S.Y. Bancorp Reports Record Results for the Year 2013

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 solid financial results for the fourth quarter and year ended December 31, 2013, with earnings per diluted share reaching $0.43 for the fourth quarter and a record $1.89 for the year.

The Company's performance continues to underscore solid contributions from key areas of the Company. Highlights of the fourth quarter included:

• Ongoing net loan growth as well as a stable pipeline of new loan opportunities;
• Further improvements in credit quality, reflecting a significant decline in non-performing loans and assets that supports a lower loan loss provision compared with the prior-year quarter;
• Increased income from investment management and trust services;
• The redemption of the Company's trust preferred securities, which will result in future interest savings; and
• A 5% increase in the quarterly cash dividend.

The Company's results for the fourth quarter and year ended December 31, 2013, included the effect of several non-core items. Excluding these items, net income for the fourth quarter of 2013 and year-to-date period ended December 31, 2013, was $7.1 million or $0.49 per diluted shares and $28.3 million or $1.97 per diluted share, respectively. See reconciliation of GAAP and non-GAAP measures later in this release.

"This past year was an exciting and prosperous time for S.Y. Bancorp, highlighted by attractive growth in several aspects of our business, new opportunities realized, and higher earnings for the fourth consecutive year," said David P. Heintzman, Chairman and CEO. "These advances, in turn, translated into another year of strong returns for our shareholders, further solidifying our foundation for future growth and attesting to our standing as one of the top-performing community banks in the country."

Heintzman noted that the Company's second quarter acquisition of THE BANCorp, INC. ("BANCorp"), the holding company for THE BANK – Oldham County, was an important highlight of 2013. "The acquisition of BANCorp provided us with a physical presence in demographically attractive Oldham County and was successful for us from the start, marked by the ongoing loyalty of customers and effective integration efforts. Since the acquisition, we have experienced growth in both the loan portfolio and deposit base there, and our greater visibility in the area has resulted in increased traction with new business opportunities for commercial lending. It also has created a platform for the continued expansion of our investment management and trust services, as well as our mortgage origination services.

"Throughout 2013, we continued to see a strong performance in our banking operations, with all three of our markets experiencing higher loan production," Heintzman continued. "Combined, this growth resulted in record loan production for the year that topped $489 million, pushing our loan portfolio up $137 million or almost 9% in 2013. Excluding loans acquired in the BANCorp acquisition, core loan growth was more than 6% for the year. This loan growth also helped offset the net interest margin pressure we experienced in 2013."

Heintzman pointed out that while growing loan volume was instrumental to the Company's progress in 2013, strengthening credit quality metrics also were a key factor, allowing S.Y. Bancorp to reduce its credit costs – primarily the provision for loan losses. Non-performing assets (NPAs) have declined approximately 33% from the peak in 2012 and, relative to total assets, NPAs declined steadily over the last three quarters of 2013 to end the year at the lowest level since midyear 2011.

In addition to the momentum seen in its banking operations, Heintzman noted that the Company's investment management and trust services department achieved record revenue in 2013, which was capped by an 18% comparable increase in the final quarter. With $2.23 billion in assets under management – which rose 14% for the year – this department has benefited from new business growth as well as the overall stronger stock market conditions. It continues to rank among the top 100 bank trust departments in the nation, based on revenue.

The Bank's mortgage division experienced an 85% decline in refinancing volume in 2013 compared with volume for 2012. Loan refinancing demand declined in the wake of rising interest rates, consistent with national trends. Offsetting this to some extent, purchase loan activity increased 13% in 2013. As a result of these mixed trends, mortgage banking revenue for 2013 fell 31% from record achievements in 2012.

Concluding, Heintzman said, "We are pleased that the Company has again posted record results for the year, and we are excited about what the fundamental strength of our operations means for the Company and its shareholders going forward. With a consistent pipeline of new business for the year ahead, we believe the Company remains well positioned to extend its record of growth, profitability and attractive shareholder returns."

S.Y. Bancorp's total assets increased $241 million or 11% at December 31, 2013, reaching $2.39 billion compared with $2.15 billion at December 31, 2012. The Company's loan portfolio increased $136.8 million or 9% to $1.72 billion at December 31, 2013, compared with $1.58 billion at December 31, 2012. Total deposits increased $199.2 million or 11% to $1.98 billion at December 31, 2013, from $1.78 billion at December 31, 2012.

As reflected below, the Company's capital levels remained strong during the fourth quarter of 2013 and exceeded the required minimums of 5%, 6% and 10%, respectively, necessary to be deemed a "well-capitalized" institution – the highest capital rating for financial institutions.

On December 31, 2013, the Company redeemed at par all of its 10% fixed-rate cumulative trust preferred securities, or $30 million. The redemption will eliminate related future interest costs and is expected to add $0.13 to annual earnings per diluted share in 2014. In connection with this, the Company wrote off approximately $1.3 million ($835 thousand or $0.06 per diluted share after tax) in unamortized debt issuance costs in the fourth quarter, which was recorded as other non-interest expense. The redemption caused capital ratios to fall somewhat at December 31, 2013, compared with those of September 30, 2013, but all ratios remain well above regulatory thresholds.

The Company has maintained capital ratios at historically higher levels in light of current economic and political uncertainties and to remain well positioned to pursue expansion and other opportunities that may arise. Even with those objectives in mind, S.Y. Bancorp has continued to enhance stockholder value through steadily increased cash dividends, raising the dividend rate four times over the past three years.

Net interest income – the Company's largest source of revenue – increased $1.5 million or 8% to $19.8 million in the fourth quarter of 2013 from $18.3 million in the prior-year quarter. For 2013, net interest income increased $3.3 million or 5% to $77.3 million from $74.0 million in the prior-year period. In the fourth quarter of 2013, net interest margin was 3.61% versus 3.79% in the third quarter of 2013 and 3.78% in the fourth quarter of 2012. Net interest margin for the full year declined 20 basis points to 3.74% from 3.94% for 2012. Net interest margin in the fourth quarter of 2013 continued to reflect a higher amount of prepayment fees that management considers non-recurring. The Company's normalized or core net interest margin declined to 3.53% for the fourth quarter of 2013 from 3.63% for the third quarter of 2013, 3.66% in the second quarter, 3.77% in the first quarter of 2013, and 3.74% in the fourth quarter of 2012 (see reconciliation of GAAP and non-GAAP measures later in this release). The decline in core net interest margin in the fourth quarter of 2013 versus the linked third quarter was due primarily to excess liquidity caused by a temporary influx of public funds at the end of the year.

Non-performing loans (NPLs) totaled $23.0 million or 1.33% of total loans outstanding at December 31, 2013, compared with $30.5 million or 1.78% of total loans outstanding at September 30, 2013, and $30.0 million or 1.90% of total loans at December 31, 2012. Included in NPLs are loans that have been restructured totaling approximately $7.2 million at December 31, 2013, $8.6 million at September 30, 2013, and $11.0 million at December 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 $28.5 million or 1.19% of total assets at December 31, 2013, a decrease from $37.0 million or 1.62% of total assets at September 30, 2013, and $37.4 million or 1.74% of total assets at December 31, 2012.

Net charge-offs in the fourth quarter of 2013 totaled $2.0 million or 0.12% of average loans, down from $4.3 million or 0.26% of average loans in the third quarter of 2013, but up slightly from $1.8 million or 0.12% of average loans in the year-earlier period. Net charge-offs for the year were 0.60% of average loans, unchanged from net charge-offs for 2012.

The Company's loan loss provision for the fourth quarter of 2013 was $1.6 million, up from $1.3 million in the third quarter of 2013 and compared with $2.5 million in the prior-year quarter. The loan loss provision for the year was $6.6 million, down $4.9 million or 43% from $11.5 million for 2012. The allowance for loan losses stood at 1.66% of total loans as of December 31, 2013, compared with 1.70% at September 30, 2013, and 2.01% at December 31, 2012. Management believes the Company remains adequately reserved based on its current assessment of overall risk in the loan portfolio.

Total non-interest income decreased $316 thousand or 3% to $9.8 million in the fourth quarter of 2013 compared with $10.1 million for the prior-year quarter. The decline primarily reflected a decrease of $1.3 million or 68% in mortgage banking revenue, which was partially offset by a $652 thousand or 18% increase in income from investment management and trust services. For 2013, in addition to changes similar to those discussed for the fourth quarter, total non-interest income increased 1% to $39.0 million compared with $38.5 million in 2012, including the bargain purchase gain of $449 thousand related to the acquisition of BANCorp during the second quarter of 2013.

Total non-interest expense increased $2.2 million or 13% to $19.4 million in the fourth quarter of 2013 from $17.2 million in the same period last year. The change primarily reflected a $1.2 million or 12% increase in salaries and employee benefits, a $477 thousand or 42% increase in data processing expense, and a $588 thousand or 15% increase in other non-interest expense. The increase in salaries and employee benefits was attributable to the addition of personnel in connection with the acquisition of BANCorp and the expansion of the Bank's investment management and trust department, normal salary increases, higher performance-based compensation, and increased benefit costs. The increase in data processing expense primarily reflected a refund of fees in 2012 that benefited the prior-year fourth quarter and the reissuance of debit cards in the fourth quarter of 2013, an action related to the recent selection of a new bank card processor. Other non-interest expense increased primarily due to the write-off of $1.3 million in debt issuance costs in connection with the Company's redemption of its trust preferred securities. For 2013, total non-interest expense increased $5.9 million or 9% to $71.4 million compared with $65.5 million in 2012. In addition to the items of note for the fourth quarter, total non-interest expense for 2013 included second quarter acquisition-related expenses of $1.5 million and a third quarter write-off of other real estate owned totaling $365 thousand, which were partially offset by the elimination in the third quarter of a $505 thousand liability for expired debit card rewards.

In November 2013, S.Y. Bancorp's Board of Directors declared a quarterly cash dividend of $0.21 per common share, a 5% increase over the previous rate of $0.20 per common share. The latest dividend was distributed on December 31, 2013, to stockholders of record as of December 9, 2013.

Louisville, Kentucky-based S.Y. Bancorp, Inc., with $2.39 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 net income and earnings per diluted share to adjusted net income and adjusted earnings per diluted share, both non-GAAP measures. The Company provides non-GAAP earnings information to improve the comparability of its results and provide additional insight into the strength of the Company's operations.

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 core net interest margin. The Company provides this information to illustrate the trend in quarterly net interest margin sequentially during 2012 and 2013 and to show the impact of prepayment fees and late charges on net interest margin.

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.