Stock Yards Bancorp Reports Record Quarterly Earnings on Year-over-Year Loan Growth and Improved Credit Metrics

Stock Yards Bancorp, Inc. (NASDAQ: SYBT), parent company of Stock Yards Bank & Trust Company, with offices in the Louisville, Indianapolis and Cincinnati metropolitan markets, today reported record results for the third quarter and nine months ended September 30, 2014. The Company's strong performance continued to reflect several key drivers, including:

• Further improvements in overall credit quality, which enabled the Company to release reserves;
• Year-over-year loan growth and strong loan pipeline that should result in total loan production for 2014 that exceeds the record production level achieved last year;
• Continued growth in income from investment management and trust services, which complements earnings generated from lending;
• Stable net interest margin as the Company continues to deploy its strong capital base to grow its balance sheet; and
• Strong returns on average equity and assets.

Management estimates that the release of $2.1 million of reserves in the third quarter of 2014 added approximately $0.09 to third quarter 2014 diluted earnings per share. This estimate includes a normalized third quarter provision for loan losses of $835 thousand based upon the Company's historical charge-off trends from the pre-recession period between 2004 and 2007. Also included are the effects of incentive accruals and income taxes. Actions to forego a provision for loan losses and release reserves were deemed appropriate based on continued improvements in credit quality and other risk measures within management's allowance estimation process. Over the past 12 months, non-performing loans (NPLs) have declined 33%, while non-performing assets (NPAs) have declined 37%. Because risk in the portfolio is evaluated each quarter and internal and external conditions that affect the assessment of this risk are likely to change, the Company cannot predict if further releases of reserves will occur.

"Stock Yards Bancorp posted another strong performance for the third quarter of 2014, highlighted by record earnings," said David P. Heintzman, Chairman and Chief Executive Officer. "Our progress reflected an ongoing improvement in credit quality and growth in earnings from our investment management and trust department, both reflecting the strategies we have put into place to extend our record as one of the nation's top-performing community banks.

"We again experienced solid loan production during the third quarter, even exceeding the robust production we saw in the second quarter of this year," Heintzman continued. "However, early repayments, resulting from decisions by our customers to sell loan collateral or utilize available cash to pay down loans and lines of credit, prevented this progress from lifting our loan portfolio. Looking ahead, our loan pipeline looks very strong as we enter the fourth quarter, and based on likely loan closings in the fourth quarter, we are tracking toward a great year in building our loan portfolio.

"Our investment management and trust department continues to play a key role in the Company's earnings growth by diversifying fee income," Heintzman added. "At a time when many other community banks are seeing intensifying pressure on non-interest income, our investment management and trust department – with $2.23 billion of assets under management – increased its fee income 12% to $4.5 million in the third quarter of 2014 compared with the third quarter of last year."

Concluding, Heintzman said, "We are pleased with the Company's performance through the first nine months of 2014 and remain positive about continued growth in the fourth quarter. Our loan pipeline is promising, our margins are stable and our fee income generated from our investment management and trust department is growing. We believe our uninterrupted record of increasing dividend payments and our strong capital position highlight our successful strategy to build long-term stockholder value. In our view, Stock Yards Bancorp is positioned well to participate in the continued economic improvement in our home market and capitalize on new opportunities in our expansion markets."

Total assets increased $118 million or 5% at September 30, 2014, reaching $2.41 billion compared with $2.29 billion at September 30, 2013. The Company's loan portfolio increased $76 million or 4% to $1.79 billion at September 30, 2014, compared with $1.71 billion at September 30, 2013. Total deposits increased $125 million or 7% to $2.01 billion at September 30, 2014, from $1.88 billion at September 30, 2013. Core deposits as a percentage of total deposits increased to 93.8% at September 30, 2014, from 92.5% at September 30, 2013.

The Company's capital levels remained strong during the third quarter of 2014 and exceeded the required minimums necessary to be deemed a "well-capitalized" institution – the highest capital rating for financial institutions. By maintaining a strong capital position, Stock Yards Bancorp has continued to enhance stockholder value by steadily increasing cash dividends, raising the dividend rate five times over the past four years, and maintaining its flexibility to pursue expansion and other opportunities that may arise.

Net interest income – the Company's largest source of revenue – increased $1.3 million or 7% to $21.4 million in the third quarter of 2014 from $20.0 million in the prior-year quarter. In the third quarter of 2014, net interest margin was 3.80% versus 3.77% in the second quarter of 2014 and 3.79% in the third quarter of 2013.

NPLs totaled $20.5 million or 1.15% of total loans outstanding at September 30, 2014, down from $30.5 million or 1.78% of total loans at September 30, 2013. NPLs at September 30, 2014, increased from $19.5 million or 1.08% of total loans outstanding at June 30, 2014, due primarily to the classification of two related loans as non-performing. NPAs, which include NPLs and repossessed assets, were $23.3 million or 0.97% of total assets at September 30, 2014, down from $37.0 million or 1.62% of total assets at September 30, 2013. NPAs were $22.4 million or 0.93% of total assets at June 30, 2014.

Net charge-offs in the third quarter of 2014 totaled $537 thousand or 0.03% of average loans, up from $180 thousand or 0.01% of average loans in the second quarter of 2014 and down from $4.3 million or 0.26% of average loans in the year-earlier period.

In the third quarter of 2014, the Company released $2.1 million of its reserves for loan losses based on continued improvement in credit quality metrics and management's current assessment of risk in the loan portfolio, including an update to historic loss factors for certain portfolio segments. This release of reserves was recorded as a credit to the provision for loan losses and compared with a charge of $1.4 million in the second quarter of 2014 and a charge of $1.3 million in the prior-year quarter. The allowance for loan losses was 1.52% of total loans as of September 30, 2014, compared with 1.65% of total loans at June 30, 2014, and 1.70% of total loans at September 30, 2013.

Total non-interest income increased $198 thousand or 2% to $9.9 million in the third quarter of 2014 from $9.7 million for the prior-year quarter. Total non-interest expense increased $1.1 million or 6% to $18.7 million in the third quarter of 2014 from $17.6 million in the same period last year. The increase included approximately $830 thousand in accrued incentives related to the higher level of earnings in the third quarter of 2014.

In August 2014, Stock Yards Bancorp's Board of Directors declared a quarterly cash dividend $0.22 per common share. The latest dividend was distributed on October 1, 2014, to stockholders of record as of September 15, 2014.

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $2.41 billion in assets, was incorporated in 1988 as a bank holding company. It is the parent company of Stock Yards Bank & Trust Company, which was established in 1904. The Company's common shares trade on the NASDAQ Global Select Market under the symbol SYBT.

The following table provides a reconciliation of total stockholders' equity, in accordance with US GAAP, to tangible common equity, which is a non-GAAP financial measure. The Company provides the tangible common equity ratio, in addition to those defined by banking regulators, because of its widespread use by investors as a means to evaluate capital adequacy.

This report contains forward-looking statements under the Private Securities Litigation Reform Act that involve risks and uncertainties. Although the Company's management believes the assumptions underlying the forward-looking statements contained herein are reasonable, any of these assumptions could be inaccurate. Therefore, there can be no assurance the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from those discussed in forward-looking statements include, but are not limited to: economic conditions both generally and more specifically in the markets in which the Company and its subsidiaries operate; competition for the Company's customers from other providers of financial services; government legislation and regulation, which change from time to time and over which the Company has no control; changes in interest rates; material unforeseen changes in liquidity, results of operations, or financial condition of the Company's customers; and other risks detailed in the Company's filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company. See Risk Factors outlined in the Company's Form 10-K for the year ended December 31, 2013.

(1) - 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, state and local taxes yielding the same after-tax income.
(2) - Interim ratios not annualized