S.Y. Bancorp Reports First Quarter 2014 Net Income up 21% to $8.2 Million or $0.56 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 that first quarter net income increased 21% to $8,177,000 or $0.56 per diluted share for the three-month period ended March 31, 2014.

The following is a summary of the Company's reported results:

The Company's performance continues to underscore solid financial achievements. Highlights of the first quarter included:

• Ongoing improvements in overall credit quality, reflecting a notable decline in charge-offs, non-performing loans and assets that support a $2 million reduction in the level of loan loss provision compared with that for the prior-year quarter;
• Interest savings of $750 thousand from the fourth quarter 2013 redemption of the Company's trust preferred securities;
• A net gain of $343 thousand on the disposition of several properties of other real estate owned (OREO);
• Attractive growth in income from investment management and trust services;
• Strong and improved returns on average equity and assets; and
• Consistent loan production and continued net loan growth.

"We are pleased to report another solid performance by the Company for the first quarter of 2014," said David P. Heintzman, Chairman and Chief Executive Officer. "Several broad, positive trends continued to drive our business growth and higher earnings, including steadily improving credit quality metrics that support our efforts to reduce credit costs, coupled with ongoing expansion and growth in our investment management and trust services department. While loan production for the first quarter was comparable to the same quarter last year, overall loan growth remains challenging due to the pace of loan repayments."

Regarding the Company's investment management and trust department, Heintzman noted that, following a record year in 2013, the department completed the first quarter of 2014 with an 18% increase in fee income for the quarter. This increase reflected a continuation of favorable stock market trends, combined with ongoing new business growth and an increase in estate fees. This performance helped offset a decline in mortgage banking revenue as the Bank's mortgage division continued to face reduced loan refinancing demand and lower purchase volume due in part to severe winter conditions that dampened home-buying activities throughout most of the first quarter.

Heintzman also discussed how improving credit quality metrics have enabled the Company to reduce the level of provision for loan losses in the first quarter, even more than management anticipated. Most credit quality indicators have now returned to a more normalized level: compared with figures as of March 31, 2013, non-performing loans (NPLs) have declined 39%, other real estate owned (OREO) and repossessed assets have declined 49%, and non-performing assets (NPAs) have declined 40%. On a linked-quarter basis, NPLs have declined 11%, OREO and repossessed assets have declined 48%, and NPAs have declined 18% since December 31, 2013.

"While many positive things are happening in our business, we are still encountering headwinds in some areas," Heintzman continued, "including a challenging interest rate environment and competitive lending landscape, both of which have worked to restrain an improvement in our net interest margin. While net interest margin is up sequentially in the first quarter of 2014, it is almost entirely because of the redemption of our trust preferred securities in the fourth quarter of 2013. Absent competitive pressures, we believe the first quarter net interest margin will be representative of the remainder of 2014. In addition to normal prepayments offsetting loan production, we experienced an unusually large amount of payoffs in the first quarter of 2014 related to collateral dispositions and businesses being sold. Although this contributed to lower net loan growth for the quarter, we do not expect this to be a continuing trend."

Concluding, Heintzman said, "In the first quarter, we were able to build on the momentum that developed in our business last year, strengthening our foundation for future growth and extending our track record as one of the top-performing community banks in the country. Validating these efforts, we have learned that S.Y. Bancorp once again has been named to the KBW Bank Honor Roll, a ranking prepared annually by one of the nation's leading investment banks specializing in the financial services sector. Only 31 banks were named to this exclusive ranking for 2013, down from 47 for 2012, and of those 31 selected based on their 10-year record, only 27 – including S.Y. Bancorp – repeated from the 2012 listing. Considering the economic vitality of our markets, the competitive differentiation offered by our high-performing investment management and trust department, and a stable loan pipeline, we are confident that the Company remains well positioned to achieve further growth, attractive profitability and solid shareholder returns over the course of the year."

S.Y. Bancorp's total assets increased $233 million or 11% at March 31, 2014, reaching $2.35 billion compared with $2.12 billion at March 31, 2013. The Company's loan portfolio increased $127.7 million or 8% to $1.73 billion at March 31, 2014, compared with $1.60 billion at March 31, 2013. Total deposits increased $251 million or 14% to $1.99 billion at March 31, 2014, from $1.74 billion at March 31, 2013.

As reflected below, the Company's capital levels remained strong during the first quarter of 2014 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.

The Company has continued to maintain capital ratios at historically higher levels to enhance its flexibility to pursue expansion and other opportunities that may arise. Even considering those objectives, 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 $1.8 million or 10% to $20.2 million in the first quarter of 2014 from $18.5 million in the prior-year quarter. In the first quarter of 2014, net interest margin was 3.76% versus 3.61% in the fourth quarter of 2013 and 3.83% in the first quarter of 2013. The increase in net interest margin sequentially from the fourth quarter of 2013 primarily reflected the aforementioned redemption of trust preferred securities.

NPLs totaled $20.5 million or 1.18% of total loans outstanding at March 31, 2014, down from $22.9 million or 1.33% of total loans outstanding at December 31, 2013, and $33.5 million or 2.09% of total loans at March 31, 2013. Included in NPLs are loans that have been restructured totaling approximately $7.3 million at March 31, 2014, $7.2 million at December 31, 2013, and $11.0 million at March 31, 2013. These loans are performing in accordance with their restructured terms and are accruing interest. NPAs, which include NPLs and repossessed assets, were $23.4 million or 0.99% of total assets at March 31, 2014, down from $28.5 million or 1.19% of total assets at December 31, 2013, and $39.2 million or 1.85% of total assets at March 31, 2013.

Net charge-offs in the first quarter of 2014 totaled $281 thousand or 0.02% of average loans, down from $2.0 million or 0.12% of average loans in the fourth quarter of 2013 and $2.2 million or 0.14% of average loans in the year-earlier period.

Because of ongoing improvements in credit quality metrics, the Company's loan loss provision for the first quarter of 2014 was $350 thousand, down from $1.6 million in the fourth quarter of 2013 and $2.3 million in the prior-year quarter. The allowance for loan losses stood at 1.65% of total loans at March 31, 2014, compared with 1.66% of total loans as of December 31, 2013, and 2.00% at March 31, 2013. Management believes the Company remains adequately reserved based on its current assessment of overall risk in the loan portfolio.

Total non-interest income increased $247 thousand or 3% to $9.5 million in the first quarter of 2014 from $9.2 million for the prior-year quarter and represented 32% of total revenue for the first quarter of 2014 versus 33% of total revenue in the first quarter of 2013. The increase primarily reflected a $682 thousand or 18% increase in income from investment management and trust services, which was partially offset by a decrease of $592 thousand or 50% in mortgage banking revenue.

Total non-interest expense increased $2.0 million or 13% to $17.5 million in the first quarter of 2014 from $15.6 million in the same period last year. The change primarily reflected a $1.5 million or 15% increase in salaries and employee benefits, a $325 thousand or 26% increase in net occupancy expense, a $204 thousand or 15% increase in data processing expense and a $314 thousand or 12% increase in other non-interest expense, which together were partially offset by a $343 thousand gain on the sale of OREO properties. The increase in salaries and employee benefits was attributable to the addition of sales, lending, support and service personnel throughout the Bank and its investment management and trust department, including positions related to a bank acquisition in the second quarter of 2013, and normal salary increases. The increase in net occupancy expense primarily reflected higher snow removal costs, a non-recurring rent concession recorded in the first quarter of 2013, and the addition of four branches acquired in the second quarter of 2013. The increase in data processing expense primarily reflected a change in the way debit card transactions are charged by the Bank's new bank card processor. Other non-interest expense increased primarily due to losses on debit cards, amortization of core deposit intangibles, an increase in state and local bank taxes, and other items that were not individually significant.

In February 2013, S.Y. Bancorp's Board of Directors declared a quarterly cash dividend of $0.21 per common share. The latest dividend was distributed on April 1, 2014, to stockholders of record as of March 10, 2014.

Louisville, Kentucky-based S.Y. Bancorp, Inc., with $2.35 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. 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 2014 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.