Stock Yards Bancorp Posts Record Results for 2015

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 fourth quarter ended December 31, 2015, with net income totaling $9.6 million or $0.64 per diluted share, up 11% from $8.7 million or $0.59 per diluted share for the fourth quarter of 2014. Net income for the year increased to a record $37.2 million or $2.48 per diluted share, up 7% compared with net income of $34.8 million or $2.36 per diluted share for 2014.

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

• Strong net loan growth, accelerating further from a brisk third quarter pace;
• Continued strength in credit quality;
• An ongoing benefit from diverse fee income, led by higher mortgage banking revenue; and
• Solid returns on average assets and equity of 1.41% and 13.44%, respectively

"We are pleased to report a very sound performance by the Company during the fourth quarter of 2015, highlighted by remarkable loan growth, continued strong credit quality trends and the added lift of higher fee-based income," said David P. Heintzman, Chairman and Chief Executive Officer. "Importantly, these factors combined to push full-year earnings to another record, building on the momentum we have established over the past several years. With these record results, meaningful and growing dividends, and strong returns for stockholders, Stock Yards Bancorp continues to extend its long record of consistent growth and remains at the forefront of the nation's top-performing community banks."

Heintzman noted that the Company posted net loan growth of $164 million for 2015 – all organic, which increased its portfolio almost 9% for the year. This followed similar increases in the Company's loan portfolio for 2014 and 2013. "I am very pleased with the effort and dedication our bankers have put forward in growing the Bank this past year," Heintzman added. "This portfolio growth is significant not merely in amount, but also from the perspective of time: consider that it took the Bank about 100 years to reach $1 billion in loans and then just 10 more years to double to $2 billion. None of this would have been possible if not for all of our employees' hard work, determination and delivery of superior customer service."

Heintzman noted that growth in the Company's portfolio for 2015 underscored the Bank's success in achieving rapid expansion in loan production, which reached a record level for the second consecutive year. The acceleration witnessed in 2015 was spread across each of the Company's three markets and was led by commercial and industrial as well as owner-occupied real estate lending. Further expansion of the Bank's presence into the northern Kentucky area of the Cincinnati MSA during 2015 also contributed to the faster pace of loan production during the last six months of the year, and that expansion remains ahead of expectations. According to Heintzman, management is confident with the Bank's lending pipeline heading into 2016.

Heintzman noted that the Company's platforms for generating substantial fee-based income accounted for more than 31% of total revenue for 2015, a level well ahead of peers. Mortgage banking ended 2015 31% above its 2014 performance with revenue of $3.5 million. Demand for purchase mortgages and mortgage refinancings remained generally solid throughout the year. The Company's most significant source of fee income, its investment management and trust department, with total assets under management of $2.2 billion, provided $18.0 million of revenue in 2015, which was down slightly for the year. However, because it has generated net new business well ahead of levels for 2014, revenue resumed growth in the fourth quarter of the year. Management is optimistic that the investment management and trust department will deliver stronger growth in 2016, but notes that increased market volatility could affect near-term results.

Concluding, Heintzman said, "We are excited to begin 2016 in a strong position, ready to capitalize further on our momentum from last year and leverage the opportunities that continue to arise in our business and across our markets. The growth we accomplished in 2015 validates the strategies we have put in place to expand our business, diversify our revenue streams, generate attractive returns over the long term through higher earnings and dividend increases, and remain consistent in our performance. Considering this outlook, along with our strong presence in three economically attractive markets, we believe Stock Yards Bancorp remains poised for further growth. Moreover, our strong capital base provides us with the financial flexibility to take advantage of market disruptions as industry consolidation continues and strengthens our ability to increase future dividends as we work to enhance stockholder value."

Total assets increased $253 million or 10% at December 31, 2015, to $2.82 billion from $2.56 billion at December 31, 2014. The Company's loan portfolio increased $164 million or 9% to $2.03 billion at December 31, 2015, from $1.87 billion at December 31, 2014. Total deposits increased $248 million or 12% to $2.37 billion at December 31, 2015, from $2.12 billion at December 31, 2014. Core deposits, as defined by the Company's primary regulator, held steady at 98% of total deposits as of December 31, 2015, notwithstanding significant loan growth.

Sustaining strong capital levels in the fourth quarter of 2015, the Company again exceeded required thresholds necessary to be considered a "well-capitalized" institution, the highest capital rating for financial institutions. Because of its consistently solid capital position, Stock Yards Bancorp has continued to pursue capital strategies to enhance stockholder value by increasing cash dividends. In November 2015, Stock Yards Bancorp's Board of Directors raised the quarterly cash dividend rate 4% to $0.25 per common share, representing the second increase in 2015 and the eighth such increase since December 2010, for a cumulative increase of more than 47% over the past five years. This dividend was distributed on December 31, 2015, to stockholders of record as of December 14, 2015. While the Company has maintained its financial flexibility to pursue expansion and acquisition opportunities that may arise from industry consolidation, management and the Company's Board of Directors acknowledge the Company's growing capital base and are considering additional alternatives to deploy it in ways that will drive higher stockholder value over the long-term.

Net interest income – the Company's largest source of revenue – increased $1.3 million or 6% to $22.8 million in the fourth quarter of 2015 from $21.5 million in the prior-year quarter. For 2015, net interest income increased $4.6 million or 5% to $88.3 million from $83.8 million in the prior-year period.

As anticipated, net interest margin (on a fully tax-equivalent basis) remained under pressure throughout 2015, reflecting the prevailing low interest rate environment as well as the impact of heightened competition on lending rates. In the fourth quarter of 2015, net interest margin was 3.57% versus 3.66% in the third quarter of 2015 and 3.67% in the fourth quarter of 2014. Approximately six basis points of the decline in net interest margin in the fourth quarter of 2015 versus the linked third quarter was due to excess liquidity caused by the temporary inflow of short-term public funds at the end of the year. While this excess liquidity is maintained in low-yielding short-term investments and consequently results in lower net interest margin, it does add to earnings. The Company expects liquidity to return to normal levels during the first and second quarters of 2016.

Management anticipates continued margin pressure due to competition and the low interest rate environment. Since approximately 65% of the Company's loan portfolio is set at fixed rates and 15% is priced at variable rates with floors of 4%, rate increases will not fully benefit the Company until fixed rate loans reprice and the prime rate, currently at 3.5%, rises to exceed the 4% floors on variable rate loans. However, higher interest rates do immediately increase earnings on the Bank's liquidity.

Non-performing loans (NPLs) totaled $8.9 million or 0.44% of total loans outstanding at December 31, 2015, down from $11.2 million or 0.57% of total loans outstanding at September 30, 2015, and $11.9 million or 0.64% of total loans at December 31, 2014. Similarly, non-performing assets, which include NPLs along with other real estate owned (OREO) and repossessed assets, were $13.5 million or 0.48% of total assets at December 31, 2015, down from $15.8 million or 0.60% of total assets at September 30, 2015, and $17.9 million or 0.70% of total assets at December 31, 2014. These positive trends, which now extend over the past two years, have enabled the Company to reach asset quality levels not experienced on a regular basis since 2008.

Allowance activity for the fourth quarter of 2015 included net recoveries of $77 thousand compared with net charge-offs of $1.7 million or 0.09% of average loans for the third quarter of 2015 and $2.2 million or 0.12% of average loans for the prior-year quarter. Net charge-offs for 2015 declined to 0.17% of average loans – the lowest point since 2008 – from 0.18% for 2014.

During the fourth quarter of 2015, the Company recorded a loan loss provision of $750 thousand. The provision reflected an increase in classified loans along with portfolio growth. This is the first time the Company has recorded a loan loss provision since the second quarter of 2014; in the third quarter of 2014, $2.1 million of reserves were released, resulting in a credit to the provision for loan losses of $400 thousand for 2014. The Company's allowance for loan losses was 1.10% of total loans as of December 31, 2015, versus 1.11% at September 30, 2015, and 1.33% at December 31, 2014.

Total non-interest income in the fourth quarter of 2015 increased $300 thousand or 3% to $10.1 million from $9.8 million in the prior-year quarter, primarily reflecting increases in mortgage banking revenue and revenue from investment management and trust services, which together were partially offset by a decline in revenue from brokerage fees and commissions. Total non-interest income in 2015 increased $795 thousand or 2% to $40.0 million from $39.2 million in the prior-year period, with essentially all of the increase reflecting higher mortgage banking revenue.

Total non-interest expense for the fourth quarter of 2015 decreased $933 thousand or 5% to $18.3 million from $19.3 million in the prior-year quarter. The decrease was due primarily to a reduction in the category of other non-interest expense, which includes various items of an individually insignificant nature. Total non-interest expense for 2015 increased $189 thousand or 0.3% to $73.4 million from $73.2 million in the prior-year quarter due primarily to a swing to losses on OREO for 2015 from gains for 2014.

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $2.8 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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