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Stock Yards Bancorp Reports Record Quarterly Earnings on Year-over-Year Loan Growth and Improved Credit Metrics

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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, 2014. The Company’s strong performance continued to reflect several key drivers, including:

  • Further improvements in overall credit quality, which enabled the Company to release reserves;
  • Year-over-year loan growth and strong loan pipeline that should result in total loan production for 2014 that exceeds the record production level achieved last year;
  • Continued growth in income from investment management and trust services, which complements earnings generated from lending;
  • Stable net interest margin as the Company continues to deploy its strong capital base to grow its balance sheet; and
  • Strong returns on average equity and assets.
The following is a summary of the Company’s reported results:

Quarter Ended September 30,

2014

2013

Change

Net income $ 9,889,000 $ 7,682,000 29 %
Net income per share, diluted $ 0.67 $ 0.53 26 %
Return on average equity 15.79 % 13.70 %
Return on average assets 1.64 % 1.35 %

Nine Months Ended September 30,

2014

2013

Change

Net income $ 26,100,000 $ 20,857,000 25 %
Net income per share, diluted $ 1.77 $ 1.47 20 %
Return on average equity 14.45 % 12.86 %
Return on average assets 1.47 % 1.27 %

Management estimates that the release of $2.1 million of reserves in the third quarter of 2014 added approximately $0.09 to third quarter 2014 diluted earnings per share. This estimate includes a normalized third quarter provision for loan losses of $835 thousand based upon the Company’s historical charge-off trends from the pre-recession period between 2004 and 2007. Also included are the effects of incentive accruals and income taxes. Actions to forego a provision for loan losses and release reserves were deemed appropriate based on continued improvements in credit quality and other risk measures within management’s allowance estimation process. Over the past 12 months, non-performing loans (NPLs) have declined 33%, while non-performing assets (NPAs) have declined 37%. Because risk in the portfolio is evaluated each quarter and internal and external conditions that affect the assessment of this risk are likely to change, the Company cannot predict if further releases of reserves will occur.

“Stock Yards Bancorp posted another strong performance for the third quarter of 2014, highlighted by record earnings,” said David P. Heintzman, Chairman and Chief Executive Officer. “Our progress reflected an ongoing improvement in credit quality and growth in earnings from our investment management and trust department, both reflecting the strategies we have put into place to extend our record as one of the nation’s top-performing community banks.

“We again experienced solid loan production during the third quarter, even exceeding the robust production we saw in the second quarter of this year,” Heintzman continued. “However, early repayments, resulting from decisions by our customers to sell loan collateral or utilize available cash to pay down loans and lines of credit, prevented this progress from lifting our loan portfolio. Looking ahead, our loan pipeline looks very strong as we enter the fourth quarter, and based on likely loan closings in the fourth quarter, we are tracking toward a great year in building our loan portfolio.

“Our investment management and trust department continues to play a key role in the Company’s earnings growth by diversifying fee income,” Heintzman added. “At a time when many other community banks are seeing intensifying pressure on non-interest income, our investment management and trust department – with $2.23 billion of assets under management – increased its fee income 12% to $4.5 million in the third quarter of 2014 compared with the third quarter of last year.”

Concluding, Heintzman said, “We are pleased with the Company’s performance through the first nine months of 2014 and remain positive about continued growth in the fourth quarter. Our loan pipeline is promising, our margins are stable and our fee income generated from our investment management and trust department is growing. We believe our uninterrupted record of increasing dividend payments and our strong capital position highlight our successful strategy to build long-term stockholder value. In our view, Stock Yards Bancorp is positioned well to participate in the continued economic improvement in our home market and capitalize on new opportunities in our expansion markets.”

Total assets increased $118 million or 5% at September 30, 2014, reaching $2.41 billion compared with $2.29 billion at September 30, 2013. The Company’s loan portfolio increased $76 million or 4% to $1.79 billion at September 30, 2014, compared with $1.71 billion at September 30, 2013. Total deposits increased $125 million or 7% to $2.01 billion at September 30, 2014, from $1.88 billion at September 30, 2013. Core deposits as a percentage of total deposits increased to 93.8% at September 30, 2014, from 92.5% at September 30, 2013.

The Company’s capital levels remained strong during the third quarter of 2014 and exceeded the required minimums necessary to be deemed a “well-capitalized” institution – the highest capital rating for financial institutions. By maintaining a strong capital position, Stock Yards Bancorp has continued to enhance stockholder value by steadily increasing cash dividends, raising the dividend rate five times over the past four years, and maintaining its flexibility to pursue expansion and other opportunities that may arise.

Net interest income – the Company’s largest source of revenue – increased $1.3 million or 7% to $21.4 million in the third quarter of 2014 from $20.0 million in the prior-year quarter. In the third quarter of 2014, net interest margin was 3.80% versus 3.77% in the second quarter of 2014 and 3.79% in the third quarter of 2013.

NPLs totaled $20.5 million or 1.15% of total loans outstanding at September 30, 2014, down from $30.5 million or 1.78% of total loans at September 30, 2013. NPLs at September 30, 2014, increased from $19.5 million or 1.08% of total loans outstanding at June 30, 2014, due primarily to the classification of two related loans as non-performing. NPAs, which include NPLs and repossessed assets, were $23.3 million or 0.97% of total assets at September 30, 2014, down from $37.0 million or 1.62% of total assets at September 30, 2013. NPAs were $22.4 million or 0.93% of total assets at June 30, 2014.

Net charge-offs in the third quarter of 2014 totaled $537 thousand or 0.03% of average loans, up from $180 thousand or 0.01% of average loans in the second quarter of 2014 and down from $4.3 million or 0.26% of average loans in the year-earlier period.

In the third quarter of 2014, the Company released $2.1 million of its reserves for loan losses based on continued improvement in credit quality metrics and management’s current assessment of risk in the loan portfolio, including an update to historic loss factors for certain portfolio segments. This release of reserves was recorded as a credit to the provision for loan losses and compared with a charge of $1.4 million in the second quarter of 2014 and a charge of $1.3 million in the prior-year quarter. The allowance for loan losses was 1.52% of total loans as of September 30, 2014, compared with 1.65% of total loans at June 30, 2014, and 1.70% of total loans at September 30, 2013.

Total non-interest income increased $198 thousand or 2% to $9.9 million in the third quarter of 2014 from $9.7 million for the prior-year quarter. Total non-interest expense increased $1.1 million or 6% to $18.7 million in the third quarter of 2014 from $17.6 million in the same period last year. The increase included approximately $830 thousand in accrued incentives related to the higher level of earnings in the third quarter of 2014.

In August 2014, Stock Yards Bancorp’s Board of Directors declared a quarterly cash dividend $0.22 per common share. The latest dividend was distributed on October 1, 2014, to stockholders of record as of September 15, 2014.

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $2.41 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.

Tangible Common Equity Ratio

(Dollars in thousands)

Sept. 30,

2014

June 30,

2014

Sept. 30,

2013

Total stockholders’ equity (a) $ 251,446 $ 243,614 $ 226,535
Less goodwill (682 ) (682 ) (682 )
Less core deposit intangible (1,878 ) (1,937 ) (2,298 )
Tangible common equity (c) $ 248,886 $ 240,995 $ 223,555
Total assets (b) $ 2,407,871 $ 2,411,375 $ 2,289,755
Less goodwill (682 ) (682 ) (682 )
Less core deposit intangible (1,878 ) (1,937 ) (2,298 )
Tangible assets (d) $ 2,405,311 $ 2,408,756 $ 2,286,775
Total stockholders’ equity to total assets (a/b) 10.44 % 10.10 % 9.89 %
Tangible common equity ratio (c/d) 10.35 % 10.00 % 9.78 %

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, 2013.

Stock Yards Bancorp, Inc. Financial Information (unaudited)
Third Quarter 2014 Earnings Release
(In thousands unless otherwise noted)
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Income Statement Data
Net interest income, fully tax equivalent (1) $ 21,604 $ 20,270 $ 62,981 $ 58,210
Interest income:
Loans $ 20,429 $ 20,233 $ 59,575 $ 58,762
Federal funds sold 73 63 215 215
Mortgage loans held for sale 54 57 128 177
Securities 2,136 1,914 6,391 5,241
Total interest income 22,692 22,267 66,309 64,395
Interest expense:
Deposits 1,065 1,209 3,319 3,833
Federal funds purchased 8 9 23 26
Securities sold under agreements to repurchase 37 38 100 106
Federal Home Loan Bank (FHLB) advances 219 221 621 657
Subordinated debentures 773 2,318
Total interest expense 1,329 2,250 4,063 6,940
Net interest income 21,363 20,017 62,246 57,455
Provision for loan losses (2,100 ) 1,325 (400 ) 4,975
Net interest income after provision for loan losses 23,463 18,692 62,646 52,480
Non-interest income:
Investment management and trust income 4,502 4,017 13,825 12,032
Service charges on deposit accounts 2,294 2,348 6,620 6,592
Bankcard transaction revenue 1,182 1,087 3,466 3,068
Mortgage banking revenue 641 995 1,951 3,370
Loss on the sale of securities (9 ) (5 )
Brokerage commissions and fees 539 456 1,506 1,693
Bank owned life insurance 229 260 699 771
Gain on acquisition 449
Other non-interest income 463 489 1,324 1,221
Total non-interest income 9,850 9,652 29,382 29,191
Non-interest expense:
Salaries and employee benefits expense 11,855 10,508 33,697 30,186
Net occupancy expense 1,422 1,522 4,431 4,188
Data processing expense 1,591 1,520 4,869 4,695
Furniture and equipment expense 269 269 796 846
FDIC insurance expense 340 348 1,032 1,055
Loss (gain) on other real estate owned 7 475 (342 ) 365
Acquisition costs 1,548
Other non-interest expenses 3,225 2,929 9,471 9,089
Total non-interest expense 18,709 17,571 53,954 51,972
Net income before income tax expense 14,604 10,773 38,074 29,699
Income tax expense 4,715 3,091 11,974 8,842
Net income $ 9,889 $ 7,682 $ 26,100 $ 20,857
Weighted average shares – basic 14,574 14,408 14,542 14,144
Weighted average shares – diluted 14,748 14,556 14,732 14,228
Net income per share, basic $ 0.68 $ 0.53 $ 1.79 $ 1.47
Net income per share, diluted 0.67 0.53 1.77 1.47
Cash dividend declared per share 0.22 0.20 0.65 0.60
Balance Sheet Data (at period end)
Total loans $ 1,785,320 $ 1,709,258
Allowance for loan losses 27,124 28,990
Total assets 2,407,871 2,289,755
Non-interest bearing deposits 491,677 429,297
Interest bearing deposits 1,516,144 1,453,154
Federal Home Loan Bank advances 36,919 32,422
Subordinated debentures 30,900
Stockholders’ equity 251,446 226,535
Total shares outstanding 14,704 14,554
Book value per share 17.10 15.57
Market value per share 30.10 28.33
Stock Yards Bancorp, Inc. Financial Information (unaudited)
Third Quarter 2014 Earnings Release
Three Months Ended Nine Months Ended
September 30 September 30
2014 2013 2014 2013
Average Balance Sheet Data
Average federal funds sold $ 86,252 $ 75,705 $ 86,764 $ 93,664
Average mortgage loans held for sale 4,934 5,685 4,059 6,661
Average securities available for sale 380,202 360,055 381,827 323,148
Average FHLB stock and other securities 6,347 7,347 6,893 6,771
Average loans 1,788,786 1,674,049 1,758,592 1,628,261
Average earning assets 2,257,679 2,122,841 2,228,975 2,058,505
Average assets 2,395,274 2,264,937 2,366,608 2,193,010
Average interest bearing deposits 1,525,964 1,453,534 1,542,782 1,414,453
Average total deposits 2,000,477 1,867,229 1,985,592 1,807,772

Average securities sold under agreement to repurchase

64,985 64,652 59,441 58,881

Average federal funds purchased and other short term borrowings

17,789 19,628 18,855 20,370
Average Federal Home Loan Bank advances 36,747 31,970 35,321 31,904
Average subordinated debentures 30,900 30,900
Average interest bearing liabilities 1,645,485 1,600,684 1,656,399 1,556,508
Average stockholders’ equity 248,412 222,528 241,509 216,879
Performance Ratios
Annualized return on average assets 1.64 % 1.35 % 1.47 % 1.27 %
Annualized return on average equity 15.79 % 13.70 % 14.45 % 12.86 %
Net interest margin, fully tax equivalent 3.80 % 3.79 % 3.78 % 3.78 %

Non-interest income to total revenue, fully tax equivalent

31.32 % 32.26 % 31.81 % 33.40 %
Efficiency ratio 59.48 % 58.72 % 58.42 % 59.46 %
Capital Ratios
Average stockholders’ equity to average assets 10.37 % 9.82 % 10.20 % 9.89 %
Tier 1 risk-based capital 12.67 % 13.66 %
Total risk-based capital 13.92 % 14.91 %
Leverage 10.38 % 11.21 %
Loans by Type
Commercial and industrial $ 550,487 $ 500,478
Construction and development 121,141 135,786
Real estate mortgage – commercial investment 445,512 429,832
Real estate mortgage – owner occupied commercial 343,218 326,523
Real estate mortgage – 1-4 family residential 192,282 180,162
Home equity – first lien 39,344 38,364
Home equity – junior lien 65,181 63,983
Consumer 28,155 34,130
Asset Quality Data
Allowance for loan losses to total loans 1.52 % 1.70 %
Allowance for loan losses to average loans 1.52 % 1.73 % 1.54 % 1.78 %
Allowance for loan losses to non-performing loans 132.26 % 95.10 %
Nonaccrual loans $ 13,845 $ 20,284
Troubled debt restructuring 6,456 8,585
Loans – 90 days past due & still accruing 207 1,615
Total non-performing loans 20,508 30,484
OREO and repossessed assets 2,768 6,565
Total non-performing assets 23,276 37,049
Non-performing loans to total loans 1.15 % 1.78 %
Non-performing assets to total assets 0.97 % 1.62 %
Net charge-offs to average loans (2) 0.03 % 0.26 % 0.06 % 0.48 %
Net charge-offs $ 537 $ 4,315 998 $ 7,866
Stock Yards Bancorp, Inc. Financial Information (unaudited)
Third Quarter 2014 Earnings Release
Five Quarter Comparison
9/30/14 6/30/14 3/31/14 12/31/13 9/30/13
Income Statement Data
Net interest income, fully tax equivalent (1) $ 21,604 $ 20,900 $ 20,477 $ 20,096 $ 20,270
Net interest income $ 21,363 $ 20,655 $ 20,228 $ 19,843 $ 20,017
Provision for loan losses (2,100 ) 1,350 350 1,575 1,325
Net interest income after provision for loan losses 23,463 19,305 19,878 18,268 18,692
Investment management and trust income 4,502 4,755 4,568 4,255 4,017
Service charges on deposit accounts 2,294 2,223 2,103 2,394 2,348
Bankcard transaction revenue 1,182 1,209 1,075 1,310 1,087
Mortgage banking revenue 641 722 588 608 995
Loss on the sale of securities (9 )
Brokerage commissions and fees 539 462 505 466 456
Bank owned life insurance 229 234 236 260 260
Other non-interest income 463 461 400 518 489
Total non-interest income 9,850 10,057 9,475 9,811 9,652
Salaries and employee benefits expense 11,855 10,724 11,118 10,959 10,508
Net occupancy expense 1,422 1,453 1,556 1,427 1,522
Data processing expense 1,591 1,718 1,560 1,624 1,520
Furniture and equipment expense 269 259 268 280 269
FDIC Insurance expense 340 350 342 376 348
Loss (gain) on other real estate owned 7 (6 ) (343 ) 287 475
Other non-interest expenses 3,225 3,203 3,043 4,427 2,929
Total non-interest expense 18,709 17,701 17,544 19,380 17,571
Net income before income tax expense 14,604 11,661 11,809 8,699 10,773
Income tax expense 4,715 3,627 3,632 2,386 3,091
Net income $ 9,889 $ 8,034 $ 8,177 $ 6,313 $ 7,682
Weighted average shares – basic 14,574 14,545 14,506 14,455 14,408
Weighted average shares – diluted 14,748 14,704 14,701 14,677 14,556
Net income per share, basic $ 0.68 $ 0.55 $ 0.56 $ 0.44 $ 0.53
Net income per share, diluted 0.67 0.55 0.56 0.43 0.53
Cash dividend declared per share 0.22 0.22 0.21 0.21 0.20
Balance Sheet Data (at period end)
Cash and due from banks $ 38,302 $ 57,365 $ 42,685 $ 34,519 $ 47,048
Federal funds sold 31,265 37,896 40,269 36,251 23,472
Mortgage loans held for sale 4,069 4,162 3,473 1,757 3,829
Securities available for sale 449,572 414,490 440,184 490,031 401,063
FHLB stock and other securities 6,347 6,347 7,347 7,347 7,347
Total loans 1,785,320 1,799,791 1,728,619 1,721,350 1,709,258
Allowance for loan losses 27,124 29,761 28,591 28,522 28,990
Total assets 2,407,871 2,411,375 2,354,238 2,389,262 2,289,755
Non-interest bearing deposits 491,677 462,379 436,843 423,350 429,297
Interest bearing deposits 1,516,144 1,525,016 1,550,544 1,557,587 1,453,154
Securities sold under agreements to repurchase 66,955 56,475 52,453 62,615 56,225
Federal funds purchased 16,296 59,014 18,731 55,295 31,861
Federal Home Loan Bank advances 36,919 36,067 34,288 34,329 32,422
Subordinated debentures 30,900
Stockholders’ equity 251,446 243,614 236,976 229,444 226,535
Total shares outstanding 14,704 14,665 14,659 14,609 14,554
Book value per share 17.10 16.61 16.17 15.71 15.57
Market value per share 30.10 29.90 31.64 31.92 28.33
Capital Ratios
Average stockholders’ equity to average assets 10.37 % 10.24 % 10.00 % 9.77 % 9.82 %
Tier 1 risk-based capital 12.67 % 12.28 % 12.47 % 12.29 % 13.66 %
Total risk-based capital 13.92 % 13.53 % 13.72 % 13.54 % 14.91 %
Leverage 10.38 % 10.19 % 10.00 % 9.75 % 11.21 %
Stock Yards Bancorp, Inc. Financial Information (unaudited)
Third Quarter 2014 Earnings Release
Five Quarter Comparison
9/30/14 6/30/14 3/31/14 12/31/13 9/30/13
Average Balance Sheet Data
Average federal funds sold $ 86,252 $ 77,386 $ 96,770 $ 116,348 $ 75,705
Average mortgage loans held for sale 4,934 4,438 2,783 3,582 5,685
Average investment securities 380,202 382,176 390,481 385,922 367,402
Average loans 1,788,786 1,759,695 1,726,610 1,713,062 1,674,049
Average earning assets 2,257,679 2,221,482 2,207,209 2,208,575 2,122,841
Average assets 2,395,274 2,357,697 2,346,314 2,351,127 2,264,937
Average interest bearing deposits 1,525,964 1,550,363 1,552,310 1,513,067 1,453,534
Average total deposits 2,000,477 1,982,180 1,973,827 1,949,209 1,867,229
Average securities sold under agreement
to repurchase 64,985 52,396 60,895 66,244 64,652
Average federal funds purchased and
other short term borrowings 17,789 22,109 16,654 17,102 19,628
Average Federal Home Loan Bank advances 36,747 34,886 34,302 34,341 31,970
Average subordinated debentures 29,221 30,900
Average interest bearing liabilities 1,645,485 1,659,754 1,664,161 1,659,975 1,600,684
Average stockholders’ equity 248,412 241,376 234,587 229,685 222,528
Performance Ratios
Annualized return on average assets 1.64 % 1.37 % 1.41 % 1.07 % 1.35 %
Annualized return on average equity 15.79 % 13.35 % 14.14 % 10.90 % 13.70 %
Net interest margin, fully tax equivalent 3.80 % 3.77 % 3.76 % 3.61 % 3.79 %
Non-interest income to total revenue, fully
tax equivalent 31.32 % 32.49 % 31.63 % 32.81 % 32.26 %
Efficiency ratio 59.48 % 57.18 % 58.57 % 64.80 % 58.72 %
Loans by Type
Commercial and industrial $ 550,487 $ 558,720 $ 511,247 $ 510,739 $ 500,478
Construction and development 121,141 124,390 117,317 129,590 135,786
Real estate mortgage – commercial investment 445,512 458,101 448,255 430,047 429,832
Real estate mortgage – owner occupied commercial 343,218 334,016 329,260 329,422 326,523
Real estate mortgage – 1-4 family residential 192,282 189,192 185,775 183,700 180,162
Home equity – 1st lien 39,344 39,050 40,700 40,251 38,364
Home equity – junior lien 65,181 64,162 62,605 63,403 63,983
Consumer 28,155 32,160 33,460 34,198 34,130
Asset Quality Data
Allowance for loan losses to total loans 1.52 % 1.65 % 1.65 % 1.66 % 1.70 %
Allowance for loan losses to average loans 1.52 % 1.69 % 1.66 % 1.66 % 1.73 %
Allowance for loan losses to non-performing loans 132.26 % 153.00 % 139.74 % 124.31 % 95.10 %
Nonaccrual loans $ 13,845 $ 11,985 $ 12,741 $ 15,258 $ 20,284
Troubled debt restructuring 6,456 7,118 7,280 7,249 8,585
Loans – 90 days past due & still accruing 207 348 439 437 1,615
Total non-performing loans 20,508 19,451 20,460 22,944 30,484
OREO and repossessed assets 2,768 2,968 2,935 5,592 6,565
Total non-performing assets 23,276 22,419 23,395 28,536 37,049
Non-performing loans to total loans 1.15 % 1.08 % 1.18 % 1.33 % 1.78 %
Non-performing assets to total assets 0.97 % 0.93 % 0.99 % 1.19 % 1.62 %
Net charge-offs to average loans (2) 0.03 % 0.01 % 0.02 % 0.12 % 0.26 %
Net charge-offs $ 537 $ 180 $ 281 $ 2,043 $ 4,315
Other Information
Total assets under management (in millions) $ 2,228 $ 2,360 $ 2,279 $ 2,229 $ 2,140
Full-time equivalent employees 527 528 522 519 510

(1) – Interest income on a fully tax equivalent basis includes the additional amount of interest income that would have been earned if investments in certain tax-exempt interest earning assets had been made in assets subject to federal, state and local taxes yielding the same after-tax income.
(2) – Interim ratios not annualized

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