Stock Yards Bancorp Inc
For the period ended Sep 30, 2024. Filed Nov 5, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 5, 2024
SYBT$79.26-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001437749-24-024800
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-05.
0001437749-24-033271
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 213 previous paragraphs and 211 current paragraphs.
110 unchanged; 91 reworded; 10 added; 11 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 112 previous and 116 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
Total interest income (FTE) increased $16.8 million, or 19%, to $106 million for the three months ended September 30, 2024, as compared to the same period of 2023.
Current report
Net Interest Income (FTE)–** Nine months ended September 30, 2024 compared to September 30, 2023**
Current report
Total interest income (FTE) increased $50.9 million, or 20%, to $302.8 million for the nine months ended September 30, 2024, as compared to the same period of 2023.
Current report
Average Balance Sheets and Interest Rates (FTE)–** Nine-Month Comparison**
Current report
Net new business refers to revenue generated from newly acquired customers or reactivated accounts, excluding revenue from upselling or cross-selling to existing active customers. It plays a crucial role in expanding Bancorp’s financial base and ensuring long-term sustainability and success. During the third quarter of 2024, the WM&T department experienced negative net new business for the first time in a few years, which was driven in large part to attrition associated with employee retirements and market competition. Despite negative net new business for the quarter, total WM&T income is currently projected to increase over the next twelve months, as projected moderate market growth would more than offset the potential negative impact from the previously mentioned attrition and an expected decline in non-recurring estate fees.
Current report
(1) Non-managed assets represent those for which the WM&T department does not hold investment discretion.
Current report
Total line of credit utilization has experienced steady improvement through the first nine months of 2024, ending at 43.2% as of September 30, 2024, compared to 39.2% at December 31, 2023 and 38.8% at September 30, 2023. Increased utilization has been experienced within the C&D and C&I portfolios, the latter of which has improved to 31.8% at September 30, 2024 from 28.6% at December 31, 2023 and 26.8% at September 30, 2023. While line utilization has trended upward, it still remains below pre-pandemic levels, as customers continue to utilize cash in lieu of higher costing lines of credit.
Current report
Other assets decreased $7 million, or 2%, to $280 million between December 31, 2023 and September 30, 2024. Other liabilities increased $20 million, or 8%, to $267 million over the same period. The decrease in other assets stems mainly from market value changes in interest rate swap assets and amortization of MSR assets. The increase in other liabilities was driven largely by right-of-use lease liability additions (the balance sheet offset of the previously mentioned right-of-use asset additions) and increases in accrued tax liabilities and other miscellaneous accruals.
Current report
Total deposits increased $55 million, or 1%, from December 31, 2023 to September 30, 2024. Interest bearing deposits increased $95 million, or 2%, outpacing the $40 million, or 3% decrease in non-interest bearing deposits, as depositors continued shifting into higher-yielding alternatives in the current environment.
Current report
SSUAR declined $3 million, or 2%, between December 31, 2023 and September 30, 2024, ending at $150 million as of September 30, 2024.
Removed paragraphs (11)
Previous report
Total interest income (FTE) increased $17.2 million, or 21%, to $100 million for the three months ended June 30, 2024, as compared to the same period of 2023.
Previous report
Net Interest Income (FTE)–** Six months ended June 30, 2024 compared to June 30, 2023**
Previous report
Total interest income (FTE) increased $34.2 million, or 21%, to $197.0 million for the six months ended June 30, 2024, as compared to the same period of 2023.
Previous report
Average Balance Sheets and Interest Rates (FTE)–** Six-Month Comparison**
Previous report
(1) Includes client directed instruments such as rights, warrants, annuities, insurance policies, unit investment trusts, and oil and gas rights.
Previous report
While total line of credit utilization has improved since hitting pandemic-era lows in early 2021, line of credit usage has remained below pre-pandemic levels, as customers generally continue to utilize cash in lieu of higher costing lines of credit. Further, the addition of new lines, particularly within the C&D and C&I portfolio segments, has increased availability over the past several quarters, but utilization of the new lines has been relatively slow. Total line of credit utilization improved to 41.1% as of June 30, 2024, compared to 39.2% at December 31, 2023, while C&I utilization ended at 30.8% and 28.6% for the same periods, respectively.
Previous report
Loans classified as substandard are inadequately protected by the paying capacity of the obligor or the collateral pledged, if any. Substandard loans totaled $69 million and $43 million as of June 30, 2024 and December 31, 2023, respectively. The increase in substandard loans experienced between December 31, 2023 and June 30, 2024 was attributed largely to three relationships within the CRE and C&I portfolios that were downgraded to substandard, representing $24 million of the increase. As of June 30, 2024, $66 million, or 96%, of loans classified as substandard were current with their contractual payments.
Previous report
Other assets increased $12 million, or 4%, to $300 million between December 31, 2023 and June 30, 2024. Other liabilities increased $13 million, or 5%, to $260 million over the same period. The increases in both other assets and other liabilities stemmed mainly from market value appreciation in Bancorp’s interest rate swap assets and recording additional investment in tax credit partnerships.
Previous report
Bancorp investments in tax credit partnerships in part because they provide an economical means of achieving CRA goals. When an investment is entered into, Bancorp records the asset while also recording a related liability for the future contribution requirements associated with it. For this reason, such investments have generally had an offsetting impact when they are initially recorded.
Previous report
Total deposits decreased $102 million, or 2%, from December 31, 2023 to June 30, 2024. The decline for the first half of 2024 is attributed largely to both normal seasonal runoff of public funds deposits, which typically peak during the fourth quarter of each year and gradually dissipate in the following months, and declines in deposit balances held on Bancorp’s balance sheet in relation to our WM&T business. The deposits associated with the WM&T business can fluctuate as clients hold more/less cash and the timing of potential outflows due to investment of funds in the market. However, average total deposits increased $247 million, or 4%, for the six months ended June 30, 2024 compared to the same period of the prior year, attributed largely to successful time deposit promotions.
Previous report
SSUAR were flat between December 31, 2023 and June 30, 2024, standing at $153 million for both periods, respectively. However, average SSUARs increased $39 million, or 33%, for the six months ended June 30, 2024 compared to the same period of the prior year, as customers were attracted to the collateralized protection offered by this product.
Reworded paragraphs (91)
Previous wording
As a result of its acquisition of Kentucky Bancshares, Inc. on May 31, 2021, Bancorp became the 100% successor owner of a Nevada-based insurance captive taxed under Section 831(b) of the Internal Revenue Code. On April 10, 2023, the IRS issued a proposed regulation that would potentially classify section 831(b) captive activity as a “listed transaction,” and possibly disallow the related tax benefits, both prospectively and retroactively, for a period to be determined. While the regulation has not been finalized, it is expected to be finalized in 2024. Bancorp elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023.
Current wording
As a result of its acquisition of KB on May 31, 2021, Bancorp became the 100% successor owner of a Nevada-based insurance captive taxed under Section 831(b) of the Internal Revenue Code. On April 10, 2023, the IRS issued a proposed regulation that would potentially classify section 831(b) captive activity as a “listed transaction,” and possibly disallow the related tax benefits, both prospectively and retroactively, for a period to be determined. While the regulation has not been finalized, it is expected to be finalized in 2025. Bancorp elected not to renew the Captive in August of 2023 and ultimately dissolved the Captive in December of 2023.
Previous wording
The following table presents an overview of Bancorp’s financial performance for the six months ended June 30, 2024 and 2023:
Current wording
The following table presents an overview of Bancorp’s financial performance for the nine months ended September 30, 2024 and 2023:
Previous wording
General highlights for the six months ended June 30, 2024 compared to June 30, 2023:
Current wording
General highlights for the nine months ended September 30, 2024 compared to September 30, 2023:
Previous wording
At June 30, 2024, Bancorp’s loan portfolio consisted of approximately 71% fixed and 29% variable rate loans. At inception, most of Bancorp’s fixed rate loans are priced in relation to the five year treasury. Bancorp’s variable rate loans are typically indexed to either Prime or SOFR, generally repricing as those rates change. At June 30, 2024, approximately 60% and 40% of Bancorp’s variable rate loan portfolio was indexed to Prime and SOFR, respectively.
Current wording
At September 30, 2024, Bancorp’s loan portfolio consisted of approximately 69% fixed and 31% variable rate loans. At inception, most of Bancorp’s fixed rate loans are generally priced in relation to the five year treasury. Bancorp’s variable rate loans are typically indexed to either Prime or SOFR, repricing as those rates change. At September 30, 2024, approximately 60% and 40% of Bancorp’s variable rate loan portfolio was indexed to Prime and SOFR, respectively.
Previous wording
Prime rate, the five year Treasury note rate and one month term SOFR are included in the preceding table to provide a general indication of the interest rate environment in which Bancorp has operated during the past 12 months. The FRB increased the FFTR a total of 100 bps in 2023 via four separate 25 bps rate hikes, two of which occurred during the first quarter of 2023. These increases took the FFTR to a range of 5.25% - 5.50%, and Prime to 8.50%, in July of 2023, where each has remained as of June 30, 2024.
Current wording
Prime rate, the five year Treasury note rate and one month term SOFR are included in the preceding tables to provide a general indication of the interest rate environment in which Bancorp has operated during the past 12 months. The FRB increased the FFTR a total of 100 bps in 2023 via four separate 25 bps rate hikes, two of which occurred during the first quarter of 2023. These increases took the FFTR to a range of 5.25% - 5.50%, and Prime to 8.50%, in July of 2023, where each remained until September 18, 2024. On September 18, 2024, the FRB reduced the FFTR 50 bps, representing the first rate reduction in over four years. This action lowered the FFTR to a range of 4.75% - 5.00% and Prime to 8.00% as of September 30, 2024.
Previous wording
The current economic outlook remains volatile, regularly changing as new economic data becomes available and the FRB’s efforts to control inflation continue. Recent projections indicate the potential for multiple rate reductions to occur in the late third/early fourth quarter of 2024. While Bancorp has experienced NIM compression as a result of pricing pressure/competition for both loans and deposits, changing levels of liquidity and an improving-but-still-inverted yield curve, NIM expansion is anticipated during the second half of the year.
Current wording
The current economic outlook remains volatile, regularly changing as new economic data becomes available and the FRB’s efforts to control or moderate inflation continue. Recent projections indicate the potential for multiple rate reductions to occur over the course of the next several months. While Bancorp has experienced NIM compression as a result of pricing pressure/competition for both loans and deposits, changing levels of liquidity and a flattening yield curve, NIM expansion has been experienced for two consecutive quarters as the result of lower funding costs and an improved yield curve.
Previous wording
Net interest spread (FTE) and NIM (FTE) were 2.52% and 3.26%, for the three months ended June 30, 2024, compared to 2.84% and 3.42% for the same period in 2023, respectively. NIM during the three months ended June 30, 2024 was significantly impacted by the following:
Current wording
Net interest spread (FTE) and NIM (FTE) were 2.57% and 3.33%, for the three months ended September 30, 2024, compared to 2.68% and 3.34% for the same period in 2023, respectively. NIM during the three months ended September 30, 2024 was significantly impacted by the following:
Previous wording
Net interest income (FTE) increased $1.0 million, or 2%, for the three months ended June 30, 2024 compared to the same period of 2023, as significant average loan growth and the benefit of higher rates upon average interest earning assets managed to slightly outpace rising funding costs stemming from intense pricing pressure/competition for deposits and increased borrowing activity.
Current wording
Net interest income (FTE) increased $3.6 million, or 6%, for the three months ended September 30, 2024 compared to the same period of 2023, as significant average loan growth and the benefit of higher rates upon average interest earning assets managed to outpace rising funding costs stemming from intense pricing pressure/competition for deposits and increased borrowing activity.
Previous wording
Total average interest earning assets increased $489 million, or 7%, for the three months ended June 30, 2024, as compared to the same period of 2023, attributed to substantial average loan growth that was only partially offset by a decline in average investment securities driven by normal amortization and contractual maturities. However, as a result of a higher interest rate environment, the average rate earned on total average interest earning assets climbed 62 bps to 5.27%.
Current wording
Total average interest earning assets increased $479 million, or 7%, for the three months ended September 30, 2024, as compared to the same period of 2023, attributed to substantial average loan growth that was partially offset by a decline in average investment securities driven by scheduled maturities and normal amortization. However, as a result of a higher interest rate environment, the average rate earned on total average interest earning assets climbed 57 bps to 5.41%.
Previous wording
Total average interest bearing liabilities increased $681 million, or 14%, to $5.60 billion for the three month period ended June 30, 2024 compared with the same period in 2023.
Current wording
Total average interest bearing liabilities increased $625 million, or 12%, to $5.70 billion for the three month period ended September 30, 2024 compared with the same period in 2023.
Previous wording
Total interest expense increased $16.2 million for the three months ended June 30, 2024 compared to the same period of 2023, driven by a significant rise in rates paid on deposits and increased borrowing activity. As a result, the cost of interest bearing liabilities increased 94 bps to 2.75% for the three months ended June 30, 2024 compared to the same period of 2023.
Current wording
Total interest expense increased $13.1 million, or 48%, for the three months ended September 30, 2024 compared to the same period of 2023, driven by a significant rise in rates paid on deposits and increased borrowing activity. As a result, the cost of interest bearing liabilities increased 68 bps to 2.84% for the three months ended September 30, 2024 compared to the same period of 2023.
Previous wording
Net interest spread (FTE) and NIM (FTE) were 2.50% and 3.23%, for the six months ended June 30, 2024, compared to 2.98% and 3.50% for the same period in 2023, respectively. NIM during the six months ended June 30, 2024 was significantly impacted by the following:
Current wording
Net interest spread (FTE) and NIM (FTE) were 2.52% and 3.26%, for the nine months ended September 30, 2024, compared to 2.88% and 3.44% for the same period in 2023, respectively. NIM during the nine months ended September 30, 2024 was significantly impacted by the following:
Previous wording
Net interest income (FTE) decreased $2.0 million, or 2%, for the six months ended June 30, 2024 compared to the same period of 2023, as significant average loan growth and the benefit of higher rates upon average interest earning assets were outpaced by rising funding costs stemming from intense pricing pressure/competition for deposits and increased borrowing activity.
Current wording
Net interest income (FTE) increased $1.6 million, or 1%, for the nine months ended September 30, 2024 compared to the same period of 2023, as significant average loan growth and the benefit of higher rates upon average interest earning assets managed to slightly outpace rising funding costs stemming from intense pricing pressure/competition for deposits and increased borrowing activity.
Previous wording
Total average interest earning assets increased $451 million, or 6%, for the six months ended June 30, 2024, as compared to the same period of 2023, attributed to substantial average loan growth that was only partially offset by a decline in average investment securities associated with normal amortization and contractual maturities. As a result of a higher interest rate environment, the average rate earned on total interest earning assets climbed 62 bps to 5.20%.
Current wording
Total average interest earning assets increased $460 million, or 6%, for the nine months ended September 30, 2024, as compared to the same period of 2023, attributed to substantial average loan growth that was partially offset by a decline in average investment securities associated with scheduled maturities and normal amortization. As a result of a higher interest rate environment, the average rate earned on total interest earning assets climbed 60 bps to 5.27%.
Previous wording
Total average interest bearing liabilities increased $704 million, or 14%, to $5.57 billion for the six month period ended June 30, 2024 compared with the same period in 2023.
Current wording
Total average interest bearing liabilities increased $677 million, or 14%, to $5.61 billion for the nine month period ended September 30, 2024 compared with the same period in 2023.
Previous wording
Total interest expense increased $36.2 million for the six months ended June 30, 2024 compared to the same period of 2023, driven by a significant rise in rates paid on deposits and increased borrowing activity. As a result, the cost of interest bearing liabilities increased 110 bps to 2.70% for the six months ended June 30, 2024 compared to the same period of 2023.
Current wording
Total interest expense increased $49.4 million, or 75%, for the nine months ended September 30, 2024 compared to the same period of 2023, driven by a significant rise in rates paid on deposits and increased borrowing activity. As a result, the cost of interest bearing liabilities increased 96 bps to 2.75% for the nine months ended September 30, 2024 compared to the same period of 2023.
Previous wording
The results of the interest rate sensitivity analysis performed as of June 30, 2024 were derived from conservative assumptions Bancorp uses in its model, particularly in relation to deposit betas, which measure how responsive management’s deposit repricing may be to changes in market rates based on historical data. Management uses different betas in the rising and falling rate scenarios in an effort to best simulate expected earnings trends. The results presented below reflect an interest rate sensitivity analysis that incorporates a deposit beta of approximately 45% for rising rate scenarios and 39% for falling rate scenarios, respectively. The beta used in the falling rate scenario is the result of management’s expectations of deposit rate decreases given the current characteristics of the deposit portfolio.
Current wording
The results of the interest rate sensitivity analysis performed as of September 30, 2024 were derived from conservative assumptions Bancorp uses in its model, particularly in relation to deposit betas, which measure how responsive management’s deposit repricing may be to changes in market rates based on historical data. Management uses different betas in the rising and falling rate scenarios in an effort to best simulate expected earnings trends.
Previous wording
Bancorp’s interest rate sensitivity analysis details that increases in interest rates of 100 and 200 bps would have a positive effect on net interest income, while decreases in interest rates of 100 and 200 bps would have a negative impact. These results depict an asset sensitive interest rate risk profile. The increase in net interest income in the rising rate scenarios is primarily due to variable rate loans and short-term investments repricing more quickly than deposits and short-term borrowings. Net interest income decreases in the falling rate scenarios because rates on non-maturity deposits cannot be lowered sufficiently to offset the decline in interest income associated with assets that immediately reprice as rates fall.
Current wording
Bancorp’s interest rate sensitivity analysis details that increases in interest rates of 100 and 200 bps would have a slightly positive effect on net interest income, while decreases in interest rates of 100 and 200 bps would have a slightly negative impact. These results depict a relatively neutral interest rate risk profile. The increase in net interest income in the rising rate scenarios is primarily due to variable rate loans and short-term investments repricing more quickly than deposits and short-term borrowings. Net interest income decreases in the falling rate scenarios because rates on non-maturity deposits cannot be lowered sufficiently to offset the decline in interest income associated with assets that immediately reprice as rates fall.
Previous wording
Bancorp’s loan portfolio is currently composed of approximately 71% fixed and 29% variable rate loans, with the fixed rate portion pricing generally based on a spread to the five year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 60%) or SOFR (approximately 40%).
Current wording
Bancorp’s loan portfolio is currently composed of approximately 69% fixed and 31% variable rate loans, with the fixed rate portion pricing generally based on a spread to the five year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 60%) or SOFR (approximately 40%).
Previous wording
The ACL for loans totaled $82 million as of June 30, 2024 compared to $78 million at June 30, 2023, representing an ACL to total loans ratio of 1.35% and 1.43% for the respective periods.
Current wording
The ACL for loans totaled $85 million as of September 30, 2024 compared to $78 million at September 30, 2023, representing an ACL to total loans ratio of 1.36% and 1.39% for the respective periods.
Previous wording
Provision expense on loans of $1.1 million and $2.3 million was recorded for the three and six month periods ended June 30, 2024, consistent with strong loan growth, slight deterioration in the unemployment forecast and offset by CECL model methodology updates, including a thorough evaluation of qualitative factors. Net recoveries of $183,000 and $531,000 were recorded for the three and six month periods ended June 30, 2024, serving to increase the ACL for loans.
Current wording
Provision expense on loans of $4.3 million and $6.6 million was recorded for the three and nine month periods ended September 30, 2024, attributed mainly to strong loan growth and deterioration in the FRB unemployment forecast. Net charge offs of $1.1 million and $606,000 were recorded for the three and nine month periods ended September 30, 2024, serving to decrease the ACL for loans.
Previous wording
Provision of $2.2 million and $4.4 million was recorded to provision for credit losses on loans for the three and six month periods ended June 30, 2023, respectively. Provision expense for the first half of 2023 was driven by strong loan growth, the establishment of a $1.4 million specific reserve for a large C&I relationship, and qualitative factor adjustments associated with the rising rate environment. Further, net charge off activity for the three and six months ended June 30, 2023 totaled $113,000 and $221,000, respectively, which slightly reduced the ACL for loans.
Current wording
Provision expense on loans of $2.3 million and $6.7 million was recorded to provision for credit losses on loans for the three and nine month periods ended September 30, 2023, respectively, driven mainly by strong loan growth. Partially offsetting the increase in the ACL associated with provision expense was net charge off activity of $1.9 million and $2.2 million for the three and nine month periods ended September 30, 2024, respectively.
Previous wording
While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced an increase between December 31, 2023 and June 30, 2024. Provision for credit loss expense for off balance sheet credit exposures of $225,000 and $475,000 was recorded for the three and six month periods ended June 30, 2024, driven largely by increased availability within the C&D portfolio. The ACL for off balance sheet credit exposures totaled $6.3 million as of June 30, 2024.
Current wording
While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced an increase between December 31, 2023 and September 30, 2024. While no provision for off balance sheet credit exposures was recorded for the three month period ended September 30, 2024 due to increased utilization (and thus a decrease in availability), provision of $475,000 was recorded for the nine month period ended September 30, 2024, driven largely by increased availability within the C&D portfolio. The ACL for off balance sheet credit exposures totaled $6.3 million as of September 30, 2024.
Previous wording
Provision for credit loss expense for off balance sheet credit exposures of $200,000 and $575,000 was recorded for the three and six month periods ended June 30, 2023. The ACL for off balance sheet credit exposures was $5 million as of June 30, 2023.
Current wording
Provision for credit loss expense for off balance sheet credit exposures of $475,000 and $1.1 million was recorded for the three and nine month periods ended September 30, 2023. The ACL for off balance sheet credit exposures was $5.6 million as of September 30, 2023.
Previous wording
Total non-interest income increased $795,000, or 3%, and $2.0 million, or 4%, for the three and six month periods ended June 30, 2024 compared to the same periods of 2023, respectively. Non-interest income comprised 27.6% and 27.8% of total revenues, defined as net interest income and non-interest income, for the three and six month periods ended June 30, 2024 compared to 27.3% and 26.6%% for the same periods of 2023. WM&T services comprised 45.6% and 46.0% of total non-interest income for the three and six month periods ended June 30, 2024 compared to 44.4% and 43.8% for the same periods of 2023.
Current wording
Total non-interest income increased $1.9 million, or 8%, and $3.9 million, or 6%, for the three and nine month periods ended September 30, 2024 compared to the same periods of 2023, respectively. Non-interest income comprised 27.6% and 27.7% of total revenues, defined as net interest income and non-interest income, for the three and nine month periods ended September 30, 2024 compared to 27.2% and 26.8%% for the same periods of 2023. WM&T services comprised 44.1% and 45.3% of total non-interest income for the three and nine month periods ended September 30, 2024 compared to 43.8% for both the three and nine month periods ended September 30, 2023.
Previous wording
The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased $649,000, or 6%, and $1.9 million, or 10%, for the three and six month periods ended June 30, 2024, as compared with the same periods of 2023, consistent with strong equity market appreciation, net new business expansion and higher quarterly fee income.
Current wording
The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased $901,000, or 9%, and $2.8 million, or 9%, for the three and nine month periods ended September 30, 2024, as compared with the same periods of 2023, consistent with strong equity market appreciation and higher estate fee income that more than offset a decline in net new business expansion.
Previous wording
Recurring fees earned for managing accounts are based on a percentage of market value of AUM and are typically assessed on a monthly basis. Recurring fees, which generally comprise the vast majority of WM&T revenue, increased $527,000, or 5%, and $1.6 million, or 9% for the three and six month periods ended June 30, 2024, as compared with the same periods of 2023. The increases were driven largely by the factors noted in the preceding paragraph.
Current wording
Recurring fees earned for managing accounts are based on a percentage of market value of AUM and are typically assessed on a monthly basis. Recurring fees, which generally comprise the vast majority of WM&T revenue, increased $613,000, or 6%, and $2.3 million, or 8% for the three and nine month periods ended September 30, 2024, as compared with the same periods of 2023. The increases were driven largely by equity market appreciation over the past year.
Previous wording
A portion of WM&T revenue, most notably executor and certain employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities. For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees increased $121,000 and $246,000 for the three and six month periods ended June 30, 2024, as compared with the same periods of 2023, driven by increased estate fee income.
Current wording
A portion of WM&T revenue, most notably executor and certain employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities. For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees increased $288,000 and $534,000 for the three and nine month periods ended September 30, 2024, as compared with the same periods of 2023, driven by increased estate fee income.
Previous wording
AUM, stated at market value, totaled $7.48 billion at June 30, 2024 compared with $6.98 billion at June 30, 2023 and $7.16 billion at December 31, 2023. The increase in AUM between June 30, 2023 and June 30, 2024 is attributed to strong equity market appreciation experienced over the past year in addition to net new business expansion.
Current wording
AUM, stated at market value, totaled $7.32 billion at September 30, 2024 compared with $7.16 billion at December 31, 2023 and $6.67 billion at September 30, 2023. The increase in AUM between September 30, 2023 and September 30, 2024 is attributed mainly to strong equity market appreciation experienced over the past year.
Previous wording
AUM (not included on balance sheet) increased from $7.16 billion at December 31, 2023 to $7.48 billion at June 30, 2024 as follows:
Current wording
AUM (not included on balance sheet) increased from $7.16 billion at December 31, 2023 to $7.32 billion at September 30, 2024 as follows:
Previous wording
As of June 30, 2024 and December 31, 2023, approximately 81% and 82% of AUM were actively managed, respectively. Company retirement plan accounts consist primarily of participant-directed assets. The amount of custody and safekeeping accounts are insignificant to overall WM&T operations.
Current wording
As of September 30, 2024 and December 31, 2023, approximately 80% and 82% of AUM were actively managed, respectively. Company retirement plan accounts consist primarily of participant-directed assets. The amount of custody and safekeeping accounts are insignificant to overall WM&T operations.
Previous wording
Managed assets are invested in instruments for which market values can be readily determined, the majority of which are sensitive to market fluctuations and consist of approximately 66% in equities and 34% in fixed income securities as of June 30, 2024, compared to 64% and 36% as of December 31, 2023. This composition has remained relatively consistent from period to period.
Current wording
Managed assets are invested in instruments for which market values can be readily determined, the majority of which are sensitive to market fluctuations and consist of approximately 67% in equities and 33% in fixed income securities as of September 30, 2024, compared to 64% and 36% as of December 31, 2023. This composition has remained relatively consistent from period to period.
Previous wording
Deposit service charges, which consist of non-sufficient funds charges and to a lesser extent, other activity based charges, decreased $21,000, or 1%, and $34,000, or 1%, for the three and six month periods ended June 30, 2024, as compared with the same periods of 2023. Consistent with the banking industry generally, Bancorp has experienced a steady decline in the volume of fees earned on overdrawn checking accounts over the past several years. This trend has been driven by lower check presentment volume, which has in turn led to fewer overdrawn accounts in general. Further, Bancorp anticipates that future growth of this revenue stream could be significantly impacted by changing industry practices. Bancorp could be faced with strategic decisions surrounding deposit-related service charges in the future, which could negatively impact the contributions made by this, or similar, revenue streams.
Current wording
Deposit service charges, which consist of non-sufficient funds charges and to a lesser extent, other activity based charges, increased $42,000, or 2%, and $8,000, or less than 1%, for the three and nine month periods ended September 30, 2024, as compared with the same periods of 2023. Consistent with the banking industry generally, Bancorp has experienced a steady decline in the volume of fees earned on overdrawn checking accounts over the past several years. This trend has been driven by lower check presentment volume, which has in turn led to fewer overdrawn accounts in general. Further, Bancorp anticipates that future growth of this revenue stream could be significantly impacted by changing industry practices. Bancorp could be faced with strategic decisions surrounding deposit-related service charges in the future, which could negatively impact the contributions made by this, or similar, revenue streams.
Previous wording
Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors. Debit and credit card revenue increased $211,000, or 4%, and $411,000, or 4%, for the three and six month periods ended June 30, 2024, as compared with the same periods of 2023. The increases were driven by interchange income expansion and higher transaction volume. Total debit card income increased $32,000, or less than 1%, and $50,000, or 1%, and total credit card income increased $179,000, or 13%, and $361,000, or 13% for the three and six month periods ended June 30, 2024, compared the same periods of the prior year. While Bancorp generally expects this revenue stream to grow with continued expansion of the customer base, interchange rate compression and fluctuations in business and consumer spend levels could serve as challenges to future growth.
Current wording
Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors. Debit and credit card revenue increased $213,000, or 4%, and $624,000, or 4%, for the three and nine month periods ended September 30, 2024, as compared with the same periods of 2023. The increases were driven by interchange income expansion and higher transaction volume. Total debit card income increased $110,000, or 3%, and $161,000, or 2%, and total credit card income increased $103,000, or 13%, and $463,000, or 11% for the three and nine month periods ended September 30, 2024, compared the same periods of the prior year. While Bancorp generally expects this revenue stream to grow with continued expansion of the customer base, interchange rate compression and fluctuations in business and consumer spend levels could serve as challenges to future growth.
Previous wording
Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. This category continues to stand out as a consistent, growing source of revenue for Bancorp and increased $276,000, or 11%, and $583,000, or 12%, for the three and six month periods ended June 30, 2024, as compared with the same periods of 2023, driven by expansion, increased transaction volume, growing international services and new product sales. Bancorp anticipates this income category will continue to increase based on continued customer base growth and the expanding suite of services offered within Bancorp’s treasury management platform.
Current wording
Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. This category continues to stand out as a consistent, growing source of revenue for Bancorp and increased $304,000, or 12%, and $887,000, or 12%, for the three and nine month periods ended September 30, 2024, as compared with the same periods of 2023, driven by expansion, increased transaction volume, growing international services and new product sales. Bancorp anticipates this income category will continue to increase based on continued customer base growth and the expanding suite of services offered within Bancorp’s treasury management platform.
Previous wording
Mortgage banking income primarily includes gains on sales of mortgage loans and net loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary market, primarily to FNMA and FHLMC. Bancorp offers conventional, VA, FHA and GNMA financing for purchases and refinances, as well as programs for first-time homebuyers. Interest rates on mortgage loans directly influence the volume of business transacted by the mortgage-banking department. Mortgage banking revenue decreased $13,000, or 1%, and $103,000, or 5%, for the three and six month periods ended June 30, 2024, as compared with the same periods of 2023, driven by an overall decline in origination volume stemming from higher interest rates and generally low housing inventory compared to prior periods.
Current wording
Mortgage banking income primarily includes gains on sales of mortgage loans and net loan servicing income offset by MSR amortization. Bancorp’s mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary market, primarily to FNMA and FHLMC. Bancorp offers conventional, VA, FHA and GNMA financing for purchases and refinances, as well as programs for first-time homebuyers. Interest rates on mortgage loans directly influence the volume of business transacted by the mortgage-banking department. Mortgage banking revenue increased $298,000, or 37%, and $195,000, or 7%, for the three and nine month periods ended September 30, 2024, as compared with the same periods of 2023, driven by an increase in origination volume during the third quarter of this year in addition to slowing MSR amortization.
Previous wording
Net investment product sales commissions and fees are generated primarily on stock, bond and mutual fund sales, as well as wrap fees earned on brokerage accounts. Wrap fees represent charges for investment programs that bundle together a suite of services, such as brokerage, advisory, research and management and are based on a percentage of account assets. Bancorp deploys its financial advisors primarily through its branch network via an arrangement with a third party broker-dealer, while larger managed accounts are generally serviced by Bancorp’s WM&T group. Net investment product sales commissions and fees were unchanged for the three month period ended June 30, 2024 and increased $111,000, or 7%, for the six month periods ended June 30, 2024, as compared with the same periods of 2023.
Current wording
Net investment product sales commissions and fees are generated primarily on stock, bond and mutual fund sales, as well as wrap fees earned on brokerage accounts via an arrangement with a third party broker-dealer. Wrap fees represent charges for investment programs that bundle together a suite of services, such as brokerage, advisory, research and management and are based on a percentage of account assets. Bancorp deploys its financial advisors primarily through its branch network, while larger managed accounts are generally serviced by Bancorp’s WM&T group. Net investment product sales commissions and fees increased $124,000, or 16%, and $235,000, or 10%, for the three and nine month periods ended September 30, 2024 compared to the same periods of 2023 due to organic growth and general market appreciation over the respective period.
Previous wording
BOLI assets represent the cash surrender value of life insurance policies on certain active and non-active employees who have provided consent for Bancorp to be the beneficiary for a portion of such policies. The related change in cash surrender value and any death benefits received under the policies are recorded as non-interest income and serves to offset the cost of various employee benefits. BOLI income increased $36,000, or 6%, and $75,000, or 7%, for the three and six month periods ending June 30, 2024 compared to the same periods of the prior year, which was attributed to general market appreciation within the policy plans over the past year.
Current wording
BOLI assets represent the cash surrender value of life insurance policies on certain active and non-active employees who have provided consent for Bancorp to be the beneficiary for a portion of such policies. The related change in cash surrender value and any death benefits received under the policies are recorded as non-interest income and serves to offset the cost of various employee benefits. BOLI income increased $65,000, or 11%, and $140,000, or 8%, for the three and nine month periods ending September 30, 2024 compared to the same periods of the prior year, which was attributed to general market appreciation and a reallocation of investments within the policy plans over the past year.
Previous wording
A gain of $20,000 on the sale of premises and equipment was recorded for the three and six month periods ended June 30, 2024. Activity for the three and six month periods ended June 30, 2023 was the result of the sale of certain acquired properties that overlapped with existing locations.
Current wording
Losses on the sale of premises and equipment of $59,000 and $39,000 were recorded for the three and nine month periods ended September 30, 2024. Activity for the three and nine month periods ended September 30, 2023 was the result of the sale of certain acquired properties that overlapped with existing locations in addition to other merger-related disposal activity.
Previous wording
Other non-interest income decreased $588,000, or 54%, and $1.2 million, or 50%, for the three and six month periods ended June 30, 2024 compared with the same periods of 2023. The decrease was driven largely by Bancorp’s decision not to renew the insurance captive in late 2023, which contributed approximately $536,000 and $1.1 million of other non-interest income for the three and six month periods ended June 30, 2023.
Current wording
Other non-interest income increased $315,000, or 51%, for the three months ended September 30, 2024 and decreased $849,000, or 29%, for the three and nine month periods ended September 30, 2024 compared with the same periods of 2023. The increase for the three month period was attributed largely higher swap fee income recorded during the current year. In addition, the prior year period included a $250,000 OREO write-down (no such activity in the current year period). The decrease for the nine month period was driven largely by Bancorp’s decision not to renew the insurance captive in late 2023, which contributed approximately $1.4 million of other non-interest income for nine month periods ended September 30, 2023.
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Previous report — wording carried elsewhere
Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to interest rate movements, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value via both an asset and a related liability as Bancorp has an agreement with the borrower (the asset) and the counterparty (the liability). Because of the matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, change in fair value have an offsetting effect on the related asset and liability.