Stock Yards Bancorp Reports Solid Third Quarter Earnings of $27.1 Million or $0.92 Per Diluted Share

Results Highlighted by Strong Loan Growth

LOUISVILLE, Ky., Oct. 25, 2023 (GLOBE NEWSWIRE) -- Stock Yards Bancorp, Inc. (NASDAQ: 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 of $27.1 million, or $0.92 per diluted share, for the third quarter ended September 30, 2023. This compares to net income of $28.5 million, or $0.97 per diluted share, for the third quarter of 2022. The results for the third quarter of 2023 were highlighted by near-record loan growth, linked quarter deposit growth and strong levels of non-interest income.

“The highlight of the quarter was continued strong broad-based loan demand from our customers throughout our markets,” said James A. (Ja) Hillebrand, Chairman and Chief Executive Officer. “Total loans, excluding PPP loans, increased $559 million, or 11%, over the last 12 months, of which $201 million was achieved during the third quarter. We remain positive about the opportunities in our markets, as loan pipelines and overall business activity remains steady. While there continues to be discussion of continued economic headwinds and the possibility for an industry-wide negative credit cycle, we remain optimistic regarding the overall strength of our loan portfolio. We continue to maintain strong credit fundamentals and our credit quality metrics continue to be solid. Our prospecting is really paying off, as some of the larger institutions in our markets are scaling back their lending efforts. While a more severe economic downturn could always impact loan growth expectations, we have consistently shown our ability to take advantage of strategic lending opportunities when others are pulling back. Our history demonstrates our ability to generate strong revenue and earnings growth, which is why we think we will continue to grow through this economic cycle.”

“While we did experience net interest margin contraction for the third consecutive quarter, I am pleased with our continued loan yield expansion and linked quarter increase in net interest income. On the heels of two consecutive quarters of decline, deposit balances posted strong growth during the third quarter, increasing $194 million, or 3% growth for the linked quarter. A majority of the growth during the quarter was attributed to strategic deposit promotions within our markets. We continue to focus on organic growth, while avoiding brokered deposits, which provide less stable funding than local retail and commercial deposit relationships,” Hillebrand continued. “In addition to a significant shift in the mix of non-interest bearing and interest bearing deposits, we have experienced anticipated public funds run off throughout the year. When excluding public funds, we have posted total deposit growth in seven of the past nine months.”

“Recurring non-interest income once again continues to fuel operating results, and was led by gains in several categories. Treasury management fees reached new highs at quarter-end, primarily driven by increased demand and customer expansion. In addition, Wealth Management and Trust (“WM&T) had another strong quarter, with net new business growth outweighing unfavorable market conditions. During challenging economic times, we remain focused on full customer relationships and the continued expansion of our customer base. 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 and WM&T needs,” concluded Hillebrand.

At September 30, 2023, the Company had $7.90 billion in assets, $5.62 billion in loans and $6.40 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 that provides significant growth opportunities in both the banking and WM&T arenas.

Key factors contributing to the third quarter of 2023 results included:

• Total loans, excluding PPP loans, increased $559 million, or 11%, over the last 12 months, while growing $201 million, or 4%, on the linked quarter. Loan production set a new quarterly record during the third quarter of 2023. The yield earned on loans, excluding PPP loans, expanded to 5.67% for the third quarter of 2023 – the highest level earned since mid-2011.
• Deposit balances increased $194 million, or 3%, on the linked quarter, as interest bearing deposits increased $246 million and non-interest bearing deposits contracted by $51 million.
  
  • Interest bearing demand accounts increased $59 million, or 3%, attributed to promotional offerings in the Cincinnati and Indianapolis markets.
  • Money market accounts expanded $83 million, or 8%.
  • Time deposits grew by $131 million, or 18%, led by the successful marketing of new product promotions, primarily in the Central Kentucky market.
  • Given the current interest rate environment, the change in deposit mix continues to place pressure on funding costs.
• Increasing cost of funds continued to outpace earning asset yield growth during the third quarter of 2023. Net interest income declined $1.1 million, or 2%, for the third quarter of 2023 compared to the third quarter a year ago with net interest margin compressing 12 bps to 3.34%. While net interest margin also declined on the linked quarter, contracting 8 basis points from 3.42%, net interest income increased $386,000.
• With continued strong credit quality statistics, the Bank recorded a provision for credit losses⁽¹⁾ of $2.8 million for the third quarter of 2023, largely consistent with strong loan growth.
• Non-interest income declined $2.0 million, or 8%, over the third quarter of 2022. The Company recognized $3.1 million in non-recurring gains on sales of premises and equipment in the third quarter of 2022 compared to $302,000 for the third quarter of 2023. New business growth drove WM&T 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 September 30, 2023, compared to $20.17 at June 30, 2023, and $16.98 at September 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 5.5 years.
  

Results of Operations – Third Quarter 2023 Compared with Third Quarter 2022

Net interest income, the Company’s largest source of revenue, decreased by $1.1 million, or 2%, to $61.3 million. Although strong organic loan growth has boosted net interest income over the past 12 months, the cost of interest bearing liabilities more than offset the increase in total interest income.

• Total interest income increased by $21.5 million, or 32%, to $88.9 million.
  
  • Interest income and fees on loans increased $21.5 million, or 38%, over the prior year quarter. Consistent with the $554 million, or 11%, increase in average non-PPP loans and interest rate expansion, the average quarterly yield earned on non-PPP loans increased 114 basis points, or 25%, over the past 12 months to 5.67%. PPP interest and fee income totaled $27,000 and $703,000 for the third quarters of 2023 and 2022, respectively. As of September 30, 2023, approximately $100,000 in PPP deferred fees remained to be recognized.
  • Interest income on securities increased $562,000, or 7%, compared to the third quarter of 2022. While average securities balances have declined $110 million, or 6%, over the past 12 months, the rate earned on securities has increased 24 bps to 2.04%, consistent with higher yields earned on securities purchased in 2022.
  • Due to a $318 million decline in average balances, interest income on overnight funds decreased $810,000, or 33%, 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 related interest income.
• Total interest expense increased $22.6 million to $27.6 million, as the cost of interest bearing liabilities increased 173 basis points to 2.16%.
  
  • Interest expense on deposits increased $16.9 million over the past 12 months, as the overall cost of interest bearing deposits increased from 0.40% for the third quarter of 2022 to 1.88%. Deposit costs during the third quarter of 2023 have been significantly impacted by individual rate exceptions and successful new product promotions. Along with cost of funds expansion, the Bank has experienced changes in the mix of deposits. Average interest bearing deposit balances increased $64 million, or 1%, from the third quarter of 2022 to the third quarter of 2023, with non-time deposits (interest bearing demand savings and money markets) compressing $231 million and time deposits increasing $295 million.
  • Interest expense on Federal Home Loan Bank (FHLB) advances totaled $4.9 million for the third quarter of 2023. The Bank had $350 million in FHLB advances outstanding at the end of the third quarter of 2023, with $150 million of the advances maturing overnight.
    

The Company recorded $2.8 million in provision for credit losses⁽¹⁾ during the third quarter of 2023, which included a $2.3 million provision for credit losses on loans and $475,000 of credit loss expense for off-balance sheet exposures. Although credit quality statistics remain strong, the Company recorded credit loss expense based upon strong loan growth offset by improvement in the future unemployment forecast and a reduction in specific reserves due to charge-offs. The increased off-balance sheet exposure expense correlated with increased availability and falling utilization. For the third quarter of 2022, consistent with strong loan growth and deterioration within the future unemployment rate forecast, the Company recorded a $4.1 million provision for credit losses on loans and a $700,000 provision for credit losses for off balances sheet exposures.

Non-interest income decreased $2.0 million, or 8%, to $22.9 million.

• WM&T income ended the third quarter of 2023 at $10.0 million, increasing $878,000, or 10%, over the third quarter of 2022. Net new business growth has boosted income over the past twelve months.
• Treasury management fees set a quarterly record, increasing $414,000, or 19%, driven by increased transaction volume, modified fee schedules, strong foreign exchange income, new product sales and both organic and acquisition-related customer base expansion.
• Card income increased $160,000, or 3%, over the third quarter of 2022, driven by a $153,000 overall increase in interchange income. While card volume has increased over the past several periods, interchange rate compression has placed pressure on income expansion.
• The Company recognized $3.1 million in non-recurring gains on sales of premises and equipment in the third quarter of 2022 compared to $302,000 for the third quarter of 2023. All sales related to the disposition of acquired branches closed subsequent to the prior year merger.

Non-interest expenses increased $1.8 million, or 4%, compared to the third quarter of 2022, to $46.7 million.

• Compensation and employee benefits expense combined to increase $639,000, or 2%, compared to the third quarter of 2022 consistent with an increase in full time equivalent employees.
• Technology and communication expenses, which include 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 $489,000, or 13%, consistent with customer expansion and increased transaction activity.
• Intangible amortization expense decreased $443,000, or 28%, consistent with the Company’s fourth quarter 2022 disposal of its partial interest in Landmark Financial Advisors.
  

Financial Condition – September 30, 2023 Compared with September 30, 2022

Total assets increased $349 million, or 5%, year over year to $7.90 billion.

Total loans increased $544 million, or 11%, to $5.62 billion, with over half of the growth stemming from the commercial real estate portfolio. Excluding the PPP loan portfolio, total loans increased $559 million 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 $162 million, or 10%, year over year. Higher yielding investment purchases made in 2022 boosted the overall portfolio yield to 2.04% during the third quarter of 2023, from 1.80% in the third 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 $98 million, or 2%, over the past 12 months, led by a $485 million decline in non-interest bearing demand deposits, partially offset by interest bearing demand and time deposit expansion. Approximately $64 million of the decline was associated with public funds run-off.

Asset quality has remained strong during 2023. During the third quarter of 2023, the Company recorded net loan charge-offs of $1.9 million, primarily related to three commercial & industrial relationships, the largest being $1.2 million that was fully reserved for in a prior period. This compared to $382,000 in net charge offs during the third quarter of 2022. Non-performing loans⁽⁵⁾ totaled $17 million, or 0.31% of total loans outstanding compared to $11 million, or 0.21% of total loans outstanding at September 30, 2022. The ratio of allowance for credit losses to loans ⁽⁵⁾ ended at 1.39% at September 30, 2023 compared to 1.38% at September 30, 2022.

At September 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⁽³⁾ was 10.21% and the tangible common equity ratio⁽³⁾ was 7.69% at September 30, 2023, compared to 9.63% and 6.78% at September 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 subsequent to acquisition activity in 2022 and 2021.

In August 2023, the board of directors increased the quarterly cash dividend to $0.30 per common share. The dividend was paid October 2, 2023, to shareholders of record as of September 18, 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 – Third Quarter 2023 Compared with Second Quarter 2023

Net interest income increased $386,000, or 1%, over the prior quarter to $61.3 million. Net interest margin declined 8 basis points on the linked quarter to 3.34%, as cost of funds growth outpaced earning asset yield growth.

The Company recorded $2.8 million in provision for credit losses⁽¹⁾ during the third quarter of 2023, which included a $2.3 million provision for credit losses on loans and $475,000 of credit loss expense for off-balance sheet exposures. During the second quarter of 2023, the Company recorded $2.4 million in provision for credit losses, which included a $2.2 million provision for credit losses on loans and a $200,000 credit loss expense for off-balance sheet exposures.

Non-interest income increased $36,000 to $22.9 million on the linked quarter, consistent with expansion in treasury management fees and card income. On the linked quarter, WM&T income declined $116,000, or 1%, consistent with a downturn in both fixed and equity markets.

Non-interest expenses increased $902,000, or 2%, to $46.7 million, as increased compensation, net occupancy expense and consulting project expenses more than off-set declines in employee benefits and marketing and business development expense.

Financial Condition – September 30, 2023 Compared with June 30, 2023

Total assets increased $171 million on the linked quarter to $7.90 billion.

Total loans increased $198 million, or 4%, on the linked quarter, led by increases in the Commercial real estate, Commercial & industrial and Construction and land development loan portfolios. Total line of credit usage was 38.8% as of September 30, 2023, compared to 40.1% as of June 30, 2023, driven by strong production (new lines that have yet to fund). Commercial & Industrial line usage was 26.8% as of September 30, 2023, compared to 29.6% as of June 30, 2023.

Total deposits increased $194 million, or 3%, on the linked quarter. Total interest bearing deposits increased $246 million, on the linked quarter, as a $131 million increase in time deposits, $59 million increase in interest bearing demand deposits and $83 million increase in money market accounts more than offset by contraction in non-interest bearing demand and savings accounts. Excluding public funds, total deposits increased $267 million on the linked quarter.

About the Company

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $7.90 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