Under the 1994 Act, adequately capitalized and managed bank holding companies may acquire banks in any state, subject to Community Reinvestment Act compliance, compliance with federal and state antitrust laws and deposit concentration limits and subject to any state laws restricting the transaction. Kentucky banks are also permitted to acquire a branch in another state if permitted by law of the other state. Kentucky currently does not permit de novo branching by out-of-state banks into Kentucky, and it does not permit an out-of-state bank to acquire a bank in Kentucky that has been in existence less than five years.

The Gramm-Leach-Bliley Act (“the 1999 Act”) repealed the Depression-era barrier between commercial and investment banking established by the Glass-Steagall Act, as well as the prohibition on the mixing of banking and insurance established by the Bank Holding Company Act of 1956. The 1999 Act allows for affiliations among banks, securities firms and insurance companies by means of a financial holding company (“FHC”). In most cases, the creation of an FHC is a simple election and notice to the Federal Reserve Board. The 1999 Act requires that, at the time of establishment of an FHC, all depository institutions within that corporate group must be “well managed” and “well capitalized” and must have received a rating of “satisfactory” or better under its most recent Community Reinvestment Act examination. Further, non-banking financial firms (for example an insurance company or securities firm) may establish an FHC and acquire a depository institution. While the distinction between banks and non-banking financial firms has been blurring over recent years, the 1999 Act makes it less cumbersome for banks to offer services “financial in nature” but beyond traditional commercial banking activities. Likewise, non-banking financial firms may find it easier to offer services that had, heretofore, been provided primarily by depository institutions.  Management of Bancorp has chosen not to become an FHC at this time, but may chose to do so in the future.

In its 2000 session, the Kentucky General Assembly enacted a law allowing banks with a Kentucky charter and a CAMEL rating of 1 or 2 at its most recent state or federal examination to engage in any banking activity in which it could engage if: (a) it were operating as a national bank in any state, (b) it were operating as a state bank, state thrift or state savings bank in any state, or (c) it meets the qualified thrift lender test as determined by the Office of Thrift Supervision, or was operating as a federally chartered thrift or federal savings bank in any state.

CAMEL ratings are used by examiners of financial institutions to rate these institutions in five categories.  These categories are capital adequacy, asset quality, management effectiveness, quantity and quality of earnings and liquidity.  Before a bank engages in any of the activities above, it must obtain a legal opinion specifying the statutory or regulatory provisions permitting the activity in which the bank intends to engage.  The result of this legislation was to broaden the activities in which a Kentucky state chartered bank may engage.

Item 22..            Properties

The principal offices of Bancorp and the Bank are located at 1040 East Main Street, Louisville, Kentucky. Adjacent to the main location is the Bank’s operations center. In addition to the main office complex, the Bank owned eightseven branch properties at December 31, 2002 (one2003 (two of which isare located on leased land). and Bancorp owned three.  The Bank also leased eightten branch facilities. Of the seventeentwenty-one banking locations, fourteensixteen are located in Louisville and threefive are located in nearby southern Indiana. Office space for the loan production office in Indianapolis, Indiana is leased.  See Notes 5 and 1615 to Bancorp’s consolidated financial

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statements for the year ended December 31, 2002,2003, for additional information relating to amounts invested in premises, equipment and lease commitments.

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Item 33..        Legal Proceedings

See Note 1615 to Bancorp’s consolidated financial statements for the year ended December 31, 2002,2003, for information relating to legal proceedings.

Item 44..        Submission of Matters to a Vote of Security Holders

None

Executive Officers of the Registrant

The following table lists the names and ages (as of December 31, 2002)2003) of all current executive officers of Bancorp. Each executive officer is appointed by Bancorp’s Board of Directors to serve at the pleasure of the Board. There is no arrangement or understanding between any executive officer of Bancorp and any other person(s) pursuant to which he/she was or is to be selected as an officer.

Mr. Brooks was appointed Chairman and Chief Executive Officer of Bancorp and the Bank in 1993. Prior thereto, he was President of Bancorp and the Bank.  In February 2004, Mr. Brooks announced that he would retire as Chairman and Chief Executive Officer of Bancorp effective January 1, 2005.  Mr. Brooks will remain a member of the board of directors.

Mr. Heintzman was appointed President of Bancorp and the Bank in 1993. Prior thereto, he served as Treasurer and Chief Financial Officer of Bancorp and Executive Vice President of the Bank.  In February 2004, Bancorp announced that Mr. Heintzman has been named to the posts of Chairman and Chief Executive Officer by the board of directors effective January 1, 2005.

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Ms. Thompson was appointed Executive Vice President of Bancorp and the Bank in 1996. She joined the Bank in 1992 as Senior Vice President and is Manager of the Investment Management and Trust Department.

Mr. Smith was appointed Executive Vice President of the Bank in 1996. Prior thereto, he was Senior Vice President of the Bank. He is primarily responsible for the commercial lending area of the Bank.

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Mr. Hoeck joined the Bank as Executive Vice President in 1998. He is primarily responsible for the retail and marketing areas of the Bank. Prior to joining the Bank, Mr. Hoeck was an Executive Vice President for PNC Bank and the Retail Market Manager for the Kentucky and Indiana markets.

Ms. Davis was appointed Executive Vice President of Bancorp and the Bank in 1999. Prior thereto, she was Senior Vice President of Bancorp and the Bank. She was appointed Chief Financial Officer of Bancorp in 1993.

Part II

Item 55..        Market for Registrant’s Common Stock and Related Stockholder Matters

Bancorp’s common stock is traded on the American Stock Exchange under the ticker symbol SYI. The table below sets forth the quarterly high and low market prices of Bancorp’s common stock and dividends declared per share. The payment of dividends by the Bank to Bancorp is subject to the restriction described in Note 1514 to the consolidated financial statements. Management believes that Bancorp will continue to generate adequate earnings to continue to pay dividends on a quarterly basis.  On December 31, 2002,2003, Bancorp had 1,0711,140 shareholders of record.record, and including street name shareholders, approximately 2,600.

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Item 66..        Selected Financial Data

Selected Consolidated Financial Data

Per share information has been adjusted to reflect stock splits.splits in 2003 and 1999.

Item 77..        Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion is to provide information as to the analysis of the consolidated financial condition and results of operations of S.Y. Bancorp, Inc. (Bancorp) and its wholly owned subsidiaries,subsidiary, Stock Yards Bank & Trust Company (the Bank) and S.Y. Bancorp Capital Trust I (the Trust).  Bancorp, incorporated in 1988, has no active business operations. Thus, Bancorp’s business is substantially the same as that of the Bank. The Bank has operated continuously since it opened in 1904. The Bank conducted business at one location for 85 years and then began branching. At December 31, 2002,2003, the Bank had seventeentwenty-one full service banking locations in Louisville and southern Indiana and one loan production office in Indianapolis, Indiana. The combined effect of added convenience with the Bank’s focus on flexible, attentive customer service has been key to the Bank’s growth and profitability. The wide range of services added by the wealth management group (investmentinvestment management and trust private banking and broker­age)department (including the brokerage department) and by the mortgage department helps support the corporate philosophy of capitalizing on full service customer relationships.

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Forward-Looking Statements

This report contains forward-looking statements under the Private Securities Litigation Reform Act that involve risks and uncertainties. Although Bancorp believes the assumptions underlying the forward-looking statements contained herein are reasonable, any of these assumptions could be inaccurate. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions both generally and more specifically in the market in which Bancorp and its subsidiaries operate; competition for Bancorp’sthe Bank’s customers from other providers of financial services; government legislation and regulation which change from time to time and over which Bancorp has no control; changes in interest rates; material unforeseen changes in liquidity, results of operations or financial condition of Bancorp’sthe Bank’s customers; or other risks detailed in Bancorp’s filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of Bancorp.

Critical Accounting Policies

Bancorp has prepared all of the consolidated financial information in this report in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).  In preparing the consolidated financial statements in accordance with U.S. GAAP, Bancorp makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurances that actual results will not differ from those estimates.

We haveManagement has identified the accounting policy related to the allowance for loan losses as critical to the understanding of Bancorp’s results of operations sinceand discussed this conclusion with the Audit Committee of the board of directors.  Since the application of this policy requires significant management assumptions and estimates, thatit could result in materially different amounts to be reported if conditions or underlying circumstances were to change.  The accounting policy related to the allowance for loan losses is applicable to the commercial and retail banking segment of Bancorp.  The impact and any associated risks related to these policies on our business operations are discussed in the “Allowance for Loan Losses” section below.

The following discussion should be read in conjunction with Bancorp’s consolidated financial statements and accompanying notes and other schedules presented elsewhere in this report.

Overview of 2003

As is the case with most banks, the primary source of Bancorp’s revenue is net interest income and fees from various financial services provided to customers.  Net interest income is the difference between interest income earned on loans, investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities.  Loan volume and the interest rates earned on those loans are critical to overall profitability. Similarly deposit volume is crucial to funding loans, and the rates on those deposits directly impacts profitability. Business volumes are influenced by overall economic factors including market interest rates, business spending, consumer confidence and competitive conditions within the marketplace.

During 2003, the business environment was challenging in many respects, characterized by economic uncertainty and consumer apprehension throughout much of the year, and pressure on net interest spread and margin, created by a continuation of a 40-year low in interest rates.  Despite these obstacles, Bancorp completed its sixteenth consecutive year of higher earnings, with eleven straight years of double-digit growth in earnings, and continued its balance sheet growth in loans and deposits.

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Record low interest rate levels in 2003 resulted in a excellent year for Stock Yards Mortgage Company. The mortgage company’s volume of loans originated and sold topped that of 2002, and their fee income made a significant contribution to the overall results of Bancorp.  Conversely the low interest rate environment had an unfavorable effect on Bancorp’s net interest income as the net interest margin was negatively affected as rates on interest bearing assets continued to fall, while rates on many interest bearing liabilities approached zero percent.

Business loan growth was challenging in 2003. Customers were cautious and limited their draws on established lines of credit. Unused loan commitments increased from an already historical high at December 31, 2002 of $175 million to $221 million at December 31, 2003.  Consumer loans grew modestly in 2003 with new borrowings limited by the mortgage refinancing boom. As customers refinanced their homes, they often incorporated other financing, thus paying off existing debt or foregoing other consumer borrowing all together.

In addition to mortgage banking income, the growth in non-interest income was aided by solid growth in investment management and trust fees as well as service charges on deposit accounts.  As Bancorp continued to expand fee related income, the proportion of non interest income to total revenues increased to 38% versus 36% in 2002.

Results in 2003 were positively affected by a lower provision for loan losses.  Internal loan quality measurements, including loss experience and past due levels, were at their best levels in three years and there was an overall decline in non-performing loans and net charge-offs during the year.  Bancorp’s process of evaluating the inherent risk in the portfolio considered this data and other information in the evaluation of the risk in the loan portfolio to determine the required balance in the allowance for loan losses account.

The following sections will provide more details on subjects presented in this overview.

Results of Operations

Net income was $15,650,000$17,709,000 or $2.25$1.27 per share on a diluted basis in 2002.2003. This compares to $13,542,000$15,650,000 or $1.96$1.12 per share in 20012002 and $11,592,000$13,542,000 or $1.70$0.98 per share in 2000.2001. The increase in 20022003 net income was attributable to growth in both net interest income and non-interest income that was partially offset by increased non-interest expenses. Earnings include a 16.1%5.4% in­crease in fully taxable equivalent net interest income and a 15.9%15.0% increase in non-interest income.  All categories of non-interest income showed improvement when compared to the prior year.  The mortgage department had a record year in terms of gross incomerevenue and contributed significantly to the increase in non-interest income.  The investment management and trust department also had an extremely good year, considering the challenging equity market environment during 2002.  Non-interest expenses increased 16.4%12.8%. Non-interest expenses increased in all categories and are reflective of continued expansion of the banking center network.

The following paragraphs provide a more detailed analysis of the significant factors affecting operating results.

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Net Interest Income

Net interest income, the most significant component of Bancorp’s earnings, is total interest income less total interest expense. Net interest spread is the difference between the taxable equivalent rate earned on average interest earning assets and the rate expensed on average interest bearing liabilities. Net interest margin represents net interest income on a taxable equivalent basis as a percentage of average earning assets. Net interest margin is affected by both the interest rate spread and the level of non-interest bearing sources of

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funds, primarily consisting of demand deposits and stockholders’ equity. The level of net interest income is determined by the mix and volume of interest earning assets, interest bearing deposits and interest bearing liabilities and by changes in interest rates. The discussion that follows is based on tax equivalent interest data.

Bancorp’s net interest margin and net interest spread were positivelynegatively affected during the year by the relatively flat interest rate environment, asdecline of rates remained unchanged for a majorityon earning assets in excess of the year.  Although averagedecline in rates on interest bearing liabilities.  Average rates earned on loans and investment securities decreased in 20022003 as higher yielding assets matured, while average rates on interest bearing liabilities decreased to a greaterlesser extent resulting in an improved net interest spread.since many of Bancorp’s funding sources, particularly deposits, have approached zero percent.  Management believes that any further rate cuts in 20032004 could have a negative impact on both spread and margin, while an increase in rates could have a positive impact on net interest spread and margin.  Margin contraction could occur under a flat rate scenario due to the effect of competitive pressures on loan rates.

Comparative information regarding net interest income follows:

bp = basis point = 1/100th of a percent

Prime rate is included above to provide a general indication of the interest rate environment in which the Bank operates. Theoperated.  Many fixed rate loans were indexed to the five year treasury bond.  A large portion of the Bank’s variable rate loans arewere indexed to the Bank’s prime rate and reprice as the prime rate changes, unless they reach a contractual floor or ceiling.

Asset/Liability Management and Interest Rate Risk

Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet financial instruments, Bank management evaluates interest rate sensitivity while attempting to optimize net interest income within the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer requirements.

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Interest Rate Simulation Sensitivity Analysis

Bancorp uses an earnings simulation model to estimate and evaluate the impact of changing interest rates on earnings. The simulation model is designed to reflect the dynamics of interest earning assets, interest bearing liabilities and off-balance sheet financial instruments, in a one year forecast. By estimating the effects of interest rate increases and decreases, the model can reveal approximate interest rate risk exposure. The simulation model is used by management to gauge approximate results given a specific change in interest rates at a given point in time.  The model is therefore a tool to indicate earnings trends in given interest rate scenarios and does not indicate actual expected results.  The December 31, 20022003 simulation analysis indicates that an increase in interest rates would have a positive effect on net interest income, and a decrease in interest rates would have a negative effect on net interest income.  These estimates are summarized below.

To assist in achieving a desired level of interest rate sensitivity, management has in the past entered into derivative financial instruments that are designed to mitigate the effect of changes in interest rates. Derivative financial instruments can be a cost and capital efficient method of modifying interest rate risk sensitivity. The BankBased upon management’s assessment of interest rate sensitivity, Bancorp had no derivative financial instruments at December 31, 2002.2003.

1011

The following table presents the increases in net interest income due to changes in rate and volume computed on a tax equivalent basis and indicates how net interest income in 20022003 and 20012002 was impacted by volume increases and the lower average interest rate environment. The tax equivalent adjustments are based on a 35% federal tax rate. The change in interest due to both rate and volume has been allocated to the change due to rate and change due to volume in proportion to the relationship of the absolute dollar amounts of the change in each.

Taxable Equivalent Rate/Volume Analysis

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Provision for Loan Losses

In determining the provision for loan losses charged to expense, management considers many factors. Among these are the quality of the loan portfolio, previous loss experience, the size and composition of the loan portfolio and an assessment of the impact of current economic conditions on borrowers’ ability to pay. The provision for loan losses is summarized below:

The provision for loan losses increaseddecreased during the year due to the improvement in consideration ofoverall credit quality.  Non-performing loans charged off, the increase in non-performing loans duringdeclined steadily throughout the year and current economic conditions.other internal measurements, including loss experience and past due levels were at their lowest level in three years.  See “Financial Condition-Nonperforming Loans and Assets” for further discussion of non-performing loans.  See “Financial Condition-Summary of Loan Loss Experience” for further discussion of loans charged off during the year.

The Bank’s loan portfolio is diversified with no significant concentrations of credit. Geographically, most loans are extended to borrowers in the Louisville, Kentucky metropolitan area. The adequacy of the allowance is monitored on an ongoing basis and it is the opinion of management that the balance of the allowance for loan losses at December 31, 20022003 is adequate to absorb losses inherent in the loan portfolio as of the financial statement date. See “Financial Condition-Allowance for Loan Losses” for more information on the allowance for loan losses.

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Non-Interest Income and Non-Interest Expenses

The following table provides a comparison of the components of non-interest income and expenses for 2003, 2002 2001 and 2000.2001. The table shows the dollar and percentage change from 2002 to 2003 and from 2001 to 2002 and from 2000 to 2001.2002. Below the table is a discussion of significant changes and trends.

TheOne of the largest componentcomponents of non-interest income is the income from investment management and trust services. This area of the Bank continues to grow through attraction of new business and customer retention. At December 31, 20022003 assets under management totaled $1.147$1.349 billion compared to $1.179$1.147 billion at December 31, 20012002 and $1.056$1.179 billion as of December 31, 2000.2001. Because assets under management are expressed in terms of fair value, increases in market value of existing accounts during 2003 and the attraction of new business have both served to increase assets under management.  During 2002, the effect of declines in market value have more thanwere offset growth in assets throughby the attraction of new business.  Growth in the department’s assets consisted primarily of personal trust accounts.accounts during both 2003 and 2002.

Growth in service charges on deposit accounts is primarily due to increased account volumes and an overdraft service for retail customers.customers for both 2003 and 2002.  Promotion of retail accounts has presented opportunities for growth in deposit accounts and increased fee income. The Bank also introduced a new retail deposit account product line during 2001 that has been successful at attracting new accounts.  Additionally, the rates on service charges on deposit accounts were increased late in March 2000 the Bank began offering an overdraft service to retail depositors. The service allows checking customers meeting specific criteria to incur overdrafts up to a predetermined limit, generally $500. For each check paid resulting in an overdraft or increasing an overdraft, the customer pays the standard overdraft charge.first quarter of 2003.

Bankcard transaction revenue primarily represents income that Bancorpthe Bank derives from customers’ use of debit cards.  As the popularity of these cards has grown so has related income.  Additionally,during 2002 and 2003, there have been

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increases in the number of transactions by existing cardholders as customers recognize the convenience that the cards offer.  The growth rate of this account was slowed during 2003 by a class action lawsuit brought by several retail merchants against VISA®USA and MasterCard® challenging rules imposed by VISA and MasterCard governing the acceptance of debit and credit cards by merchants.  The lawsuit resulted in a reduction of interchange rates effective August 1, 2003 and established that rates on and after January 2004 will be established from time to time reflecting competitive considerations.  Although the fees regarding transactions have been reduced, the Bank expects fees to continue to grow as volume growth should offset any fee reduction for 2004.

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The Bank operates a mortgage banking company as a division of the Bank. This division originates residential mortgage loans and sells the loans in the secondary market. The division offers conventional, VA and FHA financing, as well as a program for low-income first time home buyers. Loans are made for both purchase and refinancing of homes. Virtually all loans originated by the mortgage banking company are sold in the secondary market with servicing rights released.  Interest rates on the loans sold are locked with the buyer and investor, thus Bancorp bears no interest rate risk related to these loans.  Interest rates on conventional mort­gage loans directly impact the volume of business transacted by the mortgage banking division. Record low mortgage rates in the third and fourthfirst three quarters of 20022003 led to record volume for the year.year, surpassing what was a record year in 2002.  Interest rates on mortgage loans fell to a thirty year low inrose during the fourth quarter of 2003, resulting in much lower volume than in the first three quarters of the year.  At the time, the rates in the third and fourth quarter of 2002 were also at record lows and led to record volume in 2002.

Brokerage fees increased during 2003 as improved performance in the equity markets helped to restore investor confidence and resulted in a large volume of refinancing activity.

A large contributor to the increase in non-interest income was an increase inhigher brokerage fees.  Brokerage fees were up significantly as acommission levels.  A new brokerage team finishedtook over the area in 2001 and 2002 represented their first full year of operations with the Bank.  Thisoperations.  The brokerage area has been able to post solid results, despite the poor performancealso added several new brokers during 2002 which helped increase their overall volume of the equity markets.business.

Other non-interest income has increased for several reasons and primarily reflects the Bank’s growth.  Contributing factors to the increase for 2003 and 2002 include the continued growth of income related to internet banking and other income categories related to mortgage refinancing fees and income such as title insurance.  There were also a few one time items during 2003, the biggest being income of $256,000 related to the demutualization of an insurance company which held policies related to a defined benefit retirement plan for certain key officers.  See Note 12 to Bancorp’s consolidated financial statements for further discussion of the defined benefit retirement plan.

Salaries and benefits are the largest component of non-interest expenses. Increases in personnel expense rose in part from regular salary increases.  Also, the Bank continues to add employees to support growth. At December 31, 2002,2003, the Bank had 379385 full-time equivalent employees compared to 347379 at the same date in 20012002 and 327347 for 2000.2001. There are no significant obligations for post-retirement or post-employment benefits.

Net occupancy expense has increased as the Bank has added banking centers. During 2003, the Bank opened four locations.  In addition, the Investment Management and Trust department was relocated to new office space during the year.  During 2001, the Bank opened two locations.   The branches opened inlocations which were only open a portion of 2001 and had only a partial year impact in 2001 and a full year’s impact in 2002.  No branches were opened during 2002.  At December 31, 20022003 the Bank had seventeentwenty-one banking center locations including the main office.  There was also aFor 2004, management plans to add two new branch locations and relocate the loan production office added late in the year, but its rental expense did not add significantlyIndianapolis to overall net occupancy expenses.a downtown location while converting it into a full service branch.  Data processing expenses rose as the Bank continues to update

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computer equipment and software as technology advances. Costs of capital asset additions flow through the statement of income, over the lives of the assets, in the form of depreciation expense.  Furniture and fixtures expense has also increased with the addition of banking centers.  State bank taxes, which are primarily based on average capital and deposit levels, increased in 20022003 as capital and deposit levels increased for the year.  The increase in average capital during the prior year was affected by Bancorp’s issuance of trust-preferred securities and subsequent capital contribution to the Bank in June 2001.  This transaction had a full year’s impact in 2002.

Other non-interest expenses have increased from numerous factors and reflect the Bank’s growth. Among the most significant costs that increased in 2003 were expenses related to the increase in mortgage banking activity during the year.  In 2002, some of the most significant increases in non-interest expenses occurred in marketing and advertising.advertising relating primarily to a new line of checking account products.

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Income Taxes

A three year comparison of income tax expense and effective tax rate follows:

In the third quarter of 2001 Bancorp received a refund of prior years’ income taxes of $182,000.  This refund lowered the effective tax rate 90 basis points for year ended December 31, 2001.

Financial Condition

Earning Assets and Interest Bearing Liabilities

Summary information with regard to Bancorp’s financial condition follows:

The Bank has experienced significantsteady growth in earning assets over the last several years. Growth of average earning assets occurred primarily in the area of loans.loans and securities available for sale.  From year end 20012002 to year end 2002,2003, average loans increased approximately 9.9%7.6% and average securities available for sale increased 13.9%.  More specifically, period end commercial and industrial loans increased 12.9%8.3%, while construction loans increased 53.3%, and period end real estate mortgageconsumer loans increased 14.7%.  SecuritiesThese growth rates were tempered somewhat by a 3.4% growth rate in real estate loans, Bancorp’s largest loan category.  The growth of the available for sale securities portfolio can be attributed to a slower rate of growth in the loan portfolio in 2003.  Excess liquidity was used during the year to increase the size of the securities portfolio and improve Bancorp’s overall return.  The growth in average earning assets during 2002 was also primarily due to average loans which increased 9.9% and the growth in average securities which grew during 2002 in conjunction with the overall growth in the asset size of Bancorp.

The increase in average interest bearing liabilities from 20012002 to 20022003 occurred primarily in interest bearing demand deposits, money market deposits, and savings accounts.  The growth in interest bearing checking

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accounts in 2003 can be attributed to our continued expansion in our primary market.  On the other hand, average time deposits shrunk by 10.8% during 2003 as Bancorp tried to reduce some of its dependence on higher cost time deposits.  The primaryoverall increase in average interest bearing liabilities occurred during the third quarter ofin 2002 when the Bank moved customer funds in the Investment Management and Trust Department from external money market mutual fundscan also be partially attributed to interest-bearing accounts at the Bank as allowed by a change in a Kentucky statute.  The increase in interest bearing demand deposits, during the yearbut it was largely a function of the poor performance of the equity markets and lower interest rates.  As the stock market continued to perform poorly during 2002, many investors moved their funds into deposit accounts.  Because of lower interest rates, depositors tended to favor demand and money market deposits versus time deposits.also affected by average long-term debt.  Average long-term debt also increased during 2002, as a result of Bancorp’s issuance of $20$21 million of trust preferred securitiessubordinated debentures in June 2001.  Net proceeds of $18.9$19.6 million were used to pay off existing long-term debt and to fund the continued growth of Bancorp.  See Note 9 and Note 10 to the consolidated financial statements for more details on long-term debt and trust preferred securities, respectively.subordinated debentures.

1517

Average Balances and Interest Rates – Taxable Equivalent Basis