Stock Yards Bancorp Reports Record Earnings for the Third Quarter 2018 of $13.9 Million or $0.60 Per Diluted Share

Stock Yards Bancorp, Inc. 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, 2018. Total revenue, comprising net interest income and non-interest income, increased to $39.9 million for the third quarter of 2018 from $37.1 million for the third quarter of 2017. Net income for the third quarter of 2018 rose to $13.9 million or $0.60 per diluted share from $11.7 million or $0.51 per diluted share for the third quarter of 2017.

Key factors affecting the Company's performance for the third quarter of 2018 included:

• Year-over-year loan growth of 9% continued to drive interest income higher on a comparable quarter basis, but an anticipated seasonal slowdown in loan production coupled with a few large loan pay-offs and lower line of credit utilization reduced the loan portfolio 2% on a sequential quarter basis;
• Net interest margin rose 13 basis points compared with the same quarter of 2017, reflecting primarily loan growth over the past year, but net interest margin declined nine basis points on a sequential quarter basis due to greater balance sheet liquidity and an increase in deposit costs;
• Historically solid credit quality metrics continued;
• Wealth Management and Trust Group experienced ongoing growth; and
• The effective tax rate declined to 20.4% from 25.9% in the third quarter of 2017.

"With net income reaching a record level for the third consecutive quarter, the Company's financial results again include a significant lift from tax reform and highlight the successful strategies we have pursued to grow and diversify our business," said James A. (Ja) Hillebrand, Chief Executive Officer. "These strategic underpinnings – across attractive markets and complementary service lines – have helped us not only achieve an enviable performance over the long term, but also continue to position Stock Yards Bank & Trust to capitalize on new opportunities as we extend our reach in the future.

"While loan production and growth did not meet our expectations in the third quarter, primarily because of softer demand in this seasonally slower period, a few large loan pay-offs and lower line of credit utilization, we remain confident in our market presence and position," Hillebrand continued. "Over the past year, we have organically increased our loan portfolio 9%, which has factored prominently in the additional $13.0 million of interest income year to date in 2018. Importantly, all three of our markets have contributed to this achievement. The year-over-year increase in the portfolio also highlights our continued strength in core lending categories like commercial and industrial loans, real estate mortgage for commercial investment, and owner occupied commercial real estate."

Hillebrand noted that, complementing the Company's higher year-over-year increase in the loan portfolio, credit quality also has remained historically strong. Reflecting this, non-performing assets (NPAs) at September 30, 2018, have declined to the lowest amount in five years.

"The continued strength of non-interest income continues to differentiate Stock Yards Bank & Trust and show diversity of our sources of revenue," Hillebrand added. "Chief among these, accounting for 47% of non-interest income, is our Wealth Management and Trust Group. With $2.97 billion of assets under management, it registered ongoing revenue growth this past quarter sequentially and was up 7% on a comparable quarter basis as it benefited from the addition of new customer relationships as well as a strong stock market during the third quarter. It remains on track to post a full-year revenue increase of approximately 5%-6%. In other fee-based areas, we continue to be pleased with the growth of revenue from debit and credit cards activities as well as treasury management, both of which have helped offset a general slowdown in mortgage banking caused by rising rates and a tight housing market."

Concluding, Hillebrand said, "While we were disappointed by the decline in our loan portfolio during the third quarter, we are on target with our pipeline for the remainder of the year, which should enable us to finish 2018 with loan growth in the mid-single digits. This progress, combined with continued solid credit quality and the strength of our fee-based services, position us for continued growth in 2019 as we continue to build our business the Stock Yards' way – one relationship at a time. It's a belief that has served us well for 114 years, it's a philosophy upon which we have grown in three attractive markets, and it's at the core of how we continue to set ourselves apart from peer community banks."

Third Quarter 2018 Compared with Third Quarter 2017

Total assets increased $169 million or 5% to $3.32 billion.

• This primarily reflected ongoing growth in the Company's loan portfolio, which rose $199.4 million or 9%.

Total deposits increased $116 million or 5% to $2.60 billion.

• This reflected an increase in all deposit categories except money market.
• Core deposits, which exclude brokered deposits and time deposits greater than $250,000, were 97% of total deposits.

Asset quality, which has trended within a narrow range over the past several years, remained at historically strong levels. While the Company is pleased with this performance, management recognizes the cyclical nature of banking and believes asset quality metrics will normalize over the long term, which would eventually result in higher provisioning for loan losses.

• Non-performing loans (NPLs) were $5.0 million or 0.20% of total loans outstanding versus $6.1 million or 0.26% of total loans outstanding.
• NPAs, which include NPLs along with other real estate owned (OREO) and repossessed assets, were $6.6 million or 0.20% of total assets versus $8.7 million or 0.28% of total assets.
• Net charge-offs remained at a low level relative to average loans outstanding.
• Reflecting many factors, including growth in the loan portfolio and qualitative considerations, the loan loss provision increased $585 thousand.
• The allowance for loan losses relative to total loans decreased seven basis points to 1.00%.

The Company remained "well capitalized" – the highest capital rating for financial institutions.

• Total equity to assets was 10.62% and tangible common equity ratio was 10.57% (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).
• Even with its strong capital position, the Company achieves industry-leading returns on equity due to its superior earnings performance.
• Stock Yards Bancorp continues to pursue or consider strategies to enhance stockholder value, including a substantial and sustained dividend payout ratio. In August 2018, the Company's Board of Directors increased its quarterly cash dividend $0.02 or 9% to $0.25 per common share. Stock Yards Bancorp has now raised its quarterly dividend rate a total of 11 times since 2013, including two increases during 2018 and each of the previous four years.

Net interest income – the Company's largest source of revenue – increased approximately $2.3 million or 9% to $28.5 million.

• Interest income rose $4.9 million or 17%. This increase primarily reflected higher volume driven by loan growth as well as increased average rates on the portfolio, with the remainder due to higher rates on other interest-earning assets.

• As anticipated, interest expense increased during the third quarter due to rising deposit costs and the growth of deposits, primarily time deposits, resulting from a deposit-gathering campaign. The impact of this campaign, which began in the second quarter to help fund loan growth, together with ongoing competition for deposits, will likely cause funding costs to continue to increase.
• Net interest margin increased 13 basis points to 3.79%. This primarily reflected the positive impact of three increases in the prime rate during 2017 along with the first increase in 2018.
• Approximately 40% of the Company's current loan portfolio is priced at variable rates, so future rate increases will benefit this part of the portfolio. The remainder of the portfolio is priced at fixed rates. As these loans renew and new fixed-rate loans originate, pricing could be higher, but will be subject to competitive conditions and prevailing interest rates.

Non-interest income increased $481 thousand or 4% to $11.4 million.

• This was due primarily to higher revenue from wealth management and trust services and fees from debit and credit cards.

Non-interest expense increased $613 thousand or 3% to $21.8 million.

• This increase primarily reflected higher compensation expense due to an increase in employee head count as the Company has expanded its lending, sales and support staff. It also included incentive compensation related to loan production and company performance. Also increasing were technology and communications costs and employee benefits, mainly due to health insurance costs.
• These increases were partially offset by a reduction in amortization/impairment of investment in tax credit partnerships caused by the irregular year-to-year timing of such opportunities, which causes corresponding expenses and tax benefits to vary widely.

The Company's effective tax rate decreased to 20.4% from 25.9%.

• The decrease reflected lower marginal tax rates resulting from tax reform in December 2017.
• The year-earlier effective tax rate benefited from significantly more tax savings related to investments in tax credit partnerships and stock-based compensation deductions.

Third Quarter 2018 Compared with Second Quarter 2018

Total assets were essentially flat.

• This primarily reflected an increase in federal funds sold and interest-bearing due from banks, which was offset by a decline in both loan and securities portfolios.

Total deposits increased $58 million.

• This reflected an increase in time deposits and non-interest-bearing demand deposits following the Company's deposit-gathering campaign, which was partially offset by decreases in most other deposit categories.

Asset quality remained at historically strong levels.

• NPLs declined to $5.0 million or 0.20% of total loans outstanding versus $7.4 million or 0.29% of total loans outstanding as certain loans migrated to OREO status.
• NPAs were $6.6 million or 0.20% of total assets versus $7.7 million or 0.23% of total assets.
• Net charge-offs declined.
• The loan loss provision decreased $500 thousand to $735 thousand based on both quantitative and qualitative credit quality considerations.
• The allowance for loan losses relative to total end-of-period loans was 1.00% compared with 0.96% for the second quarter of 2018.

Net interest income remained essentially flat.

• Interest income rose $1.0 million or 3%.
• Interest expense rose 35% primarily due to higher funding costs.
• Net interest margin decreased nine basis points to 3.79%.

Non-interest income remained essentially flat.

• Increases in fees from debit and credit cards, investment product sales commissions and fees, and treasury management were offset by lower other non-interest income related to higher interest rate swap fees and proceeds from a life insurance policy recorded in the second quarter.

Non-interest expense was down 2%.

• This decline reflected primarily lower capital and deposit-based taxes, compensation expense, and technology and communication expense, which were partially offset by higher net occupancy and equipment expense.

The Company's effective tax rate increased to 20.4% from 18.9% as stock-based compensation deductions largely occur in the first quarter and the proportional benefit diminishes as the year progresses.

About the Company

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $3.3 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, 2017.

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