Stock Yards Bancorp Inc.
Annual Report 2013

Plain-text annual report

2 0 1 3 S U M M A R Y A N N U A L R E P OR T 2013 Financial Highlights “...OUR STRONG CAPITAL POSITION AND EARNINGS GROWTH HAVE ALLOWED S.Y. BANCORP TO REMAIN TRUE TO ITS OBJECTIVE OF ENHANCING STOCKHOLDER RETURNS THROUGH STRONG AND GROWING DIVIDENDS. ” FOR THE YEAR Net income Cash dividends declared PER COMMON SHARE Net income per share, basic Net income per share, diluted Cash dividends declared Book value at year end Market price at year end AVERAGES FOR THE YEAR Total assets Loans Deposits Stockholders’ equity AT YEAR END Total assets Loans Deposits Stockholders’ equity RATIOS Return on avg. assets Return on avg. stockholders’ equity Efficiency 2013 2012 Change $ $ $ $ 27,170 11,670 1.91 1.89 0.81 15.71 31.92 2,232,868 1,656,777 1,843,426 220,107 2,389,262 1,721,350 1,980,937 229,444 $ $ $ $ 25,801 10,691 % 5.3 9.2 1.86 1.85 0.77 14.74 22.42 2,070,967 1,563,918 1,659,594 197,551 2,148,262 1,584,594 1,781,693 205,075 % % % 2.7 2.2 5.2 6.6 42.4 7.8 5.9 11.1 11.4 11.2 8.6 11.2 11.9 % 1.22 12.34 60.82 % 1.25 13.06 57.38 bp (3) (72) 344 bp = basis point = 1/100 of a percent $ 117.0 105.3 93.6 81.9 70.2 58.5 46.8 35.1 23.4 11.7 0.0 $ 2400 2160 1920 1680 1440 1200 960 720 480 240 0 TOTAL REVENUE (in millions of dollars) $ 1.90 DILUTED EPS 1.52 1.14 0.76 0.38 0.00 04 05 06 07 08 09 10 11 12 13 04 05 06 07 08 09 10 11 12 13 TOTAL ASSETS (in millions of dollars) $ 0.85 DIVIDENDS PER SHARE 0.77 0.68 0.60 0.51 0.43 0.34 0.26 0.17 0.09 0.00 04 05 06 07 08 09 10 11 12 13 04 05 06 07 08 09 10 11 12 13 PAGE 1 S.Y. BANCORP, INC. 2013 SUMMARY ANNUAL REPORT Note: Per share information has been adjusted as necessary for stock splits and stock dividends. several non-core items that masked the Company’s total earnings potential for the year. These non-core items included the write-off of debt issuance costs in connection with the redemption of our high cost trust preferred securities at year’s end – a move that will immediately add $0.13 per diluted share to earnings in 2014 and thereafter. You may recall that we issued these securities in 2008 at the height of the financial crisis, seeing the opportunity to raise capital in this way as a more favorable alternative to the Treasury Department’s Capital Purchase Program, also known as TARP, even though we were approved to participate in TARP. Non-core items also included costs associated with our second quarter acquisition of THE BANCorp, INC. (“BANCorp”), the holding company for THE BANK – Oldham County, a strategic expansion step that provided us with a 25% market share in the county with the highest average household income in Kentucky; this acquisition already has begun to contribute to our results. Excluding non-core items, net income per diluted share for 2013 was $1.97, up more than 6% from $1.85 for 2012. In November 2013, S.Y. Bancorp’s Board of Directors raised the Company’s quarterly cash dividend to $0.21 per common share, a 5% increase over the previous rate of $0.20 per common share. This was the fourth such increase in the past three years and represented a cumulative increase in the dividend rate of almost 24% during that time. This increase resulted in a forward dividend yield to 2.71% as of this writing and raised our dividend payout to 44% based on 2013 earnings. I should reiterate that, unlike many banks that were forced to manage capital over the last several years by reducing or eliminating cash dividends, our strong capital position and earnings growth have allowed S.Y. Bancorp to remain true to its objective of enhancing stockholder returns through strong and growing dividends. From the beginning, we have never reduced or suspended dividend payments; we greatly value the trust and confidence you place in our company! While some banks may have reported higher percentage stock price gains over the past few years and tout that as a sign of superior appreciation, we continue to believe that real performance is not gauged simply by a recent price surge, which is easy to accomplish when coming off of previously depressed results. Rather, we think real performance is measured over a meaningful timeframe, and a “THIS SUCCESS IS READILY EVIDENT FROM OUR FINANCIALS FOR THE YEAR, WITH SOLID LOAN GROWTH ACROSS ALL THREE OF OUR MARKETS DRIVING HIGHER NET INTEREST INCOME.” PAGE 2 S.Y. BANCORP, INC. 2013 SUMMARY ANNUAL REPORT David P. Heintzman Chairman and Chief Executive Officer To Our Stockholders What a year it has been for S.Y. Bancorp! During 2013, a number of positive developments in our business, a firming economy and a successfully completed acquisition all combined to produce yet another record year for S.Y. Bancorp and its stockholders. This success is readily evident from our financials for the year, with solid loan growth across all three of our markets driving higher net interest income. In tandem with that, an improving economy continued to favorably influence loan and asset quality, significantly reducing our credit costs. Additionally, our diversified sources of non-interest revenue helped push total fee and other income to its highest amount ever in 2013. These advances, along with other strategic steps taken in 2013, aligned to underscore our ongoing standing as one of the top-performing community banks in the country. Equally important, they further solidify our foundation for future growth and position us to take advantage of new opportunities ahead. 2013 FINANCIAL OVERVIEW Net income for 2013 rose 5% to $27.2 million, which on a diluted per share basis, represented a 2% increase to $1.89. These record results belie an even stronger operational performance for they reflected Company like S.Y. Bancorp, which produces strong and consistent confidence that this avenue for expansion is both viable and earnings growth, and in turn, stock price appreciation, more directly complementary to the de novo growth we have pursued in the past. answers an investor’s desire for balance in both performance and We continue to believe that there will be attractive acquisition volatility. Looking at 10-year returns, S.Y. Bancorp’s total return opportunities in the years to come, and our capital strength and performance was 113% versus a 3% for a NASDAQ Bank index, as execution experience position us well to take advantage of those compiled by industry data source SNL. We are pleased that our stock opportunities. price - and our financial results - continue to set a standard by which BANKING many community banks are measured. SUCCESSFUL ACQUISITION Throughout 2013, we continued to see a strong performance in our banking operations, with all three of our markets experiencing higher In my letter to you last year, I told you about our pending acquisition loan production. Combined, record loan production of approximately of BANCorp and described the many reasons why we were so $489 million for the year translated into an 11% increase in total enthusiastic about that assets for 2013 and pushed our loan portfolio up $137 million or transaction. I am pleased almost 9% during the year. Excluding loans acquired in the BANCorp to tell you now that the acquisition, core loan growth was more than 6% in 2013. This loan BANCorp acquisition was growth helped offset the net interest margin pressure we very successful, providing experienced over the past year. us with a solid physical presence in demographically attractive Oldham County. Our integration efforts proved to be smooth and effective and were highlighted by the ongoing loyalty of customers who, with the acquisition, benefitted from a significant expansion in the depth and breadth of available products and services. Since the completion of the acquisition, we have experienced growth in both the loan portfolio and deposit base in Oldham County, and our greater visibility in the area has resulted in increased traction with new business opportunities for commercial lending. It also has created a platform for the ongoing expansion of our wealth management group, as well as our mortgage origination services. While growing loan volume was instrumental to our progress in 2013, strengthening credit quality metrics also were a key factor, allowing us to reduce credit costs – primarily the provision for loan losses. Non-performing assets have declined approximately 33% from the peak in 2012 and, relative to total assets, they declined steadily over the last three quarters of 2013 to end the year at the lowest level since midyear 2011. As we look ahead to the coming year, we remain upbeat about the prospects for new business development in all of our markets based on the stable pipeline of loans we see ahead, especially in the area of commercial and industrial lending, which continues to benefit from an improving economy. Still, for many reasons, we know 2014 will present some challenges in this regard. One, we recognize that we will be lapping our strongest year ever in terms of loan production. Two, a more volatile interest rate environment and a competitive Due to our continued growth, together with the impact of the landscape continues to cause run-off concerns. However, we are BANCorp transaction, Stock Yards Bank & Trust moved up in rankings pleased to note that in many of the instances where customers either as of June 30, 2013, as the largest community bank in the Louisville pay down or pay off loans early, we still maintain a strong client metropolitan statistical area, with deposits of more than $1.7 million. relationship as their banker and remain well positioned to do By year end 2013, deposits increased a total of 11% for the year to business with them in the future. almost $2 billion. With almost half of the area’s deposits concen- trated among three large national banks, against which we have had good success in competing for business with our customer-focused approach to service, we continue to see opportunity in growing our share of this market. OTHER SERVICES In addition to the momentum seen in our banking operations, we are pleased to note that fee and other income traditionally has been a key element in the Company’s growth, and that clearly was the case for 2013. Non-interest income rose to more than $39 million for the Finally, with a successful acquisition under our belt, we have rising year, representing 33.5% of total revenue. This overall increase of 1.4% was led by a solid performance from our formed the holding company in 1988, we were considering changing investment management and trust services department. For 2013, our the Bank’s name; however, we since have realized the value of a investment management and trust services department achieved name that has endured now for more than a century. Stock Yards record revenue, up 14% for the year. With $2.23 billion in assets under Bank & Trust has an excellent reputation and its unique name has management, also an increase of 14% for the year, our investment garnered customer attention and enhanced our market perception as management and trust services department continues to rank among we expanded into Indiana and Ohio. Under the name Stock Yards the top 100 bank trust departments in the nation based on revenue. Bancorp, we believe we can capitalize further on these advantages. If Growth in assets under management shows both new business the name change is approved, the Company’s current stock certificates development as well as the overall stronger stock market conditions. will remain valid and the Company’s common stock will continue to As we have mentioned from time to time, the counterbalancing nature of our diverse sources of other revenue not only provides an CONCLUSION trade on the NASDAQ stock market under the symbol SYBT. opportunity for growth, it also serves to reduce the volatility we We are pleased that our company has again posted record results for experience with revenue as various components change over time. the year, and we are excited about what the fundamental strength of Thus was the case in 2013 as the performance of our investment our operations means for S.Y. Bancorp and its stockholders going management and trust services department helped compensate for forward. This strength reflects a footprint that spans three attractive declining revenue from the Bank’s mortgage division. During 2013, markets that diversify our economic exposure. It is derived from the mortgage division experienced an 85% decline in refinancing offering an array of products and services – commercial and volume as loan refinancing demand declined in the wake of rising consumer banking, investment management and trust, interest rates, consistent with national trends. Offsetting this to correspondent banking, and others – that address the needs of our some extent, purchase loan activity increased 13% in 2013. As a customers in ways that many banks our size cannot. It is built on a result of these mixed trends, mortgage banking revenue for 2013 fell team of bankers that are among the best in the business, men and 31% from record achievements in 2012. While down for the year, we women who are leaders in their field and aspire to work for one of believe mortgage lending remains an important service for our the top-performing community banks in the country, backed by a customers, making Stock Yards Bank & Trust a more comprehensive staff that from top to bottom is committed to delivering the highest resource for financial solutions and enabling us to be fully responsive possible level of customer service. In short, we believe S.Y. Bancorp in addressing their demands. KUDOS FROM WALL STREET stands out, coupled with competitive products and stable markets and we look forward to leveraging these strong points in the years ahead. During 2013, our company’s financial performance continued to gain As we look toward 2014, we believe the Company remains well the attention of investment professionals that cover the banking positioned to extend its record of growth, profitability and attractive industry. S.Y. Bancorp was one of only 47 banks in the country to be shareholder returns. On behalf of the Board of Directors, named last year to the KBW Bank Honor Roll, a distinction the management and our employees, let me say how much we value Company has consistently earned. S.Y. Bancorp also was recognized your support and loyalty. We appreciate your continued interest in among the top 10% of U.S. community banks in the first annual our company – A Trusted Partner Since 1904. Raymond James Community Bankers Cup. Lastly, we recently were notified that the Company again earned a spot on the “Nifty Fifty” David P. Heintzman list, a ranking by Bank Director magazine and Sandler O’Neill + Chairman and Chief Executive Officer Partners of the top 50 best users of capital based on profitability and capital strength. PROPOSED NAME CHANGE Subject to stockholder approval at our 2014 annual meeting, we plan to change the name of the Company from S.Y. Bancorp to Stock Yards Bancorp to better align the identity of the Company with its subsidiary bank, Stock Yards Bank & Trust Company. At the time we several non-core items that masked the Company’s total earnings potential for the year. These non-core items included the write-off of debt issuance costs in connection with the redemption of our high cost trust preferred securities at year’s end – a move that will immediately add $0.13 per diluted share to earnings in 2014 and thereafter. You may recall that we issued these securities in 2008 at the height of the financial crisis, seeing the opportunity to raise capital in this way as a more favorable alternative to the Treasury Department’s Capital Purchase Program, also known as TARP, even though we were approved to participate in TARP. Non-core items also included costs associated with our second quarter acquisition of THE BANCorp, INC. (“BANCorp”), the holding company for THE BANK – Oldham County, a strategic expansion step that provided us with a 25% market share in the county with the highest average household income in Kentucky; this acquisition already has begun to contribute to our results. Excluding non-core items, net income per diluted share for 2013 was $1.97, up more than 6% from $1.85 for 2012. In November 2013, S.Y. Bancorp’s Board of Directors raised the Company’s quarterly cash dividend to $0.21 per common share, a 5% increase over the previous rate of $0.20 per common share. This was the fourth such increase in the past three years and represented a cumulative increase in the dividend rate of almost 24% during that time. This increase resulted in a forward dividend yield to 2.71% as of this writing and raised our dividend payout to 44% based on 2013 earnings. I should reiterate that, unlike many banks that were forced to manage capital over the last several years by reducing or eliminating cash dividends, our strong capital position and earnings growth have allowed S.Y. Bancorp to remain true to its objective of enhancing stockholder returns through strong and growing dividends. From the beginning, we have never reduced or suspended dividend payments; we greatly value the trust and confidence you place in our company! What a year it has been for S.Y. Bancorp! During 2013, a number of positive developments in our business, a firming economy and a successfully completed acquisition all combined to produce yet another record year for S.Y. Bancorp and its stockholders. This success is readily evident from our financials for the year, with solid loan growth across all three of our markets driving higher net interest income. In tandem with that, an improving economy continued to favorably influence loan and asset quality, significantly reducing our credit costs. Additionally, our diversified sources of non-interest revenue helped push total fee and other income to its highest amount ever in 2013. These advances, along with other strategic steps taken in 2013, aligned to underscore our ongoing standing as one of the top-performing community banks in the country. Equally important, they further solidify our foundation for future growth and position us to take advantage of new opportunities ahead. 2013 FINANCIAL OVERVIEW Net income for 2013 rose 5% to $27.2 million, which on a diluted per share basis, represented a 2% increase to $1.89. These record results belie an even stronger operational performance for they reflected While some banks may have reported higher percentage stock price gains over the past few years and tout that as a sign of superior appreciation, we continue to believe that real performance is not gauged simply by a recent price surge, which is easy to accomplish when coming off of previously depressed results. Rather, we think real performance is measured over a meaningful timeframe, and a Company like S.Y. Bancorp, which produces strong and consistent earnings growth, and in turn, stock price appreciation, more directly answers an investor’s desire for balance in both performance and volatility. Looking at 10-year returns, S.Y. Bancorp’s total return performance was 113% versus a 3% for a NASDAQ Bank index, as compiled by industry data source SNL. We are pleased that our stock price - and our financial results - continue to set a standard by which many community banks are measured. SUCCESSFUL ACQUISITION In my letter to you last year, I told you about our pending acquisition of BANCorp and described the many reasons why we were so “WE ARE PLEASED THAT OUR STOCK PRICE – AND OUR FINANCIAL RESULTS – CONTINUE TO SET A STANDARD BY WHICH MANY COMMUNITY BANKS ARE MEASURED.” enthusiastic about that transaction. I am pleased to tell you now that the BANCorp acquisition was very successful, providing us with a solid physical presence in demographically attractive Oldham County. Our integration efforts proved to be smooth and effective and were highlighted by the ongoing loyalty of customers who, with the acquisition, benefitted from a significant expansion in the depth and breadth of available products and services. Since the completion of the acquisition, we have experienced growth in both the loan portfolio and deposit base in Oldham County, and our greater visibility in the area has resulted in increased traction with new business opportunities for commercial lending. It also has created a platform for the ongoing expansion of our wealth management group, as well as our mortgage origination services. Due to our continued growth, together with the impact of the BANCorp transaction, Stock Yards Bank & Trust moved up in rankings as of June 30, 2013, as the largest community bank in the Louisville metropolitan statistical area, with deposits of more than $1.7 million. By year end 2013, deposits increased a total of 11% for the year to almost $2 billion. With almost half of the area’s deposits concen- trated among three large national banks, against which we have had good success in competing for business with our customer-focused approach to service, we continue to see opportunity in growing our share of this market. Finally, with a successful acquisition under our belt, we have rising confidence that this avenue for expansion is both viable and complementary to the de novo growth we have pursued in the past. We continue to believe that there will be attractive acquisition opportunities in the years to come, and our capital strength and execution experience position us well to take advantage of those opportunities. BANKING Throughout 2013, we continued to see a strong performance in our banking operations, with all three of our markets experiencing higher loan production. Combined, record loan production of approximately $489 million for the year translated into an 11% increase in total assets for 2013 and pushed our loan portfolio up $137 million or almost 9% during the year. Excluding loans acquired in the BANCorp acquisition, core loan growth was more than 6% in 2013. This loan growth helped offset the net interest margin pressure we experienced over the past year. While growing loan volume was instrumental to our progress in 2013, strengthening credit quality metrics also were a key factor, allowing us to reduce credit costs – primarily the provision for loan losses. Non-performing assets have declined approximately 33% from the peak in 2012 and, relative to total assets, they declined steadily over the last three quarters of 2013 to end the year at the lowest level since midyear 2011. As we look ahead to the coming year, we remain upbeat about the prospects for new business development in all of our markets based on the stable pipeline of loans we see ahead, especially in the area of commercial and industrial lending, which continues to benefit from an improving economy. Still, for many reasons, we know 2014 will present some challenges in this regard. One, we recognize that we will be lapping our strongest year ever in terms of loan production. Two, a more volatile interest rate environment and a competitive landscape continues to cause run-off concerns. However, we are pleased to note that in many of the instances where customers either pay down or pay off loans early, we still maintain a strong client relationship as their banker and remain well positioned to do business with them in the future. OTHER SERVICES In addition to the momentum seen in our banking operations, we are pleased to note that fee and other income traditionally has been a key element in the Company’s growth, and that clearly was the case for 2013. Non-interest income rose to more than $39 million for the year, representing 33.5% of total revenue. PAGE 3 S.Y. BANCORP, INC. 2013 SUMMARY ANNUAL REPORT This overall increase of 1.4% was led by a solid performance from our formed the holding company in 1988, we were considering changing investment management and trust services department. For 2013, our the Bank’s name; however, we since have realized the value of a investment management and trust services department achieved name that has endured now for more than a century. Stock Yards record revenue, up 14% for the year. With $2.23 billion in assets under Bank & Trust has an excellent reputation and its unique name has management, also an increase of 14% for the year, our investment garnered customer attention and enhanced our market perception as management and trust services department continues to rank among we expanded into Indiana and Ohio. Under the name Stock Yards the top 100 bank trust departments in the nation based on revenue. Bancorp, we believe we can capitalize further on these advantages. If Growth in assets under management shows both new business the name change is approved, the Company’s current stock certificates development as well as the overall stronger stock market conditions. will remain valid and the Company’s common stock will continue to As we have mentioned from time to time, the counterbalancing nature of our diverse sources of other revenue not only provides an CONCLUSION trade on the NASDAQ stock market under the symbol SYBT. opportunity for growth, it also serves to reduce the volatility we We are pleased that our company has again posted record results for experience with revenue as various components change over time. the year, and we are excited about what the fundamental strength of Thus was the case in 2013 as the performance of our investment our operations means for S.Y. Bancorp and its stockholders going management and trust services department helped compensate for forward. This strength reflects a footprint that spans three attractive declining revenue from the Bank’s mortgage division. During 2013, markets that diversify our economic exposure. It is derived from the mortgage division experienced an 85% decline in refinancing offering an array of products and services – commercial and volume as loan refinancing demand declined in the wake of rising consumer banking, investment management and trust, interest rates, consistent with national trends. Offsetting this to correspondent banking, and others – that address the needs of our some extent, purchase loan activity increased 13% in 2013. As a customers in ways that many banks our size cannot. It is built on a result of these mixed trends, mortgage banking revenue for 2013 fell team of bankers that are among the best in the business, men and 31% from record achievements in 2012. While down for the year, we women who are leaders in their field and aspire to work for one of believe mortgage lending remains an important service for our the top-performing community banks in the country, backed by a customers, making Stock Yards Bank & Trust a more comprehensive staff that from top to bottom is committed to delivering the highest resource for financial solutions and enabling us to be fully responsive possible level of customer service. In short, we believe S.Y. Bancorp in addressing their demands. KUDOS FROM WALL STREET stands out, coupled with competitive products and stable markets and we look forward to leveraging these strong points in the years ahead. During 2013, our company’s financial performance continued to gain As we look toward 2014, we believe the Company remains well the attention of investment professionals that cover the banking positioned to extend its record of growth, profitability and attractive industry. S.Y. Bancorp was one of only 47 banks in the country to be shareholder returns. On behalf of the Board of Directors, named last year to the KBW Bank Honor Roll, a distinction the management and our employees, let me say how much we value Company has consistently earned. S.Y. Bancorp also was recognized your support and loyalty. We appreciate your continued interest in among the top 10% of U.S. community banks in the first annual our company – A Trusted Partner Since 1904. Raymond James Community Bankers Cup. Lastly, we recently were notified that the Company again earned a spot on the “Nifty Fifty” David P. Heintzman list, a ranking by Bank Director magazine and Sandler O’Neill + Chairman and Chief Executive Officer Partners of the top 50 best users of capital based on profitability and capital strength. PROPOSED NAME CHANGE Subject to stockholder approval at our 2014 annual meeting, we plan to change the name of the Company from S.Y. Bancorp to Stock Yards Bancorp to better align the identity of the Company with its subsidiary bank, Stock Yards Bank & Trust Company. At the time we several non-core items that masked the Company’s total earnings potential for the year. These non-core items included the write-off of debt issuance costs in connection with the redemption of our high cost trust preferred securities at year’s end – a move that will immediately add $0.13 per diluted share to earnings in 2014 and thereafter. You may recall that we issued these securities in 2008 at the height of the financial crisis, seeing the opportunity to raise capital in this way as a more favorable alternative to the Treasury Department’s Capital Purchase Program, also known as TARP, even though we were approved to participate in TARP. Non-core items also included costs associated with our second quarter acquisition of THE BANCorp, INC. (“BANCorp”), the holding company for THE BANK – Oldham County, a strategic expansion step that provided us with a 25% market share in the county with the highest average household income in Kentucky; this acquisition already has begun to contribute to our results. Excluding non-core items, net income per diluted share for 2013 was $1.97, up more than 6% from $1.85 for 2012. In November 2013, S.Y. Bancorp’s Board of Directors raised the Company’s quarterly cash dividend to $0.21 per common share, a 5% increase over the previous rate of $0.20 per common share. This was the fourth such increase in the past three years and represented a cumulative increase in the dividend rate of almost 24% during that time. This increase resulted in a forward dividend yield to 2.71% as of this writing and raised our dividend payout to 44% based on 2013 earnings. I should reiterate that, unlike many banks that were forced to manage capital over the last several years by reducing or eliminating cash dividends, our strong capital position and earnings growth have allowed S.Y. Bancorp to remain true to its objective of enhancing stockholder returns through strong and growing dividends. From the beginning, we have never reduced or suspended dividend payments; we greatly value the trust and confidence you place in our company! What a year it has been for S.Y. Bancorp! During 2013, a number of positive developments in our business, a firming economy and a successfully completed acquisition all combined to produce yet another record year for S.Y. Bancorp and its stockholders. This success is readily evident from our financials for the year, with solid loan growth across all three of our markets driving higher net interest income. In tandem with that, an improving economy continued to favorably influence loan and asset quality, significantly reducing our credit costs. Additionally, our diversified sources of non-interest revenue helped push total fee and other income to its highest amount ever in 2013. These advances, along with other strategic steps taken in 2013, aligned to underscore our ongoing standing as one of the top-performing community banks in the country. Equally important, they further solidify our foundation for future growth and position us to take advantage of new opportunities ahead. 2013 FINANCIAL OVERVIEW Net income for 2013 rose 5% to $27.2 million, which on a diluted per share basis, represented a 2% increase to $1.89. These record results belie an even stronger operational performance for they reflected While some banks may have reported higher percentage stock price gains over the past few years and tout that as a sign of superior appreciation, we continue to believe that real performance is not gauged simply by a recent price surge, which is easy to accomplish when coming off of previously depressed results. Rather, we think real performance is measured over a meaningful timeframe, and a Company like S.Y. Bancorp, which produces strong and consistent confidence that this avenue for expansion is both viable and earnings growth, and in turn, stock price appreciation, more directly complementary to the de novo growth we have pursued in the past. answers an investor’s desire for balance in both performance and We continue to believe that there will be attractive acquisition volatility. Looking at 10-year returns, S.Y. Bancorp’s total return opportunities in the years to come, and our capital strength and performance was 113% versus a 3% for a NASDAQ Bank index, as execution experience position us well to take advantage of those compiled by industry data source SNL. We are pleased that our stock opportunities. price - and our financial results - continue to set a standard by which BANKING many community banks are measured. SUCCESSFUL ACQUISITION Throughout 2013, we continued to see a strong performance in our banking operations, with all three of our markets experiencing higher In my letter to you last year, I told you about our pending acquisition loan production. Combined, record loan production of approximately of BANCorp and described the many reasons why we were so $489 million for the year translated into an 11% increase in total enthusiastic about that assets for 2013 and pushed our loan portfolio up $137 million or transaction. I am pleased almost 9% during the year. Excluding loans acquired in the BANCorp to tell you now that the acquisition, core loan growth was more than 6% in 2013. This loan BANCorp acquisition was growth helped offset the net interest margin pressure we very successful, providing experienced over the past year. us with a solid physical presence in demographically attractive Oldham County. Our integration efforts proved to be smooth and effective and were highlighted by the ongoing loyalty of customers who, with the acquisition, benefitted from a significant expansion in the depth and breadth of available products and services. Since the completion of the acquisition, we have experienced growth in both the loan portfolio and deposit base in Oldham County, and our greater visibility in the area has resulted in increased traction with new business opportunities for commercial lending. It also has created a platform for the ongoing expansion of our wealth management group, as well as our mortgage origination services. While growing loan volume was instrumental to our progress in 2013, strengthening credit quality metrics also were a key factor, allowing us to reduce credit costs – primarily the provision for loan losses. Non-performing assets have declined approximately 33% from the peak in 2012 and, relative to total assets, they declined steadily over the last three quarters of 2013 to end the year at the lowest level since midyear 2011. As we look ahead to the coming year, we remain upbeat about the prospects for new business development in all of our markets based on the stable pipeline of loans we see ahead, especially in the area of commercial and industrial lending, which continues to benefit from an improving economy. Still, for many reasons, we know 2014 will present some challenges in this regard. One, we recognize that we will be lapping our strongest year ever in terms of loan production. Two, a more volatile interest rate environment and a competitive Due to our continued growth, together with the impact of the landscape continues to cause run-off concerns. However, we are BANCorp transaction, Stock Yards Bank & Trust moved up in rankings pleased to note that in many of the instances where customers either as of June 30, 2013, as the largest community bank in the Louisville pay down or pay off loans early, we still maintain a strong client metropolitan statistical area, with deposits of more than $1.7 million. relationship as their banker and remain well positioned to do By year end 2013, deposits increased a total of 11% for the year to business with them in the future. almost $2 billion. With almost half of the area’s deposits concen- trated among three large national banks, against which we have had good success in competing for business with our customer-focused approach to service, we continue to see opportunity in growing our share of this market. OTHER SERVICES In addition to the momentum seen in our banking operations, we are pleased to note that fee and other income traditionally has been a key element in the Company’s growth, and that clearly was the case for 2013. Non-interest income rose to more than $39 million for the Finally, with a successful acquisition under our belt, we have rising year, representing 33.5% of total revenue. This overall increase of 1.4% was led by a solid performance from our investment management and trust services department. For 2013, our investment management and trust services department achieved record revenue, up 14% for the year. With $2.23 billion in assets under management, also an increase of 14% for the year, our investment management and trust services department continues to rank among the top 100 bank trust departments in the nation based on revenue. Growth in assets under management shows both new business development as well as the overall stronger stock market conditions. As we have mentioned from time to time, the counterbalancing nature of our diverse sources of other revenue not only provides an opportunity for growth, it also serves to reduce the volatility we experience with revenue as various components change over time. Thus was the case in 2013 as the performance of our investment management and trust services department helped compensate for declining revenue from the Bank’s mortgage division. During 2013, the mortgage division experienced an 85% decline in refinancing volume as loan refinancing demand declined in the wake of rising interest rates, consistent with national trends. Offsetting this to some extent, purchase loan activity increased 13% in 2013. As a result of these mixed trends, mortgage banking revenue for 2013 fell 31% from record achievements in 2012. While down for the year, we believe mortgage lending remains an important service for our customers, making Stock Yards Bank & Trust a more comprehensive resource for financial solutions and enabling us to be fully responsive in addressing their demands. KUDOS FROM WALL STREET During 2013, our company’s financial performance continued to gain the attention of investment professionals that cover the banking industry. S.Y. Bancorp was one of only 47 banks in the country to be named last year to the KBW Bank Honor Roll, a distinction the Company has consistently earned. S.Y. Bancorp also was recognized among the top 10% of U.S. community banks in the first annual Raymond James Community Bankers Cup. Lastly, we recently were notified that the Company again earned a spot on the “Nifty Fifty” list, a ranking by Bank Director magazine and Sandler O’Neill + Partners of the top 50 best users of capital based on profitability and capital strength. PROPOSED NAME CHANGE Subject to stockholder approval at our 2014 annual meeting, we plan to change the name of the Company from S.Y. Bancorp to Stock Yards Bancorp to better align the identity of the Company with its subsidiary bank, Stock Yards Bank & Trust Company. At the time we formed the holding company in 1988, we were considering changing the Bank’s name; however, we since have realized the value of a name that has endured now for more than a century. Stock Yards Bank & Trust has an excellent reputation and its unique name has garnered customer attention and enhanced our market perception as we expanded into Indiana and Ohio. Under the name Stock Yards Bancorp, we believe we can capitalize further on these advantages. If the name change is approved, the Company’s current stock certificates will remain valid and the Company’s common stock will continue to trade on the NASDAQ stock market under the symbol SYBT. CONCLUSION We are pleased that our company has again posted record results for the year, and we are excited about what the fundamental strength of our operations means for S.Y. Bancorp and its stockholders going forward. This strength reflects a footprint that spans three attractive markets that diversify our economic exposure. It is derived from offering an array of products and services – commercial and consumer banking, investment management and trust, correspondent banking, and others – that address the needs of our customers in ways that many banks our size cannot. It is built on a team of bankers that are among the best in the business, men and women who are leaders in their field and aspire to work for one of the top-performing community banks in the country, backed by a staff that from top to bottom is committed to delivering the highest possible level of customer service. In short, we believe S.Y. Bancorp stands out, coupled with competitive products and stable markets and we look forward to leveraging these strong points in the years ahead. As we look toward 2014, we believe the Company remains well positioned to extend its record of growth, profitability and attractive shareholder returns. On behalf of the Board of Directors, management and our employees, let me say how much we value your support and loyalty. We appreciate your continued interest in our company – A Trusted Partner Since 1904. David P. Heintzman Chairman and Chief Executive Officer “AS WE LOOK TOWARD 2014, WE BELIEVE THE COMPANY REMAINS WELL POSITIONED TO EXTEND ITS RECORD OF GROWTH, PROFITABILITY AND ATTRACTIVE SHAREHOLDER RETURNS.” PAGE 4 S.Y. BANCORP, INC. 2013 SUMMARY ANNUAL REPORT S.Y. BANCORP, INC. Selected Consolidated Financial Data (Dollars in thousands, except per share data) 2013 2012 2011 2010 2009 As of and for the year ended December 31, INCOME STATEMENT Net interest income Provision for Loan Loses Non-interest income Non-interest expenses Net income PER SHARE Basic EPS Diluted EPS Cash dividends declared Book value Market value BALANCE SHEET Total loans Allowance for loan losses Total assets Total deposits Stockholders’ equity AVERAGE BALANCE SHEET Total loans Total assets Total deposits Stockholders’ equity EARNINGS PERFORMANCE Return on average assets Return on average equity Net interest margin, full tax equivalent KEY RATIOS Non-performing loans to total loans Non-performing assets to total assets Net loan charge-offs to total assets Allowance for loan losses to avg. loans Avg. stockholders’ equity to avg. assets Tier 1 risk-based capital Total risk-based capital Leverage $ $ $ $ 77,298 6,550 39,002 71,352 27,170 1.91 1.89 0.81 15.71 31.92 1,721,350 28,522 2,389,262 1,980,937 229,444 1,656,777 2,232,868 1,843,426 220,107 $ $ $ 73,950 11,500 38,457 65,472 25,801 1.86 1.85 0.77 14.74 22.42 1,584,594 31,881 2,148,262 1,781,693 205,075 $ 1,563,918 2,070,967 1,659,594 197,551 $ $ $ $ 70,732 12,600 33,244 59,581 23,604 1.71 1.71 0.72 13.58 20.53 1,544,845 29,745 2,053,097 1,617,739 187,686 1,529,556 1,959,609 1,549,708 179,638 $ $ $ $ 66,879 11,469 33,739 57,131 22,953 1.68 1.67 0.69 12.37 24.55 1,508,425 25,543 1,902,945 1,493,468 169,861 1,469,116 1,847,452 1,454,239 163,572 $ $ $ $ 58,675 12,775 30,036 52,695 16,308 1.20 1.19 0.68 11.29 21.35 1,435,462 20,000 1,791,479 1,418,184 153,614 1,391,644 1,717,474 1,331,936 150,721 % 1.22 12.34 3.74 % 1.33 1.19 0.60 1.66 9.86 12.29 13.54 9.75 % 1.25 13.06 3.94 % 1.90 1.74 0.60 2.04 9.54 13.17 14.42 10.79 % 1.20 13.14 3.99 % 1.51 1.51 0.55 1.94 9.17 12.77 14.63 10.53 % 1.24 14.03 3.99 % 1.28 1.30 0.40 1.74 8.85 12.06 13.93 10.31 % 0.95 10.82 3.74 % 0.84 0.77 0.59 1.44 8.78 11.66 13.55 10.16 PAGE 5 S.Y. BANCORP, INC. 2013 SUMMARY ANNUAL REPORT DIRECTORS Charles R. Edinger III President, J. Edinger & Son, Inc. David P. Heintzman Chairman and Chief Executive Officer, S.Y. Bancorp, Inc. and Stock Yards Bank & Trust Company Carl G. Herde Vice President of Finance and Chief Financial Officer, Baptist Healthcare System, Inc. James A. Hillebrand President, S.Y. Bancorp, Inc. and Stock Yards Bank & Trust Company Richard A. Lechleiter Retired Bruce P. Madison Chief Executive Officer, Plumbers Supply Company, Inc. EXECUTIVE OFFICERS David P. Heintzman Chairman and Chief Executive Officer James A. Hillebrand President Kathy C. Thompson Senior Executive Vice President Wealth Management Group Nancy B. Davis Executive Vice President Chief Financial Officer William M. Dishman III Executive Vice President Chief Risk Officer Gregory A. Hoeck Executive Vice President Retail Banking Group Philip S. Poindexter Executive Vice President Chief Credit Officer T. Clay Stinnett Executive Vice President Chief Strategic Officer Richard Northern Partner, Wyatt, Tarrant & Combs LLP Nicholas X. Simon President and Chief Executive Officer, Publishers Printing Company Stephen M. Priebe President, Hall Contracting of Kentucky Norman Tasman President, Tasman Industries, Inc. and Tasman Hide Processing, Inc. Kathy C. Thompson Senior Executive Vice President, S.Y. Bancorp, Inc. and Stock Yards Bank & Trust Company LOUISVILLE - Corporate Center 1048 East Main Street Louisville, Kentucky 40206 (502) 582-2571 INDIANAPOLIS - Regional Center 136 East Market Street Indianapolis, Indiana 46204 (317) 238-2800 CINCINNATI - Regional Center 101 West Fourth Street Cincinnati, Ohio 45202 (513) 824-6100 PAGE 6 S.Y. BANCORP, INC. 2013 SUMMARY ANNUAL REPORT STOCKHOLDER INFORMATION Common Stock S.Y. Bancorp, Inc.’s common stock trades on the NASDAQ Global Select Market under the symbol SYBT. Forms 10-K And 10-Q S.Y. Bancorp, Inc.’s annual report on Form 10-K and quarterly reports on Form 10-Q, as filed with the Securities and Exchange Commission, can be found at www.syb.com (see “Investor Relations”) or by writing or calling Nancy B. Davis, Executive Vice President, S.Y. Bancorp, Inc., nancy.davis@syb.com, (502) 625-9176. Transfer Agent The transfer agent for the common stock of S.Y. Bancorp, Inc. is: Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016-3572 (800) 368-5948 Automatic Dividend Reinvestment Service The Company’s automatic dividend reinvestment service enables stockholders to reinvest cash dividends in additional shares of S.Y. Bancorp, Inc. stock. For additional information, contact the Transfer Agent. Mailing And Street Addresses The mailing address for S.Y. Bancorp, Inc. is: P.O. Box 32890, Louisville, Kentucky 40232-2890. The street address is: 1040 E. Main Street, Louisville, Kentucky 40206. Internet Address The Internet address for S.Y. Bancorp, Inc. is www.syb.com. Stockholders can find share prices, trading volume, insider trading information, and other pertinent information (see “Investor Relations”). 

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