Stock Yards Bancorp(US:SYBT)2021-08-06 21:28Credit Losses and Allowance - Bancorp recorded a net reduction of retained earnings of $8.8 million upon the adoption of ASC 326, with an increase in the allowance for credit losses (ACL) on loans of $8.2 million[52]. - The total allowance for credit losses on loans increased from $26.8 million to $36.6 million, reflecting a change in accounting policy[55]. - The ACL on commercial real estate - non-owner occupied increased by $3.1 million, from $5.2 million to $8.3 million[55]. - The ACL on commercial and industrial loans decreased by $1.2 million, from $12.4 million to $11.3 million[55]. - The ACL on off-balance sheet credit exposures increased by $3.5 million, from $0.35 million to $3.85 million[55]. - Bancorp estimates the Allowance for Credit Losses (ACL) on loans based on the underlying assets' amortized cost basis, adjusting for collection of payment and partial charge-offs[57]. - Expected credit losses are reflected in the ACL on loans through a charge to provision, with uncollectible assets written off and the ACL reduced accordingly[58]. - Bancorp's methodologies for estimating the ACL consider historical loss information and reasonable forecasts about future economic conditions[59]. - The total ACL for the six months ended June 30, 2021, was $59,424,000, with an initial provision of $51,920,000[138]. - The impact of adopting ASC 326 on the initial ACL was reflected in the total of $47,708,000[139]. - The total commercial real estate ACL increased to $29,295,000, reflecting a charge-off of $3,065,000 during the period[136]. - The residential real estate ACL totaled $7,772,000, with recoveries amounting to $4,000[137]. - The commercial and industrial ACL reached $14,988,000, with a charge-off of $114,000[136]. - The construction and land development ACL was reported at $5,193,000, with a charge-off of $337,000[137]. - The home equity lines of credit ACL stood at $1,230,000, with recoveries of $1,000[137]. - The consumer ACL totaled $572,000, with charge-offs of $223,000[137]. - The total amount of non-accrual loans across all categories was $12,814,000, with an ACL of $6,883,000[143]. - The company experienced a deterioration in credit quality, leading to increased provisions for credit losses[141]. - Total collateral dependent loans as of June 30, 2021, amounted to $19,128,000, with an allowance for credit losses (ACL) of $4,164,000[145]. - The aging of contractually past due loans shows a total past due amount of $17,855,000 as of June 30, 2021, compared to $16,939,000 as of December 31, 2020[147]. - Outstanding CARES Act loan deferrals were $8 million as of June 30, 2021, down from $37 million as of December 31, 2020[148]. Acquisition and Market Expansion - Bancorp completed the acquisition of Kentucky Bancshares, Inc. for a total consideration of $233 million, which includes both stock and cash[111]. - The acquisition added 19 branches across 11 communities in central and eastern Kentucky, enhancing Bancorp's market presence[111]. - The total assets acquired amounted to approximately $1.265 billion, while total liabilities assumed were about $1.156 billion, resulting in net assets acquired of $108.93 million[114]. - Goodwill recorded from the acquisition is approximately $124 million, reflecting expected operational synergies[116]. - The acquisition is expected to enhance Bancorp's Commercial Banking segment, with goodwill not expected to be tax-deductible[116]. - The acquisition is part of Bancorp's strategy to expand its footprint and enhance service offerings in the region[111]. - The company acquired loans totaling $755 million as a result of the KB acquisition, enhancing its loan portfolio[131]. - Approximately $91 million in available-for-sale debt securities were sold shortly after the acquisition[117]. - Bancorp's evaluation of the acquired investment portfolio led to adjustments in loans to reflect estimated fair value[117]. Financial Performance - Net income for the six months ended June 30, 2021, was $50,893 thousand, representing a 63.1% increase from $31,220 thousand for the same period in 2020[119]. - Net interest income for the three months ended June 30, 2021, was $47,465 thousand, an increase of 11.8% from $42,664 thousand for the same period in 2020[119]. - Provision for loan losses decreased to $(3,167) thousand for the three months ended June 30, 2021, compared to $7,525 thousand for the same period in 2020, indicating improved credit quality[119]. - Non-interest income for the six months ended June 30, 2021, was $36,090 thousand, an increase of 10.5% from $32,719 thousand for the same period in 2020[119]. - Basic earnings per share for the three months ended June 30, 2021, was $0.95, up from $0.62 for the same period in 2020, indicating strong profitability growth[119]. - The company expects to recover the fair value of its investment securities as they reach maturity, despite current unrealized losses attributed to interest rate changes[129]. - The total amount of available credit from the FHLB was $875 million as of June 30, 2021, compared to $804 million at December 31, 2020[188]. - Total deposits increased to $5.26 billion as of June 30, 2021, up from $3.99 billion at December 31, 2020, representing a growth of approximately 32%[181]. - Non-interest bearing demand deposits rose to $1.74 billion, compared to $1.19 billion at the end of 2020, marking a 47% increase[181]. Risk Management and Legal Proceedings - The company is involved in ongoing legal proceedings related to its proposed merger with Kentucky Bancshares, Inc., with claims believed to be without merit by the management[195][197]. - Bancorp's management believes that the ultimate result of pending legal actions will not have a material adverse effect on its consolidated financial position or results of operations[198]. - The company has not recorded any valuation allowance for mortgage servicing rights (MSRs) as of June 30, 2021, as their fair value exceeded the cost[204]. - Bancorp's collateral-dependent loans are evaluated based on the estimated fair value of the collateral, with adjustments for selling and closing costs typically ranging from 8% to 10% of the appraised value[205]. - The fair value of collateral dependent loans was $12,416,000, with appraisal discounts averaging 27.1%[209]. - The fair value of other real estate owned was $648,000, with appraisal discounts averaging 40.8%[209]. Stock-Based Compensation - Total stock-based compensation expense for the three months ended June 30, 2021, was $1,414,000, compared to $976,000 for the same period in 2020[222]. - The total estimated unrecognized stock-based compensation expense for the remainder of 2021 is $2,276,000[222]. - As of June 30, 2021, there were 545 SARs outstanding with a weighted average exercise price of $30.40 and an aggregate intrinsic value of $11,165,000[223]. - Unvested RSAs at June 30, 2021, totaled 103,000 shares with a grant date weighted average cost of $41.02[224]. - In the first quarters of 2021 and 2020, Bancorp awarded 7,758 and 6,570 RSUs to non-employee directors with grant date fair values of $315,000 and $270,000, respectively[219].