Stock Yards Bancorp Reports Third Quarter 2015 Net Income of $9.3 Million or $0.62 Per Diluted Share

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 results for the third quarter and nine months ended September 30, 2015, with net income for the third quarter totaling $9.3 million or $0.62 per diluted share. Net income for the year-earlier period, which included the impact of a $2.1 million release of reserves for loan losses in the third quarter of 2014, was $9.9 million or $0.67 per diluted share.

The Company's performance for the third quarter of 2015 reflected several positive factors, including:

• Strong loan portfolio growth, at the fastest pace of the year, together with a solid pipeline of loan production entering the final quarter of the year;
• Continued strength in credit quality that again enabled the Company to forego a provision for loan losses;
• The ongoing positive impact of diverse sources of fee income, led by higher mortgage banking revenue; and
• Solid returns on average assets and equity.

"We are pleased to announce another good quarterly performance for Stock Yards Bancorp, highlighted by strong loan production and solid portfolio growth," said David P. Heintzman, Chairman and Chief Executive Officer. "Amplifying this ongoing success, credit quality metrics remained at extremely strong levels in the third quarter, while our diverse sources of non-banking revenue continued to drive overall growth in fee-based income."

Heintzman noted that each of the Company's three markets participated in the quarter's loan growth, as loan production continued to outpace last year's record level. The Cincinnati market, which benefited from the recent opening of two branches and the addition of new lenders there, contributed significantly to the Company's overall loan growth for the quarter. Based on this combined momentum, Heintzman believes that solid, if not record loan production will extend into the fourth quarter, positioning the Company for a strong finish for the year.

"As to the quality of our loan portfolio, credit metrics remained at very strong levels for the third quarter, which enabled us to again forego a provision for loan losses while still providing solid coverage ratios for potential losses in our portfolio," Heintzman continued. "Moreover, metrics that serve as early indicators of credit stress, such as past due balances, remain favorable, further assuring the soundness of our portfolio."

"I also would point out the strength of our fee-income activities, which again contributed more than 31% of our total revenue for the quarter," Heintzman added. "With total assets under management of almost $2.2 billion, our investment management and trust department remains the most significant source of these revenues, even as it tracks slightly below year-earlier levels. However, so far this year, it has generated net new business well ahead of levels for the same period last year, and we are confident that the investment management and trust department's revenue will resume its growth in 2016. Meanwhile, our mortgage banking revenue, after peaking in the second quarter of 2015, continues to exceed our expectations."

Concluding, Heintzman said, "We are pleased with the Company's solid results for the third quarter and its progress in virtually all areas of our business. These factors reaffirm our confidence in the strategies we have established to grow Stock Yards Bancorp prudently, remain consistent in our performance, and generate attractive returns for our stockholders over the long term through higher earnings and dividend increases. Looking forward to the fourth quarter of the year, we are enthusiastic about the opportunities ahead to extend this progress and to continue to outpace our peers as one of the nation's high-performing community banks."

Total assets increased $217 million or 9% at September 30, 2015, to $2.62 billion from $2.41 billion at September 30, 2014. The Company's loan portfolio increased $169 million or 9% to $1.95 billion at September 30, 2015, from $1.79 billion at September 30, 2014. Total deposits increased $134 million or 7% to $2.14 billion at September 30, 2015, from $2.01 billion at September 30, 2014. Core deposits, as defined by the Company's primary regulator, as a percentage of total deposits remained virtually unchanged at 98.4% as of September 30, 2015, compared with 98.1% at September 30, 2014.

Posting strong capital levels in the third quarter of 2015, the Company again exceeded required thresholds necessary to be considered a "well-capitalized" institution – the highest capital rating for financial institutions. Anchored by a consistently solid capital position, Stock Yards Bancorp has continued to pursue capital strategies to enhance stockholder value by increasing cash dividends – raising its dividend rate seven times since December 2010 – while maintaining its financial flexibility to pursue expansion and acquisition opportunities that may arise from industry consolidation. In August 2015, Stock Yards Bancorp's Board of Directors declared a quarterly cash dividend of $0.24 per common share, which was distributed on October 1, 2015, to stockholders of record as of September 14, 2015.

Net interest income – the Company's largest source of revenue – increased $718 thousand or 3% to $22.1 million in the third quarter of 2015 from $21.4 million in the prior-year quarter.

As anticipated, net interest margin (on a fully tax-equivalent basis) remained under pressure in the third quarter of 2015, declining to 3.66% from 3.75% in the second quarter of 2015 and 3.80% in the third quarter of 2014. A general trend over the past year, margin compression reflects the prevailing low interest rate environment as well as the impact of heightened competition on lending rates. Management anticipates that margin pressure likely will continue considering that interest rate levels could remain unchanged over the near team. Moreover, any initial increases in interest rates will not immediately benefit the Company since approximately 65% of its loan portfolio is at fixed rates and 15% of its loan portfolio is priced at variable rates with floors of 4%. Therefore, a rise in rates would have a short-term negative impact on net interest margin until floor thresholds are surpassed.

Non-performing loans (NPLs) totaled $11.2 million or 0.57% of total loans outstanding at September 30, 2015, up from $9.9 million or 0.52% of total loans outstanding at June 30, 2015, but down from $20.5 million or 1.15% of total loans at September 30, 2014. The increase in NPLs for the third quarter of 2015 primarily reflected the migration of two lending relationships to non-accrual status, on which the Company's exposure to loss is now fully allocated within its reserve for loan losses. Similarly, non-performing assets (NPAs), which include NPLs along with other real estate owned (OREO) and repossessed assets, were $15.8 million or 0.60% of total assets at September 30, 2015, up slightly from $14.2 million or 0.57% of total assets at June 30, 2015, but down from $23.3 million or 0.97% of total assets at September 30, 2014. Despite the small increases in NPLs and NPAs in the third quarter, the Company continues to see broadly improving trends, which now extend over the past two years and have enabled the Company to reach asset quality levels not experienced on a regular basis since 2008.

Net charge-offs for the third quarter of 2015 totaled $1.7 million or 0.09% of average loans, up from $1.6 million or 0.08% of average loans for the second quarter of 2015 and $537 thousand or 0.03% of average loans for the prior-year quarter. Net charge-offs for the third quarter of 2015 included a $2.0 million charge-off on one lending relationship, to which reserves had been fully allocated. This charge-off was offset in part by a $650 thousand recovery against a loan that was previously charged off.

Considering management's overall assessment of risk in the loan portfolio, including the impact of recent loan growth and ongoing improvements in asset quality, the Company did not record a loan loss provision for the third quarter of 2015, a continuation of a pattern that began in the fourth quarter of 2014, after the release of $2.1 million of reserves in the third quarter of 2014. The Company's allowance for loan losses was 1.11% of total loans as of September 30, 2015, down from 1.23% at June 30, 2015, and 1.52% at September 30, 2014.

Total non-interest income in the third quarter of 2015 increased $135 thousand or 1.4% to $10.0 million from $9.9 million in the prior-year quarter, primarily reflecting a $131 thousand or 20% increase in mortgage banking revenue, which was offset by a $129 thousand or 3% decline in revenue from investment management and trust services, the largest source of fee income for the Company. Total non-interest income in the first nine months of 2015 increased $495 thousand or 1.7% to $29.9 million from $29.4 million in the prior-year period, reflecting trends similar to the third quarter, but with even stronger growth in mortgage banking revenue.

Total non-interest expense for the third quarter of 2015 decreased $279 thousand or 1.5% to $18.4 million from $18.7 million in the prior-year quarter. The decrease was due primarily to incentive compensation last year associated with that period's higher net income, which more than offset current increases in salaries and health insurance costs that reflected the addition of lenders and staff during the past year along with higher health insurance costs. Total non-interest expense for the first nine months of 2015 increased $1.1 million or 2.1% to $55.1 million from $54.0 million in the prior-year quarter due primarily to a swing to losses on OREO for the year-to-date 2015 period from gains on OREO for the first nine months of 2014.

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $2.6 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, 2014.

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