SYBT Also Reports Third Quarter Record Loan Production; Record Return on Average Assets and Return on Average Equity
LOUISVILLE, Ky.–(BUSINESS WIRE)–$SYBT–Stock Yards Bancorp, Inc. (NASDAQ: SYBT), parent company of Stock Yards Bank & Trust Company, with offices in the Louisville, Indianapolis and Cincinnati metropolitan markets, today reported record results for both the third quarter and nine months ended September 30, 2019. Total revenue, comprised of net interest income and non-interest income, increased 14% to $45.4 million for the third quarter of 2019 from $39.9 million for the third quarter of 2018. Notwithstanding several non-recurring income items recognized in the quarter, the company still posted record results. Net income for the third quarter of 2019 rose 24% to $17.2 million or $0.76 per diluted share from $13.9 million or $0.60 per diluted share for the third quarter of 2018.
|
|
|
|
|
||||||
|
(dollar amounts in thousands, except per share data) |
3Q19 |
2Q19 |
3Q18 |
||||||
|
Net interest income |
$ |
32,070 |
|
$ |
30,774 |
|
$ |
28,521 |
|
|
Provision for loan and lease losses |
|
400 |
|
– |
|
735 |
|
||
|
Non-interest income |
|
13,304 |
|
|
12,263 |
|
|
11,426 |
|
|
Non-interest expenses |
|
23,957 |
|
|
25,464 |
|
|
21,781 |
|
|
Income before income tax expense |
|
21,017 |
|
|
17,573 |
|
|
17,431 |
|
|
Income tax expense |
|
3,783 |
|
|
1,030 |
|
|
3,555 |
|
|
Net income |
$ |
17,234 |
|
$ |
16,543 |
|
$ |
13,876 |
|
|
Net income per share, diluted |
$ |
0.76 |
|
$ |
0.72 |
|
$ |
0.60 |
|
|
Net interest margin |
|
3.86 |
% |
|
3.81 |
% |
|
3.79 |
% |
|
Efficiency ratio |
|
52.73 |
% |
|
59.09 |
% |
|
54.43 |
% |
|
Tangible common equity to tangible assets (1) |
|
10.83 |
% |
|
10.85 |
% |
|
10.57 |
% |
|
Annualized return on average equity |
|
17.41 |
% |
|
17.40 |
% |
|
15.67 |
% |
|
Annualized return on average assets |
|
1.95 |
% |
|
1.93 |
% |
|
1.75 |
% |
|
|
|
|
|
||||||
Key factors affecting the Company’s results for the third quarter of 2019 included:
- Average loans increased $260 million year over year, contributing to the 12% increase in net interest income on a comparable quarter basis.
- Legacy (excluding the King Southern Bank (“KSB”) acquisition) average loans increased $104 million or 4% year over year.
- Strong net loan growth of $93 million for the third quarter of 2019, building upon a strong second quarter of 2019.
- Continued robust loan production set a year to date record, with loan payoffs/pay-downs trending lower in the second half of 2019.
- Net interest margin increased seven basis points to 3.86% from the same period last year and increased five basis points on a sequential quarterly basis. As the Federal Reserve Bank (FRB) lowered rates twice during the third quarter, the Company followed suit by lowering stated rates on most types of interest-bearing deposit and certificates of deposit account types, offsetting the decline in loan rates. Loan yields were also boosted during the quarter by a higher than normal level of fee income. Continued lowering of short term rates by the FRB and yield-curve inversion will place pressure on net interest margin. It is likely that future rate drops will not be fully offset through further deposit rate declines.
- Continued strong growth in non-interest income, led by a 7% increase in wealth management and trust (WM&T) services income, as well as a 19% increase in debit and credit card income.
- Card income and treasury management fees, bolstered by increased volume and usage, continued to stand out as diversifying non-interest revenue streams, representing a combined 25% of total non-interest income.
- Sustained strong credit quality metrics continued to result in low provisioning, with the Company recording a $400 thousand provision for loan and lease losses in the third quarter.
- The Company’s Mt. Washington branch opened during the quarter and has exceeded expectations. It represents a natural extension of the Company’s existing Bullitt County franchise and complements the recent expansion into Nelson County via the KSB acquisition.
- Non-recurring items boosted Bank Owned Life Insurance (BOLI) income and other non-interest income during the quarter.
“Stock Yards Bancorp closed out a great third quarter, setting records in net income, loan production and returns on average assets and equity,” said Chief Executive Officer James A. (Ja) Hillebrand. “Exceptional loan production and strong net loan growth drove a $3.5 million or 12% net interest income increase compared with the third quarter of 2018. Loan growth has continued to accelerate through 2019, as we have focused heavily on growing and expanding customer relationships in addition to integrating our new KSB customer base. Our loan portfolio increased $93 million this quarter due to the hard work of our entire lending team. Prudent deposit rate management also contributed to a steady net interest margin. Our credit quality metrics remain at sound levels and are some of the highest relative to our peers. Our core deposit growth is strong, further highlighting our optimism for the future. We ended the third quarter with a solid loan pipeline, positioning the Company for continued strength in loan production heading into the final quarter of the year.
“Non-interest income increased 16% and continues to demonstrate stable and diversified revenue streams. The WM&T group, with assets under management rising to over $3 billion, continued to be a leading source of fee income, with revenues increasing 7% versus the year-earlier period and contributing 43% of total non-interest income in the third quarter of 2019. Debit/credit card income and treasury management fees combined grew 16% to account for 25% of third quarter 2019 total non-interest income. We are also pleased to note the on-going contribution of mortgage banking income, which grew a healthy 17%. These diverse revenue sources remain key to the long-term stability in our growth and demonstrate our sound business model.
“While the competitive landscape is intense, we remain optimistic based on our loan pipeline and core deposit base growth and we continue to deliver market share gains. We are excited about the opportunities in the markets we serve to continue the Company’s legacy of growth and performance. As evidenced by the second quarter authorization of a share repurchase plan, our Board of Directors shares our enthusiasm about the Company’s future. I am pleased to announce that through the end of the third quarter, we have repurchased approximately 259 thousand shares of stock at a weighted average cost of $35.46 per share. Approximately 741 thousand shares remain available for repurchase under the current buy-back plan.”
In closing, Hillebrand said, “The outstanding results for the third quarter reflect solid execution of our strategic plan by our dedicated team of professionals. I am pleased to note that we were named to the 2019 Bank and Thrift SM-ALL STARS by Sandler O’Neill & Partners during the quarter, one of only 30 institutions to receive this honor based on our continued growth, profitability, credit quality and capital strength. We are honored to be recognized and are confident in our ability to continue to deliver value to our shareholders.”
Third Quarter 2019 Compared with Third Quarter 2018
Net interest income – the Company’s largest source of revenue – increased approximately $3.5 million or 12% to $32.1 million. Legacy net interest income increased $2.1 million or 7%.
- Net interest margin increased seven basis points to 3.86% from 3.79%, primarily due to a decline in deposit rates, which more than offset the decline in loan rates during the quarter, as the FRB cut rates twice. Rates on loans and thus earning assets were boosted by a higher than normal level of loan fees during the quarter.
- Total interest income rose $5.0 million or 15% to $38.0 million driven by an increase in interest income on loans consistent with growth in the portfolio. Excluding the KSB contribution, interest income on loans exceeded the prior year by $2.6 million or 9%.
- Interest expense increased $1.4 million or 31% over the prior year quarter due to a higher volume of interest bearing deposits, with approximately $394 thousand of the increase related to the KSB deposit portfolio, which was concentrated in time deposits.
Non-interest income increased $1.9 million or 16% to $13.3 million.
- WM&T income increased $358 thousand or 7% due to increased new business generation, continued strong market performance and growth in corporate retirement plans. WM&T continues to represent a steady source of growth in non-interest income for the Company.
- Debit and credit card income and treasury management fees both showed continued double digit growth, accounting for approximately 25% of total non-interest income during the quarter.
- Mortgage banking revenue increased 17% over the prior year period primarily as a result of the decline in long-term rates during the third quarter.
- BOLI income increased $301 thousand during the quarter, reflecting the receipt of life insurance proceeds during the quarter.
- Other non-interest income increased $723 thousand in large part due to interest rate swap fees on loans recognized during the quarter totaling $374 thousand. Other income was also impacted by a gain of $212 thousand on the sale of Visa Class B stock and life insurance proceeds recognized outside our normal BOLI program of $142 thousand.
Non-interest expenses increased $2.2 million or 10% to $24.0 million.
- Excluding ongoing KSB expenses, non-interest expenses would have increased $1.6 million or 7%.
- Compensation expense for the third quarter of 2019 increased $723 thousand or 6% compared with the prior-year quarter related to an overall increase in headcount, led by the Company’s efforts to add loan production talent to support strategic growth initiatives in addition to the KSB acquisition.
- Employee benefits rose $407 thousand or 16% due to elevated medical claims, increased 401(k) matching expense and increased FICA expense consistent with compensation growth.
- Net occupancy and equipment expenses increased $285 thousand or 15% due to the addition of the Mt. Washington and KSB branches.
- Technology and communication expenses increased $246 thousand or 15%, as the Company added new hardware and software to support capacity and capabilities for customers.
- The Company recorded no FDIC insurance expense during the quarter as the target national FDIC Reserve Ratio was reached during the period and credits were issued to qualifying institutions.
September 30, 2019 Compared with September 30, 2018
Total loans increased $322 million or 13% to $2.9 billion.
- Approximately $152 million of the growth in loans was a direct result of the KSB acquisition.
- Excluding the KSB acquisition, the loan portfolio grew by a net $170 million or 7%, bolstered by record loan production over the previous 12 months.
Total deposits increased $348 million or 13% to $2.9 billion.
- Approximately $99 million in deposit growth during this period was due to the KSB acquisition.
- Growth in deposits was led by a solid increase in non-interest bearing deposits, interest bearing demand deposits and time deposits.
- Core deposits, which exclude brokered deposits and time deposits greater than $250 thousand, represented 97% of total deposits.
Asset quality, which has remained exceptional and has trended within a narrow range over the past several years, remained sound. While the Company is pleased with this performance, management recognizes the cyclical nature of the economy and believes asset quality metrics will normalize over the long term, which will eventually result in higher provisioning for loan and lease losses.
- Non-performing loans (NPLs) were $3.2 million or 0.11% of total loans outstanding versus $5.0 million or 0.20% of total loans outstanding a year ago.
- Non-performing assets (NPAs), which include NPLs along with other real estate owned and repossessed assets, totaled $3.8 million or 0.11% of total assets versus $6.6 million or 0.20% of total assets.
- The allowance for loan and lease losses relative to total end-of-period loans was 0.94%, down slightly from 2018 levels.
The Company remained “well capitalized” – the highest capital rating for financial institutions.
- Total equity to assets was 11.21% and the tangible common equity ratio was 10.83%,(1) compared to 10.62% and 10.57%, respectively, with the fluctuation primarily associated with record earnings slightly offset by the KSB acquisition.
- Even with its strong capital position, the Company continues to consistently achieve industry-leading returns on equity due to its superior earnings performance.
- Stock Yards Bancorp continues to pursue and consider strategies to enhance stockholder value, including a substantial and sustained dividend payout ratio. In August 2019, the Company’s board of directors continued the higher dividend rate of $0.26 per common share initially set in May 2019. With the May increase, Stock Yards Bancorp has raised its quarterly dividend rate 11 times since 2013, including two increases during 2018 and each of the previous four years.
Third Quarter 2019 Compared to Second Quarter 2019
Net interest income increased $1.3 million or 4%, as loan growth during the quarter, combined with a slight increase in margin, led to a record for the quarter.
Non-interest income increased 8%.
- WM&T, deposit service charges, treasury management fees and mortgage banking all showed increases for the linked quarter comparison.
- BOLI and other income increased due to the receipt of life insurance proceeds during the quarter.
- Swap fees totaling $108 thousand and $374 thousand were recognized during the second and third quarters, respectively.
- A one-time gain of $212 thousand on the sale of Visa Class B stock was realized during the third quarter of 2019.
Non-interest expenses improved 6%.
- As a result of the closing of the KSB acquisition on May 1, 2019, second quarter non-interest expenses included $1.3 million in pre-tax acquisition-related expenses, professional fees and compensation-related expenses.
- The company recorded no FDIC insurance expense during the third quarter of 2019.
The Company’s effective tax rate increased to 18.0% for the third quarter of 2019 from 5.9% for the second quarter of 2019.
- During the second quarter of 2019, Kentucky tax law changed to allow a bank holding company’s net operating losses to offset against net revenues generated by banks, beginning in 2021. In connection with this change, the Company recognized a non-recurring state deferred tax asset and corresponding state income tax benefit, the effect of which added $0.11 to net income per diluted share for the second quarter of 2019.
September 30, 2019 Compared to June 30, 2019
Total loans increased $93 million or 3%.
- The Company experienced continued strong production during the third quarter with loan pipelines remaining solid headed into the fourth quarter of 2019.
Total deposits increased $63 million or 2%.
- Money market, interest bearing demand and non-interest bearing deposit balances showed solid growth on the linked quarter basis.
Asset quality remained at historically strong levels.
- The allowance for loan and lease losses relative to total end-of-period loans was 0.94%, a decrease of two basis points.
About the Company
Louisville, Kentucky-based Stock Yards Bancorp, Inc., with $3.5 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 Global Select 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; 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. See Risk Factors outlined in the Company’s Form 10-K for the year ended December 31, 2018.
| Stock Yards Bancorp, Inc. Financial Information (unaudited) | ||||||||||||||
| Third Quarter 2019 Earnings Release | ||||||||||||||
| (In thousands unless otherwise noted) | ||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
September 30, |
|
September 30, |
||||||||||||
| Income Statement Data |
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||
| Net interest income, fully tax equivalent (2) |
$ |
32,131 |
$ |
28,590 |
$ |
92,673 |
$ |
84,751 |
||||||
| Interest income: | ||||||||||||||
| Loans and leases |
$ |
35,022 |
$ |
30,359 |
$ |
99,985 |
$ |
86,877 |
||||||
| Federal funds sold and interest bearing due from banks |
|
566 |
|
373 |
|
2,129 |
|
804 |
||||||
| Mortgage loans held for sale |
|
41 |
|
42 |
|
121 |
|
121 |
||||||
| Securities |
|
2,344 |
|
2,247 |
|
7,735 |
|
6,967 |
||||||
| Total interest income |
|
37,973 |
|
33,021 |
|
109,970 |
|
94,769 |
||||||
| Interest expense: | ||||||||||||||
| Deposits |
|
5,316 |
|
3,972 |
|
16,034 |
|
8,723 |
||||||
| Securities sold under agreements to repurchase and other short-term borrowings |
|
78 |
|
|
300 |
|
|
255 |
|
|
850 |
|||
| Federal Home Loan Bank (FHLB) advances and other long-term debt |
|
509 |
|
228 |
|
1,180 |
|
692 |
||||||
| Total interest expense |
|
5,903 |
|
4,500 |
|
17,469 |
|
10,265 |
||||||
| Net interest income |
|
32,070 |
|
28,521 |
|
92,501 |
|
84,504 |
||||||
| Provision for loan and lease losses |
|
400 |
|
735 |
|
1,000 |
|
2,705 |
||||||
| Net interest income after provision for loan and lease losses |
|
31,670 |
|
27,786 |
|
91,501 |
|
81,799 |
||||||
| Non-interest income: | ||||||||||||||
| Wealth management and trust services |
|
5,738 |
|
5,380 |
|
16,839 |
|
16,224 |
||||||
| Deposit service charges |
|
1,444 |
|
1,482 |
|
4,027 |
|
4,340 |
||||||
| Debit and credit card income |
|
2,102 |
|
1,759 |
|
6,014 |
|
4,956 |
||||||
| Treasury management fees |
|
1,264 |
|
1,151 |
|
3,623 |
|
3,311 |
||||||
| Mortgage banking income |
|
834 |
|
712 |
|
2,112 |
|
2,034 |
||||||
| Net investment product sales commissions and fees |
|
400 |
|
444 |
|
1,120 |
|
1,245 |
||||||
| Bank owned life insurance |
|
487 |
|
186 |
|
849 |
|
564 |
||||||
| Other |
|
1,035 |
|
312 |
|
2,045 |
|
1,096 |
||||||
| Total non-interest income |
|
13,304 |
|
11,426 |
|
36,629 |
|
33,770 |
||||||
| Non-interest expenses: | ||||||||||||||
| Compensation |
|
12,330 |
|
11,607 |
|
36,846 |
|
34,280 |
||||||
| Employee benefits |
|
2,908 |
|
2,501 |
|
8,458 |
|
7,646 |
||||||
| Net occupancy and equipment |
|
2,199 |
|
1,914 |
|
6,033 |
|
5,543 |
||||||
| Technology and communication |
|
1,841 |
|
1,595 |
|
5,462 |
|
4,910 |
||||||
| Debit and credit card processing |
|
662 |
|
588 |
|
1,880 |
|
1,733 |
||||||
| Marketing and business development |
|
732 |
|
740 |
|
2,260 |
|
2,191 |
||||||
| Postage, printing, and supplies |
|
402 |
|
370 |
|
1,218 |
|
1,161 |
||||||
| Legal and professional |
|
524 |
|
501 |
|
2,581 |
|
1,498 |
||||||
| FDIC insurance |
|
– |
|
238 |
|
486 |
|
718 |
||||||
| Amortization/impairment of investments in tax credit partnerships |
|
137 |
|
– |
|
241 |
|
58 |
||||||
| Capital and deposit based taxes |
|
993 |
|
738 |
|
2,864 |
|
2,452 |
||||||
| Other |
|
1,229 |
|
989 |
|
3,731 |
|
2,754 |
||||||
| Total non-interest expenses |
|
23,957 |
|
21,781 |
|
72,060 |
|
64,944 |
||||||
| Income before income tax expense |
|
21,017 |
|
17,431 |
|
56,070 |
|
50,625 |
||||||
| Income tax expense |
|
3,783 |
|
3,555 |
|
6,652 |
|
9,766 |
||||||
| Net income |
$ |
17,234 |
$ |
13,876 |
$ |
49,418 |
$ |
40,859 |
||||||
| Net income per share – Basic |
$ |
0.76 |
$ |
0.61 |
$ |
2.18 |
$ |
1.81 |
||||||
| Net income per share – Diluted |
|
0.76 |
|
0.60 |
|
2.16 |
|
1.78 |
||||||
| Cash dividend declared per share |
|
0.26 |
|
0.25 |
|
0.77 |
|
0.71 |
||||||
| Weighted average shares – Basic |
|
22,550 |
|
22,636 |
|
22,633 |
|
22,613 |
||||||
| Weighted average shares – Diluted |
|
22,810 |
|
22,968 |
|
22,901 |
|
22,956 |
||||||
|
September 30, |
||||||||||||||
| Balance Sheet Data |
2019 |
|
2018 |
|||||||||||
| Loans and leases |
$ |
2,856,664 |
$ |
2,534,483 |
||||||||||
| Allowance for loan and lease losses |
|
26,877 |
|
25,222 |
||||||||||
| Total assets |
|
3,533,926 |
|
3,324,797 |
||||||||||
| Non-interest bearing deposits |
|
795,793 |
|
705,386 |
||||||||||
| Interest bearing deposits |
|
2,150,520 |
|
1,892,652 |
||||||||||
| FHLB advances |
|
81,985 |
|
48,500 |
||||||||||
| Stockholders’ equity |
|
396,111 |
|
352,980 |
||||||||||
| Total shares outstanding |
|
22,597 |
|
22,746 |
||||||||||
| Book value per share (1) |
$ |
17.53 |
$ |
15.52 |
||||||||||
| Tangible common equity per share (1) |
|
16.87 |
|
15.44 |
||||||||||
| Market value per share |
|
36.69 |
|
36.30 |
||||||||||
Contacts
T. Clay Stinnett
Executive Vice President,
Treasurer and Chief Financial Officer
(502) 625-0890
