Stock Yards Bancorp(SYBT) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Unaudited interim statements show significant asset growth and lower net income due to the Commonwealth acquisition and merger expenses - The financial statements are presented on a condensed, unaudited basis for the interim period and should be read in conjunction with the 2021 Annual Report on Form 10-K[29][30] - The acquisition of Commonwealth Bancshares, Inc on March 7, 2022, is a significant event impacting the comparability of the financial statements, adding substantial assets and one-time merger expenses[116][285] Condensed Consolidated Balance Sheets Total assets grew 17% to $7.78 billion, driven by the Commonwealth acquisition which increased loans, deposits, and goodwill Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $7,777,152 | $6,646,025 | | Total cash and cash equivalents | $751,691 | $961,192 | | Net loans | $4,780,616 | $4,115,405 | | Goodwill | $202,524 | $135,830 | | Total Liabilities | $7,015,932 | $5,970,156 | | Total deposits | $6,745,491 | $5,787,514 | | Total Stockholders' Equity | $758,143 | $675,869 | Condensed Consolidated Statements of Income Net income fell to $7.9 million due to $19.5 million in merger expenses, despite strong growth in interest and non-interest income Q1 2022 vs Q1 2021 Income Statement Highlights (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Interest Income | $48,760 | $37,825 | | Provision for credit losses | $2,279 | $(1,475) | | Total Non-interest Income | $19,203 | $13,844 | | Total Non-interest Expenses | $56,297 | $24,973 | | Merger expenses | $19,500 | $400 | | Net Income Available to Stockholders | $7,906 | $22,710 | | Diluted EPS | $0.29 | $0.99 | Condensed Consolidated Statements of Comprehensive Income (Loss) A comprehensive loss of $41.7 million was driven by a $49.7 million other comprehensive loss from unrealized losses on securities Q1 2022 vs Q1 2021 Comprehensive Income (Loss) (in thousands) | | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Income | $7,942 | $22,710 | | Change in unrealized loss on AFS debt securities (pre-tax) | $(65,379) | $(15,567) | | Total other comprehensive income (loss), net of tax | $(49,659) | $(11,791) | | Comprehensive income (loss) | $(41,717) | $10,919 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity rose to $758.1 million, driven by stock issuance for the acquisition, offset by a large comprehensive loss - The company issued 2,564,000 shares valued at $133.8 million as part of the consideration for the Commonwealth acquisition[17] - A significant other comprehensive loss of $49.7 million reduced retained earnings, primarily due to unrealized losses on the AFS securities portfolio[17] - Cash dividends of $0.28 per share, totaling $8.2 million, were declared and paid during the quarter[17] Condensed Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $209.5 million, impacted by operating, investing, and financing activities Q1 2022 vs Q1 2021 Cash Flow Summary (in thousands) | Cash Flow From: | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Operating Activities | $3,520 | $27,235 | | Investing Activities | $(35,337) | $(207,647) | | Financing Activities | $(177,684) | $195,448 | | Net Change in Cash | $(209,501) | $15,036 | - The Commonwealth acquisition provided net cash of $349.5 million, which significantly impacted cash flows from investing activities[19] Notes to Condensed Consolidated Financial Statements Notes detail the Commonwealth acquisition, loan portfolio growth, and capital adequacy, which remains above regulatory thresholds Note 1: Summary of Significant Accounting Policies The company operates in two segments and prepares statements under GAAP, with key policies for ACL, CECL, and business acquisitions - Bancorp has two reportable segments: Commercial Banking and Wealth Management and Trust (WM&T)[24][25] - Critical accounting policies include the determination of the Allowance for Credit Losses (ACL) on loans and goodwill[32] - The company uses the Current Expected Credit Loss (CECL) model for estimating credit losses on financial instruments, employing methodologies like Discounted Cash Flow (DCF) and Static Pool analysis based on loan portfolio segments[58][70][71] Note 2: Acquisition Details the Commonwealth acquisition for $168 million, which added $1.34 billion in assets and resulted in $67 million of goodwill - Completed the acquisition of Commonwealth Bancshares, Inc (CB) on March 7, 2022, for total consideration of $168 million in a stock and cash transaction[116] Commonwealth Bancshares, Inc. Acquisition Summary (in thousands) | | Value | | :--- | :--- | | Total assets acquired | $1,336,815 | | Total liabilities assumed | $1,235,596 | | Net assets acquired | $101,219 | | Total consideration | $167,913 | | Goodwill | $66,694 | - The acquisition of Kentucky Bancshares, Inc (KB) was completed on May 31, 2021, for a total consideration of $233 million, resulting in $123 million of goodwill[128][130][132] Note 4: Loans and Allowance for Credit Losses on Loans Total loans grew to $4.85 billion and the ACL increased to $67.1 million, primarily due to the CB acquisition Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Commercial real estate | $2,200,814 | $1,806,649 | | Commercial and industrial | $1,155,341 | $1,107,756 | | Residential real estate | $789,250 | $681,713 | | Construction and land development | $346,372 | $299,206 | | Other | $355,906 | $274,189 | | Total loans | $4,847,683 | $4,169,303 | Allowance for Credit Losses (ACL) Activity (in thousands) | | Q1 2022 | | :--- | :--- | | Beginning Balance | $53,898 | | Initial Allowance on PCD Loans | $9,950 | | Provision for Credit Losses on Loans | $2,679 | | Net Charge-offs / (Recoveries) | $(540) | | Ending Balance | $67,067 | - Non-accrual loans increased to $12.5 million at March 31, 2022, from $6.7 million at December 31, 2021[160][161] Note 21: Regulatory Matters The company and its bank remain well-capitalized, exceeding all Basel III regulatory capital requirements - Bancorp and the Bank are subject to Basel III capital regulations and exceed all minimum requirements to be considered 'well-capitalized'[253][254][257] Bank Capital Ratios as of March 31, 2022 | Ratio | Actual | Minimum for Well-Capitalized | | :--- | :--- | :--- | | Common Equity Tier 1 Risk-Based Capital | 10.31% | 6.50% | | Tier 1 Risk-Based Capital | 10.31% | 8.00% | | Total Risk-Based Capital | 11.34% | 10.00% | | Tier 1 Leverage | 8.65% | 5.00% | - The company acquired $26 million in subordinated debentures (Trust Preferred Securities) from the CB acquisition, which are treated as Tier 1 Capital[256] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 EPS fell 71% due to merger expenses, though core performance was strong with significant growth in net interest income Acquisition of Commonwealth Bancshares, Inc. The acquisition of Commonwealth Bancshares for $168 million added $1.34 billion in assets and incurred $19.5 million in merger costs - The acquisition of Commonwealth Bancshares, Inc (CB) was completed on March 7, 2022, adding $1.34 billion in assets, $632 million in net loans, and $2.93 billion in assets under management[285] - The transaction resulted in $67 million of goodwill and $19.5 million in pre-tax merger-related expenses in Q1 2022[286] Results of Operations Q1 results were driven by the CB acquisition, with higher revenues offset by a compressed NIM and significant merger expenses Q1 2022 vs Q1 2021 Performance Overview | (dollars in thousands, except per share data) | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net income attributed to stockholders | $7,906 | $22,710 | -65% | | Diluted earnings per share | $0.29 | $0.99 | -71% | | ROA | 0.47% | 1.96% | -76% | | ROE | 4.55% | 20.71% | -78% | - The significant decrease in net income and profitability ratios was primarily driven by $19.5 million in merger expenses and $4.4 million in credit loss expense related to the Commonwealth acquisition[296] Financial Condition The company's financial scale grew significantly due to the CB acquisition, with total assets reaching $7.78 billion - Total assets increased by $1.13 billion (17%) to $7.78 billion at March 31, 2022, from December 31, 2021, primarily due to the CB acquisition which added $1.34 billion in assets[374] - Total loans increased by $678 million (16%) to $4.85 billion, driven by $630 million in acquired loans and $118 million in organic growth, net of a $69 million decline in PPP loans[388][390][391] - Total deposits increased by $958 million (17%) to $6.75 billion, with the CB acquisition contributing $1.12 billion in deposits at the acquisition date[411][412] Non-GAAP Financial Measures Non-GAAP measures like tangible common equity and the adjusted efficiency ratio provide insight into core performance Tangible Common Equity (TCE) Reconciliation (Non-GAAP) | (dollars in thousands, except per share data) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total stockholders' equity (GAAP) | $758,143 | $675,869 | | Less: Goodwill & Intangibles | $(234,492) | $(141,426) | | Tangible common equity (Non-GAAP) | $523,651 | $534,443 | | Tangible common equity to tangible assets | 6.94% | 8.22% | | Tangible common equity per share | $17.92 | $20.09 | Adjusted Efficiency Ratio (Non-GAAP) | (dollars in thousands) | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total non-interest expenses (GAAP) | $56,297 | $24,973 | | Less: Non-recurring merger expenses | $(19,500) | $(400) | | Less: Amortization of tax credit partnerships | $(88) | $(31) | | Total revenue (GAAP) | $68,147 | $51,718 | | Efficiency ratio (Non-GAAP) | 53.87% | 47.45% | Quantitative and Qualitative Disclosures about Market Risk The primary market risk is interest rate risk, with analysis showing a slightly liability-sensitive balance sheet profile - Information regarding market risk is included in the Management's Discussion and Analysis section[448] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[448] - No material changes to the company's internal control over financial reporting occurred during the first fiscal quarter of 2022[448] PART II – OTHER INFORMATION Legal Proceedings Ongoing legal proceedings from the ordinary course of business are not expected to have a material adverse effect - Bancorp and its bank are defendants in various legal proceedings arising in the ordinary course of business, but management does not expect any to have a material adverse effect on the company's financial condition[449] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 43,378 shares to satisfy employee tax obligations, separate from its public buyback plan - The company has a share repurchase program authorizing the repurchase of up to 1 million shares, which was extended in May 2021 and expires in May 2023; approximately 741,000 shares remain eligible for repurchase[453] Share Repurchases Q1 2022 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31 | 5,070 | $63.31 | | Feb 1 - Feb 28 | 9,290 | $58.63 | | Mar 1 - Mar 31 | 29,018 | $53.14 | | Total | 43,378 | $55.50 | - All shares repurchased during the quarter were shares withheld to pay taxes due on vested stock awards and were not part of the public repurchase plan[452] Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and financial statements in inline XBRL format - The report includes CEO and CFO certifications pursuant to Sections 302 and 902 of the Sarbanes-Oxley Act[454] - Financial statements, notes, and the cover page are provided in inline XBRL format as required[454]