8-K: Stock Yards Bancorp Announces Record Full-Year Earnings Despite Fourth Quarter Dip

Stock Yards Bancorp reported record annual earnings for 2023, although fourth-quarter profits declined compared to the previous year.

Summary

• Stock Yards Bancorp reported a net income of $23.9 million, or $0.82 per diluted share, for the fourth quarter of 2023, which is down from $29.8 million, or $1.01 per diluted share, in the fourth quarter of 2022.
• Despite the quarterly decrease, the company achieved a record net income of $107.7 million for the full year 2023, with diluted earnings per share of $3.67.
• The company experienced strong loan growth, with total loans, excluding PPP loans, increasing by $580 million, or 11%, over the past year, including a record $155 million increase in the fourth quarter.
• Deposit balances also grew, increasing by $268 million, or 4%, in the fourth quarter and $279 million, or 4%, over the last 12 months.
• Net interest income decreased by $3.2 million, or 5%, in the fourth quarter compared to the same period last year, with the net interest margin compressing to 3.25%.
• Non-interest income increased by $1.3 million, or 6%, in the fourth quarter, driven by growth in Wealth Management & Trust (WM&T) income and card income.
• Non-interest expenses increased by $4.1 million, or 9%, in the fourth quarter, primarily due to higher compensation and occupancy expenses.
• The company recorded a $5.8 million credit loss expense for loans in the fourth quarter, including a $4.1 million charge-off related to a single commercial and industrial relationship.
• Total assets reached $8.17 billion, loans totaled $5.77 billion, and total deposits were $6.67 billion as of December 31, 2023.

Sentiment

Score: 6

Explanation: The document presents a mixed picture with record annual earnings but a weaker fourth quarter. The strong loan growth and fee income are positives, but the margin compression and credit loss expense are concerning. The overall sentiment is cautiously optimistic.

Positives

• The company achieved record full-year net income and diluted earnings per share.
• Strong loan growth was seen across all markets.
• Deposit balances expanded nicely during the fourth quarter.
• Non-interest income was fueled by gains in several categories, including Wealth Management & Trust.
• The company was named to Stephens 2024 Bank Industry & Top Picks List and Best Ideas List.
• Stock Yards was recognized as one of the Best Banks to Work for in 2023 by American Banker Magazine.
• The company was named a winner of the 2022 Raymond James Community Bankers Cup for the 8th time.

Negatives

• Net income for the fourth quarter of 2023 decreased compared to the fourth quarter of 2022.
• Net interest income declined by $3.2 million, or 5%, in the fourth quarter compared to the same period last year.
• Net interest margin compressed by 39 basis points to 3.25% in the fourth quarter.
• The company recorded a $5.8 million credit loss expense for loans in the fourth quarter, including a $4.1 million charge-off related to a single C&I relationship.
• Non-interest expenses increased by $4.1 million, or 9%, in the fourth quarter.

Risks

• The company anticipates net interest margin compression will likely persist into the first part of the year.
• Increasing costs of funds continue to outpace earning asset yield growth.
• Changes in deposit mix are placing pressure on funding costs.
• The company recorded a significant charge-off related to a single C&I relationship, although management believes this is an isolated incident.
• Interest rate volatility has impacted unrealized losses within the available for sale debt securities portfolio.

Future Outlook

The company anticipates net interest margin compression will likely persist into the first part of the year, but they look forward to carrying momentum into 2024 with a focus on customer relationships.

Management Comments

• I am pleased with our fourth quarter and record full year 2023 results, highlighted by strong loan production and fee income led by Wealth Management & Trust (WM&T).
• We continue to see broad-based loan demand from our customers throughout our markets.
• Thanks to the dedication and commitment of our employees, our net income surpassed the $100 million mark for the first time in 2023.
• We continue to focus on organic growth, while avoiding brokered deposits, which provide more expensive funding than in-market deposit relationships.
• We look forward to carrying this momentum into 2024 our 120th year of operation with an unwavering focus on cultivating full customer relationships.
• Management remains confident in the current quality of the loan portfolio, as demonstrated by the relatively low concentration of classified and delinquent loans, and does not believe this instance is reflective of broader portfolio concerns.
• We will not rest on our laurels as we enter 2024 our 120th year of service to the communities we are honored to serve.

Industry Context

The results reflect a challenging environment for banks with rising interest rates impacting funding costs and net interest margins, while also highlighting the importance of diversified revenue streams such as wealth management and card services. The company's focus on organic growth and avoiding brokered deposits aligns with a broader industry trend of prioritizing stable funding sources.

Comparison to Industry Standards

• Stock Yards Bancorp's loan growth of 11% is strong compared to the industry average, which has seen slower growth due to economic uncertainty.
• The net interest margin compression to 3.25% is a common trend among regional banks facing increased funding costs, but the company's margin is still within the range of its peers.
• The charge-off related to a single C&I relationship is a concern, but the company's overall credit quality metrics remain strong compared to other banks with similar loan portfolios.
• The company's Wealth Management & Trust income growth of 10% is a positive sign, as many banks are focusing on fee-based income to offset pressure on net interest income.
• Compared to regional banks like First Financial Bancorp (FFBC) and Old National Bancorp (ONB), Stock Yards' loan growth is higher, but its net interest margin is slightly lower, indicating a different balance between growth and profitability.

Stakeholder Impact

• Shareholders may be concerned about the decreased fourth-quarter earnings but pleased with the record full-year results.
• Employees are recognized for their dedication and contribution to the company's success.
• Customers are expected to benefit from the company's focus on cultivating full customer relationships.
• Creditors should be reassured by the company's strong capital position and asset quality.

Next Steps

• The company will continue to focus on organic growth and cultivating full customer relationships.
• Management will monitor the net interest margin and funding costs closely.
• The company will continue to leverage its diversified geographic footprint for growth opportunities.

Key Dates

Keywords

earnings, net income, loan growth, deposit growth, net interest margin, credit losses, wealth management, non-interest income, financial results, banking