LOUISVILLE, Ky., April 27, 2022 (GLOBE NEWSWIRE) -- Stock Yards Bancorp, Inc. (NASDAQ: SYBT), parent company of Stock Yards Bank & Trust Company, with offices in Louisville, Central and Eastern Kentucky, as well as the Indianapolis, Indiana and Cincinnati, Ohio metropolitan markets, today reported earnings for the first quarter ended March 31, 2022. Net income for the first quarter of 2022 was $7.9 million, or $0.29 per diluted share, reflecting $19.5 million in merger expenses and $4.4 million in merger related credit loss expense for the quarter. This compares to net income of $22.7 million, or $0.99 per diluted share, for the first quarter of 2021. The results for the first quarter of 2022 also included strong organic loan growth and record levels of non-interest income highlighted by wealth management and trust income, card income and treasury management fees.

“Our first quarter operating results continued to reflect strong organic loan growth, record quarterly loan production and solid revenue generation,” said James A. (Ja) Hillebrand, Chairman and Chief Executive Officer. “Similar to last quarter, we reported record non-interest income during the first quarter of 2022, a complement to our diversified income revenue streams. Card income and treasury management fees climbed to record levels at quarter-end, primarily due to increases in new business, volume and usage. Given the volatile stock market during the first three months of the year, we are very encouraged by the growth in wealth management and trust income, as the growth in assets under management and fee income was driven significantly by customer expansion. Despite quarter over prior year quarter lower yields on interest earning assets, net interest margin (NIM) improved on a linked quarter basis. With the recent rate increase enacted by the Federal Reserve at the end of the quarter, we anticipate further improvement in our NIM in future periods, especially with the probability of additional rate increases throughout the year.

“The highlight of the first quarter was the March 7th completion of the Commonwealth Bancshares acquisition, which added $1.34 billion in assets, $632 million in loans net of purchase accounting marks, $1.12 billion in total deposits and $2.93 billion in wealth management and trust assets under management. The acquisition is already positively impacting our operating results by increasing our scale and reach, as Commonwealth was the largest privately-held bank headquartered in the Louisville MSA. The transaction, which not only builds upon our already prominent market share in the Louisville market, expands our presence in the attractive Shelby County and Northern Kentucky markets and provides a solid opportunity for future growth.

“In addition to completing the acquisition, we also completed our core conversion at the end of the current quarter. Although additional work remains to complete the full integration of the two companies and fully realize the expected operating synergies, we expect that, similar to our three prior successful acquisitions, the Commonwealth Bancshares acquisition will result in significant benefits to our expanding group of clients, communities and employees. While costs associated with the merger significantly impacted first quarter earnings, they remained in line with our expectations, and we believe the majority of merger related expenses are behind us,” Hillebrand concluded.

At March 31, 2022, the Company had $7.77 billion in assets, $4.85 billion in loans and $6.75 billion in total deposits. The combined enterprise, with 73 branch offices, has and will continue to benefit from a diversified geographic footprint that provides significant growth opportunities in both the banking and wealth management arenas.

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

• Loan growth within the legacy Stock Yards portfolio, excluding PPP loans and loans acquired from Commonwealth Bancshares, totaled $118 million, or 3%, compared to the fourth quarter of 2021. Legacy loan growth for the first three months of 2022 represented the strongest first quarter in the Company’s history.
• Deposit balances grew by $958 million during the first quarter of 2022, as over $1.12 billion in deposits assumed from the Commonwealth Bancshares acquisition were partially offset by anticipated seasonal legacy deposit run-off.
• Despite a significant slowdown in PPP income recognition, net interest income increased $10.9 million, or 29%, for the first quarter of 2022, compared to the first quarter a year ago, with a sizable portion of the increase representing the Central/Eastern Kentucky market contribution. The Company entered the Central/Eastern Kentucky market in May 2021 in conjunction with the Kentucky Bancshares merger.
• After several quarters of NIM being negatively impacted by loan yield contraction and significant ongoing levels of excess balance sheet liquidity, NIM improved four basis points on a linked quarter basis.
• Consistent with further stabilization in the Federal Reserve unemployment forecast, net recoveries and solid credit quality statistics, a net reduction of $1.7 million in credit loss expense on loans and $400,000 reduction in credit losses on off-balance sheet exposures was recorded for the first quarter of 2022. These reductions were offset by $4.4 million in credit loss expense recorded on loans acquired from Commonwealth Bancshares.
• Non-interest income increased by $5.4 million, or 39%, over the first quarter of 2021, as customer expansion and recent acquisitions drove record quarterly wealth management and trust income, card income and treasury management fees.
• Despite significant non-interest expenses associated with the Commonwealth Bancshares acquisition, total company non-interest expenses remained controlled and consistent with expectations.
• Tangible book value per share was $17.92 at March 31, 2022, compared to $20.09 at December 31, 2021, and $18.82 at March 31, 2021. The decrease in tangible book value per share during the current quarter was attributable to the Commonwealth Bancshares acquisition and to a greater extent a $50 million decline in accumulated other comprehensive income. The significant increase in interest rates during March led to outsized unrealized losses within the available for sale debt securities portfolio. 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. Accordingly, there is a zero credit loss expectation on these securities.

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

Net interest income, the Company’s largest source of revenue, increased 29%, or $10.9 million, to $48.8 million, driven by higher interest income on non-PPP loans and the continued decline in cost of funds. 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 $10.5 million, or 26%, to $50.0 million, primarily due to increased interest income on non-PPP loans generated by organic growth and the Central/Eastern Kentucky market expansion.
• Total interest expense declined 28%, to $1.2 million. Interest expense on deposits decreased $339,000, or 22%, as the cost of interest bearing deposits declined to 0.11% in the first quarter of 2022, from 0.22% in the first quarter a year ago, as the Company continued to benefit significantly from the strategic lowering of stated deposit rates. Average interest bearing deposit balances, predominantly demand accounts, have surged $1.33 billion, or 47%, consistent with the current year and prior year acquisitions. In addition, a $293,000 interest expense reduction was posted during first quarter of 2022 consistent with purchase accounting adjustments associated with the recent acquisitions.
• NIM decreased 28 basis points to 3.11% for the first quarter of 2022, from 3.39% for the first quarter a year ago. During the quarter, forgiveness within the PPP loan portfolio and related fee income recognition had a 13 basis point positive impact to NIM, compared to a 21 basis point positive impact to NIM in the first quarter a year ago. Overall, NIM continues to be negatively impacted by loan yield contraction and significant ongoing excess balance sheet liquidity, the latter of which represented a 30 basis point negative impact to NIM in the first quarter of 2022, compared to a 13 basis point negative impact to NIM in the first quarter a year ago.
• Interest income on non-PPP loans increased $11.9 million, or 40%, over the prior year quarter primarily attributed to the Central/Eastern Kentucky contribution. Despite a $1.30 billion, or 43%, increase in average non-PPP loans, rate contraction impacted the portfolio, with the average quarterly yield earned on non-PPP loans contracting 10 basis points over the past 12 months to 3.99%. PPP interest and fee income totaled $2.8 million and $7.0 million for the first quarters of 2022 and 2021, respectively.
• Interest income on debt securities increased $2.6 million, or 111%, compared to the first quarter of 2021. While the average balance of securities increased $660 million over the prior year quarter, the yield earned increased 8 basis points to 1.51%.
  

The Company recorded a net $2.3 million provision to credit losses during the first quarter of 2022, which included a $1.7 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 Federal Reserve 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 Bancshares.

Non-interest income increased $5.4 million, or 39%, to $19.2 million, with the recent acquisitions contributing significantly to the increase.

• Wealth management and trust income set a new quarterly record at $8.5 million for the first quarter of 2022, increasing $2.2 million, or 36%, over the first quarter a year ago. Growth in assets under management, tied to the addition of Commonwealth Bancshares and significant growth in legacy business, served to boost asset-based fees and led to an increase in assets under management of $3.60 billion, or 90%, over the past 12 months. The March acquisition of Commonwealth Bancshares contributed meaningfully to first quarter 2022 wealth management and trust income.
• Card income increased $1.8 million, or 81%, over the first quarter of 2021, setting a quarterly record at $4.1 million. Growth trends in both debit and credit card portfolios remain positive, as card income benefited significantly from improving economic activity, with consumers and businesses increasing their spend, complimented by a meaningful contribution from the Central/Eastern Kentucky market.
• Treasury management fees increased by $364,000, or 24%, to a record $1.9 million driven by increased transaction volume, new product sales and customer base expansion. In addition, calling efforts to existing customers have led to significant increases in online services, reporting, ACH and wire origination, remote deposit and fraud mitigation services.
• Mortgage banking income, which primarily consists of gain on sale of loans, servicing income and mortgage servicing rights amortization, was $1.0 million for the first quarter of 2022, down 31% from the first quarter a year ago, primarily due to a decline in mortgage originations stemming from the increase in long-term interest rates.

Non-interest expenses increased $31.3 million to $56.3 million, with $19.5 million of the increase associated with non-recurring merger expenses.

• Compensation expense increased $5.1 million, or 40%, primarily due to the increase in full time equivalent employees associated with the recent acquisitions, as well as annual merit-based salary increases. Full time equivalent employees increased to 997 at March 31, 2022, from 638 at March 31, 2021, as the Bank added 190 associates in connection with the Commonwealth Bancshares merger and 182 associates in connection with its expansion into Central/Eastern Kentucky.
• Employee benefits increased $1.3 million, or 39%, compared to the first 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 $980,000, or 48%, consistent with significant acquisition related branch expansion.
• 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 $1.1 million, or 46%, consistent with branch expansion and core system upgrades.
• Card processing expense increased $632,000, consistent with the card income revenue trend discussed previously.
• Merger expenses totaled $19.5 million in the first quarter of 2022. Substantially all of the merger expenses related to the Commonwealth Bancshares acquisition have been recognized and the Company expects remaining merger related expenses will be minimal over the remainder of the year.
• Intangible amortization expense increased $636,000, consistent with the Commonwealth Bancshares core deposit intangible and customer lists.
• Other non-interest expenses increased $1.4 million primarily due to increased card rewards and insurance captive expenses.

Financial Condition – March 31, 2022 Compared with March 31, 2021

Total assets increased $2.98 billion, or 62%, year over year to $7.77 billion boosted by the two recent acquisitions and strong organic growth.

Total loans increased $1.21 billion year over year, or 33%, to $4.85 billion. Excluding the PPP loan portfolio, total loans increased $1.75 billion, or 58%, over the past 12 months, with approximately $1.39 billion of combined growth attributable to the Commonwealth Bancshares acquisition and Central/Eastern Kentucky market expansion.

The Company acquired $647 million in securities in the recent acquisitions and has deployed $847 million of excess cash into securities over the past 12 months.

Total deposits increased $2.55 billion, or 61%, from March 31, 2021 to March 31, 2022, with non-interest bearing deposits representing $719 million of the growth. Both period end and average deposit balances ended at record levels at March 31, 2022, as the Commonwealth Bancshares merger added approximately $1.12 billion to total deposits.

Asset quality, which has trended within a narrow range over the past several years, has remained solid. During the first quarter of 2022, the Company recorded net recoveries of $539,000, compared to net loan charge-offs of $6,000 in the first quarter of 2021. Non-performing loans totaled $13 million, or 0.27%⁽²⁾ of total loans outstanding (excluding PPP) compared to $14 million, or 0.47%⁽²⁾ of total loans (excluding PPP) outstanding at March 31, 2021. These strong metrics along with an improving economic forecast offset by purchase accounting adjustments, resulted in a ratio of allowance for credit losses to loans (excluding PPP) of 1.40%⁽²⁾ at March 31, 2022 compared to 1.68%⁽²⁾ at March 31, 2021.

At March 31, 2022, the Company remained “well-capitalized,” the highest regulatory capital rating for financial institutions. Total equity to assets was 9.71%⁽¹⁾ and the tangible common equity ratio was 6.94%⁽¹⁾ at March 31, 2022, compared to 9.25%⁽¹⁾ and 8.97%⁽¹⁾, respectively, at March 31, 2021. The significant increase in interest rates during March led to outsized unrealized losses within the available for sale debt securities portfolio, with a $50 million decline in accumulated other comprehensive income driving down the tangible common equity ratio.

In February 2022, the board of directors declared a cash dividend of $0.28 per common share. The dividend was paid April 1, 2022, to shareholders of record as of March 21, 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 – First Quarter 2022 Compared with Fourth Quarter 2021

Net interest income increased $2.6 million, or 6%, over the prior quarter to $48.8 million, led by the Commonwealth Bancshares acquisition, organic loan growth and the continued decline in cost of funds. While overall NIM was challenged by increased levels of excess liquidity, loan yields showed signs of stabilization in the first quarter of 2022.

As previously discussed, the Company recorded a net $2.3 million provision to credit losses during the first quarter of 2022, which included a $1.7 million benefit to provision for credit losses on loans and $400,000 benefit to provision credit losses on off-balance sheet exposures. The reductions were consistent with further stabilization in the Federal Reserve 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 Bancshares. During the fourth quarter of 2021, the Company recorded a net benefit of $1.9 million for credit losses, which included a $1.1 million benefit to provision for credit losses on loans and a $800,000 net benefit to provision for credit losses on off-balance sheet exposures consistent with the improvement in underlying CECL model factors along with increased line utilization in the Commercial & Industrial portfolio during the quarter.

Non-interest income increased $599,000, or 3%, to $19.2 million. Higher wealth management and trust income, card income and treasury management fees all contributed to the quarterly increase.

Non-interest expenses increased $21.7 million, or 63%, to $56.3 million, with $19.5 million of the increase associated with non-recurring merger expenses. Compensation expense increased $823,000, to $18.0 million compared with the fourth quarter of 2022, due to the addition of 190 full time equivalent employees in association with the Commonwealth Bancshares acquisition and annual merit increases.

Financial Condition – March 31, 2022, Compared with December 31, 2021

Total assets increased $1.13 billion, or 17% on a linked quarter basis to $7.77 billion, reflecting the acquisition of Commonwealth Bancshares, as well as organic increases in loans and investment securities.

Total loans (excluding PPP) increased $748 million, or 19%, on a linked quarter basis, with the Commonwealth Bancshares merger contributing $632 million of the total loan growth. Total line of credit usage was 41% as of March 31, 2022, and unchanged compared to December 31, 2021. Commercial and industrial line usage was 32% as of March 31, 2022, and also unchanged compared to December 31, 2021.

Total deposits increased $958 million, or 17%, on a linked quarter basis due in part to the acquisition of Commonwealth Bancshares offset by anticipated seasonal legacy deposit run-off.

About the Company

Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $7.77 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: the possibility that any of the anticipated benefits of the Commonwealth Bancshares merger will not be realized or will not be realized within the expected time period; the risk that integration of Commonwealth Bancshares’ operations with those of Stock Yards will be materially delayed or will be more costly or difficult than expected; diversion of management's attention from ongoing business operations and opportunities due to the merger; the challenges of integrating and retaining key employees; the effect of the combined company's respective customer and employee relationships and operating results; the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; dilution caused by Stock Yards’ issuance of additional shares of Stock Yards common stock in connection with the merger; 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.

Contact:        

T. Clay Stinnett
Executive Vice President,
Treasurer and Chief Financial Officer
(502) 625-0890