Stock Yards Bancorp, Inc. (NASDAQ:SYBT) is a regional bank holding company headquartered in Louisville, Kentucky, with a strong presence across Kentucky, Indiana, and Ohio. The company's wholly-owned subsidiary, Stock Yards Bank & Trust Company, has been serving its communities for over a century, providing a wide range of financial services to both individuals and businesses.

Financials

In the fiscal year 2023, Stock Yards Bancorp reported an impressive annual net income of $107,748,000 and annual revenue of $438,740,000. The company's annual operating cash flow stood at $108,463,000, while its annual free cash flow reached $100,732,000. These robust financial metrics demonstrate the company's ability to generate consistent and substantial returns for its shareholders.

For the first quarter of 2024, Stock Yards Bancorp reported net income of $25,887,000, a slight decrease from the $29,048,000 reported in the same period of the previous year. However, the company's revenue for the quarter decreased to $83,341,000, down from $85,119,000 in the first quarter of 2023. The decrease in net income was primarily due to a rise in interest expense, as the company faced higher funding costs amidst the rising interest rate environment.

Business Overview

One of the key drivers of Stock Yards Bancorp's success is its diversified business model. The company operates through two main segments: Commercial Banking and Wealth Management and Trust (WM&T). The Commercial Banking segment provides a full range of loan and deposit products to individual consumers and businesses, while the WM&T segment offers investment management, financial planning, and trust services to clients across the company's markets.

In the first quarter of 2024, the Commercial Banking segment reported net income of $21,921,000, while the WM&T segment contributed $3,966,000 to the company's overall net income. The WM&T segment has been a consistent performer, with its revenue increasing by 13% year-over-year in the first quarter of 2024, driven by strong growth in recurring fee income and net new business expansion.

Geographic Breakdown and Expansion

Stock Yards Bancorp's footprint spans the Louisville, Kentucky, metropolitan area, as well as central, eastern, and northern Kentucky, and the Indianapolis, Indiana, and Cincinnati, Ohio, markets. The company currently operates 71 full-service banking center locations across these regions, allowing it to serve a diverse customer base and capitalize on growth opportunities in its key markets.

In recent years, Stock Yards Bancorp has strategically expanded its presence through several acquisitions, including the 2022 acquisition of Commonwealth Bancshares, Inc., which added $1.4 billion in assets and strengthened the company's position in the Louisville market. The integration of these acquired businesses has been a key focus for the management team, as they work to leverage synergies and cross-sell opportunities across the combined customer base.

Loan Portfolio and Asset Quality

As of March 31, 2024, Stock Yards Bancorp's total loan portfolio stood at $5.85 billion, representing a 12% increase compared to the same period in the prior year. The company's loan growth has been driven by strong demand across its commercial real estate (CRE), residential real estate, and commercial and industrial (C&I) lending portfolios.

The quality of the company's loan portfolio remains strong, with non-performing loans accounting for just 0.24% of total loans as of March 31, 2024. The allowance for credit losses on loans totaled $80.9 million, or 1.38% of total loans, providing a solid buffer against potential credit risks.

Liquidity

Stock Yards Bancorp maintains a diversified funding base, with total deposits of $6.61 billion as of March 31, 2024. The company's deposit mix has shifted in recent quarters, with a greater proportion of higher-yielding time deposits and a decline in lower-yielding non-interest-bearing deposits, as customers seek higher returns in the rising interest rate environment.

To support its loan growth and manage liquidity, Stock Yards Bancorp has also utilized Federal Home Loan Bank (FHLB) advances, which totaled $200 million as of the end of the first quarter of 2024. The company's liquidity position remains strong, with a loan-to-deposit ratio of 88.5% and a cash and cash equivalents balance of $160.2 million as of March 31, 2024.

Capital Strength and Shareholder Returns

Stock Yards Bancorp is well-capitalized, with a Common Equity Tier 1 (CET1) ratio of 11.11% and a Total Risk-Based Capital ratio of 12.69% as of March 31, 2024. These ratios exceed the regulatory requirements for "well-capitalized" financial institutions, providing the company with a solid foundation to support its growth initiatives and withstand potential economic headwinds.

The company has also demonstrated a commitment to shareholder returns, paying a quarterly cash dividend of $0.30 per share in the first quarter of 2024. Over the past year, Stock Yards Bancorp has returned $35.2 million to shareholders through dividend payments, representing a dividend yield of approximately 2.1% based on the current stock price.

Outlook and Risks

Looking ahead, Stock Yards Bancorp's management team has provided a cautiously optimistic outlook for the remainder of 2024. The company expects to continue benefiting from the rising interest rate environment, as well as ongoing loan growth and cross-selling opportunities within its expanded customer base. However, the management team has also highlighted the potential for margin compression and increased funding costs as a key risk factor in the current economic climate.

Additionally, the company's growth strategy, which includes both organic expansion and strategic acquisitions, carries integration and execution risks that the management team must navigate effectively. Regulatory changes, cybersecurity threats, and the potential for an economic downturn are also among the key risks that Stock Yards Bancorp must monitor and manage to ensure the continued success of its business.

Conclusion

Stock Yards Bancorp is a well-established regional bank with a strong track record of financial performance and a diversified business model. The company's focus on commercial banking and wealth management services, coupled with its strategic geographic footprint, has enabled it to generate consistent returns for its shareholders.

Despite the near-term challenges posed by the rising interest rate environment, Stock Yards Bancorp appears well-positioned to navigate the current economic landscape and continue its growth trajectory. The company's solid capital position, robust liquidity, and disciplined risk management practices provide a solid foundation for future success. As the company continues to execute on its strategic initiatives and capitalize on opportunities in its core markets, investors may find Stock Yards Bancorp to be an attractive addition to their portfolios.