans modified as TDR.
14
The following table presents the aging of the recorded investment in past due loans as of March 31, 2013 and December 31, 2012.
Greater
than
90 days
past due
> 90 days
30-59 days
60-89 days
(includes
and
non-accrual)
Current
loans
accruing
253
331
2,156
2,740
452,518
656
510
103
13,408
112,216
3,670
1,291
7,561
12,522
972,613
1,296
26
34,909
4,459
1,732
22,513
28,704
1,572,256
1,952
212
42
1,808
425,122
4,284
10,862
15,146
116,107
3,771
6,424
12,147
977,484
485
238
317
36,463
234
4,062
6,278
19,078
29,418
1,555,176
719
Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans included all risk-rated loans other than those classified as special mention, substandard, and doubtful, which are defined below:
· Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of the Bank’s credit position at some future date.
· Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize repayment of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
· Substandard non-performing: Loans classified as substandard-non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings.
· Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
As of March 31, 2013 and December 31, 2012, the risk categories of loans were as follows:
Credit risk profile by internally assigned grade (in thousands)
Grade
Pass
434,275
100,714
921,847
1,491,778
Special mention
9,988
7,012
29,323
46,323
Substandard
8,839
26,404
40,346
Substandard non-performing
Doubtful
404,045
113,559
925,674
36,542
1,479,820
11,097
6,831
26,770
44,698
4,482
26,901
31,383
7,306
10,286
28,693
(4) Federal Home Loan Bank Advances
The Bank had outstanding borrowings of $31.9 million at March 31, 2013, via five separate advances. For two advances totaling $30 million, both of which are non-callable, interest payments are due monthly, with principal due at maturity. For the third advance of $417,000, principal and interest payments are due monthly based on a 15 year amortization schedule. For the final two advances totaling $1,455,000, principal and interest payments are due monthly based on a 30 year amortization schedule.
16
The following is a summary of the contractual maturities and average effective rates of outstanding advances:
Advance
Rate
10,000
1.90
%
2014
2015
20,000
3.34
2024
417
2.40
420
2028
1,455
1.46
2.79
Advances from the FHLB are collateralized by certain commercial and residential real estate mortgage loans under a blanket mortgage collateral agreement and FHLB stock. The Bank views the borrowings as an effective alternative to higher cost time deposits to fund loan growth. At March 31, 2013, the amount of available credit from the FHLB totaled $145.5 million.
(5) Goodwill and Intangible Assets
US GAAP requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead be tested for impairment at least annually. Annual evaluations have resulted in no charges for impairment. Bancorp currently has goodwill in the amount of $682,000 from the 1996 acquisition of an Indiana bank. This goodwill is assigned to the commercial banking segment of Bancorp.
Mortgage servicing rights (MSRs) are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. MSRs are evaluated quarterly for impairment by comparing the carrying value to the fair value. The estimated fair values of MSRs at March 31, 2013 and December 31, 2012 were $2,673,000 and $2,702,000, respectively. The total outstanding principal balances of loans serviced for others were $400,877,000 and $374,079,000 at March 31, 2013, and December 31, 2012 respectively.
Changes in the net carrying amount of MSRs for the three months ended March 31, 2013 and 2012 are shown in the following table.
Balance at beginning of period
2,088
1,630
Originations
284
202
Amortization
(234
(168
Balance at March 31
2,138
1,664
(6) Defined Benefit Retirement Plan
The Bank sponsors an unfunded, non-qualified, defined benefit retirement plan for four key officers (two current, and two retired), and has no plans to increase the number of participants. Benefits vest based on 20 years of service. The actuarially determined pension costs are expensed and accrued over the service period, and benefits are paid from the Bank’s assets. The net periodic benefits costs, which include interest
cost and amortization of net losses, totaled $36,000 and $35,000, for the three months ended March 31, 2013 and 2012, respectively.
(7) Commitments and Contingent Liabilities
As of March 31, 2013, Bancorp had various commitments outstanding that arose in the normal course of business, including 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 $408.2 million including standby letters of credit of $14.5 million represent normal banking transactions, and no significant losses are anticipated to result from these commitments as of March 31 2013. Commitments to extend credit were $401.1 million, including letters of credit of $14.8 million, as of December 31, 2012. Bancorp’s maximum exposure to credit loss in the event of nonperformance by the other party to these commitments is represented by the contractual amount of these instruments. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Commitments to extend credit are mainly made up of commercial lines of credit, construction and home equity credit lines. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp evaluates each customer’s creditworthiness on a case by case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, equipment, and real estate.
Standby letters of credit and financial guarantees written are conditional commitments issued by Bancorp to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Standby letters of credit generally have maturities of one to two years.
Also, as of March 31, 2013, in the normal course of business, there were pending legal actions and proceedings in which claims for damages are asserted. Management, after discussion with legal counsel, believes the ultimate result of these legal actions and proceedings will not have a material adverse effect on the consolidated financial position or results of operations of Bancorp.
(8) Preferred Stock
Bancorp has a class of preferred stock (no par value; 1,000,000 shares authorized), the relative rights, preferences and other terms of which or any series within the class will be determined by the Board of Directors prior to any issuance. None of this stock had been issued to date.
(9) Stock-Based Compensation
The fair value of all new and modified awards granted, net of estimated forfeitures, is recognized as compensation expense over the respective service period. Forfeiture estimates are based on historical experience.
Bancorp currently has one stock-based compensation plan. Initially, in the 2005 Stock Incentive Plan, there were 735,000 shares of common stock reserved for issuance of stock based awards. In 2010, shareholders approved a proposal to amend the 2005 Stock Incentive Plan to reserve an additional 700,000 shares of common stock for issuance under the plan. As of March 31, 2013, there were 451,516 shares available for future awards. Bancorp’s 1995 Stock Incentive Plan expired in 2005; however, options granted under this plan expire as late as 2015.
Options and stock appreciation rights (SARs) granted generally have been subject to a vesting schedule of 20% per year. Restricted shares generally vest over three to five years. All awards under both plans have been granted at an exercise price equal to the market value of common stock at the time of grant; options and SARs expire ten years after the grant date unless forfeited due to employment termination.
Grants of restricted stock units (RSUs) to executive officers vest based upon service and a three-year performance period which begins January 1 of the first year of the performance period. Grantees are not entitled to dividend payments during the performance period. The fair value of these RSUs is estimated based upon the fair value of the underlying shares on the date of the grant, adjusted for non-payment of dividends.
As required, Bancorp reduces future stock-based compensation expense by estimated forfeitures at the grant date. These forfeiture estimates are based on historical experience. Bancorp has recognized stock-based compensation expense, within salaries and employee benefits in the consolidated statements of income, as follows:
For three months ended
Stock-based compensation expense before income taxes
Less: deferred tax benefit
(186
(122
Reduction of net income
345
227
Bancorp expects to record an additional $1,386,000 of stock-based compensation expense in 2013 for equity grants outstanding as of March 31, 2013. As of March 31, 2013, Bancorp has $4,484,000 of unrecognized stock-based compensation expense that is expected to be recorded as compensation expense over the next five years as awards vest. Bancorp received cash of $61,000 and $130,000 from the exercise of options during the first three months of 2013 and 2012, respectively.
The fair value of Bancorp’s stock options and SARs are estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating the value of stock options and SARs. This model requires the input of subjective assumptions, changes to which can materially affect the fair value estimate. The fair value of restricted shares is determined by Bancorp’s closing stock price on the date of grant. The following assumptions were used in option and SAR valuations at the grant date in each year:
Dividend yield
2.80
2.52
Expected volatility
22.54
22.04
Risk free interest rate
1.26
1.44
Forfeitures
6.40
4.20
Expected life of options and SARs (in years)
6.6
7.6
19
The expected life of options and SARs is based on actual experience of past like-term options. Bancorp evaluated historical exercise and post-vesting termination behavior when determining the expected life for options granted during 2013 and 2012.
The dividend yield and expected volatility are based on historical information corresponding to the expected life of options and SARs granted. The expected volatility is the volatility of the underlying shares for the expected term on a monthly basis. The risk free interest rate is the implied yield currently available on U. S. Treasury issues with a remaining term equal to the expected life of the options.
A summary of stock option and SARs activity and related information for the three months ended March 31, 2013 follows:
Weighted
Aggregate
Options
Intrinsic
Remaining
and SARs
Exercise
Contractual
Price
Life
At December 31, 2012
Vested and exercisable
681
20.17-26.83
23.42
271
5.33
3.5
Unvested
246
21.03-26.83
22.62
77
4.67
7.9
Total outstanding
927
23.21
348
5.15
4.7
Granted
54
22.89
3.61
Exercised
20.17
30
4.39
Forfeited
At March 31, 2013
757
23.34
309
5.29
5.7
221
22.70
4.36
8.5
978
23.20
5.08
6.3
Vested during year
21.03-24.87
22.56
4.81
Intrinsic value for stock options is defined as the amount by which the current market price of the underlying stock exceeds the exercise price. In the first quarter of 2013, Bancorp granted 53,598 SARs at the current market price of $22.89 and a Black-Scholes fair value of $3.61. In the first quarter of 2013, Bancorp granted 55,275 shares of restricted common stock at the weighted average current market price of $22.93. In 2013 and 2012, Bancorp awarded performance-based RSUs with fair values of $20.38 and $20.57, respectively to executive officers of the Bank, the three-year performance period for which began January 1 of the award year. Bancorp believes the most likely vesting of all RSUs will be 62,389 shares of common stock. No stock options have been granted since 2007.
(10) Net Income Per Share
The following table reflects, for the three months ended March 31, 2013 and 2012, net income (the numerator) and average shares outstanding (the denominator) for the basic and diluted net income per share computations:
March 31
Average shares outstanding
Dilutive securities
37
46
Average shares outstanding including dilutive securities
Net income per share, basic
Net income per share, diluted
(11) Segments
The Bank’s, and thus Bancorp’s, principal activities include commercial banking and investment management and trust. Commercial banking provides a full range of loan and deposit products to individual consumers and businesses. Commercial banking also includes the Bank’s mortgage origination and securities brokerage activity. Investment management and trust provides wealth management services including investment management, trust and estate administration, and retirement plan services.
The financial information for each business segment reflects that which is specifically identifiable or allocated based on an internal allocation method. Income taxes are allocated based on the effective federal income tax rate adjusted for any tax exempt activity. All tax exempt activity and provision for loan losses have been allocated to the commercial banking segment. 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 month periods ended March 31, 2013 and 2012 follows:
Investment
management
banking
and trust
Three months ended March 31, 2013
18,428
All other non-interest income
5,325
Non-interest expense
13,590
1,989
7,838
1,949
Tax expense
2,331
688
5,507
1,261
Three months ended March 31, 2012
18,510
40
5,730
5,755
12,754
1,982
7,411
1,573
1,931
551
5,480
1,022
(12) Income Taxes
US GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. As of March 31, 2013 and December 31, 2012, the gross amount of unrecognized tax benefits was $73,000 and $70,000, respectively. If recognized, the tax benefits would reduce tax expense and accordingly, increase net income. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examination, litigation and legislative activity and the addition or elimination of uncertain tax positions.
Bancorp’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. As of March 31, 2013 and December 31, 2012, the amount accrued for the potential payment of interest and penalties was $5,000 and $4,000, respectively.
(13) Fair Value Measurements
Bancorp follows the provisions of the authoritative guidance for fair value measurements. This guidance is definitional and disclosure oriented and addresses how companies should approach measuring fair value when required by US GAAP. The guidance prescribes various disclosures about financial statement categories and amounts which are measured at fair value, if such disclosures are not already specified elsewhere in US GAAP.
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The authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. The guidance also establishes a hierarchy to group assets and liabilities carried at fair value in three levels based upon the markets in which the assets and liabilities trade and the reliability of assumptions used to determine fair value. These levels are:
· Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
· Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
· Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect internal estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques could include pricing models, discounted cash flows and other similar techniques.
Bancorp’s policy is to maximize the use of observable inputs and minimize the use of unobservable inputs in fair value measurements. Where there exists limited or no observable market data, Bancorp uses its own estimates generally considering characteristics of the asset/liability, the current economic and competitive environment and other factors. For this reason, results cannot be determined with precision and may not be realized on an actual sale or immediate settlement of the asset or liability.
Bancorp’s investment securities available for sale and interest rate swaps are recorded at fair value on a recurring basis. Other accounts including mortgage loans held for sale, mortgage servicing rights, impaired loans and other real estate owned may be recorded at fair value on a non-recurring basis, generally in the application of lower of cost or market adjustments or write-downs of specific assets.
The portfolio of investment securities available for sale is comprised of U.S. Treasury and other U.S government obligations, debt securities of U.S. government-sponsored corporations, mortgage-backed securities, obligations of state and political subdivisions, and trust preferred securities of other banks. Trust preferred securities are priced using quoted prices of identical securities in an active market. These measurements are classified as Level 1 in the hierarchy above. All other securities are priced using standard industry models or matrices with various assumptions such as yield curves, volatility, prepayment speeds, default rates, time value, credit rating and market prices for the instruments. These assumptions are generally observable in the market place and can be derived from or supported by observable data. These measurements are classified as Level 2 in the hierarchy above.
Interest rate swaps are valued using primarily Level 2 inputs. Fair value measurements are obtained from an outside pricing service. Prices obtained are generally based on dealer quotes, benchmark forward yield curves, and other relevant observable market data. For purposes of potential valuation adjustments to derivative positions, Bancorp evaluates the credit risk of its counterparties as well as its own credit risk. To date, Bancorp has not realized any losses due to a counterparty’s inability to perform and the change in value of derivative assets and liabilities attributable to credit risk was not significant during 2013.
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Below are the carrying values of assets measured at fair value on a recurring basis.
Fair value at March 31, 2013
Level 1
Level 2
Level 3
Investment securities available for sale
Total investment securities available for sale
361,870
Interest rate swaps
383
363,287
362,253
Liabilities
Fair value at December 31, 2012
385,422
415
386,855
385,837
24
Bancorp did not have any financial instruments classified within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis at March 31, 2013 or December 31, 2012.
MSRs are recorded at fair value upon capitalization, are amortized to correspond with estimated servicing income, and are periodically assessed for impairment based on fair value at the reporting date. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The model incorporates assumptions that market participants would use in estimating future net servicing income. These measurements are classified as Level 3. At March 31, 2013 and December 31, 2012 there was no valuation allowance for the mortgage servicing rights, as the fair value exceeded the cost. Accordingly, the MSRs are not included in either table below for March 31, 2013 or December 31, 2012.
Other real estate owned, which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is determined from external appraisals using judgments and estimates of external professionals. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3. At March 31, 2013 and December 31, 2012, the carrying value of other real estate owned was $5,720,000 and $7,364,000, respectively. Other real estate owned is not included in either table below, as the fair value of the properties exceeded their carrying value at March 31, 2013 and December 31, 2012.
For impaired loans in the table below, the fair value is calculated as the carrying value of only loans with a specific valuation allowance, less the specific allowance. As of March 31, 2013, total impaired loans with a valuation allowance were $20.0 million, and the specific allowance totaled $4.4 million, resulting in a fair value of $15.6 million, compared to total impaired loans with a valuation allowance of $15.2 million, and the specific allowance allocation totaling $3.6 million, resulting in a fair value of $11.6 million at December 31, 2012. The losses represent the change in the specific allowances for the period indicated.
Below are the carrying values of assets measured at fair value on a non-recurring basis.
Losses for 3 month
period ended
Impaired loans
15,617
(928
11,625
(1,867
In the case of the securities portfolio, Bancorp monitors the valuation technique utilized by pricing agencies to ascertain when transfers between levels have occurred. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the three months ended March 31, 2013, there were no transfers between Levels 1, 2, or 3.
(14) Fair Value of Financial Instruments
The following table presents the carrying amounts, estimated fair values, and placement in the fair value hierarchy of financial instruments at March 31, 2013 and December 31, 2012.
Carrying Amount
Financial assets
Cash and short-term investments
4,592
Federal Home Loan Bank stock and other securities
6,180
Loans, net
1,593,086
Financial liabilities
1,740,900
Short-term borrowings
87,700
Long-term borrowings
62,772
61,140
Off balance sheet financial instruments
Commitments to extend credit
393,732
Standby letters of credit
14,477
(217
14,431
1,583,018
1,786,046
75,597
62,782
62,826
386,372
14,757
(221
Management used the following methods and assumptions to estimate the fair value of each class of financial instrument for which it is practicable to estimate the value.
Cash, short-term investments, accrued interest receivable/payable and short-term borrowings
For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
For these securities without readily available market values, the carrying amount is a reasonable estimate of fair value.
The fair value of mortgage loans held for sale is determined by market quotes for similar loans based on loan type, term, rate, size and the borrower’s credit score.
US GAAP prescribes the exit price concept for estimating fair value of loans. Because there is not a liquid market (exit price) for trading the predominant types of loans in Bancorp’s portfolio, the fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities (e.g. entrance price).
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-rate certificates of deposits is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.
The fair value of long-term borrowings is estimated by discounting the future cash flows using estimates of the current market rate for instruments with similar terms and remaining maturities.
Commitments to extend credit and standby letters of credit
The fair values of commitments to extend credit are estimated using fees currently charged to enter into similar agreements and the creditworthiness of the customers. The fair values of standby letters of credit are based on fees currently charged for similar agreements or the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.
Limitations
The fair value estimates are made at a specific 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. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may
27
not be realizable in a current sale of the instrument. Changes in assumptions could significantly affect the estimates.
(15) Regulatory Matters
Bancorp and the Bank are subject to various capital requirements prescribed by banking regulations and administered by state and federal banking agencies. Under these requirements, Bancorp and the Bank must meet minimum amounts and percentages of Tier I and total capital, as defined, to risk weighted assets and Tier I capital to average assets. Risk weighted assets are determined by applying certain risk weightings prescribed by the regulations to various categories of assets and off-balance sheet commitments. Capital and risk weighted assets may be further subject to qualitative judgments by regulators as to components, risk weighting and other factors. Failure to meet the capital requirements can result in certain mandatory, and possibly discretionary, corrective actions prescribed by the regulations or determined to be necessary by the regulators, which could materially affect the consolidated financial statements. Bancorp and the Bank met all capital requirements to which they were subject as of March 31, 2013.
The following table sets forth Bancorp’s and the Bank’s risk based capital amounts and ratios as of March 31, 2013 and December 31, 2012.
Actual
Minimum for Adequately Capitalized
Minimum for Well Capitalized
(Dollars in thousands)
Ratio
Total risk-based capital (1)
Consolidated
254,846
14.86
137,198
8.00
NA
Bank
222,460
13.02
136,688
170,860
10.00
Tier I risk-based capital (1)
233,272
13.60
68,609
4.00
200,964
11.76
68,355
102,533
6.00
Leverage (2)
11.11
62,990
3.00
9.60
62,801
104,669
5.00
250,837
14.42
139,161
220,133
12.70
138,666
173,333
228,972
13.17
69,544
198,339
11.44
69,349
104,024
10.79
63,662
9.37
63,502
105,837
(1) Ratio is computed in relation to risk-weighted assets.
(2) Ratio is computed in relation to average assets.
NA — Not applicable. Regulatory framework does not define well capitalized for holding companies.
28
(16) Subsequent Event
In December 2012, Bancorp announced it had entered into an agreement to merge with THE BANCorp, Inc., parent company of THE BANK — Oldham County, Inc. The merger closed on April 30, 2013. As a result of the transaction, THE BANK — Oldham County merged into Stock Yards Bank & Trust and THE BANCorp, Inc. no longer exists. Shares of THE BANCorp, Inc. common stock convert to approximately $8.2 million in cash and 535,000 shares of S.Y. Bancorp common stock.
29
This item discusses the results of operations for S.Y. Bancorp, Inc. (“Bancorp” or “Company”), and its subsidiary, Stock Yards Bank & Trust Company (“Bank”) for the three months ended March 31, 2013 and compares this period with the same period 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 three months of 2013 compared to the year ended December 31, 2012. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes presented in Part 1, 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. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to the following: economic conditions both generally and more specifically in the markets in which Bancorp and the Bank 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; and 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.
Overview of 2013 through March 31
Bancorp completed the first quarter of 2013 with record net income of $6.77 million or 4% more than the comparable period of 2012. The increase is primarily due to a lower provision for loan losses, partially offset by higher non-interest expenses, slightly lower net interest income, and higher income tax expense. Diluted earnings per share for the first quarter of 2013, also a record, were $0.49, compared to the first quarter of 2012 at $0.47.
As is the case with most banks, the primary source of Bancorp’s revenue is net interest income and fees from various financial services provided to customers. Net interest income is the difference between interest income earned on loans, investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities. Loan volume and the interest rates earned on those loans are critical to overall profitability. Similarly deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability. Business volumes are influenced by overall economic factors including market interest rates, business spending, consumer confidence and competitive conditions within the marketplace.
Net interest income decreased $87,000, or 0.5%, for the first three months of 2013, compared to the same period in 2012. The net interest margin declined to 3.83% for the first quarter of 2013, compared to 4.07% for the same period in 2012. The negative effect of declining interest rates earned offset the positive effect of increased volumes on earning assets. To a lesser extent, interest expense declined due to lower funding costs on deposits arising from lower interest rates, a more favorable deposit mix, and fewer outstanding FHLB borrowings.
Also favorably impacting 2013 results, Bancorp’s provision for loan losses was $2.3 million in the first quarter compared to $4.1 million in the first quarter of 2012, in response to Bancorp’s assessment of inherent risk in the loan portfolio. The provision for loan losses is calculated after considering credit quality factors, and ultimately relies on an overall internal analysis of the risk in the loan portfolio. The provision results from a methodology that reflects the impact on risk ratings from ongoing economic stress on borrowers witnessed from 2008 through 2013. Bancorp’s allowance for loan losses was 2.00% of total loans at March 31, 2013, compared to 2.01% of total loans at December 31, 2012, and 2.04% at March 31, 2012.
Total non-interest income in the first quarter of 2013 decreased $17,000 compared to the same period in 2012, and remained consistent at 33% of total revenues. Record income from investment management and trust services, which constitutes an average of 40% of non-interest income, increased 11% to $3.9 million for the first quarter of 2013 due to higher asset values and an expanding client base. The magnitude of investment management and trust revenue distinguishes Bancorp from other similarly sized community banks. Trust assets under management rose to $2.01 billion at March 31, 2013, compared to $1.84 billion at March 31, 2012. While fees are based on market values, they typically do not fluctuate directly with the overall stock market. Accounts usually contain fixed income and equity asset classes, which generally react inversely to each other. Nonrecurring fees such as estate, financial planning, insurance, and some retirement fees are not affected by the fluctuations in the market. Gains on sales of mortgage loans increased $128,000, or 17%, in the first three months of 2013 compared to the same period in 2012, as customers continued to take advantage of historically low rates to refinance as well as purchase homes. In addition, Bancorp experienced a $74,000 increase in brokerage income. The first quarter 2012 results included $627,000 of income from Bancorp’s investment in a domestic private investment fund, which it liquidated in 2012.
Total non-interest expense in the first quarter of 2013 increased $843,000, or 6%, compared to the same period in 2012 due to increases in personnel costs, reflecting higher staffing levels and normal salary increases, and higher other non-interest expense. These increases were partially offset by a decrease in net occupancy expense, due to a one-time rent refund, which lowered rent expense in 2013.
Tangible common equity (TCE), a non-GAAP measure, is a measure of a company’s capital which is useful in evaluating the quality and adequacy of capital. The ratio of tangible common equity to total tangible assets was 9.82% as of March 31, 2013, compared to 9.52% at December 31, 2012. See the Non-GAAP Financial Measures section for details on reconcilement to US GAAP measures.
The following sections provide more details on subjects presented in this overview.
a) Results Of Operations
Net income of $6,768,000 for the three months ended March 31, 2013 increased $266,000, or 4.1%, from $6,502,000 for the comparable 2012 period. Basic net income per share was $0.49 for the first quarter of 2013, an increase of 4.3% from the $0.47 for the first quarter of 2012. Net income per share on a diluted basis was $0.49 for the first quarter of 2013, compared to $0.47 for the first quarter of 2012; a 4.3% increase. Reflecting increased net income, annualized return on average assets and annualized return on average stockholders’ equity were 1.30% and 13.18%, respectively, for the first quarter of 2013, compared to 1.29% and 13.70%, respectively, for the same period in 2012.
Net Interest Income
The following tables present the average balance sheets for the three month periods ended March 31, 2013 and 2012 along with the related calculation of tax-equivalent net interest income, net interest margin and net interest spread for the related periods. See the notes following the tables for further explanation.
31
Average Balances and Interest Rates — Taxable Equivalent Basis
Three months ended March 31
Balances
Interest
Earning assets:
110,472
0.29
93,724
0.31
7,851
3.31
5,776
Securities:
Taxable
229,938
1,311
2.31
199,505
1,417
2.86
Tax-exempt
47,293
389
52,210
458
3.53
FHLB stock and other securities
59
3.87
60
4.06
Loans, net of unearned income
1,577,394
19,180
4.93
1,513,154
20,113
5.35
Total earning assets
1,979,128
21,083
4.32
1,870,318
22,183
4.77
32,850
30,566
1,946,278
1,839,752
Non-earning assets:
31,686
30,065
Premises and equipment
36,434
37,467
Accrued interest receivable and other assets
91,598
114,756
2,105,996
2,022,040
Interest bearing liabilities:
Interest bearing demand deposits
337,844
85
0.10
301,503
149
0.20
Savings deposits
86,295
0.04
73,227
0.09
Money market deposits
561,506
299
0.22
520,335
465
0.36
Time deposits
375,704
946
1.02
398,620
1,416
1.43
57,335
0.25
62,729
Fed funds purchased and other short term borrowings
19,643
0.17
19,032
FHLB advances
31,876
2.76
60,429
2.42
Long-term debt
10.15
33,208
9.64
Total interest bearing liabilities
1,501,103
0.64
1,469,083
0.89
Non-interest bearing liabilities:
Non-interest bearing demand deposits
371,598
316,125
Accrued interest payable and other liabilities
25,094
45,944
1,897,795
1,831,152
Stockholders’ equity
208,201
190,888
18,711
18,921
Net interest spread
3.68
3.88
Net interest margin
3.83
4.07
32
Notes to the average balance and interest rate tables:
· Net interest income, the most significant component of the Bank’s 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 changes in interest rates.
· Net interest spread is the difference between the taxable equivalent rate earned on interest earning assets less the rate expensed on interest bearing liabilities.
· 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.
· Interest income on a fully tax equivalent basis includes the additional amount of interest income that would have been earned if investments in certain tax-exempt interest earning assets had been made in assets subject to federal taxes yielding the same after-tax income. Interest income on municipal securities and loans have been calculated on a fully tax equivalent basis using a federal income tax rate of 35%. The approximate tax equivalent adjustments to interest income were $248,000 and $371,000, respectively, for the three month periods ended March 31, 2013 and 2012.
· Average balances for loans include the principal balance of non-accrual loans and exclude participation loans accounted for as secured borrowings.
Fully taxable equivalent net interest income of $18.7 million for the three months ended March 31, 2013 decreased $210,000, or 1.1%, from $18.9 million when compared to the same period last year. Net interest spread and net interest margin were 3.68% and 3.83%, respectively, for the first quarter of 2013 and 3.88% and 4.07%, respectively, for the first quarter of 2012.
The net interest margin for the first quarter of 2013 included the impact of penalties paid by customers due to the early repayment of loans; these prepayment penalties added an estimated six basis points to the first quarter 2013 margin, compared to seven basis points in the first quarter of 2012. Excluding this impact, the net interest margin reflected an ongoing low interest rate environment, a competitive loan market, and Bancorp’s excess liquidity, all of which are likely to continue in the foreseeable future. Increasing competitive loan pricing could negatively impact net interest margin in future quarters.
Approximately $600 million, or 38%, of the Bank’s loans are variable rate; most of these loans are indexed to the prime rate and may reprice as that rate changes. However, approximately $369 million, or 61% of variable rate loans, have reached their contractual floor of 4% or higher. Approximately $87 million or 15% of variable rate loans have contractual floors below 4%. The remaining $144 million or 24% of variable rate loans have no contractual floor. The Bank intends to establish floors whenever possible upon acquisition of new customers. The Bank’s variable rate loans are primarily comprised of commercial lines of credit and real estate loans. At inception, most of the Bank’s fixed rate loans are priced in relation to the five year Treasury bond.
Average earning assets for the first three months of 2013 increased $108.8 million, or 5.8% to $1.98 billion, compared to $1.87 billion for the same period of 2012, reflecting growth in the loan portfolio and investment securities. Average interest bearing liabilities for the first three months of 2013 increased $32.0 million, or 2.2% to $1.50 billion compared to $1.47 billion for the same period of 2012, primarily due to increases in money market and interest bearing demand deposits.
Asset/Liability Management and Interest Rate Risk
Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet financial instruments, 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.
Interest Rate Simulation Sensitivity Analysis
Bancorp uses an earnings simulation model to estimate and evaluate the impact of an immediate change in interest rates on earnings in a one year forecast. The simulation model is designed to reflect the dynamics of interest earning assets, interest bearing liabilities and off-balance sheet financial instruments. By estimating the effects of interest rate increases and decreases, the model can reveal approximate interest rate risk exposure. The simulation model is used by management to gauge approximate results given a specific change in interest rates at a given point in time. The model is therefore a tool to indicate earnings trends in given interest rate scenarios and does not indicate actual expected results.
The March 31, 2013 simulation analysis, which shows very little interest rate sensitivity, indicates that an increase in interest rates of 100 to 200 basis points would have a negative effect on net interest income, and a decrease of 100 basis points in interest rates would also have a negative impact. These estimates are summarized below.
Net interest income change
Increase 200bp
(2.62
)%
Increase 100bp
(2.64
Decrease 100bp
(2.57
Decrease 200bp
N/A
Loans indexed to the prime rate, with floors of 4% or higher, comprise approximately 23% of total loans. Since the prime rate is currently 3.25%, rates would have to increase more than 75 bp before the rates on such loans will rise. This effect, captured in the simulation analysis above, negatively impacts the effect of rising rates.
The scenario of rates decreasing 200 bp is not reasonably possible given current low rates for short-term instruments and most deposits.
Undesignated derivative instruments described in Note 13 are recognized on the consolidated balance sheet at fair value, with changes in fair value, due to changes in prevailing interest rates, recorded in other noninterest income. Because of matching terms of offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings, and are therefore not included in the simulation analysis results above.
Provision for Loan Losses
The provision for loan losses was $2.3 million for the first three months of 2013 compared to $4.1 million for the same period in 2012. The provision for loan losses is calculated after considering credit quality factors, and ultimately relies on an overall internal analysis of the risk in the loan portfolio. The provision reflects an allowance methodology that is driven by risk ratings. Although Bancorp continues to see
improving economic conditions in its markets, business indicators have not been uniformly positive or of a significance to signal that the economy has strengthened on a sustainable and consistent basis. Accordingly, Bancorp intends to remain cautious in assessing the potential risk in its loan portfolio and expects to maintain the allowance for loan losses at recently high levels, at least for the near term, until credit metrics improve further.
Management utilizes loan grading procedures which result in specific allowance allocations for the estimated inherent risk of loss. For all loans graded, but not individually reviewed, a general allowance allocation is computed using factors typically developed over time based on actual loss experience. The specific and general allocations plus consideration of qualitative factors represent management’s best estimate of probable losses contained in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations the entire allowance is available to absorb any credit losses. Based on this detailed analysis of credit risk, management considers the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at March 31, 2013.
An analysis of the changes in the allowance for loan losses and selected ratios for the three month periods ended March 31, 2013 and 2012 follows:
Balance at the beginning of the period
Loan charge-offs, net of recoveries
(2,184
(2,614
Balance at the end of the period
31,206
Average loans, net of unearned income
1,585,326
1,543,778
Provision for loan losses to average loans (1)
0.15
0.26
Net loan charge-offs to average loans (1)
0.14
Allowance for loan losses to average loans
2.02
Allowance for loan losses to period-end loans
2.00
2.04
(1) Amounts not annualized
Loans are charged off when deemed uncollectible and a loss is identified or after underlying collateral has been liquidated; however, collection efforts may continue and future recoveries may occur. Periodically, loans are partially charged off to the net realizable value based upon firm collateral analysis.
An analysis of net charge-offs by loan category for the three month periods ended March 31, 2013 and 2012 follows:
Three months
ended March 31
Net loan charge-offs (recoveries)
2,273
1,836
Real estate mortgage - commercial investment
(13
Real estate mortgage - owner occupied commercial
38
Real estate mortgage - 1-4 family residential
251
87
Home equity
45
180
(2
(164
Total net loan charge-offs
2,184
2,614
The increase in net charge-offs in the construction and development category for the three months ended March 31, 2013 was largely due to one relationship which migrated from substandard to non-performing status in the first quarter. At the time of the migration, Bancorp recorded partial charge-offs on the outstanding loans.
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Non-interest Income and Expenses
The following table sets forth the major components of non-interest income and expenses for the three month periods ended March 31, 2013 and 2012.
Total non-interest income was essentially flat for the first quarter of 2013 compared to the same period in 2012.
Investment management and trust services income increased $396,000, or 11.3%, in the first quarter of 2013, as compared to the same period in 2012, primarily due to an increased market value of assets under management. Most recurring fees earned for managing accounts are based on a percentage of market value on a monthly basis. Some revenues of the investment management and trust department, most notably executor, insurance, and some employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities. Along with the effects of improving broader investment market conditions, this area of the Bank continued to grow through attraction of new business and retention of existing business, despite normal attrition. Trust assets under management at March 31, 2013 were $2.01 billion, compared to $1.84 billion at March 31, 2012.
Service charges on deposit accounts decreased $55,000, or 2.7%, in the first quarter of 2013, as compared to the same period in 2012. Service charge income is driven by transaction volume, which can fluctuate throughout the year. A significant component of service charges is related to fees earned on overdrawn checking accounts. This source of income has experienced a downward trend over the past two years due to customer awareness and increased regulatory restrictions. Management expects this trend to continue.
Bankcard transaction revenue was essentially unchanged for the first quarter of 2013, as compared to the same period in 2012 and primarily represents income the Bank derives from customers’ use of debit cards. Most of this revenue is interchange income based on rates set by service providers in a competitive market. Beginning in October 2011, this rate was set by the Federal Reserve Board for banks with over $10 billion in assets. While this threshold indicates Bancorp will not be directly affected, it appears this change will affect Bancorp as vendors gravitate to lower cost interchanges. While there are many uncertainties about its effect or ultimately when these changes may take place, the Dodd-Frank legislation will negatively affect this source of income.
Gains on sales of mortgage loans increased $128,000, or 17.3%, in the first quarter of 2013, as compared to the same period in 2012. The Bank’s mortgage banking department originates residential mortgage loans to be sold in the secondary market. Interest rates on the loans sold are locked with the borrower and investor prior to closing the loans, thus Bancorp bears no interest rate risk related to these loans. The department offers conventional, VA and FHA financing, for purchases and refinances, as well as programs for first time home buyers. Interest rates on mortgage loans directly impact the volume of business transacted by the mortgage banking division. Customers continue to take advantage of historically low rates to refinance as well as purchase homes. The effect of decreasing volume of loans sold in the first quarter of 2013 was more than offset by higher gains per loan.
Brokerage commissions and fees increased $74,000, or 13.7%, in the first quarter of 2013, as compared to the same period in 2012, corresponding to higher overall brokerage volume. Brokerage commissions and fees earned consist primarily of stock, bond and mutual fund sales as well as wrap fees on accounts. Wrap fees are charges for investment programs that bundle together a suite of services, such as brokerage, advisory, research, and management, and based on a percentage of assets. Bancorp deploys its brokers primarily through its branch network, while larger managed accounts are serviced in the investment management and trust department.
Bank owned life insurance (BOLI) income totaled $252,000 for the first three months of 2013, compared to $257,000 for the same period in 2012. BOLI represents the cash surrender value for life insurance policies on certain key employees who have provided consent for the Bank to be the beneficiary of a portion of such policies. Any proceeds received under the policies and the related change in cash surrender value are recorded as non-interest income. This income helps offset the cost of various employee benefits.
Other non-interest income decreased $551,000, or 46.1%, in the first quarter of 2013 as compared to the same period in 2012, primarily due to a $627,000 increase in the value of the domestic private investment fund in the first quarter of 2012. Management liquidated its investment in this fund effective March 31, 2012. This increase was partially offset by a variety of other factors, none of which are individually significant.
Total non-interest expenses increased $843,000, or 5.7%, for the first quarter of 2013 as compared to the same period in 2012.
Salaries and benefits are the largest component of non-interest expenses and increased $605,000, or 6.7%, for the first quarter of 2013, as compared to the same period of 2012, largely due to increased staffing levels, normal increases in salaries, higher health insurance costs and stock-based compensation expense. Increased staffing levels included senior staff with higher per capita salaries in wealth management, lending and loan administration functions. At March 31, 2013, the Bank had 488 full time equivalent employees compared to 480 at March 31, 2012.
Net occupancy expense decreased $138,000, or 10.1%, in the first quarter of 2013, as compared to the same period of 2012 primarily due to a $150,000 one-time rent refund on certain leased facilities which lowered rent expense in 2013.
Data processing expense was $1,356,000 for the first quarter of 2013, compared to $1,313,000 for the same period in 2012, an increase of 3.3% largely due to increased computer equipment maintenance costs related to investments in new technology needed to improve the pace of delivery channels and internal resources.
Furniture and equipment expense was $291,000 in the first quarter of 2013, compared to $292,000 for the same period in 2012.
FDIC insurance expense was $350,000 in the first quarter of 2013, compared to $351,000 for the same period in 2012. The assessment is calculated and adjusted quarterly by the FDIC.
Other non-interest expenses increased $335,000 or 14.2% in the first quarter of 2013, as compared to the same period in 2012, due largely to an increase of $103,000 in bank franchise taxes, and an increase of $65,000 in MSR amortization. This category also includes legal and professional fees, advertising, printing, mail and telecommunications, none of which had individually significant variances.
Bancorp’s first quarter efficiency ratio was 55.76% compared with 52.32% in the first quarter last year. The first quarter 2012 efficiency ratio reflected the effect of the aforementioned income from the domestic private investment fund which was not repeated in 2013.
Income Taxes
In the first quarter of 2013, Bancorp recorded income tax expense of $3,019,000, compared to $2,482,000 for the same period in 2012. The effective rate for the three month period was 30.8% in 2013 and 27.6% in 2012. The increase in the effective tax rate was primarily due to a reduction in tax exempt interest as a percentage of pre-tax net income and a 2013 adjustment related to tax credits.
Commitments
Bancorp uses a variety of financial instruments in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. A discussion of Bancorp’s commitments is included in Note 7.
Other commitments discussed in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2012, have not materially changed since that report was filed, relative to qualitative and quantitative disclosures of fixed and determinable contractual obligations.
b) Financial Condition
Balance Sheet
Total assets decreased $27.2 million, or 1.3%, from $2.148 billion on December 31, 2012 to $2.121 billion on March 31, 2013. The most significant contributor to the decrease was securities available for sale, which decreased $23.5 million in the first quarter as the result of maturing securities. These were matched with short-term seasonal deposits which also decreased in the first quarter of 2013. Bancorp invests excess funds in short-term investment securities at each quarter end as part of a state tax minimization strategy. Loans increased $16.4 million, while mortgage loans held for sale decreased $9.5 million.
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Total liabilities decreased $31.0 million, or 1.6%, from December 31, 2012 to $1.912 billion on March 31, 2013. The most significant component of the decrease was deposits, which decreased $44.8 million, or 2.5%. The decrease was largely due to expected withdrawals and maturities of short-term seasonal deposits in the first quarter. Federal funds purchased increased $20.3 million on March 31, 2013 to cover short-term funding needs. Securities sold under agreement to repurchase decreased $8.2 million or 13.8%, and other liabilities increased $1.7 million or 7.5%.
Elements of Loan Portfolio
The following table sets forth the major classifications of the loan portfolio.
Loans by Type
Real estate mortgage:
Commercial investment
412,954
414,084
Owner occupied commercial
306,924
304,114
1-4 family residential
165,179
166,280
Home equity - first lien
37,182
39,363
Home equity - junior lien
62,896
65,790
Subtotal: Real estate mortgage
Total Loans
Bancorp enters into loan participation agreements with correspondent banks in the ordinary course of business to diversify credit risk. For certain participation loans, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their share of the loan without permission from Bancorp. US GAAP requires these loans to be recorded as secured borrowings. These loans are included in the commercial and industrial and real estate mortgage loan totals above, and a corresponding liability is recorded in other liabilities. At March 31, 2013 and December 31, 2012, the total loans of this nature were $11.3 million and $7.7 million respectively.
Non-performing Loans and Assets
Information summarizing non-performing assets, including non-accrual loans follows:
Non-accrual loans
Troubled debt restructuring
10,999
10,969
Loans past due 90 days or more and still accruing
Non-performing loans
33,512
30,048
Foreclosed real estate
5,720
Non-performing assets
39,232
37,412
Non-performing loans as a percentage of total loans
2.09
Non-performing assets as a percentage of total assets
1.85
1.74
The increase in non-performing loans reflected primarily a single construction and development credit which migrated from substandard to non-accrual status in the first quarter.
The following table sets forth the major classifications of non-accrual loans:
Non-accrual loans by type
1,954
2,077
2,279
1,529
1,993
2,278
Home equity and consumer loans
Bancorp has six borrowers, all in our primary market, who account for $15.8 million or 77% of total non-accrual loans. Each of these loans is secured predominantly by commercial or residential real estate, and management estimates minimal loss exposure after consideration of collateral.
c) Liquidity
The role of liquidity management is to ensure funds are available to meet depositors’ withdrawal and borrowers’ credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity is provided by short-term liquid assets that can be converted to cash, investment securities available for sale, various lines of credit available to Bancorp, 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.
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Bancorp’s most liquid assets are comprised of cash and due from banks, available for sale marketable investment securities and federal funds sold. Federal funds sold totaled $27.7 million at March 31, 2013. These investments normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available for sale investment portfolio was $362.9 million at March 31, 2013, and included an unrealized net gain of $8.3 million. The portfolio includes maturities of approximately $97.2 million over the next twelve months, which, combined with federal funds sold, offer substantial resources to meet either new loan demand or reductions in Bancorp’s deposit funding base. Bancorp pledges portions of its investment securities portfolio to secure public fund deposits, cash balances of certain investment management and trust accounts, and securities sold under agreements to repurchase. At March 31, 2013, total investment securities pledged for these purposes comprised 33% of the available for sale investment portfolio, leaving $241.9 million of unpledged securities.
Bancorp has a large base of core customer deposits, defined as demand, savings, and money market deposit accounts. At March 31, 2013, such deposits totaled $1.367 billion and represented 79% of Bancorp’s total deposits. Because these core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships they do not put heavy pressure on liquidity. However, many of Bancorp’s overall customer deposit balances are at historically high levels. When overall confidence in market conditions improves, management believes corporate customers will deploy cash in their businesses, causing these balances to decrease, putting some strain on Bancorp’s liquidity position. As of March 31, 2013, Bancorp had only $10.1 million or 0.6% of total deposits, in brokered deposits, which are predominantly comprised of Certificate of Deposit Account Registry Service (CDARs) deposits, a program which allows Bancorp to offer FDIC insurance up to $50 million in deposits per customer through reciprocal agreements with other network participating banks.
With regard to credit available to Bancorp, the Bank is a member of the Federal Home Loan Bank of Cincinnati (“FHLB”). As a member, the Bank has access to credit products of the FHLB. As of March 31, 2013, the Bank’s additional borrowing capacity with the FHLB was approximately $145.5 million. Additionally, the Bank had available federal funds purchased lines with correspondent banks totaling $68.9 million.
Bancorp’s principal source of cash revenues is dividends paid to it as the sole shareholder of the Bank. At March 31, 2013, the Bank may pay up to $21.1 million in dividends to Bancorp without regulatory approval subject to the ongoing capital requirements of the Bank.
d) Capital Resources
At March 31, 2013, stockholders’ equity totaled $208.9 million, an increase of $3.8 million since December 31, 2012. See the Consolidated Statement of Changes in Stockholders’ Equity for further detail of the changes in equity since the end of 2012. Accumulated other comprehensive income which, for Bancorp, consists of net unrealized gains and losses on securities available for sale and a minimum pension liability adjustment, net of taxes, totaled $4.9 million at March 31, 2013 and $5.4 million at December 31, 2012. The change since year end is a reflection of maturities within the investment portfolio and the effect of change in interest rates on the valuation of the Bank’s portfolio of securities available for sale. The unrealized pension liability is adjusted annually by reference to updated actuarial data.
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. To be categorized as well capitalized, the Bank must maintain a total risk-based capital ratio of at least 10%; a Tier 1 ratio of at least 6%; and a leverage ratio of at least 5%.
The following table sets forth Bancorp’s and the Bank’s risk based capital ratios as of March 31, 2013 and December 31, 2012.
Importantly, the strengthening of Bancorp’s capital position has occurred concurrently with growth in assets, not as a result of shrinkage of the balance sheet. Bancorp intends to maintain capital ratios at these historically high levels at least until such time as the economy demonstrates sustained improvement and implications of newly proposed Basel III capital rules become definitive, and to remain well positioned to pursue expansion and other opportunities that may arise.
e) Acquisition
In December 2012, Bancorp announced it had entered into an agreement to merge with THE BANCorp, Inc., parent company of THE BANK — Oldham County, Inc., with assets of approximately $137 million. The merger closed on April 30, 2013. As a result of the transaction, THE BANK — Oldham County merged into Stock Yards Bank & Trust and THE BANCorp, Inc. no longer exists. Shares of THE BANCorp, Inc. common stock convert to approximately $8.2 million in cash and 535,000 shares of S.Y. Bancorp common stock. It is expected to be slightly accretive to earnings per share for 2013, excluding transaction costs, and more so thereafter.
f) Non-GAAP Financial Measures
In addition to capital ratios defined by banking regulators, Bancorp considers various ratios when evaluating capital adequacy, including tangible common equity to tangible assets, and tangible common equity per share, all of which are non-GAAP measures. Bancorp believes these ratios are important because of their widespread use by investors as means to evaluate capital adequacy, as they reflect the level of capital available to withstand unexpected market conditions. Because US GAAP does not include capital ratio measures, there are no US GAAP financial measures comparable to these ratios.
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The following table reconciles Bancorp’s calculation of the measures to amounts reported under US GAAP.
(in thousands, except per share data)
Tangible Common Equity Ratio
Total equity (a)
Less goodwill
(682
Tangible common equity (c)
208,215
204,393
Total assets (b)
Total tangible assets (d)
2,120,384
2,147,580
Total shareholders’ equity to total assets (a/b)
9.85
9.55
Tangible common equity ratio (c/d)
9.82
9.52
Number of outstanding shares (e)
Book value per share (a/e)
14.97
14.74
Tangible common equity per share (c/e)
14.92
14.69
g) Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires entities to disclose additional information about items reclassified out of accumulated other comprehensive income (AOCI). The ASU requires disclosures of changes of AOCI balances by component in the financial statements or the footnotes, and it requires significant items reclassified out of AOCI to be disclosed on the face of the income statement or as a separate footnote. The ASU is effective for fiscal years and interim periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have an impact on Bancorp’s first quarter financial statements.
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Information required by this item is included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Bancorp maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in reports it files with the Securities and Exchange Commission (“SEC”), and to record, process, summarize and report this information within the time periods specified in the rules and forms of the SEC. Based on their evaluation of Bancorp’s disclosure controls and procedures as of the end of the quarterly period covered by this report, the Chief Executive and Chief Financial Officers believe that these controls and procedures are effective to ensure that Bancorp is able to collect, process and disclose the information it is required to disclose in reports it files with the SEC within the required time periods.
Based on the evaluation of Bancorp’s disclosure controls and procedures by the Chief Executive and Chief Financial Officers, there were no significant changes during the quarter ended March 31, 2013 in Bancorp’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Bancorp’s internal control over financial reporting.
PART II — OTHER INFORMATION
The following table shows information relating to the repurchase of shares of common stock by Bancorp during the three months ended March 31, 2013.
Total number of Shares Purchased (1)
Average price Paid Per Share
Total number of Shares Purchased as Part of Publicly Announced Plan (2)
Maximum Number of Shares that May Yet Be Purchased Under the Plan
January 1 - January 31
February 1 - February 28
10,569
22.80
March 1 - March 31
1,939
22.75
12,508
(1) Activity represents shares of stock withheld to pay taxes due upon vesting of restricted stock. This activity has no impact on the number of shares that may be purchased under a Board-approved plan.
(2) Since 2008, there has been no active share buyback plan in place.
The following exhibits are filed or furnished as a part of this report:
Exhibit
Number
Description of exhibit
31.1
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act by David P. Heintzman
31.2
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act by Nancy B. Davis
Certifications pursuant to 18 U.S.C. Section 1350
101
The following financial statements from the S.Y. Bancorp, Inc. March 31, 2013 Quarterly Report on Form 10-Q, filed on May 6, 2013, formatted in eXtensible Business Reporting Language (XBRL):
(1) Consolidated Balance Sheets
(2) Consolidated Statements of Income
(3) Consolidated Statements of Comprehensive Income
(4) Consolidated Statements of Cash Flows
(5) Consolidated Statement of Changes in Stockholders’ Equity
(6) Notes to Consolidated Financial Statements
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.
Date: May 6, 2013
By:
/s/ David P. Heintzman
David P. Heintzman, Chairman
and Chief Executive Officer
/s/ Nancy B. Davis
Nancy B. Davis, Executive Vice President,
Treasurer and Chief Financial Officer
47