Highlights

• Net income was $2.2 million, or $0.39 per share, for the fourth quarter of 2023, compared to $2.1 million, or $0.37 per share, for the third quarter of 2023, and $2.9 million, or $0.51 per share, for the fourth quarter of 2022.

• Net interest margin (“NIM”) was 3.69% for the fourth quarter of 2023, compared to 3.66% in the third quarter of 2023, and 3.93% in the fourth quarter of 2022.

• Total assets increased $48.1 million, or 4.82%, to $1.05 billion at December 31, 2023 from $997.7 million at December 31, 2022.

• Net loans increased $62.4 million, or 8.33%, to $811.0 million at December 31, 2023, from $748.6 million at December 31, 2022.

• Total deposits increased $8.4 million, or 0.91%, to $928.7 million at December 31, 2023, from $920.3 million at December 31, 2022.

• The Company repurchased 46,712 shares of its common stock through its publicly announced share repurchase program during the year 2023.
  

Fourth Quarter and Year Ended December 31, 2023 Income Statement Review

Net interest income after provision for credit losses in the fourth quarter of 2023 was $8.9 million compared to $9.2 million in the fourth quarter of 2022, primarily reflecting increased interest expense. Total interest income was $11.7 million in the fourth quarter of 2023, representing an increase of $1.8 million in comparison to the fourth quarter of 2022. Interest income on loans increased in the quarterly comparison by $2.0 million, primarily due to organic loan growth of $63.5 million during 2023, as well as interest rate increases during the same time period. Management anticipates that this loan growth, in addition to higher rates in the current year, will continue to have a positive impact on both earning assets and loan yields. Interest expense on deposits increased by $1.9 million in the quarterly comparison, as a result of rate increases on deposit offerings and migration from lower cost deposits to time deposits. Management anticipates that interest expense on deposits will increase in the near term as competitive pressures for deposits may result in continued increases in rates on deposit offerings, especially on time deposits. Interest on borrowings increased by $341 thousand, primarily due to short-term FHLB advances to fund loan growth.

For the year ended December 31, 2023, net interest income after provision for credit losses was $35.6 million compared to $34.0 million for the year ended December 31, 2022. Interest income increased by $6.8 million, primarily due to an increase of $7.2 million in interest income on loans. Interest expense on deposits increased by $4.9 million in the year over year comparison. As previously discussed, this is a reflection of the increased competitive pressures for deposits.   Interest on borrowings increased by $962 thousand in the year over year comparison, due to short-term borrowings utilized to fund loan growth.

Fourth quarter 2023 noninterest income was $1.8 million compared with $1.5 million in the fourth quarter of 2022.   Income from service charges and fees increased by $150 thousand. Mortgage origination fees increased by $26 thousand in the quarter over quarter comparison.

For the year ended December 31, 2023 and 2022, noninterest income was $7.0 million and $6.3 million, respectively.   The increase of $713 thousand included an increase of $582 thousand in service charges and fees, which offset a $144 thousand decrease in mortgage origination fees.   Included in noninterest income for the year 2023 was nonrecurring income of $129 thousand related to loan hedge fees from a correspondent bank, a gain of $197 thousand on the sale leaseback of a branch location, $69 thousand from life insurance contracts, and security losses of $16 thousand. For the year ended December 31, 2022, there was nonrecurring income of $217 thousand from life insurance contracts and security losses of $10 thousand. Excluding these nonrecurring items, noninterest income increased by $541 thousand in the year over year comparison.

Noninterest expense in the fourth quarter of 2023 was $7.9 million compared with $7.2 million in the fourth quarter of 2022, an increase of $729 thousand.   There was an increase in salary and benefit costs of $535 thousand due to personnel additions and routine salary adjustments, as well as increased pension and benefit costs. Occupancy and equipment expenses increased $117 thousand in the quarterly comparison primarily due to branch expansion costs.   FDIC assessments increased by $55 thousand due to an increase in the base assessment rate in 2023.

For the year ended December 31, 2023, total noninterest expenses increased by $3.0 million compared to the same period in 2022, due in part to employee and branch costs associated with branch expansion.   Salary and benefit costs increased by $1.9 million due to personnel additions, routine salary adjustments, and increased benefit costs as previously discussed.   Occupancy and equipment expenses increased by $622 thousand, and data processing increased by $260 thousand in the year over year comparison primarily due to the branch expansion costs.   FDIC assessments increased by $158 thousand in the twelve-month comparison.

The earnings for 2023 represent a ROAA of 0.96% and a ROAE of 12.66%, compared to a 1.01% and 13.35%, respectively, for the same period last year.

Income tax expense decreased by $118 thousand in the quarter-to-quarter comparison, and decreased by $143 thousand in the year-over-year comparison. The decrease was primarily due to a decrease in net income before taxes of $814 thousand in the quarterly comparison, and a $724 thousand decrease in the year-over-year comparison.

Balance Sheet Review

Total assets increased in the fourth quarter of 2023 by $28.7 million, or 2.83%, to $1.05 billion at December 31, 2023, from $1.02 billion at September 30, 2023, and increased by $48.1 million, or 4.82%, from $997.7 million at December 31, 2022. The increase in assets during the fourth quarter of 2023 was primarily the result of an increase in loans and deposits during the quarter.

Total loans increased during the fourth quarter by $19.9 million, or 2.50%, to $817.7 million at December 31, 2023 from $797.8 million at September 30, 2023, and increased by $62.8 million, or 8.32%, compared to $754.9 million at December 31, 2022.   Core loan growth during the fourth quarter of 2023 was at an annualized rate of 10.06% and the core loan growth for 2023 was at a rate of 8.45%.   The allowance for credit losses was approximately 0.82% of total loans as of December 31, 2023 compared to 0.83% at December 31, 2022.   Asset quality has remained strong, with a ratio of nonperforming loans to total loans of 0.21% at December 31, 2023 compared to 0.22% at December 31, 2022.

Investment securities increased by $5.6 million during the fourth quarter to $127.4 million at December 31, 2023 from $121.8 million at September 30, 2023, and decreased by $7.8 million from $135.2 million at December 31, 2022.   The increase in the fourth quarter of 2023 was primarily a decrease in unrealized losses of $7.0 million, partially offset by paydowns of $1.3 million.

Total deposits increased in the fourth quarter of 2023 by $20.6 million, or 2.28%, to $928.7 million at December 31, 2023 from $908.1 million at September 30, 2023, and increased $8.4 million, or 0.91%, compared to $920.3 million at December 31, 2022. Noninterest bearing deposits increased by $5.5 million and interest-bearing deposits increased by $15.2 million during the quarter. Lower cost interest bearing deposits increased by $3.1 million during the quarter, and time deposits increased by $12.1 million, as customers continue to look for higher returns on their deposits.

Total stockholders’ equity increased by $8.3 million, or 11.05%, to $82.9 million at December 31, 2023, from $74.6 million three months earlier, and increased by $10.0 million, or 13.64%, from $72.9 million at December 31, 2022. The change during the quarter was due to earnings of $2.2 million and $6.1 million in other comprehensive gains during the quarter.

Forward-looking statements

This release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934 as amended. These include statements as to expectations regarding future financial performance and any other statements regarding future results or expectations. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by the use of words such as "believe," "expect," "intend," "anticipate," "estimate," or "project" or similar expressions. Our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the combined company and its subsidiaries include, but are not limited to: changes in interest rates; general economic and financial market conditions; the effect of changes in banking, tax and other laws and regulations and interpretations or guidance thereunder; monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the combined company’s market area; the implementation of new technologies; the ability to develop and maintain secure and reliable electronic systems; accounting principles, policies, and guidelines; and other factors identified in Item 1A, “Risk Factors,” in the Company’s Annual Report on 10-K for the year ended December 31, 2022. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or clarify these forward‐looking statements, whether as a result of new information, future events or otherwise.

For more information contact:
Blake Edwards, President & CEO – 276-773-2811
Lori Vaught, EVP & CFO – 276-773-2811

Skyline Bankshares, Inc.
Condensed Consolidated Balance Sheets
December 31, 2023; September 30, 2023; December 31, 2022

Skyline Bankshares, Inc.
Condensed Consolidated Statement of Operations

Skyline Bankshares, Inc.
Reconciliation of Non-GAAP Financial Measures