S.Y. Bancorp Reports Record Net Income for the First Quarter of 2013 of $6.8 Million or $0.49 Per Diluted Share

S.Y. 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 earnings for the first quarter of 2013. These results continued to reflect solid contributions from key areas of the Company, such as net interest income, investment management and trust services, and its mortgage origination business. Additionally, with increasing confidence as to credit risk in its loan portfolio, the Company reduced its provision for loan losses compared with the year-earlier quarter. Together, these factors helped offset the impact of a low interest rate environment, resulting in ongoing margin compression. The following is a summary of the Company's reported results:

Commenting on the Company's announcement, David Heintzman, Chairman and Chief Executive Officer, said, "Our strong results for the first quarter of 2013, highlighted by record earnings for the period, continued to demonstrate the exceptional breadth and depth of our operations, with all areas of the bank performing well in the first quarter. With respect to banking, which remained solid considering still-restrained net loan growth as many customers weigh the current economic uncertainties and early loan repayments continue at a higher level, we were pleased with the 5% year-over-year increase in our loan portfolio and the prospects for continued loan growth presented by our current loan pipeline. Also, we again benefited from a strong performance in our investment management and trust services department, which ended the first quarter with a record $2.1 billion in assets under management and maintained its ranking in the top 100 trust companies in the nation, based on revenue. Additionally, a solid profit contribution from our mortgage origination business added to our strong first quarter results. These areas reflected the continued momentum we experienced in 2012 and demonstrated the fundamental strength of our operational footprint in our home market of Louisville and our expansion markets of Indianapolis and Cincinnati."

Regarding market expansion, Heintzman noted that the Company expects to close the previously announced acquisition of THE BANCorp, INC. ("BANCorp"), the holding company for THE BANK – Oldham County, on or about April 30, 2013. The Company has received regulatory approval for the transaction and BANCorp stockholders approved the merger in a meeting on April 22, 2013. Headquartered in La Grange, Kentucky, THE BANK – Oldham County has four branches, one each in La Grange, Louisville, Crestwood and Prospect. The combination of S.Y. Bancorp and THE BANK – Oldham County, is expected to create the largest locally owned community bank in the Louisville MSA in terms of deposits relative to the total deposits in the MSA.

Heintzman also noted that the Company once again has been named to the KBW Bank Honor Roll, which is prepared annually by one of the nation's leading investment banks specializing in the financial services sector and is based on a banking institution's long-term earnings record. Only 47 banks were named to this exclusive ranking for 2012, and of those, 34 – including S.Y. Bancorp – repeated from the 2011 listing.

Concluding, Heintzman said, "With record earnings and continued growth on our balance sheet for the first quarter of 2013, we consider this to be an encouraging start to the new year. Clearly, challenges lie ahead as we continue to face a low interest rate environment, which will place ongoing pressure on our net interest margin. Still, considering our diverse markets, products and service lines, together with the positive impact of our expansion into Oldham County, I believe S.Y. Bancorp remains well positioned to deliver solid results to our stockholders in 2013."

S.Y. Bancorp's total assets increased $80.5 million or 4%, reaching $2.121 billion at March 31, 2013, compared with $2.041 billion at March 31, 2012. The Company's loan portfolio increased $69.2 million or 5% to $1.601 billion at March 31, 2013, compared with $1.532 billion at March 31, 2012. Total deposits increased $109.6 million or 7% to $1.737 billion at March 31, 2013, from $1.627 billion at the end of the first quarter of 2012.

Continuing a trend, the Company's capital levels strengthened further during the first quarter of 2013 on a sequential-quarter basis. The Company's Tier 1 leverage ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio were 11.11%, 13.60% and 14.86%, respectively, at March 31, 2013, with each exceeding the required minimum of 5%, 6% and 10%, respectively, necessary to be deemed a "well-capitalized" institution – the highest capital rating for financial institutions. The ratio of tangible common equity to total tangible assets was 9.82% at March 31, 2013, up from 9.52% at December 31, 2012, and 9.37% as of March 31, 2012 (see reconciliation of GAAP and non-GAAP measures later in this release). The Company intends to maintain capital ratios at historically higher levels, at least until there is greater certainty regarding sustainable economic improvements and clarity regarding the effects of Basel III, if any, and to remain well positioned to pursue expansion and other opportunities that may arise. That said, S.Y. Bancorp has continued its efforts to enhance stockholder value through steadily increased cash dividends, raising the dividend rate five times over the past six years.

Net interest income – the Company's largest source of revenue – was $18.5 million as of March 31, 2013, largely flat compared with the prior-year quarter. In the first quarter of 2013, net interest margin was 3.83% versus 4.07% in the first quarter of 2012 and 3.78% in the fourth quarter of 2012.

Net interest margin in the first quarter of 2013 continued to reflect a higher amount of prepayment fees associated with an increase in loan refinancing activity. Adjusting for these sources of additional income, the Company's more normalized or core net interest margin increased to 3.77% for the first quarter of 2013 from 3.74% in the fourth quarter of 2012, but it was down from 3.85% for the third quarter of 2012, 3.94% in the second quarter of 2012, and 4.00% for the first quarter of 2012 (see reconciliation of GAAP and non-GAAP measures later in this release). Management believes these core margins better indicate the increasing pressure of a low interest rate environment and a highly competitive loan market, and it currently expects margin compression to continue in 2013, resulting in core net interest margin for the full year of between 3.65% and 3.70%.

Non-performing loans (NPLs) totaled $33.5 million or 2.09% of total loans outstanding at March 31, 2013, up from $30.0 million or 1.90% of total loans outstanding at December 31, 2012, and $29.1 million or 1.90% of total loans at March 31, 2012. The increase in NPLs reflected primarily a single construction and development credit that migrated to non-accrual status from substandard classification in the first quarter of 2013. Included in NPLs are loans that have been restructured totaling approximately $11.0 million at both March 31, 2013, and December 31, 2012, and $9.4 million at March 31, 2012. These loans are performing in accordance with their restructured terms and are accruing interest. Non-performing assets (NPAs), which include NPLs and repossessed assets, were $39.2 million or 1.85% of total assets at March 31, 2013, up from $37.4 million or 1.74% of total assets at December 31, 2012, and $37.6 million or 1.84% of total assets at March 31, 2012.

Net charge-offs in the first quarter of 2013 totaled $2.2 million or 0.14% of average loans, up from net charge-offs of $1.8 million or 0.12% of average loans in the fourth quarter of 2012, but down from $2.6 million or 0.17% of average loans in the year-earlier period. The increase in net charge-offs for the first quarter of 2013 related primarily to the aforementioned construction and development credit that migrated to non-accrual status; at the time of the change in status, the Company recorded a partial charge-off on the credit.

The Company strives to identify risk in its portfolio early and establishes an allocation based on the Company's allowance methodology. The Company's loan loss provision for the first quarter of 2013 was $2.3 million, resulting in an allowance for loan losses of 2.00% of total loans as of March 31, 2013. This compared with a provision of $2.5 million and an allowance for loan losses of 2.01% for the fourth quarter of 2012 and a provision of $4.1 million and an allowance for loan losses of 2.04% for the first quarter of 2012. Management believes the Company remains adequately reserved based on its current assessment of overall credit quality. This supports a reduction in the amount of the provision for loan losses in the first quarter of 2013 compared with both the sequential and year-earlier quarter.

Although the Company 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, S.Y. Bancorp intends to remain cautious in assessing the potential risk in its loan portfolio and expects to maintain its allowance for loan losses and other credit costs at recently high levels, at least for the near term, until credit metrics improve further.

At $9.2 million for the first quarter of 2013, non-interest income was essentially unchanged from the prior-year. Strong growth in income from investment management and trust services and the bank's mortgage origination business essentially offset declines in non-core income from last year. Income from investment management and trust services increased $396,000 or 11% in the first quarter of 2013 versus the year-earlier period, while gains on sales of mortgage loans increased $128,000 or 17% in the quarter. The $551,000 or 46% decline in other non-interest income from the first quarter of 2012 primarily reflected the inclusion of income from an investment in a private investment fund in the year-earlier quarter. The investment was liquidated in the first quarter of 2012.

Non-interest expense increased $843,000 or 6% to $15.6 million in the first quarter of 2013 from $14.7 million in the same period last year. The increase in non-interest expense was due primarily to higher personnel costs. The Company's occupancy costs declined in the first quarter of 2013 from the year-earlier period due to a one-time rent refund on certain leased facilities. Other non-interest expense increased 14% on a comparable-quarter basis primarily as a result of the timing of expenses incurred. The Company's first quarter efficiency ratio was 55.76% compared with 52.32% in the first quarter of 2012.

The Company's first quarter results reflected a higher effective income tax rate versus the comparable period last year due to the adjustment of certain tax credits and a declining proportion of non-taxable interest income relative to total interest income. The Company expects its effective tax rate will trend at approximately 30% during the remainder of 2013.

In February 2013, S.Y. Bancorp's Board of Directors declared a quarterly cash dividend of $0.20 per common share. The latest dividend was distributed on April 1, 2013, to stockholders of record as of March 11, 2013.

Louisville, Kentucky-based S.Y. Bancorp, Inc., with more than $2.12 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 trust preferred securities of S.Y. Bancorp Capital Trust II also trade on the NASDAQ Global Select Market under the symbol SYBTP.

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.

The following table provides a reconciliation of total stockholders' equity in accordance with US GAAP to tangible common equity in accordance with applicable regulatory requirements. 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.

The following table provides a reconciliation of net interest margin in accordance with US GAAP to normalized net interest margin. The Company provides this information to illustrate the trend in quarterly net interest margin sequentially during 2012 and to show the impact of prepayment fees and late charges on net interest margin.