Highlights

• Net income was $2.1 million, or $0.37 per share, in the third quarter of 2023, compared to $2.8 million, or $0.50 per share, in the third quarter of 2022.

• Net interest margin (“NIM”) was 3.66% for the third quarter of 2023, compared to 3.82% in the second quarter of 2023, and 3.70% in the third quarter of 2022.

• Total assets increased $19.4 million, or 1.94%, to $1.02 billion at September 30, 2023 from $997.7 million at December 31, 2022, and decreased by $6.6 million, or 0.65%, from $1.02 billion a year earlier.

• Net loans were $791.1 million at September 30, 2023, an increase of $42.5 million, or 5.67%, when compared to $748.6 million at December 31, 2022, and an increase of $58.3 million, or 7.95%, when compared to $732.8 million at September 30, 2022.

• Total deposits were $908.1 million at September 30, 2023, a decrease of $12.2 million, or 1.33%, from $920.3 million at December 31, 2022, and a decrease of $37.6 million, or 3.98%, from $945.7 million at September 30, 2022.
  

Third Quarter, First Nine Months of 2023 Income Statement Review

Net interest income after provision for credit losses in the third quarter of 2023 was $8.5 million compared to $8.8 million in the third quarter of 2022, primarily reflecting increased interest expense. Total interest income was $11.0 million in the third quarter of 2023, representing an increase of $1.6 million in comparison to the third quarter of 2022. Interest income on loans increased in the quarterly comparison by $2.0 million, primarily due to organic loan growth of $59.8 million from September 30, 2022 to September 30, 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 $1.5 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 $295 thousand, primarily due to short-term FHLB advances to fund loan growth of $18.7 million during the third quarter of 2023.

For the first nine months of 2023, net interest income after provision for credit losses was $26.7 million compared to $24.8 million for the first nine months of 2022. Interest income increased by $5.0 million, primarily due to an increase of $5.1 million in interest income on loans. Interest expense on deposits increased by $3.0 million for the nine-months ended September 30, 2023 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 $621 thousand in the nine-month comparison, due to short-term borrowings utilized to fund loan growth and offset the decline in deposit balances.

Third quarter 2023 noninterest income was $1.9 million compared with $1.6 million in the third quarter of 2022.   Income from service charges and fees increased by $134 thousand, offsetting a $37 thousand decrease in mortgage origination fees as mortgage origination volume declined compared to the year ago period.   Nonrecurring income of $69 thousand related to life insurance income and a gain of $197 thousand on the sale leaseback of a branch location was recorded in other income for the third quarter of 2023. Excluding this nonrecurring income of $266 thousand, noninterest income increased by $81 thousand for the third quarter of 2023 compared to the third quarter of 2022.

For the nine months ended September 30, 2023 and 2022, noninterest income was $5.2 million and $4.7 million, respectively.   The increase of $473 thousand included an increase of $432 thousand in service charges and fees, which offset a $170 thousand decrease in mortgage origination fees.   Included in noninterest income for the nine months ended September 30, 2023 was nonrecurring income of $129 thousand related to loan hedge fees from a correspondent bank was recorded in other income, the $197 thousand gain on the sale leaseback discussed above, $69 thousand from life insurance contracts and security losses of $16 thousand. For the nine months ended September 30, 2022, there was nonrecurring income of $217 thousand from life insurance contracts. Excluding these nonrecurring items, noninterest income increased by $311 thousand in the nine-month comparison.

Noninterest expense in the third quarter of 2023 was $7.9 million compared with $6.9 million in the third quarter of 2022, an increase of $1.0 million.   There was an increase in salary and benefit costs of $480 thousand due to personnel additions and routine salary adjustments, as well as increased benefit costs. Occupancy and equipment expenses increased $224 thousand and data processing increased by $198 thousand in the quarterly comparisons primarily due to branch expansion costs.   FDIC assessments increased by $36 thousand due to an increase in the base assessment rate in 2023.

For the nine-month period ended September 30, 2023, total noninterest expenses increased by $2.3 million compared to the same period in 2022, primarily due to employee and branch costs associated with branch expansion.   Salary and benefit cost increased by $1.3 million, which also reflects a reduction in capitalized loan origination cost due to lower loan volume in the first nine months of 2023 compared to the first nine months of 2022.   Occupancy and equipment expenses increased by $505 thousand, and data processing increased by $278 thousand from the first nine months of 2022 to 2023.   FDIC assessments increased by $103 thousand in the nine-month comparison.

Earnings for the first nine months of 2023 represented an annualized return on average assets (“ROAA”) of 1.00%, and an annualized return on average equity (“ROAE”) of 13.26%, compared to 0.98% and 12.65%, respectively, for the same period last year.

Balance Sheet Review

Total assets increased in the third quarter of 2023 by $10.0 million, or 0.99%, to $1.02 billion at September 30, 2023 from $1.01 billion at June 30, 2023, and increased by $19.4 million, or 1.94%, from $997.7 million at December 31, 2022. The increase in assets during the third quarter of 2023 was primarily the result of an increase in loans and deposits during the quarter.

Total loans increased during the third quarter by $18.7 million, or 2.39%, to $797.8 million at September 30, 2023 from $779.1 million at June 30, 2023, and increased by $42.9 million, or 5.68%, compared to $754.9 million at December 31, 2022.   Core loan growth during the first nine months of 2023 was at an annualized rate of 7.72%.   The allowance for loan losses was approximately 0.84% of total loans as of September 30, 2023 compared to 0.83% at December 31, 2022.

Investment securities decreased by $6.3 million during the third quarter to $121.8 million at September 30, 2023 from $128.1 million at June 30, 2023, and decreased by $13.4 million from $135.2 million at December 31, 2022.   The decrease in the third quarter of 2023 was primarily the result of paydowns of $1.9 million, and an increase in unrealized losses of $4.3 million as a result of the increase in interest rates during the quarter.

Total deposits increased in the third quarter of 2023 by $4.7 million, or 0.51%, to $908.1 million at September 30, 2023 from $903.4 million at June 30, 2023, and decreased $12.2 million, or 1.33%, compared to $920.3 million at December 31, 2022. Noninterest bearing deposits increased by $215 thousand and interest-bearing deposits increased by $4.4 million during the quarter. Lower cost interest bearing deposits decreased by $15.3 million during the quarter, which was offset by a $19.7 million increase in time deposits as customers continue to look for higher returns on their deposits.

Total stockholders’ equity decreased by $2.6 million, or 3.28% to $74.6 million at September 30, 2023, from $77.2 million three months earlier, and increased by $1.7 million, or 2.33%, from $72.9 million at December 31, 2022. The change during the quarter was due to earnings of $2.1 million, less dividends paid of $1.2 million, and $3.4 million 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 conditions; the residual effects of the COVID-19 pandemic, including the Company’s credit quality and business operations, as well as its impact on 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
September 30, 2023; June 30, 2023; December 31, 2022; September 30, 2022

(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