News Details

First Quarter Results Reflected Strong Growth in Interest Income, Driven by Ongoing Momentum in Loan Growth

LOUISVILLE, Ky.--(BUSINESS WIRE)-- 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 first quarter ended March 31, 2018. Total revenue, comprising net interest income and non-interest income, increased 6% to $38.2 million for the first quarter of 2018 from $35.8 million for the year-earlier quarter. Net income for the first quarter of 2018 totaled $13.4 million or $0.58 per diluted share compared with $10.8 million or $0.47 per diluted share for the first quarter of 2017.

Key aspects of the Company's performance for the first quarter of 2018 included:

• Exceptional loan growth, which increased the Company's loan portfolio 4% on a sequential-quarter basis and 11% year over year;
• A higher net interest margin, reflecting both increased rate and volume;
• A continuation of historically strong credit quality metrics;
• Strong growth in the Wealth Management and Trust Group;
• The benefit of a lower marginal tax rate; and
• High returns on average equity and assets.

"As our record results for the quarter clearly reflect, Stock Yards Bancorp has made a very solid start to the new year," said David P. Heintzman, Chairman and Chief Executive Officer. "While we expected a boost from tax reform beginning with the first quarter, our net income growth was also driven by higher interest income, which increased $3.1 million or 12% compared with the first quarter of 2017 and reflected the substantial growth of our loan portfolio over the past year as well as the benefit of higher interest rates. At the same time, wealth management and trust registered another solid quarter as its revenue increased $406 thousand or 8% versus the year-earlier period. Considering our strong first quarter performance, we look to the remainder of 2018 with enthusiasm, encouraged by the momentum building in our business and the opportunities we see ahead."

With the Company coming off a strong fourth quarter performance, Heintzman noted that loan production reached a record level in the first quarter of 2018, as did the loan portfolio, both driven by strong growth in commercial and industrial loans – a core lending category – along with other key areas. Importantly, each of the Company's individual markets shared in these record results. Moreover, the Company ended the first quarter with a solid loan pipeline, which positions Stock Yards Bancorp to maintain an attractive growth trend for 2018.

Again, in the first quarter of 2018, non-interest income remained strong, accounting for about 29% of total revenue and helping to diversify the Company's revenue streams for attractive and predictable long-term growth. The Wealth Management and Trust Group, with approximately $2.9 billion of assets under management, continued to be a dominant source of fee income, contributing about one-half of total non-interest income in the first quarter. This growth, which reflected primarily the addition of new customer relationships, was exceptionally strong and ahead of management's expectations for an increase of 5%-6% for the full year. A general slowdown in mortgage banking, as rates have risen and housing inventory remained tight, partially offset the increase in wealth management and trust income.

Heintzman also noted that the Company's first quarter results benefitted from recent tax reform. With the implementation of the Tax Cuts and Jobs Act of 2017, a reduction in the Company's effective tax rate from 22.6% to 18.5% positively affected first quarter earnings.

Concluding, Heintzman said, "Considering the solid footing we enjoy across our markets and our focus on long-term relationship banking, the Company's accomplishments in the first quarter will provide a strong platform as we work to maintain and increase our momentum in 2018. We expect overall loan growth for 2018 to be in the range of mid- to high-single digits. At that pace, the Company remains on course to turn in another notable performance for the year as we continue to cement our position among high-performing community banks nationwide."

First Quarter 2018 Compared with First Quarter 2017 (Unless Otherwise Noted)

Total assets increased $252 million or 8% to $3.29 billion.

• This primarily reflected ongoing growth in the Company's loan portfolio, which rose $239.6 million or 11% to $2.51 billion.
• On a sequential basis, net loans increased $102.8 million or 4% from the fourth quarter of 2017.

Total deposits increased $29 million or 1% to $2.57 billion.

• This reflected growth from both existing and new customers.
• Core deposits, which exclude brokered deposits and time deposits greater than $250,000, were 99% of total deposits.

Asset quality, which has trended within a narrow range over the past several years, remained at historically strong levels.

• Non-performing loans (NPLs) were $12.3 million or 0.49% of total loans outstanding versus $6.1 million or 0.27% of total loans outstanding at March 31, 2017.
• Non-performing assets, which include NPLs along with other real estate owned (OREO) and repossessed assets, were $12.6 million or 0.38% of total assets versus $10.1 million or 0.33% of total assets at March 31, 2017.
• Net charge-offs remained at a reasonably low level relative to average loans outstanding.
• The loan loss provision declined $165 thousand to $735 thousand due to continued strong credit metrics, an ongoing low level of charge-offs, and other qualitative considerations.
• The allowance for loan losses declined 12 basis points to 0.96% of total loans, mainly due to first quarter loan growth and charge-offs that had been previously reserved, and remained adequate to cover potential losses in the loan portfolio, in management's opinion.

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

• Total equity to assets was 10.28% and tangible common equity ratio was 10.23% (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 still produces industry-leading returns on equity due to its superior earnings performance.
• Stock Yards Bancorp continues to pursue strategies to enhance stockholder value, including a substantial and sustained dividend payout ratio. In February 2018, Stock Yards Bancorp's Board of Directors increased the Company's quarterly cash dividend to $0.23 per common share. Stock Yards Bancorp has now raised its quarterly dividend rate a total of 10 times since the beginning of 2013, including two increases during each of the past four years, resulting in a cumulative increase of 73% over a five-year period.

Net interest income – the Company's largest source of revenue – increased approximately $2.1 million or 8% to $27.3 million.

• Interest income rose $3.1 million or 12%. The majority of this increase was due to higher rates on interest-earning assets, with higher volume – driven by strong momentum in loan growth – accounting for the remainder.
• Interest expense remained under rate pressure due to rising deposit costs, but the increase was less than expected. Management expects rate pressure to increase over the balance of 2018 as deposit customers become more rate sensitive and competition increases. Given these circumstances, the effect of future prime rate increases could be revenue neutral.
• Net interest margin increased 16 basis points to 3.79%. On a sequential basis, net interest margin increased 14 basis points from the fourth quarter of 2017. These improvements primarily reflected the positive impact of three increases in the prime rate during 2017.
• Approximately 60% of the Company's loans are priced at fixed rates, so future rate increases may begin to benefit this part of the portfolio as existing fixed-rate loans renew and new fixed-rate loans originate at higher rates – with both subject to competitive conditions and prevailing interest rates.

Non-interest income increased $279 thousand or 3% to $10.9 million.

• Fee income from wealth management and trust services rose $406 thousand or 8% to $5.5 million.
• This increase, along with higher fee income from debit and credit cards, offset lower mortgage banking and other smaller categories.

Non-interest expense increased $32 thousand to $21.0 million.

• This increase primarily reflected higher expenses related to technology and communication, compensation, and marketing and business development. These increases were partially offset by a reduction in amortization/impairment of investment in tax credit partnerships due to the sporadic timing of such opportunities, which can cause corresponding expenses and tax benefits to vary widely.

The Company effective tax rate declined to 18.6% from 22.6%.

• The decline reflected lower marginal tax rates resulting from tax reform in December 2017.
• The year-earlier effective tax rate included significantly more tax savings from stock-based compensation deductions and federal income tax credits.

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

Source: Stock Yards Bancorp, Inc.