Results Highlighted by Strong Loan Growth and Excellent Credit Quality
LOUISVILLE, Ky., July 26, 2023 (GLOBE NEWSWIRE) -- Stock Yards Bancorp, Inc. ( SYBT), parent company of Stock Yards Bank & Trust Company, with offices in Louisville, central, eastern and northern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets, today reported earnings for the second quarter ended June 30, 2023, of $27.7 million, or $0.94 per diluted share. This compares to net income of $26.8 million, or $0.91 per diluted share, for the second quarter of 2022. The results for the second quarter of 2023 included strong loan growth and record levels of non-interest income, highlighted by treasury management fees and wealth management and trust income.
| (dollar amounts in thousands, except per share data) | 2Q23 | 1Q23 | 2Q22 | ||||||
| Net income | $ | 27,664 | $ | 29,048 | $ | 26,794 | |||
| Net income per share, diluted | 0.94 | 0.99 | 0.91 | ||||||
| Net interest income | $ | 60,929 | $ | 63,072 | $ | 56,984 | |||
| Provision for credit losses(1) | 2,350 | 2,625 | (200 | ) | |||||
| Non-interest income | 23,085 | 22,047 | 21,940 | ||||||
| Non-interest expenses | 46,025 | 45,314 | 44,675 | ||||||
| Net interest margin | 3.42 | % | 3.59 | % | 3.20 | % | |||
| Efficiency ratio(2) | 54.69 | % | 53.13 | % | 56.42 | % | |||
| Tangible common equity to tangible assets(3) | 7.87 | % | 7.74 | % | 7.00 | % | |||
| Annualized return on average assets(4) | 1.46 | % | 1.55 | % | 1.40 | % | |||
| Annualized return on average equity(4) | 13.87 | % | 15.15 | % | 14.34 | % | |||
“We are delighted by continued strong loan demand from the customers we serve. While the economic outlook remains difficult to forecast, the current brisk lending environment in our markets is encouraging,” said James A. (Ja) Hillebrand, Chairman and Chief Executive Officer. “We remain positive about the opportunities in our markets, as loan pipelines and overall business activity remain solid. Total loans, excluding PPP loans, increased $571 million, or 12%, over the last 12 months, while growing $178 million during the second quarter. While our loan growth stands out given the current environment, I am most pleased to report that our credit quality metrics remain outstanding – with past dues and classified loans reaching three year lows. On the linked quarter, total deposits declined $149 million, as deposit pricing pressures persist. Although total interest bearing deposits have not fluctuated as widely as non-interest bearing deposits, we experienced anticipated public funds run off in addition to a significant shift in the mix of interest bearing deposits, which is driving up the overall cost of funds. Despite the noted quarterly deposit contraction, we are not seeing fallout in our overall customer base.”
“Recurring non-interest income once again set a quarterly record, led by gains in several categories and is a complement to our diversified revenue streams,” continued Hillebrand. “Treasury management fees climbed to record levels at quarter-end, primarily driven by increased demand and customer expansion. In addition, wealth management and trust reached new highs, with net new business growth and market appreciation contributing to the record results. Notwithstanding the current strong financial results, we remain cautious in our outlook for the remainder of the year, particularly with the challenging interest rate environment and continuing national recessionary fears. During uncertain and challenging economic times, we remain focused on our business model, which emphasizes strong, full customer relationships. Our history of success as a community bank is rooted in the unwavering, unified mission of providing exceptional service to our customers and meeting all of their banking needs. For nearly 120 years we have stayed true to this simple mission, through all economic cycles.”
At June 30, 2023, the Company had $7.73 billion in assets, $5.42 billion in loans and $6.21 billion in total deposits. The Company’s combined enterprise, which encompasses 72 branch offices across three contiguous states, will continue to benefit from a diversified geographic footprint and provide significant growth opportunities in both the banking and wealth management arenas.
Key factors contributing to the second quarter of 2023 results included:
- Total loans, excluding PPP loans, increased $571 million, or 12%, over the last 12 months, while growing $178 million, or 3%, on the linked quarter. Loan production set a new quarterly record during the second quarter of 2023. The yield earned on loans, excluding PPP loans, increased to 5.50% for the second quarter of 2023 – the highest level earned since mid-2011.
- Deposit balances declined $149 million, or 2%, on the linked quarter, as non-interest bearing demand deposit balances contracted $79 million and interest bearing deposits declined $70 million.
- Contraction in interest bearing demand deposit, savings and money market portfolios more than offset a $119 million increase in time deposits.
- As expected, public funds accounts contracted $84 million on the linked quarter.
- Given the current interest rate environment, the change in deposit mix continues to place pressure on funding costs.
- Net interest income increased $3.9 million, or 7%, for the second quarter of 2023 compared to the second quarter a year ago.
- Compared to the second quarter of 2022, net interest margin (NIM) increased 22 basis points. NIM declined 17 basis points on the linked quarter to 3.42%, as the rising cost of funds outpaced earning asset yields.
- With continued strong credit quality statistics, the Bank recorded a provision for credit losses(1) of $2.4 million for the second quarter of 2023, consistent with strong loan growth.
- Non-interest income increased by $1.1 million, or 5%, over the second quarter of 2022, as customer expansion enhanced fee income. Net new business growth and equity market improvement drove record wealth management and trust income, and treasury management fees once again set a quarterly record.
- Total non-interest expenses remained well-controlled and consistent with management expectations.
- Tangible common equity per share(3) was $20.17 at June 30, 2023, compared to $19.66 at March 31, 2023, and $17.59 at June 30, 2022. Over the past several quarters, tangible common equity and tangible book value have been impacted by the marked increase in interest rates and the related negative impact on accumulated other comprehensive income/loss, primarily as a result of unrealized losses in the available for sale debt securities portfolio. These securities, which management has the ability and intent to hold to maturity, are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, have a long history of no credit losses and a current duration of 3.5 years.
Hillebrand concluded, “In May, we were named a winner of the 2022 Raymond James Community Bankers Cup, which recognizes the top 10% of community banks with assets between $500 million and $10 billion based on various profitability, operational efficiency and balance sheet metrics. Only 22 banks in the nation received this award and we were the only bank in Indiana, Kentucky and Ohio to be honored. This recognition not only reflects the success of our Company, but the dedication that we have to providing high quality service to the community.” Stock Yards Bancorp has been named to the Raymond James Community Bankers Cup eight times.
Results of Operations – Second Quarter 2023 Compared with Second Quarter 2022
Net interest income, the Company’s largest source of revenue, increased 7%, or $3.9 million, to $60.9 million. Strong organic loan expansion has boosted net interest income over the past 12 months.
- Total interest income increased by $24.0 million, or 41%, to $83.1 million.
- Interest income and fees on loans increased $21.7 million, or 43%, over the prior year quarter. Consistent with the $481 million, or 10%, increase in average non-PPP loans and interest rate expansion, the average quarterly yield earned on non-PPP loans increased 129 basis points, or 31%, over the past 12 months to 5.49%. PPP interest and fee income totaled $51,000 and $1.2 million for the second quarters of 2023 and 2022, respectively. As of June 30, 2023, approximately $123,000 in PPP deferred fees remained to be recognized.
- Interest income on securities increased $1.7 million compared to the second quarter of 2022. While average securities balances have declined $23 million, or 1%, over the past 12 months, the rate earned has increased 36 bps to 2.05% - consistent with higher yields earned on securities purchased in 2022.
- Despite a $429 million decline in average balances, interest income on overnight funds increased $551,000 over the prior year quarter. The Federal Reserve Bank (FRB) has increased the rate paid on reserve balances meaningfully during the last several quarters, which has significantly benefitted income.
- Total interest expense increased $20.0 million to $22.1 million, as the cost of interest bearing liabilities increased 163 basis points to 1.81%.
- Interest expense on deposits increased $15.3 million over the past 12 months, as the overall cost of interest bearing deposits increased from 0.16% at 2Q22 to 1.55%. Along with cost of funds expansion, the Bank has experienced declines in average deposits along with changes in the mix of deposits. Average interest bearing deposit balances decreased $101 million, or 2%, from the second quarter of 2022 to the second quarter of 2023, with non-time deposits (interest bearing demand savings and money markets) compressing $246 million and time deposits increasing $145 million.
- Interest expense on Federal Home Loan Bank (FHLB) advances totaled $4.0 million for the second quarter of 2023. On February 6, 2023, the Bank borrowed $100 million from the FHLB with a five-year term and a net cost of 3.55%, after including the benefit of the related interest rate swap. The remainder of the FHLB advances held at quarter end had overnight maturities.
- NIM expanded 22 basis points to 3.42% for the second quarter of 2023, from 3.20% for the second quarter a year ago. Despite the margin expansion, higher loan yields and volume were offset by higher deposit rates and changes within the deposit portfolio mix.
The Company recorded $2.4 million in provision for credit losses(1) during the second quarter of 2023, which included a $2.2 million provision for credit losses on loans and $200,000 of credit loss expense for off-balance sheet exposures. Although the credit quality statistics remain strong, the Company recorded credit loss expense based upon strong loan growth, qualitative factor adjustments, minimal net charge-offs and improvement in the Company’s unemployment forecast. For the second quarter of 2022, consistent with net recoveries and solid credit quality statistics, the Company recorded a $700,000 reduction in provision for credit losses on loans offset by a $500,000 provision for credit losses for off balances sheet exposures.
Non-interest income increased $1.1 million, or 5%, to $23.1 million.
- Wealth management and trust income ended the second quarter of 2023 at a record $10.1 million, increasing $651,000, or 7%, over the second quarter of 2022. Net new business growth and strong equity market performance boosted income over the previous record set in the first quarter.
- Treasury management fees increased $362,000, or 17%, driven by increased transaction volume, modified fee schedules, strong foreign exchange income, new product sales and both organic and acquisition-related customer base expansion. New and renewed interest in sweep services, given the current rate environment, continues to boost income.
- Mortgage banking income, which primarily consists of gain on sale of loans, net servicing income and mortgage servicing rights amortization, totaled $1.0 million for the second quarter of 2023, compared to $1.3 million for the second quarter a year ago. While total income has lagged over the prior year quarter, the Company has benefited from the increased market value of the loans held in the pipeline.
Non-interest expenses increased $1.4 million, or 3%, compared to the second quarter of 2022, to $46.0 million.
- Total compensation and employee benefits expense increased $535,000, or 2%, compared to the second quarter of 2022, consistent with annual merit increases and an increase in full time equivalent employees.
- Technology and communication expenses, which includes computer software amortization, equipment depreciation and expenditures related to investments in technology needed to maintain and improve the quality of customer delivery channels, information security and internal resources, increased $235,000, or 6%, consistent with customer expansion and system upgrades.
- FDIC insurance expense increased $243,000, or 45%, compared to the second quarter a year ago due to the increased base rate assessment imposed by the FDIC in addition to balance sheet growth.
- Tax credit amortization expense increased $235,000 compared to the second quarter of 2022 primarily due to the addition of new tax credit projects in 2023.
- Intangible amortization expense decreased $439,000, or 27%, consistent with the decrease in customer intangible assets related to the first quarter 2022 acquisition.
Financial Condition – June 30, 2023 Compared with June 30, 2022
Total assets increased $149 million, or 2%, year over year to $7.73 billion.
Total loans increased $541 million, or 11%, to $5.42 billion, led by expansion in most major loan categories. Excluding the PPP loan portfolio, total loans increased $571 million, or 12% over the past 12 months.
Total investment securities, which spiked during the second quarter of 2021 and the first quarter of 2022 due to acquisitions, decreased $83 million, or 5%, year over year. Higher yielding investment purchases made in 2022 have boosted the overall portfolio yield to 2.05% during the second quarter of 2023, from 1.69% in the second quarter of 2022. In 2023, cash flows from the investment portfolio have been utilized to fund loan growth and provide liquidity in lieu of redeployment.
Total deposits contracted $341 million, or 5%, over the past 12 months, led by a $355 million decline in non-interest bearing demand deposits, partially offset by interest bearing demand and time deposit expansion. Approximately $90 million of the decline was associated with seasonal public funds account balances.
Asset quality has remained solid with past dues and classified loans reaching three year lows. During the second quarter of 2023, the Company recorded net loan charge-offs of $113,000, compared to net loan charge-offs of $5,000 in the second quarter of 2022. Non-performing loans(5) totaled $18 million, or 0.33% of total loans outstanding compared to $9 million, or 0.18% of total loans outstanding at June 30, 2022. The ratio of allowance for credit losses to loans (5) ended at 1.43% at June 30, 2023 compared to 1.36% at June 30, 2022.
At June 30, 2023, the Company continued to be “well-capitalized,” the highest regulatory capital rating for financial institutions, with all capital ratios remaining strong. Total equity to assets(1) was 10.45% and the tangible common equity ratio(1) was 7.87%(1) at June 30, 2023, compared to 9.85% and 7.00% at June 30, 2022, respectively. The increase in interest rates over the last 12 months have led to outsized unrealized losses within the available for sale debt securities portfolio, with the decline in accumulated other comprehensive income/loss putting pressure on the tangible common equity ratio, which has been steadily improving post acquisition activity.
In May 2023, the board of directors declared a quarterly cash dividend of $0.29 per common share. The dividend was paid July 3, 2023, to shareholders of record as of June 20, 2023.
No shares have been purchased since 2020, and approximately 741,000 shares remain eligible for repurchase under the current buy-back plan, which expires in May 2025.
Results of Operations – Second Quarter 2023 Compared with First Quarter 2023
Net interest income declined $2.1 million, or 3%, over the prior quarter to $60.9 million. NIM declined 17 basis points on the linked quarter to 3.42%, as the cost of funds growth outpaced earning asset yield growth.
The Company recorded $2.4 million in provision for credit losses(1) during the second quarter of 2023, which included a $2.2 million provision for credit losses on loans and $200,000 of credit loss expense for off-balance sheet exposures. During the first quarter of 2023, the Company recorded $2.6 million in provision for credit losses, which included a $2.3 million provision for credit losses on loans and a $375,000 credit loss expense for off-balance sheet exposures.
Non-interest income increased $1.0 million, or 5%, to $23.1 million on the linked quarter, consistent with expansion in wealth management and trust, treasury and card income.
Non-interest expenses increased $711,000, or 2%, to $46.0 million, as increased compensation, marketing and card processing more than off-set declines in FDIC insurance and net occupancy expense.
Financial Condition – June 30, 2023 Compared with March 31, 2023
Total assets increased $65 million on the linked quarter to $7.73 billion.
Total loans increased $176 million, or 3%, on the linked quarter, led by increases in the Commercial Real Estate and Residential Real Estate loan portfolios. Total line of credit usage was 40.1% as of June 30, 2023, compared to 41.1% as of March 31, 2023 – driven by strong production (new lines that have yet to fund). Commercial and industrial line usage was 29.6% as of June 30, 2023, compared to 30.5% as of March 31, 2023.
Total deposits decreased $149 million, or 2%, on the linked quarter, with non-interest bearing demand deposit balances contracting $79 million. Total interest bearing deposits decreased $70 million, on the linked quarter, as a $119 million increase in time deposits was offset by contraction in interest bearing demand deposit, savings and money market accounts. Excluding the public funds decline, total deposits decreased $65 million on the linked quarter.
About the Company
Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $7.73 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 Stock Market under the symbol “SYBT.”
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 banking subsidiary operates; competition for the Company’s customers from other providers of financial services; changes in, or forecasts of, future political and economic conditions, inflation and efforts to control it; government legislation and regulation, which change 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. Refer to Stock Yards’ Annual Report on Form 10-K for the year ended December 31, 2022, as well as its other filings with the SEC for a more detailed discussion of risks, uncertainties and factors that could cause actual results to differ from those discussed in the forward-looking statements.
Contact:
T. Clay Stinnett
Executive Vice President,
Treasurer and Chief Financial Officer
(502) 625-0890
| Stock Yards Bancorp, Inc. Financial Information (unaudited) | ||||||||||||
| Second Quarter 2023 Earnings Release | ||||||||||||
| (In thousands unless otherwise noted) | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||
| June 30, | June 30, | |||||||||||
| Income Statement Data | 2023 | 2022 | 2023 | 2022 | ||||||||
| Net interest income, fully tax equivalent (6) | $ 61,074 | $ 57,244 | $ 124,319 | $ 106,189 | ||||||||
| Interest income: | ||||||||||||
| Loans | $ 72,308 | $ 50,612 | $ 141,095 | $ 95,355 | ||||||||
| Federal funds sold and interest bearing due from banks | 1,664 | 1,113 | 3,245 | 1,395 | ||||||||
| Mortgage loans held for sale | 77 | 50 | 118 | 74 | ||||||||
| Securities | 9,014 | 7,333 | 18,072 | 12,268 | ||||||||
| Total interest income | 83,063 | 59,108 | 162,530 | 109,092 | ||||||||
| Interest expense: | ||||||||||||
| Deposits | 17,081 | 1,770 | 30,580 | 2,941 | ||||||||
| Securities sold under agreements to repurchase and | ||||||||||||
| other short-term borrowings | 546 | 76 | 1,179 | 96 | ||||||||
| Federal Home Loan Bank advances | 3,962 | - | 5,696 | - | ||||||||
| Subordinated debentures | 545 | 278 | 1,074 | 311 | ||||||||
| Total interest expense | 22,134 | 2,124 | 38,529 | 3,348 | ||||||||
| Net interest income | 60,929 | 56,984 | 124,001 | 105,744 | ||||||||
| Provision for credit losses (1) | 2,350 | (200) | 4,975 | 2,079 | ||||||||
| Net interest income after provision for credit losses | 58,579 | 57,184 | 119,026 | 103,665 | ||||||||
| Non-interest income: | ||||||||||||
| Wealth management and trust services | 10,146 | 9,495 | 19,673 | 17,738 | ||||||||
| Deposit service charges | 2,201 | 2,061 | 4,350 | 3,924 | ||||||||
| Debit and credit card income | 4,712 | 4,748 | 9,194 | 8,867 | ||||||||
| Treasury management fees | 2,549 | 2,187 | 4,867 | 4,091 | ||||||||
| Mortgage banking income | 1,030 | 1,295 | 2,068 | 2,298 | ||||||||
| Net investment product sales commissions and fees | 800 | 731 | 1,554 | 1,338 | ||||||||
| Bank owned life insurance | 559 | 270 | 1,108 | 536 | ||||||||
| Gain (Loss) on sale of premises and equipment | - | (2) | (2) | (28) | ||||||||
| Other | 1,088 | 1,155 | 2,320 | 2,379 | ||||||||
| Total non-interest income | 23,085 | 21,940 | 45,132 | 41,143 | ||||||||
| Non-interest expenses: | ||||||||||||
| Compensation | 22,107 | 22,204 | 44,003 | 40,173 | ||||||||
| Employee benefits | 5,061 | 4,429 | 10,114 | 8,968 | ||||||||
| Net occupancy and equipment | 3,739 | 3,663 | 7,638 | 6,688 | ||||||||
| Technology and communication | 4,219 | 3,984 | 8,470 | 7,403 | ||||||||
| Debit and credit card processing | 1,706 | 1,665 | 3,125 | 3,002 | ||||||||
| Marketing and business development | 1,784 | 1,445 | 2,879 | 2,217 | ||||||||
| Postage, printing and supplies | 889 | 825 | 1,763 | 1,558 | ||||||||
| Legal and professional | 819 | 1,027 | 1,616 | 1,677 | ||||||||
| FDIC Insurance | 779 | 536 | 1,914 | 1,181 | ||||||||
| Amortization of investments in tax credit partnerships | 324 | 89 | 647 | 177 | ||||||||
| Capital and deposit based taxes | 607 | 582 | 1,246 | 1,100 | ||||||||
| Merger expenses | - | - | - | 19,500 | ||||||||
| Intangible amortization | 1,172 | 1,611 | 2,352 | 2,324 | ||||||||
| Other | 2,819 | 2,615 | 5,572 | 5,004 | ||||||||
| Total non-interest expenses | 46,025 | 44,675 | 91,339 | 100,972 | ||||||||
| Income before income tax expense | 35,639 | 34,449 | 72,819 | 43,836 | ||||||||
| Income tax expense | 7,975 | 7,547 | 16,107 | 8,992 | ||||||||
| Net income | 27,664 | 26,902 | 56,712 | 34,844 | ||||||||
| Less: net income attributed to non-controlling interest | - | 108 | - | 144 | ||||||||
| Net income available to stockholders | $ 27,664 | $ 26,794 | $ 56,712 | $ 34,700 | ||||||||
| Net income per share - Basic | $ 0.95 | $ 0.92 | $ 1.94 | $ 1.23 | ||||||||
| Net income per share - Diluted | 0.94 | 0.91 | 1.93 | 1.22 | ||||||||
| Cash dividend declared per share | 0.29 | 0.28 | 0.58 | 0.56 | ||||||||
| Weighted average shares - Basic | 29,223 | 29,131 | 29,200 | 28,186 | ||||||||
| Weighted average shares - Diluted | 29,340 | 29,346 | 29,353 | 28,421 | ||||||||
| June 30, | ||||||||||||
| Balance Sheet Data | 2023 | 2022 | ||||||||||
| Investment securities | $ 1,542,753 | $ 1,625,488 | ||||||||||
| Loans | 5,418,609 | 4,877,324 | ||||||||||
| Allowance for credit losses on loans | 77,710 | 66,362 | ||||||||||
| Total assets | 7,732,552 | 7,583,105 | ||||||||||
