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| "We are pleased to announce solid earnings growth for the second quarter as compared to the comparable period last year," commented Chairman David H. Brooks. "With long-term interest rates still at historically low levels, the Company's continued growth in net interest income reflected the ongoing strength of our banking operations, while our mortgage operations posted another excellent quarter in terms of loan originations and contribution to our non-interest income, helping to provide balance to our sources of revenue and profits. These improvements continue to translate into solid returns for our shareholders, as reflected in annualized returns for the second quarter of 1.55% on average assets and 17.98% on average equity. Moreover, this performance provided the basis for our recent decision to again increase the Company's dividend rate – the second such increase in less than a year. |
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| "We are optimistic that a slow economic recovery has begun, one that will add strength to our commercial lending and investment management and trust areas," he continued. "We feel these business lines are well positioned to take advantage of improving trends and we are encouraged by the outlook for enhanced opportunities in the second half of the year that would come from stronger economic activity." |
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| Concluding, Mr. Brooks noted, "While the low interest rate environment creates definite challenges, we believe it also offers many opportunities for us to grow our business and capture additional market share. In these efforts, we have continued to stress customer convenience, opening three new branches this year and planning for one more before year's end. We also have continued to expand our presence in Indianapolis, where we recently opened a Private Banking loan production office. As we expand the footprint of our operations, we are confident that our full-service orientation and local focus will provide increased and ongoing differentiation from the competition." |
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| Net interest income on a taxable equivalent basis increased 5.5% for the quarter versus the same period last year due primarily to growth in earning assets for the period. However, net interest margin fell 16 basis points from the second quarter of 2002. Management expects continued margin contraction during 2003 as rates on interest earning assets are projected to decline further. in reaction to recent actions by the Federal Reserve Board. Margin contraction could range from 5 to -15 basis points depending upon suchvarious factors asincluding, but not limited to: further interest rate cuts by the Federal Reserve, competitive rate pressures, or unforeseen changes in the Bank’s funding mix. This estimate does not include effects from any further interest rate cuts by the Federal Reserve. |
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| The provision for loan losses declined 18% for the quarter compared with the same quarter in 2002 in consideration of the inherent risk in the loan portfolio. Non-performing loans decreased approximately 4% compared with the level one year ago. The increase in net charge-offs for the second quarter of 2003 was primarily due to one credit. The estimated loss on this credit was included in 2002 in the specific allocations of the allowance for loan losses. The estimated current value of the property securing this former loan, acquired by an agreement with the borrower, is now included in other real estate owned on the Company’s financial statements. Due to the nature of the property, management anticipates that total disposition could require two to three years to complete. |
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| Non-interest income increased 29% in the second quarter from the same period in 2002. Stock Yards Mortgage Company led this growth, posting a 173% increase in gains on sale of loans held for sale compared with the second quarter 2002 as favorable mortgage rates continued to fuel a high level of refinancing activity. Also contributing to the overall increase in non-interest income was an increase in service charges on deposit accounts as the Company continued to expand its deposit base. Additionally, bankcard revenue grew by approximately 24% as more customers continue to utilize this electronic payment source. Investment management and trust income was essentially flat during in second quarter as assets under management ended the quarter up 5% from June 30, 2002. Brokerage commissions were up 10% as that department continued to add to its customer base. Other non-interest income was up 96%, in part due to mortgage banking related fee income. No other significant trends influenced this category. |
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| Non-interest expense increased 19% for the quarter compared with the same periods in 2002. A 20% increase in salaries and benefits reflected the addition of professional staff along with annual salary increases, as well as increased costs related to insurance and benefits. Net occupancy expense was up 28% compared with the second quarter of 2002, largely as a result of the opening of new facilities, including three new branches since June 30, 2002, as well as new space occupied by the Company's Investment Management and Trust department. Data processing also continued to increase as a result of investments in upgraded equipment as the Company continues to improve its infrastructure in support of current and anticipated growth. |
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| The Company showed solid balance sheet growth as total assets increased to $1.09 billion from $975 million at the end of the second quarter of 2002. Loan growth in the second quarter and first half of 2003 has been slower than the Company's historic rates, reflecting the impact of recent economic uncertainties among consumers and a more cautious stance by management in terms of credit quality. The Company has funded loan growth primarily through increased deposits as it continues to expand market share. |
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| S. Y. Bancorp, Inc. was incorporated in 1988 as a bank holding company in Louisville, Kentucky and is the parent company of Stock Yards Bank & Trust Company, which has 20 branch locations in Kentucky and southern Indiana. Stock Yards Bank & Trust Company also maintains a loan production office in Indianapolis, Indiana. Stock Yards Bank & Trust Company was established in 1904 in Louisville, Kentucky. S. Y. Bancorp, Inc. is also the parent company of S. Y. Bancorp Capital Trust I, a Delaware statutory business trust that is a 100%-owned finance subsidiary. |
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| This report contains forward-looking statements under the Private Securities Litigation Reform Act that involve risks and uncertainties. Although the Bancorp'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 results discussed in forward-looking statements include, but are not limited to: economic conditions both generally and more specifically in the market in which the Bancorp and its subsidiaries operate; competition for the Bancorp's customers from other providers of financial services; government legislation and regulation which change from time to time and over which the Bancorp has no control; changes in interest rates; material unforeseen changes in liquidity, results of operations, or financial condition of the Bancorp's customers; other risks detailed in the Bancorp'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 Bancorp. |
