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Loan Growth and Improved Efficiency Drive Earnings Higher at Lyons Bancorp

Lyons Bancorp, Inc. (LYBC), the parent financial holding company of The Lyons National Bank (LNB), reports earnings of $1.24 per common share for the third quarter of 2023, as compared to $1.20 per common share for the second quarter of 2023; a 3.3% increase. For the first nine months of 2023, the Company reports earnings of $3.60 per common share, a 2.2% increase over the $3.52 per common share it earned for the same period of time in 2022. Both numbers are reported on a fully diluted basis. Loan growth as well as improved efficiency drove the increase in earnings.

The pace of loan growth slowed in the third quarter to approximately one percent. As of September, 30, 2023, loans totaled $1.34 billion as compared to $1.30 billion at June 30, 2023. For the first nine months of 2023, loans grew approximately six percent from their September 30, 2022, level of $1.25 billion. The credit quality of the Bank’s loan portfolio remains excellent. All of the Bank’s asset quality benchmarks remained constant with those it reported in previous quarters and well above those of its national and local peer groups. Nevertheless, sticking to its conservative lending practices, the Bank added an additional $150,000 to its reserve for loan losses. The Bank’s loan growth was funded in part from the proceeds of maturing investments as the Bank continued to reduce its holding of investment securities.

The Bank lowered its efficiency ratio to 60.77% in Q3 2023, compared to 63.99% in Q2 2023 and 63.59% at September 30, 2022. The efficiency ratio measures the percentage of every dollar the Bank spends generating that dollar. The lower the percentage it spends, the more it keeps in earnings.

Deposits fell very slightly in Q3 2023, to $1.68 billion from $1.72 billion in Q2 2023. Comparing the nine months ending September 30, 2023, to the nine months ending September 30, 2022, deposits rose $133 million or almost nine percent.

After dividends were paid, the Company increased shareholders’ equity in Q3 by $3 million. For the full nine months of 2023, retained earnings have increased shareholders’ equity by a little more than $9 million. As in recent quarters, the Federal Reserve’s ongoing strategy to increase short-term interest rates has negatively affected the Bank’s fixed rate investment portfolio causing the market value of the portfolio to decline.  In Q3 2023, this strategy reduced the Company’s tangible equity capital by an additional $1 million.

The Company’s industry performance measurements for Q3 2023, were mixed.  Its return on average assets and return on average shareholders’ equity improved to 0.96% and 18.29% respectively.  These measurements compare to 0.93% and 17.66% respectively for Q2 2023. The Company’s Tier 1 leverage ratio also increased in Q3 2023, as well as for the first nine months of 2023. For Q3 2023, its Tier 1 leverage ratio increased to 7.69% compared to 7.49% in Q2 2023 and 7.35% for the full nine months of 2022. The Bank’s net interest margin fell to 2.61% from 2.72% in the second quarter. For the first nine months of 2023, the net interest margin was 2.73% compared to 3.06% for the same period in 2022.

“We are in a very challenging business cycle for banks,” said Robert A. Schick, Chairman of the Board of Directors. “The Federal Reserve’s rapid fire increases in interest rates, has led to an increase in the interest expense banks are paying on their deposits and at a much faster pace than the interest income they can generate on their loans.”