Stock Yards Bancorp's Third Quarter 2017 Net Income Increases 12% to a Record $11.7 Million or $0.51 Per Diluted Share

Stock Yards Bancorp's Third Quarter 2017 Net Income Increases 12% to a Record $11.7 Million or $0.51 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 record results for the third quarter and nine months ended September 30, 2017. Net income for the third quarter of 2017 increased 12% to $11.7 million or $0.51 per diluted share from $10.5 million or $0.46 per diluted share for the third quarter of 2016. Net income for the nine months ended September 30, 2017, increased 9% to $33.1 million or $1.44 per diluted share from $30.4 million or $1.34 per diluted share for the comparable 2016 period.

Favorable aspects of the Company's performance for the third quarter of 2017 included:

• The continued positive effect of solid loan growth over the past 12 months, which has increased the Company's net interest income nearly 6% compared with that for the third quarter of 2016;
• A six-basis-point increase in net interest margin sequentially from the second quarter of 2017;
• A reduction in the provision for loan losses as credit quality remained excellent;
• Steady growth in fee income from the Wealth Management and Trust Group;
• A tax benefit from the wind-down of a tax-credit partnership; and
• Solid returns on average assets and equity.

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

"We are pleased to report that consistent loan growth together with an improving net interest margin, exceptional credit quality metrics and a steady performance by our Wealth Management and Trust Group all aligned to produce record earnings for the third quarter of 2017," said David P. Heintzman, Chairman and Chief Executive Officer. "In many ways, these results reflected the depth and breadth of our business, the benefit of diverse revenue streams, and the separate, yet complementary strengths of our three markets. Considering our loan pipeline going forward and a favorable business outlook for the remainder of the year, our progress through the first nine months of 2017 positions Stock Yards Bancorp to continue its record of consistent and predictable growth to remain among the top performing community banks in the country."

Heintzman noted that loan portfolio growth built further on the momentum experienced in the second quarter of 2017, driven by solid loan production that continued to exceed the average pace recorded over the last three years. While all of the Company's markets participated in this growth, Indianapolis, through excellent leadership and a growing lending team, led the way. Still, the conversion of loan production into portfolio growth continued to track below the exceedingly strong rate that characterized 2016 due to several factors, including principal repayments primarily related to commercial construction projects and borrowers who sold collateral or their business. Also, management believes that business owners remain more cautious about the longer-term direction of the economy, awaiting greater clarity on possible tax reform. Considering its loan pipeline, management anticipates continued momentum in net loan growth in the fourth quarter of 2017, although net loan growth could be challenging if loan payoffs persist at high levels.

Heintzman also noted the benefit of the Company's diverse revenue streams for the third quarter, as continued growth in fee-based income by wealth management and trust helped blunt the effect of slower mortgage banking environment. With approximately $2.75 billion of assets under management, wealth management and trust comprises almost half of the Company's fee-based income. Up 5% for the third quarter and 7% through the first nine months of 2017, its growth continues to reflect primarily the addition of new customer relationships along with ongoing stock market gains.

Concluding, Heintzman said, "We are very pleased with Stock Yards Bancorp's achievements through the first nine months of the year, which reflect the Company's strong market positions, leadership in key lending sectors combined with excellent asset quality, and the competitive advantage of a superior platform for fee-based income. These factors have combined to drive higher earnings throughout the year and, together with the loan pipeline we have in place, provide a foundation for continued growth and a solid conclusion to 2017 and start for 2018."

Total assets increased $217.2 million or 7% at September 30, 2017, to $3.16 billion from $2.94 billion at September 30, 2016. Ongoing growth in the Company's loan portfolio accounted for a significant portion of this increase, as the portfolio rose $112.4 million or 5% to $2.34 billion at September 30, 2017. Increasing deposit balances continue to provide substantial support for the Company's balance sheet growth; total deposits advanced $91.4 million or 4% to $2.48 billion at September 30, 2017, as Stock Yards Bank & Trust continues to attract new customers and experience growth with existing customers across most account categories. Core deposits, which exclude brokered deposits and time deposits greater than $250,000, held steady at 99% of total deposits as of September 30, 2017.

At the end of the third quarter of 2017, Stock Yards Bancorp remained "well capitalized" – the highest capital rating for financial institutions. The Company's tangible common equity ratio as of September 30, 2017, was 10.54% (tangible common equity is a non-GAAP financial measure; see reconciliation of total stockholders' equity to tangible common equity and total assets to tangible assets later in this release). Despite such a high rate, the Company still produces industry-leading returns on equity due to its superior earnings performance. With this capital strength, Stock Yards Bancorp continues to pursue strategies to enhance stockholder value, including a substantial and sustained dividend payout ratio. In August 2017, Stock Yards Bancorp's Board of Directors continued the higher rate of $0.20 per common share set by the Board in May 2017.

Net interest income – the Company's largest source of revenue – increased approximately $1.4 million or 6% to $26.2 million in the third quarter of 2017 from $24.8 million in the prior-year quarter. The increase reflected ongoing growth in the Company's loan portfolio and higher interest rates on earning assets, net of the impact of a rise in funding costs, primarily in the form of higher deposit rates. Net interest income increased $4.4 million or 6% to $76.6 million in the first nine months of 2017 from $72.2 million in the prior-year period.

On a sequential-quarter basis, net interest income increased $932 thousand or 4% from the second quarter of 2017, while net interest margin (on a fully tax-equivalent basis) was 3.66% compared with 3.60% in the second quarter of 2017 and 3.65% in the third quarter of 2016. The sequential improvement in net interest margin for the third quarter reflected the positive impact of a 25-basis-point rate increase in June 2017. That hike, which increased the prime rate to 4.25%, pushed virtually all variable rate loans in the Company's portfolio through any remaining rate floors. Approximately 61% of the Company's loans are priced at fixed rates, so future rate increases will begin to benefit the Company with respect to this part of the portfolio as existing fixed-rate loans renew and new fixed-rate loans originate at higher rates. Management estimates that the next increase in the prime rate, assuming it is 25 basis points as in the past and deposit rates begin to rise in response to competitive pressures, will be revenue neutral.

The Company's solid asset quality metrics, which have trended within a narrow range over the past several years, remained at historically strong levels for the third quarter of 2017. Non-performing loans (NPLs) totaled $6.1 million or 0.26% of total loans outstanding at September 30, 2017, versus $6.1 million or 0.26% of total loans outstanding at June 30, 2017, and $8.0 million or 0.36% of total loans outstanding at September 30, 2016. Similarly, non-performing assets, which include NPLs along with other real estate owned (OREO) and repossessed assets, were $8.7 million or 0.28% of total assets at September 30, 2017, down from $9.3 million or 0.30% of total assets at June 30, 2017, and $13.0 million or 0.44% of total assets at September 30, 2016. Net charge-offs in the third quarter of 2017 totaled $317 thousand versus a net recovery of charge-offs in the second quarter of 2017 of $34 thousand and net charge-offs of $22 thousand in the third quarter of 2016. The Company is very pleased with these strong asset quality metrics; however, management recognizes the cyclic nature of banking and believes these metrics will normalize over the long term.

The Company recorded a loan loss provision of $150 thousand during the third quarter of 2017 compared with $600 thousand in the second quarter of 2017 and $1.3 million in the third quarter of 2016. The provision for the third quarter of 2017 considered loan growth, an ongoing low level of charge-offs, a generally favorable trend in most asset quality statistics, and other qualitative considerations. As a result, the Company's allowance for loan losses remained adequate in management's view at 1.07% of total loans as of September 30, 2017, versus 1.09% at June 30, 2017, and 1.10% at September 30, 2016.

Total non-interest income in the third quarter of 2017 decreased $255 thousand or 2% to $11.1 million from $11.4 million in the prior-year quarter. This decrease reflected primarily a decline in gains on sales of mortgage loans held for sale as the market for home refinancing remains slow, along with lower swap fee income in 2017. These were partially offset by another solid performance by wealth management and trust. Total non-interest income for the nine months ended September 30, 2017, increased $1.4 million or 4% to $33.6 million from $32.2 million in the prior-year period, reflecting trends similar to those noted for the third quarter.

Total non-interest expense for the third quarter of 2017 increased approximately $799 thousand or 4% to $21.3 million from $20.5 million in the prior-year quarter. The increase primarily reflected the impact of personnel added to support growth and operations, along with health insurance costs under the Company's self-insured plan, which together were partially offset by lower FDIC insurance expense and reduced amortization of investments in tax-credit partnerships. Since tax-credit partnership opportunities are sporadic, the timing of these investments can cause the amortization expense and corresponding tax benefits to vary widely. For the nine months ended September 30, 2017, total non-interest expense increased $3.6 million or 6% to $63.8 million from $60.3 million for the same period last year, largely reflecting the same trends noted for the quarter.

The Company's pretax income increased 10% in the third quarter of 2017 versus the year-earlier period, and income tax expense for the third quarter of 2017 increased $213 thousand or 5% to $4.1 million from $3.9 million in the third quarter of 2016. This resulted in effective tax rates of 25.9% of 27.1%, respectively. The lower relative tax expense reflected, among other things, a tax benefit associated with the wind-down of one tax-credit partnership.

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $3.2 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 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, 2016.

Stock Yards Bancorp, Inc.
Nancy B. Davis, 502-625-9176
Executive Vice President and
Chief Financial Officer

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