Second Quarter, First Half 2024 Income Statement Review

Net interest income after provision for credit losses in the second quarter of 2024 was $9.0 million compared to $9.1 million in the second quarter of 2023. Total interest income was $12.4 million in the second quarter of 2024, representing an increase of $1.8 million, or 17.06%, in comparison to the second quarter of 2023. Interest income on loans increased in the quarterly comparison by $1.9 million, primarily due to organic loan growth of $55.2 million from June 30, 2023 to June 30, 2024, 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 $1.5 million in the quarterly comparison, as a result of rate increases on deposit offerings, especially on time deposits due to deposit competition and a 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 $95 thousand, primarily due to short-term FHLB advances to fund loan growth.

For the first half of 2024, net interest income after provision for credit losses was $17.8 million compared to $18.2 million for the first half of 2023. Interest income increased by $3.7 million, primarily due to an increase of $3.8 million in interest income on loans. Interest expense on deposits increased by $3.3 million for the six months ended June 30, 2024 compared to the same period last year. As previously discussed, this is a reflection of the increased competitive pressures for deposits. Interest on borrowings increased by $363 thousand in the six-month comparison, due to short-term borrowings to help fund loan growth.

Second quarter 2024 and 2023 noninterest income was comparable at $1.7 million for both quarters. Included in noninterest income for the second quarter of 2023 was $129 thousand related to loan hedge fees from a correspondent bank and security losses of $16 thousand. Excluding these items noninterest income increased by $53 thousand for the second quarter of 2024 compared to the second quarter of 2023, primarily as a result on an increase in service charges and fees of $79 thousand, offsetting a $22 thousand decrease in mortgage origination fees as mortgage origination volume declined compared to the year ago period.

For the six months ended June 30, 2024 and 2023, noninterest income was $3.4 million and $3.3 million, respectively. Included in noninterest income for the first six months of 2024 was $221 thousand from life insurance contracts and a net realized security loss of $141 thousand. The net security loss resulted from the recognition of unamortized premiums on a called bond. Included in noninterest income for the six months ended June 30, 2023 was nonrecurring income from loan hedge fees discussed above of $129 thousand and security losses of $16 thousand. Excluding these items, noninterest income increased by $108 thousand in the year over year comparison, primarily as a result of an increase in service charges and fees of $159 thousand, which offset a $51 thousand decrease in mortgage origination fees.

Noninterest expense in the second quarter of 2024 was $8.4 million compared with $7.4 million in the second quarter of 2023, an increase of $985 thousand, or 13.32%. There was an increase in salary and benefit costs of $172 thousand due to personnel additions and routine salary adjustments, as well as increased benefit costs. Occupancy and equipment expenses increased $221 thousand and data processing increased by $162 thousand in the quarterly comparisons primarily due to branch expansion costs. Also included in noninterest expense in the second quarter of 2024 was $357 thousand in merger related expenses related to the pending acquisition of Johnson County Bank.

For the six-month period ended June 30, 2024, total noninterest expenses increased by $1.6 million compared to the same period in 2023, primarily due to employee costs and branch costs associated with branch expansion discussed above. Salary and benefit cost increased by $407 thousand. Occupancy and equipment expenses increased by $446 thousand, and data processing increased by $320 thousand from the first six months of 2023 to 2024. Merger related expenses related to the acquisition of Johnson County Bank were $357 thousand for the first six months of 2024.

Net income before taxes decreased by $1.1 million in the quarterly comparison causing an decrease in income tax expense of $159 thousand. In the six-month comparison, net income before taxes decreased by $1.9 million, resulting in an decrease in income tax expense of $325 thousand.

Balance Sheet Review

Total assets increased in the second quarter of 2024 by $14.3 million, or 1.37%, to $1.06 billion at June 30, 2024 from $1.05 billion at March 31, 2024, and increased by $18.6 million, or 1.78%, from $1.05 billion at December 31, 2023. Total assets increased by $57.3 million, or 5.69%, when compared to $1.01 billion at June 30, 2023. The increase in assets during the second quarter of 2024 primarily was the result of an increase in deposits of $17.7 million and a decrease in short-term borrowings of $5.0 million.

Total loans increased during the second quarter by $6.9 million, or 0.84%, to $833.6 million at June 30, 2024 from $826.7 million at March 31, 2024, and increased by $15.9 million, or 1.95%, compared to $817.7 million at December 31, 2023. Total loans increased by $54.5 million, or 6.99%, when compared to $779.1 million at June 30, 2023. Core loan growth during the second quarter of 2024 was at an annualized rate of 3.44%.
Asset quality has remained strong, with a ratio of nonperforming loans to total loans of 0.19% at June 30, 2024 compared to 0.21% at December 31, 2023. The allowance for credit losses remained comparable at approximately 0.82% of total loans as of June 30, 2024 and December 31, 2023, respectively.

Investment securities decreased by $1.7 million during the second quarter to $120.7 million at June 30, 2024 from $122.4 million at March 31, 2024, and decreased by $6.7 million from $127.4 million at December 31, 2023. Investment securities decreased by $7.4 million, when compared to $128.1 million at June 30, 2023. The decrease in the second quarter of 2024 was the result of $1.3 million in paydowns, and an increase in unrealized losses of $315 thousand as a result of the increase in interest rates during the quarter.

Total deposits increased in the second quarter of 2024 by $17.7 million, or 1.90%, to $948.1 million at June 30, 2024 from $930.4 million at March 31, 2024, and increased $19.4 million, or 2.09%, compared to $928.7 million at December 31, 2023. When compared to $903.4 million at June 30, 2023, total deposits increased by $44.7 million, or 4.94%. Noninterest bearing deposits increased by $3.0 million and interest-bearing deposits increased by $14.7 million during the quarter. Lower cost interest bearing deposits increased by $3.9 million during the quarter, and time deposits increased by $10.8 million, as customers continue to look for higher returns on their deposits.

Total stockholders’ equity increased by $1.6 million, or 1.97% to $84.5 million at June 30, 2024, from $82.9 million three months earlier, and increased $1.6 million, or 1.96%, from $82.9 million at December 31, 2023. Total stockholders’ equity increased by $7.3 million, or 9.52%, when compared to $77.2 million at June 30, 2023. The change during the quarter was due to earnings of $1.8 million and $248 thousand in other comprehensive losses 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; the ability to obtain required regulatory and shareholder approvals and meet other closing conditions to the proposed acquisition of Johnson County Bank; the ability to complete the acquisition as expected and within the expected timeframe; disruptions to customer and employee relationships and business operations caused by the acquisition; the ability to implement integration plans associated with the acquisition, which integration may be more difficult, time-consuming or costly than expected; the ability to achieve the cost savings and synergies contemplated by the acquisition within the expected timeframe, or at all; and other factors identified in Item 1A, “Risk Factors,” in the Company’s Annual Report on 10-K for the year ended December 31, 2023. 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.

(See Attached Financial Statements for quarter ending June 30, 2024)

Skyline Bankshares, Inc.
Condensed Consolidated Balance Sheets
June 30, 2024; March 31, 2024; December 31, 2023; June 30, 2023

(1) Tangible book value is a Non-GAAP financial measure defined as stockholders’ equity less goodwill and other intangible assets, divided by shares outstanding, that the Company believes is a meaningful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses. See “Reconciliation of Non-GAAP Financial Measures” at the end of this release.

Skyline Bankshares, Inc.
Condensed Consolidated Statement of Operations

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

In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and understanding the Company’s financial condition, capital position and financial results. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions. The non-GAAP financial measure presented in this document includes tangible book value per share. The following tables present calculations underlying non-GAAP financial measures.

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