Stock Yards Bancorp Reports Second Quarter Earnings of $26.8 Million or $0.91 Per Diluted Share

Second Quarter Results Highlighted by Organic Loan Growth and Net Interest Income Expansion

LOUISVILLE, Ky., July 27, 2022 (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 for the second quarter ended June 30, 2022, of $26.8 million, or $0.91 per diluted share. This compares to net income of $4.2 million, or $0.17 per diluted share, for the second quarter of 2021, which reflected $18.1 million in merger expenses and $7.4 million in merger related credit loss expense tied to the prior year Kentucky Bancshares acquisition. Solid organic loan growth across all markets and increased levels of non-interest income contributed to the second quarter 2022 results.

“We delivered solid earnings for the second quarter highlighted by the second highest quarterly loan production in our history and significant non-interest income generation,” said James A. (Ja) Hillebrand, Chairman and Chief Executive Officer. “On the heels of a record first quarter of legacy loan growth, second quarter loan growth (excluding PPP loans) totaled $64 million and was well diversified across all of our markets. While we anticipated rising interest rates to negatively impact our loan pipelines, this has not been the case as our pipelines to date have remained healthy.”

“Similar to the last several quarters, we again reported record non-interest income for the second quarter of 2022, a compliment to our diversified income revenue streams,” said Hillebrand. “Card income and treasury management fees climbed to new levels at quarter-end, primarily due to increases in new business, volume and usage. Given the volatile stock market during the first half of the year, we are encouraged by the growth in wealth management and trust income, as fee growth was driven by net customer expansion during the quarter. Additionally, our net interest margin (NIM) benefitted from the interest rate increases enacted by the Federal Reserve Bank (FRB) during the quarter, and we are well-positioned to benefit even further from anticipated future rate increases in the months ahead.”

“In addition to organic growth, I am excited to report our first full quarter reflecting our successful merger with Commonwealth Bancshares (Commonwealth),” Hillebrand continued. “We completed the Commonwealth core conversion at the end of the first quarter and the acquisition is contributing nicely to our operating results. We are a significantly different company today than we were just two years ago. There is still plenty of work to do, but I’m excited about the opportunities this transformation provides for continued long-term growth.”

At June 30, 2022, the Company had $7.58 billion in assets, $4.88 billion in loans and $6.55 billion in total deposits. The Company’s combined enterprise, which encompasses 73 branch offices across three states, will continue to benefit from a diversified geographic footprint and provide significant growth opportunities in both the banking and wealth management arenas.

Additional key factors contributing to the second quarter of 2022 results included:

• Loan growth (excluding PPP loans) totaled $64 million, or 1%, on a linked quarter basis. Excluding the Commonwealth acquisition, legacy loans grew by $182 million, or 5%, during the first six months of 2022. Second quarter loan production marked the second highest result in the Company’s history behind the first quarter of 2022.
• Deposit balances contracted by $196 million, or 3%, on a linked quarter basis, attributable to seasonal public funds, time maturities and other deposit fluctuations.
• Net interest income increased $15.4 million, or 37%, for the second quarter of 2022 compared to the second quarter a year ago, consistent with the $2.20 billion, or 44%, increase in average earning assets and to a lesser the extent, the FRB interest rate hikes.
• NIM improved for the second consecutive quarter, increasing nine basis points on a linked quarter basis to 3.20%.
• Despite a slightly worsening economic forecast and qualitative factor additions requiring an increase in provision levels, a $200,000 net reduction in credit loss expense was recorded for the second quarter of 2022, as the release of specific reserves related to several recently acquired loans more than offset any required increases.
• Non-interest income increased by $6.2 million, or 39%, over the second quarter of 2021, as customer expansion and recent acquisitions once again drove record quarterly wealth management and trust income, card income and treasury management fees.
• Total non-interest expenses remained controlled and consistent with expectations.
• Tangible book value per share was $17.59(1) at June 30, 2022, compared to $17.92(1) at March 31, 2022, and $19.16(1) at June 30, 2021. During 2022, 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. During the first six months of 2022, equity was reduced by $80 million as a result of unrealized losses in the available for sale debt securities portfolio (net of tax). These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses.

Results of Operations – Second Quarter 2022 Compared with Second Quarter 2021

Net interest income, the Company’s largest source of revenue, increased 37%, or $15.4 million, to $57.0 million, driven by higher interest income on non-PPP loans. Organic growth, and to a greater extent the Central/Eastern Kentucky market expansion, have boosted net interest income over the past 12 months.

• Total interest income increased by $16.0 million, or 37%, to $59.1 million.
  • Interest income on non-PPP loans increased $16.4 million, or 49%, over the prior year quarter. Consistent with the $1.46 billion, or 44%, increase in average non-PPP loans, and to a lesser extent recent interest rate increases, the average quarterly yield earned on non-PPP loans increased 15 basis points over the past 12 months to 4.15%. PPP interest and fee income totaled $1.2 million and $6.9 million for the second quarters of 2022 and 2021, respectively.
  • Interest income on debt securities increased $4.5 million compared to the second quarter of 2021. While the average balance of securities increased $948 million over the prior year quarter, the yield earned increased 27 basis points to 1.69%.
• Total interest expense increased $606,000, or 40%, to $2.1 million, as the cost of interest bearing liabilities declined one basis point to 0.18%.
• NIM decreased 16 basis points to 3.20% for the second quarter of 2022, from 3.36% for the second quarter a year ago. During the quarter, the slowdown of forgiveness within the PPP loan portfolio and related fee income recognition resulted in only a six basis point positive impact to NIM, compared to a 48 basis point positive impact to NIM in the second quarter a year ago.
  

The Company recorded a net benefit of $200,000 for credit losses during the second quarter of 2022, which included a $700,000 benefit to provision for credit losses on loans and $500,000 provision for credit loss expense for off-balance sheet exposures. While the national unemployment rate remained unchanged at 3.6%, the FRB’s June forecast of future unemployment deteriorated from the March forecast, resulting in additional provision for credit loss expense for loans within the CECL allowance model. However, the negative impact of the economic forecast update was more than offset by the release of approximately $3.0 million of specific reserves for individual recently acquired loans that paid off during the quarter, with no loss or charge-off realized by the Company. The increase in provision for credit loss expense for off-balance sheet exposures was attributed to both increased production and credit availability.

Non-interest income increased $6.2 million, or 39%, to $21.9 million, with the recent acquisitions contributing significantly to revenue growth.

• Wealth management and trust income ended very strong at $9.5 million for the second quarter of 2022, increasing $2.6 million, or 38%, over the second quarter a year ago. The benefit from net new business growth has served to offset lower market performance, which compressed assets under management.
• Card income increased $1.5 million, or 45%, over the second quarter of 2021, as card activity continues to benefit from generally strong spending trends and overall inflation in the marketplace.
• Treasury management fees increased $457,000, or 26%, driven by increased transaction volume, new product sales and customer base expansion. Continued calling efforts and the Company’s ability to generate new fee income has been the catalyst for this remarkable growth.
• Mortgage banking income, which primarily consists of gain on sale of loans, net servicing income and mortgage servicing rights amortization, was $1.3 million for the second quarter of 2022, unchanged from the second quarter a year ago. Overall volume in 2022 has cooled consistent with rising interest rates, while income levels benefitted from better loan pricing and increased net servicing income related to the Commonwealth loan servicing portfolio.

Non-interest expenses declined $3.5 million compared to the second quarter of 2021, to $44.7 million.

• Compensation expense increased $6.5 million, or 42%, primarily due to the increase in full time equivalent employees associated with the recent acquisitions. Full time equivalent employees increased to 1,018 at June 30, 2022 from 823 at June 30, 2021.
• Employee benefits increased $1.1 million, or 32%, compared to the second quarter of 2021, mainly due to the elevated health insurance, 401(k) and payroll tax expenses associated with the above-mentioned increase in full time equivalent employees.
• Net occupancy and equipment expenses increased $1.4 million, or 63%, compared to the second quarter a year ago. In connection with the Commonwealth and Kentucky Bancshares acquisitions, a total of 30 branches were added in addition to operational buildings.
• 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 $1.3 million, or 49%, consistent with an increase in customer accounts through acquisition and organic growth, and core system upgrades.
• Card processing expense increased $689,000 consistent with the card income revenue trend discussed previously.
• Marketing and business development expense increased $623,000, or 76%, primarily due to increased travel, customer entertainment, community support and advertising expenses.
• Intangible amortization expense increased $1.5 million consistent with the increase in customer intangible assets related to the Commonwealth acquisition.
• Other non-interest expenses increased $1.1 million, or 76%, primarily due to increased card rewards expense, fraud losses and insurance captive expense.

Financial Condition – June 30, 2022 Compared with June 30, 2021

Total assets increased $1.50 billion, or 25%, year over year to $7.58 billion, boosted by the Commonwealth acquisition and strong organic growth.

Total loans increased $671 million year over year, or 16%, to $4.88 billion. Excluding the PPP loan portfolio, total loans increased $1.01 billion, or 26%, over the past 12 months, with approximately $630 million of the growth attributable to the Commonwealth acquisition.

Total investment securities have increased $619 million, or 61%, year over prior year, as the Company acquired $247 million in securities with the Commonwealth acquisition and deployed a significant amount of excess cash into securities.

Total deposits increased $1.29 billion, or 25%, from June 30, 2021 to June 30, 2022, with approximately $1.12 billion of the growth associated with the Commonwealth acquisition.

Asset quality, which has trended within a narrow range over the past several years, has remained solid. During the second quarter of 2022, the Company recorded net loan charge-offs of $5,000, compared to net loan charge-offs of $2.7 million in the second quarter of 2021. Non-performing loans improved to $9.0 million, or 0.19%(2) of total loans outstanding (excluding PPP) compared to $13.9 million, or 0.36%(2) of total loans (excluding PPP) outstanding at June 30, 2021. The ratio of allowance for credit losses to loans (excluding PPP) ended at 1.37%(2) at June 30, 2022 compared to 1.55%(2) at June 30, 2021.

At June 30, 2022, the Company remained “well-capitalized,” the highest regulatory capital rating for financial institutions. Total equity to assets was 9.85%(1) and the tangible common equity ratio was 7.00%(1) at June 30, 2022, compared to 10.69%(1) and 8.57%(1), respectively, at June 30, 2021. The increase in interest rates during the second quarter led to outsized unrealized losses within the available for sale debt securities portfolio, with the $80 million decline in accumulated other comprehensive income driving down the tangible common equity ratio.

In May 2022, the board of directors declared a cash dividend of $0.28 per common share. The dividend was paid July 1, 2022, to shareholders of record as of June 20, 2022.

No shares were repurchased in 2022 or 2021 and approximately 741,000 shares remain eligible for repurchase under the current buy-back plan, which expires in May 2023.

Results of Operations – Second Quarter 2022 Compared with First Quarter 2022

Net interest income increased $8.2 million, or 17%, over the prior quarter to $57.0 million, led by the Commonwealth acquisition and organic loan growth. NIM improved for the second consecutive quarter, increasing nine basis points on a linked quarter basis to 3.20%.

The Company recorded a net benefit of $200,000 for credit losses, which included a $700,000 benefit to provision for credit losses on loans and a $500,000 provision for credit losses expense for off-balance sheet exposures. During the first quarter of 2022, the Company recorded a net $2.3 million provision for credit losses, which included a $1.8 million benefit to provision for credit losses on loans and $400,000 benefit to provision for credit losses on off-balance sheet exposures. The reductions were consistent with further stabilization in the FRB’s unemployment forecast, net recoveries, and solid credit quality statistics and were offset by $4.4 million of credit loss expense recorded on loans acquired from Commonwealth.

Non-interest income increased $2.7 million, or 14%, to $21.9 million. Higher wealth management and trust income, card income and treasury management fees all contributed to the quarterly increase.

Non-interest expenses decreased $11.6 million, or 21%, to $44.7 million. There were no merger expenses in the second quarter of 2022, compared with $19.5 million of related expenses in the prior quarter. Compensation expense increased $4.2 million, to $22.2 million compared with the first quarter of 2022, due to the addition of full time equivalent employees in association with the Commonwealth acquisition.

Financial Condition – June 30, 2022, Compared with March 31, 2022

Total assets decreased $194 million, or 2%, on a linked quarter basis to $7.58 billion.

Total loans (excluding PPP) increased $64 million, or 1%, on a linked quarter basis. Total line of credit usage was 41% as of June 30, 2022 and unchanged compared to March 31, 2022. Commercial and industrial line usage declined to 31% as of June 30, 2022, compared to 32% as of March 31, 2022.

Total deposits decreased $196 million, or 3%, on a linked quarter basis attributable to seasonal public funds, time deposit maturities and other fluctuations.

About the Company

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $7.58 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 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, 2021, 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.