Stock Yards Bancorp Reports Second Quarter Earnings of $27.6 Million or $0.94 Per Diluted Share

LOUISVILLE, Ky., July 24, 2024 (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 of $27.6 million, or $0.94 per diluted share, for the second quarter ended June 30, 2024. This compares to net income of $27.7 million, or $0.94 per diluted share, for the second quarter of 2023. Record loan growth, stable asset quality and net interest margin expansion contributed to second quarter operating results.

“Our second quarter results were solid, with record quarterly loan growth, stable credit quality metrics, solid contributions from our non-interest income revenue sources and net interest margin expansion,” commented James A. (Ja) Hillebrand, Chairman and Chief Executive Officer. “Total loans increased $652 million, or 12%, over the last 12 months, $221 million of which was generated during the second quarter of this year. Just as important, second quarter loan growth, led by an increase in Commercial & Industrial (C&I) line of credit expansion, was experienced within all loan categories and spread across all markets.

“Once again, strong non-interest income helped to fuel our operating results for the second quarter of 2024, with our Treasury Management and Wealth Management & Trust (WM&T) groups posting record quarterly revenue. While treasury management fees continued to benefit from customer growth and increased transaction volume, WM&T income was boosted by strong equity market performance, quarterly fees, and net new business expansion,” Hillebrand continued. “Further, we are encouraged by our net interest margin improvement and prospects for continued expansion. Second quarter net interest margin expanded six basis points compared to the linked quarter, boosted by robust loan growth, higher interest earning asset yields and a slow-down in deposit cost expansion.”

As of June 30, 2024, the Company had $8.32 billion in assets, $6.07 billion in loans and $6.57 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 second quarter of 2024 results included:

• Total loans increased $652 million, or 12%, over the last 12 months, while growing a record $221 million, or 4%, on the linked quarter. Broad based loan growth during the quarter included increases in all markets and across all loan categories, with C&I growth of $63 million, or 5%, posting the largest gain. The yield earned on loans increased to 6.06% for the second quarter of 2024, benefiting from average balance growth and interest rate expansion.
• Deposit balances expanded $361 million, or 6% over the last 12 months, with the deposit mix continuing to shift from non-interest bearing and low interest-bearing deposits into higher cost deposits. Non-interest-bearing demand accounts declined $284 million, or 16%, while interest-bearing deposits grew $645 million, or 15%, led by time deposit growth. On the linked quarter, total deposits contracted $40 million, or 1%, led entirely by interest-bearing deposits.
• Net interest income increased $1.1 million, or 2%, for the second quarter of 2024 compared to the second quarter a year ago, with net interest margin compressing 16 bps to 3.26%. On the linked quarter, net interest income increased $2.0 million, or 3%, while net interest margin expanded 6 bps to 3.26%, representing the first time in six quarters that net interest margin has expanded.
• The Company recorded credit loss expense⁽¹⁾ of $1.3 million for the second quarter of 2024, consistent with strong loan growth and other factors within the CECL allowance model.
• Non-interest income increased $795,000, or 3%, over the second quarter of 2023. WM&T income expanded $649,000, or 6%, to a record $10.8 million, benefitting from strong quarterly fees, improved market conditions and net new business expansion. Treasury management fees also set a record, growing $276,000, or 11% over the last 12 months to $2.8 million. While card income increased $211,000, other non-interest income declined $588,000 over the second quarter of 2023, as the Company elected to strategically exit its insurance captive in late 2023.
• Total non-interest expenses increased $3.3 million, or 7%, during the second quarter of 2024 compared to the second quarter of 2023, primarily due to higher compensation and benefits expenses associated with annual merit increases, increased bonus accruals and elevated health insurance claims activity. Overall, non-interest expenses tracked closely to management expectations.
• Tangible common equity per share⁽³⁾ was $23.22 on June 30, 2024, compared to $22.50 on March 31, 2024, and $20.17 on June 30, 2023.
  

Hillebrand concluded, “In May 2024, we once again received the 2023 Raymond James Community Bankers Cup award, recognizing the top 10% of community banks based on various profitability, operational efficiency, and balance sheet metrics. The pool of banks considered for recognition included all exchange-traded domestic banks with assets between $500 million and $10 billion as of December 31, 2023. This recognition not only reflects the success of Stock Yards, but our dedication to providing high quality service to the communities we serve.” Stock Yards Bancorp has been awarded the Raymond James Community Bankers Cup a total of nine times.

Results of Operations – Second Quarter 2024, Compared with Second Quarter 2023

Net interest income, the Company’s largest source of revenue, increased by $1.1 million, or 2%, to $62.0 million. Strong organic loan growth, higher interest earning asset yields and a slow-down in deposit cost expansion contributed to net interest income growth.

• Total interest income increased by $17.2 million, or 21%, to $100.3 million.
  • Interest income and fees on loans increased $17.7 million, or 24%, over the prior year quarter. Consistent with the $687 million, or 13%, increase in average loans and interest rate expansion, the average quarterly yield earned on loans increased 57 basis points over the past 12 months to 6.06%.
  • Interest income on securities decreased $1.2 million, or 13%, compared to the second quarter of 2023. While average securities balances have declined $227 million, or 13%, over the past 12 months, the rate earned on securities remained steady at 2.05%. Over the past 12 months, cash flows from investment portfolio maturities and pay downs have been utilized to fund loan growth and provide liquidity in lieu of redeployment into the portfolio.
  • Interest income on overnight funds increased $493,000, or 30%, consistent with the $27 million quarter over prior year quarter average balance increase coupled with the increase in the Federal Funds Target Rate.

• Total interest expense increased $16.1 million, or 73%, to $38.3 million, as the cost of interest-bearing liabilities increased 94 basis points to 2.75%. For the fifth consecutive linked quarter end, the pace of expansion of total interest-bearing liability costs has slowed.
  • Interest expense on deposits increased $14.5 million over the past 12 months, as the overall cost of interest- bearing deposits increased to 2.56% in the second quarter of 2024 from 1.55% in the second quarter of 2023. Interest expense expansion was spread over most deposit categories, with time deposits expanding the most at $6.2 million.
  • Interest expense on Federal Home Loan Bank (FHLB) advances increased $1.3 million, or 33%. In 2024, in lieu of aggressive deposit promotions, the Company has increased short-term borrowings to fund loan growth, in anticipation of securities maturing in the second half of 2024.
    

For the second quarter of 2024, consistent with strong loan growth, a slight deterioration in unemployment projections, net recoveries, a marginal increase in specific reserves and other factors within the CECL allowance model, the Company recorded $1.1 million in credit loss expense⁽¹⁾ for loans. In addition, the Company recorded $225,000 expense for off balance sheet exposures associated with expansion of Construction & Land Development and C&I lines of credit. For the second quarter of 2023, the Company recorded $2.2 million in credit loss expense for loans and $200,000 provision expense for off balance sheet exposures.

Non-interest income increased $795,000, or 3%, to $23.7 million compared to the second quarter of 2023.

• WM&T income ended the second quarter of 2024 at a record $10.8 million, increasing $649,000, or 6%, over the second quarter of 2023. WM&T income benefited from net new business growth and equity market performance, coupled with higher quarterly fees collected. WM&T AUM expanded $503 million, or 7%, over the past 12 months to $7.48 billion at quarter end.
• Compared to the second quarter of 2023, treasury management fees increased $276,000, or 11%, to a record $2.8 million. The consistent treasury management growth has been driven by strong transaction volume, organic growth, modified fee schedules, strong foreign exchange income, new product sales and continued expansion of existing relationships.
• Card income increased $211,000, or 4%, over the second quarter of 2023, driven by transaction volume and increased interchange income.
• Other non-interest income declined $588,000 over the second quarter of 2023, as the Company elected to strategically exit its insurance captive in late 2023.

Non-interest expenses, which tracked closely with management expectations, increased $3.3 million, or 7%, compared to the second quarter of 2023, to $49.1 million.

• Compensation and benefits expense increased $2.5 million, or 9%, compared to the second quarter of 2023, consistent with the increase in annual merit increases, increased bonus accruals and elevated health insurance claims activity.
• Net occupancy and equipment expenses increased $305,000, or 9%, over the second quarter of 2023, primarily due to the relocation of all WM&T employees to a consolidated central location.
• 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 $675,000, or 16%, consistent with software upgrades and increased compliance expense.
• Marketing and business development expenses decreased $188,000 or 11%, compared to the second quarter of 2023 primarily due to lower advertising and customer entertainment expense.
• Legal and professional fees increased $366,000 compared to the second quarter of 2023, led by increased compliance-related consulting in preparation for expanded regulatory oversight in conjunction with future growth and higher collection related legal expenses.
• FDIC insurance expense increased $382,000, or 49%, compared to the second quarter of 2023. This expense moves in tandem with asset growth and the FDIC mandated uniform base rate assessment (which was increased in the second quarter of the prior year).
• Amortization of investments in tax credit partnerships declined $324,000 compared to the second quarter of 2023. Effective January 1, 2024, the Bank adopted ASU 2023-02 and began booking tax credit amortization expense for all income tax credit projects as a component of tax expense via the proportional amortization method.
• Other non-interest expenses declined $533,000, or 19%, compared to the second quarter of 2023, primarily due to the Company’s strategic decision to exit its insurance captive in late 2023.

Financial Condition – June 30, 2024, Compared with June 30, 2023

Total assets increased $583 million, or 8%, year over year to $8.32 billion.

Total loans increased $652 million, or 12%, to $6.07 billion, with the commercial real estate and C&I portfolio combining to represent 56% of the growth. In addition to the robust loan growth, the Company has benefitted from the higher rate environment that has generally slowed or muted loan payoff activity. Total line of credit usage was 41.1% as of June 30, 2024, compared to 40.1% as of June 30, 2023, with C&I line of credit usage expanding to 30.8% as of period end.

Total investment securities decreased $200 million, or 13%, year over year. The overall portfolio yield was 2.05% for the second quarter of 2024, which was unchanged from the second quarter of 2023. Over the past 12 months, cash flows from the investment portfolio have been utilized to fund loan growth and provide liquidity in lieu of redeployment.

Total deposits increased $361 million, or 6%, over the past 12 months, with the deposit mix continuing to shift from non-interest bearing and low interest-bearing deposits into higher cost deposits. Non-interest-bearing demand accounts declined $284 million, or 16%, while interest-bearing deposits grew $645 million, or 15%, led by time deposit growth.

For the first six months of 2024, the Company recorded net loan recoveries of $531,000. This compares to $221,000 in net charge offs during the same period in 2023. Non-performing loans totaled $18 million, or 0.29% of total loans outstanding on June 30, 2024, compared to $18 million, or 0.33% of total loans outstanding on June 30, 2023. The ratio of allowance for credit losses to loans ended at 1.35% on June 30, 2024, compared to 1.43% on June 30, 2023.

As of June 30, 2024, the Company continued to be “well-capitalized,” the highest regulatory capital rating for financial institutions, with all capital ratios experiencing meaningful growth. Total equity to assets⁽³⁾ was 10.76% and the tangible common equity ratio⁽³⁾ was 8.42% on June 30, 2024, compared to 10.45% and 7.87% on June 30, 2023, respectively.

In May 2024, the board of directors declared a quarterly cash dividend of $0.30 per common share. The dividend was paid July 1, 2024, to shareholders of record as of June 17, 2024.

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 2024, Compared with First Quarter 2024

Net interest margin improved six basis points on the linked quarter to 3.26%, boosted by loan growth, higher interest earning asset yields and a slow-down in deposit cost expansion.

Net interest income increased $2.0 million, or 3%, over the prior quarter to $62.0 million.

• Total interest income increased $3.8 million, or 4%, led by the increase in interest income on loans.
• Total interest expense increased $1.8 million, or 5%,
  • Interest expense on deposits decreased $243,000, led by the interest-bearing demand and money market categories.
  • Interest expense on FHLB advances increased $2.3 million, or 76%. The Bank has increased short-term borrowings to fund current year loan growth (in lieu of aggressive deposit promotions), in anticipation of securities maturing in the second half of the year.

The Company recorded $1.3 million in provision for credit losses⁽¹⁾ during the second quarter of 2024, which included a $1.1 million provision for credit losses on loans and $225,000 of credit loss expense for off-balance sheet exposures. During the first quarter of 2024, the Company recorded $1.4 million in provision for credit losses, which included a $1.2 million provision for credit losses on loans and $250,000 of credit loss expense for off-balance sheet exposures.

Non-interest income increased $384,000, or 2%, on the linked quarter.

• WM&T income expanded $24,000 to record levels, consistent with market expansion and net new business growth.
• Card income increased $241,000, or 5%, consistent with increased transaction volume.
• Treasury management fees increased $200,000, ending at $2.8 million, a quarterly record.
  

Non-interest expenses increased $148,000, to $49.1 million, as decreases in employee benefits and technology and communication expenses were offset by increases in compensation, net occupancy and equipment and marketing and business development expenses.

Financial Condition – June 30, 2024, Compared with March 31, 2024

Total assets increased $192 million, or 2%, on the linked quarter to $8.32 billion.

Total loans expanded $221 million, or 4%, on the linked quarter, led by increases in every loan category. Total line of credit usage was 41.1% as of June 30, 2024, compared to 38.9% as of March 31, 2024, driven by strong production. C&I line of credit usage totaled 30.8% as of June 30, 2024, compared to 27.3% as of March 31, 2024.

Total deposits decreased $40 million, or 1%, on the linked quarter. Non-interest-bearing demand accounts increased $1 million, while total interest-bearing deposit accounts contracted $41 million. Time deposit growth of $22 million was partially offset by $64 million of money market contraction.

About the Company

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $8.32 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, 2023, 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.